Ocular Therapeutix
Annual Report 2018

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K(Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 001-36554Ocular Therapeutix, Inc.(Exact name of registrant as specified in its charter)Delaware 20- 5560161(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)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 Name of each exchange on which registered Common Stock, $0.0001 par value per share Nasdaq Global Market Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ NoIndicate 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 duringthe 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 thepast 90 days. ☒ Yes NoIndicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). ☒ Yes NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. Large accelerated filerAccelerated 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 orrevised 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 ☒ NoAs of June 29, 2018, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $224million. The number of shares outstanding of the registrant’s class of common stock, as of March 1, 2019: 42,836,572DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report incorporates by reference information from the definitive Proxy Statement for the registrant’s 2019 Annual Meeting ofStockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year endedDecember 31, 2018. Table of ContentsTABLE OF CONTENTS PART I Item 1. Business3Item 1A. Risk Factors76Item 1B. Unresolved Staff Comments122Item 2. Properties122Item 3. Legal Proceedings122Item 4. Mine Safety Disclosures124 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities125Item 6. Selected Financial Data126Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations127Item 7A. Quantitative and Qualitative Disclosures About Market Risk150Item 8. Consolidated Financial Statements and Supplementary Data150Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure150Item 9A. Controls and Procedures150Item 9B. Other Information151 PART III Item 10. Directors, Executive Officers and Corporate Governance152Item 11. Executive Compensation152Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters152Item 13. Certain Relationships and Related Transactions, and Director Independence153Item 14. Principal Accounting Fees and Services153 PART IV Item 15. Exhibits, Financial Statement Schedules154Item 16. Form 10-K Summary154 Table of ContentsFORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties.All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statementsregarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans andobjectives 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-lookingstatements contain these identifying words. The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about: ·our plans to develop and commercialize DEXTENZAand our product candidates based on our proprietarybioresorbable hydrogel technology platform; ·our ability to manufacture DEXTENZA in compliance with current Good Manufacturing Practices, orcGMP; ·our ability to build and manage a sales, marketing and distribution infrastructure to support thecommercialization of DEXTENZA;·the timing of and our ability to submit applications and obtain and maintain regulatory approvals forDEXTENZA and OTX-TP and our other product candidates;·our plans to raise additional capital, including through equity offerings, debt financings, collaborations,strategic alliances, licensing arrangements, royalty agreements and marketing and distributionarrangements; ·our ongoing and planned clinical trials, including our Phase 3 clinical trials of OTX-TP for the treatment ofglaucoma and ocular hypertension, our Phase 1 clinical trial of OTX-TIC for the reduction of intraocularpressure in patients with glaucoma and ocular hypertension and our Phase 1 clinical trial of OTX-TKI forthe treatment of wet age-related macular degeneration, or wet AMD; ·our ability to resolve the U.S. Food and Drug Administration warning letter received with respect toReSure Sealant on October 18, 2018;·the potential advantages of DEXTENZA, ReSure Sealant, and our product candidates;·the rate and degree of market acceptance and clinical utility of our products and our ability to securereimbursement for our products;·our estimates regarding the potential market opportunity for DEXTENZA, ReSure Sealant, OTX-TP, andour other product candidates; ·the preclinical development of our intravitreal depot with protein-based or small molecule drugs, includingtyrosine kinase inhibitors, for the treatment of wet AMD, and other retinal diseases; ·our strategic collaboration, option and license agreement with Regeneron Pharmaceuticals, Inc. underwhich we are collaborating on the development of an extended-delivery formulation of the vascularendothelial growth factor, trap aflibercept, currently marketed under the brand name Eylea, for thetreatment of wet AMD, and other serious retinal diseases; 1 ® ®Table of Contents·our capabilities and strategy related to, and the costs and timing of manufacturing, sales, marketing,distribution and other commercialization efforts with respect to DEXTENZA, ReSure Sealant and anyadditional 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 commercialpotential that are consistent with our commercial objectives, including potential opportunities outside thefield of ophthalmology;·our estimates regarding expenses, future revenue, the sufficiency of our cash resources, our ability to fundour operating expenses, debt service obligations and capital expenditure requirements and needs foradditional financing; ·the impact of government laws and regulations; ·the costs and outcomes of legal actions and proceedings, including any investigations by the Securitiesand Exchange Commission, and any intellectual property proceedings; ·our ability to continue as a going concern; and ·our competitive position. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, andyou should not place undue reliance on our forward-looking statements. Actual results or events could differ materially fromthe plans, intentions and expectations disclosed in the forward-looking statements we make. We have included importantfactors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk Factors” section,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 orinvestments we may make.You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this AnnualReport on Form 10-K completely and with the understanding that our actual future results may be materially different fromwhat we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of newinformation, future events or otherwise, except as required by applicable law.2 Table of Contents PART I Item 1.Business Overview of Ocular Therapeutix We are a biopharmaceutical company focused on the formulation, development and commercialization of innovativetherapies for diseases and conditions of the eye using our proprietary, bioresorbable hydrogel platform technology. We usethis technology to tailor duration and amount of delivery of a range of therapeutic agents of varying duration in our productcandidates.We are pursuing three overall strategic goals:·To make prescription eye drops obsolete;·To make immediate release, back-of-the-eye injections obsolete; and·To extend our hydrogel platform technology for use beyond the eye to other areas of the body. We currently incorporate therapeutic agents that have previously received regulatory approval, including smallmolecules and proteins, into our hydrogel technology with the goal of providing local programmed-released delivery of drugto the eye. We believe that our local programmed-release technology has the potential to treat conditions and diseases ofboth the front and the back of the eye and can be administered through a range of different modalities includingintracanalicular inserts, intracameral implants and intravitreal implants. We have products and product candidates in clinicaland preclinical development applying this technology to treat post-surgical ocular pain and inflammation, allergicconjunctivitis, dry eye disease, glaucoma and ocular hypertension, and wet age-related macular degeneration, or wet AMD,among other conditions.On December 3, 2018, we announced that the FDA approved our new drug application, or NDA, for DEXTENZA(dexamethasone ophthalmic insert) 0.4mg for intracanalicular use for the treatment of ocular pain following ophthalmicsurgery. DEXTENZA is the first FDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocularpain for up to 30 days with a single administration. We are also evaluating DEXTENZA for the treatment of post-surgicalocular inflammation and allergic conjunctivitis.We are developing our product candidate OTX-TP (intracanalicular travoprost insert) for the reduction of intraocularpressure, or IOP, in patients with glaucoma and ocular hypertension. Both DEXTENZA and OTX-TP are local programmed-release, drug-eluting, preservative-free intracanalicular inserts that are placed into the canaliculus through a natural openingcalled the punctum located in the portion of the lower eyelid near the nose.Our earlier stage assets include two development programs that have initiated clinical trials: OTX-TIC, an intracameraltravoprost implant for the reduction of IOP in patients with glaucoma and ocular hypertension when greater IOP reduction isneeded, and OTX-TKI, an intravitreal injection by fine gauge needle of a hydrogel, anti-angiogenic formulation of a tyrosinekinase inhibitor, or TKI, for the treatment of wet AMD. We also have a collaboration with Regeneron Pharmaceuticals, Inc.,or Regeneron, for the development and potential commercialization of products containing our local programmed-releasehydrogel in combination with Regeneron’s VEGF inhibitor, aflibercept, currently marketed under the brand name Eylea.In addition to our ongoing drug product development, we currently market ReSure Sealant, a hydrogel ophthalmicwound sealant approved by the FDA to seal corneal incisions following cataract surgery. ReSure Sealant is the first and onlysurgical sealant to be approved by the FDA for ophthalmic use.Poor patient compliance with eye drop regimens and the need for frequent administration of eye drops at high drugconcentrations due to rapid washout by the tears can create challenges in the successful management of ocular diseases andconditions. For example, poor patient compliance can lead to diminished efficacy and disease progression and high drugconcentrations can create side effects. We are developing therapies to replace standard of care eye drop regimens with ourinnovative local programmed-release, drug-eluting intracanalicular inserts. The goal for our intracanalicular insert productcandidates is to replace the management of many front-of-the-eye diseases and conditions using frequent,3 ®®Table of Contentspulsed eye drop therapy, characterized by significant variations in drug concentration over time, with longer term, extendeddelivery of therapeutic agents to improve patient outcomes.In addition to our focus on formulating, developing and commercializing innovative therapies for diseases and conditionsof the eye, we are also assessing the potential use of our hydrogel platform technology in other areas of the body.DEXTENZA (dexamethasone ophthalmic insert) DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as an active pharmaceutical ingredient into ahydrogel, drug-eluting intracanalicular insert. In November 2018, the FDA approved our NDA for DEXTENZA for thetreatment of post-surgical ocular pain. In connection with our commercial launch of DEXTENZA, we intend to build our ownhighly targeted, key account sales force that would focus on the ambulatory surgical centers responsible for the largestvolumes of cataract surgery. Following our receipt of FDA approval, we submitted on November 30, 2018 an application fora C-code for transitional pass-through payment status and also submitted on December 28, 2018 an application for a J-codefor permanent payment status.A C-code is a unique temporary pricing code established by the Center for Medicare & Medicaid Services (CMS), for theProspective Payment System and is only valid for claims for hospital outpatient department services and procedures. A J-Code is a permanent code used to report drugs that ordinarily cannot be self-administered. We have completed three Phase 3 clinical trials of DEXTENZA for the treatment of post-surgical ocular pain andinflammation. The data from two of these three completed Phase 3 clinical trials and a prior Phase 2 clinical trial were used tosupport our NDA for post-surgical ocular pain. We submitted an NDA supplement, or sNDA, for DEXTENZA for the treatmentof post-surgical ocular inflammation in January 2019 and expect the FDA to complete its review of this submission in thesecond half of 2019.We have completed two Phase 3 clinical trials of DEXTENZA for the treatment of allergic conjunctivitis. In October2015, we announced topline results of our first Phase 3 clinical trial for allergic conjunctivitis, and in June 2016 weannounced topline results of our second Phase 3 clinical trial for this indication. We expect to initiate a third Phase 3 trial ofDEXTENZA for the treatment of allergic conjunctivitis in the second half of 2019. We have also completed a Phase 2clinical trial of DEXTENZA for the treatment of dry eye disease.OTX-TP (intracanalicular travoprost insert) Our product candidate OTX-TP incorporates the active pharmaceutical ingredient travoprost, an FDA-approvedprostaglandin analog that reduces elevated IOP, into a hydrogel, drug-eluting intracanalicular insert. This preservative-freeinsert is designed to elute drug for up to 90 days. OTX-TP is being developed as a treatment to lower IOP in patients withprimary open angle glaucoma and ocular hypertension. We reported topline results from a Phase 2b clinical trial for thisindication in October 2015. We completed an End-of-Phase 2 review with the FDA in April 2016 and initiated the first of twoplanned Phase 3 clinical trials of OTX-TP in September 2016. Our first Phase 3 trial has completed the target enrollment of550 patients at approximately 50 sites in the United States. Based on discussions with the FDA, the first Phase 3 clinical trialdesign includes an OTX-TP treatment arm and a placebo-controlled comparator arm that uses a non-drug eluting hydrogelintracanalicular insert. The primary efficacy endpoint is superiority in the reduction of IOP from baseline in the OTX-TPtreatment arm compared to the placebo arm at three diurnal time points at each of three measurement dates, 2, 6 and 12weeks. We expect that the FDA will require that OTX-TP show both a statistically superior reduction of IOP compared to theplacebo and a clinically meaningful reduction of IOP prior to granting marketing approval. We expect topline efficacy datafrom the first Phase 3 clinical trial in the first half of 2019. We do not intend to initiate the second Phase 3 clinical trial untilwe review and discuss with the FDA the data from the first Phase 3 clinical trial. Given the anticipated use of OTX-TP as achronic therapy, we intend to generate six-month (300 patients) and one-year (100 patients) safety data to support ourproduct registration. In order to help meet these targets, we began enrollment in the open-label one-year safety extensionstudy in July 2018. 4 ®Table of ContentsOTX-TIC (intracanalicular travoprost implant) OTX-TIC is our product candidate for glaucoma patients in need of a more significant reduction in IOP and ocularhypertension. OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by aphysician as an intracameral injection with an initial target duration of drug release of four to six months. Preclinical studiesto date have demonstrated reduction of IOP and pharmacokinetics in the aqueous humor that suggest a pharmacodynamicresponse of IOP reduction in humans. Our investigational new drug application, or IND, for our U.S. trial became effective inthe first quarter of 2018. We initiated an open-label, proof-of-concept Phase 1 clinical trial in the United States in the secondquarter of 2018, with our first patient having been dosed more than nine months ago. This clinical trial is a multi-center,open-label, dose-escalation, proof-of-concept study designed to evaluate the safety, durability, tolerability, and efficacy ofOTX-TIC in patients with primary open-angle glaucoma or ocular hypertension. We anticipate presenting initial results fromthis clinical trial at the Association of Research and Vision of Ophthalmology meeting in April 2019.Back-of-the-Eye Programs We are engaged in the development of formulations of our hydrogel administered via intravitreal injection to addressthe large and growing markets for diseases and conditions of the back of the eye. Our initial development efforts are focusedon the use of our local programmed-release hydrogel in combination with anti-angiogenic drugs, such as protein-based anti-VEGF drugs, or small molecule drugs, such as TKIs, for the treatment of retinal diseases such as wet AMD, retinal veinocclusion and diabetic macular edema. Our initial goal for these programs is to provide programmed release delivery over afour to nine month period thereby reducing the frequency of the current monthly or bi-monthly intravitreal injection regimenfor wet AMD and other retinal diseases and providing a more consistent uniform release of drug over the treatment period.OTX-TKI (intravitreal tyrosine kinase inhibitor implant) OTX-TKI is a preformed, bioresorbable hydrogel fiber incorporating a small molecule TKI with anti-angiogenic propertiesdelivered by intravitreal injection. TKIs have shown promise in the treatment of wet AMD. In May 2017, we reported datafrom preclinical studies evaluating the efficacy, tolerability and pharmacokinetics of OTX-TKI. In this study, OTX-TKI waswell-tolerated, and high levels of drug were maintained in the tissue for up to twelve months in Dutch belted rabbits. In thefirst quarter of 2019, we dosed two patients in a Phase 1 clinical trial in Australia. This clinical trial is a multi-center, open-label study designed to evaluate the safety, durability and tolerability of OTX-TKI for up to nine months. We also plan toevaluate biological activity by following visual acuity over time and measuring retinal thickness using standard opticalcoherence tomography.OTX-IVT (intravitreal aflibercept implant) in Collaboration with Regeneron In October 2016, we entered into a strategic collaboration, option and license agreement, or Collaboration Agreement,with Regeneron for the development and potential commercialization of products using our hydrogel in combination withRegeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases, with the initial focus on theVEGF trap aflibercept, currently marketed under the brand name Eylea. Under the terms of the agreement, we grantedRegeneron an option, or the Option, to enter into an exclusive, worldwide license under our intellectual property to developand commercialize products using our hydrogel in combination with Regeneron’s large molecule VEGF-targetingcompounds, or Licensed Products. The Collaboration Agreement does not cover the development of any products thatdeliver small molecule drugs, including TKIs, for any target including VEGF, or any products that deliver large moleculedrugs other than those that target VEGF proteins. Under the terms of the Collaboration Agreement, we and Regeneron haveagreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept that issuitable for advancement into clinical development. A joint research committee comprised of an equal number ofrepresentatives from each of Regeneron and us is responsible for reviewing, approving and overseeing the parties’ researchand development activities with respect to licensed product candidates and making any modifications to those activities. Ingeneral, Regeneron has final decision-making authority over matters on which the joint research committee deadlocks,following escalation to designated executive officer representatives of the parties, except for matters that would impose amaterial increase in costs or obligations on us beyond those costs and obligations included in the mutually agreedcollaboration plan. We refer to the formulation we are developing with Regeneron as OTX-IVT.5 Table of ContentsRegeneron is responsible for funding an initial preclinical tolerability study, which it initiated in early 2018. If theOption is exercised, Regeneron will conduct further preclinical development and an initial clinical trial under acollaboration plan. We are obligated to reimburse Regeneron for certain development costs during the period through thecompletion of the initial clinical trial, subject to a cap of $25 million, which cap may be increased by up to $5 million undercertain circumstances. We do not expect our funding requirements under the collaboration to be material over the nexttwelve months. If Regeneron elects to proceed with further development beyond the initial clinical trial, it will be solelyresponsible for conducting and funding further development and commercialization of product candidates. If the Option isexercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least oneLicensed Product. Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified timeperiods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subjectto certain extensions.Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of the Option.The option is exclusive until 12 months after Regeneron has received a product candidate in accordance with a collaborationplan and non-exclusive for an additional six months following the end of the exclusive period. In December 2017, wedelivered to Regeneron the final formulation for Regeneron’s initial preclinical tolerability study. Although we are engagedin ongoing discussions with Regeneron, Regeneron has not informed us of its decision to exercise the Option. Pending adecision from Regeneron, we are not actively pursuing further formulation development or other preclinical testing under theCollaboration Agreement. We are also eligible to receive up to $145 million per Licensed Product upon the achievement ofspecified development and regulatory milestones, including successful results from the first-in-human clinical trial, $100million per Licensed Product upon first commercial sale of such Licensed Product and up to $50 million based on theachievement of specified sales milestones for all Licensed Products. In addition, we are entitled to tiered, escalating royalties,in a range from a high-single digit to a low-to-mid teen percentage of net sales of Licensed Products.ReSure SealantFollowing our receipt of FDA approval for ReSure Sealant, we commercially launched this product in the UnitedStates in 2014. ReSure Sealant is approved to seal corneal incisions following cataract surgery and is the first and onlysurgical sealant to be approved by the FDA for ophthalmic use. In the pivotal clinical trials that formed the basis for FDAapproval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure. While ReSureSealant remains commercially available in the United States, there is no sales support currently provided to the product atthis time. We have received only limited revenues from ReSure Sealant to date and do not anticipate sales for 2019 to bematerial.The FDA required two post-approval studies as a condition for approval of our premarket approval, or PMA,application for ReSure Sealant. The first post-approval study, identified as the Clinical PAS, was to enroll at least 598patients to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and toconfirm the incidence of the most prevalent adverse ocular events identified in our pivotal study in eyes treated with ReSureSealant. We submitted the final study report of the Clinical PAS to the FDA in June 2016, and the FDA has confirmed theClinical PAS has been completed. The second post-approval study, identified as the Device Exposure Registry Study, isintended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 daysfollowing cataract surgery and application of ReSure Sealant. The Device Exposure Registry Study is required to include atleast 4,857 patients. Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare databaseand lack of investigator interest, we have been unable to enroll trial sites and patients, collect patient data and report studydata to the FDA. We have provided regular periodic reports to the FDA on the progress of this post-approval study.We received a warning letter from the FDA in October 2018 relating to our compliance with data collection andinformation reporting obligations in the Device Exposure Registry Study. The FDA warning letter refers to a lack of progresswith the enrollment and related data collection and information reporting obligations for a required post-approval trial. InNovember 2018, we appealed this warning letter. In December 2018, the FDA rejected our appeal. Failure by us to conductthe required post-approval trial for ReSure Sealant to the FDA’s satisfaction may result in withdrawal of the FDA’s approvalof ReSure Sealant or other regulatory action. We continue to work with FDA to find a path to evaluate the incidence ofendophthalmitis in patients receiving ReSure Sealant. ReSure Sealant currently remains commercially available in theUnited States, though there is no sales support provided to the product at this time. 6 ®Table of ContentsAdditional Potential Areas for Growth In addition to our focus on formulating, developing and commercializing innovative therapies for diseases and conditionsof the eye, we are also assessing the potential use of our hydrogel platform technology in other areas of the body.In September 2018, we entered into a second amended and restated license agreement, or Second Amended Agreement,with Incept LLC, an intellectual property holding company, or Incept. The Second Amended Agreement amends and restatesin full the Company’s prior amended and restated license agreement with Incept, dated as of January 27, 2012, to expand thescope of the Company’s intellectual property license to include products delivered for the treatment of acute post-surgicalpain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions. Market Background Our clinical stage product candidates and our marketed product are based on a proprietary bioresorbable hydrogeltechnology platform that uses polyethylene glycol, or PEG, as a key component. Bioresorbable materials gradually breakdown in the body into non-toxic, water soluble compounds that are cleared by normal biological processes. PEG is used inmany pharmaceutical products and is widely considered to be safe and biocompatible. Our technology platform allows us totailor the physical properties, drug release profiles and bioresorption rates of our hydrogels to meet the needs of specificclinical indications. We have used this platform to engineer each of our intracanalicular insert product candidates, ourintracameral product candidates, our intravitreal implant product candidates, and ReSure Sealant. Our technical capabilitiesinclude a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the specializedmanufacturing processes required to achieve a reliable, preservative free and high purity product. Our product candidates target large and growing markets. Allied Market Research estimates that the annual worldwidemarket for ophthalmic medications was $29 billion as of 2016 and is expected to increase to $42.7 billion by 2023. We have in-licensed all of the patent rights and a significant portion of the technology for ReSure Sealant and ourhydrogel platform technology product candidates from Incept, LLC, or Incept, an intellectual property holding company.Amarpreet Sawhney, our former President and Chief Executive Officer and current Chairman of the Board of Directors, is ageneral partner of Incept and has a 50% ownership stake in Incept. Our founders and management team have significant experience in developing and commercializing medical productsfor other companies using bioresorbable hydrogel technology, including FDA-approved and currently marketed medicalproducts such as DuraSeal Dural Sealant (marketed by Integra Lifesciences, Inc.), a sealant for cranial and spine surgery, andMynx (marketed by Cardinal Health, Inc.), a sealant for femoral artery punctures after angiography and angioplasty. Dr.Sawhney was the founder, President and Chief Executive Officer of Confluent Surgical, Inc., the company that developed andcommercialized the DuraSeal Dural Sealant and was the technology founder of AccessClosure, Inc., the company thatdeveloped and commercialized Mynx. Product Pipeline The following table summarizes the status of our key product development programs and our marketed product. Wehold worldwide exclusive commercial rights to the core technology underlying all of our products in development and havenot granted commercial rights to any marketing partners other than the Option on commercial rights we7 ®®Table of Contentsgranted to Regeneron for the delivery of protein-based anti-VEGF drugs in our hydrogel depot for the treatment of retinaldiseases. Our Strategy We are pursuing three overall strategic goals: to make prescription eye drops obsolete; to make immediate releaseback-of-the-eye injections obsolete; and to extend our hydrogel platform technology for use beyond the eye to other areas ofthe body. The key tactics of our strategy to achieve these goals are: ·Launch the commercialization of DEXTENZA (dexamethasone ophthalmic insert) 0.4mg for intracanalicularuse for the treatment of ocular pain following ophthalmic surgery. DEXTENZA is the first FDA-approvedintracanalicular insert delivering dexamethasone to treat post-surgical ocular pain for up to 30 days with a singleadministration. We are building a highly-focused, key account manager sales force that will initially target thehighest volume cataract surgery centers. We applied for a C-code for transitional payment status on November30, 2018 and expect to receive a reimbursement code in the middle of 2019. ·Create proprietary solutions for ophthalmic diseases and conditions based on our bioresorbable hydrogeltechnology platform’s ability to improve the delivery of FDA-approved therapeutic agents. We are directing themajority of our development efforts towards applying our proprietary PEG-based bioresorbable hydrogeltechnology platform to product candidates that are designed to provide local programmed-release of therapeuticagents to the eye using active pharmaceutical ingredients that are currently used in ophthalmic drugs approvedby the FDA and that are or are expected to become available on a generic basis prior to anticipated launch datesor to which we have access through our existing collaboration with Regeneron or in any future collaborations.Our technology uses a proprietary composition of PEG to make bioresorbable8 ®Table of Contentshydrogels that we specifically engineer for each of our product candidates. By focusing on the development ofproducts based on FDA-approved therapeutic agents, we believe that we can advance potential productsefficiently and predictably through the development cycle based on well-defined clinical and regulatoryapproval pathways. We believe this strategy of selecting FDA-approved therapeutic agents and improving theirdelivery represents an attractive risk-reward profile relative to new drug development. ·Complete clinical development of and seek marketing approval for our most advanced intracanalicular insertproduct candidates for diseases and conditions of the front of the eye. oPost-Surgical Inflammation. §We filed an sNDA for DEXTENZA for post-surgical ocular inflammation in January 2019. Weexpect the FDA to complete its review of this submission in the second half of 2019 and, ifapproved, intend to add this expanded indication to the label of our currently approvedDEXTENZA product for post-surgical ocular pain. oGlaucoma. §With regard to OTX-TP, we initiated the first of two Phase 3 trials of our travoprost insert for thetreatment of glaucoma and ocular hypertension in September 2016 and expect topline efficacydata in the first half of 2019. We anticipate discussing the results of this first Phase 3 clinical trialwith the FDA prior to initiating a second Phase 3 clinical trial. Given the anticipated use of OTX-TP as a chronic therapy, we have also commenced a data safety study to help generate six-month(300 patients) and one year (100 patients) safety data to support our product registration. §We are also advancing OTX-TIC, our travoprost-based intracameral implant for the treatment ofmoderate to severe glaucoma and ocular hypertension for four to six months. We initiated anopen-label, proof-of-concept Phase 1 clinical trial in the United States in the second quarter of2018, with our first patient having been dosed more than nine months ago. We intend toannounce preliminary results from this trial during the first half of 2019. ·Apply our local programmed-release intracanalicular insert technology for the treatment of additional diseasesand conditions of the front of the eye. We intend to apply our proprietary PEG-based bioresorbable hydrogeltechnology platform to product candidates that are designed to provide local programmed-release of therapeuticagents to the eye using active pharmaceutical ingredients that are currently used in ophthalmic drugs approvedby the FDA and that are or are expected to become available on a generic basis prior to anticipated launch dates.Our technology uses a proprietary composition of PEG to make bioresorbable hydrogels specifically engineeredfor placement in the intracanaliculus for each of our product candidates. By focusing on the development ofproducts based on FDA-approved therapeutic agents, we believe that we can advance potential productsefficiently and predictably through the development cycle based on well-defined clinical and regulatoryapproval pathways. We believe this strategy represents an attractive risk-reward profile relative to new drugdevelopment. We currently have a number of preclinical programs that we are pursuing including OTX-BPI foracute ocular pain; OTX-BSI for post-operative; inflammation and bacterial infection; OTX-KTO for allergy; andOTX-CSI for chronic dry-eye.In addition to these preclinical development programs, we have also completed two Phase 3 clinical trials for theuse of DEXTENZA to treat allergic conjunctivitis. We expect to initiate a third Phase 3 clinical trial in thesecond half of 2019 for this program. ·Pursue development of our intravitreal implant and other technologies for back-of-the-eye diseases andconditions. We are developing OTX-TKI, a hydrogel implant, designed to release anti-angiogenic drugs,including anti-VEGF formulations, over a sustained period following administration by an intravitreal injectionto address the large and growing markets for diseases and conditions of the back of the eye, including wet AMD.Our goal for this intravitreal product candidate is to provide local programmed-release of the anti-angiogenicdrugs up to a nine month period, thereby reducing the frequency of the current9 Table of Contentsmonthly or bi-monthly intravitreal injection regimen. We believe that less frequent injections will be moreconvenient for patients and may reduce the risk of infection and other potential side effects associated with eachinjection. We also believe that our hydrogel implant could potentially provide a more consistent level oftherapeutic agent compared with existing therapies. In the first quarter of 2019, we dosed two patients in anopen-label proof-of-concept Phase 1 clinical trial of OTX-TKI. This Phase 1 clinical trial is being conducted inAustralia. In October 2016, we entered into the Collaboration Agreement with Regeneron for the development andpotential commercialization of products containing our extended-delivery hydrogel in combination withRegeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases, with the initialfocus on the VEGF trap aflibercept, currently marketed under the brand name Eylea. ·Utilize our hydrogel platform to enable local programmed-release of therapeutics to areas of the body outsidethe eye. In September 2018, we entered into the Second Amended Agreement with Incept to expand the scope ofour intellectual property license to include products delivered for the treatment of acute post-surgical pain or forthe treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions. We intend toexplore programs outside of the eye not only on our own but also potentially through partnerships orcollaborations with third parties who have expertise and experience with other therapeutics as well as other areasof the body. Eye Disease The front of the human eye consists of the cornea on the surface of the eye, the lens and the aqueous humor, which is atransparent fluid that fills the anterior chamber between the lens and the cornea. The tissue surrounding the eye also servesimportant functions. There is a natural opening, called a punctum, located in the inner portion of each upper and lower eyelidnear the nose. The puncta open into nasolacrimal ducts, which collect and drain tears. The conjunctiva is the membranecovering the inside of the eyelids and the white part of the eye, known as the sclera. It helps to protect the eye from microbesand to lubricate the eye. The back of the eye contains the retina, which is the light sensing layer of tissue, the vitreous humor,which is a transparent gel that fills the vitreous chamber between the lens and the retina, and the optic nerve, which transmitsvisual information from the retina to the brain. Eye disease can be caused by many factors and can affect both the front andback of the eye. Diseases and conditions affecting the front of the eye are generally treated either with surgery or withmedications delivered to the ocular surface by eye drops. Intravitreal injections or oral pills are typically used to delivermedications to the back of the eye. Cross Section of EyeTear Drainage System Front-of-the-Eye Diseases and Conditions Ocular Pain and Inflammation Ocular pain and inflammation are common conditions caused by a variety of factors, including ophthalmic surgery,allergic conjunctivitis and dry eye disease.10 Table of Contents Post-Surgical Ocular Pain and Inflammation Ocular pain and inflammation are common side effects following ophthalmic surgery. Frequently performedophthalmic surgeries include cataract, refractive, vitreoretinal, cornea, and glaucoma procedures. Physicians prescribe anti-inflammatory drugs, such as corticosteroids, which are typically administered through eye drops multiple times per day,following ocular surgery as the standard of care. These drugs improve patient comfort and also accelerate recovery throughdisruption of the inflammatory cascade resulting in decreased inflammation and reduced activity of the immune system.Physicians also frequently prescribe non-steroidal anti-inflammatory drugs, or NSAIDs, as adjunctive or combination therapyto supplement the use of corticosteroids. If left untreated, inflammation of the eye may result in further ocular complications,including pain, scarring and vision loss. Market Scope has estimated that approximately 5.8 million ocular surgeries were tobe performed in the United States in 2018. Allergic Conjunctivitis Allergic conjunctivitis is an inflammatory disease of the conjunctiva resulting primarily from a reaction toallergy- causing substances such as pollen or pet dander. The primary sign of this inflammation is redness and the primarysymptom is acute itching. Allergic conjunctivitis ranges in clinical severity from relatively mild, common forms to moresevere forms that can cause impaired vision. According to a study on the management of seasonal allergic conjunctivitispublished in 2012 in the peer-reviewed journal Acta Ophthalmologica, allergic conjunctivitis affects 15% to 40% of the U.S.population. The first line of defense against allergic conjunctivitis is avoidance of the allergen. If this is not successful,physicians typically prescribe a combination of a topical mast cell stabilizer and anti-histamine. These treatments act toreduce the signs and symptoms of the early phase allergic reaction. For the subset of patients with chronic or more severeforms of allergic conjunctivitis, anti-histamines and mast cell stabilizers are often not sufficient to treat their signs andsymptoms. These refractory patients are frequently treated with topical corticosteroids administered by prescription eyedrops. Dry Eye Disease Dry eye disease affects the ocular surface and is characterized by dryness, inflammation, pain, discomfort and irritation.The current standard of care for moderate to severe dry eye disease is the use of artificial tears and topical anti- inflammatoryand immune modulating drugs administered by prescription eye drops. The anti-inflammatory and immune modulatingprescription drug market for the treatment of moderate to severe dry eye disease consists of Restasis for increasing tearproduction, marketed by Allergan, lifitegrast, for the treatment of the signs and symptoms of dry eye disease, marketed byShire under the brand name Xiidra and off-label use of corticosteroids. Based on our review of industry sources, we estimatethat approximately 20 million people in the United States have dry eye disease, including approximately five million peoplewho suffer from moderate to severe dry eye disease. Market Data According to IMS Health data, approximately 20.3 million prescriptions were filled in the United States in 2018 foranti-inflammatory drugs administered by prescription eye drops for ocular diseases and conditions, resulting in sales ofapproximately $4.3 billion. These prescriptions consisted of approximately 8.4 million prescriptions and $723 million insales for single-agent corticosteroids, 3.3 million prescriptions and $369 million in sales for NSAIDs, 4.6 millionprescriptions and $282 million in sales for corticosteroid and antibiotic combination products and approximately 4.0 millionprescriptions and $2.7 billion in sales of Restasis and Xiidra for dry eye disease. According to IMS Health data,approximately 6.8 million anti-allergy eye drop prescriptions were filled in the United States in 2018, resulting in sales ofapproximately $477 million. The steroid market for eye drops to treat ocular diseases and conditions consists of bothbranded and generic products. Branded steroids include Lotemax and Alrex (loteprednol etabonate) marketed by Bausch &Lomb and Durezol (difluprednate) marketed by Alcon. Commonly used generic steroids include prednisolone,dexamethasone and fluorometholone. Glaucoma Glaucoma is a progressive and highly individualized disease in which elevated levels of IOP are associated withdamage to the optic nerve, which results in irreversible vision loss. According to the World Health Organization,11 Table of Contentsglaucoma is the second leading cause of blindness in the world. Ocular hypertension is characterized by elevated levels ofIOP without any optic nerve damage. Patients with ocular hypertension are at high risk of developing glaucoma. In a healthy eye, fluid is continuously produced and drained to maintain pressure equilibrium and provide nutrients tothe ocular tissue. Excess fluid production or insufficient drainage of fluid in the front of the eye or a combination of theseproblems causes increased IOP. The increased IOP associated with uncontrolled glaucoma results in degeneration of the opticnerve in the back of the eye and loss of peripheral vision. Once glaucoma develops, it is a chronic condition that requireslife-long treatment. According to the Glaucoma Research Foundation, approximately 3.0 million people in the United Statessuffer from glaucoma. Open-angle glaucoma, in which the space between the iris and the cornea through which fluid drains isrelatively wide, is the most common form of glaucoma. According to the Glaucoma Research Foundation, open-angleglaucoma accounts for at least 90% of all glaucoma cases. To lower IOP, physicians typically initiate treatment by prescribing drugs administered as eye drops. These drugs eitherdecrease fluid production or enhance fluid drainage. The classes of topical drugs used to treat glaucoma includeprostaglandin analogs, or PGAs, beta-blockers, alpha-adrenergic agonists and carbonic anhydrase inhibitors. PGAs are themost widely prescribed class of drugs for glaucoma and are considered first-line glaucoma treatment. PGAs reduce IOP byenhancing the clearance and drainage of ocular fluid. The most frequently prescribed PGA is once-daily latanoprost,although travoprost, unoprostone and bimatoprost are also frequently used in the management of open-angle glaucoma. Incases where glaucoma is not easily managed by a drug regimen, surgical or laser treatments may be undertaken. Market Data According to IMS Health data, approximately 35.2 million prescriptions were filled in the United States in 2018 fordrugs administered by eye drops for the treatment of glaucoma, resulting in sales of approximately $3.1 billion. A typicalprescription provides approximately one month of treatment. We expect prescription volume to grow, in large part as a resultof the aging population. According to IMS Health, PGAs accounted for approximately half of the prescription volume in theglaucoma market in 2018. The market for drugs administered by eye drops for the treatment of glaucoma consists of bothbranded and generic products. Branded products have maintained premium pricing and significant market share. Theseproducts include Travatan Z (travoprost) marketed by Alcon and Lumigan (bimatoprost) marketed by Allergan. The relevantpatents covering travoprost expired in December 2014. Commonly used generic drugs include latanoprost and timolol. Bacterial Infection Bacterial conjunctivitis is one of the most common forms of ocular infection. It is an inflammatory disease of the eyecaused by infection with bacteria such as Haemophilus influenzae, Streptococcus pneumoniae or Staphylococcus aureus.While bacterial conjunctivitis typically resolves on its own over time, it is often treated with antibiotics which can speedrecovery, reduce relapse and potentially prevent important sight-threatening complications. Market Data According to IMS Health data, approximately 16.5 million prescriptions were filled in the United States in 2018 forophthalmic antibiotics administered by eye drops, resulting in sales of approximately $428 million. The Use of Eye Drops and their Limitations Eye drops are widely used to deliver medications directly to the ocular surface and to intraocular tissue in the front ofthe eye. Eye drops are administrable by the patient or care provider, inexpensive to produce and treat the local tissue.However, eye drops have significant limitations, especially when used for chronic diseases or when requiring frequentadministration, including: ·Lack of patient compliance. Eye drops require frequent administration. For example, steroids for ophthalmic userequire administration as frequently as four to six times daily and require tapered dosing over the course of thetherapy. As a result, patient compliance with required dosing regimens frequently suffers. According to apublished third-party study, more than 50% of glaucoma patients are not compliant with their 12 Table of Contentsprostaglandin therapy and do not refill prescriptions as required or do not follow the prescribed regimen withinsix months of initiating therapy. Poor patient compliance can lead to diminished efficacy and diseaseprogression. ·Difficulty in administration. Eye drops are difficult to administer for many patients, in particularly the elderly,due to physical or mental conditions such as arthritis or dementia. Difficulty in self-administering eye drops maylead to bacterial contamination in the bottle resulting from incorrect usage, limited accuracy administering thedrops directly into the eye and the potential washout of drops from the eye. We believe that this also may play alarge role in lack of patient compliance and resulting diminished efficacy of treatment. ·Need for high concentrations. After eye drops are administered to the ocular surface, the tear film rapidly renews.Most topically applied solutions are washed away by new tear fluid within 15 to 30 seconds. Because contacttime with the ocular surface is short, less than 5% of the applied dose actually penetrates to reach intraoculartissues. As a result, eye drops generally require frequent administration at high drug concentrations to deliver ameaningful amount of drug to the eye. This pulsed therapy results in significant variations in drug concentrationsover a treatment period, which we refer to as peak and valley dosing. At peak levels, the high concentrations canresult in side effects, such as burning, stinging, redness of the clear membrane covering the white part of the eye,referred to as hyperemia, and spikes in IOP, which may lead to drug induced glaucoma. At low concentrationlevels, the drug may not be effective, thus allowing the disease to progress. ·Side effects of preservatives. To guard against contamination, many eye drops are formulated with antimicrobialpreservatives, most commonly benzalkonium chloride, or BAK. Patients on long term or chronic therapy, such asglaucoma patients, often suffer reactions, which have been linked to BAK, including burning, stinging,hyperemia, irritation and eye dryness. Less frequently, conjunctivitis or corneal damage may result. As a result of these limitations, eye drops are often suboptimal as a therapeutic option for the treatment of manydiseases and conditions of the front of the eye. Back-of-the-Eye Diseases and Conditions There are a range of back-of-the-eye diseases and conditions that adversely affect vision. One of the principal back-of-the-eye conditions is wet AMD, a serious disease of the central portion of the retina, known as the macula that is responsiblefor detailed central vision and color perception. Wet AMD is characterized by abnormal new blood vessel formation, referredto as neovascularization, which results in blood vessel leakage and retinal distortion. If untreated, neovascularization in wetAMD patients typically results in formation of a scar under the macular region of the retina. The current standard of care forwet AMD are drugs that target VEGF, one of several proteins involved in neovascularization. Wet AMD is the leading cause of blindness in people over the age of 55 in the United States and the European Union.According to a study on the burden of AMD published in 2006 in the peer-reviewed journal Current Opinion inOphthalmology, approximately 1.2 million people in the United States suffer from wet AMD. In addition, AMD AllianceInternational reports that approximately 200,000 new cases of wet AMD arise each year in the United States. The incidenceof wet AMD increases substantially with age, and we expect that the number of cases of wet AMD will increase with growthof the elderly population in the United States. The anti-VEGF market for the treatment of wet AMD consists predominantly oftwo drugs that are approved for marketing and primarily prescribed for the treatment of wet AMD, Lucentis marketed in theUnited States by Genentech and Eylea marketed in the United States by Regeneron, and off-label use of the cancer therapyAvastin. In 2018, sales of Lucentis and Eylea totaled approximately $5.8 billion in the United States and $10.3 billionglobally. Because eye drops are unable to carry effective drug concentrations to the back-of-the-eye, intravitreal injections ororal medications are used to deliver medications to this location. However, the frequency of intravitreal injection can be asignificant burden on patients, caregivers and clinicians. For example, the current treatment protocol for wet AMD involvesmonthly or bi-monthly injections. Intravitreal injections can lead to patient discomfort, a transient increase in IOP, andocular inflammation and infection. Although serious adverse event rates after treatment with anti-VEGF13 Table of Contentscompounds are low, intravitreal injections can result in severe complications and damage to the retina and other structures ofthe eye, such as ocular hemorrhage and tears in the retinal pigment epithelium. Ocular Wound Closure According to the World Health Organization, cataracts are the leading cause of visual impairment eventuallyprogressing to blindness. According to the American Academy of Ophthalmology Cataract and Anterior Segment Panel’s2011 Preferred Practice Pattern Guidelines, cataract extraction is the most commonly performed eye surgery in the UnitedStates. Market Scope has estimated that in 2018 there were to be approximately 4.2 million cataract extractions performed inthe United States. A cataract is a clouding of the lens inside the front of the eye. During cataract surgery, a patient’s cloudy natural lens isremoved and replaced with a prosthetic intraocular lens. Clear corneal incision that allows entry to the eye is the typicalmethod for performing cataract surgery. The most common post-surgical approach is to allow the incisions to self-seal, orclose, through normal biological processes. However, self-sealing incisions can open spontaneously, especially within 12 to24 hours following surgery, when IOP fluctuates or as a result of the application of external pressure or manipulation. Inaddition, incisions that are left to self-seal may leak, which can sometimes result in complications. Complications from fluidleakage include the development of hypotony, or low IOP, which can lead to corneal decompensation and vision loss, as wellas the potential for infection. The implanted intraocular lens also may shift in position due to hypotony, leading to reducedvisual outcomes following surgery. Sutures are the most widely used alternative method of wound closure. However, sutures do not completely preventfluid leakage, are time-consuming to place and have been associated with patient discomfort, corneal distortion, andshallowing of the interior chamber. An additional visit may be required to remove sutures, thus adding time, inconvenienceand expense to the surgical process. Sutures may also lead to astigmatism, a distortion of the cornea. These shortcomingslimit the use of sutures in ophthalmic surgery. In a 2012 survey of ophthalmologists in the United States conducted byLachman Consulting LLC, a healthcare consulting firm, respondents indicated that they use sutures in approximately 14% ofcataract surgeries. The Ocular Therapeutix Approach Our Hydrogel Technology Platform We apply our expertise with an established bioresorbable hydrogel technology to the development of products forlocal programmed-release of known, FDA-approved therapeutic agents for a variety of ophthalmic diseases and conditionsand to ophthalmic wound closure. Our founders have previously used this same hydrogel technology to develop FDA-approved and currently marketed medical products for other companies such as DuraSeal Dural Sealant (marketed by IntegraLifesciences, Inc.), a sealant for cranial and spine surgery, and Mynx (marketed by Cardinal Health), a sealant for femoralartery punctures after angiography and angioplasty. Our bioresorbable hydrogel technology is based on the use of a proprietary form of PEG. Our technical capabilitiesinclude a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the highly specializedmanufacturing processes required to achieve a reliable, preservative free and pure product. We tailor the hydrogel to act as avehicle for local programmed-release drug delivery to the eye and as an ocular tissue sealant. We have used bioresorbablehydrogels to engineer each of our intracanalicular insert product candidates, our intracameral implant product candidates,ReSure Sealant and our intravitreal implant product candidates. We create our hydrogels by cross-linking PEG molecules to form a network that resembles a three-dimensional mesh ona molecular level. Our PEG molecules are branched, with four to eight branches or arms. Each arm bears a reactive site on itsend. Our cross-linking chemistry uses a second molecule with four arms, bearing complimentary reactive sites on each end,such that when combined with the PEG molecules, a network spontaneously forms. When swollen with water, this molecularnetwork forms a hydrogel. We design these hydrogels to slowly degrade in the presence of water, a process called hydrolysis,by inserting a biodegradable linkage between the PEG molecule and the cross-linked molecule. By appropriately selectingthe number of arms of the PEG molecule and the biodegradable linkage, we can design hydrogels with varying mechanicalproperties and bioresorption rates. Because the body has an abundance of water at a constant temperature and pH level,hydrolysis provides a predictable and reproducible14 ®®Table of Contentsdegradation rate. Our technology enables us to make hydrogels that can bioresorb over days, weeks or several months. Thefigure below depicts the formation and bioresorption of the hydrogel for ReSure Sealant. Intracanalicular Insert-Based Local Programmed-Release Therapies for Front-of-the-Eye Diseases and Conditions A punctum is a natural opening located in the inner portion of the eyelid near the nose. There is a punctum in each ofthe lower eyelids and the upper eyelids. The puncta open into nasolacrimal ducts, which collect and drain tears produced bythe eyes’ lacrimal glands. Tears produced in the lacrimal glands sweep across the eye surface and drain through the puncta tothe nasal cavity. The section of the nasolacrimal duct immediately beyond the puncta is called the vertical canaliculus.Intracanalicular inserts that do not contain an active drug are commonly used for treatment of dry eye disease by physicallyblocking tear drainage. Because intracanalicular inserts stay in contact with the tear film, they are well suited for localprogrammed-release of drug to the eye. Intracanalicular insert shown positioned in the vertical canaliculus Our intracanalicular inserts utilize our proprietary hydrogel technology and are embedded with an active drug.Following insertion through the punctum, our inserts swell in tear fluid to fill the vertical canaliculus, which secures theinserts in place. We design our inserts to release drug in a programmed fashion, tailored to each disease state, back throughthe punctum to the surface of the eye. Over time the inserts liquefy and are cleared through the nasolacrimal duct. If necessarydue to excessive tearing, discomfort or improper placement, a healthcare professional can remove an intracanalicular insertby a process of pushing the soft insert back through the punctum. Our inserts allow incorporation of a variety of drugs with a controllable range of delivery durations and delivery rates.For acute conditions, such as post-surgical ocular pain and inflammation and allergic conjunctivitis, we have15 Table of Contentsdesigned our intracanalicular inserts to provide a local programmed-release of therapeutic levels of drug for the duration oftreatment. For chronic diseases, such as glaucoma, we have designed our intracanalicular inserts for repeat administrationwith extended dosing periods. We are concentrating our initial development efforts on intracanalicular inserts incorporatingactive pharmaceutical ingredients that are approved by the FDA for the targeted indication and that satisfy other specificselection criteria that we have developed. We manufacture our intracanalicular inserts from dried PEG-based hydrogel formed into tiny rods that hold an activepharmaceutical ingredient in a preservative-free formulation. We embed the active pharmaceutical ingredient in the pre-hydrogel liquid formulation, which then solidifies to form a hydrogel containing the drug within. The relative size of one ofour intracanalicular inserts is shown in the figure below. We provide the intracanalicular insert as a thin dry rod to facilitate insertion through the narrow punctal opening. Uponhydration with tear fluid, the insert swells, softens, and conforms to roughly the size and shape of the vertical canaliculus, tosecure it in place. We incorporate the active pharmaceutical ingredient in the form of micronized particles embedded directlyin the hydrogel or as bioresorbable microspheres. 16 Table of ContentsWe have included a fluorescent label, or marker, in our intracanalicular insert hydrogel to serve as a visualization aidfor the healthcare professional to confirm the insert’s presence. The viewer applies a blue handheld light and a clear yellowfilter aid to see the insert in the eyelid as shown in the figure below. Because intracanalicular inserts stay in contact with the tear film, other companies have pursued the development ofintracanalicular punctum plugs containing active drugs for local programmed-release to the ocular surface. However, theseearlier product designs had significant limitations with respect to drug capacity, drug release kinetics and patient comfortand used non-degradable punctum plugs with a clear silicone hard rubber shell containing only a core with active drug.These plugs typically extended outside of the punctal opening and secured themselves in place with an external cap. Theexternal cap was in constant contact with the surface of the eye, which may cause irritation and discomfort in some cases. Inaddition, some prior designs resorted to plugging both the upper and lower puncta, which could cause excessive tearing andpatient discomfort. These designs did not incorporate a visualization agent to allow the patient and physician to assess thepresence of the plug. In contrast to these prior approaches, we have designed our intracanalicular inserts to: ·incorporate the active pharmaceutical ingredient throughout the insert rather than just in a core to allow forhigher drug capacity and better control over drug release; ·be bioresorbable so that removal is not required for acute conditions and required infrequently for chronicconditions; ·be soft and to fit beneath the punctal opening for patient comfort; and ·include a fluorescent label to allow the healthcare professional and patient to visualize and assess the presence ofthe insert. We select the active pharmaceutical ingredients for our local programmed-release drug delivery product candidates,including our intracanalicular inserts, based on criteria we have developed through our extensive experience with hydrogelinsert systems. Our active pharmaceutical ingredient selection criteria include: ·prior approval by the FDA for the targeted ophthalmic indication; ·expiration of relevant patent protection prior to or within our anticipated development timeline; ·high potency to minimize required drug load in the intracanalicular insert; ·availability from a qualified supplier; and ·compatibility with our drug delivery system. 17 Table of ContentsAnticipated Benefits of Our Intracanalicular Inserts Compared to Eye Drops We believe our intracanalicular insert product candidates may offer a range of favorable attributes as compared to eyedrops, including: ·Improved patient compliance. Our intracanalicular inserts are inserted by a healthcare professional and aredesigned to provide local programmed-release of drug to the ocular surface. Because patients are not responsiblefor self-administration of the drug and the intracanalicular inserts dissipate over time and do not require removalfor acute conditions or frequent removal for chronic conditions, we believe our intracanalicular inserts addressthe problem of patient compliance. ·Ease of administration. We have designed our intracanalicular inserts to provide the entire course of medicationwith a single administration by a healthcare professional for acute conditions or for several months for chronicconditions. We believe this avoids the need for frequent administration and the potential complications thatcould result if doses are missed. ·Local programmed-release of drug. We have designed our intracanalicular inserts to deliver drug in aprogrammed fashion to the surface of the eye in order to avoid the peak and valley dosing and related side effectsand spikes in IOP associated with eye drops. We also believe programmed-release dosing may improve thetherapeutic profile of the active pharmaceutical ingredient because it eliminates periods of little or no drugpresence between eye drop administrations. Further, we are designing our product candidates so that their drugrelease profiles can be tailored or programmed to match the treatment needs of the disease. For example, steroidsfor ophthalmic purposes generally require administration over four weeks, with tapered dosing over this period.In contrast, PGAs require administration in a steady fashion over the duration of treatment. Our intracanalicularinserts are designed to fully dissipate over a period of two to three times the length of the expected period ofrelease of the therapeutic agent and can be removed if necessary by a healthcare professional. ·Avoidance of preservative side effects. Our intracanalicular inserts do not involve the use of preservatives, suchas BAK, which have been linked to side effects including burning, stinging, hyperemia, irritation, eye drynessand, less frequently, conjunctivitis or corneal damage. Intravitreal Implants for Back-of-the-Eye Diseases and Conditions We are engaged in the clinical development of our hydrogel administered via intravitreal injection to address the largeand growing markets for diseases and conditions of the back of the eye. Our initial development efforts are focused on the useof our programmed-release hydrogel in combination with anti-angiogenic drugs such as protein-based anti-VEGF drugs orsmall molecule drugs, such as TKIs for the treatment of retinal diseases, such as wet AMD, retinal vein occlusion and diabeticmacular edema. Our initial goal for these programs is to provide extended delivery of a protein-based large molecule or smallmolecule TKI drug targeting VEGF and other targets over a four to six month period following administration of abioresorbable hydrogel incorporating the drug by an injection into the vitreous humor, thereby reducing the frequency of thecurrent monthly or bi-monthly intravitreal injection regimen for wet AMD and other retinal diseases and potentiallyproviding a more consistent, uniform release of drug over the treatment period. We are pursuing a multi-pronged strategy to seek to maximize the potential of this technology. ·We are researching the delivery of small molecule TKIs from our hydrogel implant and we initiated an open-label, proof-of-concept Phase 1 clinical trial in Australia in the first quarter of 2019. This clinical trial is amulti-center, open-label study designed to evaluate the safety, durability and tolerability of OTX-TKI for upto nine months. We have conducted preclinical work on this compound and have achieved local programmed-release and pharmacodynamic effect in vivo for up to twelve months. We believe this class of drugs is wellsuited for use with our platform given its high potency, multi-target capability, and compatibility with ahydrogel vehicle. In the absence of a sophisticated drug delivery system, these drugs have been difficult todeliver to the eye for acceptable time frames at therapeutic levels without causing local and systemic toxicitydue to low drug solubility and very little short half-lives in solution. We believe our local drug deliverytechnology gives us potential advantages in this regard. By selecting a compound that is compatible with ourhydrogel platform technology and that will have expiration of18 Table of Contentsrelevant patents within the timeline of our development program, we avoid the need to license the TKImolecule, thus retaining full worldwide rights to any products we develop. ·We are also evaluating an intravitreal implant through our collaboration with Regeneron, consisting of a PEG-based hydrogel matrix containing embedded micronized particles of aflibercept. Aflibercept is marketed byRegeneron under the brand name Eylea. We designed the injection to be delivered to the vitreous chamber ofthe eye using a fine gauge needle. We entered into the Collaboration Agreement with Regeneron in October2016 for the development and commercialization of protein-based anti-VEGF drugs, with the initial productcandidate incorporating the drug aflibercept into our hydrogel. As previously discussed, pending a decisionfrom Regeneron, we are not actively pursuing further formulation development or other preclinical testing. Our intravitreal implant consists of a PEG-based hydrogel suspension, which contains embedded micronized proteinparticles of an anti-angiogenic compound. We designed the intravitreal implant to be injected and retained in the vitreoushumor, as depicted in the figure below, to provide local programmed-release intravitreal delivery of anti-VEGF compounds. We have designed our intravitreal implant for delivery using typically available syringes and fine gauge needlescompatible with the current standard of care. Once in the vitreous humor, the hydrogel is designed to retain properties of TKIand anti-VEGF compounds until they are released. We have designed the hydrogel to liquefy, dissolve and be cleared fromthe eye through hydrolysis over time. We design our hydrogels to control the hydrogel biodegradation rate and, as a result,the timing of TKI and anti-VEGF compound release. ReSure Sealant for Ocular Wound Closure ReSure Sealant is our bioresorbable hydrogel product for wound closure following cataract surgery. A surgeon appliesReSure Sealant as a liquid painted onto the corneal incision. Within about 15 seconds, the sealant cross-links and transformsinto a smooth, lubricious hydrogel that seals the wound. ReSure Sealant dissipates as healing progresses and does not requireremoval. In the pivotal clinical trials that formed the basis for FDA approval, ReSure Sealant provided superior woundclosure and a better safety profile than sutured closure. We commercially launched ReSure Sealant in February 2014 on a region-by-region basis in the United States through anetwork of independent distributors. In early 2017, we terminated these distributors and hired a contract sales force of fourrepresentatives to sell ReSure Sealant. In July 2017, in connection with a broader reduction in force, we terminated theserepresentatives. At this time, we have no sales support provided to ReSure Sealant, and we have no plans to hire a sales forceto focus on this product. We also believe that the market opportunity for a surgical sealant following cataract surgery may bemodest because sutures are used in only approximately 14% of cataract surgeries and, currently, there is no directreimbursement for ReSure Sealant. As a result, we do not expect to generate meaningful levels of revenue from the sale ofReSure in 2019.19 Table of Contents Development Pipeline and Marketed Products The following table summarizes important information about our key product development programs and our marketedproducts, DEXTENZA and ReSure Sealant. We hold worldwide commercial rights to each of our product candidates,DEXTENZA and ReSure Sealant. Description (Active Pharmaceutical Stage of Product / Program Indication Ingredient) Development Status Approved Product DEXTENZA Post-surgicalocular pain Intracanalicular insert(Dexamethasone) Approved forpost-surgicalocular pain Approved by the FDA inNovember 2018; product will becommercially launched upon thereceipt of a C-code for transitionalpass through payment; receipt ofthe C-code anticipated in themiddle of 2019 ReSure Sealant Cataract incisionclosure Ocular sealant Marketed Approved by the FDA in January2014; commercially launched inthe United States in February2014. In October 2018, wereceived a FDA warning letter andwe appealed in November2018. The appeal was rejected inDecember 2018. We continue towork with FDA. Late Stage ClinicalProductCandidates DEXTENZA Post-surgicalinflammation Intracanalicular insert(Dexamethasone) Phase 3 sNDA submission for post-surgicalocular inflammation in January2019 DEXTENZA Allergicconjunctivitis Intracanalicular insert(Dexamethasone) Phase 3 Phase 2 trial completed inNovember 2014; topline resultsfrom the two Phase 3 trials; firstPhase 3 trial reported in October2015 and second Phase 3 trialreported in June 2016; a thirdPhase 3 trial is expected tocommence in the second half of2019 OTX-TP Glaucoma Intracanalicular insert(Travoprost) Phase 3 Phase 2a trial completed in May2014; Phase 2b topline resultsreported in October 2015; initiatedthe first of two Phase 3 clinicaltrials in September 2016; toplinedata from the first Phase 3 trialexpected in the first half of 2019 20 Table of Contents Description (Active Pharmaceutical Stage of Product / Program Indication Ingredient) Development Status Early Stage ClinicalProductCandidates OTX-TIC Glaucoma andocularhypertension Intracameral implant(Travoprost) Phase 1 Initiated a Phase 1 clinical trialoutside of the U.S. in the thirdquarter of 2017 which has sincebeen closed due to lack ofenrollment; initiated a new Phase1 clinical trial in the first half of2018 in the U.S. withinitial results at the Associationof Research and Vision ofOphthalmology meeting in April2019 OTX-BPI Acute ocular pain Bupivicane Preclinical Ongoing preclinical studies OTX-BSI Post-operativepain,inflammation &antibacterial Besifloxicin anddexamethasone Preclinical Ongoing preclinical studies OTX-KTO Allergy Ketotifen Preclinical Ongoing preclinical studies OTX-CSI Chronic dry eye Cyclosporine Preclinical Ongoing preclinical studies Anti-angiogenic hydrogelimplants OTX-TKI Wet AMD Intravitreal implant(Tyrosine kinaseinhibitor anti-angiogenic compound) Phase 1 Initiated a Phase 1 clinical trial inAustralia in the second half of2018 OTX-IVT Wet AMD DMEand RVO Intravitreal implant(Protein-based anti-angiogenic compound) Preclinical Preclinical studies Dexamethasone Intracanalicular Insert Our DEXTENZA (local programmed-release dexamethasone) intracanalicular insert product candidate incorporates thecorticosteroid dexamethasone as an active pharmaceutical ingredient in our proprietary hydrogel insert. We are developingDEXTENZA for the treatment of post-surgical ocular pain and inflammation and allergic conjunctivitis. We have designedDEXTENZA to deliver therapeutic levels of dexamethasone over a period of approximately 30 days. We have reportedtopline results from three Phase 3 clinical trials for the treatment of post-surgical ocular pain and inflammation and two Phase3 clinical trials for the treatment of allergic conjunctivitis. We selected dexamethasone as the active pharmaceutical ingredient for DEXTENZA because it: ·is approved by the FDA and has a long history of ophthalmic use;21 Table of Contents ·is available on a generic basis; ·is highly potent and is typically prescribed for prevention of ocular pain and inflammation following ocularsurgery; ·is available from multiple qualified suppliers; and ·has physical properties that are well suited for incorporation within our intracanalicular inserts. Embedded within our DEXTENZA intracanalicular insert are dexamethasone drug particles that gradually erode andrelease the drug in a programmed fashion until the drug is depleted. As the dexamethasone drug particles erode and thehydrogel degrades by hydrolysis, the intracanalicular insert softens, liquefies and is cleared through the nasolacrimal duct.We provide the DEXTENZA drug product in a preservative-free formulation in a sterile, single use package. The standard regimen for dexamethasone eye drops following cataract surgery is an initial administration of four timesdaily for one week, with a gradual tapering in the number of eye drops over a four week period. Such a regimen is oftenconfusing to patients as they must remember to taper the number of times per day they administer the steroid, while alsotaking multiple drops of other drugs, such as antibiotics and NSAIDs. We believe that local programmed-release of drug tothe eye may result in better control of ocular pain and inflammation as compared to prescription eye drops and that a lowdose amount may provide enhanced safety by eliminating spikes in IOP associated with high dose steroid eye drops. Although dexamethasone is clinically effective in the treatment of late-phase inflammatory allergic reactions, thesafety limitations associated with eye drop administration, including the potential to generate spikes in IOP due to the highlevels of drug, have limited its widespread adoption as a treatment for the treatment of allergic conjunctivitis. These spikes inIOP can lead to drug induced glaucoma, although the incidence is low. Further, use of oral anti-histamine medications as wellas anti-histamine eye drops for allergic conjunctivitis may dry out the eye and exacerbate the discomfort to some patients.We believe, based on our clinical trial results to date, that periodic use of the DEXTENZA for allergic conjunctivitis willcreate a low, tapered, consistent dose of dexamethasone, potentially minimizing or eliminating side effects associated withthe eye drop formulation, while retaining the drug’s anti-inflammatory effects. One of the causes of dry eye disease is inflammation. Topical anti-inflammatory drugs are used as one of severaltherapies to treat dry eye disease and are administered by eye drops. As the understanding of dry eye disease, specifically theinflammatory components of dry eye disease, has evolved, the use of corticosteroids has become a standard to offer short-term relief of signs and symptoms of the disease. Physicians typically prescribe a topical corticosteroid for a period of two tofour weeks, tapered over the course of delivery as the inflammation and symptoms subside. As with allergic conjunctivitis,there are safety limitations associated with the use of corticosteroids for dry eye disease that have limited wide spreadadoption. We believe that DEXTENZA has potential as a short-term therapy for more severe cases of dry eye caused byinflammation, followed by the delivery of an immunosuppressant drug such as cyclosporine after the inflammation has beenreduced. Overview of DEXTENZA Clinical Development We are conducting clinical development of DEXTENZA for the treatment of post-surgical ocular pain andinflammation and allergic conjunctivitis. The following summarizes our clinical development to date for DEXTENZA. ·In March and April 2015, we reported topline results from two Phase 3 clinical trials for the treatment of post-surgical ocular pain and inflammation. In the first Phase 3 clinical trial, DEXTENZA met both primary efficacyendpoints, absence of pain at day 8 and absence of inflammatory cells at day 14, with statistical significance. Inthe second Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint for absence of pain at day 8 withstatistical significance but did not meet the primary efficacy endpoint for absence of inflammatory cells at day14. We met with the FDA in April 2015 to discuss the path forward for seeking marketing approval ofDEXTENZA for the treatment of post-surgical ocular pain and inflammation. In this pre-NDA clinical meeting,the FDA indicated that the existing data from our Phase 2 and two Phase 3 clinical trials are appropriate tosupport an NDA submission for DEXTENZA for a post-surgical ocular pain indication. The FDA further indicatedthat we would need additional data from a third Phase 3 clinical trial22 Table of Contentsfor the inflammation endpoint to support the potential labeling expansion of DEXTENZA’s indications for use.We initiated a third Phase 3 clinical trial for DEXTENZA for the treatment of post-surgical ocular pain andinflammation in October 2015. In September 2015, we submitted to the FDA an NDA for DEXTENZA for thetreatment of post-surgical ocular pain. In July 2016, we received a CRL from the FDA regarding our NDA forDEXTENZA. This CRL pertained to deficiencies in manufacturing process and controls identified during a pre-NDA approval inspection of our manufacturing facility. In January 2017, we resubmitted our NDA to theFDA. Following a re-inspection of manufacturing operations by the FDA which was completed in May 2017, wereceived an FDA Form 483 containing inspectional observations focused on manufacturing processes andanalytical testing related to the manufacture of drug product for commercial production. In July 2017, wereceived a CRL from the FDA regarding our NDA for DEXTENZA for the treatment of post-surgical ocular pain. The FDA concerns included deficiencies in manufacturing processes and analytical testing related tomanufacturing of drug product identified during the pre-NDA approval inspection. We resubmitted our NDA forDEXTENZA for the treatment of post-surgical ocular pain in June 2018. In November 2018, we receivedapproval for the pain indication. ·In November 2014, we completed a Phase 2 clinical trial evaluating the safety and efficacy of DEXTENZA for thetreatment of allergic conjunctivitis. Based upon the encouraging results of this Phase 2 clinical trial and asubsequent meeting with the FDA, we began enrollment for an initial Phase 3 clinical trial of DEXTENZA for thisindication in June 2015. We announced topline results from this trial in October 2015. We initiated a secondPhase 3 clinical trial of DEXTENZA for this indication in November 2015. We announced topline results for thesecond Phase 3 clinical trial in June 2016. ·In January 2015, we initiated a Phase 2 exploratory clinical trial of DEXTENZA for the treatment of dry eyedisease. We reported topline results from this trial in December 2015. We are not currently pursuing DEXTENZAfor the treatment of dry eye disease. Clinical Trials for Post-Surgical Ocular Pain and Inflammation Completed Phase 2 Clinical Trial In 2013, we completed a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked Phase2 clinical trial evaluating the safety and efficacy of DEXTENZA for the treatment of ocular pain and inflammation followingcataract surgery. We conducted this trial in 60 patients at four sites in the United States pursuant to an effective IND. Werandomized patients in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert withoutactive drug. One patient randomized into the DEXTENZA group was excluded from the trial because the investigator wasunable to insert the insert, resulting in 29 patients in the DEXTENZA group and 30 patients in the vehicle control group. Weevaluated patients in this trial at days 1, 4, 8, 11, 14 and 30 following surgery. One of our goals for this trial was to determine the appropriate primary endpoints for a subsequent Phase 3 clinicaldevelopment program. The two primary efficacy measures in this trial were absence of inflammatory cells in the anteriorchamber of the study eye and absence of pain in the study eye. When viewed with a slit lamp biomicroscope, theseinflammatory cells, referred to as cells in a slit lamp examination, appear like dust specks floating in a projected light beam.The presence of these cells in the anterior chamber indicates inflammation. In this trial, absence of pain was based on apatient reported score of zero on a scale from zero to ten of ocular pain assessment. The first primary efficacy endpoint wasthe difference in the proportion of patients in each treatment group with absence of cells in the anterior chamber of the studyeye at day 8 following surgery. The second primary efficacy endpoint was the difference in the proportion of patients in eachtreatment group with absence of pain in the study eye at day 8 following surgery. We evaluated as secondary measures the absence of flare in the anterior chamber of the study eye at each evaluationdate, absence of inflammatory cells in the anterior chamber of the study eye and absence of pain in the study eye at eachevaluation date other than day 8 and insert retention and visualization. Flare is a scattering of light in the aqueous humorwhen viewed during a slit lamp biomicroscopic examination. Flare occurs when the protein content of the aqueous humorincreases due to intraocular inflammation. 23 Table of ContentsWe enrolled patients in this trial who were at least 21 years of age undergoing unilateral clear corneal cataract surgery.We excluded patients from the trial if, among other reasons, they had intraocular inflammation or ocular pain in the study eyeat screening or had glaucoma or ocular hypertension. Efficacy: In this trial, DEXTENZA met the primary efficacy endpoint with statistical significance for absence of paincompared to the vehicle control at day 8 (p<0.0001). We determined statistical significance based on a widely used,conventional statistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less representsstatistical significance. The differences between DEXTENZA and the vehicle control for absence of pain also werestatistically significant at each other evaluation date (p<0.0002). These results are shown in the graph below. In this graphand other graphs appearing further below, we use the abbreviation “N” to reference the number of patients in each group. In this trial, DEXTENZA did not meet the primary efficacy endpoint with statistical significance for absence of cells inthe anterior chamber compared to the vehicle control at day 8. However, there was a trend of improved absence24 Table of Contentsof anterior chamber cells at each evaluation date, with statistical significance at day 14 (p<0.0027) and day 30 (p< 0.0002).These results are shown in the graph below. Based on post hoc analysis, DEXTENZA showed statistical significance for absence of flare compared to vehiclecontrol at each evaluation date. These results are shown in the graph below. Safety: In this trial, there were three serious adverse events, none of which was considered related to the studytreatment. The trial investigator determined the relatedness of the serious adverse events to study treatment based on his orher professional medical judgment and in accordance with the study protocol, which required the investigator to determinethat a reasonable possibility did not exist that the study treatment caused the adverse event. None of the three serious adverseevents: syncope, intracranial hemorrhage and cellulitis of the arm, were ocular in nature. In addition, there were a variety ofadverse events in both the DEXTENZA group and the vehicle control group, with the adverse25 Table of Contentsevents in the vehicle control group outnumbering the adverse events in the DEXTENZA group. In the DEXTENZA group,the only adverse event that occurred more than once was reduced visual acuity, which occurred twice. The most commonadverse events in the vehicle control group were reduced visual acuity, conjunctival hyperemia and corneal edema. Overall,19 adverse events were noted in the DEXTENZA group and 30 adverse events were noted in the vehicle control group. Alladverse events were transient in nature and completely resolved by the end of the trial. Completed Phase 3 Clinical Trials In 2014, we initiated a pivotal clinical trial program that consisted of two prospective, randomized, parallel-arm,vehicle-controlled, multicenter, double-masked Phase 3 clinical trials evaluating the safety and efficacy of DEXTENZA forthe treatment of ocular pain and inflammation following cataract surgery. We initiated the first of these Phase 3 clinical trialsin February 2014 and the second trial in April 2014. Patient enrollment was completed in September 2014, and the toplineefficacy data from these clinical trials was reported in March and April 2015. We initiated a third Phase 3 clinical trial in theOctober 2015. Patient enrollment in the third Phase 3 clinical trial was completed in May 2016 and the topline efficacy datawas reported in November 2016. We enrolled 247 patients at 16 sites in the first Phase 3 clinical trial, 241 patients at 16 sites in the second Phase 3clinical trial and 438 patients at 21 sites in the third Phase 3 clinical trial in the United States pursuant to our effective IND.We randomized patients in a 2:1 ratio in the first two Phase 3 clinical trials and in a 1:1 ratio in the third Phase 3 clinical trialto receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. We evaluated patientsat days 2, 4, 8, 14, 30 and 60 following surgery in the first two Phase 3 trials and at days 2, 4, 8, 14, and 30 in the third Phase3 clinical trial. The two primary efficacy measures in these trials were absence of inflammatory cells in the anterior chamber of thestudy eye when measured with a slit lamp biomicroscope and absence of pain in the study eye. To meet the efficacy endpoint for absence of inflammatory cells, there needed to be a complete absence of inflammatory cells. In these trials, absenceof pain was based on a patient reported score of zero on a scale from zero to ten of ocular pain assessment. The first primaryefficacy endpoint for these trials was the difference in the proportion of patients in each treatment group with absence ofinflammatory cells in the anterior chamber of the study eye at day 14 following surgery. Pivotal clinical trials for otherophthalmic steroid drugs approved by the FDA for marketing in the United States also have evaluated this endpoint at day14. The second primary efficacy endpoint for these trials was the difference in the proportion of patients in each treatmentgroup with absence of pain in the study eye at day 8 following surgery. For clarification of the endpoints, the day of surgeryand insertion of DEXTENZA or the placebo is considered to be day 1. We evaluated as secondary efficacy measures the level of flare, an indicator of inflammation in the anterior chamber ofthe study eye at each evaluation date until day 30 and absence of inflammatory cells in the anterior chamber of the study eyeand absence of pain in the study eye at each evaluation date other than the day used for the primary efficacy measure untilday 30. The secondary analyses on primary endpoints were intended to be exploratory assessments that can be used tosupport the results from the primary endpoints. We enrolled patients in these two trials who were at least 18 years of ageundergoing unilateral clear corneal cataract surgery. We excluded patients from these trials if, among other reasons, they hadintraocular inflammation or ocular pain in the study eye at screening or had glaucoma or ocular hypertension. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity and IOP, along with any adverse events. Efficacy: In the first Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint with statistical significancefor the absence of cells in the anterior chamber compared to the vehicle control at day 14. 33.1% of DEXTENZA treatedpatients showed an absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug productinsertion, compared to 14.5% of those receiving placebo vehicle control intracanalicular inserts (p=0.0018). DEXTENZAalso met the primary efficacy endpoint with statistical significance for absence of pain compared to the vehicle control at day8. 80.4% of patients receiving DEXTENZA reported absence of pain in the study eye on day 8 following insertion of the drugproduct, compared to 43.4% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001). In the second Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint for absence of pain at day 8 withstatistical significance but did not meet the primary efficacy endpoint for absence of inflammatory cells at day 14.26 Table of ContentsIn the second Phase 3 clinical trial, 77.5% of patients receiving DEXTENZA reported an absence of pain in the study eye onday 8 following insertion of the drug product, compared to 58.8% of those receiving placebo vehicle control intracanalicularinserts, a difference which was statistically significant (p=0.0025). However, 39.4% of DEXTENZA treated patients showedan absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug product insertion,compared to 31.3% of those receiving placebo vehicle control intracanalicular inserts, a difference which was notstatistically significant (p=0.2182). In the third Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint with statistical significance for theabsence of cells in the anterior chamber compared to the vehicle control at day 14. 52.1% of DEXTENZA treated patientsshowed an absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug product insertioncompared to 31.2% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001). DEXTENZA also met theprimary efficacy endpoint with statistical significance for absence of pain compared to the vehicle control at day 8. 79.3% ofpatients receiving DEXTENZA reported absence of pain in the study eye on day 8 following insertion of the drug product,compared to 61.3% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001). Secondary analyses on primary endpoints for the three Phase 3 clinical trials were also completed. In the first Phase 3clinical trial, statistically significant differences were seen for absence of pain at all time points (days 2, 4, 8, 14, 30 and 60)in the DEXTENZA treatment group compared to the vehicle control group. Statistically significant differences were seen forthe absence of inflammatory cells at day 30 in the DEXTENZA treatment group compared to the vehicle control group, andthere were no statistically significant differences seen at the other time points. Statistically significant differences betweenthe DEXTENZA treatment group and the vehicle control group were seen for flare at days 8, 14 and 30. In the second Phase 3 clinical trial, statistically significant differences were seen for absence of pain at days 2, 4, 14 and30 in the DEXTENZA treatment group compared to the vehicle control group. A similar proportion of patients in theDEXTENZA treatment group and the vehicle control group were observed to have an absence of inflammatory cells atdays 2, 4, 8, and 30. A statistically significant difference between treatment groups was not seen for the absence ofinflammatory cells until the day 60 visit, at which time a greater proportion of patients in the DEXTENZA treatment groupcompared to the vehicle control group were observed to have an absence of inflammatory cells at day 60 (p=0.0012).Statistically significant differences between the DEXTENZA treatment group and the vehicle control group were seen forflare at days 14, 30 and 60. In the third Phase 3 clinical trial, statistically significant differences were seen for absence of pain at all time points(days 2,4, 14, and 30) in the DEXTENZA treatment group compared to the vehicle control group. Statistically significantdifferences were seen for the absence of inflammatory cells at days 4, 8, and 30 but not seen at day 2. Statistically significantdifferences between the DEXTENZA treatment group and the vehicle control group were seen for flare at all measured timepoints (days 2, 4, 8, 14, and 30). Safety: There were no ocular or treatment-related serious adverse events in the DEXTENZA treatment group in either ofthe first two completed Phase 3 clinical trials. There was one ocular serious adverse event in the vehicle control group in thefirst two completed Phase 3 clinical trials: hypopyon, or inflammatory cells in the anterior chamber. There were two patientswith three serious adverse events in the DEXTENZA treatment group in the first Phase 3 clinical trial (1.2% incidence),compared with two patients with four serious adverse events in the vehicle control group (2.4% incidence). There were twoserious adverse events in the DEXTENZA treatment group in the second Phase 3 clinical trial (1.3% incidence), comparedwith three serious adverse events in the vehicle control group (3.8% incidence). There were three serious adverse events inthe DEXTENZA treatment group in the third Phase 3 clinical trial (1.4% incidence), compared with two serious adverseevents in the vehicle control group (0.9% incidence). One serious adverse event in the DEXTENZA group was ocular innature (retinal detachment). None of the serious adverse events in either group were deemed to be treatment-related. Patients were randomized in a 2:1 ratio in the first two Phase 3 clinical trials and in a 1:1 ratio in the third Phase 3clinical trial between the treatment group and the vehicle control group. In the first Phase 3 clinical trial, 98 adverse eventswere noted in the DEXTENZA group and 59 adverse events were noted in the vehicle control group. In the second Phase 3clinical trial, 74 adverse events were noted in the DEXTENZA group and 47 adverse events were noted in the vehicle controlgroup. In the third Phase 3 clinical trial, 91 adverse events were noted in the DEXTENZA group and 109 adverse events werenoted in the vehicle control group. All adverse events were either resolved or considered27 Table of Contentschronic/stable at the time of subject exit from the study. We expect to be able to use the safety data from these Phase 3 trialsto support our other DEXTENZA clinical development programs, including for allergic conjunctivitis. Regulatory PathwayIn September 2015, we submitted to the FDA an NDA for DEXTENZA for the treatment of post-surgical ocular pain. InJuly 2016, we received a CRL from the FDA regarding our NDA for DEXTENZA pertaining to deficiencies in manufacturingprocess and controls identified during a pre-NDA approval inspection. We resubmitted our NDA to the FDA in January 2017.Following a re-inspection of manufacturing operations by the FDA which was completed in May 2017, we received an FDAForm 483 containing inspectional observations focused on manufacturing processes and analytical testing related to themanufacture of drug product for commercial production. In July 2017, we received a CRL from the FDA regarding our NDAfor DEXTENZA for the treatment of post-surgical ocular pain, which states that the FDA has determined that it cannotapprove the NDA in its present form. In May 2017, we submitted our initial response to the Form 483 and, in November2017, we submitted our responses to the FDA’s remaining inspectional observations in an effort to close out the itemsidentified in the Form 483. We resubmitted our NDA for DEXTENZA for the treatment of post-surgical ocular pain in June 2018. In November2018, we received FDA approval for DEXTENZA for the pain indication. In January 2019, we submitted a sNDA forDEXTENZA for the treatment of post-surgical ocular inflammation. If we receive timely approval of the sNDA for post-surgical ocular inflammation, we expect to expand the labeling to include this indication. Although we conducted our Phase3 clinical trials of DEXTENZA in patients who have undergone cataract surgery, these trials are intended to support a labelfor all post-surgical ocular surgeries. Clinical Trials for Allergic Conjunctivitis Completed Phase 2 Clinical Trial In November 2014, we completed a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked Phase 2 clinical trial evaluating the safety and efficacy of DEXTENZA for the treatment of allergic conjunctivitis.We conducted this trial using a modified version of a controlled exposure model commonly used to assess anti-allergymedications known as the Conjunctival Allergen Challenge model, or CAC, which is a proprietary model owned by ORA,Inc., the clinical research organization we used to manage the trial. The modified CAC achieves a very high transient doseexposure by placing allergen directly into the space between the eyelid and the surface of the eye of the patient. We initiallyexposed patients to specified allergens to determine which allergens resulted in an allergic response for the patients. Ifpatient was responsive to a particular allergen, we continued to expose the patient to that same allergen prior to eachevaluation. We enrolled 68 patients at two sites in the United States. We randomized patients in a 1:1 ratio to receive eitherDEXTENZA or a placebo vehicle control intracanalicular insert without active drug. We evaluated patients using threeallergen challenges in series for each of the two efficacy measures at 14, 28 and 42 days following placement of theintracanalicular insert. The primary efficacy measures for this trial were ocular itching graded by the patient and conjunctival redness gradedby the trial investigator, in each case based on a five point scale from zero to four. The primary efficacy measures weredifferences between treatment groups of at least 0.5 units on the five point scale on day 14 for all three time points measuredin a day for both ocular itching and conjunctival redness and differences between treatment groups of at least 1.0 unit for themajority of the three time points measured on 14 days post insertion for both ocular itching and conjunctival redness. Thesecondary endpoints for this trial were similar to the primary efficacy endpoints, except that each variable was assessed at 28days and 42 days following placement of the intracanalicular insert. We enrolled patients in this trial who were at least 18 years of age with a positive history of ocular allergies and apositive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among otherreasons, they had an active ocular infection or itching or conjunctival redness at screening. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity and IOP, along with any adverse events. 28 TMTable of ContentsEfficacy: In this trial, there was a statistically significant mean difference (p<0.05) between the DEXTENZA treatmentgroup and the vehicle group for both ocular itching and conjunctival redness at all three time points measured on 14, 28, and42 days following placement of the intracanalicular insert. DEXTENZA met one of the two primary efficacy endpoints. TheDEXTENZA treatment group achieved a mean difference compared to the vehicle control group of more than 0.5 units on afive point scale at 14 days post insertion for all three time points measured in a day for both ocular itching and conjunctivalredness. The DEXTENZA group did not achieve a mean difference compared to the vehicle control group of 1.0 unit for themajority of the three time points measured on 14 days post insertion for either ocular itching or conjunctival redness.However, in a pre-specified analysis group of a second site in the clinical trial, in which DEXTENZA intracanalicular insertswere placed 48 to 72 hours following exposure to the allergen, rather than on the same day, we observed a mean difference inocular itching between the DEXTENZA group and the vehicle control group of approximately 1.0 unit for the majority ofthree time points measured on 14 days. The results of this trial for each of the three time points on day 14 following the insertion of the intracanalicular insertfor the DEXTENZA group and the vehicle control group are shown in the table below: Treatment Time DifferenceParameter Point DEXTENZA Vehicle (P-value)Ocular Itching 3 min 1.80 (1.068) 2.58 (0.823) -0.78 (0.0031) 5 min 1.72 (0.998) 2.70 (0.865) -0.98 (0.0002) 7 min 1.65 (0.989) 2.53 (0.880) -0.88 (0.0007)Conjunctival Redness 7 min 1.60 (0.753) 2.11 (0.727) -0.51 (0.0100) 15 min 1.53 (0.753) 2.23 (0.708) -0.70 (0.0006) 20 min 1.54 (0.739) 2.21 (0.696) -0.67 (0.0008) Safety: In this trial, there was one serious adverse event in the treatment arm, which was depression. This event was notsuspected to be related to treatment. The serious adverse event was not ocular in nature. In addition, there were a variety ofadverse events in both the DEXTENZA group and the vehicle control group, with nine ocular adverse events and two non-ocular related adverse events in the DEXTENZA group and eight ocular adverse events and two non-ocular adverse events inthe vehicle control group. In the DEXTENZA group, the only adverse events that occurred more than once were reduction invisual acuity and increased IOP, both of which occurred twice. The most common adverse events in the vehicle control groupwere erythema of the eyelid, discharge from the eye and an increase in lacrimation, all of which occurred twice. All adverseevents were transient in nature and completely resolved by the end of the trial. Phase 3 Clinical Program We met with the FDA in December 2014 to review the Phase 2 clinical trial results of DEXTENZA for the treatment ofallergic conjunctivitis and to discuss our planned Phase 3 clinical development program. Based on these discussions, wehave initiated and completed two Phase 3 clinical trials. First Phase 3 Clinical Trial We initiated the first of these two planned Phase 3 clinical trials in June 2015, and we reported topline efficacy resultsin October 2015. This first Phase 3 clinical trial was a prospective, randomized, parallel-arm, vehicle-controlled, multicenter,double-masked trial. A total of 73 patients were enrolled in this trial and were randomized in a 1:1 ratio to receive eitherDEXTENZA or a placebo vehicle control intracanalicular insert without active drug. This trial was conducted using themodified CAC model. We evaluated patients using three allergen challenges in series for each of two efficacy measures atdays 7, 14 and 28 following placement of intracanalicular insert as described below. In this Phase 3 clinical trial, we placedthe intracanalicular inserts 48 to 72 hours after exposure to the allergen. In our completed Phase 2 clinical trial, we obtainedbetter efficacy results with this design protocol as noted in the description of the Phase 2 efficacy results above.29 Table of Contents The primary efficacy measures for this trial were ocular itching graded by the patient and conjunctival redness gradedby the trial investigator, in each case based on a five point scale from zero to four. The primary efficacy endpoints were thedifferences between the treatment group and the vehicle group of at least 0.5 units on the five point scale measured on 7 dayspost-insertion of the intracanalicular insert for all three time points measured for both ocular itching and conjunctival rednessand differences of at least 1.0 unit for the majority of the three time points measured on 7 days post-insertion of theintracanalicular insert for both ocular itching and conjunctival redness. The secondary endpoints were similar to the primaryefficacy endpoints except that each variable was assessed at day 14 and day 28 following insertion of the intracanalicularinsert. The primary efficacy measure of conjunctival redness is typically included in Phase 3 trials for allergic conjunctivitisbut has not been required for FDA approval of drugs for allergic conjunctivitis. Most commercially available prescriptionmedications for the treatment of allergic conjunctivitis have an ocular itching indication only. As described below, ocularitching is the only primary efficacy endpoint in the second Phase 3 trial of DEXTENZA for the treatment of allergicconjunctivitis, with conjunctival redness being moved to a secondary efficacy endpoint. We enrolled patients in this trial who were at least 18 years of age with a positive history of ocular allergies and apositive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among otherreasons, they had an active ocular infection or itching or conjunctival redness at screening. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity and IOP, along with any adverse events. Efficacy: In this trial, there was a statistically significant mean difference (p<0.0001) between the DEXTENZAtreatment group and the placebo vehicle group for ocular itching at all three time points measured on 7 days post-placementof the intracanalicular insert. DEXTENZA also met the primary efficacy endpoint for ocular itching. The DEXTENZAtreatment group achieved a mean difference compared to the vehicle group of greater than 0.5 units on a five point scale on 7days post-insertion at each time point and greater than 1.0 unit at a majority of the time points on 7 days post-insertion forocular itching. There was a statistically significant mean difference (p=0.01 or less) between the DEXTENZA treatment groupand the placebo vehicle group for conjunctival redness at all three time points measured on 7 days post-placement of theintracanalicular insert. However, the DEXTENZA group did not achieve the pre-specified primary efficacy endpoints on 7days post-insertion with respect to conjunctival redness. The results of this trial for each of the three time points on day 7 following placement of the intracanalicular insert forthe DEXTENZA group and the vehicle control group are shown in the table below: Treatment Time DifferenceParameter Point DEXTENZA Vehicle (P-value)Ocular Itching 3 min 1.68 (1.032) 2.66 (0.861) -1.02 (<0.0001) 5 min 1.87 (1.04) 2.74 (0.69) -0.87 (<0.0001) 7 min 1.70 (0.938) 2.74 (0.679) -1.04 (0.0007)Conjunctival Redness 7 min 1.52 (0.641) 1.80 (0.764) -0.26 (0.1082) 15 min 1.48 (0.698) 1.75 (0.786) -0.32 (0.0419) 20 min 1.44 (0.710) 1.76 (0.766) -0.29 (0.0667) Safety: There were no serious adverse events reported in this trial. There were a variety of adverse events in both theDEXTENZA group and the vehicle control group, with three patients in the DEXTENZA treatment group with a total of threeocular adverse events and one non-ocular adverse event and four patients in the vehicle control group with a total of sixocular adverse events and one non-ocular adverse events. The most common ocular adverse event was increased lacrimation,which was experienced by one patient in the DEXTENZA group and two patients in the vehicle30 Table of Contentscontrol group. Other treatment-related ocular adverse events included increased IOP in the DEXTENZA group, andblepharospasm in the vehicle control group. Second Phase 3 Clinical Trial We initiated the second Phase 3 clinical trial of DEXTENZA for the treatment of allergic conjunctivitis in November2015, and we reported topline efficacy results in June 2016. This second Phase 3 clinical trial was a prospective, randomized,parallel-arm, vehicle-controlled, multicenter, double-masked trial. A total of 72 patients were enrolled in this trial andrandomized in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without activedrug. This trial was conducted using the modified CAC model. Patients were evaluated using three allergen challenges inseries for each of two efficacy measures at days 7, 14 and 28 following insertion of the intracanalicular insert. In this Phase 3clinical trial, we placed the intracanalicular inserts 48 to 72 hours after exposure to the allergen. The single primary efficacy measure for this trial was ocular itching graded by the patient based on a five point scalefrom zero to four. The primary efficacy endpoints were the differences between the treatment group and the vehicle group ofat least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points measuredfor ocular itching and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertionof the intracanalicular insert for ocular itching. The secondary endpoints for ocular itching were similar to the primaryefficacy endpoints except that each variable was assessed at day 14 and day 28 following placement of the intracanalicularinsert. The secondary endpoints for conjunctival redness were the differences between the treatment group and the vehiclegroup of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time pointsmeasured and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertion of theintracanalicular insert. We enrolled patients in this trial who are at least 18 years of age with a positive history of ocular allergies and apositive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among otherreasons, they had an active ocular infection or itching or conjunctival redness at screening. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity and IOP, along with any adverse events. Efficacy: In this trial, DEXTENZA did not meet the primary efficacy endpoint of ocular itching at the three time points measured on day 7 post-placement of the intracanalicular insert. The mean difference in ocular itching in the DEXTENZAtreatment group compared to the placebo group measured 7 days following insertion of the inserts, at 3, 5, and 7 minutes was-0.18, -0.29, and -0.29 units, respectively, on a five point scale and did not achieve statistical significance. In addition, thetrial did not achieve the requirement of at least a 0.5 unit difference at all three time points 7 days following insertion of theinserts and at least a 1.0 unit difference at a majority of the three time points between the treatment group and the placebogroup 7 days following insertion of the inserts. The trial also assessed conjunctival redness as a secondary endpoint. The differences in the mean scores in conjunctivalredness between the DEXTENZA treatment group and the placebo group 7 days following insertion of the inserts at 7, 15 and20 minutes were -0.35, -0.39 and -0.42, respectively. The results of this trial for each of the three time points on day 7 following placement of the intracanalicular insert forthe DEXTENZA group and the vehicle control group are shown in the table below: Treatment Time Difference*Parameter Point DEXTENZA Vehicle (P-value)Ocular Itching 3 min 2.04 (1.088) 2.31 (1.115) -0.18 (0.44) 5 min 2.07 (1.1) 2.41 (1.039) -0.29 (0.223) 7 min 2.02 (1.131) 2.37 (1.129) -0.29 (0.2611)Safety: There were no serious adverse events reported in this trial. There were a variety of adverse events in both theDEXTENZA group and the vehicle control group, with six patients in the DEXTENZA treatment group with a total31 Table of Contentsof six ocular and one non-ocular adverse events and 11 patients in the vehicle control group with a total of nine ocular andeight non-ocular adverse events. The lower rate of ocular adverse events in the DEXTENZA group could potentially be dueto the presence of an anti-inflammatory active pharmaceutical ingredient. Ocular adverse events reported more than onepatient in either treatment group included increased IOP, which was experienced by two patients in the DEXTENZA group,as well as dacryostenosis acquired and dacryocanaliculitis, each experienced by two patients in the vehicle control group.Both cases of IOP increased were considered treatment related, as were both cases of dacrycanaliculitis and a single case ofdacryostenosis. All other ocular adverse events were reported by single patients in either the DEXTENZA or vehicle controlgroup, with most in the PV group considered treatment related. Regulatory Pathway We have completed two Phase 3 clinical trials evaluating DEXTENZA for the treatment of allergic conjunctivitis. Weplan to conduct a third Phase 3 clinical trial commencing in the second half of 2019. Subject to obtaining favorable resultsfrom this third Phase 3 clinical trial, we plan to submit an sNDA to the FDA for DEXTENZA for the treatment of allergicconjunctivitis for only the ocular itching indication. We expect that we would submit this sNDA under Section 505(b)(2) ofthe FDCA. See “—Government Regulation—Section 505(b)(2) NDAs” for additional information. Based on discussions withthe FDA, we expect to use safety results from our Phase 3 clinical trials of DEXTENZA for the treatment of post-surgicalocular pain and inflammation to support the sNDA for DEXTENZA for the treatment of allergic conjunctivitis. Clinical Trial for Dry Eye Phase 2 Clinical Trial In January 2015, we initiated a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, bilateral,double-masked Phase 2 feasibility study evaluating the safety and efficacy of DEXTENZA for the treatment of dry eyedisease. We enrolled 43 patients and evaluated 86 eyes at two sites in the United States pursuant to our effective IND. Theclinical trial was not powered for statistical significance. We randomized patients in a 1:1 ratio to receive either DEXTENZAor a placebo vehicle control intracanalicular insert without active drug. Designed as a serial phase exploratory study, patients were initially administered a placebo vehicle controlintracanalicular insert for 45 days to establish a baseline for the investigational drug treatment. Patients who responded to theplacebo insert in treatment of their dry eye disease were excluded from the trial. Patients who continued to exhibit symptomsof dry eye disease during the initial 45 days, as indicated by a minimum threshold of signs of corneal staining, were qualifiedfor enrollment in the treatment phase of the trial. Qualified patients were then randomized to receive either DEXTENZA or aplacebo vehicle control intracanalicular insert. Primary efficacy measures included corneal and conjunctival staining, tearosmolarity, tear film break-up time, presence of the insert, ease of product use and visualization, and resorption of the insertfollowing therapy. We reported topline results for this clinical trial in December 2015. In this exploratory Phase 2 clinical trial, patients were selected for a minimum threshold of signs of corneal stainingand were randomized to either treatment with DEXTENZA or a placebo vehicle insert. Patients were stratified into groupsbased on the level of National Eye Institute aggregate corneal fluorescein staining score improvement and were thenrandomized into the treatment or placebo vehicle insert group per a pre-determined randomization list to maintain masking.DEXTENZA treated patients showed clinically meaningful benefits compared to patients receiving a placebo vehicle controlintracanalicular insert, with improvement in total and inferior corneal staining as well as conjunctival staining. Total cornealstaining at day 30 following randomization was significantly decreased from baseline in the DEXTENZA group (-3.14)compared to placebo (-1.10) (p=0.018). Inferior staining showed clinically significant differences in the change from baselinein the DEXTENZA treatment group compared to the placebo group (-0.44 and -0.45 at day 15 and day 30, respectively).Corneal staining is a primary endpoint that has been used in recent Phase 3 dry eye clinical trials for dry eye diseaseconducted by other ophthalmology companies. Supportive analyses of lissamine green staining also demonstrated aclinically significant change in favor of DEXTENZA, where total staining was more than 1 point improved for theDEXTENZA group compared to the placebo group. This clinical trial was designed to evaluate a range of objective and subjective measures (signs and symptoms,respectively) for DEXTENZA and was intended to explore which measures would be appropriate to include in the design offuture clinical trials of DEXTENZA or other molecules in a sustained-release product as a potential therapy for32 Table of Contentsdry eye disease. Our long term strategy for the treatment of dry eye may be to use DEXTENZA as a mode of therapy to reduceinflammation in patients with acute dry eye conditions and pursue the development of an intracanalicular insert containingan immunosuppressant drug such as cyclosporine to treat chronic dry eye. Consequently, we are not currently pursuingDEXTENZA for the treatment of dry eye disease. There was one serious adverse event in the DEXTENZA treatment group, myocardial infarction, that was not deemed tobe treatment related. There were 17 adverse events in the DEXTENZA group and 11 adverse events in the vehicle controlgroup. Eight patients in the DEXTENZA group reported 12 ocular related adverse events, and 4 patients in the vehiclecontrol group reported 5 ocular related adverse events. Four patients in the DEXTENZA group reported 5 non-ocular relatedadverse events, and 5 subjects in the vehicle control group reported 6 non-ocular related adverse events. The most frequentlyreported ocular treatment related ocular adverse event was increased lacrimation, which was reported in 4 patients in theDEXTENZA group and 1 subject in the vehicle control group. Three patients, all from the DEXTENZA group, had a mildreduction in best corrected visual acuity, of which 2 were considered treatment related and 1 of these was not resolved duringthe trial. Travoprost Intracanalicular Insert (OTX-TP) Our OTX-TP product candidate incorporates the PGA travoprost as an active pharmaceutical ingredient in ourproprietary intracanalicular insert. We are developing OTX-TP for the treatment of glaucoma and ocular hypertension. Wehave completed a Phase 2a clinical trial of OTX-TP, and we reported topline efficacy results of a Phase 2b clinical trial ofOTX-TP in the United States in October 2015. We are currently conducting the first of two Phase 3 trial of OTX-TP. In thefirst Phase 3 trial, we have completed target enrollment of 550 patients at approximately 50 sites in the United States. Travoprost is a synthetic PGA that reduces IOP by enhancing the clearance and drainage of ocular fluid. We selected travoprost as the active pharmaceutical ingredient for OTX-TP because it: ·is approved by the FDA for the treatment of glaucoma and ocular hypertension; ·has relevant patent protection that expired in December 2014; ·is a highly potent PGA molecule; ·is available from multiple qualified suppliers; and ·has physical properties that are well suited for incorporation within our intracanalicular inserts. We have designed OTX-TP to deliver therapeutic levels of travoprost for up to three months. We have tested versionsof OTX-TP that are capable of local programmed-release over a one-month, a two-month and a three-month period. Theretention time of our intracanalicular inserts varies from patient-to-patient due to various physiological and anatomicalfactors to which the intracanalicular inserts may be subjected. We have conducted a series of non-significant risk, or NSR,investigational device exemption, or IDE, studies with improved product designs and placement procedures with the goal ofachieving higher retention rates. We have achieved successive improvements in retention, with as high as a 92% retentionrate at day 90 in one of these NSR studies. Our completed pilot studies evaluated one-month and two-month versions ofOTX-TP. In our Phase 2a clinical trial, we evaluated two-month and three-month versions of OTX-TP. In our Phase 2b clinicaltrial, we evaluated an improved three-month version of OTX-TP. In our pilot studies, the OTX-TP inserts we evaluated wereviolet to provide a visual assessment of insert position. In our subsequent Phase 2 clinical trials, we switched to a fluorescentyellow color to improve visibility and are using this same fluorescent marker in our Phase 2b clinical trial. In addition to the PEG-based hydrogel, OTX-TP contains bioresorbable microparticles which contain encapsulatedtravoprost. We designed OTX-TP to deliver travoprost at therapeutic levels for the duration of therapy as the microparticlesdegrade. We provide OTX-TP in a sterile, single use package without any added preservatives. 33 Table of ContentsOverview of OTX-TP Clinical Development We are conducting clinical development of OTX-TP for glaucoma and ocular hypertension. Because OTX-TPincorporates an active pharmaceutical ingredient already approved by the FDA for the treatment of glaucoma and ocularhypertension, we did not need to conduct Phase 1 clinical trials for this product candidate. However, we did conduct twopilot studies to assess safety and to obtain initial efficacy data. The following summarizes our clinical development to datefor OTX-TP. ·In 2012, we conducted two pilot studies evaluating the safety and efficacy of two versions of OTX-TP for thetreatment of glaucoma and ocular hypertension over a 30 to 60 day period. ·In 2014, we completed a Phase 2a clinical trial of two versions of OTX-TP for the treatment of glaucoma andocular hypertension to evaluate reduction in IOP over a 60 to 90 day period. This completed trial providedimportant information regarding the effects in patients of the drug delivery rates for our inserts that informed thedesign of the OTX-TP insert that we used in our Phase 2b clinical trial for this indication. ·In the November 2014, we initiated a Phase 2b clinical trial of OTX-TP for the treatment of glaucoma and ocularhypertension to evaluate reduction in IOP over a 60 to 90 day period. We reported topline efficacy results fromthis trial in October 2015. There were no hyperemia-related adverse events noted in any of the patients treatedwith OTX-TP. Further, there have been no serious adverse events observed to date in the Phase 2b trial. Adverseevents noted include punctal stenosis, punctal trauma and canaliculitis. ·We have conducted NSR studies on additional modified intracanalicular insert design. We met with the FDA inthe second quarter of 2016 to discuss alternative Phase 3 clinical trial designs and to formulate our plans for ourPhase 3 program. Based on feedback from this meeting with the FDA, we initiated the first of two planned Phase 3clinical trials in September 2016. The trial design for the two Phase 3 clinical trials includes an OTX-TP treatment arm and a placebo-controlledcomparator arm using a non-drug-eluting insert. No timolol comparator or validation arm will be required in the study designand no eye drops, placebo or active, are being administered in either arm. We expect that the FDA will require that OTX-TPshow both a statistically superior reduction of IOP, when compared to the placebo, as a primary efficacy endpoint, and aclinically meaningful reduction of IOP in the absolute. The primary efficacy endpoint will be evaluated at 2 weeks, 6 weeksand 12 weeks at 8am, 10am and 4pm at each of the three timepoints. Clinical Trials for Glaucoma and Ocular Hypertension Completed Singapore Pilot Study In 2012, we completed a prospective, single arm, open-label pilot study evaluating the initial safety and efficacy of theone-month version of OTX-TP for the treatment of glaucoma and ocular hypertension. We conducted this trial in 17 patients,and in 26 eyes, at two sites in Singapore. We enrolled patients in this trial who were at least 21 years of age with a documented diagnosis of ocular hypertensionor open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye.The trial protocol provided that if the participant’s IOP was high despite treatment with OTX-TP, rescue medication would bemade available to the patient. For patients who were currently under treatment for ocular hypertension or glaucoma, werequired a drug washout period for these medications between screening and first visit. We evaluated patients at days 3, 10, 20 and 30 following insertion of the insert and made the following assessments: ·mean IOP at 8:00 a.m. at each evaluation date as measured in millimeters of mercury, or mmHg; ·mean IOP at 10:00 a.m. and 4:00 p.m. at days 10, 20 and 30; ·change in mean IOP from baseline at each time point measured; and 34 Table of Contents·retention of the insert in the canaliculus at days 10, 20 and 30. We assessed IOP at multiple time points on each evaluation date because IOP naturally varies over the course of theday. For patients who are affected bilaterally, if both eyes met all eligibility criteria, both eyes were treated, but only the eyewith the higher mean IOP at baseline was included in the efficacy analysis. Efficacy: On day 10, 100% of the inserts were visualized, on day 20, 88% of the inserts were visualized, and on day 30,79% of the inserts were visualized. We observed a clinically meaningful reduction in mean IOP over the 30 day trial period. For eyes that retained theinsert, from a mean baseline IOP of 27.2 mmHg, the mean IOP during treatment was maintained at or below 22 mmHg at eachevaluation date and time point. The mean reduction in IOP from baseline ranged from 5.3 mmHg (20%) to 8.2 mmHg(30%) across all evaluation dates and time points. In studies conducted by third parties, a sustained 5.0 mmHg reduction inIOP reduced risk of disease progression by approximately 50%. The results for change in mean IOP from baseline at 8:00 a.m.on each evaluation date are set forth in the graph below. Safety: In this trial, there were no serious adverse events or unanticipated adverse events. There was only one adverseevent, bilateral epiphora, or excess tearing of both eyes, which was transient in nature and completely resolved after insertremoval. There were no significant changes in hyperemia scores from baseline through day 30. There were no notableobservations of clinical relevance among the slit lamp biomicroscopy assessments. Completed South Africa Pilot Study In 2012, we completed a prospective, single arm, open-label pilot study evaluating the initial safety and efficacy of thetwo-month version of OTX-TP for the treatment of glaucoma and ocular hypertension. We conducted this trial in 20 patients,and in 36 eyes, at two sites in South Africa. Enrollment criteria were comparable to our Phase 1 Singapore trial described above, except that the minimum patientage was 18. We evaluated patients at days 3, 15, 30, 45 and 60 following insertion of the insert and made the same assessments withrespect to mean IOP, change in mean IOP from baseline and retention of the insert in the canaliculus at each evaluation datefollowing day 3 as in our Phase 1 Singapore trial described above. Efficacy: On day 15, 97% of the inserts were retained, on day 30, 92% of the inserts were visualized, on day 45, 78% ofthe inserts were retained, and on day 60, 59% of the inserts were retained. Because of the limitations of the visualization ofthe violet color through pigmented eyelids, it is possible that intracanalicular inserts identified as not being retained were infact retained but not visible, particularly given the sustained reduction in IOP through day 6035 Table of Contentsdescribed below. We have since eliminated the violet colorant in favor of a fluorescent PEG hydrogel, resulting in greatlyimproved visualization. We observed a clinically meaningful reduction in mean IOP over the 60 day trial period. For eyes that retained theinsert, from a mean baseline IOP of 28.7 mmHg, the mean IOP during treatment was maintained at or below 22.0 mmHgbeginning on day 15 and at all subsequent evaluation dates. The mean reduction in IOP from baseline ranged from 5.0 mmHg(18%) to 7.1 mmHg (25%) across all evaluation dates and time points. The results for change in mean IOP from baseline at8:00 a.m. on each evaluation date are set forth in the graph below for patients who retained the insert on such date. There were only two cases in which IOP remained high even though the insert was confirmed to be present. In each ofthese cases, the investigator prescribed rescue medication at the end of the visit. It is possible that this elevated IOP was theresult of the participants not responding to travoprost. Safety: In this trial, there were no serious adverse events or unanticipated adverse events. The most common adverseevent was inflammatory reaction, which was noted in three patients. All adverse events were transient in nature andcompletely resolved by the end of the trial. There were no significant changes in hyperemia scores from baseline through day60. There were no notable observations of clinical relevance among the slit lamp biomicroscopy assessments. Completed South Africa Phase 2a Clinical Trial In May 2014, we completed a prospective, randomized, multi-arm, active-controlled, multicenter, double masked Phase2 clinical trial evaluating the safety and efficacy of two versions of OTX-TP for the treatment of glaucoma and ocularhypertension. The OTX-TPa version was intended to release travoprost over a two-month period, and the OTX-TPb versionwas intended to release travoprost at a slower rate over a three-month period. Based on in vitro testing, the OTX-TPa versionhad an average daily drug delivery rate of 3.5 micrograms per day and the OTX-TPb version had an average daily drugdelivery rate of 2.8 micrograms per day. We conducted this trial in 41 patients at four sites in South Africa. In this trial, werandomized 11 patients for treatment with OTX-TPa and placebo eye drops, 17 patients for treatment with OTX-TPb andplacebo eye drops and 13 patients for treatment with a placebo vehicle control intracanalicular insert without active drug andtimolol eye drops. One patient randomized into the timolol group was excluded from the trial because the investigator wasunable to insert the insert. We randomized more patients in the OTX-TPb group than in the OTX-TPa group because weceased enrolling patients in the OTX-TPa group during the trial based on an amendment to our trial protocol intended tofacilitate the completion of the trial and to allow us to evaluate a larger number of patients being treated with a three-monthversion of the insert. Timolol is the most commonly prescribed non-PGA drug for the treatment of glaucoma and has beenused as a comparator drug in pivotal clinical trials for other approval glaucoma products. The primary efficacy endpoints in this trial are differences between treatment groups in: ·mean change in IOP from baseline on each evaluation date and at each time point; 36 Table of Contents·mean percent change in IOP from baseline on each evaluation date and at each time point; and ·mean IOP on each evaluation date and at each time point. We designed our Phase 2a clinical trial to assess clinically meaningful response to treatment, and did not power thetrial to measure any efficacy endpoints with statistical significance. We also evaluated retention of the insert as a secondaryendpoint. We enrolled patients in this trial who were at least 18 years of age with a documented diagnosis of ocular hypertensionor open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye.We excluded patients from this trial if, among other reasons, they had a history of inadequate response to treatment withprostaglandins or beta-blockers. For patients who were currently under treatment for ocular hypertension or glaucoma, werequired a drug washout period for these medications between screening and first visit. We evaluated patients at days 3, 15, 30, 45, 60, 75 and 90 following insertion of the insert and made the followingassessments: ·mean IOP at 8:00 a.m. at each evaluation date; ·mean IOP at 12:00 p.m. and 4:00 p.m. at days 30, 60 and 90; ·change in mean IOP from baseline at each time point measured; and ·retention of the insert in the canaliculus at each evaluation date. For patients who are affected bilaterally, if both eyes met all eligibility criteria, both eyes were treated, but only the eyewith the higher mean IOP at baseline was included in the primary efficacy analysis. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity, along with any adverse events. Efficacy: In the timolol group, for eyes that retained the insert, from a mean baseline IOP of 26.1 mmHg, the mean IOPduring treatment was maintained at or below 21.4 mmHg beginning on day 15 and at all subsequent evaluation dates andtime points. The mean reduction in IOP from baseline ranged from 3.2 mmHg (13%) to 6.4 mmHg (25%) across all evaluationdates and time points through day 75. In the OTX-TPa group, for eyes that retained the insert, from a mean baseline IOP of 25.8 mmHg, the mean IOP duringtreatment was maintained at or below 21.0 mmHg beginning on day 15 and at all subsequent evaluation dates and timepoints through day 75. The OTX-TPa formulation, originally intended to deliver drug over a two-month period, exceeded ourexpectations, delivering drug for 75 days. The mean reduction in IOP from baseline ranged from 3.2 mmHg (14%) to 6.0mmHg (24%) across all evaluation dates and time points through day 75. In OTX-TPb group, for eyes that retained the insert, from a mean baseline IOP of 26.4 mmHg, the mean IOP duringtreatment was maintained at or below 22.2 mmHg beginning on day 15 and at all subsequent evaluation dates and timepoints. The mean reduction in IOP from baseline ranged from 2.0 mmHg (9%) to 5.4 mmHg (20%) across all evaluation datesand time points. 37 Table of ContentsThe results for change in mean IOP for patients in the OTX-TPa group, for patients in the OTX-TPb group and forpatients in the timolol group from baseline at 8:00 a.m. on each applicable evaluation date are set forth in the graph below, ineach case for patients who retained the insert on such date. We believe that the lower average daily drug delivery rate in theOTX-TPb group may have resulted in less reduction of mean IOP in this group as compared to the OTX-TPa group. Asdiscussed below, we evaluated an improved three-month version of OTX-TP in our Phase 2b clinical trial. Safety: In this trial, there were no serious adverse events. The most common adverse event was inflammatory reaction,which was noted in five patients. All adverse events were transient in nature and resolved by the end of the trial. There wereno significant changes in hyperemia scores from baseline through day 90. There were no notable observations of clinicalrelevance among the slit lamp biomicroscopy assessments. Completed U.S. Phase 2b Clinical Trial In November 2014, we initiated a prospective, randomized, parallel-arm, active-controlled, multicenter, double-maskedPhase 2b clinical trial to evaluate the safety and efficacy of OTX-TP for the treatment of glaucoma and ocular hypertensionafter submitting an IND to the FDA for this indication. We treated 73 patients at 11 sites in the United States pursuant to oureffective IND. We randomized patients in a 1:1 ratio to receive either OTX-TP and placebo eye drops or a placebo vehiclecontrol intracanalicular insert without active drug and eye drops containing timolol. Patients were instructed to use theplacebo drops or timolol drops twice daily for the duration of the trial. Based on the results of our completed Phase 2aclinical trial, we designed the OTX-TP insert for use in our Phase 2b clinical trial to deliver drug over a 90 day period at thesame daily rate as the OTX-TPa insert used in the Phase 2a clinical trial. To achieve this, we modified the design of the OTX-TP insert to enlarge it in order to enable the insert to carry a greater amount of drug. We previously evaluated in our Phase 1clinical trial of OTX-MP in patients following cataract surgery an insert of similar size to the insert we are using in our Phase2b clinical trial. These structural changes were previously evaluated in NSR studies that we describe below. The primary efficacy endpoint in this trial was the difference between treatment groups in the mean change in IOP frombaseline at day 60 following insertion of the intracanalicular insert, calculated by averaging the change from baseline acrossthe three time points at the assessment date, which is known as diurnal IOP. The secondary efficacy endpoints in this trialwere the difference between treatment groups in the mean change from baseline in average diurnal IOP at day 90, thedifference between treatment groups in the mean change from baseline in IOP at each individual time point at day 60 and day90, the difference between treatment groups in the mean change in average diurnal IOP and IOP at each individual time pointat day 60 and day 90, and the difference between treatment groups in the mean percent change from baseline in averagediurnal IOP and IOP at each individual time point at day 60 and 90. We designed our Phase 2b clinical trial to assessclinically meaningful response to treatment, and did not power the trial to measure any efficacy endpoints with statisticalsignificance. 38 Table of ContentsWe enrolled patients in this trial who are at least 18 years of age with a documented diagnosis of ocular hypertension oropen-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye. Weexcluded patients from this trial if, among other reasons, they had a history of inadequate response to treatment withprostaglandins or beta-blockers. For patients under treatment for ocular hypertension or glaucoma, we required a drugwashout period for these medications between screening and first visit. We also evaluated the effect of a four week versus afive week washout duration on the change in 8:00 a.m. IOP in both groups. We evaluated patients at days 3, 15, 30, 45, 60, 75 and 90 (with insertion of the insert on day 1) and made thefollowing assessments: ·mean IOP and change in mean IOP from baseline at 8:00 a.m. at days 3, 15, 45 and 75; and ·mean IOP and change in mean IOP from baseline at 8:00 a.m., 12:00 p.m. and 4:00 p.m. at days 30, 60 and 90. We also collected data on intracanalicular insert presence along with visualization of the insert by both the studypatient and the investigator. The patients were instructed to assess insert presence on a daily basis and report the absence ofan insert immediately. This data has provided a method for us to assess the accuracy of patient self-examination for insertpresence, and we expect that this will maximize the consistency of dosing. We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visualacuity, along with any adverse events. Efficacy: In this trial, the mean change from baseline IOP at 8:00 a.m. on day 30, 60, and 90 in the OTX-TP group was a decreaseof 4.5, 4.7, and 5.1 mm Hg, respectively. In this trial, on day 60, the OTX-TP group experienced a mean diurnal IOP lowering effect of 3.3 mmHg compared tobaseline, versus mean diurnal IOP lowering of 5.9 mmHg compared to baseline for the timolol group. On day 90, the OTX-TPgroup experienced a mean diurnal IOP lowering effect of 3.6 mmHg compared to baseline, versus mean diurnal IOP loweringof 6.3 mmHg compared to baseline for the timolol group. On day 60, the OTX-TP group experienced a mean IOP lowering effect compared to baseline of 4.7 mmHg at 8:00 a.m.,2.3 mmHg at 12:00 p.m. and 2.8 mmHg at 4:00 p.m., versus mean IOP lowering compared to baseline of 6.4 mmHg at 8:00a.m., 6.1 mmHg at 12:00 p.m. and 5.6 mmHg at 4:00 p.m. for the timolol group. On day 90, the OTX-TP group experienced amean IOP lowering effect compared to baseline of 5.1 mmHg at 8:00 a.m., 2.5 mmHg at 12:00 p.m. and 3.0 mmHg at 4:00p.m., versus a mean IOP lowering effect compared to baseline of 7.2 mmHg at 8:00 a.m., 6.1 mmHg at 12:00 p.m. and 5.5mmHg at 4:00 p.m. for the timolol group. The mean IOP in the OTX-TP treatment group on day 60 was 21.73 mmHG at 8:00 a.m., 22.27 mmHg at 12:00 p.m. and21.42 mmHg at 4:00 p.m. In the timolol group, the mean IOP on day 60 was 20.74 mmHg at 8:00 a.m., 19.05 mmHg at 12:00p.m. and 18.85 mmHg at 4:00 p.m. The mean IOP in the OTX-TP treatment group on day 90 was 21.33 mmHg at 8:00 a.m.,22.09 mmHg at 12:00 p.m. and 21.18 mmHg at 4:00 p.m. In the timolol group, the mean IOP on day 90 was 19.87 mmHg at8:00 a.m., 19.08 mmHg at 12:00 p.m. and 18.95 mmHg at 4:00 p.m. The mean diurnal IOP in the OTX-TP treatment group on day 60 was 21.81 mmHg. The mean diurnal IOP in the timololtreatment group on day 60 was 19.54 mmHg. The mean diurnal IOP in the OTX-TP treatment group on day 90 was 21.53 mmHg. The mean diurnal IOP in the timololtreatment group on day 90 was 19.3 mmHg. This Phase 2b glaucoma clinical trial was designed to evaluate the non-inferiority of OTX-TP compared to timolol andto inform the further clinical development for OTX-TP. This trial was not powered to show statistical significance betweentreatment groups. The OTX-TP treatment group included placebo eye drops that may have reduced the efficacy measures forOTX-TP, by washing out drug eluted from the insert from the ocular surface, whereas the timolol group included a placeboinsert that may have improved the efficacy of timolol through occlusion of the punctum thereby39 Table of Contentsprolonging its retention on the ocular surface. Several peer-reviewed medical journals have reported studies in which anadditional IOP lowering effect of 1.32 to 1.80 mmHg was observed in patients taking timolol eye drops in combination witha non-drug eluting punctum plug compared to those patients only taking timolol eye drops. These include studies reportedin September 2011 in Clinical and Experimental Optometry, February 1989 in the American Journal of Ophthalmology andAugust 1996 in Acta Ophthalmologica Scandinavica. The expected design for our Phase 3 clinical trials of OTX-TP for thetreatment of glaucoma and ocular hypertension is addressed below under “—Regulatory Pathway”. In the timolol group, the mean IOP at day 30, 60 and 90 at all time points ranged from 18.9 mmHg to 20.7 mmHg. Themean reduction in IOP from baseline at day 30, 60 and 90 at all time points ranged from 5.3 mmHg to 7.3mmHg. In the OTX-TP group, the mean IOP at day 30, 60 and 90 at all time points ranged from 21.0 mmHg to 22.3 mmHg. Themean reduction in IOP from baseline at day 30, 60 and 90 at all time points ranged from 2.3 mmHg to 5.2 mmHg. In our completed South Africa Phase 2a clinical trial in which OTX-TP intracanalicular inserts were inserted in 36 eyesin 20 patients with no placebo eye drops used, on day 30 we observed a reduction in IOP of 6.1 mmHg at 8:00 a.m., 5.1mmHg at 12:00 p.m. and 5.6 mmHg at 4:00 p.m. following insertion of the intracanalicular insert. In this trial, on day 60 weobserved a reduction in IOP of 6.7 mmHg at 8:00 a.m., 5.1 mmHg at 12:00 p.m. and 4.3 mmHg at 4:00 p.m. followinginsertion of the intracanalicular insert. The diurnal averages of the reduction in the IOP were 5.6 mmHg at day 30 and 5.4mmHg at day 60 in this trial. We believe that the higher IOP reduction observed in this trial may be due in part to the lack ofplacebo eye drops. We performed additional post-hoc analyses that were not pre-specified in the trial protocol for the Phase 2b glaucomaclinical trial to provide further insight on the performance of OTX-TP. Although post-hoc analyses performed using anunlocked clinical trial database can result in the introduction of bias, we believe that these analyses provide importantinformation regarding our OTX-TP product candidate and are helpful in determining the study population and inclusion andexclusion criteria for future clinical trials. When we excluded patients on more than one glaucoma medication and used thebaseline of five weeks of washout for comparisons of the OTX-TP group and the timolol group, the differences in meanreduction in IOP between the OTX-TP treatment group and the timolol group at the 8:00 a.m. time point on day 30, 60 and90 narrowed to an average of 1.1 mmHg from an average of 2.2 mmHg based on the pre-specified criteria. These results areshown in the table below: 8:00 am Results for Intraocular Pressure (mmHg) Post-hoc analysis Intent to Treat Baseline of 5 weeks, Population single drug only OTX-TP Timolol OTX-TP TimololDay 30 -4.5 -6.6 -4.9 -6.2Day 60 -4.7 -6.4 -5.3 -6.2Day 90 -5.1 -7.3 -5.7 -7.2Average -4.8 -7.0 -5.6 -6.7Difference -2.2 -1.1 In this trial, inserts were found to be retained in 91% of patients at day 60, 88% of patients at day 75 and 48% ofpatients at day 90, reflecting the corresponding absorption and clearance of the inserts with the duration of drug release. Safety: In this trial, there were no serious adverse events. Adverse events noted to date including punctal stenosis,punctal trauma and canaliculitis. The most common adverse event was inflammatory reaction of the lacrimal punctum and/orcanaliculus, which was noted in five patients. These adverse events were transient in nature and resolved by the end of thetrial. There were no significant changes in hyperemia scores from baseline through day 90 and there were no hyperemiarelated adverse events. There were no notable observations of clinical relevance among the slit lamp biomicroscopyassessments. Non-Significant Risk Retention Studies We conduct medical device NSR IDE studies on an ongoing basis for the purpose of refining our intracanalicular insertproduct and placement procedure. We conduct these NSR studies under FDA IDE regulations, although no40 Table of Contentsspecific FDA approval is required. We are able to conduct NSR studies because intracanalicular inserts without active drugare well established ophthalmic medical devices. The NSR study process allows us to make relatively quick evaluations ofour intracanalicular insert design and placement procedure in human subjects. In a series of completed NSR studies, we have effected compositional and dimensional adjustments to ourintracanalicular insert to optimize retention. We have also used these studies to evaluate intracanalicular insert placement, aswell as removal and repeat placements and have seen a range of results in NSR studies to date, with the most recent studyachieving a retention rate of approximately 85-90% at day 90. We are using an intracanalicular insert design in our Phase 3 clinical trials of OTX-TP for the treatment of glaucomaand ocular hypertension that is slightly smaller than the plug design used in the Phase 2b clinical trial. We also plan to usean intracanalicular insert design in these trials that has a rapidly dissolvable tip that enables greater ease of insertion of theinsert. We believe that with the current level of retention with our intracanalicular insert design and given the ability ofpatients to assess the presence of the insert as a result of the fluorescent label, our current product design offers a potentiallysignificant improvement over the current standard of care with patients receiving PGAs. The compliance rate with PGA eyedrops has been shown to be only approximately 50% after six months of therapy due to the challenges of administration andside effects including hyperemia, or red eye. Regulatory Pathway Based on feedback following discussions with the FDA in the second quarter of 2016, we are using a protocol designfor our Phase 3 clinical trials that focuses on a comparison of the OTX-TP arm against a vehicle placebo arm. We are notrequired to use placebo drops in this trial or include a timolol reference arm. We will be required to successfully completetwo well controlled Phase 3 clinical trials of OTX-TP conducted under an IND to obtain marketing approval from the FDA.We reached our target enrollment of 550 patients at approximately 50 sites in our first Phase 3 clinical trial for an expectedexposure duration of three months. A number of patients will be studied for up to 12 months for safety evaluations. Patientswill be randomized in a 3:2 ratio to receive either OTX-TP or a placebo vehicle control intracanalicular insert without activedrug. There is no timolol comparator or validation arm required in the study design and no eye drops, placebo or active, arebeing administered in either arm. We expect that the FDA will require that OTX-TP show both a statistically superiorreduction of IOP, when compared to the placebo, as a primary efficacy endpoint, and a clinically meaningful reduction of IOPin the absolute. The primary efficacy endpoint will be evaluated at 2, 6 and 12 weeks at 8 a.m., 10 a.m. and 4 p.m. at each ofthe three timepoints. We initiated the first Phase 3 clinical trial in September 2016 and anticipate topline data in the first halfof 2019. We do not intend to initiate the second Phase 3 clinical trial until we receive data from the first Phase 3 clinical trialand discuss the results of this first Phase 3 clinical trial with the FDA. If we obtain favorable results from these Phase 3 clinical trials, we would plan to submit an NDA to the FDA formarketing approval of OTX-TP for the treatment of glaucoma and ocular hypertension. We expect that we would submit thisNDA under Section 505(b)(2) of the FDCA. See “—Governmental Regulation—Section 505(b)(2) NDAs” for additionalinformation. Intracameral Glaucoma (OTX-TIC) Product Candidate We are conducting an open-label, proof-of-concept Phase 1 clinical trial of OTX-TIC that we initiated in the secondquarter of 2018 for the treatment of patients with moderate to severe glaucoma and ocular hypertension. OTX-TIC (extended-delivery travoprost) is a bioresorbable hydrogel implant incorporating travoprost that is designed to be an intracameralinjection into the anterior chamber of the eye with an initial target duration of drug release of four to six months. Preclinicalstudies to date have demonstrated clinically meaningful IOP lowering and good pharmacokinetics in the aqueous humor. We initiated a pilot clinical study outside the United States in the third quarter of 2017 to assess safety and obtain initialefficacy data, but did not enroll any patients in this clinical trial and determined to close this trial. We submitted an IND inthe first quarter of 2018 and initiated a second Phase 1 trial in the United States in the second quarter of 2018. The study is aprospective, multi-center study to evaluate the safety, efficacy, durability and tolerability of OTX-TIC compared to topicaltravoprost (eye drops) in patients with open-angle glaucoma or ocular41 Table of Contentshypertension. The first patient in this trial has been treated for nine months from dosing. We expect to present initial resultsat the Association of Research and Vision of Ophthalmology meeting in April 2019. Intravitreal Implants for the Treatment of Back-of-the-Eye Diseases We are engaged in a preclinical development program of our sustained-release hydrogel administered via intravitrealinjection to address the large and growing markets for diseases and conditions of the back of the eye. Our currentdevelopment efforts are focused on the use of our sustained-release hydrogel in combination with anti-angiogeniccompounds, including anti-VEGF compounds, for the treatment of wet AMD. Our initial implants have delivered both smalland large molecule anti-VEGF compounds in vitro over our targeted four to six month period, which we believe could makeit possible to reduce the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD. Inaddition, our preclinical studies have demonstrated a sustained pharmacodynamic effect in vivo of up to six months with asmall molecule tyrosine kinase inhibitor (TKI). The two strategies being pursued are as follows: ·We are evaluating an intravitreal implant, in collaboration with Regeneron, consisting of a PEG-based hydrogelmatrix containing embedded micronized particles of aflibercept. Aflibercept is marketed by Regeneron under thebrand name Eylea. We refer to the formulation we are developing with Regeneron as OTX-IVT. We designed theinjection to be delivered to the vitreous chamber of the eye using a fine gauge needle. We entered into a strategiccollaboration with Regeneron in October 2016 for the development and commercialization of protein-based anti-VEGF drugs, with the initial product candidate incorporating the drug aflibercept into our hydrogel. ·We have selected the TKI, referred to as OTX-TKI, and advanced into an initial human clinical trial and dosed ourfirst patient in Australia in February 2019. We have conducted preclinical work on this compound and haveachieved local programmed-release and pharmacodynamic effect in vivo for six months. We believe this class ofdrugs is well suited for use with our platform given its high potency, multi-target capability, and compatibilitywith a hydrogel vehicle. In the absence of a sophisticated drug delivery system, these drugs have been difficult todeliver to the eye for acceptable time frames at therapeutic levels without causing local and systemic toxicity dueto low drug solubility and very short half-lives in solution. We believe our local programmed-release drugdelivery technology gives us potential advantages in this regard. By selecting a compound that is compatiblewith our hydrogel platform technology and that will have expiration of relevant patents within the timeline ofour development program, we avoid the need to license the TKI molecule, thus retaining full worldwide rights toany products we develop. We are conducting these small and large molecule local programmed-release programs in parallel. In Vitro and Preclinical results To date, in in vitro tests and preclinical studies, we have been able to incorporate antibody anti-VEGF drugs within ourhydrogels, and our collaborators have been testing release rates and the integrity and activity of their compounds. We haveachieved in vitro release over a four to six month duration. The released proteins have been stable, with no chemical orfunctional changes observed. Our hydrogel implants have shown initial tolerability and acceptable pharmacokinetics. We conducted an in vivostudy to measure ocular tissue concentrations of bevacizumab after injection with and without our sustained-releasehydrogel. The injection of a bevacizumab formulation without our hydrogel resulted in a first-order rate of drug clearance, asexpected. In addition, bevacizumab concentrations decreased in the ocular tissues with distance from the intravitrealinjection site. The injection of our hydrogel implant containing bevacizumab showed the same decrease of tissueconcentration of bevacizumab in successively distant tissues. However, the injection of our hydrogel implant containingbevacizumab resulted in a sustained level of drug over the course of the 30 day study. Further, after injection of our hydrogelimplant containing bevacizumab, we observed levels of drug in ocular tissues over the course of the study that wereconsistent with our in vitro release data. After two weeks, the drug concentrations of the implant exceeded those ofbevacizumab injected without our hydrogel. More recently, we have conducted a pharmacodynamic study in a rabbit model,achieving activity against an intravitreal VEGF challenge injection after study duration of four months, compared to lessthan six weeks for a 1.25 mg (human dose) bevacizumab intravitreal injection. Tolerability of42 Table of Contentsbevacizumab-loaded implants in rabbit eyes has been demonstrated through four months. In addition, there were no anti-drug antibodies detected in these rabbits, even though bevacizumab is a recombinant humanized monoclonal antibody andtherefore might be expected to elicit an immune response in rabbits. This early feasibility study has provided us with initialencouraging data for our sustained-release hydrogel implant with bevacizumab and its potential capability of deliveringactive drug to ocular tissues in a local programmed-release fashion and informs the additional preclinical activities we planto pursue. Although these results have been encouraging, we will need to further optimize our hydrogels for aflibercept in ourcollaboration with Regeneron. We believe we have demonstrated initial feasibility sufficient to support the continuingpreclinical development of this program and, if we obtain additional favorable preclinical results, advancement into Phase 1clinical trials. We have conducted in vivo pharmacokinetic and pharmacodynamic studies with hydrogels loaded with a smallmolecule anti-angiogenic TKI compound injected intravitreally. Pharmacokinetic data showed retinal tissue drugconcentrations in excess of 3,000 times published IC50 after six months and pharmacodynamic results show sustainedefficacy for six months. We also continue to conduct our own internal preclinical development program using TKIs. We also believe there areother opportunities for targets beyond VEGF-related targets to utilize our hydrogel for back-of-the-eye diseases, and we maypursue opportunities through internal research or in partnership with pharmaceutical companies. ReSure Sealant ReSure Sealant is a topical liquid hydrogel that creates a temporary, adherent, soft and lubricious sealant to preventpost-surgical leakage from clear corneal incisions that are made during cataract surgery. The main components of ReSurehydrogel are water and PEG. ReSure hydrogel is completely synthetic, with no animal or human derived components. TheFDA granted marketing approval for ReSure Sealant in January 2014. We commercially launched ReSure Sealant in theUnited States in February 2014. Product Design A surgeon forms ReSure Sealant hydrogel by combining three components: PEG, a cross-linker and a diluent buffersolution. The cross-linker interacts with the PEG molecules to form a molecular network that comprises the hydrogel. Thecomponents are mixed to initiate the cross-linking reaction to form a biocompatible, resorbable hydrogel. The hydrogel isapproximately 90% water and is blue in color to help the surgeon visualize the sealant during application. The surgeonapplies the sealant to the corneal incision as a liquid using a soft foam-tipped applicator. The sealant forms a conformalcoating that adheres to the ocular tissue through mechanical interlocking of the hydrogel with the tissue surfaces. The bluecolor fades within a few hours following surgery. The soft, pliable hydrogel remains on the corneal surface during the criticalwound healing period of one to three days and provides a barrier to fluid leakage. ReSure Sealant softens over time, detachesand is sloughed off in the tears as a liquid or extremely soft gel pieces. ReSure Sealant is designed to completely liquefy overa five to seven day duration. Complete epithelial healing takes place over this time period, providing long-term woundclosure. We provide ReSure Sealant in a sterile, single patient use package. The package contains a tray with two elongatedmixing wells. Each well contains dried deposits of reactants, separated within the well. The package also contains one plasticdropper bottle filled with diluent solution and two applicators. The device is stored at room temperature for easy access. ReSure Sealant Clinical Development We conducted a pivotal clinical trial evaluating the safety and effectiveness of ReSure Sealant compared to sutures forpreventing incision leakage from clear corneal incisions. In connection with FDA approval of ReSure Sealant in January2014, we have agreed to conduct two post-approval studies. The first post-approval registry study was designed to confirmwhether ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidenceof pre-specified adverse ocular events in eyes treated with ReSure Sealant. The second post-approval study is designed toascertain the incidence of endophthalmitis in patients treated with ReSure Sealant. 43 Table of ContentsPivotal Clinical Trial In 2013, we completed a prospective, randomized, parallel-arm, controlled, multicenter, subject-masked pivotalclinical trial evaluating the safety and effectiveness of ReSure Sealant. In this trial, we enrolled 488 patients at 24 sites acrossthe United States. One patient was excluded prior to treatment because the surgeon was unable to achieve a dry ocular surfacefor application of ReSure Sealant. As a result, we randomized 304 patients for treatment with ReSure Sealant and 183 patientsfor treatment with sutures. Based on the trial protocol, 295 patients treated with ReSure Sealant and 176 patients treated withsutures completed study follow-up without a significant protocol deviation that directly affected the primary efficacyendpoint. The primary efficacy endpoint was non-inferiority of ReSure Sealant to sutures for preventing incision leakage fromclear corneal incisions within the first seven days following cataract surgery. A non-inferiority determination requires that thetest product is not worse than the comparator by more than a small pre-specified margin. The non-inferiority margin for theReSure Sealant pivotal clinical trial was a percentage difference in leak rates between ReSure Sealant and sutures of 5%. We randomized patients in a 5:3 ratio to receive either ReSure Sealant or sutures. All patients received a standardizedself-sealing incision. Surgeons assessed incision leakage during the operation and during follow-up visits on days 1, 3, 7 and 28 after theprocedure. During the pre-randomization intraoperative evaluation, the surgeons assessed whether there was any leakagebased on a standard test called a Seidel test in conjunction with an application of force near the incision using a standardizedtool and technique. The surgeon slowly applied force using the standardized tool that we provided until a leak was observedor until a pre-specified maximum force of one ounce of force was reached. In the assessments conducted during the operation,approximately 50% of leaks occurred spontaneously without application of force and 76% of leaks occurred with theapplication of 0.25 ounces of force or less. 44 Table of ContentsBased on assessments conducted immediately following surgery, using the same standardized leak testing tool andtechnique, eyes receiving sutures leaked more frequently than eyes sealed with ReSure Sealant by a statistically significantmargin of more than 8 to 1 (p<0.0001). In this trial, ReSure Sealant demonstrated both non-inferiority and superiority relativeto the suture control based on the proportion of eyes with leakage within the first seven days after surgery. These results areshown in the figures below. ReSure Sealant treated patients had significantly lower adverse event and device-related adverse event rates thanpatients treated with suture wound closure. We determined statistical significance based on a widely used, conventionalstatistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less represents statisticalsignificance. In adverse events related to the study device, ReSure Sealant had a lower occurrence rate by a statisticallysignificant margin of 1.6% for ReSure Sealant compared to 30.6% for sutures (p<0.0001). There were no significant orclinically relevant differences in the other safety endpoints, including slit lamp examination findings, between ReSureSealant and suture patients, thus indicating that ReSure Sealant is well tolerated. Only one ReSure Sealant treated patient outof 299 (0.3%) had a wound healing assessment characterized as outside of normal limits at the day 7 assessment due to thepresence of mild stromal edema. No ReSure Sealant treated subjects were outside of normal limits at the day 28 assessment. Inthis trial, surgeons rated ReSure Sealant as “easy” or “very easy” to use for 94.1% of patients treated with ReSure Sealant. Post-Approval Studies ReSure Sealant is classified in the United States as a class III medical device subject to the rules and regulation ofpremarket approval by the FDA. Following our submission of a PMA application to the FDA for review and during the reviewprocess, the FDA completed compliance audits of our manufacturing facility and several of our pivotal clinical trial sites.Before granting approval of the PMA application, the FDA sought input from the Ophthalmic Devices Advisory Committee,a panel of physicians charged with reviewing results from our pivotal clinical trial. The FDA approved our PMA applicationfor ReSure Sealant in January 2014. The FDA included two post-approval studies as a condition of the PMA applicationapproval. The first post-approval study, identified as the Clinical PAS, is to confirm that ReSure Sealant can be used safely byphysicians in a standard cataract surgery practice and to confirm the incidence in eyes treated with ReSure Sealant of themost prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSure Sealant.The FDA has approved the protocol for the Clinical PAS, and we initiated enrollment in December 2014. Enrollment wascompleted in December 2015 with 626 patients in 22 sites. We submitted the final study report to the FDA in June 2016, andthe FDA has subsequently confirmed the Clinical PAS has been completed. The second post-approval study, identified as the Device Exposure Registry Study, is intended to link to the Medicaredatabase to ascertain if patients are diagnosed or treated for endophthalmitis within 30 days following cataract surgery andapplication of ReSure Sealant. We initiated enrollment in this study in December 2016 and submitted our first progress reportto FDA in January 2017. The Device Exposure Registry Study is required to include at least 4,857 patients. Due todifficulties in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigatorinterest, we have been unable to enroll trial sites and patients, collect patient data and report study data to the FDA. We haveprovided regular periodic reports to the FDA on the progress of this post-approval study.45 Table of Contents We received a warning letter from the FDA in October 2018 relating to our compliance with data collection andinformation reporting obligations in the Device Exposure Registry Study. The FDA warning letter refers to a lack of progresswith the enrollment and related data collection and information reporting obligations for a required post-approval trial. InNovember 2018, we appealed this warning letter. On December 26, 2018, the FDA rejected our appeal. Failure by us toconduct the required post-approval trial for ReSure Sealant to the FDA’s satisfaction may result in withdrawal of the FDA’sapproval of ReSure Sealant or other regulatory action. We continue to work with FDA to find a path to evaluate theincidence of endophthalmitis in patients receiving ReSure. ReSure Sealant currently remains commercially available in theUnited States, though there is no sales support provided to the product at this time. Foreign Approvals Outside the United States, we plan to assess whether to seek regulatory approval for ReSure Sealant in markets such asthe European Union, Australia and Japan based on the market opportunity, particularly pricing, and the requirements formarketing approval. Given our prioritization of the clinical development of our sustained-release product candidates and ourplanned commercialization efforts for our initial intracanalicular insert product candidates in the United States, we do notcurrently plan to seek CE Mark approval to commercialize ReSure Sealant in the European Union. Outside of the UnitedStates and the European Union, we will need to engage a third party to assist us in the approval process. If we obtainregulatory approval to market and sell ReSure Sealant in international markets, we expect to utilize a variety of types ofcollaboration, distribution and other marketing arrangements with one or more third parties to commercialize ReSure Sealant.See “—Government Regulation—Review and Approval of Medical Devices in the European Union” for additionalinformation. Commercial Strategy Our goals for ReSure Sealant are to provide a novel means of definitive wound closure in situations in which thesurgeon would otherwise use sutures and to increase the number of procedures in which surgeons close the wound followingcataract surgery, instead of leaving the wound to self-seal. In a 2012 survey of ophthalmologists in the United Statesconducted by Lachman Consulting LLC, a healthcare consulting firm, respondents indicated that they use sutures inapproximately 14% of cataract surgeries. As a result, the market opportunity for a surgical sealant following cataract surgerymay be modest. However, we believe ReSure Sealant offers important benefits over sutures, including superior woundclosure, a better safety profile and less follow-up. While ReSure Sealant remains commercially available in the United States,there is no current sales support provided to the product at this time. We would anticipate that ReSure will be supported bythe sales force being put in place to launch DEXTENZA once commercialization begins. Sales, Marketing and Distribution We commercially launched ReSure Sealant in the United States in February 2014. We initially sold ReSure Sealantthrough a network of independent distributors across the United States. While ReSure Sealant remains commerciallyavailable in the United States, there is no sales support provided to the product at this time. However, with the approval ofDEXTENZA, we expect to be able to sell ReSure Sealant with DEXTENZA with any sales force we establish forDEXTENZA. Although we do not actively promote ReSure Sealant in terms of territory sales representatives, we continue tomaintain a promotional presence for ReSure Sealant in the ophthalmic marketplace through podium presence at majorconventions, such as the American Society of Cataract and Refractive Surgery and the American Academy ofOphthalmology. We plan to prioritize our commercialization efforts in the United States. We generally expect to retain commercialrights in the United States to any of our local programmed-release drug delivery product candidates for front-of-the-eyediseases and conditions for which we may receive marketing approvals and which we believe we can successfullycommercialize. With the approval of DEXTENZA in November of 2018, we are building a highly targeted, key account sales force thatwill focus on the ambulatory surgical centers responsible for the largest volumes of cataract surgery. In support of thecommercial launch of DEXTENZA, we submitted an application for a C-code for transitional payment status upon theapproval of the product and expect to ascertain a C-code by the end of the second quarter of 2019 to46 Table of Contentsenable first commercial sales in the third quarter of 2019. We also submitted a sNDA in January 2019 in order to expand theDEXTENZA label to include post-surgical ocular inflammation. If we receive approval to market any of our product candidates in the United States, we plan to then evaluate theregulatory approval requirements and commercial potential for any such product candidate in Europe, Japan and otherselected geographies. If we decide to commercialize our products outside of the United States, we expect to utilize a varietyof types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize anyproduct of ours that receives marketing approval. These may include independent distributors, pharmaceutical companies orour own direct sales organization. We have entered into a strategic collaboration with Regeneron for the commercialization of our intravitreal implant forthe delivery of protein-based anti-VEGF drugs for the treatment of back-of-the-eye diseases, including wet AMD, which iscurrently in a preclinical stage of development. Manufacturing We fabricate devices and drug products for use in our clinical trials, research and development and commercial effortsfor all of our therapeutic product candidates using current Good Manufacturing Practices, or cGMP, at our facility located inBedford, Massachusetts. In June 2016, we entered into a new lease agreement for approximately 71,000 square feet of a newfacility in Bedford, Massachusetts that will include additional manufacturing space. We relocated our corporate headquartersto the new leased premises in June 2017 and are evaluating the potential relocation of our manufacturing operations to thenew leased premises. We plan to maintain our existing manufacturing space of approximately 20,000 square feet andextended the operating lease until June 2023. We have a one-time option to terminate the manufacturing space lease on July2021, upon the delivery to the landlord on or before July 2020 a termination notice and the payment to the landlord of atermination fee. We purchase active pharmaceutical ingredient drug substance from independent suppliers on a purchase order basis forincorporation into our drug product candidates. We purchase our PEG and other raw materials from different vendors on apurchase order basis according to our specifications. Multiple vendors are available for each component we purchase. Wequalify vendors according to our quality system requirements. We do not have any long term supply agreements in place forany raw materials or drug substances. We do not license any technology or pay any royalties to any of our drug or rawmaterial vendors for the front-of-the-eye products. We believe that our strategic investment in manufacturing capabilities allows us to advance product candidates at amore rapid pace and with more flexibility than a contract manufacturer, although we will continue to evaluate outsourcingunit operations for cost advantages. Our manufacturing capability also enables us to produce products in a cost-effectivemanner while retaining control over the process and prioritize the timing of internal programs. Our manufacturing capabilities encompass the full manufacturing process through quality control and qualityassurance and are integrated with our project teams from discovery through development and commercial release. Thisstructure enables us to efficiently transfer research stage product concepts into manufacturing. We have designed ourmanufacturing facility and processes to provide flexibility for the manufacture of different product candidates. We outsourcesterilization services for our products. We believe that we can scale our manufacturing processes to support ReSure Sealant sales as well as development ofour drug product candidates and the potential commercialization of such product candidates. Intellectual Property Our success depends in part on our ability to obtain and maintain proprietary protection for our products, productcandidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent othersfrom infringing our proprietary rights. We rely on patent protection, trade secrets, know-how, continuing technologicalinnovation and in-licensing opportunities to develop and maintain our proprietary position. We have in-licensed all of our patent rights from Incept. The license from Incept is limited to the fields of humanophthalmic diseases and conditions, acute post-surgical pain and ear, nose and/or throat diseases or conditions. As of47 Table of ContentsMarch 1, 2019, we have licensed from Incept a total of 20 U.S. patents, 8 U.S. patent applications and foreign counterparts ofsome of these patents and patent applications. Our license from Incept includes the following: Intracanalicular Insert and Intracameral Implant Product Candidates We have six U.S. patents that cover our intracanalicular insert and intracameral implant product candidates. Twopatents which have issued in the U.S. and Japan, and are pending in the European Union and elsewhere, which are expectedto expire in 2030 and cover compositions and methods of use of intracanalicular inserts. These patents are licensedexclusively to us in the field of ophthalmology. Two U.S. patents which are expected to expire in 2020 and cover thehydrogel composition of the intracanalicular inserts and methods of making and using hydrogel implants. These patents arelicensed exclusively to us in the field of ophthalmology. A U.S. patent which is expected to expire in 2024 that covers theprocess of making the hydrogel composition of OTX-TP and OTX-MP and are non-exclusively licensed to us. A pendingU.S. patent application that covers the hydrogel composition of DEXTENZA that, if granted, is expected to expire in 2027. ReSure Sealant We have two U.S. patents that cover ReSure Sealant. A U.S. patent which is expected to expire in 2024 and whichcovers the process of making and using hydrogel compositions. A U.S. patent which is expected to expire in 2032 and whichcovers certain features of the ReSure Sealant package. Outside of the United States, we have exclusively licensed only onepatent in Canada that is expected to expire in 2019 and is directed to a medical kit for use with ReSure Sealant. Intravitreal Injection We have two U.S. patents that cover intravitreal injection product candidates. A U.S. patent that is expected toexpire in 2027 and patent applications which are pending in the European Union covering certain drug-release features ofthe hydrogel implant in combination with its hydrogel composition and other proprietary technology relating to intravitrealinjections, and which, if granted, are expected to expire in 2027. A granted U.S. patent which is expected to expire in 2033and pending patent applications in the European Union, Japan, U.S. and certain other jurisdictions covering the process ofmaking the hydrogel implant with its drug release features and the resultant compositions and other proprietary technologythat, if granted are expected to expire in 2032. A pending patent application in the U.S. and a PCT application that is expected to serve as the basis for filings inmultiple countries outside of the United States directed to a drug delivery vehicle and other proprietary technology that, ifgranted, are expected to expire in 2036. The term of individual patents depends upon the legal term for patents in the countries in which they are granted. Inmost countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of anon-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, belengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patentand Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over acommonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug PriceCompetition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up tofive years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is underregulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond atotal of 14 years from the date of product approval, only one patent applicable to each regulatory review period may beextended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may beextended. Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of apatent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or foreignregulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, dependingupon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regardto potential patent term extension or other market exclusivity that may be available to us. 48 Table of ContentsWe may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficultto protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with ouremployees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of ourdata. Licenses Incept, LLC In January 2012, we entered into an amended and restated license agreement, which we refer to as either the PriorAgreement or Original License, with Incept under which we hold an exclusive, worldwide, perpetual, irrevocable licenseunder specified patents and technology owned or controlled by Incept to make, have made, use, offer for sale, sell,sublicense, have sublicensed, offer for sublicense and import, products delivered to or around the human eye for diagnostic,therapeutic or prophylactic purposes relating to all human ophthalmic diseases or conditions. This license covers all of thepatent rights and a significant portion of the technology for ReSure Sealant and our hydrogel platform technology productcandidates. The agreement supersedes an April 2007 license agreement between us and Incept. Amar Sawhney, our formerPresident and Chief Executive Officer and current Executive Chairman of the Board of Directors, is a general partner ofIncept.On September 13, 2018, or the Effective Date, the Company entered into a second amended and restated licenseagreement, or the Second Amended Agreement, with Incept. The Second Amended Agreement amends and restates in full thePrior Agreement, to expand the scope of the Company’s intellectual property license and modify future intellectual propertyownership and other rights thereunder.License Rights; Ownership of Intellectual Property. The parties have agreed to expand the field of use of theexclusive, worldwide, perpetual, irrevocable license held by the Company under the Prior Agreement to include specifiedintellectual property rights and technology owned or controlled by Incept to make, have made, use, offer for sale, sell,sublicense, have sublicensed, offer for sublicense and import, (i) consistent with the Prior Agreement, products delivered to oraround the human eye for diagnostic, therapeutic or prophylactic purposes relating to all human ophthalmic diseases orconditions, or the Ophthalmic Field of Use, and (ii) as a result of the expansion of the scope of the Original License, productsdelivered for the treatment of acute post-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions,subject to specified exceptions, or the Additional Field of Use. The parties have further agreed to expand the field of use ofthe Original License for certain patents, patent applications and other rights pertaining to shape-changing hydrogelformulations thereunder, or the Shape-Changing IP, to include all fields except those involving the nerves and associatedtissues specified in the Second Amended Agreement.The Company will solely own, without a license to Incept, all intellectual property rights conceived solely by one ormore individuals from the Company, or the Company Individuals, after the Effective Date, subject to exceptions specifiedtherein. Subject to certain exceptions specified in the Second Amended Agreement, Incept will own and license to theCompany (i) all intellectual property rights included in the Original License, or the Original IP, in the Ophthalmic Field ofUse and the Additional Field of Use, (ii) intellectual property rights in the field of drug delivery conceived solely by theCompany Individuals on or before the Effective Date, or Incept IP, and (iii) intellectual property rights in the field of drugdelivery conceived by one or more Company Individuals jointly with one or more individuals from Incept, including Dr.Sawhney, or the Incept Individuals, after the Effective Date. These intellectual property rights are referred to as Joint IP, and,collectively with the Original IP and the Incept IP, as the Licensed IP.Financial Terms. The Company and any of its sublicensees are obligated to pay Incept royalties as follows under theAgreement: (i) consistent with the Prior Agreement, a royalty equal to a low single-digit percentage of net sales by theCompany or its affiliates of products, devices, materials, or components thereof, or Licensed Products, including or coveredby Original IP, excluding the Shape-Changing IP, in the Ophthalmic Field of Use; (ii) a royalty equal to a mid-single-digitpercentage of net sales by the Company or its affiliates of Licensed Products including or covered by Original IP, excludingthe Shape-Changing IP, in the Additional Field of Use; and (iii) a royalty equal to a low single-digit percentage of net salesby the Company or its affiliates of Licensed Products including or covered by Incept IP or Joint IP in the field of drugdelivery. Royalty obligations under the Second Amended Agreement commence with the first commercial sale of a LicensedProduct described above and terminate upon the expiration of the last-to-expire patents included in the Licensed IP, asapplicable. Any sublicensee of the Company also will be obligated to pay Incept49 Table of Contentsroyalties on net sales of Licensed Products made by it and will be bound by the terms of the Second Amended Agreement tothe same extent as the Company. Additionally, at its sole discretion, Incept may require, as a condition of any sublicense bythe Company in the Additional Field of Use and in exchange for a reduction in the royalties owed on net sales of LicensedProducts described above, payments equal to a mid-teen percentage of any upfront payment and, subject to certainconditions, other payments received by the Company from the sublicensee.Patent Prosecution and Litigation. Incept will continue to have sole control and responsibility for ongoingprosecution of patents included in the Original IP, and the Company will have sole control and responsibility for ongoingprosecution of patents and patent applications included in or arising under the Incept IP or Joint IP. The parties have agreedto work together in good faith to enter into a separate agreement under which, subject to certain limitations, the Companywould assume control of the prosecution of patents and patent applications included in or arising under the Shape-ChangingIP. The Company has the right, subject to certain conditions, to bring suit against third parties who infringe the patentsincluded in the Original IP in the Ophthalmic Field of Use or the Additional Field of Use, patents included in the Incept IP inthe drug delivery filed, patents included in the Joint IP in the drug delivery field, and patents included in the Shape-Changing IP in all fields except as described above. The Company has also agreed, if requested by Incept, to enter into ajoint defense and prosecution agreement for the purpose of allowing the parties to share confidential and attorney-clientprivileged information regarding the possible infringement of one or more patents covered by the Second AmendedAgreement. The Company is responsible for all costs incurred in prosecuting any infringement action it brings.Term and Termination. The Second Amended Agreement will expire on the later of (i) the expiration or disclaimer bythe Company of the last valid claim of an issued and unexpired patent included in the Licensed IP or (ii) the finalunappealable rejection or abandonment of the last pending patent application arising under the Licensed IP. Either partymay terminate the Second Amended Agreement in the event of the other party’s insolvency, bankruptcy or comparableproceedings, or if the other party materially breaches the agreement and does not cure such breach during a specified cureperiod.Regeneron Collaboration In October 2016, we entered into the Collaboration Agreement with Regeneron for the development andcommercialization of products using the Company’s sustained-release hydrogel in combination with Regeneron’s largemolecule VEGF-targeting compounds to address conditions of the eye. Under the terms of the Collaboration Agreement, we and Regeneron have agreed to conduct a joint research programwith the aim of developing an extended-delivery formulation of aflibercept that is suitable for advancement into clinicaldevelopment. We have granted Regeneron the Option to enter into an exclusive, worldwide license, with the right tosublicense, under our intellectual property to develop and commercialize the Licensed Products. The Option is exclusiveuntil 12 months after Regeneron has received a product candidate in accordance with a collaboration plan, subject to certainconditions, and non-exclusive for an additional six months following the end of the exclusive period. The field of thislicense is limited to Licensed Products delivered by local administration to or around the eye for diagnostic, therapeutic orprophylactic purposes relating to ophthalmic diseases or conditions. The Collaboration Agreement does not cover thedevelopment of any products that deliver small molecule drugs, including TKIs, or deliver large molecule drugs other thanthose that target certain specified VEGF proteins or their receptors. Under the terms of the Collaboration Agreement,Regeneron is responsible for funding an initial preclinical tolerability study, which it initiated in early 2018. If the Option is exercised, Regeneron is to use commercially reasonable efforts to conduct further preclinicaldevelopment and an initial clinical trial under a collaboration plan. We are obligated to reimburse Regeneron for certaindevelopment costs incurred by Regeneron under the collaboration plan during the period through the completion of theinitial clinical trial, subject to a cap of $25 million, which cap may be increased by up to $5 million under certaincircumstances. We are also responsible for paying our own costs associated with the activities conducted by us under thecollaboration plan. If Regeneron elects to proceed with further development following the completion of the collaborationplan, it will be solely responsible for conducting and funding, and is to use commercially reasonable efforts with respect to,further development and commercialization of product candidates. Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of theOption. We are also eligible to receive up to $145 million per Licensed Product upon the achievement of specified50 Table of Contentsdevelopment and regulatory milestones, $100 million per Licensed Product upon first commercial sale of such LicensedProduct and up to $50 million based on the achievement of specified sales milestones for all Licensed Products. In addition, we are entitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net salesof Licensed Products, which royalties are subject to potential reductions in certain circumstances, subject to a minimumroyalty. If Regeneron has not exercised the Option during the designated option period, the Collaboration Agreement willexpire. If Regeneron exercises the Option, the Collaboration Agreement will expire on a Licensed Product-by-LicensedProduct and country-by-by country basis upon the expiration of the later of 10 years from the date of first commercial sale insuch country or the expiration of all patent rights covering the Licensed Product in such country. Following expiration,Regeneron will have a fully paid-up, non-exclusive license to continue to develop and commercialize LicensedProducts. The Collaboration Agreement may be terminated by Regeneron at any time after exercise of the Option upon 60days’ prior written notice. Either party may, subject to a cure period, terminate the Collaboration Agreement in the event ofthe other party’s uncured material breach, in addition to other specified termination rights. In December 2017, we delivered to Regeneron the final formulation for Regeneron’s initial preclinical tolerabilitystudy. Regeneron initiated this study in early 2018 and is responsible for its funding. While we await a decision fromRegeneron regarding the Option, we are not actively pursuing further formulation development or other preclinical testingunder the Collaboration Agreement. Competition The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intensecompetition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experienceand scientific resources provide us with competitive advantages, we face potential competition from many different sources,including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions andgovernmental agencies and public and private research institutions. Any product candidates that we successfully developand commercialize will compete with existing therapies and new therapies that may become available in the future. Our potential competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceuticaland generic drug companies. Potential competitors also include academic institutions, government agencies and other publicand private research organizations that conduct research, seek patent protection and establish collaborative arrangements forresearch, development, manufacturing and commercialization. Many of our potential competitors have significantly greaterfinancial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us inrecruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patientregistration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smalleror early stage companies may also prove to be significant competitors, particularly through collaborative arrangements withlarge and established companies. The key competitive factors affecting the success of each of our product candidates, if approved for marketing, arelikely to be efficacy, safety, method of administration, convenience, price, the level of generic competition and theavailability of coverage and adequate reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize productsthat are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than anyproducts that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products morerapidly than we may obtain approval for ours, which could result in our competitors’ establishing a strong market positionbefore we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or otherthird-party payors seeking to encourage the use of generic products. Our product candidates target markets that are already served by a variety of competing products based on a number ofactive pharmaceutical ingredients. Many of these existing products have achieved widespread acceptance among physicians,patients and payors for the treatment of ophthalmic diseases and conditions. In addition, many of these products are availableon a generic basis, and our product candidates may not demonstrate sufficient additional clinical benefits to physicians,patients or payors to justify a higher price compared to generic products. In many cases,51 Table of Contentsinsurers or other third-party payors, particularly Medicare, seek to encourage the use of generic products. Given that we aredeveloping products based on FDA-approved therapeutic agents, our product candidates, if approved, will face competitionfrom generic and branded versions of existing drugs based on the same active pharmaceutical ingredients that areadministered in a different manner, typically through eye drops. Because the active pharmaceutical ingredients in our product candidates are available on a generic basis, or are soon tobe available on a generic basis, competitors will be able to offer and sell products with the same active pharmaceuticalingredient as our products so long as these competitors do not infringe the patents that we license. For example, our licensedpatents related to our intracanalicular insert product candidates largely relate to the hydrogel composition of theintracanalicular inserts and certain drug-release features of the intracanalicular inserts. As such, if a third party were able todesign around the formulation and process patents that we license and create a different formulation using a differentproduction process not covered by our licensed patents or patent applications, we would likely be unable to prevent thatthird party from manufacturing and marketing its product. Competitors of our Intracanalicular Insert Product Candidates Several competitors are developing sustained drug release products for the same ophthalmic indications as ourintracanalicular insert product candidates, as set forth below. Competitors of DEXTENZA Icon Biosciences, Inc. received FDA approval of DEXYCU in February 2018. DEXYCU is an injection ofdexamethasone into the anterior chamber of the eye to treat inflammation associated with cataract surgery. Icon BiosciencesInc. was subsequently bought by pSvidia Corporation in March 2018 and, at the same time, the new entity was renamedEyepoint Pharmaceuticals, Inc., or Eyepoint. In January 2019, Eyepoint announced that DEXYCU’s J-Code became effectiveand Eyepoint expected to launch DEXYCU commercially in the first quarter of 2019. Competitors of OTX-TP Allergan, Inc. is conducting Phase 3 clinical development and plans to submit an NDA for Bimatoprost Sustained-Release, a biodegradable intraocular implant consisting of a PGA and a biodegradable polymer matrix for the treatmentintended to reduce IOP in patients with glaucoma. Allergan purchased ForSight VISION5 who was conducting a Phase 2clinical development of the Helios insert, a sustained-release ocular insert placed below the eyelid that delivers bimatoprostfor the treatment of glaucoma. In addition, several other companies have announced their intention to develop products fortreatment of glaucoma using sustained-release therapy, although each of these is at an early stage of development. MatiTherapeutics has conducted a Phase 2 clinical development of an intracanalicular insert for the treatment of glaucoma. Competitors of ReSure Sealant ReSure Sealant is the first and only surgical sealant approved for ophthalmic use in the United States. Outside theUnited States, Beaver Visitec is commercializing its product OcuSeal, which is designed to provide a protective hydrogelfilm barrier to stabilize ocular wounds. This product is not currently available in the United States. Sutures are the primaryalternative for closing ophthalmic wounds. In addition, a technique called stromal hydration, which involves the localizedinjection of a balanced salt solution at the wound edges, is often used to facilitate the self-sealing of a wound.Competitors of our Intravitreal Implants Our intravitreal implant for the treatment of wet AMD will compete with anti-VEGF compounds administered in theircurrent formulation and prescribed for the treatment of wet AMD as these agents can in some instances deliver one to twomonths or more of therapeutic effect. They include Lucentis, Eylea and off-label use of the cancer therapy Avastin. Multiplecompanies are exploring ways to deliver anti-VEGF products in a sustained-release fashion, although all are in early stages ofdevelopment. 52 Table of ContentsGovernment Regulation Government authorities in the United States, at the federal, state and local level, and in other countries andjurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing,manufacture, quality control, clearance, approval, pricing, sales, reimbursement, packaging, storage, recordkeeping, labeling,advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export ofpharmaceutical products and medical devices. The processes for obtaining regulatory approvals in the United States and inforeign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and otherregulatory authorities, require the expenditure of substantial time and financial resources. Review and Approval of Drugs and Biologics in the United States In the United States, the FDA approves and regulates drugs under the FDCA and related regulations. Drugs are alsosubject to other federal, state and local statutes and regulations. Biological products are licensed for marketing under thePublic Health Service Act, or PHSA, and subject to regulation under the FDCA and related regulations, and other federal,state and local statutes and regulations. An applicant seeking approval to market and distribute a new drug or biological product in the United States musttypically undertake the following: ·completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’sgood laboratory practice, or GLP, regulations; ·submission to the FDA of an IND, which must take effect before human clinical trials may begin; ·approval by an independent institutional review board, or IRB, representing each clinical site before each clinicaltrial may be initiated; ·performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices, orGCP, to establish the safety and efficacy of the proposed drug product for each indication; ·preparation and submission to the FDA of a new drug application, or NDA, for a drug candidate product and abiological licensing application, or BLA, for a biological product requesting marketing for one or more proposedindications; ·review by an FDA advisory committee, where appropriate or if applicable; ·satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which theproduct, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, orcGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’sidentity, strength, quality and purity; ·satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity ofclinical data; ·payment of user fees and securing FDA approval of the NDA or BLA; and ·compliance with any post-approval requirements, including the potential requirement to implement a RiskEvaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies. Preclinical Studies Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance oractive pharmaceutical ingredient and the formulated product, as well as in vitro and animal studies to assess the safety andactivity of the investigational product for initial testing in humans and to establish a rationale for therapeutic use. Theconduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The53 Table of Contentsresults of the preclinical tests, together with manufacturing information, analytical data, any available clinical data orliterature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND. Companies usually must complete some long-term preclinical testing, such as animal tests of reproductive adverseevents and carcinogenicity, and must also develop additional information about the chemistry and physical characteristics ofthe investigational product and finalize a process for manufacturing the product in commercial quantities in accordance withcGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the candidateproduct and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purityof the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conductedto demonstrate that the candidate product does not undergo unacceptable deterioration over its shelf life. The IND and IRB Processes Clinical trials involve the administration of the investigational product to human subjects under the supervision ofqualified investigators in accordance with GCP requirements, which include, among other things, the requirement that allresearch subjects provide their voluntary informed consent in writing before their participation in any clinical trial. Clinicaltrials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, theobjectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Aprotocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstatecommerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigationaldrug to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug orbiologic that is not the subject of an approved NDA or BLA. In support of a request for an IND, applicants must submit aprotocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Inaddition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinicaldata or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDArequires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designedto allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable healthrisks. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of thetrials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDAmust resolve any outstanding concerns before clinical trials can begin. For our intracanalicular insert product candidates, wehave typically conducted our initial and earlier stage clinical trials outside the United States. We generally plan to conductour later stage and pivotal clinical trials of our intracanalicular insert product candidates in the United States. In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trialmust review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conductcontinuing review and reapprove the study at least annually. The IRB must review and approve, among other things, thestudy protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance withFDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents,if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has beenassociated with unexpected serious harm to patients. The FDA’s primary objectives in reviewing an IND are to assure the safety and rights of patients and to help assure thatthe quality of the investigation will be adequate to permit an evaluation of the drug’s effectiveness and safety and of thebiological product’s safety, purity and potency. The decision to terminate development of an investigational drug orbiological product may be made by either a health authority body such as the FDA, an IRB or ethics committee, or by us forvarious reasons. Additionally, some trials are overseen by an independent group of qualified experts organized by the trialsponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trialmay move forward at designated check points based on access that only the group maintains to available data from the study.Suspension or termination of development during any phase of clinical trials can occur if it is determined that theparticipants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may bemade by us based on evolving business objectives and/or competitive climate. 54 Table of ContentsInformation about clinical trials must be submitted within specific timeframes to the National Institutes of Health, orNIH, for public dissemination on its ClinicalTrials.gov website. Similar requirements for posting clinical trial informationare present in the European Union (EudraCT) website: https://eudract.ema.europa.eu/ and other countries, as well. Expanded Access to an Investigational Drug for Treatment Use Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside ofclinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are nocomparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended toimprove access to investigational drugs for patients who may benefit from investigational therapies. FDA regulations allowaccess to investigational drugs under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergencysettings); intermediate-size patient populations; and larger populations for use of the drug under a treatment protocol orTreatment IND Application. When considering an IND application for expanded access to an investigational product with the purpose of treating apatient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of thefollowing criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is nocomparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patientbenefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition tobe treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct,or completion of clinical investigations that could support marketing approval of the product or otherwise compromise thepotential development of the product. On December 13, 2016, the 21st Century Cures Act established (and the 2017 Food and Drug AdministrationReauthorization Act later amended) a requirement that sponsors of one or more investigational drugs for the treatment of aserious disease(s) or condition(s) make publicly available their policy for evaluating and responding to requests forexpanded access for individual patients. Although these requirements were rolled out over time, they have now come intofull effect. This provision requires drug and biologic companies to make publicly available their policies for expandedaccess for individual patient access to products intended for serious diseases. Sponsors are required to make such policiespublicly available upon the earlier of initiation of a Phase 2 or Phase 3 study; or 15 days after the drug or biologic receivesdesignation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy. In addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides afederal framework for certain patients to access certain investigational new drug products that have completed a Phase 1clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seektreatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded accessprogram. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result ofthe Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to thatpolicy. Human Clinical Studies in Support of an NDA or BLA Clinical trials involve the administration of the investigational product to human subjects under the supervision ofqualified investigators in accordance with GCP requirements, which include, among other things, the requirement that allresearch subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials areconducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives ofthe study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trialis conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is notconducted under an IND, the sponsor must ensure that the trial complies with certain regulatory requirements of the FDA inorder to use the trial as support for an IND or application for marketing approval. Specifically, the FDA requires such trials tobe conducted in accordance with GCP, including review and approval by an independent ethics committee and informedconsent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical trials. TheFDA’s regulations are intended to help ensure the protection of human subjects enrolled55 Table of Contentsin non-IND foreign clinical trials, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign trials are conducted in a manner comparable to that required for IND trials.Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined: ·Phase 1: The drug or biologic is initially introduced into a small number of healthy human subjects or patientswith the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution,excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. ·Phase 2: The drug or biologic is administered to a limited patient population to identify possible adverse effectsand safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and todetermine dosage tolerance and optimal dosage. ·Phase 3: The drug or biologic is administered to an expanded patient population, generally at geographicallydispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate theefficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and toprovide adequate information for the labeling of the product. Phase 3 clinical trials are commonly referred to as “pivotal” trials, which typically denotes a trial which presents thedata that the FDA or other relevant regulatory agency will use to determine whether to approve a drug. Progress reports detailing the safety results of the clinical trials must be submitted at least annually to the FDA andmore frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of thefollowing: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing thatsuggest a significant risk in humans exposed to the product candidate; and any clinically important increase in the case of aserious suspected adverse reaction over that listed in the protocol or investigator brochure. The FDA or the sponsor or thedata monitoring committee may suspend or terminate a clinical trial at any time on various grounds, including a finding thatthe research subjects are being exposed to an unacceptable health risk. The FDA will typically inspect one or more clinicalsites to assure compliance with GCP and the integrity of the clinical data submitted. Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing theproduct in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable ofconsistently producing quality batches of the drug candidate and, among other things, must develop methods for testing theidentity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must be selected andtested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptabledeterioration over its shelf life. Review of an NDA or BLA by the FDA In order to obtain approval to market a drug or biological product in the United States, a marketing application must besubmitted to the FDA that provides data establishing the safety and effectiveness of the proposed drug product for theproposed indication, and the safety, purity and potency of the biological product for its intended indication. The applicationincludes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results aswell as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls andproposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety andeffectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. Tosupport marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety andeffectiveness of the investigational drug product and the safety, purity and potency of the biological product to thesatisfaction of the FDA. The NDA and BLA are thus the vehicles through which applicants formally propose that the FDA approve a newproduct for marketing and sale in the United States for one or more indications. Every new product candidate must be thesubject of an approved NDA or BLA before it may be commercialized in the United States. Under federal law, the submissionof most applications is subject to an application user fee, which for federal fiscal year 2019 is $2,588,478 for an applicationrequiring clinical data. The sponsor of an approved application is also subject to an annual program fee, which for fiscal year2019 is $309,915. Certain exceptions and waivers are available for some of these fees, such as an56 Table of Contentsexception from the application fee for product candidates with orphan designation and a waiver for certain small businesses.Following submission of an NDA or BLA, the FDA conducts a preliminary review of the application generally within60 calendar days of its receipt and strives to inform the sponsor by the 74th day after the FDA’s receipt of the submission todetermine whether the application is sufficiently complete to permit substantive review. The FDA may request additionalinformation rather than accept the application for filing. In this event, the application must be resubmitted with theadditional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once thesubmission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specifiedperformance goals in the review process of NDAs and BLAs. Under that agreement, 90% of applications seeking approval ofNew Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts theapplication for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to bereviewed within six months of the filing date. For applications seeking approval of products that are not NMEs, the ten-month and six-month review periods run from the date that FDA receives the application. The review process and thePrescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider newinformation or clarification provided by the applicant to address an outstanding deficiency identified by the FDA followingthe original submission. Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will bemanufactured. These pre-approval inspections may cover all facilities associated with an NDA or BLA submission, includingdrug component manufacturing (e.g., active pharmaceutical ingredients), finished drug product manufacturing, and controltesting laboratories. The FDA will not approve an application unless it determines that the manufacturing processes andfacilities are in compliance with cGMP requirements and adequate to assure consistent production of the product withinrequired specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinicalsites to assure compliance with GCP. Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol toexpedite review of responses to inspection reports pertaining to certain applications, including applications for products inshortage or those for which approval is dependent on remediation of conditions identified in the inspection report. In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use riskminimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potentialrisks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product,seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potentialadverse events, and whether the product is a new molecular entity. The FDA may refer an application for a novel product to an advisory committee or explain why such referral was notmade. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts,that reviews, evaluates and provides a recommendation as to whether the application should be approved and under whatconditions. The FDA is not bound by the recommendations of an advisory committee, but it considers suchrecommendations carefully when making decisions. Accelerated Approval Pathway The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningfultherapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on asurrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for sucha condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect onirreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity ormortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availabilityor lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety andeffectiveness as those granted traditional approval. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement,radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure ofclinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. Anintermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict theclinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based57 Table of Contentson intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval wherethe therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is abasis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug. The accelerated approval pathway is most often used in settings in which the course of a disease is long and anextended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate orintermediate clinical endpoint occurs rapidly. The accelerated approval pathway is usually contingent on a sponsor’sagreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’sclinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliancerequirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinicalendpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies,would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for productcandidates approved under accelerated regulations are subject to prior review by the FDA. The FDA’s Decision on an Application On the basis of the FDA’s evaluation of the application and accompanying information, including the results of theinspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approvalletter authorizes commercial marketing of the product with specific prescribing information for specific indications. Acomplete response letter generally outlines the deficiencies in the submission and may require substantial additional testingor information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to theFDA’s satisfaction in a resubmission of the application, the FDA will issue an approval letter. The FDA has committed toreviewing such resubmissions in two or six months depending on the type of information included. Even with submission ofthis additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria forapproval. If the FDA approves a product, it may limit the approved indications for use for the product, require thatcontraindications, warnings or precautions be included in the product labeling, require that post‑approval studies, includingPhase 4 clinical trials, be conducted to further assess the product candidate’s safety after approval, require testing andsurveillance programs to monitor the product after commercialization, or impose other conditions, including distributionrestrictions or other risk management mechanisms, including REMS, which can materially affect the potential market andprofitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post‑marketstudies or surveillance programs. After approval, many types of changes to the approved product, such as adding newindications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDAreview and approval. Post-Approval Regulation Drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuingregulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, productsampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval,most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDAreview and approval. There also are continuing, annual user fee requirements for any marketed products and theestablishments at which such products are manufactured, as well as new application fees for supplemental applications withclinical data. In addition, manufacturers and other entities involved in the manufacture and distribution of approved products arerequired to register their establishments with the FDA and state agencies, and are subject to periodic unannouncedinspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturingprocess are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also requireinvestigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon thesponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue toexpend time, money, and effort in the area of production and quality control to maintain cGMP compliance. 58 Table of ContentsA product may also be subject to official lot release, meaning that the manufacturer is required to perform certain testson each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturermust submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lotand the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certainconfirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratoryresearch related to the safety, purity, potency and effectiveness of pharmaceutical products. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements andstandards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknownproblems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes,or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safetyinformation; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution orother restrictions under a REMS program. Other potential consequences include, among other things: ·restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawalof the product from the market or product recalls; ·fines, warning letters or holds on post-approval clinical trials; ·refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation ofproduct license approvals; ·product seizure or detention, or refusal to permit the import or export of products; or ·injunctions or the imposition of civil or criminal penalties. The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market.Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. Ifa company is found to have promoted off-label uses, it may become subject to adverse public relations and administrativeand judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department ofHealth and Human Services, as well as state authorities. This could subject a company to a range of penalties that could havea significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner inwhich a company promotes or distributes drug products. In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act,or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate thedistribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standardsfor the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit thedistribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability indistribution and to identify and remove counterfeit and other illegitimate products from the market. Section 505(b)(2) NDAs NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of thesafety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. TheFDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type ofapplication allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, orpublished literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to showwhether or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application“were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from theperson by or for whom the investigations were conducted.” Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were notdeveloped by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more59 Table of Contentsexpeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicantmay eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also requirecompanies to perform additional studies or measurements to support the change from the approved product. The FDA maythen approve the new drug candidate for all or some of the label indications for which the referenced product has beenapproved, as well as for any new indication sought by the Section 505(b)(2) applicant. If we obtain favorable results in our clinical trials, we plan to submit NDAs for our intracanalicular insert productcandidates under Section 505(b)(2). Abbreviated New Drug Applications for Generic Drugs In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approvegeneric drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtainapproval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. Insupport of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted fora drug product previously approved under an NDA, known as the reference listed drug, or RLD. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLDwith respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the sametime, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a genericdrug is bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from therate and extent of absorption of the listed drug.” Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLDin its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “OrangeBook.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. Inaddition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeuticequivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribingphysician or patient. Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patentexclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drugcontaining a new chemical entity. An NCE is a drug that contains no active moiety that has previously been approved by theFDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological actionof the drug substance. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until theexpiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicantmay submit its application four years following the original product approval. The FDCA also provides for a period of threeyears of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability orbioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. Thisthree-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, routeof administration, combination or indication. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more newclinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant andare essential to the approval of the application. This three-year exclusivity period often protects changes to a previouslyapproved drug product, such as a new dosage form, route of administration, combination or indication. Three-yearexclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutoryrequirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivitydoes not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval ofthe original drug product. The FDA typically makes decisions about awards of data exclusivity shortly before a product isapproved. The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug applicationwithin eight months for a drug that has three or fewer approved drugs listed in the Orange Book and is no longer protected byany patent or regulatory exclusivities, or is on the FDA’s drug shortage list. The FDA is also60 Table of Contentsauthorized to expedite review of “competitor generic therapies” or drugs with inadequate generic competition, includingholding meetings with or providing advice to the drug sponsor prior to submission of the application. Hatch-Waxman Patent Certification and the 30-Month Stay Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent withclaims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDAsponsor is published in the Orange Book. When an ANDA applicant files its application to the FDA, the applicant is requiredto certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents coveringmethods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant isrelying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning anypatents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Specifically, the applicant must certify with respect to each patent that: ·the required patent information has not been filed; ·the listed patent has expired; ·the listed patent has not expired, but will expire on a particular date and approval is sought after patentexpiration; or ·the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents or that such patentsare invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents orindicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all thelisted patents claiming the referenced product have expired. If the ANDA applicant or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant mustalso send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filingby the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of theParagraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IVcertification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of theParagraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant. To the extent that the Section 505(b)(2) applicant is relying on trials conducted for an already approved product, theapplicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to thesame extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be stalled until all thelisted patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity forobtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in thecase of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of thelawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant. Biosimilars The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, or ACA, includeda subtitle called the Biologics Price Competition and Innovation Act of 2009 or BPCIA. That Act established a regulatoryscheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. As of January 1, 2019, the FDA hasapproved 17 biosimilar products for use in the United States. No interchangeable biosimilars, however, have beenapproved. The FDA has issued several guidance documents outlining an approach to review and approval ofbiosimilars. Additional guidance is expected to be finalized by FDA in the near term. Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to”or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to61 Table of Contentsapprove a biosimilar product, it must find that there are no clinically meaningful differences between the reference productand proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product asinterchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce thesame clinical results as the reference product, and for products administered multiple times that the biologic and the referencebiologic may be switched after one has been previously administered without increasing safety risks or risks of diminishedefficacy relative to exclusive use of the reference biologic. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years followingthe date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date onwhich the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity,another company could market a competing version of that product if the FDA approves a full BLA for such productcontaining the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate thesafety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved asinterchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact,be readily substituted by pharmacies, which are governed by state pharmacy law. Pediatric Studies and Exclusivity Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate toassess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations,and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Withenactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submitpediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study orstudies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and otherinformation required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review theinformation submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request anamendment to the plan at any time. Unless otherwise required by regulation, the pediatric data requirements do not apply toproducts with orphan designation. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or allpediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric datarequirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals arecontained in FDASIA. In addition, products that have received orphan designation are exempt from the requirements of thePediatric Research Equity Act. Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, providesfor the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity,including the non-patent exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric datathat fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effectivein the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additionalprotection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutorytime limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by sixmonths. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannotapprove another application. With regard to patents, the six‑month pediatric exclusivity period will not attach to any patentsfor which an ANDA or 505(b)(2) applicant submitted a paragraph IV patent certification, unless the NDA sponsor or patentowner first obtains a court determination that the patent is valid and infringed by the proposed product. Patent Term Restoration and Extension A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-WaxmanAct, which permits a patent restoration of up to five years for patent term lost during product development and the FDAregulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and thesubmission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent termrestoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date.Only one patent applicable to an approved drug product is eligible for the extension,62 Table of Contentsand the application for the extension must be submitted prior to the expiration of the patent in question. A patent that coversmultiple drugs for which approval is sought can only be extended in connection with one of the approvals. The United StatesPatent and Trademark Office reviews and approves the application for any patent term extension or restoration inconsultation with the FDA. Review and Approval of Medical Devices in the United States Medical devices in the United States are strictly regulated by the FDA. Under the FDCA, a medical device is defined asan instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article,including a component part, or accessory which is, among other things: intended for use in the diagnosis of disease or otherconditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or intended to affect thestructure or any function of the body of man or other animals, and which does not achieve its primary intended purposesthrough chemical action within or on the body of man or other animals and which is not dependent upon being metabolizedfor the achievement of any of its primary intended purposes. This definition provides a clear distinction between a medicaldevice and other FDA regulated products such as drugs. If the primary intended use of the product is achieved throughchemical action or by being metabolized by the body, the product is usually a drug. If not, it is generally a medical device. Unless an exemption applies, a new medical device may not be marketed in the United States unless and until it hasbeen cleared through filing of a 510(k) premarket notification, or 510(k), or approved by the FDA pursuant to a PMAapplication. The information that must be submitted to the FDA in order to obtain clearance or approval to market a newmedical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into oneof three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety andeffectiveness. Class I devices are low risk devices for which reasonable assurance of safety and effectiveness can be provided byadherence to the FDA’s general controls for medical devices, which include applicable portions of the FDA’s Quality SystemRegulation, or QSR, facility registration and product listing, reporting of adverse medical events and malfunctions andappropriate, truthful and non-misleading labeling, advertising and promotional materials. Many Class I devices are exemptfrom premarket regulation; however, some Class I devices require premarket clearance by the FDA through the 510(k)premarket notification process. Class II devices are moderate risk devices and are subject to the FDA’s general controls, and any other special controls,such as performance standards, post-market surveillance, and FDA guidelines, deemed necessary by the FDA to providereasonable assurance of the devices’ safety and effectiveness. Premarket review and clearance by the FDA for Class II devicesare accomplished through the 510(k) premarket notification procedure, although some Class II devices are exempt from the510(k) requirements. Premarket notifications are subject to user fees, unless a specific exemption applies. Class III devices are deemed by the FDA to pose the greatest risk, such as those for which reasonable assurance of thedevice’s safety and effectiveness cannot be assured solely by the general controls and special controls described above andthat are life-sustaining or life-supporting. A PMA application must provide valid scientific evidence, typically extensivepreclinical and clinical trial data and information about the device and its components regarding, among other things, devicedesign, manufacturing and labeling. PMA applications (and supplemental PMA applications) are subject to significantlyhigher user fees than are 510(k) premarket notifications. 510(k) Premarket Notification To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the proposeddevice is “substantially equivalent” to a predicate device, which is a previously cleared 510(k) device or a pre-amendmentdevice that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for the submission of aPMA application. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the application issubmitted and filed with the FDA, but it can take significantly longer and clearance is never assured. The FDA has issuedguidance documents meant to expedite review of a 510(k) and facilitate interactions between applicants and the agency. Todemonstrate substantial equivalence, a manufacturer must show that the device has the same intended use as a predicatedevice and the same technological characteristics, or the same intended use and63 Table of Contentsdifferent technological characteristics and does not raise new questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance, but the FDA may request such data. The FDA seeks to review and act on a 510(k) within 90 days of submission, but it may take longer if the agency findsthat it requires more information to review the 510(k). If the FDA determines that the device is substantially equivalent to apredicate device, the subject device may be marketed. However, if the FDA concludes that a new device is not substantiallyequivalent to a predicate device, the new device will be classified in Class III and the manufacturer will be required to submita PMA application to market the product. Devices of a new type that the FDA has not previously classified based on risk areautomatically classified into Class III by operation of section 513(f)(1) of the FDCA, regardless of the level of risk they pose.To avoid requiring PMA review of low- to moderate-risk devices classified in Class III by operation of law, Congress enactedsection 513(f)(2) of the FDCA. This provision allows the FDA to classify a low- to moderate-risk device not previouslyclassified into Class I or II, a process known as the de novo process. A company may apply directly to the FDA forclassification of its device as de novo or may submit a de novo petition within 30 days of receiving a not substantiallyequivalent determination. Modifications to a 510(k)-cleared medical device may require the submission of another 510(k). Modifications to a510(k)-cleared device frequently require the submission of a traditional 510(k), but modifications meeting certain conditionsmay be candidates for FDA review under a Special 510(k). If a device modification requires the submission of a 510(k), butthe modification does not affect the intended use of the device or alter the fundamental technology of the device, thensummary information that results from the design control process associated with the cleared device can serve as the basis forclearing the application. A Special 510(k) allows a manufacturer to declare conformance to design controls withoutproviding new data. When the modification involves a change in material, the nature of the “new” material will determinewhether a traditional or Special 510(k) is necessary. Any modification to a 510(k)-cleared product that would constitute a major change in its intended use or any changethat could significantly affect the safety or effectiveness of the device may, in some circumstances, requires the submission ofa PMA application, if the change raises complex or novel scientific issues or the product has a new intended use. Amanufacturer may be required to submit extensive pre-clinical and clinical data depending on the nature of the changes. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in thefirst instance, but the FDA may review any manufacturer’s decision. If the FDA disagrees with the manufacturer’sdetermination and requires new 510(k) clearances or PMA application approvals for modifications to previously clearedproducts for which the manufacturer concluded that new clearances or approvals are unnecessary, the manufacturer may berequired to cease marketing or distribution of the products or to recall the modified product until it obtains clearance orapproval, and the manufacturer may be subject to significant regulatory fines or penalties. In addition, the FDA is currentlyevaluating the 510(k) process and may make substantial changes to industry requirements. Premarket Approval Application The PMA application process for approval to market a medical device is more complex, costly, and time- consumingthan the 510(k) clearance procedure. A PMA application must be supported by extensive data, including technicalinformation regarding device design and development, preclinical studies, clinical trials, manufacturing and controlsinformation and labeling information that demonstrate the safety and effectiveness of the device for its intended use. After aPMA application is submitted, the FDA has 45 days to determine whether it is sufficiently complete to permit a substantivereview. If the PMA application is complete, the FDA will file the PMA application. If the FDA accepts the application forfiling, the agency will begin an in-depth substantive review of the application. By statute, the FDA has 180 days to reviewthe application although, generally, review of the application often takes between one and three years, and may takesignificantly longer. If the FDA has questions, it will likely issue a first major deficiency letter within 150 days of filing. Itmay also refer the PMA application to an FDA advisory panel for additional review, and will conduct a preapprovalinspection of the manufacturing facility to ensure compliance with the QSR, either of which could extend the 180-dayresponse target. In addition, the FDA may request additional information or request the performance of additional clinicaltrials in which case the PMA application approval may be delayed while the trials are conducted and the data acquired aresubmitted in an amendment to the PMA. Even with additional trials, the FDA may not approve the PMA application.64 Table of Contents If the FDA’s evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA willeither issue an approval letter authorizing commercial marketing or an approvable letter that usually contains a number ofconditions that must be met in order to secure final approval. If the FDA’s evaluations are not favorable, the FDA will denyapproval of the PMA application or issue a not approvable letter. The PMA application process, including the gathering ofclinical and nonclinical data and the submission to and review by the FDA, can take several years, and the process can beexpensive and uncertain. Moreover, even if the FDA approves a PMA application, the FDA may approve the device with anindication that is narrower or more limited than originally sought. The FDA can impose post-approval conditions that itbelieves necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions onlabeling, promotion, sale and distribution. After approval of a PMA application, a new PMA application or PMA applicationsupplement may be required for a modification to the device, its labeling, or its manufacturing process. PMA applicationsupplements often require submission of the same type of information as an initial PMA application, except that thesupplement is limited to information needed to support any changes from the device covered by the approved PMAapplication and may or may not require as extensive technical or clinical data or the convening of an advisory panel. Thetime for review of a PMA application supplement may vary depending on the type of change, but it can be lengthy. Inaddition, in some cases the FDA might require additional clinical data. PMA applications are subject to an application fee. For federal fiscal year 2018, the standard fee is $310,764. Investigational Device Exemption A clinical trial is typically required for a PMA application and, in a small percentage of cases, the FDA may require aclinical study in support of a 510(k) submission. A manufacturer that wishes to conduct a clinical study involving the deviceis subject to the FDA’s IDE regulation. The IDE regulation distinguishes between significant and non-significant risk devicestudies and the procedures for obtaining approval to begin the study differ accordingly. Also, some types of studies areexempt from the IDE regulations. A significant risk device presents a potential for serious risk to the health, safety, or welfareof a subject. Significant risk devices are devices that are substantially important in diagnosing, curing, mitigating, or treatingdisease or in preventing impairment to human health. Studies of devices that pose a significant risk require both FDA and anIRB approval prior to initiation of a clinical study. Non-significant risk devices are devices that do not pose a significant riskto the human subjects. A non-significant risk device study requires only IRB approval prior to initiation of a clinical study. An IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing thatit is safe to test the device in humans and that the testing protocol is scientifically sound. An IDE application is consideredapproved 30 days after it has been received by the FDA, unless the FDA otherwise informs the sponsor prior to 30 calendardays from the date of receipt, that the IDE is approved, approved with conditions, or disapproved. The FDA typically grantsIDE approval for a specified number of subjects to be enrolled at specified study centers. The clinical trial must be conductedin accordance with applicable regulations, including but not limited to the FDA’s IDE regulations and GCP. Theinvestigators must obtain subject informed consent, rigorously follow the investigational plan and study protocol, controlthe disposition of investigational devices, and comply with all reporting and record keeping requirements. A clinical trialmay be suspended or terminated by the FDA, the IRB or the sponsor at any time for various reasons, including a belief thatthe risks to the study participants outweigh the benefits of participation in the trial. Approval of an IDE does not bind theFDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets itsintended success criteria. Post-Marketing Restrictions and Enforcement After a device is placed on the market, numerous regulatory requirements apply. These include but are not limited to: ·submitting and updating establishment registration and device listings with the FDA; ·compliance with the QSR, which require manufacturers to follow stringent design, testing, control,documentation, record maintenance, including maintenance of complaint and related investigation files, andother quality assurance controls during the manufacturing process; 65 Table of Contents·unannounced routine or for-cause device inspections by the FDA, which may include our suppliers’ facilitieslabeling regulations, which prohibit the promotion of products for uncleared or unapproved or “off-label” usesand impose other restrictions on labeling; and ·post-approval restrictions or conditions, including requirements to conduct post-market surveillance studies toestablish continued safety data or tracking products through the chain of distribution to the patient level. Under the FDA medical device reporting, or MDR, regulations, medical device manufacturers are required to report tothe FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned ina way that would likely cause or contribute to death or serious injury if the malfunction of the device or a similar device ofsuch manufacturer were to recur. The decision to file an MDR involves a judgment by the manufacturer. If the FDA disagreeswith the manufacturer’s determination, the FDA can take enforcement action. Additionally, the FDA has the authority to require the recall of commercialized products in the event of materialdeficiencies or defects in design or manufacture. The authority to require a recall must be based on an FDA finding that thereis reasonable probability that the device would cause serious injury or death. Manufacturers may, under their own initiative,recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls bereported to the FDA within 10 working days after the recall is initiated. The failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which mayinclude any of the following sanctions: ·untitled letters, warning letters, fines, injunctions or civil penalties; ·recalls, detentions or seizures of products; ·operating restrictions; ·delays in the introduction of products into the market; ·total or partial suspension of production; ·delay or refusal of the FDA or other regulators to grant 510(k) clearance or PMA application approvals of newproducts; ·withdrawals of 510(k) clearance or PMA application approvals; or ·in the most serious cases, criminal prosecution. To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillanceand periodic, pre-scheduled and unannounced inspections by the FDA, and these inspections may include the manufacturingfacilities of subcontractors. Review and Approval of Combination Products in the United States Certain products may be comprised of components that would normally be regulated under different types ofregulatory authorities, and frequently by different Centers at the FDA. These products are known as combination products.Specifically, under regulations issued by the FDA, a combination product may be: ·a product comprised of two or more regulated components that are physically, chemically, or otherwise combinedor mixed and produced as a single entity; ·two or more separate products packaged together in a single package or as a unit and comprised of drug anddevice products; ·a drug or device packaged separately that according to its investigational plan or proposed labeling is intendedfor use only with an approved individually specified drug or device where both are required to66 Table of Contentsachieve the intended use, indication, or effect and where upon approval of the proposed product the labeling ofthe approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength,route of administration, or significant change in dose; or ·any investigational drug or device packaged separately that according to its proposed labeling is for use onlywith another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of acombination product. That determination is based on the “primary mode of action” of the combination product. Thus, if theprimary mode of action of a device-drug combination product is attributable to the drug product, the FDA Center responsiblefor premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has alsoestablished an Office of Combination Products to address issues surrounding combination products and provide morecertainty to the regulatory review process. That office serves as a focal point for combination product issues for agencyreviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation ofcombination products, and for assignment of the FDA center that has primary jurisdiction for review of combination productswhere the jurisdiction is unclear or in dispute. Review and Approval of Drug Products in the European Union In order to market any product outside of the United States, a company must also comply with numerous and varyingregulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, amongother things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not itobtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreignregulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions.The approval process ultimately varies between countries and jurisdictions and can involve additional product testing andadditional administrative review periods. The time required to obtain approval in other countries and jurisdictions mightdiffer from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction doesnot ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country orjurisdiction may negatively impact the regulatory process in others. Clinical Trial ApprovalPursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Unionhas been implemented through national legislation of the member states. Under this system, an applicant must obtainapproval from the competent national authority of a European Union member state in which the clinical trial is to beconducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorableopinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with supportinginformation prescribed by the European Clinical Trials Directive and corresponding national laws of the member states andfurther detailed in applicable guidance documents. In April 2014, the EU adopted a new Clinical Trials Regulation, which is set to replace the current Clinical TrialsDirective. The new Clinical Trial Regulation was published on June 16, 2014 but is not expected to apply until sometime in2019. The new Clinical Trials Regulation will be directly applicable to and binding in all 28 EU Member States without theneed for any national implementing legislation, and will become applicable no earlier than 28 May 2016. Under the newcoordinated procedure for the approval of clinical trials, the sponsor of a clinical trial will be required to submit a singleapplication for approval of a clinical trial to a reporting EU Member State (RMS) through an EU Portal. The submissionprocedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU Member State or in morethan one EU Member State. The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reportingfor clinical trials. Marketing Authorization To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit amarketing authorization application, or MAA, either under a centralized or decentralized procedure. The centralizedprocedure provides for the grant of a single marketing authorization by the European Commission that is valid for allEuropean Union member states. The centralized procedure is compulsory for specific products, including for medicines67 Table of Contentsproduced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapyproducts and products with a new active substance indicated for the treatment of certain diseases. For products with a newactive substance indicated for the treatment of other diseases and products that are highly innovative or for which acentralized process is in the interest of patients, the centralized procedure may be optional. Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established atthe European Medicines Agency, or EMA, is responsible for conducting the initial assessment of a drug. The CHMP is alsoresponsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensionsto an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe forthe evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation isto be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by theCHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and inparticular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMPis given within 150 days. The decentralized procedure is available to applicants who wish to market a product in various European Unionmember states where such product has not received marketing approval in any European Union member states before. Thedecentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of anapplication performed by one member state designated by the applicant, known as the reference member state. Under thisprocedure, an applicant submits an application based on identical dossiers and related materials, including a draft summaryof product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states.The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receiptof a valid application. Within 90 days of receiving the reference member state’s assessment report and related materials, eachconcerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk topublic health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to theEuropean Commission, whose decision is binding on all member states. Regulatory Data Protection in the European Union In the EU, innovative medicinal products approved on the basis of a complete independent data package qualify foreight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant toDirective 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized inaccordance the centralized authorization procedure. Data exclusivity prevents applicants for authorization of generics ofthese innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period ofeight years. During an additional two-year period of market exclusivity, a generic marketing authorization application can besubmitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on theEU market until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one ormore new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring asignificant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemicalentity so that the innovator gains the prescribed period of data exclusivity, another company nevertheless could also marketanother version of the product if such company obtained marketing authorization based on an MAA with a completeindependent data package of pharmaceutical tests, preclinical tests and clinical trials. Periods of Authorization and Renewals A marketing authorization has an initial validity for five years in principle. The marketing authorization may berenewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authorityof the EU Member State. To this end, the marketing authorization holder must provide the EMA or the competent authoritywith a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since themarketing authorization was granted, at least six months before the marketing authorization ceases to be valid. The EuropeanCommission or the competent authorities of the EU Member States may decide, on justified grounds relating topharmacovigilance, to proceed with one further five-year period of marketing68 Table of Contentsauthorization. Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period.Any authorization which is not followed by the actual placing of the medicinal product on the European Union market (incase of centralized procedure) or on the market of the authorizing EU Member State within three years after authorizationceases to be valid (the so-called sunset clause). Regulatory Requirements after a Marketing Authorization has been Obtained In case an authorization for a medicinal product in the EU is obtained, the holder of the marketing authorization isrequired to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale ofmedicinal products. These include: ·Compliance with the EU’s stringent pharmacovigilance or safety reporting rules must be ensured. These rules canimpose post-authorization studies and additional monitoring obligations. ·The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, mustalso be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines forGood Manufacturing Practice. These requirements include compliance with EU cGMP standards whenmanufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of activepharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredientsinto the EU. ·The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education andadvertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EUnotably under Directive 2001/83EC, as amended, and EU Member State laws. Direct-to-consumer advertising ofprescription medicines is prohibited across the EU. Review and Approval of Medical Devices in the European Union The European Union has adopted numerous directives and standards regulating, among other things, the design,manufacture, clinical trials, labeling, approval and adverse event reporting for medical devices. In the EU, medical devicesmust comply with the Essential Requirements in Annex I to the EU Medical Devices Directive (Council Directive93/42/EEC), or the Essential Requirements. Compliance with these requirements is a prerequisite to be able to affix the CEMark of Conformity to medical devices, without which they cannot be marketed or sold in the European Economic Area, orEEA, comprised of the European Union member states plus Norway, Iceland, and Liechtenstein. Actual implementation ofthese directives, however, may vary on a country-by-country basis. To demonstrate compliance with the Essential Requirements a manufacturer must undergo a conformity assessmentprocedure, which varies according to the type of medical device and its classification. Except for low risk medical devices,where the manufacturer can issue a CE Declaration of Conformity based on a self-assessment of the conformity of its productswith the Essential Requirements, a conformity assessment procedure requires the intervention of a third-party organizationdesignated by competent authorities of a European Union country to conduct conformity assessments, or a Notified Body.Notified Bodies are independent testing houses, laboratories, or product certifiers typically based within the European Unionand authorized by the European member states to perform the required conformity assessment tasks, such as quality systemaudits and device compliance testing. The Notified Body would typically audit and examine the product’s Technical Fileand the quality system for the manufacture, design and final inspection of the product before issuing a CE Certificate ofConformity demonstrating compliance with the relevant Essential Requirements. Medical device manufacturers must carry out a clinical evaluation of their medical devices to demonstrate conformitywith the relevant Essential Requirements. This clinical evaluation is part of the product’s Technical File. A clinicalevaluation includes an assessment of whether a medical device’s performance is in accordance with its intended use, and thatthe known and foreseeable risks linked to the use of the device under normal conditions are minimized and acceptable whenweighed against the benefits of its intended purpose. The clinical evaluation conducted by the manufacturer must alsoaddress any clinical claims, the adequacy of the device labeling and information (particularly claims, contraindications,precautions and warnings) and the suitability of related Instructions for Use. This assessment69 Table of Contentsmust be based on clinical data, which can be obtained from clinical studies conducted on the devices being assessed,scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or both clinicalstudies and scientific literature. With respect to implantable devices or devices classified as Class III in the European Union, the manufacturer mustconduct clinical studies to obtain the required clinical data, unless relying on existing clinical data from similar devices canbe justified. As part of the conformity assessment process, depending on the type of devices, the Notified Body will reviewthe manufacturer’s clinical evaluation process, assess the clinical evaluation data of a representative sample of the device’ssubcategory or generic group, or assess all the clinical evaluation data, verify the manufacturer’s assessment of that data andassess the validity of the clinical evaluation report and the conclusions drawn by the manufacturer. Even after a manufacturer receives a CE Certificate of Conformity enabling the CE mark to be placed on it productsand the right to sell the products in the EEA countries, a Notified Body or a competent authority may require post-marketingstudies of the products. Failure to comply with such requirements in a timely manner could result in the withdrawal of the CECertificate of Conformity and the recall or withdrawal of the subject product from the European market. A manufacturer must inform the Notified Body that carried out the conformity assessment of the medical devices of anyplanned substantial changes to the devices which could affect compliance with the Essential Requirements or the devices’intended purpose. The Notified Body will then assess the changes and verify whether they affect the product’s conformitywith the Essential Requirements or the conditions for the use of the devices. If the assessment is favorable, the Notified Bodywill issue a new CE Certificate of Conformity or an addendum to the existing CE Certificate of Conformity attestingcompliance with the Essential Requirements. If it is not, the manufacturer may not be able to continue to market and sell theproduct in the EEA. In the European Union, medical devices may be promoted only for the intended purpose for which the devices havebeen CE marked. Failure to comply with this requirement could lead to the imposition of penalties by the competentauthorities of the European Union Member States. The penalties could include warnings, orders to discontinue the promotionof the medical device, seizure of the promotional materials and fines. Promotional materials must also comply with variouslaws and codes of conduct developed by medical device industry bodies in the European Union governing promotionalclaims, comparative advertising, advertising of medical devices reimbursed by the national health insurance systems andadvertising to the general public. Additionally, all manufacturers placing medical devices in the market in the European Union are legally bound toreport any serious or potentially serious incidents involving devices they produce or sell to the competent authority in whosejurisdiction the incident occurred. In the European Union, manufacturers must comply with the EU Medical DeviceVigilance System. Under this system, incidents must be reported to the relevant authorities of the European Union countries,and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a risk of death or seriousdeterioration in the state of health associated with the use of a medical device that is already placed on the market. Anincident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as anyinadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to thedeath of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include therecall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer orits European Authorized Representative to its customers and to the end users of the device through Field Safety Notices. InSeptember 2012, the European Commission adopted a proposal for a regulation which, if adopted, will change the way thatmost medical devices are regulated in the European Union, and may subject products to additional requirements. Brexit and the Regulatory Framework in the United Kingdom On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonlyreferred to as Brexit). Thereafter, on March 29, 2017, the country formally notified the European Union of its intention towithdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of the United Kingdom from the European Union willtake effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two years after the UnitedKingdom provides a notice of withdrawal pursuant to the EU Treaty. Since the regulatory framework for pharmaceuticalproducts in the United Kingdom covering quality, safety and efficacy of pharmaceutical products,70 Table of Contentsclinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived fromEuropean Union directives and regulations, Brexit could materially impact the future regulatory regime which applies toproducts and the approval of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit willimpact regulatory requirements for product candidates and products in the United Kingdom. The United Kingdom has a period of a maximum of two years from the date of its formal notification to negotiate theterms of its withdrawal from, and future relationship with, the European Union. If no formal withdrawal agreement is reachedbetween the United Kingdom and the European Union, then it is expected the United Kingdom's membership of theEuropean Union will automatically terminate two years after the submission of the notification of the United Kingdom'sintention to withdraw from the European Union. Discussions between the United Kingdom and the European Union focusedon finalizing withdrawal issues and transition agreements are ongoing. However, limited progress to date in thesenegotiations and ongoing uncertainty within the UK Government and Parliament sustains the possibility of the UnitedKingdom leaving the European Union on March 29, 2019 without a withdrawal agreement and associated transition periodin place, which is likely to cause significant market and economic disruption. General Data Protection Regulation The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, includingpersonal health data, is subject to the EU General Data Protection Regulation, or GDPR, which became effective on May 25,2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data,including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whomthe personal data relates, providing information to individuals regarding data processing activities, implementing safeguardsto protect the security and confidentiality of personal data, providing notification of data breaches, and taking certainmeasures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data tocountries outside the EU, including the United States, and permits data protection authorities to impose large penalties forviolations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever isgreater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints withsupervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of theGDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doingbusiness or require companies to change their business practices to ensure full compliance. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and othergovernment authorities. Sales of products will depend, in part, on the extent to which the costs of the products will becovered by third-party payors, including government health programs in the United States such as Medicare and Medicaid,commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay forthe product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, orformulary, which might not include all of the approved products for a particular indication. Additionally, the containment ofhealthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in thiseffort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of genericproducts. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies injurisdictions with existing controls and measures, could further limit our net revenue and results. In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need toconduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of theproduct, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision toprovide coverage for a product does not imply that an adequate reimbursement rate will be approved. Third-partyreimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment inproduct development. Section 1833(t)(6) of the Social Security Act provides for temporary additional payments or “transitional pass-throughpayments” for certain drugs and biological agents. As originally enacted by the Balanced Budget Refinement71 Table of ContentsAct of 1999, this provision required Centers for Medicare & Medicaid Services, or CMS, to make additional payments tohospitals for current orphan drugs, as designated under section 526 of the FDCA; current drugs and biological agents andbrachytherapy sources used for the treatment of cancer; and current radiopharmaceutical drugs and biological products.Transitional pass-through payments are also provided for certain new drugs, devices and biological agents that were not paidfor as a hospital outpatient department service as of December 31, 1996, and whose cost is “not insignificant” in relation tothe Outpatient Prospective Payment System payment for the procedures or services associated with the new drug, device, orbiological. Under the statute, transitional pass-through payments can be made for at least two years but not more than threeyears. We applied for a transitional pass-through reimbursement status, or C-code, for DEXTENZA on November 30, 2018from the Centers for Medicare and Medicaid Services, or CMS, and expect pricing for DEXTENZA while in pass-throughstatus to be approximately $540 per surgery. We expect pass-through would remain in effect for up to three years dependingon when we apply for and receive this reimbursement code. We submitted an application to the CMS for a J-code forDEXTENZA on December 28, 2018 and expect to submit to the CMS for a standard J-code for our OTX-TP productcandidate, if our clinical trials are successful and if our NDA filings and sNDA are approved by the FDA. In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countriesprovide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may requirethe completion of additional studies that compare the cost-effectiveness of a particular product candidate to currentlyavailable therapies. For example, the European Union provides options for its member states to restrict the range of drugproducts for which their national health insurance systems provide reimbursement and to control the prices of medicinalproducts for human use. European Union member states may approve a specific price for a drug product or it may insteadadopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market.Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. Thedownward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result,increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border importsfrom low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has pricecontrols or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements. Healthcare Law and Regulation Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription ofdrug products that are granted marketing approval. Arrangements with providers, consultants, third-party payors andcustomers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictionsunder applicable federal and state healthcare laws and regulations, include the following: ·the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting,offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward eitherthe referral of an individual for, or the purchase, order or recommendation of, any good or service, for whichpayment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid; ·the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions,against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal anobligation to pay money to the federal government; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civilliability for executing a scheme to defraud any healthcare benefit program or making false statements relating tohealthcare matters; ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and itsimplementing regulations, including the Final Omnibus Rule published in January 2013, also imposesobligations, including mandatory contractual terms, with respect to safeguarding the privacy, security andtransmission of individually identifiable health information;72 Table of Contents ·the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up amaterial fact or making any materially false statement in connection with the delivery of or payment forhealthcare benefits, items or services; ·the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, oroffering or promising to make improper payments to non-U.S. officials for the purpose of obtaining or retainingbusiness or otherwise seeking favorable treatment; ·the federal transparency requirements under the ACA, known as the federal Physician Payments Sunshine Act,will require certain manufacturers of drugs, devices, biologics and medical supplies to report to CMS within theDepartment of Health and Human Services information related to payments and other transfers of value tophysicians and teaching hospitals and physician ownership and investment interests held by physicians and theirimmediate family members; and ·analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply tosales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary complianceguidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drugmanufacturers to report information related to payments to physicians and other health care providers or marketingexpenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, manyof which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating complianceefforts. Healthcare Reform A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a numberof federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceuticalproducts, limiting coverage and reimbursement for drugs and other medical products, government control and other changesto the healthcare system in the United States. In March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act, or ACA, which,among other things, includes changes to the coverage and payment for products under government health care programs.Among the provisions of ACA of importance to potential drug candidates are: ·an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs andbiologic agents, apportioned among these entities according to their market share in certain governmenthealthcare programs, although this fee would not apply to sales of certain products approved exclusively fororphan indications; ·expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaidcoverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentiallyincreasing a manufacturer’s Medicaid rebate liability; ·expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimumrebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP,for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebateliability to prescriptions for individuals enrolled in Medicare Advantage plans; ·addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Programare calculated for drugs that are inhaled, infused, instilled, implanted or injected; ·expanded the types of entities eligible for the 340B drug discount program; 73 Table of Contents·established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50%point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during theircoverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; ·a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparativeclinical effectiveness research, along with funding for such research; ·the Independent Payment Advisory Board, or IPAB, which has authority to recommend certain changes to theMedicare program to reduce expenditures by the program that could result in reduced payments for prescriptiondrugs. However, the IPAB implementation has been not been clearly defined. ACA provided that under certaincircumstances, IPAB recommendations will become law unless Congress enacts legislation that will achieve thesame or greater Medicare cost savings; and ·established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment andservice delivery models to lower Medicare and Medicaid spending, potentially including prescription drugspending. Funding has been allocated to support the mission of the Center for Medicare and MedicaidInnovation from 2011 to 2019. Other legislative changes have been proposed and adopted in the United States since ACA was enacted. For example,in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress.A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automaticreduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additionalCongressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers andcancer treatment centers, and increased the statute of limitations period for the government to recover overpayments toproviders from three to five years. These laws may result in additional reductions in Medicare and other healthcare fundingand otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approvalor the frequency with which any such product candidate is prescribed or used. Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal andreplace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by thePresident on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requiresmost Americans to carry a minimal level of health insurance, will become effective in 2019. According to the CongressionalBudget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 andpremiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolutionon appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain healthinsurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, theBipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to increase from 50 percentto 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. The Congress willlikely consider other legislation to replace elements of the ACA during the next Congressional session. The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA. SinceJanuary 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisionsof the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One ExecutiveOrder directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, ordelay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals,healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stopthe administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge inCalifornia on October 25, 2017. In addition, CMS has recently74 Table of Contentsproposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and smallgroup marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans soldthrough such marketplaces. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federalgovernment was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who arguedwere owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace,providers, and potentially our business, are not yet known. Further, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enactedstate legislation designed to, among other things, bring more transparency to drug pricing, review the relationship betweenpricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government programreimbursement methodologies for drug products. For example, there have been several recent U.S. congressional inquiriesand proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency todrug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs underMedicare and reform government program reimbursement methodologies for drug products. At the federal level, Congressand the Trump administration have each indicated that it will continue to seek new legislative and/or administrativemeasures to control drug costs. For example, on May 11, 2018, the Administration issued a plan to lower drug prices. Underthis blueprint for action, the Administration indicated that the Department of Health and Human Services (HHS) will: takesteps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies; advancebiosimilars and generics to boost price competition; evaluate the inclusion of prices in drug makers’ ads to enhance pricecompetition; speed access to and lower the cost of new drugs by clarifying policies for sharing information between insurersand drug makers; avoid excessive pricing by relying more on value-based pricing by expanding outcome-based payments inMedicare and Medicaid; work to give Part D plan sponsors more negotiation power with drug makers; examine whichMedicare Part B drugs could be negotiated for a lower price by Part D plans, and improving the design of the Part BCompetitive Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part Dcontracts that include “gag rules” that prevent pharmacists from informing patients when they could pay less out-of-pocketby not using insurance; and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases. At the state level, individual states are increasingly aggressive in passing legislation and implementing regulationsdesigned to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authoritiesand individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and whichsuppliers will be included in their prescription drug and other health care programs. These measures could reduce theultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state andfederal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and stategovernments will pay for healthcare products and services, which could result in reduced demand for our product candidatesor additional pricing pressures. Employees As of March 1, 2019, we had 167 full-time employees. Of these full-time employees, 123 employees are primarilyengaged in research and development activities. None of our employees are represented by labor unions or covered bycollective bargaining agreements. We consider our relationship with our employees to be good. Our Corporate Information We were incorporated under the laws of the State of Delaware in 2006. Our principal executive offices are located at 15Crosby Drive, Bedford, MA 01730, and our telephone number is (781)357-4000. Our manufacturing and research anddevelopment operations are located at 36 Crosby Drive, Suite 101, Bedford, MA 01730. Our website address iswww.ocutx.com. Available Information We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of theSecurities Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available75 Table of Contentsthrough our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to,the SEC. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers,directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copiesof those filings are provided to us by those persons. The information contained on, or that can be access through, our websiteis not a part of or incorporated by reference in this Annual Report on Form 10-K. Item 1A.Risk Factors The following risk factors and other information included in this Annual Report on Form 10-K should be carefullyconsidered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertaintiesnot presently known to us or that we presently deem less significant may also impair our business operations. Please seepage 1 of this Annual Report on Form 10-K for a discussion of some of the forward-looking statements that are qualified bythese risk factors. If any of the following risks occur, our business, financial condition, results of operations and futuregrowth prospects could be materially and adversely affected. Risks Related to Our Financial Position and Need for Additional Capital We have incurred significant losses since our inception. We expect to incur losses over the next several years and maynever achieve or maintain profitability. Since inception, we have incurred significant operating losses. Our net losses were $44.7 million for the year endedDecember 31, 2016, $63.4 million for the year ended December 31, 2017, and $60.0 million for the year ended December 31,2018. As of December 31, 2018, we had an accumulated deficit of $297.2 million. Through December 31, 2018, we havefinanced our operations primarily through private placements of our preferred stock, public offerings of our common stockand borrowings under credit facilities. We have devoted substantially all of our financial resources and efforts to research anddevelopment, including preclinical studies and clinical trials, commercialization of ReSure Sealant and the potentialcommercial launch of DEXTENZA® for the treatment of ocular pain following ophthalmic surgery. Although we expect togenerate revenue from sales of DEXTENZA following its commercial launch, we expect to continue to incur significantexpenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarterand year to year. We anticipate we will incur substantial expenses if and as we: ·commercially launch DEXTENZA in the United States; ·continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any of ourproduct candidates; ·continue to pursue the clinical development of our most advanced intracanalicular insert product candidates,OTX-TP and DEXTENZA in additional indications; ·continue clinical trials of our product candidates OTX-TIC and OTX-TKI; ·conduct joint research and development under our strategic collaboration with Regeneron, for the developmentand potential commercialization of products containing our extended-delivery hydrogel formulation incombination with Regeneron’s large molecule, VEGF-targeting compounds to treat retinal diseases; ·continue the research and development of our other product candidates; ·seek to identify and develop additional product candidates, including through additional preclinicaldevelopment activities associated with our back-of-the-eye program and glaucoma intracameral implant programand potential opportunities outside the field of ophthalmology; ·seek marketing approvals for any of our product candidates that successfully complete clinical development; 76 Table of Contents·scale up our manufacturing processes and capabilities to support sales of commercial products, our ongoingclinical trials of our product candidates and commercialization of any of our product candidates for which weobtain marketing approval, and expand our facilities to accommodate this scale up and the expected growth inpersonnel; ·renovate our new facility including research and development laboratories, manufacturing space and officespace; ·maintain, expand and protect our intellectual property portfolio; ·expand our operational, financial and management systems and personnel, including personnel to support ourclinical development, manufacturing and commercialization efforts and our operations as a public company; ·defend ourselves against legal proceedings; ·increase our product liability and clinical trial insurance coverage as we expand our clinical trials andcommercialization efforts; and ·continue to operate as a public company. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable toaccurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Ourexpenses will increase if: ·we are required by the FDA or the European Medicines Agency, or EMA, to perform trials or studies in additionto those currently expected; ·there are any delays in receipt of regulatory clearance to begin our planned clinical programs; or ·there are any delays in enrollment of patients in or completing our clinical trials or the development of ourproduct candidates. ReSure Sealant has been our only source of revenue from product sales. We do not expect sales of ReSure Sealant togenerate revenue that is sufficient for us to achieve profitability. For us to become and remain profitable, we will need tosucceed in developing and commercializing DEXTENZA or other products with significant market potential. This willrequire us or our current or future collaborators to be successful in a range of challenging activities, including: ·successfully completing the commercial launch of DEXTENZA, including by further developing our sales force,marketing and distribution capabilities; ·successfully completing clinical development of our product candidates; ·obtaining marketing approval for these product candidates, including DEXTENZA for additional indications; ·manufacturing at commercial scale, marketing, selling and distributing DEXTENZA or those products for whichwe obtain marketing approval; ·achieving an adequate level of market acceptance of and obtaining and maintaining coverage and adequatereimbursement from third-party payors for our products; and ·protecting our rights to our intellectual property portfolio. Our ability to generate revenue from operations will depend, in part, on the timing and success of commercial sales ofDEXTENZA, which we plan to commercially launch in the United States in 2019. However, the successful77 Table of Contentscommercialization of DEXTENZA in the United States is subject to many risks. We are currently undertaking our firstcommercial launch with DEXTENZA, and we may not be able to do so successfully or on the currently expected timeline orat all. There are numerous examples of unsuccessful product launches and failures to meet expectations of market potential,including by pharmaceutical companies with more experience and resources than us. While we expect to commerciallylaunch DEXTENZA for the treatment of ocular pain following ophthalmic surgery in 2019, we do not anticipate revenuefrom such sales of DEXTENZA will be sufficient for us to become profitable for several years, if ever. We may never succeed in these activities and may never generate revenue that is sufficient or great enough to achieveprofitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly orannual basis. Our failure to become and remain profitable would depress the value of our company and could impair ourability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings oreven continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part oftheir investment. We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay,reduce or eliminate our product development programs or commercialization efforts. We expect to devote substantial financial resources to our ongoing and planned activities, particularly as wecommercially launch DEXTENZA for the treatment of ocular pain following ophthalmic surgery, including expanding ourproduct manufacturing, sales, marketing and distribution capabilities. We also expect to devote substantial financialresources as we conduct late stage clinical trials for our local programmed-release drug delivery product candidates, inparticular OTX-TP and DEXTENZA for additional indications, and seek marketing approval for any such product candidatefor which we obtain favorable pivotal clinical results. In addition, we plan to devote significant financial resources toconducting research and development and potentially seeking regulatory approval for our other product candidates.Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we areunable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research anddevelopment programs or any future commercialization efforts. As of December 31, 2018, we had cash and cash equivalents of $54.1 million and outstanding debt of $25.0million. On December 21, 2018, we entered into a Third Amended and Restated Credit and Security Agreement, or the CreditAgreement, to refinance our existing secured term loan facility, which we refer to as our Credit Facility. The CreditAgreement increased the principal amount of the Credit Facility from $18.0 million to $25.0 million, all of which we drew atclosing. A portion of the borrowings were used to pay off the approximately $12.3 million outstanding principal balanceunder the prior agreement and to pay a loan origination fee. On March 1, 2019, we closed a private placement of $37.5million aggregate principal amount of our senior subordinated convertible notes, or the Convertible Notes, resulting inestimated net proceeds of approximately $37.1 million. Based on our current plans and forecasted expenses, we believe thatour existing cash and cash equivalents, as of December 31, 2018, along with the net proceeds from the sale of the seniorsubordinated notes, without giving effect to any potential payment under our Collaboration Agreement with Regeneron, willenable us to fund our operating expenses, debt service obligations and capital expenditure requirements into early 2020. Wehave based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than wecurrently expect. Our future capital requirements will depend on many factors, including : ·our ability to successfully commercialize and sell DEXTENZA in the United States; ·the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA orother regulatory authorities; ·the level of product sales from DEXTENZA and any additional products for which we obtain marketingapproval in the future; ·the costs of manufacturing, sales, marketing, distribution and other commercialization efforts with respectto DEXTENZA and any additional products for which we obtain marketing approval in the future; 78 Table of Contents·the costs of expanding our facilities to accommodate our manufacturing needs and expected growth inpersonnel; ·the progress, costs and outcome of the clinical trials of our extended-delivery drug delivery productcandidates, in particular OTX-TP and DEXTENZA for additional indications; ·the progress and status of our collaboration with Regeneron, including any development costs for whichwe reimburse Regeneron, the potential exercise by Regeneron of its option for a license for thedevelopment and potential commercialization of products containing our extended-delivery hydrogelformulation in combination with Regeneron’s large molecule VEGF-targeting compounds, and ourpotential receipt of future milestone payments from Regeneron; ·the costs of advancing our internal development efforts for the back-of-the-eye small molecule TKIprogram through the remaining preclinical steps and potentially into an initial clinical trial; ·the scope, progress, costs and outcome of preclinical development and clinical trials of our other productcandidates; ·the extent of our debt service obligations; ·the amounts we receive, if any, from Regeneron for option exercise, development, regulatory and salesmilestones and royalty payments under our collaboration; ·the extent to which we choose to establish additional collaboration, distribution or other marketingarrangements for our products and product candidates; ·the costs and outcomes of legal actions and proceedings, including the current lawsuits described under“Item 3—Legal Proceedings”; ·the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcingour intellectual property rights and defending any intellectual property-related claims; and ·the extent to which we acquire or invest in other businesses, products and technologies. Conducting preclinical testing and clinical trials, seeking market approvals and commercializing products are time-consuming, expensive and uncertain process that takes years to complete. We may never generate the necessary data orresults required to obtain regulatory approval of products with the market potential sufficient to enable us to achieveprofitability. We may not generate significant revenue from sales of any product for several years, if at all. Accordingly, wewill need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing maynot be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable marketconditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We have included a paragraph relating to our ability to continue as a going concern in the footnotes of our auditedconsolidated financial statements included in this Annual Report on Form 10-K. Our audited consolidated financial statements for the period ended December 31, 2018 include a paragraph stating thatour losses from operations and need for additional funding to finance our operations raise substantial doubt about our abilityto continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition andresults of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we areunable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at whichthose assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of theirinvestment. If we seek additional financing to fund our business activities in the future and there remains substantial doubtabout our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additionalfunding to us on commercially reasonable terms or at all. 79 Table of Contents Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rightsto our technologies or products or product candidates. Until such time, if ever, as we can generate product revenues sufficient to achieve profitability, we expect to financeour cash needs through equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royaltyagreements, and marketing and distribution arrangements. We do not have any committed external source of funds otherthan the amounts we are entitled to receive from Regeneron for potential option exercise, development, regulatory and salesmilestones and royalty payments under our collaboration. To the extent that we raise additional capital through the sale ofequity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securitiesmay include liquidation or other preferences that adversely affect our existing stockholders’ rights as holders of our commonstock. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limitingor restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaringdividends. Our pledge of our assets as collateral to secure our obligations under our Credit Facility may limit our ability toobtain additional debt financing. If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements, ormarketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenuestreams, research programs, products or product candidates or grant licenses on terms that may not be favorable to us. If weare unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit,reduce or terminate our product development or future commercialization efforts or grant rights to develop and marketproducts or product candidates that we would otherwise prefer to develop and market ourselves. Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business. We have a significant amount of indebtedness. Under our Credit Facility, as amended on December 21, 2018, we had$25.0 million, net of unamortized discount, of outstanding principal indebtedness. Under the amended Credit Facility, weare permitted to make interest-only payments until January 1, 2021, subject to potential extension to January 1, 2022 if netsales of DEXTENZA exceed $40.0 million in the aggregate during any trailing twelve-month period. Our obligations underthe Credit Facility are secured by all of our assets, including our intellectual property. The Credit Facility also includes afinancial covenant requiring us to maintain at least $5.0 million in cash and/or cash equivalents at all times as well ascustomary affirmative and negative covenants, including limitations on dispositions, mergers or acquisitions; incurringindebtedness, liens or encumbrances; paying dividends; making certain investments; and engaging in certain other businesstransactions. In March 2019, we issued $37.5 million aggregate principal amount of Convertible Notes. The ConvertibleNotes mature on March 1, 2026 and interest on the Convertible Notes is payable at maturity or if earlier converted,repurchased or redeemed pursuant to their terms. We could in the future incur additional indebtedness beyond such amounts,including by potentially amending our Credit Facility. Our substantial debt combined with our other financial obligations and contractual commitments could havesignificant adverse consequences, including: ·requiring us to dedicate a substantial portion of cash and cash equivalents and marketable securities to thepayment of interest on, and principal of, our debt, which will reduce the amounts available to fund workingcapital, capital expenditures, product development efforts and other general corporate purposes; ·obligating us to negative covenants restricting our activities, including limitations on dispositions,mergers or acquisitions, encumbering our intellectual property, incurring indebtedness or liens, payingdividends, making investments and engaging in certain other business transactions; ·limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and ·placing us at a competitive disadvantage compared to our competitors that have less debt or better debtservicing options. We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents,anticipated product revenue from DEXTENZA and potential payments under our collaboration with Regeneron and80 Table of Contentsfunds from external sources. However, we may not have sufficient funds or may be unable to arrange for additional financingto pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if atall. In addition, a failure to comply with the conditions of our Credit Facility or the Convertible Notes could result in anevent of default under those instruments. In the event of an acceleration of amounts due under our Credit Facility or theConvertible Notes as a result of an event of default, including upon the occurrence of an event that would reasonably beexpected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay anyamount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtednessor to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing suchindebtedness. In addition, the covenants under our existing Credit Facility and the pledge of our assets, including ourintellectual property as collateral limit our ability to obtain additional debt financing. Our limited operating history may make it difficult for our stockholders to evaluate the success of our business to date andto assess our future viability. We are an early-stage company. Our operations to date have been limited to organizing and staffing our company,acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potentialproduct candidates, undertaking preclinical studies and clinical trials, manufacturing initial quantities of our products andproduct candidates, commercializing ReSure Sealant, and, beginning in 2019, commercializing DEXTENZA for thetreatment of ocular pain following ophthalmic surgery. We have limited history of commercializing products, are still in theprocess of preparing for the commercial launch of DEXTENZA and, to date, have not generated revenue from the sale ofDEXTENZA. Consequently, any predictions about our future success or viability may not be as accurate as they could be ifwe had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and otherknown and unknown factors. We are in early stages of the process of transitioning from a company with a research anddevelopment focus to a company capable of supporting commercial activities. We may not be successful in such atransition. We expect our financial condition and operating results to continue to fluctuate significantly from quarter-to-quarterand year-to-year due to a variety of factors, many of which are beyond our control. Accordingly, our stockholders should notrely upon the results of any quarterly or annual periods as indications of future operating performance. We have broad discretion in the use of our available cash and other sources of funding and may not use them effectively. Our management has broad discretion in the use of our available cash and other sources of funding and could spendthose resources in ways that do not improve our results of operations or enhance the value of our common stock. The failureby our management to apply these funds effectively could result in financial losses that could cause the price of our commonstock to decline and delay the development of our product candidates. Pending their use, we may invest our available cashin a manner that does not produce income or that loses value. Risks Related to Product Development We depend heavily on the success of DEXTENZA and our product candidates, in particular DEXTENZA for additionalindications and OTX-TP. Clinical trials of our product candidates may not be successful. If we are unable to successfullycomplete clinical development of and obtain marketing approvals for our product candidates, or experience significantdelays in doing so, or if after obtaining marketing approvals, we fail to commercialize these product candidates, ourbusiness will be materially harmed. We have devoted a significant portion of our financial resources and business efforts to the development of our drug-eluting intracanalicular insert products and product candidates for diseases and conditions of the front of the eye. Inparticular, we are investing substantial resources to complete the development of DEXTENZA for post-surgical ocularinflammation and allergic conjunctivitis and OTX-TP for glaucoma and ocular hypertension. We cannot accurately predictwhen or if any of our product candidates will prove effective or safe in humans or whether our products and productcandidates will receive marketing approval or reach successful commercialization. Our ability to81 Table of Contentsgenerate product revenues sufficient to achieve profitability will depend heavily on our successful commercialization ofDEXTENZA for the treatment of ocular pain following ophthalmic surgery and our obtaining marketing approval for andcommercializing one or both of DEXTENZA for additional indications and OTX-TP. The commercial success of our product DEXTENZA and our product candidates will depend on many factors,including the following: ·successful completion of preclinical studies and clinical trials; ·applying for and receiving marketing approvals from applicable regulatory authorities for our productcandidates; ·scaling up our manufacturing processes and capabilities to support additional or larger clinical trials of ourproduct candidates and commercialization of DEXTENZA or any of our product candidates for which weobtain marketing approval; ·developing, validating and maintaining a commercially viable manufacturing process that is compliantwith current good manufacturing practices, or cGMP; ·developing our sales, marketing and distribution capabilities and launching commercial sales of ourproducts and product candidates, if and when approved, whether alone or in collaboration with others; ·partnering successfully with our current and future collaborators, including Regeneron; ·gaining acceptance of our products, if and when approved, by patients, the medical community and third-party payors; ·effectively competing with other therapies; ·maintaining a continued acceptable safety profile of our products following approval; ·obtaining and maintaining coverage and adequate reimbursement from third-party payors; ·obtaining and maintaining patent and trade secret protection and regulatory exclusivity; and ·protecting our rights in our intellectual property portfolio. In certain cases, such as in our collaboration with Regeneron, many of these factors may be beyond our control,including clinical development and sales, marketing and distribution efforts. If we or our collaborators do not achieve one ormore of these factors in a timely manner or at all, we could experience significant delays or an inability to successfullycommercialize our products and product candidates, which would materially harm our business. If clinical trials of our intracanalicular insert product candidates or any other product candidate that we develop failto demonstrate safety and efficacy to the satisfaction of the FDA, the EMA or other regulatory authorities or do nototherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately bedelayed or unable to complete, the development and commercialization of such product candidate. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, including ourintracanalicular insert product candidates, we must complete preclinical development and then conduct extensive clinicaltrials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, insert isdifficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or moreclinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not bepredictive of the success of later stage clinical trials, interim results of a clinical trial do not necessarily predict final resultsand results from one completed clinical trial may not be replicated in a subsequent clinical trial with a similar study design. Some of our completed studies, including our pilot studies for OTX-TP, were conducted with small patient populations,making it difficult to predict whether the favorable results that we observed in such studies will be repeated in larger andmore advanced clinical trials. Moreover, preclinical and clinical data are often susceptible82 Table of Contentsto varying interpretations and analyses, and many companies that have believed their product candidates performedsatisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. In general, the FDA requires two adequate and well controlled clinical trials to support the effectiveness of a new drugfor marketing approval. In a Phase 2 clinical trial of DEXTENZA that we completed in 2013 in which we were evaluatingDEXTENZA for post-surgical ocular pain and inflammation following cataract surgery, DEXTENZA did not meet the primaryefficacy endpoint for inflammation with statistical significance at the pre-specified time point at day 8. However, we didachieve statistical significance for this inflammation endpoint at days 14 and 30. Accordingly, we measured the primaryefficacy endpoint for inflammation in our completed Phase 3 clinical trials of DEXTENZA at day 14. In the first and thirdPhase 3 clinical trials, DEXTENZA met both primary endpoints for post-surgical ocular pain and inflammation followingcataract surgery with statistical significance. However, in the second Phase 3 clinical trial, DEXTENZA met only one of thetwo primary efficacy endpoints with statistical significance. In this second trial, DEXTENZA did not meet the primaryendpoint relating to absence of inflammatory cells in the study eye at day 14. We announced topline results from a third Phase 3 clinical trial of DEXTENZA for post-surgical ocular pain andinflammation in November 2016, which we plan to use to support the potential labeling expansion of DEXTENZA’sindications for use. We modified the design of this third Phase 3 clinical trial compared to our two previous Phase 3 clinicaltrials of DEXTENZA based on our learnings from these trials. In this trial, DEXTENZA successfully met its two primaryefficacy endpoints for pain and inflammation, achieving statistically significant differences between the treatment group andthe placebo group for the absence of inflammatory cells on day 14 and the absence of pain on day 8, respectively. Secondaryanalyses on the primary efficacy measures have also been completed. DEXTENZA achieved each of the secondary endpointsrelated to absence of inflammatory cells, absence of pain, and absence of anterior chamber flare with statistical significancecompared to placebo at each of the pre-specified timepoints, with the exception of the endpoint for the absence ofinflammatory cells at day 2 (which is the day following surgery). Based on the results of our third Phase 3 clinical trial ofDEXTENZA and subsequent approval in December 2018 for the pain indication pursuant to the initial NDA, we submitted anNDA supplement, or sNDA, for DEXTENZA for the treatment of post-surgical ocular inflammation in January 2019. In our first Phase 3 clinical trial of DEXTENZA for allergic conjunctivitis, for which we announced topline results inOctober 2015, DEXTENZA met one of the two primary endpoints. DEXTENZA achieved the primary endpoint for ocularitching associated with allergic conjunctivitis but not the primary endpoint for conjunctival redness, in each case measuredon day 7 after insertion of the insert. The difference in the mean scores for ocular itching between the DEXTENZA group andthe placebo group was greater than 0.5 units on a five point scale at all time points on day 7 post-insertion and was greaterthan 1.0 unit at a majority of the time points on day 7 post-insertion. The DEXTENZA group did not achieve these pre-specified endpoints on day 7 post-insertion with respect to conjunctival redness. In our second Phase 3 clinical trial ofDEXTENZA for allergic conjunctivitis, for which we announced topline results in June 2016, DEXTENZA did not meet thesole primary endpoint for ocular itching. The single primary endpoint of the second Phase 3 clinical trial was the differencein the mean scores in ocular itching between the treatment group and the placebo comparator group at three time points onday 7 following insertion of the inserts. While mean ocular itching was seen to be numerically lower (more favorable) in theDEXTENZA treatment group compared to the placebo group measured at each of the three specified times on day 7following insertion of the inserts, at 3, 5, and 7 minutes by -0.18, -0.29, and -0.29 units, respectively, on a five point scale,this difference did not reach statistical significance. In addition, the trial did not achieve the requirement of at least a 0.5 unitdifference at all three time points on day 7 following insertion of the inserts and at least a 1.0 unit difference at the majorityof the three time points between the treatment group and the placebo group on day 7 following insertion of theinserts. Further, in our prior Phase 2 clinical trial of DEXTENZA in which we were evaluating DEXTENZA for allergicconjunctivitis, DEXTENZA met one of the two primary efficacy measures. The DEXTENZA treatment group achieved amean difference compared to the vehicle control group of more than 0.5 units on a five point scale on day 14 for all threetime points measured in a day for both ocular itching and conjunctival redness. The DEXTENZA group did not achieve amean difference compared to the vehicle control group of 1.0 unit for the majority of the three time points measured on day14 for either ocular itching or conjunctival redness. Even if we obtain favorable clinical trial results in any additional Phase3 clinical trials of DEXTENZA for allergic conjunctivitis, including meeting all primary efficacy measures, we may notobtain approval for DEXTENZA to treat allergic conjunctivitis or ocular itching associated with allergic conjunctivitis, orthe FDA may require that we conduct additional clinical trials. Post-hoc analyses that we performed on the results of ourcompleted Phase 3 clinical trials for allergic conjunctivitis may not be predictive of success in any future Phase 3 clinicaltrial. Although we believe that these analyses provide important information regarding DEXTENZA and are helpful inunderstanding the results of83 Table of Contentsthis trial and determining the appropriate criteria for future clinical trials, post-hoc analyses performed using an unlockedclinical trial database can result in the introduction of bias and are given less weight by regulatory authorities than pre-specified analyses. We designed our Phase 2 clinical trials of OTX-TP for the treatment of glaucoma and ocular hypertension to assessclinically meaningful response to treatment, and did not power these trials to measure any efficacy endpoints with statisticalsignificance. We reported topline efficacy results from our Phase 2b clinical trial of OTX-TP for the treatment of glaucomaand ocular hypertension in October 2015. OTX-TP did not achieve non-inferiority to timolol drops in our Phase 2b clinicaltrial. In this trial, on day 60 at the 8:00 a.m. time point, the OTX-TP group experienced a mean intraocular pressure, or IOP,lowering effect of 4.7 mmHg, compared with IOP lowering of 6.4 mmHg for the timolol arm. On day 90 at the 8:00 a.m. timepoint, the OTX-TP group experienced an IOP lowering effect of 5.1 mmHg, compared with an IOP lowering effect of 7.2mmHg in the timolol arm. Also in this trial, on day 60, the OTX-TP group experienced a mean diurnal IOP lowering effect of3.3 mmHg compared to baseline 5.9 mmHg compared for the timolol group. On day 90, the OTX-TP group experienced amean diurnal IOP, or IOP, lowering effect of 3.6 mmHg compared to baseline, versus 6.3 mmHg for the timolol group. Weexpect that our planned Phase 3 clinical trials for OTX-TP, one of which we initiated during the third quarter of 2016, will bepowered with an appropriate number of patients to measure with statistical significance whether OTX-TP is superior ascompared to a placebo vehicle intracanalicular insert in the reduction of mean IOP from baseline at all of the nine diurnaltime points at week 2, week 6 and week 12 visits. We completed an End‑of‑Phase 2 review with the FDA in April 2016 andinitiated the first of two planned Phase 3 clinical trials of OTX‑TP in September 2016. Based on discussions with the FDA,the Phase 3 clinical trial design has significant differences as compared to our completed Phase 2 clinical trials. In particular,the most notable changes from our first Phase 2 clinical trial to our first Phase 3 clinical trial are that our first Phase 3 clinicaltrial enrolls more subjects at a greater number of sites, has a different randomization, measures the primary efficacy endpointson different days and at different timepoints, has a longer washout period. Despite these changes to our clinical trial protocol,we cannot be certain that our first Phase 3 clinical trial will be successful. We do not intend to initiate the second Phase 3clinical trial until we receive data from the first Phase 3 clinical trial and discuss the results with the FDA. If we do notachieve our primary endpoint in the Phase 3 clinical trials with statistical significance or do not achieve a clinicallymeaningful reduction in IOP, we may not obtain marketing approval for OTX-TP. In addition, post-hoc analyses that we performed on the results of our completed Phase 2b clinical trial may not bepredictive of success in our planned Phase 3 clinical trials, including as a result of differences in trial design. Post-hocanalyses performed using an unlocked clinical trial database can result in the introduction of bias and are given less weightby regulatory authorities than pre-specified analyses. The success of our intracanalicular insert product candidates is dependent upon retention during the course of intendedtherapy. As such, we may conduct non-significant risk investigational device exemption, or IDE, medical device, or NSR,studies in the United States for our extended-delivery intracanalicular insert in an effort to increase the rate of retention. AllNSR studies that we have performed to date have involved placebo vehicle control intracanalicular inserts without activedrug. If we determine to make any future changes to the design or composition of our inserts, such changes could affect theoutcome of any subsequent clinical trials using these updated inserts. For example, in our Phase 2b clinical trial of OTX-TP,we used a different version of intracanalicular insert than either of the inserts that we used in our Phase 2a clinical trial ofOTX-TP. Based on the results of our completed Phase 2a clinical trial, we designed the OTX-TP insert that was used in ourPhase 2b clinical trial to deliver drug over a 90 day period at the same daily rate as the two-month version of the insert usedin the Phase 2a clinical trial. To achieve this, we modified the design of the OTX-TP insert to enlarge it in order to enable theinsert to carry a greater amount of drug. In addition, we incorporated minor structural changes to improve retention rates. Inour Phase 2b clinical trials, OTX-TP inserts could be visualized in approximately 88% of eyes by the day 60 visit. By theday 90 visit, the ability to visualize OTX-TP had declined to approximately 42% of eyes as the hydrogel softened, liquefiedand had either advanced further down in the canaliculus or had cleared through the nasolacrimal duct. We are conductingadditional NSR studies on additional modified insert designs, including a polyethylene glycol, or PEG, tip on the proximalend of the insert that have been incorporated into the design of the first Phase 3 trial of OTX-TP. If in our Phase 3 clinicaltrials the retention rates for our inserts are inadequate to ensure that the patient is receiving appropriate therapy, we may notbe able to obtain regulatory approvals or, even if approved, achieve market acceptance of our local programmed-release drugdelivery products. The protocols for our clinical trials and other supporting information are subject to review by the FDA and regulatoryauthorities outside the United States. For our intracanalicular insert product candidates, we have typically conducted ourinitial and earlier stage clinical trials outside the United States. We generally plan to conduct our later84 Table of Contentsstage and pivotal clinical trials of our intracanalicular insert product candidates in the United States. The FDA, however,could require us to conduct additional studies or require us to modify our planned pivotal clinical trials to receive clearanceto initiate such trials in the United States or to continue such trials once initiated. The FDA is not obligated to comment onour trial protocols within any specified time period or at all or to affirmatively clear or approve our planned pivotal clinicaltrials. Subject to a waiting period of 30 days, we could choose to initiate our pivotal clinical trials in the United Stateswithout waiting for any additional period for comments from the FDA. We have conducted, and may in the future conduct, clinical trials for product candidates at sites outside the United States,and the FDA may not accept data from trials conducted in such locations. We have conducted, and may in the future choose to conduct, one or more of our clinical trials outside the UnitedStates. We have typically conducted our initial and earlier stage clinical trials for our product candidates, including ourintracanalicular insert product candidates, outside the United States. We generally plan to conduct our later stage andpivotal clinical trials of our intracanalicular insert product candidates in the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data issubject to conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted andperformed by qualified investigators in accordance with ethical principles. The trial population must also adequatelyrepresent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways thatthe FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDAacceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws andregulations. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likelyresult in the need for additional trials, which would be costly and time-consuming and would delay or permanently halt ourdevelopment of the applicable product candidates. Other risks inherent in conducting international clinical trials include: ·foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials ·administrative burdens of conducting clinical trials under multiple sets of foreign regulations; ·failure of enrolled patients to adhere to clinical protocols as a result of differences in healthcare services orcultural customs; ·foreign exchange fluctuations; ·diminished protection of intellectual property in some countries; and ·political and economic risks relevant to foreign countries. If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketingapproval or commercialization of our product candidates could be delayed or prevented. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent ourability to receive marketing approval or commercialize our extended-delivery drug delivery product candidates or any otherproduct candidates that we may develop, including: ·clinical trials of our product candidates may produce negative or inconclusive results, and we may decide,or regulators may require us, to conduct additional clinical trials or abandon product developmentprograms; ·the number of patients required for clinical trials of our product candidates may be larger than weanticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop outof these clinical trials at a higher rate than we anticipate; ·our third-party contractors may fail to comply with regulatory requirements or meet their obligations to usin a timely manner, or at all;85 Table of Contents ·regulators or institutional review boards may not authorize us or our investigators to commence a clinicaltrial or conduct a clinical trial at a prospective trial site; ·we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts orclinical trial protocols with prospective trial sites; ·we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinicalresearch for various reasons, including noncompliance with regulatory requirements or a finding that theparticipants are being exposed to unacceptable health risks; ·the cost of clinical trials of our product candidates may be greater than we anticipate; and ·the supply or quality of our product candidates or other materials necessary to conduct clinical trials of ourproduct candidates may be insufficient or inadequate. For example, we applied for a deferral from the FDA for the requirement to conduct pediatric studies for DEXTENZAfor the treatment of post-surgical ocular pain and inflammation following cataract surgery until after approval of suchproduct in adult populations for that indication. While the FDA ultimately approved our request, if the FDA had required usto conduct pediatric studies in advance of FDA approval in adult populations, we would have experienced significant delaysin our ability to obtain marketing approval for DEXTENZA for this indication. We will face a similar risk if we seek acomparable deferral for other product candidates or indications. If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that wecurrently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, ifthe results of these trials or tests are not favorable or are only modestly favorable or if there are safety concerns, we may: ·be delayed in obtaining or unable to obtain marketing approval for our product candidates; ·obtain approval for indications or patient populations that are not as broad as intended or desired; ·obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; ·be subject to additional post-marketing testing requirements; or ·have the product removed from the market after obtaining marketing approval. Our product development costs will also increase if we experience delays in testing or marketing approvals. We do notknow whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will becompleted on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during whichwe may have the exclusive right to commercialize our product candidates or allow our competitors to bring products tomarket before we do and impair our ability to successfully commercialize our product candidates. If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatoryapprovals could be delayed or prevented. We may not be able to initiate or continue clinical trials for our local programmed-release drug delivery productcandidates or our other product candidates that we may develop if we are unable to locate and enroll a sufficient number ofeligible patients to participate in these trials as required by the FDA, the EMA or similar regulatory authorities outside theUnited States. Although there is a significant prevalence of disease in the areas of ophthalmology in which we are focused,we may nonetheless experience unanticipated difficulty with patient enrollment. For example, in the third quarter of 2017,we initiated a Phase 1 clinical trial of OTX-TIC outside the United States. After several months, after not enrolling anypatients, we closed this trial in the second quarter of 2018. Additionally, we intended to initiate a Phase 1 clinical trial ofOTX-TKI outside the United States in 2018, and we dosed two patients in the first quarter of 2019.86 Table of Contents A variety of factors affect patient enrollment, including: ·the prevalence and severity of the ophthalmic disease or condition under investigation; ·the eligibility criteria for the study in question; ·the perceived risks and benefits of the product candidate under study; ·the efforts to facilitate timely enrollment in clinical trials; ·the patient referral practices of physicians; ·the ability to monitor patients adequately during and after treatment; ·the proximity and availability of clinical trial sites for prospective patients; ·the conduct of clinical trials by competitors for product candidates that treat the same indications as ourproduct candidates; and ·the lack of adequate compensation for prospective patients. Our first Phase 3 clinical trial of OTX-TP has reached the target enrollment of 550 patients at approximately 50 sitesin the United States and will be the largest clinical trial we will have conducted to date. While now complete, enrollment inthis trial was slower than projected. Our inability to enroll a sufficient number of patients in any of our other clinical trialswould result in significant delays, could require us to abandon one or more clinical trials altogether and could delay orprevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increaseddevelopment costs for our product candidates, which would cause the value of our company to decline and limit our abilityto obtain additional financing. If serious adverse or unacceptable side effects are identified during the development or commercialization of our extended-delivery drug delivery products or product candidates or any other product candidates that we may develop, we may needto abandon or limit our development of such products or product candidates. If DEXTENZA or any of our local programmed-release drug delivery product candidates or other product candidatesare associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that areunexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations inwhich the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or moreacceptable from a risk-benefit perspective. In each of our first two Phase 3 clinical trials of DEXTENZA for the treatment ofpost-surgical ocular pain and inflammation following cataract surgery, there were two subjects that experienced seriousadverse events in the DEXTENZA group in each trial, none of which were ocular in nature or considered by the investigatorto be related to the study treatment. In our third Phase 3 clinical trial of DEXTENZA for the treatment of post-surgical ocularpain and inflammation, there were three subjects that experienced serious adverse events in the DEXTENZA group, one ofwhich was ocular in nature and none of which were considered by the investigator to be related to the study treatment. Therewas one ocular serious adverse event in the vehicle control group in the three completed Phase 3 clinical trials, which washypopyon, or inflammatory cells in the anterior chamber. In our earlier Phase 2 clinical trial of DEXTENZA for the sameindication, there were three serious adverse events, none of which was considered by the investigator to be related to thestudy treatment. In the DEXTENZA group of this Phase 2 clinical trial of DEXTENZA, the only adverse event that occurredmore than once for the same subject was reduced visual acuity, which occurred twice but was not considered by theinvestigator to be related to the study treatment. In our two pilot studies of OTX-TP for the treatment of glaucoma and ocular hypertension and our Phase 2a clinicaltrial of OTX-TP for the same indication, the most common adverse event was inflammatory reaction of the eyelids and ocularsurface, which was noted in three patients in our pilot studies and in five patients in our Phase 2a clinical trial. Nohyperemia-related adverse events were noted in any of the patients treated with OTX-TP in our Phase 2b clinical trial. Therewere no serious adverse events reported in our Phase 2b clinical trial; however, two87 Table of ContentsOTX‑TP subjects and two timolol subjects discontinued study participation due to ocular adverse events. Ocular adverseevents were reported for 39.4% and 37.5% of subjects in the OTX-TP and timolol groups, respectively. The most frequentlyreported ocular adverse events were dacryocanaliculitis, or inflammation of the lacrimal ducts, acquired dacryostenosis, orclosing of the tear ducts, and eyelid edema. In the Phase 2b clinical trial, inflammatory reaction at the administration site(punctal area) and lacrimal structure injury were each noted in one OTX-TP subject as compared to higher percentages inprior trials. In the Phase 2b trial, the majority of ocular adverse events, including the most frequently reported adverseevents, were assessed by the investigators as treatment related. However, many compounds that initially showed promise inclinical or early stage testing for treating ophthalmic disease have later been found to cause side effects that prevented furtherdevelopment of the compound. In addition, adverse events which had initially been considered unrelated to the studytreatment may later be found to be caused by the study treatment. We may not be successful in our efforts to develop products and product candidates based on our bioresorbable hydrogeltechnology platform other than DEXTENZA and ReSure Sealant or expand the use of our bioresorbable hydrogeltechnology for treating additional diseases and conditions. We are currently directing all of our development efforts towards applying our proprietary, bioresorbable hydrogeltechnology platform to products and product candidates that are designed to provide extended delivery of therapeutic agentsto the eye using active pharmaceutical ingredients that are currently used in FDA-approved ophthalmic drugs. We have anumber of products and product candidates at various stages of development based on our bioresorbable hydrogeltechnology platform and are exploring the potential use of our platform for other front-of-the-eye diseases andconditions. We are also developing hydrogel drug delivery implants designed to release therapeutic antibodies and smallmolecules such as TKIs to modulate the biological activity of VEGF over a sustained period following administration by anintravitreal injection for the treatment of diseases and conditions of the back of the eye, including wet age related maculardegeneration, or wet AMD. In October 2016, we entered into a collaboration with Regeneron for the development andpotential commercialization of products containing our extended-delivery hydrogel formulation in combination withRegeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases. Our existing productcandidates and any other potential product candidates that we or our collaborators identify may not be suitable for continuedpreclinical or clinical development, including as a result of being shown to have harmful side effects or other characteristicsthat indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. Weare also considering the future growth potential of the hydrogel platform technology in new areas of the body. If we do notsuccessfully develop and commercialize our products and product candidates that we or our current or future collaboratorsdevelop based upon our technological approach, we will not be able to obtain substantial product revenues or revenue fromcollaboration agreements, including our collaboration with Regeneron, in future periods. We may expend our limited resources to pursue a particular product, product candidate or indication and fail to capitalizeon product candidates or indications that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we focus on research programs and product candidatesthat we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other productcandidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisionsmay cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on currentand future research and development programs and product candidates for specific indications may not yield anycommercially viable products. If we do not accurately evaluate the commercial potential or target market for a particularproduct or product candidate, we may relinquish valuable rights to that product or product candidate through collaboration,licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain soledevelopment and commercialization rights to such products or product candidate. 88 Table of ContentsRisks Related to Manufacturing We will need to upgrade and expand our manufacturing facility or relocate to another facility and to augment ourmanufacturing personnel and processes in order to meet our business plans. If we fail to do so, we may not have sufficientquantities of our products or product candidates to meet our commercial and clinical trial requirements. We manufacture DEXTENZA, ReSure Sealant and our product candidates for use in clinical trials, research anddevelopment and commercial efforts at our facility located in Bedford, Massachusetts. In order to meet our business plan,which contemplates our scaling up manufacturing processes to support our product candidate development programs and thepotential commercialization of these products and product candidates, we will need to upgrade and expand our existingmanufacturing facility, or relocate to another manufacturing facility, add manufacturing personnel and ensure that validatedprocesses are consistently implemented in our facility or facilities. The upgrade and expansion of our facility, or therelocation to an additional facility, will require additional regulatory approvals. In addition, it will be costly and time-consuming to expand our facility or relocate to another facility and recruit necessary additional personnel. If we are unableto expand our manufacturing facility or relocate to another facility in compliance with regulatory requirements or to hireadditional necessary manufacturing personnel, we may encounter delays or additional costs in achieving our research,development and commercialization objectives, including obtaining regulatory approvals of our product candidates andmeeting customer demand for our products, which could materially damage our business and financial position. We must comply with federal, state and foreign regulations, including quality assurance standards applicable tomedical device and drug manufacturers, such as cGMP, which is enforced by the FDA through its facilities inspectionprogram and by similar regulatory authorities in other jurisdictions where we do business. These requirements include,among other things, quality control, quality assurance and the maintenance of records and documentation. Following aninspection by the FDA in March 2015, for example, we received an FDA Form 483 containing an inspectional observationrelating to inadequate procedures for documenting follow-up information pertinent to the investigation of complaints and forevaluation of complaints for adverse event reporting. We submitted our response, which was accepted by the FDA, andupdated our procedures. In addition, in February 2016, as part of the review of our NDA for DEXTENZA, the FDA conducteda pre-NDA approval inspection of our manufacturing operations. As a result of this inspection, we received an FDA Form 483containing inspectional observations focused on process controls, analytical testing and physical security procedures relatedto manufacture of our drug product for stability and commercial production purposes. We addressed some observationsbefore the inspection was closed and responded to the FDA with a corrective action plan to complete the inspectionprocess. In July 2016, we received a Complete Response Letter, or CRL, from the FDA regarding our NDA forDEXTENZA. This CRL pertained to the deficiencies in manufacturing process and controls identified during the pre-NDAapproval inspection of our manufacturing facility performed by the FDA New England District Office in February 2016 thatwere documented on the February Form 483. In January 2017, we resubmitted our NDA. Following a re-inspection ofmanufacturing operations by the FDA which was completed in May 2017, we received an FDA Form 483 containinginspectional observations focused on procedures for manufacturing processes and analytical testing related to themanufacture of drug product for commercial production. In July 2017, we received a second CRL from the FDA regardingour NDA for DEXTENZA for the treatment of post-surgical ocular pain, stating that the FDA had determined that it could notapprove the NDA in its then-present form. FDA concerns included deficiencies in manufacturing processes and analyticaltesting related to manufacturing of drug product identified during the May 2017 pre-NDA approval inspection. In May2017, we submitted our initial response to the Form 483 and, in November 2017, we submitted our responses to the FDA’sremaining inspectional observations in an effort to close out the items identified in the Form 483. The remediation efforts weundertook in response to the FDA’s inspectional observations and as a result of further internal review included upgrades toour manufacturing equipment and updates to our manufacturing processes and quality oversight. These changes wereintended to resolve the FDA’s outstanding concerns, including regarding the presence of particulate matter in certainmanufactured lots of DEXTENZA, and enable us to consistently produce commercial lots and establish manufacturingprocesses sufficient for purposes of resubmission of our NDA. We resubmitted our NDA for DEXTENZA for the treatment ofpost-surgical ocular pain in June 2018, which was approved in December 2018. We may be subject to similar inspections andrequirements in connection with subsequent applications for other product candidates or DEXTENZA for additionalindications. The FDA or similar foreign regulatory authorities at any time also may implement new standards, or change theirinterpretation and enforcement of existing standards, for the manufacture, packaging or testing of our products. Any failureto comply with applicable regulations may result in fines and civil penalties, suspension of production, product89 Table of Contentsseizure or recall, imposition of a consent decree, or withdrawal of product approval, and would limit the availability ofDEXTENZA, ReSure Sealant and our product candidates that we manufacture. Any manufacturing defect or error discovered after products have been produced and distributed also could result insignificant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential forproduct liability claims. If our sole clinical manufacturing facility is damaged or destroyed or production at this facility is otherwise interrupted,our business and prospects would be negatively affected. If our manufacturing facility or the equipment in it is damaged or destroyed, we may not be able to quickly orinexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted loss of thisfacility or equipment, we might not be able to transfer manufacturing to another facility or to a third party. Even if we couldtransfer our manufacturing to another facility or a third party, the shift would likely be expensive and time-consuming,particularly since any new facility would need to comply with the necessary regulatory requirements and to be inspected andqualified. We would also need FDA approval before any products manufactured at that facility could be used for clinical orcommercial supply. Such an event could delay our clinical trials or reduce our product sales. Currently, we maintain insurance coverage against damage to our property and equipment in the amount of up to $15.3million and to cover business interruption and research and development restoration expenses in the amount of up to $2.8million. However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses orlosses we may suffer. We may be unable to meet our requirements for DEXTENZA, ReSure Sealant, or any of our productcandidates if there were a catastrophic event or failure of our current manufacturing facility or processes. We expect to continue to contract with third parties for at least some aspects of the production of our products and productcandidates. This increases the risk that we will not have sufficient quantities of our products or product candidates or suchquantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts. We currently rely on third parties for some aspects of the production of DEXTENZA, ReSure Sealant and our productcandidates for commercialization and preclinical testing and clinical trials, including supply of active pharmaceuticalingredient drug substance, PEG, the molecule that forms the basis of our hydrogels, and other raw materials and forsterilization of the finished product. In addition, while we believe that our existing manufacturing facility, or additionalfacilities that we will be able to build, will be sufficient to meet our requirements for manufacturing DEXTENZA, ReSureSealant and any of our product candidates for which we obtain marketing approval, we may in the future need to rely onthird-party manufacturers for some aspects of the manufacture of our products or product candidates. We do not have any long-term supply agreements in place for the clinical or commercial supply of any drug substancesor raw materials for DEXTENZA, ReSure Sealant or any of our product candidates. We purchase drug substance and rawmaterials, including the chemical constituents for our hydrogel, from independent suppliers on a purchase order basis. Anyperformance failure or refusal to supply drug substance or raw materials on the part of our existing or future suppliers coulddelay clinical development, marketing approval or commercialization of our products. If our current suppliers do notperform as we expect, we may be required to replace one or more of these suppliers. In particular, we depend on a sole sourcesupplier for the supply of our PEG. This sole source supplier may be unwilling or unable to supply PEG to us reliably,continuously and at the levels we anticipate or are required by the market. Although we believe that there are a number ofpotential long-term replacements to our suppliers, including our PEG supplier, we may incur added costs and delays inidentifying and qualifying any such replacements. Reliance on third parties for aspects of the supply of our products and product candidates entails additional risks,including: ·reliance on the third party for regulatory compliance and quality assurance; ·the possible misappropriation of our proprietary information, including our trade secrets and know-how;90 Table of Contents ·the possible breach of an agreement by the third party; and ·the possible termination or nonrenewal of an agreement by the third party at a time that is costly orinconvenient for us. Third-party suppliers or manufacturers may not be able to comply with quality assurance standards, cGMP regulationsor similar regulatory requirements outside the United States. Our failure, or the failure of our third parties, to comply withapplicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civilpenalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates orproducts, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies ofour products and product candidates. Our potential future dependence upon others for the manufacture of our products and product candidates mayadversely affect our future profit margins and our ability to commercialize any products that receive regulatory approval on atimely and competitive basis. Risks Related to Commercialization Even though DEXTENZA and ReSure Sealant have received marketing approval from the FDA and even if any of ourproduct candidates receives marketing approval, any of these products may fail to achieve the degree of market acceptanceby physicians, patients, third-party payors and others in the medical community necessary for commercial success, and themarket opportunity for these products may be smaller than we estimate. DEXTENZA, ReSure Sealant, or any of our product candidates that receives marketing approval may fail to gainmarket acceptance by physicians, patients, third-party payors and others in the medical community. We commerciallylaunched ReSure Sealant in the first quarter of 2014 and expect to commercially launch DEXTENZA for the treatment ofocular pain in 2019 and cannot yet accurately predict whether either product will gain market acceptance and becomecommercially successful. For example, we previously commenced commercialization in Europe of an earlier version ofReSure Sealant that was approved and marketed as an ocular bandage. We recognized $0.1 million of revenue from thecommercialization of this product through 2012. However, we ceased our commercialization of the product in 2012 to focuson the ongoing clinical development of ReSure Sealant pursuant to FDA requirements. If our products do not achieve anadequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of DEXTENZA, ReSure Sealant, or any product candidate for which we obtainmarketing approval will depend on a number of factors, including: ·the efficacy and potential advantages compared to alternative treatments; ·our ability to offer our products for sale at competitive prices, particularly in light of the lower cost ofalternative treatments; ·the clinical indications for which the product is approved; ·the convenience and ease of administration compared to alternative treatments, including theintracanalicular insert retention rate for our intracanalicular insert products and product candidates; ·the willingness of the target patient population to try new therapies and of physicians to prescribe thesetherapies; ·the strength of our marketing and distribution support; ·timing of market introduction of competitive products; ·the availability of third-party coverage and adequate reimbursement and, for DEXTENZA and ReSureSealant, the lack of separate reimbursement when used as part of a cataract surgery procedure;91 Table of Contents ·the prevalence and severity of any side effects; and ·any restrictions on the use of our products together with other medications. For example, because we have not conducted any clinical trials to date comparing the effectiveness of DEXTENZAdirectly to currently approved alternative treatments for either post-surgical ocular pain and inflammation following cataractsurgery or allergic conjunctivitis, it is possible that the market acceptance of DEXTENZA could be less than if we hadconducted such trials. Although market research we have commissioned indicates that a majority of ophthalmologistsbelieve DEXTENZA could become a new standard of care due to its potential ability to improve compliance with limitedtoxicity concerns, market acceptance for DEXTENZA could be substantially less than such research indicates, and we maynot be able to achieve the market share we anticipate. Our assessment of the potential market opportunity for DEXTENZA, ReSure Sealant and our product candidates isbased on industry and market data that we obtained from industry publications and research, surveys and studies conductedby third parties. Industry publications and third-party research, surveys and studies generally indicate that their informationhas been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of suchinformation. While we believe these industry publications and third-party research, surveys and studies are reliable, we havenot independently verified such data. If the actual market for DEXTENZA, ReSure Sealant or any of our product candidatesis smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintainprofitability. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, we may not besuccessful in commercializing DEXTENZA, ReSure Sealant, or any product candidates if and when they are approved. We have limited experience in the sale, marketing and distribution of drug and device products. To achievecommercial success for DEXTENZA, ReSure Sealant, and any product candidate for which we obtain marketing approval, wewill need to establish and maintain adequate sales, marketing and distribution capabilities, either ourselves or throughcollaborations or other arrangements with third parties. We are in the early stages of building our own highly targeted, keyaccount sales force for DEXTENZA that will focus on ambulatory surgical centers responsible for the largest volumes ofcataract surgery. We commercially launched ReSure Sealant in February 2014 on a region by region basis in the UnitedStates through a network of independent distributors. In early 2017, we terminated these distributors and hired a contractsales force of four representatives to sell ReSure Sealant. We have subsequently terminated the agreement with the contractsales force to sell ReSure Sealant. If we decide to commercialize any of our products outside of the United States, we would expect to utilize a variety ofcollaboration, distribution and other marketing arrangements with one or more third parties to commercialize any productthat receives marketing approval. The building of such a sales force is not fully funded under the Company’s currentoperating plan and is therefore subject to the risk of our ability to raise additional capital to support such an effort. We expectthat a direct sales force will be required to effectively market and sell OTX-TP, if approved for marketing. We will also relyon Regeneron to commercialize our extended-delivery hydrogel formulation in combination with Regeneron’s largemolecule VEGF-targeting compounds. Because we have not historically evaluated whether to seek regulatory approval forany of our products or product candidates outside of the United States, pending potential receipt of regulatory approval forthe applicable product candidate in the United States, at this time we cannot be certain when, if ever, we will recognizerevenue from commercialization of our products or product candidates in any international markets. If we decide tocommercialize our products outside of the United States, we expect to utilize a variety of types of collaboration, distributionand other marketing arrangements with one or more third parties to commercialize any product of ours that receivesmarketing approval. These may include independent distributors, pharmaceutical companies or our own direct salesorganization. There are risks involved with both establishing our own sales, marketing and distribution capabilities and withentering into arrangements with third parties to perform these services. We may not be successful in entering intoarrangements with third parties to sell, market and distribute our products or may be unable to do so on terms that are mostbeneficial to us. Such third parties may have interests that differ from ours. We likely will have little control over such thirdparties, and any of them may fail to devote the necessary resources and attention to market, sell and distribute our productseffectively. Our product revenues and our profitability, if any, under third-party collaboration including our92 Table of Contentscollaboration with Regeneron, distribution or other marketing arrangements may also be lower than if we were to sell, marketand distribute a product ourselves. On the other hand, recruiting and training a sales force is expensive and time-consumingand could delay any product launch. If the commercial launch of any product or product candidate for which we recruit asales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely orunnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannotretain or reposition our sales and marketing personnel. Other factors that may inhibit our efforts to commercialize products on our own include: ·our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; ·the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physiciansto use or prescribe our products; ·the lack of complementary products to be offered by sales personnel, which may put us at a competitivedisadvantage relative to companies with more extensive product lines; and ·unforeseen costs and expenses associated with creating an independent sales and marketing organization. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaborationwith third parties, we will not be successful in commercializing DEXTENZA, ReSure Sealant or any of our productcandidates. We face substantial competition, which may result in others discovering, developing or commercializing products before ormore successfully than we do. The development and commercialization of new drug and device products is highly competitive. We face competitionwith respect to our products and product candidates, and will face competition with respect to any other product candidatesthat we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceuticalcompanies and biotechnology companies worldwide. Potential competitors also include academic institutions, governmentagencies and other public and private research organizations that conduct research, seek patent protection and establishcollaborative arrangements for research, development, manufacturing and commercialization. Our products and product candidates target markets that are already served by a variety of competing products basedon a number of active pharmaceutical ingredients. Many of these existing products have achieved widespread acceptanceamong physicians, patients and payors for the treatment of ophthalmic diseases and conditions. In addition, many of theseproducts are available on a generic basis, and our products and product candidates may not demonstrate sufficient additionalclinical benefits to physicians, patients or payors to justify a higher price compared to generic products. In many cases,insurers or other third-party payors, particularly Medicare, encourage the use of generic products. Given that we aredeveloping products based on FDA-approved therapeutic agents, our products and product candidates, if approved, will facecompetition from generic and branded versions of existing drugs based on the same active pharmaceutical ingredients thatare administered in a different manner, typically through eye drops or intravitreal injections. Because the active pharmaceutical ingredients in our products and product candidates, other than those developedunder the Regeneron collaboration, are available on a generic basis, or are soon to be available on a generic basis,competitors will be able to offer and sell products with the same active pharmaceutical ingredient as our products so long asthese competitors do not infringe the patents that we license. For example, our licensed patents related to ourintracanalicular insert products and product candidates largely relate to the hydrogel composition of the intracanalicularinserts and certain drug-release features of the inserts. As such, if a third party were able to design around the formulation andprocess patents that we license and create a different formulation using a different production process not covered by ourlicensed patents or patent applications, we would likely be unable to prevent that third party from manufacturing andmarketing its product. 93 Table of ContentsIcon Biosciences, Inc. received FDA approval of DEXYCU in February 2018. DEXYCU is an injection ofdexamethasone into the anterior chamber of the eye to treat inflammation associated with cataract surgery. Other companieshave also advanced into Phase 3 clinical development biodegradable, sustained release drug delivery product candidatesthat could compete with our intracanalicular insert products and product candidates. ReSure Sealant is the first and onlysurgical sealant approved for ophthalmic use in the United States, but will compete with sutures as an alternative method forclosing ophthalmic wounds. Multiple companies, including our collaborator Regeneron, are exploring in early stagedevelopment alternative means to deliver anti-VEGF and TKI products in an extended-delivery fashion to the back of theeye. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize productsthat are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than ourproducts. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we mayobtain approval for ours, which could result in our competitors establishing a strong market position before we are able toenter the market. Many of the companies against which we are competing or against which we may compete in the future havesignificantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers andacquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentratedamong a smaller number of our competitors. Smaller and other early stage companies may also prove to be significantcompetitors, particularly through collaborative arrangements with large and established companies. These third partiescompete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sitesand patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, ourprograms. DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval may become subject tounfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, whichcould harm our business. Our ability to commercialize DEXTENZA, ReSure Sealant or any product candidates that we may develop successfullywill depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatmentswill be available from government healthcare programs, private health insurers, managed care plans and otherorganizations. Government authorities and third-party payors, such as private health insurers and health maintenanceorganizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S.healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted tocontrol costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-partypayors are requiring that drug and device companies provide them with predetermined discounts from list prices and arechallenging the prices charged for medical products. Coverage and reimbursement may not be available for DEXTENZA,ReSure Sealant or any other product that we commercialize and, even if they are available, the level of reimbursement maynot be satisfactory. Inadequate reimbursement may adversely affect the demand for, or the price of, DEXTENZA, ReSure Sealant or anyproduct candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for ourproducts may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage andreimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are notavailable or reimbursement is available only to limited levels, we may not be able to successfully commercializeDEXTENZA, ReSure Sealant or any product candidates for which we obtain marketing approval. There may be significant delays in obtaining coverage and reimbursement for newly approved drugs and devices, andcoverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatoryauthorities outside the United States. Moreover, eligibility for coverage and reimbursement does not imply that a drug willbe paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distributionexpenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and maynot be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it isused, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing paymentsfor other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcareprograms or private payors and by any future relaxation of laws that presently94 Table of Contentsrestrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payorsoften rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Ourinability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payorsfor any FDA-approved products that we develop would compromise our ability to generate revenues and become profitable. The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug and deviceproducts vary widely from country to country. Current and future legislation may significantly change the approvalrequirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries requireapproval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins aftermarketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remainssubject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketingapproval for a product in a particular country, but then be subject to price regulations that delay our commercial launch ofthe product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale ofthe product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct aclinical trial that compares the cost-effectiveness of our product or product candidate to other available therapies. Adversepricing limitations may hinder our ability to recoup our investment in one or more products or product candidates, even ifour product candidates obtain marketing approval. DEXTENZA, ReSure Sealant or any product candidate for which we obtain marketing approval in the United States orin other countries may not be considered medically reasonable and necessary for a specific indication, may not be consideredcost-effective by third-party payors, coverage and an adequate level of reimbursement may not be available, andreimbursement policies of third-party payors may adversely affect our ability to sell our products and product candidatesprofitably. ReSure Sealant is not separately reimbursed when used as part of a cataract surgery procedure, which could limitthe degree of market acceptance of this product by surgeons. In addition, while DEXTENZA may be considered a post-surgical product in the same fashion as eye drops, it may instead be categorized as an inter-operative product. If DEXTENZAis categorized as an inter-operative product, it will not be subject to separate reimbursement, which could likewise limit itsmarket acceptance. We applied for a transitional pass-through reimbursement status, or C-code, on November 30, 2018 for DEXTENZAfrom the Centers for Medicare and Medicaid Services, or CMS, which we expect to receive in the middle of 2019. We expectpricing for DEXTENZA while in pass-through status to be approximately $540 per surgery. We expect pass-through statuswould remain in effect for up to three years depending on when we apply for and receive this reimbursement code. Wesubmitted an application to the CMS for a J-code for DEXTENZA on December 28, 2018, and expect to submit to the CMSfor a standard J-code for our OTX-TP product candidate, if our clinical trials are successful and if our NDA filings and sNDAare approved by the FDA. There are no assurances that we will be successful in obtaining and retaining reimbursement forour products and product candidates. Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of anyproducts that we develop. We face an inherent risk of product liability exposure related to the use of our product candidates that we develop inhuman clinical trials. We face an even greater risk for any products we develop and commercially sell, includingDEXTENZA and ReSure Sealant. If we cannot successfully defend ourselves against claims that our product candidates orproducts caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims mayresult in: ·decreased demand for any product candidates or products that we develop; ·injury to our reputation and significant negative media attention; ·withdrawal of clinical trial participants; ·significant costs to defend the related litigation; ·substantial monetary awards to trial participants or patients; 95 Table of Contents·loss of revenue; ·reduced time and attention of our management to pursue our business strategy; and ·the inability to commercialize any products that we develop. We currently hold $10.0 million in U.S. product liability insurance coverage in the aggregate, with a per incident limitof $10.0 million and approximately $15.0 million in product liability insurance in another jurisdiction in which we operate,with a per incident liability limit of approximately $15.0 million. These policies may not be adequate to cover all liabilitiesthat we may incur. We will need to increase our insurance coverage as we expand our clinical trials and our sales ofDEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval. We will need to further increase our insurance coverage if we commence commercialization of any of our productcandidates for which we obtain marketing approval. Insurance coverage is increasingly expensive. We may not be able tomaintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Risks Related to Our Dependence on Third Parties We will depend heavily on our collaboration with Regeneron for the success of our extended-delivery hydrogel formulationin combination with Regeneron’s large molecule VEGF-targeting compounds. If Regeneron does not exercise its option,terminates our collaboration agreement or is unable to meet its contractual obligations, it could negatively impact ourbusiness. In October 2016, we entered into a strategic collaboration, option and license agreement, or Collaboration Agreement,with Regeneron for the development and potential commercialization of products containing our extended-deliveryhydrogel formulation in combination with Regeneron’s large molecule VEGF-targeting compounds. Our ability to generaterevenues from the Collaboration Agreement will depend on our and Regeneron’s abilities to successfully perform thefunctions assigned to each of us under the Collaboration Agreement. We did not receive any upfront payment under theCollaboration Agreement, although Regeneron has an option to enter into an exclusive, worldwide license, with the right tosublicense, under our intellectual property to develop and commercialize products containing our extended-deliveryhydrogel formulation in combination with Regeneron’s large molecule VEGF-targeting compounds. Regeneron has agreedto pay us $10 million upon exercise of the option. The option is exclusive until 12 months after Regeneron has received aproduct candidate in accordance with a collaboration plan and non-exclusive for an additional six months following the endof the exclusive period. In December 2017, we delivered to Regeneron the final formulation for Regeneron’s initialpreclinical tolerability study. Although we are engaged in ongoing discussions with Regeneron, Regeneron has not informedus of its decision to exercise the option. While we await a decision from Regeneron, we are not actively pursuing furtherformulation development or other preclinical testing under the Collaboration Agreement. Under the CollaborationAgreement, we are obligated to reimburse Regeneron for certain development costs incurred by Regeneron under thecollaboration plan during the period through the completion of the initial clinical trial, subject to a cap of $25 million,which cap may be increased by up to $5 million under certain circumstances. We are also entitled to receive under the termsof the Collaboration Agreement specified development, regulatory and sales milestone payments, as well as royaltypayments. If Regeneron has not exercised the option during the designated option period, the Collaboration Agreement willexpire. If Regeneron exercises the option, the Collaboration Agreement will expire on a licensed product-by-licensedproduct and country-by-country basis upon the expiration of the later of 10 years from the date of first commercial sale insuch country or the expiration of all patent rights covering the licensed product in such country. Regeneron may terminatethe Collaboration Agreement at any time after exercise of the option upon 60 days’ prior written notice. Either party may,subject to a cure period, terminate the Collaboration Agreement in the event of the other party’s uncured material breach, inaddition to other specified termination rights. If we are unable to achieve the preclinical milestones set forth in the collaboration plan, Regeneron may not exercisethe option, in which case we would not receive the $10 million payment in connection with such option and would haveincurred significant development expenses. Even if Regeneron does exercise its option, we or Regeneron may not besuccessful in achieving the necessary preclinical, clinical, regulatory and sales milestones in connection with thecollaboration. Further, if Regeneron were to breach or terminate the Collaboration Agreement or if Regeneron elects96 Table of Contentsnot to exercise the option we granted it and not to proceed in the collaboration, we may not be able to obtain, or may bedelayed in obtaining, marketing approvals for our intravitreal implant product candidates and will not be able to, or may bedelayed in our efforts to, successfully commercialize our intravitreal implant product candidates. We may not be able to seekand obtain a viable, alternative collaborator to partner with for the development and commercialization of the licensedproducts on similar terms or at all. We have entered into collaborations with third parties to develop certain product candidates, and in the future may enterinto collaborations with third parties for the commercialization of DEXTENZA, ReSure Sealant or the development orcommercialization of our product candidates. If our collaborations are not successful, we may not be able to capitalize onthe market potential of these products or product candidates. We have in the past entered into collaboration agreements with third parties, including our collaboration withRegeneron, and expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with thirdparties to commercialize DEXTENZA, ReSure Sealant, or any of our product candidates for which we obtain marketingapproval in markets outside the United States. We also may enter into arrangements with third parties to perform theseservices in the United States if we do not establish our own sales, marketing and distribution capabilities in the United Statesfor our products and product candidates or if we determine that such third-party arrangements are otherwise beneficial. Wealso may seek additional third-party collaborators for development and commercialization of other product candidates. Ourlikely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangementsinclude large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnologycompanies. Other than our collaboration with Regeneron, we are not currently party to any such arrangement. Our ability togenerate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform thefunctions assigned to them in these arrangements. Our collaboration with Regeneron poses, and any future collaborations likely will pose a number of risks, including thefollowing: ·collaborators have significant discretion in determining the amount and timing of efforts and resources thatthey will apply to these collaborations; ·collaborators may not perform their obligations as expected; ·collaborators may not pursue development and commercialization of our products or product candidatesthat receive marketing approval or may elect not to continue or renew development or commercializationprograms based on results of clinical trials or other studies, changes in the collaborators’ strategic focus oravailable funding, or external factors, such as an acquisition, that divert resources or create competingpriorities; ·collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop aclinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a newformulation of a product candidate for clinical testing; ·collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our products or product candidates if the collaborators believe that competitive productsare more likely to be successfully developed or can be commercialized under terms that are moreeconomically attractive than ours; ·product candidates discovered in collaboration with us may be viewed by our collaborators as competitivewith their own product candidates or products, which may cause collaborators to cease to devote resourcesto the commercialization of our product candidates; ·a collaborator with marketing and distribution rights to one or more of our product candidates that achieveregulatory approval may not commit sufficient resources to the marketing and distribution of such productor products; ·disagreements with collaborators, including disagreements over proprietary rights, contract interpretationor the preferred course of development, might cause delays or termination of the97 Table of Contentsresearch, development or commercialization of products or product candidates, might lead to additionalresponsibilities for us with respect to products or product candidates, or might result in litigation orarbitration, any of which would divert management attention and resources, be time-consuming andexpensive; ·collaborators may not properly maintain or defend our intellectual property rights or may use ourproprietary information in such a way as to invite litigation that could jeopardize or invalidate ourintellectual property or proprietary information or expose us to potential litigation; ·collaborators may infringe the intellectual property rights of third parties, which may expose us tolitigation and potential liability; and ·collaborations may be terminated for the convenience of the collaborator and, if terminated, we could berequired to raise additional capital to pursue further development or commercialization of the applicableproducts or product candidates. Collaboration agreements may not lead to development or commercialization of products or product candidates in themost efficient manner, or at all. If any collaborations that we enter into do not result in the successful development andcommercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any futureresearch funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect underthese agreements, our development of our products or product candidates could be delayed and we may need additionalresources to develop our products or product candidates. All of the risks relating to product development, regulatoryapproval and commercialization described in this prospectus supplement also apply to the activities of our collaborators. Additionally, subject to its contractual obligations to us, if a collaborator of ours were to be involved in a businesscombination, it might deemphasize or terminate the development or commercialization of any product or product candidatelicensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract newcollaborators and our perception in the business and financial communities could be harmed. If we are not able to establish additional collaborations, we may have to alter our development and commercializationplans and our business could be adversely affected. For some of our other product candidates, we may decide to collaborate with pharmaceutical, biotechnology andmedical device companies for the development and potential commercialization of those product candidates. We facesignificant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaborationwill depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditionsof the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may includethe design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside theUnited States, the potential market for the subject product candidate, the costs and complexities of manufacturing anddelivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respectto our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of thechallenge, and industry and market conditions generally. The collaborator may also consider alternative product candidatesor technologies for similar indications that may be available to collaborate on and whether such a collaboration could bemore attractive than the one with us for our product candidate. We may also be restricted under future license agreementsfrom entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinationsamong large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We are currently conducting preclinical testing of protein-based anti-VEGF compounds in collaboration withRegeneron to explore the feasibility of delivering their drugs in combination with our hydrogel. The initial drug selected forpreclinical testing under this collaboration is aflibercept, marketed under the brand name Eylea. We may explore broadercollaborations for the development and potential commercialization of our hydrogel technology in combination with otherlarge molecules with targets other than VEGF for the treatment of back-of-the-eye diseases and conditions. 98 Table of ContentsIf we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we mayhave to curtail the development of a product candidate, reduce or delay its development program or one or more of our otherdevelopment programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, orincrease our expenditures and undertake development or commercialization activities at our own expense. If we elect to fundand undertake development or commercialization activities on our own, we may need to obtain additional expertise andadditional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations anddo not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we maynot be able to further develop our product candidates or bring them to market or continue to develop our product platform. Although the majority of our clinical development is administered and managed by our own employees, we have relied,and may continue to rely, on third parties for certain aspects of our clinical development, and those third parties may notperform satisfactorily, including failing to meet deadlines for the completion of such trials. Our employees have administered and managed most of our clinical development work, including our clinical trials forReSure Sealant and our clinical trials for DEXTENZA for the treatment of post-surgical ocular pain and inflammationfollowing cataract surgery. However, we have relied and may continue to rely on third parties, such as contract researchorganizations, or CROs, to conduct future clinical trials of our product candidates, including OTX-TP for the treatment ofglaucoma and ocular hypertension. If we deem necessary, we may engage third parties, such as CROs, clinical datamanagement organizations, medical institutions and clinical investigators, to conduct or assist in our clinical trials or otherclinical development work. If we are unable to enter into an agreement with a CRO or other service provider when required,our product development activities would be delayed. Our reliance on third parties for research and development activities reduces our control over these activities but doesnot relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials isconducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us tocomply with standards, commonly referred to as good clinical practices for conducting, recording and reporting the results ofclinical trials to assure that data and reported results are credible and accurate and that the rights, integrity andconfidentiality of trial participants are protected. We are also required to register ongoing clinical trials and post the resultsof completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure todo so can result in fines, adverse publicity and civil and criminal sanctions. If we engage third parties and they do notsuccessfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance withregulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketingapprovals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercializeour product candidates. Risks Related to Our Intellectual Property We may be unable to obtain and maintain patent protection for our technology and products, or the scope of the patentprotection obtained may not be sufficiently broad, such that our competitors could develop and commercialize technologyand products similar or identical to ours, and our ability to successfully commercialize our technology and products maybe impaired. Our success depends in large part on our and our licensor’s ability to obtain and maintain patent protection in theUnited States and other countries with respect to our proprietary technology and products. We and our licensor have soughtto protect our proprietary position by filing patent applications in the United States and abroad related to our noveltechnologies, products and product candidates. Some of our licensed patents that we believe are integral to our hydrogeltechnology platform have terms that extend through at least 2024. However, other broader patents within our patentportfolio expire between 2018 and 2019. Given the amount of time required for the development, testing and regulatoryreview of new product candidates, patents protecting such candidates might expire before or shortly after such candidates arecommercialized. As a result, our patent portfolio would be less effective in excluding others from commercializing productssimilar or identical to ours. The patent prosecution process is expensive and time-consuming, and we may not have filed orprosecuted and may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in atimely manner. It is also possible that we will fail to identify patentable aspects of our research and development outputbefore it is too late to obtain patent protection. 99 Table of ContentsIn some circumstances, we do not have the right to control the preparation, filing and prosecution of patentapplications, or to enforce or maintain the patents, covering technology that we license from third parties. In particular, thelicense agreement that we have entered into with Incept LLC, or Incept, an intellectual property holding company, whichcovers all patent rights and a significant portion of the technology for ReSure Sealant and our product candidates, providesthat, with limited exceptions, Incept has sole control and responsibility for ongoing prosecution for certain patents coveredby the license agreement. In addition, although we have a right under the Incept license to bring suit against third partieswho infringe such licensed patents in our fields, other Incept licensees may also have the right to enforce these patents intheir own respective fields without our oversight or control. Those other licensees may choose to enforce our licensedpatents in a way that harms our interest, for example, by advocating for claim interpretations or agreeing on invaliditypositions that conflict with our positions or our interest. For example, three of our licensed patents related to ReSure Sealantwere invalidated and rendered unenforceable following their assertion by Integra LifeSciences Holdings Corporation,another licensee of Incept. We also have no right to control the defense of such licensed patents if their validity or scope ischallenged before the U.S. Patent and Trademark Office, or USPTO, European Patent Office, or other patent office ortribunal. Instead, we would essentially rely on our licensor to defend such challenges, and it may not do so in a way thatwould best protect our interests. Therefore, certain of our licensed patents and applications may not be prosecuted, enforced,defended or maintained in a manner consistent with the best interests of our business. If Incept fails to prosecute, enforce ormaintain such patents, or loses rights to those patents, our licensed patent portfolio may be reduced or eliminated. The patent position of pharmaceutical, biotechnology and medical device companies generally is highly uncertain,involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, theissuance, scope, validity, enforceability and commercial value of our patent rights, including our licensed patent rights, arehighly uncertain. Our and our licensor’s pending and future patent applications may not result in patents being issued whichprotect our technology or products or which effectively prevent others from commercializing competitive technologies andproducts. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the UnitedStates. For example, unlike patent law in the United States, European patent law precludes the patentability of methods oftreatment of the human body and imposes substantial restrictions on the scope of claims it will grant if broader thanspecifically disclosed embodiments. Moreover, we have no patent protection and likely will never obtain patent protectionfor ReSure Sealant outside the United States and Canada. We have only three issued patents outside of the United States thatcover all three intracanalicular insert products and product candidates. We have three licensed patent families in Europe andcertain other parts of the world for our intravitreal drug delivery product candidates, but only one patent issuance to dateoutside of the United States. Patents might not be issued and we may never obtain any patent protection or may only obtainsubstantially limited patent protection outside of the United States with respect to our products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications inthe United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not atall. Therefore, we cannot know with certainty whether we or our licensor were the first to make the inventions claimed in ourlicensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of suchinventions. Databases for patents and publications, and methods for searching them, are inherently limited so it is notpractical to review and know the full scope of all issued and pending patent applications. As a result, the issuance, scope,validity, enforceability and commercial value of our licensed patent rights are uncertain. Our pending and future patentapplications may not result in patents being issued which protect our technology or products, in whole or in part, or whicheffectively prevent others from commercializing competitive technologies and products. In particular, during prosecution ofany patent application, the issuance of any patents based on the application may depend upon our ability to generateadditional preclinical or clinical data that support the patentability of our proposed claims. We may not be able to generatesufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of thepatent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patentprotection. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, includes a number of significant changes to United States patent law. These include provisions that affect the waypatent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations andprocedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associatedwith the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. The first tofile provisions limit the rights of an inventor to patent an invention if not the first to file an100 Table of Contentsapplication for patenting that invention, even if such invention was the first invention. Accordingly, it is not clear what, ifany, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and itsimplementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents. For example, the Leahy-Smith Act provides a new administrative tribunalknown as the Patent Trial and Appeals Board, or PTAB, that provides a venue for companies to challenge the validity ofcompetitor patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although itis not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the initial resultsof patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S.patent claims. The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challengingpatents could therefore increase the likelihood that our own licensed patents will be challenged, thereby increasing theuncertainties and costs of maintaining and enforcing them. Moreover, if such challenges occur, as indicated above, we haveno right to control the defense. Instead, we would essentially rely on our licensor to consider our suggestions and to defendsuch challenges, with the possibility that it may not do so in a way that best protects our interests. We may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in othercontested proceedings such as opposition, derivation, reexamination, inter partes review, post-grant review or interferenceproceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission,proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize ourtechnology or products and compete directly with us, without payment to us, or result in our inability to manufacture orcommercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protectionprovided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us tolicense, develop or commercialize current or future products. In the United States, the FDA does not prohibit physicians from prescribing an approved product for uses that are notdescribed in the product’s labeling. Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties, particularly in the United States, and suchinfringement is difficult to detect, prevent or prosecute. In addition, patents that cover methods of use for a medical devicecannot be enforced against the party that uses the device, but rather only against the party that makes them. Such indirectenforcement is more difficult to achieve. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensedpatents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in lossof exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limitour ability to stop others from using or commercializing similar or identical technology and products, or limit the duration ofthe patent protection of our technology and products. Given the amount of time required for the development, testing andregulatory review of new product candidates, patents protecting such candidates might expire before or shortly after suchcandidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude othersfrom commercializing products similar or identical to ours. Because the active pharmaceutical ingredients in our products and product candidates are available on a generic basis,or are soon to be available on a generic basis, competitors will be able to offer and sell products with the same activepharmaceutical ingredient as our products so long as these competitors do not infringe our patents or any patents that welicense. These patents largely relate to the hydrogel composition of our intracanalicular inserts and the drug-release designscheme of our inserts. As such, if a third party were able to design around the formulation and process patents that we licenseand create a different formulation using a different production process not covered by our patents or patent applications, wewould likely be unable to prevent that third party from manufacturing and marketing its product. If we are not able to obtain patent term extensions in the United States under the Hatch-Waxman Act and in foreigncountries under similar legislation, thereby potentially extending the term of our marketing exclusivity for our product andproduct candidates, our business may be impaired. Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one of theU.S. patents covering each of such product candidates or the use thereof may be eligible for up to five years of patent termrestoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA-approved product. Patent term extension also may be available in certain foreign countries upon101 Table of Contentsregulatory approval of our product candidates. Nevertheless, we may not be granted patent term extension either in theUnited States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to applyprior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term ofextension, as well as the scope of patent protection during any such extension, afforded by the governmental authority couldbe less than we request. Further, our license from Incept does not provide us with the right to control decisions by Incept or its other licenseeson Orange Book listings or patent term extension decisions under the Hatch-Waxman Act. Thus, if one of our importantlicensed patents is eligible for a patent term extension under the Hatch-Waxman Act, and it covers a product of anotherIncept licensee in addition to our own product candidate, we may not be able to obtain that extension if the other licenseeseeks and obtains that extension first. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, theperiod during which we will have the right to exclusively market our product may be shortened and our competitors mayobtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possiblymaterially. We may become involved in lawsuits to protect or enforce our licensed patents or other intellectual property, which couldbe expensive, time-consuming and unsuccessful. Competitors may infringe our licensed patents or other intellectual property. As a result, to counter infringement orunauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Under theterms of our license agreement with Incept, we have the right to initiate suit against third parties who we believe infringe onthe patents subject to the license. Any claims we assert against perceived infringers could provoke these parties to assertcounterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a courtmay decide that a patent we have rights to is invalid or unenforceable, in whole or in part, construe the patent’s claimsnarrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover thetechnology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of beinginvalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection withintellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosureduring this type of litigation. Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcomeof which would be uncertain and could have a material adverse effect on the success of our business. Our commercial success depends upon our ability to develop, manufacture, market and sell our products and productcandidates and use our proprietary technologies without infringing the proprietary rights of third parties. There isconsiderable intellectual property litigation in the biotechnology, medical device, and pharmaceutical industries. We maybecome party to, or threatened with, infringement litigation claims regarding our products and technology, including claimsfrom competitors or from non-practicing entities that have no relevant product revenue and against whom our own patentportfolio may have no deterrent effect. Moreover, we may become party to future adversarial proceedings or litigationregarding our patent portfolio or the patents of third parties. Such proceedings could also include contested post-grantproceedings such as oppositions, inter partes review, reexamination, interference or derivation proceedings before theUSPTO or foreign patent offices. The legal threshold for initiating litigation or contested proceedings is low, so that evenlawsuits or proceedings with a low probability of success might be initiated and require significant resources todefend. Litigation and contested proceedings can also be expensive and time-consuming, and our adversaries in theseproceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or ourlicensor can. The risks of being involved in such litigation and proceedings may increase as our products or productcandidates near commercialization and as we gain the greater visibility associated with being a public company. Thirdparties may assert infringement claims against us based on existing patents or patents that may be granted in the future. Wemay not be aware of all such intellectual property rights potentially relating to our products or product candidates and theiruses, or we may incorrectly determine that a patent is invalid or does not cover a particular product or productcandidate. Thus, we do not know with certainty that DEXTENZA, ReSure Sealant or any of our product candidates, or ourcommercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property. 102 Table of ContentsWe are also aware of a U.S. patent with an expiration in 2020 with claims directed to formulations of hydrogels andwhich could be alleged to cover the hydrogel formulations used in our product candidates OTX-TP and OTX-MP. Based onthe specifications and file history of that patent, we believe its claims should be construed with a scope that does not coverour product candidates. We also believe that such claims, if and to the extent they were asserted against our productcandidates, would be subject to a claim of invalidity. Further, we have been made aware by a third party of three patentsrelating to intracanalicular inserts that may relate to, and potentially could be asserted against our intracanalicular insertproduct and product candidates, including DEXTENZA. We believe that DEXTENZA does not infringe the claims of one ofmore of these patents. We also believe that such claims, if and to the extent they were asserted against our productcandidates, would be subject to a claim of invalidity. We have initiated both legal and administrative proceedings againstthese patents in order to show that DEXTENZA does not infringe the claims of these patents or that these patents are invalid. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license fromsuch third party to continue developing and marketing our products and technology. However, we may not be able to obtainany required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including bycourt order, to cease commercializing the infringing technology or product. In addition, we could be found liable formonetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent andcould be forced to indemnify our customers or collaborators. A finding of infringement could also result in an injunctionthat prevents us from commercializing our products or product candidates or forces us to cease some of our businessoperations. In addition, we may be forced to redesign our products or product candidates, seek new regulatory approvals andindemnify third parties pursuant to contractual agreements. Claims that we have misappropriated the confidentialinformation or trade secrets of third parties could have a similar negative impact on our business. If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties,we could lose rights that are important to our business. Our license agreement with Incept, under which we license all of our patent rights and a significant portion of thetechnology for DEXTENZA, ReSure Sealant and our product candidates, imposes royalty and other financial obligations andother substantial performance obligations on us. We also may enter into additional licensing and funding arrangements withthird parties that may impose diligence, development and commercialization timelines and milestone payment, royalty,insurance and other obligations on us. If we fail to comply with our obligations under current or future license andcollaboration agreements, our counterparties may have the right to terminate these agreements, in which event we might notbe able to develop, manufacture or market any product that is covered by these agreements or may face other penalties underthe agreements. Such an occurrence could diminish the value of our product. Termination of these agreements or reductionor elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements withless favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectualproperty or technology. Under the terms of our license agreement with Incept, we have agreed to assign to Incept our rights in certain patentapplications filed at any time in any country for which one or more inventors are under an obligation of assignment tous. These assigned patent applications and any resulting patents are included within the specified patents owned orcontrolled by Incept to which we receive a license under the agreement. Incept has retained rights to practice the patents andtechnology licensed to us under the agreement for all purposes other than for researching, designing, developing,manufacturing and commercializing products that are delivered to or around the human eye for diagnostic, therapeutic orprophylactic purposes relating to ophthalmic diseases or conditions. As a result, termination of our agreement with Incept,based on our failure to comply with this or any other obligation under the agreement, would cause us to lose a significantportion of our rights to important intellectual property or technology upon which our business depends. Additionally, thefield limit of the license and the requirement that we assign to Incept our rights in certain patent applications may restrict ourability to use certain of our licensed rights to expand our business outside of the specified fields. If we determine to pursue astrategy of expanding the use of the hydrogel technology outside of the specified fields, we would need to negotiate andenter into an amendment to our existing license agreement with Incept or a new license agreement with Incept covering oneor more additional such fields of use or utilize technologies that do not infringe on such licensed rights. We may not be ableto obtain any such required amendment or new license or to invent or otherwise access other technology on commerciallyreasonable terms or at all. 103 Table of ContentsWe may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectualproperty, or claiming ownership of what we regard as our own intellectual property. Many of our employees were previously employed at universities or other biotechnology, medical device orpharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that ouremployees do not use the proprietary information or know-how of others in their work for us, we may be subject to claimsthat these employees or we have used or disclosed intellectual property, including trade secrets or other proprietaryinformation, of any such employee’s former employer. Litigation may be necessary to defend against these claims. In addition, while it is our policy to require our employees and contractors who may be involved in the development ofintellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executingsuch an agreement with each party who in fact develops intellectual property that we regard as our own. Our and theirassignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against thirdparties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectualproperty. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuableintellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigationcould result in substantial costs and be a distraction to management. Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normalresponsibilities. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause usto incur significant expenses and could distract our technical and management personnel from their normalresponsibilities. In addition, there could be public announcements of the results of hearings, motions or other interimproceedings or developments and if securities analysts or investors perceive these results to be negative, it could have asubstantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase ouroperating losses and reduce the resources available for development activities or any future sales, marketing or distributionactivities. We may not have sufficient financial or other resources to conduct such litigation or proceedingsadequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively thanwe can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patentlitigation or other proceedings could compromise our ability to compete in the marketplace. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patents for our technology, products and product candidates, we also rely on trade secrets,including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Weseek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties whohave access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers,consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignmentagreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements anddisclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies forsuch breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive andtime-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are lesswilling or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independentlydeveloped by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using thattechnology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developedby a competitor, our competitive position would be harmed. 104 Table of ContentsRisks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of ourproduct candidates. If we or any current or future collaborator of ours is not able to obtain, or if there are delays inobtaining, required regulatory approvals, we or they will not be able to commercialize our product candidates, and ourability to generate revenue will be materially impaired.The activities associated with the development and commercialization of our products and product candidates,including design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion,sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United Statesand by the EMA and similar regulatory authorities outside the United States. Failure to obtain marketing approval for aproduct candidate will prevent us from commercializing the product candidate. We have only received approval to marketDEXTENZA and ReSure Sealant in the United States, and have not received approval to market any of our productcandidates or to market DEXTENZA or ReSure Sealant in any jurisdiction outside the United States. Further, we have onlyreceived approval to market DEXTENZA for the treatment of ocular pain following ophthalmic surgery and have not received approval to market DEXTENZA for any other indication. We may determine to seek a CE Certificate of Conformity,which demonstrates compliance with relevant requirements and provides approval to commercialize ReSure Sealant in theEuropean Union. If we are unable to obtain a CE Certificate of Conformity for DEXTENZA, ReSure Sealant, or any of ourproduct candidates for which we seek European regulatory approval, we will be prohibited from commercializing suchproduct or products in the European Union and other places which require the CE Certificate of Conformity. In such a case,the potential market to commercialize our products may be significantly smaller than we currently estimate. The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take manyyears, especially if additional clinical trials are required, if approval is obtained at all. Securing marketing approval requiresthe submission of extensive preclinical and clinical data and supporting information to regulatory authorities for eachtherapeutic indication to establish the product candidate’s safety and purity. Securing marketing approval also requires thesubmission of information about the product manufacturing process to, and inspection of manufacturing facilities by, theregulatory authorities. The FDA, the EMA or other regulatory authorities may determine that our product candidates are notsafe or effective, are only moderately effective or have undesirable or unintended side effects, toxicities or othercharacteristics that preclude our obtaining marketing approval or prevent or limit commercial use. In addition, while wehave had general discussions with the FDA concerning the design of some of our clinical trials, we have not discussed withthe FDA the specifics of the regulatory pathways for our product candidates. As part of its review of the NDA for DEXTENZA for post-surgical ocular pain, the FDA completed inspections of threesites from our two completed Phase 3 clinical trials for compliance with the study protocol and Good ClinicalPractices. During the first of these inspections, the FDA identified storage temperature excursions for the investigationalproduct that is labeled to be stored in a refrigerated condition between two degrees and eight degrees Celsius. We also hadpreviously addressed a minor temperature deviation report during the conduct of the Phase 3 trials and communicated aresponse to the trial sites. In addition, while investigating the report stemming from the FDA inspection, several morenoteworthy temperature excursions were found to have occurred that had not been fully reported. Because of the limitednature of the temperature excursions and historical product testing, including testing on product stored at elevatedtemperatures, we believe it is unlikely that drug product performance was significantly impacted. We have also implementeda corrective action plan to address clinical compliance and prevent recurrence in other clinical studies. The FDA also completed two inspections of our manufacturing facility in connection with our NDA for DEXTENZA forthe treatment of post-surgical ocular pain. After each inspection, we received a Form 483 from the FDA pertaining todeficiencies in our manufacturing processes identified during such inspection. After we responded to the issues which hadbeen identified with corrective action plans, we subsequently received a CRL from the FDA. Following the July 2016 CRL,we resubmitted our NDA to the FDA in January 2017. After the May 2017 inspection, we received a Form 483 from the FDAfocused on procedures from manufacturing processes and analytical testing related to the manufacture of drug product forcommercial production. We received a CRL regarding these and other matters in July 2017. In November 2017, wesubmitted our complete responses to the FDA in an effort to close out the Form 483 deficiencies. We resubmitted our NDAfor DEXTENZA for the treatment of post-surgical ocular pain in June105 Table of Contents2018, and in December 2018 the FDA approved our NDA. We may be subject to similar inspections in the future forDEXTENZA or for other product candidates for which we seek FDA approval. If we are unable to address any identifiedissues successfully or if the FDA determines that the actions we take to remediate any identified issues to be inadequate, ourability to commercialize any products could be limited, which could adversely affect our ability to achieve or sustainprofitability. Changes in marketing approval policies during the development period, changes in or the enactment of additionalstatutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in theapproval or rejection of an application. The FDA, the EMA and regulatory authorities in other countries have substantialdiscretion in the approval process and may refuse to accept any application or may decide that our data is insufficient forapproval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtainedfrom preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketingapproval we or any current or future collaborator of ours ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. Accordingly, if we or any current or future collaborator of ours experiences delays in obtaining approval or if we orthey fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmedand our ability to generate revenues will be materially impaired. Failure to obtain marketing approval in foreign jurisdictions would prevent our products or product candidates frombeing marketed abroad. In order to market and sell DEXTENZA, ReSure Sealant or our product candidates in the European Union and manyother jurisdictions, we or our third-party collaborators must obtain separate marketing approvals and comply with numerousand varying regulatory requirements. The approval procedure varies among countries and can involve additionaltesting. The time required to obtain approval may differ substantially from that required to obtain FDA approval. Theregulatory approval process outside the United States generally includes all of the risks associated with obtaining FDAapproval. In addition, in many countries outside the United States, it is required that the product be approved forreimbursement before the product can be sold in that country. We or our collaborators may not obtain approvals fromregulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval byregulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United Statesdoes not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, a failure ordelay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in othercountries. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize ourproducts in any market. Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union,commonly referred to as Brexit. On March 29, 2017, the country formally notified the European Union of its intention towithdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework in theUnited Kingdom is derived from European Union directives and regulations, the referendum could materially impact theregulatory regime with respect to the approval of our products or product candidates in the United Kingdom or the EuropeanUnion. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, wouldprevent us from commercializing our products or product candidates in the United Kingdom and/or the European Union andrestrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may beforced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our productsor product candidates, which could significantly and materially harm our business. Even if we, or any current or future collaborators, obtain marketing approvals for our product candidates, the terms ofapprovals, ongoing regulations and post-marketing restrictions for our products may limit how we manufacture andmarket our products, which could materially impair our ability to generate revenue. Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject toongoing review and extensive regulation. We, and any current or future collaborators, must therefore comply withrequirements concerning advertising and promotion for any of our products for which we or our collaborators obtainmarketing approval. Promotional communications with respect to drug products, biologics, and medical devices are subjectto a variety of legal and regulatory restrictions and must be consistent with the information in the product’s106 Table of Contentsapproved labeling. Thus, if any of our product candidates receives marketing approval, the accompanying label may limitthe approved use of our product, which could limit sales of the product. The FDA required two post-approval studies as a condition for approval of our PMA application, for ReSureSealant. The first post-approval study, identified as the Clinical PAS, was to enroll at least 598 patients to confirm thatReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of themost prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSureSealant. We submitted the final study report of the Clinical PAS to the FDA in June 2016, and the FDA has confirmed theClinical PAS has been completed. The second post-approval study, identified as the Device Exposure Registry Study, isintended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 daysfollowing cataract surgery and application of ReSure Sealant. The Device Exposure Registry Study is required to include atleast 4,857 patients. In December 2015, the CMS denied our application for a tracking or research code for ReSure Sealantcommercial use. In July 2016, the FDA approved the Device Exposure Registry Study protocol. We are required to provideperiodic reports to the FDA on the progress of this post-approval study until it is completed. We initiated enrollment in thisstudy in December 2016 and submitted our first progress report to FDA in January 2017. Due to difficulties in establishing anacceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we have been unable toenroll trial sites and patients, collect patient data and report study data to the FDA. On October 18, 2018, we received awarning letter from the FDA, dated October 17, 2018, relating to our compliance with data collection and informationreporting obligations in this study. We appealed the warning letter from the FDA. In December 2018, the FDA rejected ourappeal. Following review of the results from these post-approval studies, any concerns with respect to endophthalmitis thatwe are unable to address due to the lack of completion of the study would negatively affect our ability to commercializeReSure Sealant. Failure by us to conduct the Device Exposure Registry Study to the FDA’s satisfaction may result inwithdrawal of the FDA’s approval of ReSure Sealant or other regulatory action. In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply withextensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPsapplicable to drug and biologic manufacturers or quality assurance standards applicable to medical device manufacturers,which include requirements relating to quality control and quality assurance as well as the corresponding maintenance ofrecords and documentation and reporting requirements. We, any contract manufacturers we may engage in the future, ourcurrent or future collaborators and their contract manufacturers will also be subject to other regulatory requirements,including submissions of safety and other post-marketing information and reports, registration and listing requirements,requirements regarding the distribution of samples to physicians, recordkeeping, and costly post-marketing studies orclinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a riskevaluation and mitigation strategy. Accordingly, assuming we, or any current or future collaborators, receive marketing approval for one or more of ourproduct candidates, we, and any current or future collaborators, and our and their contract manufacturers will continue toexpend time, money and effort in all areas of regulatory compliance, including manufacturing, production, productsurveillance and quality control. If we, and any current or future collaborators, are not able to comply with post-approvalregulatory requirements, we, and any current or future collaborators, could have the marketing approvals for our productswithdrawn by regulatory authorities and our, or any current or future collaborators’, ability to market any products could belimited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition. We may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experienceunanticipated problems with our products. Violations of the FDCA relating to the promotion or manufacturing of drug products, biologics or medical devices maylead to investigations by the FDA, Department of Justice, or DOJ, and state attorneys general alleging violations of theFDCA, federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. In addition, laterdiscovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturingprocesses, or failure to comply with regulatory requirements, may yield various results, including: ·restrictions on such products, manufacturers or manufacturing processes; ·restrictions on the labeling or marketing of a product;107 Table of Contents ·restrictions on product distribution or use of a product; ·requirements to conduct post-marketing studies or clinical trials; ·warning letters or untitled letters; ·withdrawal of the products from the market; ·refusal to approve pending applications or supplements to approved applications that we submit; ·recall of products; ·fines, restitution or disgorgement of profits or revenues; ·suspension or withdrawal of marketing approvals; ·refusal to permit the import or export of our products; ·product seizure or detention; ·injunctions or the imposition of civil or criminal penalties; ·damage to relationships with any potential collaborators; ·unfavorable press coverage and damage to our reputation; or ·litigation involving patients using our products. Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and withrequirements related to the development of products for the pediatric population, can also result in significant financialpenalties. Similarly, failure to comply with the European Union’s requirements regarding the protection of personalinformation can also lead to significant penalties and sanctions. Our relationships with healthcare providers, physicians and third-party payors will be subject, directly or indirectly, toapplicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, in the event of a violation,could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits andfuture earnings. Healthcare providers, physicians and third-party payors will play a primary role in the recommendation andprescription and use of DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketingapproval. Our future arrangements with healthcare providers, physicians and third-party payors may expose us to broadlyapplicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financialarrangements and relationships through which we market, sell and distribute any products for which we obtain marketingapproval. Restrictions under applicable federal and state healthcare laws and regulations include the following: ·the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfullysoliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induceor reward, or in return for, either the referral of an individual for, or the purchase, order or recommendationor arranging of, any good or service, for which payment may be made under a federal healthcare programsuch as Medicare and Medicaid; ·the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower orqui tam actions, against individuals or entities for, among other things, knowingly presenting, or causingto be presented, false or fraudulent claims for payment by a federal healthcare program or making a falsestatement or record material to payment of a false claim or avoiding,108 Table of Contentsdecreasing or concealing an obligation to pay money to the federal government, with potential liabilityincluding mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000per false claim; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal andcivil liability for executing a scheme to defraud any healthcare benefit program or making false statementsrelating to healthcare matters; ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and itsimplementing regulations, also imposes obligations, including mandatory contractual terms, with respectto safeguarding the privacy, security and transmission of individually identifiable health information; ·the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products toreport payments and other transfers of value to physicians and teaching hospitals, with data collectionbeginning in August 2013; and ·analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws andtransparency statutes, may apply to sales or marketing arrangements and claims involving healthcare itemsor services reimbursed by non-governmental third-party payors, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary complianceguidelines and the relevant compliance guidance promulgated by the federal government and may require productmanufacturers to report information related to payments and other transfers of value to physicians and other healthcareproviders or marketing expenditures. State and foreign laws also govern the privacy and security of health information insome circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thuscomplicating compliance efforts. If our operations or the operations of our present and future collaborators are found to be in violation of any of the lawsdescribed above or any governmental regulations that apply to us or them, we or they may be subject to penalties, includingcivil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages,fines, curtailment or restructuring of our operations could adversely affect our or their financial results. We are developingand implementing a corporate compliance program designed to ensure that we will market and sell any future products thatwe successfully develop from our product candidates in compliance with all applicable laws and regulations, but we cannotguarantee that this program will protect us from governmental investigations or other actions or lawsuits stemming from afailure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are notsuccessful in defending ourselves or asserting our rights, those actions could have a significant impact on our business,including the imposition of significant fines or other sanctions. Efforts to ensure that our business with third parties will comply with applicable healthcare laws and regulations willinvolve substantial costs. We do not have a fully developed compliance program and will need to establish a more robustcompliance infrastructure to address our needs in this area. We may fail to establish appropriate compliance measures, andeven with a stronger program in place, it is possible that governmental authorities will conclude that our business practicesmay not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or otherhealthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmentalregulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages,fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid,and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities withwhom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civilor administrative sanctions, including exclusions from government funded healthcare programs. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation,endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision ofbenefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States, such asthe U.K. Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.109 Table of Contents Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover,agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his orher competent professional organization and/or the regulatory authorities of the individual European Union Member States.These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in theEuropean Union Member States. Failure to comply with these requirements could result in reputational risk, publicreprimands, administrative penalties, fines or imprisonment. The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EuropeanUnion, including personal health data, is subject to the European Union General Data Protection Regulation, or GDPR,which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements oncompanies that process personal data, including requirements relating to processing health and other sensitive data,obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding dataprocessing activities, implementing safeguards to protect the security and confidentiality of personal data, providingnotification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposesstrict rules on the transfer of personal data to countries outside the European Union, including the United States, and permitsdata protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on datasubjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtaincompensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despitethose efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection withour European activities. Under the Cures Act and the Trump Administration’s regulatory reform initiatives, the FDA’s policies, regulations andguidance may be revised or revoked in a manner that could prevent, limit or delay regulatory approval of our productcandidates, which would impact our ability to generate revenue.In December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things,is intended to modernize the regulation of drugs and spur innovation, but its ultimate implementation is unclear. If we areslow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are notable to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may notachieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results ofoperations. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislationor administrative or executive action, either in the United States or abroad. For example, certain policies of the Trumpadministration may impact our business and industry. Namely, the Trump administration has taken several executive actions,including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materiallydelay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes throughrulemaking, issuance of guidance, and review and approval of marketing applications. An under‑staffed FDA could result indelays in the FDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, orimplement or enforce regulatory requirements in a timely fashion or at all. Moreover, on January 30, 2017, President Trumpissued an Executive Order, applicable to all executive agencies, including the FDA, which requires that for each notice ofproposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existingregulations to be repealed, unless prohibited by law. These requirements are referred to as the “two‑for‑one” provisions. ThisExecutive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a newregulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interimguidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administrationindicates that the “two‑for‑one” provisions may apply not only to agency regulations, but also to significant agencyguidance documents. In addition, on February 24, 2017, President Trump issued an executive order directing each affectedagency to designate an agency official as a “Regulatory Reform Officer” and establish a “Regulatory Reform Task Force” toimplement the two‑for‑one provisions and other previously issued executive orders relating to the review of federalregulations, however it is difficult to predict how these requirements will be implemented, and the extent to which they110 Table of Contentswill impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’sability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. Current and future legislation may increase the difficulty and cost for us and any current or future collaborators to obtainmarketing approval of and commercialize our products or product candidates and affect the prices we, or they, may obtain. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes andproposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval ofour drug candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any futurecollaborators, to profitably sell any drugs for which we, or they, obtain marketing approval. We expect that current laws, aswell as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria andin additional downward pressure on the price that we, or any future collaborators, may receive for any approved drugs. Among the provisions of the Patient Protection and Affordable Care Act, or ACA, of potential importance to ourbusiness and our drug candidates are the following: ·an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugsand biologic agents; ·an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; ·expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-KickbackStatute, new government investigative powers and enhanced penalties for noncompliance; ·a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices to eligible beneficiaries during their coverage gap period, as a condition forthe manufacturer’s outpatient drugs to be covered under Medicare Part D; ·extension of manufacturers’ Medicaid rebate liability; ·expansion of eligibility criteria for Medicaid programs; ·expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; ·new requirements to report certain financial arrangements with physicians and teaching hospitals; ·a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and ·a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparativeclinical effectiveness research, along with funding for such research. Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include theBudget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers ofup to 2% per fiscal year that started in 2013 and will stay in effect through 2024 unless additional Congressional action istaken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to severaltypes of providers and increased the statute of limitations period for the government to recover overpayments to providersfrom three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding andotherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval orthe frequency with which any such product candidate or product is prescribed or used. Further, there have been severalrecent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring moretransparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs ofdrugs under Medicare and reform government program reimbursement methodologies for drug products. 111 Table of ContentsWe expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future,may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new paymentmethodologies and additional downward pressure on the price that we receive for any approved product and/or the level ofreimbursement physicians receive for administering any approved product we might bring to market. Reductions inreimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed oradministered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reductionin payments from private payors. With enactment of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, which was signed by President Trump onDecember 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires mostAmericans to carry a minimal level of health insurance, will become effective in 2019. According to the CongressionalBudget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 andpremiums in insurance markets may rise. Moreover, on December 14, 2018, a United States District Court judge in theNorthern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of theACA, and therefore because the mandate was repealed as part of the 2017 Tax Act, the remaining provisions of the ACA areinvalid as well. The Trump administration and CMS have both stated that the ruling will have no immediate effect, and onDecember 30, 2018 the same judge issued an order staying the judgment pending appeal. It is unclear how this decision andany subsequent appeals and other efforts to repeal and replace the ACA will impact the ACA and our business. Litigation andlegislation over the ACA are likely to continue, with unpredictable and uncertain results. Furthermore, since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurancemandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA towaive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal orregulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals ormedical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA.Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for arestraining order was denied by a federal judge in California on October 25, 2017. The loss of the cost share reductionpayments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Further, onJune 14, 2018, the United States Court of Appeals for the Federal Circuit ruled that the federal government was not requiredto pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. The effectsof this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially ourbusiness, are not yet known. In addition, the CMS has recently proposed regulations that would give states greater flexibility in setting benchmarksfor insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential healthbenefits required under the ACA for plans sold through such marketplaces. On November 30, 2018, CMS announced aproposed rule that would amend the Medicare Advantage and Medicare Part D prescription drug benefit regulations toreduce out of pocket costs for plan enrollees and allow Medicare plans to negotiate lower rates for certain drugs. Amongother things, the proposed rule changes would allow Medicare Advantage plans to use pre authorization, or PA, and steptherapy, or ST, for six protected classes of drugs, with certain exceptions, permit plans to implement PA and ST in MedicarePart B drugs; and change the definition of “negotiated prices” while a definition of “price concession” in the regulations. It isunclear whether these proposed changes we be accepted, and if so, what effect such changes will have on our business.Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We continue toevaluate the effect that the ACA and its possible repeal and replacement has on our business. We will continue to evaluate the effect that the ACA and its possible repeal and replacement could have on ourbusiness. It is possible that repeal and replacement initiatives, if enacted into law, could ultimately result in fewer individualshaving health insurance coverage or in individuals having insurance coverage with less generous benefits. While the timingand scope of any potential future legislation to repeal and replace ACA provisions is highly uncertain in many respects, it isalso possible that some of the ACA provisions that generally are not favorable for the research‑based pharmaceutical industrycould also be repealed along with ACA coverage expansion provisions. Accordingly, such reforms, if enacted, could have anadverse effect on anticipated revenue from product candidates that we may successfully develop and for which we mayobtain marketing approval and may affect our overall financial condition and ability to develop or commercialize productcandidates. 112 Table of ContentsThe costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion inthe United States, and members of Congress and the Administration have stated that they will address such costs through newlegislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to governmental controloutside the United States. In these countries, pricing negotiations with governmental authorities can take considerable timeafter the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we maybe required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other availabletherapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactorylevels, our ability to generate revenues and become profitable could be impaired. In addition, on May 11, 2018, the Administration issued a plan to lower drug prices. Under this blueprint for action,the Administration indicated that the Department of Health and Human Services, or the HHS, will: take steps to end thegaming of regulatory and patent processes by drug makers to unfairly protect monopolies; advance biosimilars and genericsto boost price competition; evaluate the inclusion of prices in drug makers’ ads to enhance price competition; speed accessto and lower the cost of new drugs by clarifying policies for sharing information between insurers and drug makers; avoidexcessive pricing by relying more on value-based pricing by expanding outcome-based payments in Medicare andMedicaid; work to give Part D plan sponsors more negotiation power with drug makers; examine which Medicare Part Bdrugs could be negotiated for a lower price by Part D plans, and improving the design of the Part B Competitive AcquisitionProgram; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part D contracts that include “gagrules” that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance; andrequire that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drugprice increases. At the same time, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price controlmeasures that could be enacted during the 2019 budget process or in other future legislation, including, for example,measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some statesto negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients.Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugsthat contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federalhealthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs ofdrug products paid by consumers. While any proposed measures will require authorization through additional legislation tobecome effective, Congress and the Trump administration have each indicated that it will continue to seek new legislativeand/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation andimplementing regulations designed to control pharmaceutical and biological product pricing, including price or patientreimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparencymeasures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. At the state level, individual states are increasingly aggressive in passing legislation and implementing regulationsdesigned to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authoritiesand individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and whichsuppliers will be included in their prescription drug and other health care programs. These measures could reduce theultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state andfederal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and stategovernments will pay for healthcare products and services, which could result in reduced demand for our product candidatesor additional pricing pressures. Legislative and regulatory proposals have been made to expand post‑approval requirements and restrict sales andpromotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will beenacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes onthe marketing approvals of our product candidates, if any, may be. Increased scrutiny by the U.S. Congress of the FDA’sapproval process may significantly delay or prevent marketing approval, as well as subject us to more stringent productlabeling and post‑marketing testing and other requirements. 113 Table of ContentsGovernments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any. In some countries, such as the countries of the European Union, the pricing of prescription pharmaceuticals is subjectto governmental control and access. In these countries, pricing negotiations with governmental authorities can takeconsiderable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in somecountries, we, or any current or future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our products is unavailable or limited in scopeor amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed. Laws and regulations governing any international operations we may have in the future may preclude us from developing,manufacturing and selling certain products outside of the United States and require us to develop and implement costlycompliance programs. If we expand our operations outside of the United States, we must dedicate additional resources to comply withnumerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA,prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value,directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision ofthe foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligatescompanies whose securities are listed in the United States to comply with certain accounting provisions requiring thecompany to maintain books and records that accurately and fairly reflect all transactions of the corporation, includinginternational subsidiaries, and to devise and maintain an adequate system of internal accounting controls for internationaloperations. Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognizedproblem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries,hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certainpayments to hospitals in connection with clinical trials and other work have been deemed to be improper payments togovernment officials and have led to FCPA enforcement actions. Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, orthe sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certainproducts and technical data relating to those products. If we expand our presence outside of the United States, it will requireus to dedicate additional resources to comply with these laws, and these laws may preclude us from developing,manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growthpotential and increase our development costs. The failure to comply with laws governing international business practices may result in substantial civil and criminalpenalties and suspension or debarment from government contracting. The Securities and Exchange Commission also maysuspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Our employees may engage in misconduct or other improper activities, including noncompliance with regulatorystandards and requirements. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could includeintentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply withmanufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws andregulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales,marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended toprevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a widerange of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other businessarrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinicaltrials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of businessconduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take todetect and prevent this activity may not be effective in controlling114 Table of Contentsunknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuitsstemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, andwe are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on ourbusiness, including the imposition of significant fines or other sanctions. If we, our collaborators or any third-party manufacturers we engage in the future fail to comply with environmental,health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs. We, our collaborators and any third-party manufacturers we may engage in the future are subject to numerousenvironmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operationsmay involve the use of hazardous materials, including chemicals and biological materials, and produce hazardous wasteproducts. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate therisk of contamination or injury from these materials. In the event of contamination or injury resulting from our use ofhazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Wealso could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such lawsand regulations. Although we maintain general liability insurance as well as workers’ compensation insurance to cover us for costs andexpenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may notprovide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxictort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactivematerials. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safetylaws and regulations. These current or future laws and regulations may impair our research, development or productionefforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or othersanctions. Further, with respect to the operations of any current or future collaborators or third-party contract manufacturers, it ispossible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations orproperly dispose of wastes associated with our products, we could be held liable for any resulting damages, sufferreputational harm or experience a disruption in the manufacture and supply of our product candidates or products. The comprehensive tax reform bill enacted in 2017 could adversely affect our business and financial condition. On December 22, 2017, President Trump signed the 2017 Tax Act into law, which significantly revised the InternalRevenue Code of 1986, as amended. The 2017 Tax Act, among other things, contains significant changes to corporate federal income taxation, including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of21%, the limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain smallbusinesses), the limitation of the deduction for net operating losses to 80% of current year taxable income and elimination ofnet operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though anysuch net operating losses may be carried forward indefinitely), the one-time taxation of offshore earnings at reduced ratesregardless of whether they are repatriated, the elimination of U.S. tax on foreign earnings (subject to certain importantexceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, andmodification or repeal many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate,the overall impact of the 2017 Tax Act is uncertain and our business and financial condition could be adversely affected. Inaddition, it is uncertain how various states will respond to the 2017 Tax Act. The impact of the 2017 Tax Act on holders ofour common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and taxadvisors with respect to the 2017 Tax Act and the potential tax consequences of investing in or holding our common stock 115 Table of ContentsWe might not be able to utilize a significant portion of our net operating loss carryforwards and research and developmenttax credit carryforwards. As of December 31, 2018, we had federal and state net operating loss carryforwards of $190.6 million, which begin toexpire in 2026, and state net operating loss carryforwards of $161.8 million, which begin to expire in 2026. As ofDecember 31, 2018, we also had federal research and development tax credit carryforwards of $7.0 million and state researchand development tax credit carryforwards $3.6 million, which begin to expire in 2026 and 2025, respectively. These netoperating loss and tax credit carryforwards could expire unused and be unavailable to offset our future income tax liabilities.Under the 2017 Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely,but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to the 2017Tax Act. If our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harmour future operating results by effectively increasing our future tax obligations. Risks Related to Employee Matters and Managing Growth Our future success depends on our ability to retain key executives and to attract, retain and motivate qualifiedpersonnel. We remain highly dependent on the research and development, clinical and business development expertise of AmarSawhney, Ph.D., our Chairman of the Board of Directors and former President and Chief Executive Officer, as well as the otherprincipal members of our management, scientific and clinical team, including Antony Mattessich, our President and ChiefExecutive Officer. Although we have entered into employment agreements with our executive officers, each of them mayterminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives orother employees. Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also becritical to our success. The loss of the services of our executive officers or other key employees could impede theachievement of our research, development and commercialization objectives and seriously harm our ability to successfullyimplement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may takean extended period of time because of the limited number of individuals in our industry with the breadth of skills andexperience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hirefrom this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptableterms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We alsoexperience competition for the hiring of scientific and clinical personnel from universities and research institutions. Inaddition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating ourresearch and development and commercialization strategy. Our consultants and advisors may be employed by employersother than us and may have commitments under consulting or advisory contracts with other entities that may limit theiravailability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growthstrategy will be limited. We expect to expand our development, regulatory and manufacturing capabilities and potentially implement sales,marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, whichcould disrupt our operations. Although we had a reduction in workforce in 2017 primarily related to sales and marketing personnel, we expect ourdrug development, clinical, regulatory affairs, and manufacturing teams to grow in the short-term and may regrow our salesand marketing capabilities in the longer term as we commercialize DEXTENZA. To manage our anticipated future growth, wemust continue to implement and improve our managerial, operational and financial systems, expand our facilities andcontinue to recruit and train additional qualified personnel. In 2016, we entered into a lease agreement for new general officeresearch and development and manufacturing space. We relocated our corporate headquarters to the new leased premisesduring June 2017 and are evaluating the relocation of our manufacturing operations to the new leased premises. Due to ourlimited financial resources and our limited experience in managing such anticipated growth, we may not be able toeffectively manage the expansion of our operations, or recruit and train additional qualified personnel. The expansion of ouroperations may lead to significant costs and may divert our management and business development resources. Any inabilityto manage growth could delay the execution of our business plans or disrupt our operations. 116 Table of ContentsOur internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffersecurity breaches, which could result in a material disruption of our product development programs. Our internal computer systems and those of our current and any future collaborators, contractors or consultants arevulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunicationand electrical failures. While we have not experienced any such material system failure, accident or security breach to date, ifsuch an event were to occur and cause interruptions in our operations, it could result in a material disruption of ourdevelopment programs and our business operations, whether due to a loss of our trade secrets or other proprietary informationor other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result indelays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extentthat any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriatedisclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed andthe further development and commercialization of our products and product candidates could be delayed. Risks Related to Our Common Stock Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to controlall matters submitted to stockholders for approval. Our executive officers, directors and principal stockholders, in the aggregate, beneficially own a large portion of ourcapital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matterssubmitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they chooseto act together, would control the election of directors and approval of any merger, consolidation or sale of all orsubstantially all of our assets. This concentration of voting power may: ·delay, defer or prevent a change in control; ·entrench our management and the board of directors; or ·delay or prevent a merger, consolidation, takeover or other business combination involving us on termsthat other stockholders may desire. Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company,which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace orremove our current management. Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition orother change in control of our company that stockholders may consider favorable, including transactions in which ourstockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investorsmight be willing to pay in the future for shares of our common stock, thereby depressing the market price of our commonstock. In addition, because our board of directors is responsible for appointing the members of our management team, theseprovisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management bymaking it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions: ·provide for a classified board of directors such that only one of three classes of directors is elected eachyear; ·allow the authorized number of our directors to be changed only by resolution of our board of directors; ·limit the manner in which stockholders can remove directors from our board of directors; 117 Table of Contents·provide for advance notice requirements for stockholder proposals that can be acted on at stockholdermeetings and nominations to our board of directors; ·require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actionsby our stockholders by written consent; ·limit who may call stockholder meetings; ·authorize our board of directors to issue preferred stock without stockholder approval, which could be usedto institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer,effectively preventing acquisitions that have not been approved by our board of directors; and ·require the approval of the holders of at least 75% of the votes that all our stockholders would be entitledto cast to amend or repeal specified provisions of our certificate of incorporation or bylaws. Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DelawareGeneral Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock frommerging or combining with us for a period of three years after the date of the transaction in which the person acquired inexcess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. We are currently subject to legal actions and proceedings related to the decline in our stock price, which coulddistract our management and could result in substantial costs or large judgments against us. In July 2017, we experienced a decline in our stock price following our announcement that we had received notice ofthe FDA’s determination that it could not approve our NDA for DEXTENZA in its then present form. In addition, the marketprices of securities of companies in the biotechnology and pharmaceutical industry have been extremely volatile and haveexperienced fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.These fluctuations could adversely affect the market price of our common stock. In the past, securities class action litigationhas often been brought against companies following periods of volatility in the market prices of their securities. In July andAugust 2017, class action lawsuits were filed against us and certain of our current and former executive officers in the UnitedStates District Court for the District of New Jersey, which have subsequently been transferred to the United States DistrictCourt for the District of Massachusetts at our request. In addition, in July 2017, shareholder derivative actions were filedagainst certain of our current and former executive officers, certain of our current and former board members, and two of ourinvestors and against the company as a nominal defendant, in the United States District Court for the District ofMassachusetts and in Massachusetts Superior Court (Suffolk County). These actions were re-filed in October and December2017, were consolidated by court order in January 2018, and are now pending under one docket in Massachusetts SuperiorCourt (Suffolk County). In January 2018, a third shareholder derivative action was filed against us, certain of our current andformer executive officers, and certain of our current and former board members in the United States District Court for theDistrict of Massachusetts. In February 2018, a fourth shareholder derivative action was filed against us, certain of our currentand former executive officers, certain of our current and former board members, and two of our investors in the United StatesDistrict Court for the District of Delaware. Due to the volatility in our stock price, we may be the target of similar litigation inthe future. In addition, we received a subpoena from the SEC in December 2017, requesting documents and informationconcerning DEXTENZA, including related communications with the FDA, investors and others. We received a secondsubpoena from the SEC in August 2018, requesting documents and information concerning our participation in two investorconferences in June 2017. We intend to fully cooperate with the SEC regarding this non‑public, fact‑finding inquiry. In connection with such legal proceedings, we could incur substantial costs and such costs and any related settlementsor judgments may not be covered by insurance. We could also suffer an adverse impact on our reputation and a diversion ofmanagement’s attention and resources, which could cause serious harm to our business, operating results and financialcondition. 118 Table of ContentsAn active trading market for our common stock may not be sustained. Our shares of common stock began trading on the Nasdaq Global Market on July 25, 2014. Given the limited tradinghistory of our common stock, there is a risk that an active trading market for our shares will not be sustained, which could putdownward pressure on the market price of our common stock and thereby affect the ability of our stockholders to sell theirshares. The price of our common stock may be volatile and fluctuate substantially, which could result in substantial lossesfor holders of our common stock. Our stock price may be volatile. The stock market in general and the market for smaller biopharmaceutical companiesin particular have experienced extreme volatility that has often been unrelated to the operating performance. As a result ofthis volatility, our stockholders may not be able to sell their common stock at or above the price at which they purchasedit. The market price for our common stock may be influenced by many factors, including: ·our success in commercializing DEXTENZA, ReSure Sealant and any product candidates for which weobtain marketing approval; ·the success of competitive products or technologies; ·results of clinical trials of our product candidates; ·results of clinical trials of product candidates of our competitors; ·regulatory or legal developments in the United States and other countries; ·developments or disputes concerning patent applications, issued patents or other proprietary rights; ·the recruitment or departure of key scientific or management personnel; ·the level of expenses related to any of our product candidates or clinical development programs; ·the results of our efforts and the efforts of our current and future collaborators to discover, develop, acquireor in-license additional products, product candidates or technologies for the treatment of ophthalmicdiseases or conditions, the costs of commercializing any such products and the costs of development of anysuch product candidates or technologies; ·actual or anticipated changes in estimates as to financial results, development timelines orrecommendations by securities analysts; ·variations in our financial results or those of companies that are perceived to be similar to us; ·the ability to secure third-party reimbursement for our products or product candidates; ·changes in the structure of healthcare payment systems; ·market conditions in the pharmaceutical and biotechnology sectors; ·general economic, industry and market conditions; and ·the other factors described in this “Risk Factors” section. In the past, following periods of volatility in the market price of a company’s securities, securities class-actionlitigation has often been instituted against that company. We also may face securities class-action litigation if we cannotobtain regulatory approvals for or if we otherwise fail to commercialize DEXTENZA, OTX-TP or our other productcandidates. As described in “Item 3— Legal Proceedings,” we and certain of our current and former executive officers119 Table of Contentsand current and former board members have been named as defendants in purported class action lawsuits and derivativelawsuits. These proceedings and other similar litigation, if instituted against us, could cause us to incur substantial costs todefend such claims and divert management’s attention and resources. Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall. Persons who were our stockholders prior to our initial public offering continue to hold a substantial number of shares ofour common stock. If such persons sell, or indicate an intention to sell, substantial amounts of our common stock in thepublic market, the trading price of our common stock could decline. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance underour stock incentive plans will become eligible for sale in the public market to the extent permitted by the provisions ofvarious vesting schedules and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, and, in any event, wehave filed a registration statement permitting shares of common stock issued on exercise of options to be freely sold in thepublic market. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the publicmarket, the trading price of our common stock could decline. Certain holders of our common stock have rights, subject to specified conditions, to require us to file registrationstatements covering their shares or, along with certain holders of shares of our common stock issuable upon exercise ofwarrants issued to lenders, to include their shares in registration statements that we may file for ourselves or otherstockholders. Any sales of securities by these stockholders could have a material adverse effect on the trading price of ourcommon stock. We are an “emerging growth company” and a “smaller reporting company” and the reduced disclosure requirementsapplicable to such companies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBSAct, and may remain an emerging growth company until December 31, 2019, provided that, if the market value of ourcommon stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annualgross revenues of $1.07 billion or more in any fiscal year, we would cease to be an emerging growth company as ofDecember 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1billion of non-convertible debt over a three-year period. As an emerging growth company, we are permitted and intend torely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerginggrowth companies. These exemptions include: ·not being required to comply with the auditor attestation requirements in the assessment of our internalcontrol over financial reporting; ·not being required to comply with any requirement that may be adopted by the Public CompanyAccounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’sreport providing additional information about the audit and the financial statements; ·reduced disclosure obligations regarding executive compensation; and ·exemptions from the requirements of holding a nonbinding advisory vote on executive compensation andshareholder approval of any golden parachute payments not previously approved. We expect to continue to take advantage of some or all of the available exemptions. We are also a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, asamended. We would cease to be a smaller reporting company if we have a non-affiliate public float in excess of $250 millionand annual revenues in excess of $100 million, or a non-affiliate public float in excess of $700 million, determined on an annual basis. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reportingcompany, which would allow us to take advantage of many of the same exemptions from disclosure requirements. Inaddition to the above reduced disclosure requirements applicable to EGCs, as a smaller reporting120 Table of Contentscompany, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to otherpublic companies that are not smaller reporting companies. These exemptions include: ·being permitted to provide only two years of audited consolidated financial statements in this Annual Report onForm 10-K, with correspondingly reduced “Management's Discussion and Analysis of Financial Condition andResults of Operations” disclosure; ·not being required to furnish a contractual obligations table in “Management's Discussion and Analysis ofFinancial Condition and Results of Operations”; and ·not being required to furnish a stock performance graph in our annual report. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If someinvestors find our common stock less attractive as a result, there may be a less active trading market for our common stockand our stock price may be more volatile. In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extendedtransition period for complying with new or revised accounting standards. This allows an emerging growth company todelay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Wehave irrevocably elected not to delay such adoption of new or revised accounting standards, and, as a result, we will complywith new or revised accounting standards on the relevant dates on which adoption of such standards is required for publiccompanies that are not emerging growth companies. We incur increased costs as a result of operating as a public company, and our management is now required todevote substantial time to new compliance initiatives and corporate governance practices. As a public company, and particularly after we are no longer an emerging growth company, we incur significant legal,accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-FrankWall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicablesecurities rules and regulations impose various requirements on public companies, including establishment and maintenanceof effective disclosure and financial controls and corporate governance practices. Our management and other personneldevote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increasedour legal and financial compliance costs and will make some activities more time-consuming and costly. For as long as we remain an emerging growth company, we may take advantage of certain exemptions from variousreporting requirements that are applicable to other public companies that are not emerging growth companies as described inthe preceding risk factor. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report byour management on our internal control over financial reporting. However, while we remain an emerging growth company,we will not be required to include an attestation report on internal control over financial reporting issued by our independentregistered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engagedin a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. Inthis regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt adetailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps toimprove control processes as appropriate, validate through testing that controls are functioning as documented andimplement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts,there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control overfinancial reporting is effective as required by Section 404. If we identify one or more material weaknesses in our internalcontrol over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence inthe reliability of our consolidated financial statements. 121 Table of ContentsBecause we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capitalappreciation, if any, will be our stockholders’ sole source of gain. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our futureearnings, if any, to finance the growth and development of our business. In addition, the terms of our credit facility and anyfuture debt agreements that we may enter into, may preclude us from paying dividends without the lenders’ consent or atall. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for theforeseeable future. Item 1B.Unresolved Staff Comments None. Item 2.Properties Our facilities consist of office space, laboratory space and manufacturing facilities in Bedford, Massachusetts. Weoccupy approximately 91,000 square feet of space. The lease for approximately 71,000 square feet of space expires in July2027 and the lease for approximately 20,000 square feet of space expires in 2023. Item 3.Legal Proceedings Securities Class Actions On July 7, 2017, a putative class action lawsuit was filed against us and certain of our current and former executiveofficers in the United States District Court for the District of New Jersey, captioned Thomas Gallagher v. Ocular Therapeutix,Inc, et al., Case No. 2:17-cv-05011. The complaint purports to be brought on behalf of shareholders who purchased ourcommon stock between May 5, 2017 and July 6, 2017. The complaint generally alleges that we and certain of our current andformer officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934, or the Exchange Act, and Rule10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the Form 483 issued bythe FDA related to DEXTENZA and our manufacturing operations for DEXTENZA. The complaint seeks unspecifieddamages, attorneys’ fees, and other costs. On July 14, 2017, an amended complaint was filed; the amended complaintpurports to be brought on behalf of shareholders who purchased our common stock between May 5, 2017 and July 11, 2017,and otherwise includes allegations similar to those made in the original complaint. On July 12, 2017, a second putative class action lawsuit was filed against us and certain of our current and formerexecutive officers in the United States District Court for the District of New Jersey, captioned Dylan Caraker v. OcularTherapeutix, Inc., et al., Case No. 2:17-cv-05095. The complaint purports to be brought on behalf of shareholders whopurchased our common stock between May 5, 2017 and July 6, 2017. The complaint includes allegations similar to thosemade in the Gallagher complaint and seeks similar relief. On August 3, 2017, a third putative class action lawsuit was filed against us and certain of our current and formerexecutive officers in the United States District Court for the District of New Jersey, captioned Shawna Kim v. OcularTherapeutix, Inc., et al., Case No. 2:17-cv-05704. The complaint purports to be brought on behalf of shareholders whopurchased our common stock between March 10, 2016 and July 11, 2017. The complaint includes allegations similar tothose made in the Gallagher complaint and seeks similar relief. On October 27, 2017, a magistrate judge for the United States District Court for the District of New Jersey granted thedefendants’ motion to transfer the above-referenced Gallagher, Caraker, and Kim litigations to the United States DistrictCourt for the District of Massachusetts. These matters were assigned the following docket numbers in the District ofMassachusetts: 1:17-cv-12288 (Gallagher), 1:17-cv-12146 (Caraker), and 1:17-cv-12286 (Kim). On March 9, 2018, the court consolidated the three actions and appointed co-lead plaintiffs and co-lead counsel for theconsolidated action. On May 7, 2018, co-lead plaintiffs filed a consolidated amended class action complaint. The amendedcomplaint makes allegations similar to those in the original complaints, against the same defendants, and seeks similar reliefon behalf of shareholders who purchased our common stock between March 10, 2016 and July 11,122 Table of Contents2017. The amended complaint generally alleges that defendants violated Sections 10(b) and/or 20(a) of the Exchange Actand Rule 10b-5 promulgated thereunder. On July 6, 2018, defendants filed a motion to dismiss the consolidated amendedcomplaint. Plaintiffs’ filed an opposition to the motion to dismiss on September 4, 2018, and defendants filed a reply onOctober 4, 2018. The court held oral argument on the motion to dismiss on February 6, 2019 and took the matter underadvisement. We deny any allegations of wrongdoing and intend to vigorously defend against these lawsuits. Shareholder Derivative Litigation On July 11, 2017, a purported shareholder derivative lawsuit was filed against certain of our current and formerexecutive officers, certain current and former board members, and us as a nominal defendant, in the United States DistrictCourt for the District of Massachusetts, captioned Robert Corwin v. Sawhney et al., Case No. 1:17-cv-11270. The complaintgenerally alleged that the individual defendants breached fiduciary duties owed to us by making allegedly false and/ormisleading statements concerning the Form 483 related to DEXTENZA and our manufacturing operations forDEXTENZA. The complaint purported to assert claims against the individual defendants for breach of fiduciary duty, andsought to recover on behalf of us for any liability we incur as a result of the individual defendants’ alleged misconduct. Thecomplaint also sought contribution on behalf of us from all individual defendants for their alleged violations of Sections10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The complaint sought declaratory,equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs. On September20, 2017, counsel for the plaintiff filed a notice of voluntary dismissal, stating that the plaintiff wished to coordinate hisefforts and proceed in a consolidated fashion with the plaintiff in a similar derivative suit that was pending in the SuperiorCourt of Suffolk County of the Commonwealth of Massachusetts captioned Angel Madera v. Sawhney et al., Case. No. 17-2273 (which is discussed in the paragraph immediately below) by filing an action in that court subsequent to the dismissal ofthis lawsuit. The Corwin lawsuit was dismissed without prejudice on September 21, 2017. On October 24, 2017, the plaintifffiled a new derivative complaint in Massachusetts Superior Court (Suffolk County), captioned Robert Corwin v. Sawhney etal., Case No. 17-3425 (BLS2). The new Corwin complaint includes allegations similar to those made in the federal courtcomplaint and asserts a derivative claim for breach of fiduciary duty against certain of our current and former officers anddirectors. The complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences FundIV, LP and SV Life Sciences Fund IV Strategic Partners, LP. The complaint also names us as a nominal defendant. On July 19, 2017, a second purported shareholder derivative lawsuit was filed against certain of our current and formerexecutive officers, all current board members, one former board member, and us as a nominal defendant, in the Superior Courtof Suffolk County of the Commonwealth of Massachusetts, captioned Angel Madera v. Sawhney et al., Case. No. 17-2273. The complaint included allegations similar to those made in the Corwin complaint. The complaint purported to assertderivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, grossmismanagement, and waste of corporate assets, and sought to recover on behalf of us for any liability we incur as a result ofthe individual defendants’ alleged misconduct. The complaint sought declaratory, equitable, and monetary relief, anunspecified amount of damages, with interest, and attorneys’ fees and costs. On November 6, 2017, the court dismissed thisaction without prejudice due to plaintiff’s failure to complete service of process within the time permitted under applicablecourt rules. On December 21, 2017, the same plaintiff filed a new derivative complaint in the same court, captioned AngelMadera v. Sawhney et al., Case. No. 17-4126 (BLS2). The new Madera complaint is premised on substantially similarallegations as the previous complaint and purports to assert derivative claims against certain current and former executiveofficers and board members for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and names theCompany as a nominal defendant. Like the new Corwin complaint, the new Madera complaint also asserts an unjustenrichment claim against two additional defendants, SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV StrategicPartners, LP. By order dated January 29, 2018, the court consolidated the state court Corwin and Madera complaints under theCorwin docket and appointed lead counsel for plaintiffs. On February 28, 2018, plaintiffs filed a consolidated amendedcomplaint. The consolidated complaint names substantially the same defendants and is premised on substantially similarallegations as the previous Corwin and Madera complaints, asserting claims for breach of fiduciary duty against theindividual defendants and unjust enrichment against the two SV entity defendants. On April 17, 2018, all defendants serveda motion to dismiss the consolidated amended complaint. On June 22, 2018, plaintiffs served their opposition to the motionto dismiss and a cross-motion to stay the proceedings pending a decision on the motion to dismiss in the above-referencedsecurities class action in the District of Massachusetts. On July 30, 2018, the parties filed a joint123 Table of Contentsmotion to stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action inthe District of Massachusetts. On August 3, 2018, the court granted the motion to stay. On January 31, 2018, a third purported shareholder derivative suit was filed against certain of our current and formerexecutive officers, certain current and former board members, and us as a nominal defendant, in the United States DistrictCourt for the District of Massachusetts, captioned Brian Robinson v. Sawhney et al., Case. No. 1:18-cv-10199. Thecomplaint includes allegations similar to those made in the Corwin and Madera complaints. The complaint does not nameeither SV Life Sciences Fund, IV, LP or SV Life Sciences Fund IV Strategic Partners, LP as defendants, and adds two formerofficers as defendants. The complaint purports to assert derivative claims against the individual defendants for breach offiduciary duty, waste of corporate assets, and unjust enrichment, and seeks to recover on behalf of us for any liability weincur as a result of the individual defendants’ alleged misconduct. The complaint seeks declaratory, equitable, and monetaryrelief, an unspecified amount of damages, with interest, and attorneys’ fees and costs. On April 30, 2018, all defendants fileda motion to dismiss or stay the complaint. Plaintiff filed his opposition on June 22, 2018. On July 26, 2018, the parties fileda joint motion to extend the deadline for defendants to file their reply brief pending the potential substitution of the namedshareholder plaintiff. On August 20, 2018, the parties filed a joint stipulation and proposed order regarding plaintiff’sunopposed request to substitute a new shareholder plaintiff and the parties’ joint request that the court stay the proceedingspending a decision on the motion to dismiss in the above-referenced securities class action in the District ofMassachusetts. On September 4, 2018, the court entered the requested order substituting the named plaintiff and staying thematter. On February 16, 2018, a fourth purported shareholder derivative suit was filed against certain of our current and formerexecutive officers, certain current and former board members, and us as a nominal defendant, in the United States DistrictCourt for the District of Delaware, captioned Terry Kelly v. Sawhney et al., Case. No. 1:18-cv-00277. The complaint includesallegations similar to those made in the Corwin and Madera complaints. The complaint purports to assert derivative claimsagainst the individual defendants for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks torecover on behalf of us for any liability we incur as a result of the individual defendants’ alleged misconduct. The complaintalso asserts an unjust enrichment claim against SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV StrategicPartners, LP. The complaint seeks declaratory, equitable, and monetary relief, an unspecified amount of damages, withinterest, and attorneys’ fees and costs. On June 11, 2018, the parties filed a stipulation staying the lawsuit pending finaljudgment in the consolidated derivative action pending in Massachusetts state court under the Corwin docket, describedabove. The court entered an order staying the case on June 12, 2018. We deny any allegations of wrongdoing and intend to vigorously defend against these lawsuits. In addition, we have received a subpoena from the SEC, dated December 15, 2017, requesting documents andinformation concerning DEXTENZA (dexamethasone insert) 0.4mg, including related communications with the U.S. Foodand Drug Administration, investors and others. The Company received a second subpoena from the SEC on August 21,2018, requesting documents and information concerning its participation in two investor conferences in June 2017. Weintend to fully cooperate with the SEC regarding this non-public, fact-finding inquiry. The SEC has informed us that thisinquiry should not be construed as an indication that any violations of law have occurred or that the SEC has any negativeopinion of any person, entity or security. We are unable to predict the outcome of these lawsuits or proceedings at this time. Moreover, any conclusion of thesematters in a manner adverse to us and for which we incur substantial costs or damages not covered by our directors’ andofficers’ liability insurance would have a material adverse effect on our financial condition and business. In addition, theproceedings could adversely impact our reputation and divert management’s attention and resources from other priorities,including the execution of business plans and strategies that are important to our ability to grow our business, any of whichcould have a material adverse effect on our business. Item 4.Mine Safety Disclosures None.124 Table of Contents PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of EquitySecurities Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “OCUL” since July 25,2014. Holders As of March 1, 2019, there were approximately 34 holders of record of our common stock. This number does notinclude beneficial owners whose shares are held by nominees in street name. Dividends We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash dividendson our common stock in the foreseeable future. In addition, the terms of our existing credit facility preclude us from payingcash dividends without the consent of our lenders. Recent Sales of Unregistered Securities We did not sell any shares of our common stock, shares of our preferred stock or warrants to purchase shares of ourstock, or grant any stock options or restricted stock awards, during the year ended December 31, 2018 that were not registeredunder the Securities Act of 1933, as amended, or the Securities Act, and that have not otherwise been described in an AnnualReport on Form 10-K or a Quarterly Report on Form 10-Q. Purchase of Equity Securities We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form10-K. 125 Table of Contents Item 6. Selected Financial Data The following selected financial data should be read together with our consolidated financial statements and therelated notes appearing elsewhere in this Annual Report on Form 10-K and the “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” section of this Annual Report on Form 10-K. We have derived thestatements of operations data for the years ended December 31, 2018, 2017, and 2016, and the balance sheet data as ofDecember 31, 2018 and 2017 from our audited consolidated financial statements included elsewhere in this Annual Reporton Form 10-K. We have derived the statements of operations data for the years ended December 31, 2015 and 2014 and thebalance sheet data as of December 31, 2016, 2015 and 2014 from our audited consolidated financial statements notincluded in this Annual Report on Form 10-K. Our historical results for any prior period are not necessarily indicative ofresults to be expected in any future period. Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands, except per share data)Statement of Operations Data: Revenue: Product revenue $1,990 $1,923 $1,845 $1,354 $460Collaboration revenue — — 42 396 312Total revenue 1,990 1,923 1,887 1,750 772Costs and operating expenses: Cost of product revenue 465 457 443 319 91Research and development 36,915 30,880 27,065 26,611 18,880Selling and marketing 4,942 17,000 6,701 3,852 1,982General and administrative 18,786 15,509 11,004 9,165 6,913Total costs and operating expenses 61,108 63,846 45,213 39,947 27,866Loss from operations (59,118) (61,923) (43,326) (38,197) (27,094)Other income (expense): Interest income 879 424 304 166 7Interest expense (1,739) (1,892) (1,680) (1,724) (1,119)Other income (expense), net — 5 (1) 7 (442)Total other expense, net (860) (1,463) (1,377) (1,551) (1,554)Net loss (59,978) (63,386) (44,703) (39,748) (28,648)Accretion of redeemable convertible preferred stock toredemption value — — — — (11)Net loss attributable to common stockholders $(59,978) $(63,386) $(44,703) $(39,748) $(28,659)Net loss per share attributable to common stockholders, basicand diluted $(1.57) $(2.20) $(1.80) $(1.71) $(2.69)Weighted average common shares outstanding, basic and diluted 38,115 28,818 24,816 23,244 10,653 As of December 31, 2018 2017 2016 2015 2014 (in thousands)Balance Sheet Data: Cash, cash equivalents and marketable securities $54,062 $41,538 $68,145 $105,064 $74,828Working capital 47,034 29,914 61,598 101,605 70,309Total assets 73,043 55,431 74,939 110,306 78,193Long-term debt, net of discount, including current portion 24,788 18,016 15,643 15,272 14,865Total stockholders’ equity 35,875 26,147 52,008 89,588 58,696 126 Table of Contents Item 7. 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 togetherwith our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of thisAnnual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially fromthe results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a biopharmaceutical company focused on the formulation, development and commercialization of innovativetherapies for diseases and conditions of the eye using our proprietary, bioresorbable hydrogel platform technology. We usethis technology to tailor duration and amount of delivery of a range of therapeutic agents of varying duration in our productcandidates.We currently incorporate U.S. Food and Drug Administration, or FDA, approved therapeutic agents, including smallmolecules and proteins, into our hydrogel technology with the goal of providing local programmed-release of drug to theeye. We believe that our local programmed-release drug delivery technology has the potential to treat conditions anddiseases of both the front and the back of the eye and can be administered through a range of different modalities includingintracanalicular inserts, intracameral implants and intravitreal implants. We have products and product candidates in clinicaland preclinical development applying this technology to treat post-surgical ocular pain and inflammation, allergicconjunctivitis, dry eye disease, glaucoma and ocular hypertension, and wet age-related macular degeneration, or wet AMD,among other conditions.In November 2018 the FDA approved our new drug application, or NDA, for DEXTENZA (dexamethasone ophthalmicinsert) 0.4mg for intracanalicular use for the treatment of ocular pain following ophthalmic surgery. DEXTENZA is the firstFDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocular pain for up to 30 days with asingle administration. We are also evaluating DEXTENZA for the treatment of post-surgical ocular inflammation andallergic conjunctivitis.We are developing our product candidate OTX-TP (intracanalicular travoprost insert) for the reduction of intraocularpressure, or IOP, in patients with glaucoma and ocular hypertension. Both DEXTENZA and OTX-TP are local programmed-release, drug-eluting, preservative-free intracanalicular inserts that are placed into the canaliculus through a natural openingcalled the punctum located in the portion of the lower eyelid near the nose.Our earlier stage assets include two development programs that have initiated clinical trials: OTX-TIC, an intracameraltravoprost implant for the reduction of IOP in patients with glaucoma and ocular hypertension when greater IOP reduction isneeded, and OTX-TKI, an intravitreal injection by fine gauge needle of a hydrogel, anti-angiogenic formulation of a tyrosinekinase inhibitor, or TKI, for the treatment of wet AMD. We also have a collaboration with Regeneron Pharmaceuticals, Inc.,or Regeneron, for the development and potential commercialization of products containing our extended-delivery hydrogelin combination with Regeneron’s VEGF inhibitor, aflibercept, currently marketed under the brand name Eylea.In addition to our ongoing drug product development, we currently market ReSure Sealant, a hydrogel ophthalmicwound sealant approved by the FDA to seal corneal incisions following cataract surgery. ReSure Sealant is the first and onlysurgical sealant to be approved by the FDA for ophthalmic use. DEXTENZA (dexamethasone ophthalmic insert) DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as an active pharmaceutical ingredient into ahydrogel, drug-eluting intracanalicular insert. In November 2018 the FDA approved our NDA for DEXTENZA for thetreatment of post-surgical ocular pain. In connection with our commercial launch of DEXTENZA, we intend to build our ownhighly targeted, key account sales force that will focus on the ambulatory surgical centers responsible for127 ®®®Table of Contentsthe largest volumes of cataract surgery. Following our receipt of FDA approval, we submitted on November 30, 2018 anapplication for a C-code for transitional pass-through payment status and also submitted on December 28, 2018 anapplication for a J-code for permanent payment status.A C-code is a unique temporary pricing code established by the Center for Medicare & Medicaid Services (CMS), for theProspective Payment System and is only valid for claims for hospital outpatient department services and procedures. A J-Code is a permanent code used to report drugs that ordinarily cannot be self-administered. We have completed three Phase 3 clinical trials of DEXTENZA for the treatment of post-surgical ocular pain andinflammation. The data from two of these three completed Phase 3 clinical trials and a prior Phase 2 clinical trial were used tosupport our NDA for post-surgical ocular pain. We submitted an NDA supplement, or sNDA, for DEXTENZA for the treatmentof post-surgical ocular inflammation in January 2019 and expect to hear back from the Food and Drug Administration, orFDA, within approximately ten months. We have also completed two Phase 3 clinical trials of DEXTENZA for the treatmentof allergic conjunctivitis and a Phase 2 clinical trial of DEXTENZA for the treatment of dry eye disease. OTX-TP (intracanalicular travoprost insert) Our product candidate OTX-TP incorporates travoprost, an FDA-approved prostaglandin analog as its activepharmaceutical ingredient that reduces elevated IOP, into a hydrogel, drug-eluting intracanalicular insert. This preservative-free insert is designed to elute drug for up to 90 days. OTX-TP is being developed as a treatment to lower IOP in patients withprimary open angle glaucoma and ocular hypertension. We reported topline results from a Phase 2b clinical trial for thisindication in October 2015. We completed an End-of-Phase 2 review with the FDA in April 2016 and initiated the first of twoplanned Phase 3 clinical trials of OTX-TP in September 2016. Our first Phase 3 trial has completed the target enrollment of550 patients at approximately 50 sites in the United States. We have completed our target enrollment and are not screeningany additional subjects. Based on discussions with the FDA, the first Phase 3 clinical trial design includes an OTX-TPtreatment arm and a placebo-controlled comparator arm that uses a non-drug eluting hydrogel intracanalicular insert. Theprimary efficacy endpoint is superiority in the reduction of IOP from baseline in the OTX-TP treatment arm compared to theplacebo arm at three diurnal time points at each of three measurement dates, 2, 6 and 12 weeks. We expect that the FDA willrequire that OTX-TP show both a statistically superior reduction of IOP compared to the placebo and a clinically meaningfulreduction of IOP prior to granting marketing approval. We expect topline efficacy data from the first Phase 3 clinical trial inthe first half of 2019. We do not intend to initiate the second Phase 3 clinical trial until we review and discuss with the FDAthe data from the first Phase 3 clinical trial. Given the anticipated use of OTX-TP as a chronic therapy, we intend to generatesix-month (300 patients) and one-year (100 patients) safety data to support our product registration. In order to meet thesetargets, we began enrollment in the open-label one-year safety extension study in July 2018. OTX-TIC (intracanalicular travoprost implant) OTX-TIC is our product candidate for glaucoma patients in need of a more significant reduction in IOP and ocularhypertension. OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by aphysician as an intracameral injection with an initial target duration of drug release of four to six months. Preclinical studiesto date have demonstrated reduction of IOP and pharmacokinetics in the aqueous humor that suggest a pharmacodynamicresponse of IOP reduction in humans. Our investigational new drug application, or IND, for our U.S. trial became effective inthe first quarter of 2018, and we dosed the first patient in May 2018. This clinical trial is a multi-center, open-label, dose-escalation, proof-of-concept study designed to evaluate the safety, durability, tolerability, and efficacy of OTX-TIC inpatients with primary open-angle glaucoma or ocular hypertension. We anticipate presenting initial results from this clinicaltrial at the Association of Research and Vision of Ophthalmology meeting in April 2019.Back-of-the-Eye Programs We are engaged in the development of formulations of our hydrogel administered via intravitreal injection to addressthe large and growing markets for diseases and conditions of the back of the eye. Our initial development efforts are focusedon the use of our extended-delivery hydrogel in combination with anti-angiogenic drugs, such as protein-128 Table of Contentsbased anti-VEGF drugs, or small molecule drugs, such as TKIs, for the treatment of retinal diseases such as wet AMD, retinalvein occlusion and diabetic macular edema. Our initial goal for these programs is to provide extended delivery over a four tonine month period thereby reducing the frequency of the current monthly or bi-monthly immediate release intravitrealinjection regimen for wet AMD and other retinal diseases. OTX-TKI (intravitreal tyrosine kinase inhibitor implant) OTX-TKI is a preformed, bioresorbable hydrogel fiber incorporating a small molecule TKI with anti-angiogenic propertiesdelivered by intravitreal injection. TKIs have shown promise in the treatment of wet AMD. In May 2017, we reported datafrom preclinical studies evaluating the efficacy, tolerability and pharmacokinetics of OTX-TKI. In this study, OTX-TKI waswell-tolerated, and high levels of drug were maintained in the tissue for up to twelve months in Dutch belted rabbits. In thefirst quarter of 2019, we dosed two patients in a Phase 1 clinical trial in Australia. This clinical trial is a multi-center, open-label study designed to evaluate the safety, durability and tolerability of OTX-TKI. We also plan to evaluate biologicalactivity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography. Regeneron Collaboration In October 2016, we entered into a strategic collaboration, option and license agreement, or Collaboration Agreement,with Regeneron for the development and potential commercialization of products using our hydrogel in combination withRegeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases, with the initial focus on theVEGF trap aflibercept, currently marketed under the brand name Eylea. The Collaboration Agreement does not cover thedevelopment of any products that deliver small molecule drugs, including TKIs, for any target including VEGF, or anyproducts that deliver large molecule drugs other than those that target VEGF proteins. Under the terms of the CollaborationAgreement, we and Regeneron have agreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept that is suitable for advancement into clinical development. A joint research committeecomprised of an equal number of representatives from each of Regeneron and us is responsible for reviewing, approving andoverseeing the parties’ research and development activities with respect to licensed product candidates and making anymodifications to those activities. In general, Regeneron has final decision-making authority over matters on which the jointresearch committee deadlocks, following escalation to designated executive officer representatives of the parties, except formatters that would impose a material increase in costs or obligations on us beyond those costs and obligations included inthe mutually agreed collaboration plan. We granted Regeneron an option, or the Option, to enter into an exclusive,worldwide license under our intellectual property to develop and commercialize products using our hydrogel in combinationwith Regeneron’s large molecule VEGF-targeting compounds, or Licensed Products. We refer to the formulation we aredeveloping with Regeneron as OTX-IVT.Under the terms of the Collaboration Agreement, Regeneron is responsible for funding an initial preclinical tolerabilitystudy, which it initiated in early 2018. If the Option is exercised, Regeneron will conduct further preclinical developmentand an initial clinical trial under a collaboration plan. We are obligated to reimburse Regeneron for certain developmentcosts during the period through the completion of the initial clinical trial, subject to a cap of $25 million, which cap may beincreased by up to $5 million under certain circumstances. We do not expect our funding requirements under thecollaboration to be material over the next twelve months. If Regeneron elects to proceed with further development beyondthe initial clinical trial, it will be solely responsible for conducting and funding further development and commercializationof product candidates. If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research,develop and commercialize at least one Licensed Product. Such efforts shall include initiating the dosing phase of asubsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or theinitiation of preclinical toxicology studies, subject to certain extensions. Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of theOption. We are also eligible to receive up to $145 million per Licensed Product upon the achievement of specifieddevelopment and regulatory milestones, including successful results from the first-in-human clinical trial, $100 million perLicensed Product upon first commercial sale of such Licensed Product and up to $50 million based on the achievement ofspecified sales milestones for all Licensed Products. In addition, we are entitled to tiered, escalating royalties, in a range froma high-single digit to a low-to-mid teen percentage of net sales of Licensed Products. 129 Table of Contents ReSure SealantFollowing our receipt of FDA approval for ReSure Sealant, we commercially launched this product in the UnitedStates in 2014. ReSure Sealant is approved to seal corneal incisions following cataract surgery and is the first and onlysurgical sealant to be approved by the FDA for ophthalmic use. In the pivotal clinical trials that formed the basis for FDAapproval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure. While ReSureSealant remains commercially available in the United States, there is no sales support currently provided to the product. Wehave received only limited revenues from ReSure Sealant to date and anticipate only limited sales for 2019.The FDA required two post-approval studies as a condition for approval of our premarket approval, or PMA,application for ReSure Sealant. The first post-approval study, identified as the Clinical PAS, was to enroll at least 598patients to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and toconfirm the incidence of the most prevalent adverse ocular events identified in our pivotal study in eyes treated with ReSureSealant. We submitted the final study report of the Clinical PAS to the FDA in June 2016, and the FDA has confirmed theClinical PAS has been completed. The second post-approval study, identified as the Device Exposure Registry Study, isintended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 daysfollowing cataract surgery and application of ReSure Sealant. The Device Exposure Registry Study is required to include atleast 4,857 patients. Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare databaseand lack of investigator interest, we have been unable to enroll trial sites and patients, collect patient data and report studydata to the FDA. We have provided regular periodic reports to the FDA on the progress of this post-approval study.We received a warning letter from the FDA in October 2018 relating to our compliance with data collection andinformation reporting obligations in the Device Exposure Registry Study. The FDA warning letter refers to a lack of progresswith the enrollment and related data collection and information reporting obligations for a required post-approval trial. InNovember 2018, we appealed this warning letter. On December 26, 2018, the FDA rejected our appeal. Failure by us toconduct the required post-approval trial for ReSure Sealant to the FDA’s satisfaction may result in withdrawal of the FDA’sapproval of ReSure Sealant or other regulatory action. We continue to work with FDA to find a path to evaluate theincidence of endophthalmitis in patients receiving ReSure Sealant. ReSure Sealant currently remains commercially availablein the United States, though there is no sales support provided to the product at this time. We have received only limitedrevenues from ReSure Sealant to date and anticipate only limited sales for 2019. Additional Potential Areas for Growth In addition to our focus on formulating, developing and commercializing innovative therapies for diseases andconditions of the eye, we are also assessing the potential use of our hydrogel platform technology in other areas of the body.In September 2018, we entered into a second amended and restated license agreement, or Second AmendedAgreement, with Incept LLC, an intellectual property holding company, or Incept. The Second Amended Agreement amendsand restates in full the Company’s prior amended and restated license agreement with Incept, dated as of January 27, 2012, toexpand the scope of the Company’s intellectual property license to include products delivered for the treatment of acutepost-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions.Financial Position130 ®Table of Contents We have generated limited revenue to date. In the first quarter of 2014, we began recognizing revenue from sales ofReSure Sealant. All of our local programmed-release drug delivery products are in various phases of clinical and preclinicaldevelopment. We do not expect sales of ReSure Sealant to generate revenue that is sufficient for us to achieve profitability.Instead, our ability to generate product revenue sufficient to achieve profitability will depend heavily on our obtainingmarketing approval for and commercializing products with greater market potential, including one or both of DEXTENZAand OTX-TP. Since inception, we have incurred significant operating losses. Our net losses were $60.0 million, $63.4 millionand $44.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had anaccumulated deficit of $297.2 million. Our total cost and operating expenses were $61.1 million, $63.8 million and $45.2 million for the years endedDecember 31, 2018, 2017 and 2016, respectively, including $7.5 million, $7.3 million and $6.0 million, respectively, innon-cash stock-based compensation expense. Our operating expenses have grown as we continue to pursue the clinicaldevelopment of OTX-TP and DEXTENZA for additional indications; continue the research and development of our otherproduct candidates; continue the internal development of our intravitreal hydrogel formulation for the local programmed-release of protein-based or small molecule anti-angiogenic drugs, such as OTX-IVT and OTX-TKI for the treatment of wetAMD and other back-of-the-eye diseases; and seek marketing approval for any such product candidate for which we obtainfavorable pivotal clinical trial results. In August 2017, we updated our DEXTENZA commercial plans and expect to realizesavings in operating expenses, including reduced personnel costs, as a result of streamlining headcount, as part of aninitiative to enhance operations and reduce expenses. As a result, we expect to incur substantial sales and marketingexpenses in connection with the DEXTENZA commercial launch and that of any of our other product candidates. Inaddition, we will continue to incur additional costs associated with operating as a public company. Although, we expect to generate revenue from sales of DEXTENZA and potentially ReSure Sealant, we will need toobtain substantial additional funding in connection with our continuing operations and supporting the commercial launch ofDEXTENZA. If we are unable to access our borrowing capacity or raise capital when needed or on attractive terms, we couldbe forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts or torelinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grantlicenses on terms that may not be favorable to us. Through December 31, 2015, we raised $132.0 million through the sale of common stock in various offerings. InNovember 2016, we entered into a Controlled Equity Offering Sales Agreement, or the 2016 Sales Agreement with CantorFitzgerald & Co., or Cantor, under which we could offer and sell our common stock having aggregate proceeds of up to $40.0million from time to time. Through February 25, 2019, we have sold an aggregate of 6,330,222 shares of common stockunder the 2016 Sales Agreement resulting in net proceeds of approximately $38.4 million after underwriting discounts,commission and other offering expenses. On February 28, 2019, pursuant to the 2016 Sales Agreement, we delivered atermination notice to Cantor, terminating the 2016 Sales Agreement. In January 2017, we completed a follow-on offering ofour common stock at a public offering price of $7.00 per share. The offering consisted of 3,571,429 shares of common stocksold by us. We received net proceeds from the follow-on offering of approximately $23.3 million after deductingunderwriting discounts, commissions and expenses. In January 2018, we completed a follow-on offering of our commonstock at a public offering price of $5.00 per share. The offering consisted of 7,475,000 shares of common stock sold by us,including those shares sold in connection with the exercise by the underwriter of its option to purchase additional shares. Wereceived net proceeds from the follow-on offering of approximately $35.1 million after deducting underwriting discounts andcommissions. In March 2019, we completed a private placement of senior subordinated convertible notes and received netproceeds from the offering of $37.1 million. Based on our current plans and forecasted expenses, we believe that our existingcash and cash equivalents, as of December 31, 2018, together with the net proceeds of our private placement of ConvertibleNotes, without giving effect to any potential payment under our Collaboration Agreement with Regeneron, will enable us tofund our operating expenses, debt service obligations and capital expenditure requirements into early 2020. We have basedthis estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currentlyexpect. See “—Liquidity and Capital Resources.” 131 Table of ContentsFinancial Operations Overview Revenue From our inception through December 31, 2018, we have generated limited amounts of revenue from the sales of ourproducts. Our ReSure Sealant product received premarket approval, or PMA, from the FDA in January 2014. We commencedsales of ReSure Sealant in the first quarter of 2014, have received only limited revenues from ReSure Sealant to date andanticipate only limited sales for 2019. ReSure Sealant is currently our only source of revenue from product sales. We maygenerate revenue in the future if we successfully develop one or more of our product candidates and receive marketingapproval for any such product candidate or if we enter into longer-term collaboration agreements with third parties. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for the development of our productcandidates, which include: ·employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-basedcompensation expense for employees engaged in research and development, clinical and regulatory andother related functions; ·expenses incurred in connection with the clinical trials of our product candidates, including with theinvestigative sites that conduct our clinical trials and under agreements with contract researchorganizations, or CROs; ·expenses relating to regulatory activities, including filing fees paid to the FDA for our submissions forproduct approvals; ·expenses associated with developing our pre-commercial manufacturing capabilities and manufacturingclinical study materials; ·ongoing research and development activities relating to our core bioresorbable hydrogel technology andimprovements to this technology; ·facilities, depreciation and other expenses, which include direct and allocated expenses for rent andmaintenance of facilities, insurance and supplies; ·costs relating to the supply and manufacturing of product inventory, prior to approval by the FDA or otherregulatory 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 anevaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinicalinvestigative sites. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily ofexternal costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinicaltrials and regulatory fees. We do not allocate employee and contractor-related costs, costs associated with our platformtechnology, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, includingdepreciation or other indirect costs, to specific product development programs because these costs are deployed acrossmultiple product development programs and, as such, are not separately classified. We use internal resources in combinationwith third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitorpatient enrollment and perform data analysis for many of our clinical trials. These employees work across multipledevelopment programs and, therefore, we do not track their costs by program. 132 Table of Contents The table below summarizes our research and development expenses incurred by product development program: Year Ended December 31, 2018 2017 2016 (in thousands) ReSure Sealant $189 $126 $236 DEXTENZA for post-surgical ocular pain and inflammation 1,085 1,319 2,686 DEXTENZA for allergic conjunctivitis 20 621 2,815 DEXTENZA for dry eye disease — 6 101 OTX-TP for glaucoma and ocular hypertension 5,305 5,288 1,941 Unallocated expenses 30,316 23,520 19,286 Total research and development expenses $36,915 $30,880 $27,065 We expect that our expenses will increase in connection with our ongoing activities. We estimate that in 2019, we willincur approximately $58.0 million to $64.0 million of research and development expenses, including costs related to clinicaltrials and other research and development activities. Of this amount, we estimate we will incur approximately $13.0 millionto $17.0 million of external research and development expenses related to clinical trial and regulatory costs for DEXTENZA,OTX-TP, OTX-TKI and product candidates and approximately $45.0 million to $47.0 million of other research anddevelopment activities that we do not expect to track by program. In addition, we expect to purchase $5.0 million to $6.0million in manufacturing and research and development capital equipment for our new facility. We estimate that we will incur external research and development expenses for 2019, as follows: ·approximately $4.0 million to $5.0 million for DEXTENZA for post-surgical ocular pain and inflammation;·approximately $4.0 million to $5.0 million for OTX-TP and OTX-TIC for glaucoma and ocular hypertension;·approximately $2.0 million to $3.0 million for OTX-TKI for Wet AMD; and·approximately $3.0 million to $4.0 million for other external research and development activities.The successful development and commercialization of our products or product candidates is highly uncertain. This isdue to the numerous risks and uncertainties associated with product development and commercialization, including theuncertainty of: ·the scope, progress, outcome and costs of our clinical trials and other research and development activities; ·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; ·significant and changing government regulation; and ·the timing, receipt and terms of any marketing approvals. Any changes in the outcome of any of these variables with respect to the development of our product candidates inclinical and preclinical development could mean a significant change in the costs and timing associated with thedevelopment of these product candidates. For example, if the FDA or another regulatory authority were to require us toconduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays inenrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time onthe completion of clinical development of that product candidate. 133 Table of ContentsGeneral and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, including stock-basedcompensation, for personnel in executive, finance and administrative functions. General and administrative expenses alsoinclude facility-related costs and professional fees for legal, patent, consulting and accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount tosupport our continued development and commercialization of our product candidates. We also anticipate to continue toincur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor andpublic relations expenses associated with being a public company. Selling and Marketing Expenses Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketingfunctions as well as consulting and advertising and promotion costs. During the years ended December 31, 2018, 2017 and2016, we incurred selling and marketing expense in connection with ReSure Sealant, which we began commercializing in thefirst quarter of 2014. In 2019, we plan to launch DEXTENZA. As a result, our selling and marketing expenses will increase. Other Income (Expense) Interest income consists primarily of interest income earned on cash and cash equivalents. In each of 2018, 2017, and2016, our interest income has not been significant due to the low rates of interest being earned on our invested balances. Interest expense consists of interest expense on our debt. We borrowed $15.0 million in aggregate principal amount inApril 2014. In December 2015, we amended our credit facility to increase the aggregate principal amount to $15.6 million,extend the interest-only payment period through December 2016, and extend the maturity date to December 1, 2019. InMarch 2017, we amended our credit facility to increase the aggregate principal amount to $18.0 million, extend the interest-only payment period through February 2018, and extend the maturity date to December 1, 2020. In December 2018, weamended our credit facility to increase the aggregate principal amount to $25.0 million, extend the interest-only paymentperiod through December 2020, and extend the maturity date to December 2023. Other Income (Expense), Net. In 2014, other income (expense), net consisted primarily of the gain or loss associatedwith the change in the fair value of our preferred stock warrant liability and small amounts of miscellaneous income andexpense items unrelated to core operations. We issued warrants for the purchase of our redeemable convertible preferred stockthat we believed were financial instruments that could require a transfer of assets because of the redemption feature of theunderlying stock. Therefore, we classified these warrants as liabilities and they were remeasured to fair value at eachreporting period, and we recorded the changes in the fair value as a component of other income (expense), net. Upon theclosing of our IPO in July 2014, the underlying redeemable convertible preferred stock was converted into common stock,the preferred stock warrants became exercisable for common stock instead of preferred stock, and the fair value of the warrantliability became fixed as of that date and was reclassified to additional paid-in capital. In 2016, 2017 and 2018, other income(expense), net consists of small amounts of miscellaneous income and expense items unrelated to our core operations. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States of America. The preparation of our consolidated financial statements and related disclosures requires us tomake estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs andexpenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoingbasis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research anddevelopment expenses and stock-based compensation. We base our estimates on historical experience, known trends andevents and various other factors that we believe are reasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions or conditions. 134 Table of ContentsWhile our significant accounting policies are described in more detail in the notes to our consolidated financialstatements appearing elsewhere in this annual report, we believe the following accounting policies to be most critical to thejudgments and estimates used in the preparation of our consolidated financial statements. Revenue RecognitionOn January 1, 2018, we adopted the new revenue standard, Accounting Standards Codification (“ASC”) 606 –Revenue from Contracts with Customers, which amended revenue recognition principles and provides a single,comprehensive set of criteria for revenue recognition within and across all industries. The adoption of the new revenuestandard did not have a material impact on our consolidated financial statements. This new revenue standard applies to allcontracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance,collaboration arrangements and financial instruments. The new revenue standard provides a five-step framework wherebyrevenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenuerecognition for arrangements that we determine are within the scope of the new revenue standard, we perform the followingfive steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determinethe transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognizerevenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when collectabilityof the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determinedto be probable. At contract inception, once the contract is determined to be within the scope of the new revenue standard, weassess whether the goods or services promised within each contract are distinct and, therefore, represent a separateperformance obligation. Goods and services that are determined not to be distinct are combined with other promised goodsand services until a distinct bundle is identified. We then allocate the transaction price (the amount of consideration weexpect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation andrecognize the associated revenue when (or as) each performance obligation is satisfied.Amounts are recorded as accounts receivable when our right to consideration is unconditional. We do not assesswhether a contract has a significant financing component if the expectation at contract inception is that the period betweenpayment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Weexpense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset thatwe would have recognized is one year or less or the amount is immaterial.We recognize revenue on product sales at the time control of the product transfers to the customer. In substantially allof our arrangements, title of its products transfers at shipping point and, as a result, we determined control transfers at thepoint of shipment. In more limited cases, there are destination-based shipping terms and, thus, control is deemed to transferwhen the product arrives at the customer site. Incremental costs of obtaining a contract are expensed as and when incurred ifthe expected amortization period of the asset that would have been recognized is one year or less. Shipping and handlingcosts are included as a component of cost of product revenue.Payment terms and conditions vary among our customers, although terms generally include a requirement of paymentwithin 30 days of product shipment. Prior to providing payment terms to customers, an evaluation of the customer’s creditrisk is performed. Returns and customer credits are infrequent and insignificant and are recorded as a reduction to sales.Rights of return are not included in sales arrangements and, therefore, there is minimal variable consideration included in thetransaction price of our products. Accrued Research and Development Expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our accruedresearch and development expenses. This process involves reviewing open contracts and purchase orders, communicatingwith our personnel to identify services that have been performed on our behalf and estimating the level of service performedand the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actualcosts. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule orwhen contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expensesas of each balance sheet date in our consolidated financial statements based on facts135 Table of Contentsand circumstances known to us at that time. Examples of estimated accrued research and development expenses include feespaid to: ·investigative sites or other providers in connection with clinical trials; ·vendors in connection with preclinical development activities; ·CROs in connection with clinical trials; and ·vendors related to product manufacturing, development and distribution of clinical supplies. We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuantto contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of theseagreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may beinstances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of theclinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients andthe completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will beperformed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actualtiming of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaidaccordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, ourunderstanding of the status and timing of services performed relative to the actual status and timing of services performedmay vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have notmade any material adjustments to our prior estimates of accrued research and development expenses. Stock-Based Compensation We measure all stock options and other stock-based awards granted to employees and directors at the fair value on thedate of the grant using the Black-Scholes option-pricing model. We recognize the fair value of the awards as expense, net ofestimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Weapply the straight-line method of expense recognition to all awards with service-only conditions. For stock-based awards granted to consultants and nonemployees, we recognize compensation expense over the periodduring which services are rendered by such consultants and nonemployees until completed. At the end of each financialreporting period prior to completion of the service, we remeasure the fair value of these awards using the then-current fairvalue of our common stock and updated assumption inputs in the Black-Scholes option-pricing model. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Use of this modelrequires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Priorto our IPO, we had been a private company and lacked company-specific historical and implied volatility information.Therefore, we estimate our expected volatility based on the historical volatility of a publicly traded group of peer companiesand expect to continue to do so until such time as we have adequate historical data regarding the volatility of our publiclytraded stock price. Beginning in 2016, we estimate our expected volatility using a weighted average of the historicalvolatility of our publicly traded peer companies and the volatility of our common stock, and expect to continue to do sountil such time as we have adequate historical data regarding the volatility of our traded stock price. We use the simplifiedmethod prescribed by Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, tocalculate the expected term of options granted to employees and directors. We base the expected term of options granted toconsultants and nonemployees on the contractual term of the options. We determine the risk-free interest rate by reference tothe U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expectedterm of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect topay any cash dividends in the foreseeable future. 136 Table of ContentsThe assumptions we used to determine the fair value of stock options granted to employees and directors are asfollows, presented on a weighted average basis: Year Ended December 31, 2018 2017 2016 Risk-free interest rate 2.65% 2.00% 1.42%Expected term (in years) 6 6 6 Expected volatility 102% 102% 85%Expected dividend yield —% —% —% These assumptions represented our best estimates, but the estimates involve inherent uncertainties and theapplication of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, ourstock-based compensation expense could be materially different. We recognize compensation expense for only the portion ofawards that are expected to vest. In developing a forfeiture rate estimate for pre-vesting forfeitures, we have considered ourhistorical experience of actual forfeitures. If our future actual forfeiture rate is materially different from our estimate, ourstock-based compensation expense could be significantly different from what we have recorded in the current period. JOBS Act; Smaller Reporting Company Status We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBSAct, and may remain an emerging growth company for up to five years. As an emerging growth company, we are permittedand intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that arenot emerging growth companies. These exemptions include: ·not being required to comply with the auditor attestation requirements in the assessment of our internal controlover financial reporting; ·not being required to comply with any requirement that may be adopted by the Public Company AccountingOversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providingadditional information about the audit and the financial statements; ·reduced disclosure obligations regarding executive compensation; and ·exemptions from the requirements of holding a nonbinding advisory vote on executive compensation andshareholder approval of any golden parachute payments not previously approved. We expect to continue to take advantage of some or all of the available exemptions. We are also a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, asamended. We would cease to be a smaller reporting company if we have a non-affiliate public float in excess of $250 millionand annual revenues in excess of $100 million, or a non-affiliate public float in excess of $700 million, determined on anannual basis. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reportingcompany, which would allow us to take advantage of many of the same exemptions from disclosure requirements. Inaddition to the above reduced disclosure requirements applicable to EGCs, as a smaller reporting company, we are permittedand intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that arenot smaller reporting companies. These exemptions include: ·being permitted to provide only two years of audited consolidated financial statements in this Annual Report onForm 10-K, with correspondingly reduced “Management's Discussion and Analysis of Financial Condition andResults of Operations” disclosure; ·not being required to furnish a contractual obligations table in “Management's Discussion and Analysis ofFinancial Condition and Results of Operations”; and ·not being required to furnish a stock performance graph in our annual report.137 Table of Contents In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transitionperiod for complying with new or revised accounting standards. This allows an emerging growth company to delay theadoption of certain accounting standards until those standards would otherwise apply to private companies. We haveirrevocably elected not to delay such adoption of new or revised accounting standards, and, as a result, we will comply withnew or revised accounting standards on the relevant dates on which adoption of such standards is required for publiccompanies that are not emerging growth companies. Results of Operations Comparison of the Years Ended December 31, 2018 and December 31, 2017 The following table summarizes our results of operations for the years ended December 31, 2018 and 2017: Year Ended December 31, Increase 2018 2017 (Decrease) (in thousands) Revenue: Product revenue $1,990 $1,923 $67 Total revenue 1,990 1,923 67 Costs and operating expenses: Cost of product revenue 465 457 8 Research and development 36,915 30,880 6,035 Selling and marketing 4,942 17,000 (12,058) General and administrative 18,786 15,509 3,277 Total costs and operating expenses 61,108 63,846 (2,738) Loss from operations (59,118) (61,923) 2,805 Other income (expense): Interest income 879 424 455 Interest expense (1,739) (1,892) 153 Other income (expense), net — 5 (5) Total other expense, net (860) (1,463) 603 Net loss $(59,978) $(63,386) $3,408 Revenue We generated $2.0 and $1.9 million of product revenue during the years ended December 31, 2018 andDecember 31, 2017, respectively, from sales of our ReSure Sealant product. The increase in revenue is related to an increasein the total number of units shipped in 2018. 138 Table of ContentsResearch and Development Expenses Year Ended December 31, Increase 2018 2017 (Decrease) (in thousands) Direct research and development expenses by program: ReSure Sealant $189 $126 $63 DEXTENZA for post-surgical ocular pain andinflammation 1,085 1,319 (234) DEXTENZA for allergic conjunctivitis 20 621 (601) DEXTENZA for dry eye disease — 6 (6) OTX-TP for glaucoma and ocular hypertension 5,305 5,288 17 Unallocated expenses: Personnel costs 17,706 15,211 2,495 All other costs 12,610 8,309 4,301 Total research and development expenses $36,915 $30,880 $6,035 Research and development expenses were $36.9 million for the year ended December 31, 2018, compared to $30.9million for the year ended December 31, 2017. The increase of $6.0 million was primarily due to an increase of $6.8 millionin unallocated expenses offset by decreases in clinical trial expenses of $0.8 million. Clinical trial expenses decreased in theyear ended December 31, 2018, compared to the year ended December 31, 2017, primarily due to the timing and number ofclinical trials conducted for DEXTENZA for the treatment of post-surgical ocular pain and inflammation, allergicconjunctivitis and dry eye disease, partially offset by increases in clinical trial expenses related to OTX-TP for the treatmentof glaucoma and ocular hypertension. For the year ended December 31, 2018, we incurred $6.4 million in direct research and development expenses forour intracanalicular insert product candidates, including $1.1 million for DEXTENZA for the treatment of post-surgicalocular pain and inflammation, and $5.3 million for our OTX-TP product candidate for the treatment of glaucoma and ocularhypertension which was in Phase 3 clinical trials. In comparison, for the year ended December 31, 2017, we incurred $7.2million in direct research and development expenses for our intracanalicular insert product candidates, including $5.3million for clinical trials of OTX-TP for glaucoma and ocular hypertension which was in Phase 3 clinical trials, $0.6 millionfor DEXTENZA for the treatment of allergic conjunctivitis which was in Phase 3 clinical trials and $1.3 million forDEXTENZA for ocular pain and inflammation following cataract surgery which was in Phase 3 clinical trials. Unallocatedresearch and development costs increased $6.8 million for the year ended December 31, 2018, compared to the year endedDecember 31, 2017 primarily due to an increase in unallocated personnel costs of $2.5 million, relating to an increase of $2.5million from additional hiring primarily in our clinical, regulatory and quality department, $2.1 million increase inprofessional services, and an increase in facility related costs of $1.8 million. Selling and Marketing Expenses Year Ended December 31, Increase 2018 2017 (Decrease) (in thousands) Personnel related (including stock-based compensation) $1,732 $5,715 $(3,983) Professional fees 2,563 10,296 (7,733) Facility related and other 647 989 (342) Total selling and marketing expenses $4,942 $17,000 $(12,058) Selling and marketing expenses were $4.9 million for the year ended December 31, 2018, compared to $17.0 millionfor the year ended December 31, 2017. The decrease of $12.1 million was primarily due to a decrease of $4.0 million inpersonnel costs, a decrease of $7.7 million in professional fees due to decreased spending on external costs and $0.3 millionin facility-related and other costs. The decrease overall was driven by a delay in the anticipated 2017 launch of DEXTENZAthat is now projected to take place in the middle of 2019. 139 Table of ContentsWe therefore expect our selling and marketing expenses to increase in 2019 and beyond, due to the approval ofDEXTENZA as we support the commercial launch. In August 2017, we reorganized our DEXTENZA commercial plans andrealized savings in operating expenses, including reduced personnel costs, as a result of streamlining headcount, as part of aninitiative to enhance operations and reduce expenses. General and Administrative Expenses Year Ended December 31, Increase 2018 2017 (Decrease) (in thousands) Personnel related (including stock-based compensation) $8,367 $8,353 $14 Professional fees 8,761 5,463 3,298 Facility related and other 1,658 1,693 (35) Total general and administrative expenses $18,786 $15,509 $3,277 General and administrative expenses were $18.8 million for the year ended December 31, 2018, compared to $15.5million for the year ended December 31, 2017. The increase of $3.3 million was primarily due to an increase of $3.3 millionin professional fees related to our defense in legal proceedings. Other Income (Expense), Net Other expense, net was $0.9 million for the year ended December 31, 2018, compared to $1.5 million for the yearended December 31, 2017. Comparison of the Years Ended December 31, 2017 and December 31, 2016 The following table summarizes our results of operations for the years ended December 31, 2017 and 2016: Year Ended December 31, Increase 2017 2016 (Decrease) (in thousands)Revenue: Product revenue $1,923 $1,845 $78Collaboration revenue — 42 (42)Total revenue 1,923 1,887 36Costs and operating expenses: Cost of product revenue 457 443 14Research and development 30,880 27,065 3,815Selling and marketing 17,000 6,701 10,299General and administrative 15,509 11,004 4,505Total costs and operating expenses 63,846 45,213 18,633Loss from operations (61,923) (43,326) (18,597)Other income (expense): Interest income 424 304 120Interest expense (1,892) (1,680) (212)Other income (expense), net 5 (1) 6Total other expense, net (1,463) (1,377) (86)Net loss $(63,386) $(44,703) $(18,683) Revenue We generated $1.9 and $1.8 million of product revenue during the years ended December 31, 2017 andDecember 31, 2016, respectively, from sales of our ReSure Sealant product. The increase in revenue is related to an increasein the total number of units shipped in 2017. We generated $42,000 of revenue from our collaboration agreements in 2016. 140 Table of ContentsResearch and Development Expenses Year EndedDecember 31, Increase 2017 2016 (Decrease) (in thousands)Direct research and development expenses by program: ReSure Sealant $126 $236 $(110)DEXTENZA for post-surgical ocular pain and inflammation 1,319 2,686 (1,367)DEXTENZA for allergic conjunctivitis 621 2,815 (2,194)DEXTENZA for dry eye disease 6 101 (95)OTX-TP for glaucoma and ocular hypertension 5,288 1,941 3,347Unallocated expenses: Personnel costs 15,211 11,630 3,581All other costs 8,309 7,656 653Total research and development expenses $30,880 $27,065 $3,815 Research and development expenses were $30.9 million for the year ended December 31, 2017, compared to $27.1million for the year ended December 31, 2016. The increase of $3.8 million was primarily due to an increase of $4.2 millionin unallocated expenses offset by decreases in clinical trial expenses of $0.3 million and expenses related to ReSure Sealantof $0.1 million. Clinical trial and regulatory expenses decreased in the year ended December 31, 2017, compared to the yearended December 31, 2016, primarily due to the timing and number of clinical trials being conducted for DEXTENZA for thetreatment of post-surgical ocular pain and inflammation, allergic conjunctivitis and dry eye disease, partially offset byincreases in clinical trial expenses related to OTX-TP for the treatment of glaucoma and ocular hypertension. For the year ended December 31, 2017, we incurred $7.2 million in direct research and development expenses forour intracanalicular insert product candidates, including $1.3 million for DEXTENZA for the treatment of post-surgicalocular pain and inflammation which was in Phase 3 clinical trials, $0.6 million for DEXTENZA for the treatment of allergicconjunctivitis which was in Phase 3 clinical trials, and $5.3 million for our OTX-TP product candidate for the treatment ofglaucoma and ocular hypertension which was in Phase 3 clinical trials. In comparison, for the year ended December 31, 2016,we incurred $7.6 million in direct research and development expenses for our intracanalicular insert product candidates,including $2.0 million for clinical trials of OTX-TP for glaucoma and ocular hypertension which was in Phase 3 clinicaltrials, $2.8 million for DEXTENZA for the treatment of allergic conjunctivitis which was in Phase 3 clinical trials and $2.7million for DEXTENZA for ocular pain and inflammation following cataract surgery which was in Phase 3 clinical trials and$0.1 million for DEXTENZA for the treatment of dry eye disease which was in Phase 2 clinical trials. Unallocated researchand development costs increased $4.2 million for the year ended December 31, 2017, compared to the year endedDecember 31, 2016 primarily due to an increase in unallocated personnel costs of $3.6 million, relating to an increase of $2.2million from additional hiring primarily in our clinical, regulatory and quality department, $0.7 million increase inrestructuring and other costs, and an increase in stock-based compensation expense of $0.7 million. Selling and Marketing Expenses Year EndedDecember 31, Increase 2017 2016 (Decrease) (in thousands) Personnel related (including stock-based compensation) $5,715 $2,580 $3,135 Professional fees 10,296 2,993 7,303 Facility related and other 989 1,128 (139) Total selling and marketing expenses $17,000 $6,701 $10,299 Selling and marketing expenses were $17.0 million for the year ended December 31, 2017, compared to $6.7 millionfor the year ended December 31, 2016. The increase of $10.3 million was primarily due to an increase of $1.7 million inpersonnel costs and increase of $1.4 million of severance related costs, an increase of $7.3 million in professional fees due toincreased spending on external costs offset by a decrease of $0.1 million in facility-related and other costs. The increase inconsulting expenses was primarily due to marketing activities that were undertaken in141 Table of Contentspreparation for a potential launch of DEXTENZA for the treatment of post-surgical ocular pain subject to our obtaining FDAapproval. In August 2017, we reorganized our DEXTENZA commercial plans and expect to realize savings in operatingexpenses, including reduced personnel costs, as a result of streamlining headcount, as part of an initiative to enhanceoperations and reduce expenses. General and Administrative Expenses Year EndedDecember 31, Increase 2017 2016 (Decrease) (in thousands)Personnel related (including stock-based compensation) $8,353 $6,184 $2,169Professional fees 5,463 3,732 1,731Facility related and other 1,693 1,088 605Total general and administrative expenses $15,509 $11,004 $4,505 General and administrative expenses were $15.5 million for the year ended December 31, 2017, compared to $11.0million for the year ended December 31, 2016. The increase of $4.5 million was due to a $2.2 million increase in personnelrelated costs and an increase of $1.7 million in professional fees, and an increase of $0.6 million in facility-related and othercosts. Our personnel related costs increased primarily due $1.2 million relating to additional hiring, $0.4 million ofseverance related costs related to the termination our former chief operating officer, and an increase in stock compensationexpense of $0.5 million. Professional fees increased primarily due to an increase of $0.7 million relating to recruiting andrelocation fees, $0.6 million in legal costs and $0.4 million related to consulting fees. Other Income (Expense), Net Other expense, net was $1.5 million for the year ended December 31, 2017, compared to $1.4 million for the yearended December 31, 2016. Liquidity and Capital Resources Since inception, we have incurred significant operating losses. Our net losses were $60.0 million, $63.4 million and$44.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had anaccumulated deficit of $297.2 million. We have generated limited revenue to date. In the first quarter of 2014, we began recognizing revenue from sales ofReSure Sealant. All of our local programmed-release drug delivery products are in various phases of clinical and preclinicaldevelopment. We do not expect sales of ReSure Sealant to generate revenue that is sufficient for us to achieve profitability.Instead, our ability to generate product revenue sufficient to achieve profitability will depend heavily on our obtainingmarketing approval for and commercializing products with greater market potential, including DEXTENZA and OTX-TP. Through December 31, 2018, we have financed our operations primarily through private placements of our preferredstock, public offerings of our common stock and borrowings under credit facilities. In July 2014, we completed our IPO, andin August 2014 the underwriters in our IPO exercised their over-allotment option in full. We received total net proceeds ofapproximately $66.4 million from the issuance and sale of 5,750,000 shares of common stock, including in connection withthe exercise by the underwriters of their over-allotment option, after deducting underwriting discounts and offering costs. InJune 2015, we completed a follow-on offering of our common stock at a public offering price of $22.00 per share. Theoffering consisted of 4,600,000 shares of common stock, of which 3,200,000 shares were issued and sold by us and 1,400,000shares were sold by certain stockholders, including those shares sold in connection with the exercise by the underwriters oftheir option to purchase additional shares. We received net proceeds from the follow-on offering of approximately $65.6million after deducting underwriting discounts and commissions, and offering expenses. In November 2016, we entered intothe 2016 Sales Agreement with Cantor, under which we could offer and sell our common stock having aggregate proceeds ofup to $40.0 million from time to time. Through February 25, 2019, we have sold an aggregate of 6,330,222 shares ofcommon stock under the 2016 Sales Agreement resulting in net proceeds of approximately $38.4 million after underwritingdiscounts, commission and other offering expenses. On February 28, 2019, pursuant to the 2016 Sales Agreement, wedelivered a termination notice to Cantor, terminating the142 Table of Contents2016 Sales Agreement. In January 2017, we completed a follow-on offering of our common stock at a public offering price of$7.00 per share. The offering consisted of 3,571,429 shares of common stock sold by us. We received net proceeds from thefollow-on offering of approximately $23.3 million after deducting underwriting discounts, commissions and expenses. InJanuary 2018, we completed a follow-on offering of our common stock at a public offering price of $5.00 per share. Theoffering consisted of 7,475,000 shares of common stock sold by us, including those shares sold in connection with theexercise by the underwriter of its option to purchase additional shares. We received net proceeds from the follow-on offeringof approximately $35.1 million after deducting underwriting discounts and commissions. As of December 31, 2018, we had cash and cash equivalents of $54.1 million. In March 2019, we completed a privateplacement of senior subordinated convertible notes and received net proceeds from the offering of $37.1 million. As of December 31, 2018, we had outstanding debt of $25.0 million. In April 2014, we borrowed $15.0 million inaggregate principal amount under a new credit facility and used $1.9 million of this amount to repay $1.7 million aggregateprincipal amount of indebtedness and pay $0.2 million of other amounts due in connection with our termination of a priorcredit facility. In December 2015, we amended our credit facility to increase the aggregate principal amount to $15.6 million,extend the interest-only payment period through December 2016, and extend the maturity date to December 1, 2019. Theoutstanding borrowings under this facility bear interest at an annual rate equal to 8.25%. In March 2017, we amended thecredit facility to increase the total indebtedness to $18.0 million. The interest-only payment period was extended throughFebruary 1, 2018. In December 2018, we amended the credit facility to increase the total indebtedness to $25.0 million. Theinterest-only payment period was extended through December 2020. In March 2019, we also issued $37.5 million aggregateprincipal amount of senior subordinated convertible notes that mature in 2026. See “—Contractual Obligations andCommitments” for additional information. Cash Flows As of December 31, 2018, we had cash and cash equivalents of $54.1 million and outstanding debt of $25.0 million.Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view toliquidity and capital preservation. Based on our current plans and forecasted expenses, we believe that our existing cash andcash equivalents, as of December 31, 2018, together with the net proceeds from our private placement of convertible notes,without giving effect to any potential payment under our Collaboration Agreement with Regeneron, will enable us to fundour operating expenses, debt service obligations and capital expenditure requirements into early 2020. We have based thisestimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currentlyexpect. These factors, and the factors described above, continue to raise substantial doubt about our ability to continue as agoing concern. The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2018 2017 2016 (in thousands) Cash used in operating activities $(49,227) $(50,473) $(34,001) Cash (used in) provided by investing activities (1,889) 27,067 35,568 Cash provided by financing activities 68,640 32,008 585 Net increase in cash and cash equivalents $17,524 $8,602 $2,152 Operating activities. Net cash used in operating activities was $49.2 million for the year ended December 31, 2018,primarily resulting from our net loss of $60.0 million, partially offset by non-cash charges of $10.2 million and cash providedby changes in our operating assets and liabilities of $0.6 million. Our net loss was primarily attributed to research anddevelopment activities and our general and administrative expenses partially offset by $2.0 million of revenue in the period.Our net non-cash charges during the year ended December 31, 2018 primarily consisted of $7.5 million of stock-basedcompensation expense and $2.3 million of depreciation expense. Net cash provided by changes in our operating assets andliabilities during the year ended December 31, 2018 consisted primarily of a $1.7 million increase in accrued expenses anddeferred rent and a $0.8 million decrease in accounts payable, which was due to the timing of vendor invoicing andpayments. 143 Table of ContentsNet cash used in operating activities was $50.5 million for the year ended December 31, 2017, primarily resulting fromour net loss of $63.4 million, partially offset by non-cash charges of $9.4 million and cash provided by changes in ouroperating assets and liabilities of $3.6 million. Our net loss was primarily attributed to research and development activitiesand our general and administrative expenses partially offset by $1.9 million of revenue in the period. Our net non-cashcharges during the year ended December 31, 2017 primarily consisted of $7.3 million of stock-based compensation expenseand $1.6 million of depreciation expense. Net cash provided by changes in our operating assets and liabilities during theyear ended December 31, 2017 consisted primarily of a $2.6 million increase in accrued expenses and deferred rent and a$0.9 million increase in accounts payable, which was due to the timing of vendor invoicing and payments. Net cash used in operating activities was $34.0 million for the year ended December 31, 2016, primarily resulting fromour net loss of $44.7 million, partially offset by non-cash charges of $7.2 million and cash provided by changes in ouroperating assets and liabilities of $2.1 million. Our net loss was primarily attributed to research and development activitiesand our general and administrative expenses partially offset by $1.9 million of revenue in the period. Our net non-cashcharges during the year ended December 31, 2016 primarily consisted of $6.0 million of stock-based compensation expenseand $0.9 million of depreciation expense. Net cash provided by changes in our operating assets and liabilities during theyear ended December 31, 2016 consisted primarily of a $1.4 million increase in accrued expenses and deferred rent, a $0.9million decrease in prepaid expenses and other current assets, and a $0.2 million increase in accounts payable, which was dueto the timing of vendor invoicing and payments. Investing activities. Net cash used in investing activities was $1.9 million for the year ended December 31, 2018,consisting of cash used to purchase property and equipment of $1.9 million. Net cash provided by investing activities was$27.1 million for the year ended December 31, 2017 consisted of maturities of marketable securities of $38.2 million offsetby cash used to purchase property and equipment of $8.3 million and cash used to purchase marketable securities of $3.0million. Net cash provided by investing activities for the year ended December 31, 2016 consisted of maturities ofmarketable securities of $80.7 million offset by cash used to purchase property and equipment of $1.9 million and cash usedto purchase marketable securities of $41.7 million. Financing activities. Net cash provided by financing activities for 2018 was $68.6 million and consisted primarily ofproceeds from our follow-on offering in January 2018 of $34.7 and the 2016 Sales Agreement of $26.9 million, net ofunderwriting discounts and other offering expenses, $6.4 million (net) in borrowings under our amended credit facility,proceeds from the exercise of common stock options of $0.4 million; and proceeds from issuance of common stock pursuantto our employee stock purchase plan of $0.3 million. Net cash provided by financing activities for 2017 was $32.0 millionand consisted primarily of proceeds from our follow-on offering in January 2017 of $23.3 and the 2016 Sales Agreement of$5.9 million, net of underwriting discounts and other offering expenses, $2.4 million (net) in borrowings under our amendedcredit facility, proceeds from the exercise of common stock options of $0.7 million; and proceeds from issuance of commonstock pursuant to our employee stock purchase plan of $0.3 million partially offset by payments of $0.6 million for insurancecosts financed by a third party. Net cash provided by financing activities for 2016 was $0.6 million and consisted primarilyof proceeds of $0.6 million, net of underwriting discounts and other offering expenses, related to the 2016 Sales Agreement,proceeds from the exercise of common stock options of $0.2 million; and proceeds from issuance of common stock pursuantto our employee stock purchase plan of $0.3 million partially offset by payments of $0.5 million for insurance costs financedby a third party. Funding Requirements We expect to continue to incur losses in connection with our ongoing activities, particularly as we advance the clinicaltrials of our products in development and increase our sales and marketing resources focused on the potential launch of ourproduct candidates, subject to receiving FDA approval. We anticipate we will incur substantial expenses if and as we: ·commercially launch DEXTENZA in the United States; ·continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any of our product candidates; 144 Table of Contents·continue to pursue the clinical development of our most advanced intracanalicular insert productcandidates, OTX-TP and DEXTENZA in additional indications; ·continue clinical trials of our product candidates OTX-TIC and OTX-TKI; ·conduct joint research and development under our strategic collaboration with Regeneron, for thedevelopment and potential commercialization of products containing our extended-delivery hydrogelformulation in combination with Regeneron’s large molecule, VEGF-targeting compounds to treat retinaldiseases; ·continue the research and development of our other product candidates; ·seek to identify and develop additional product candidates, including through additional preclinicaldevelopment activities associated with our back-of-the-eye program and glaucoma intracameral implantprogram and potential opportunities outside the field of ophthalmology; ·seek marketing approvals for any of our product candidates that successfully complete clinicaldevelopment; ·scale up our manufacturing processes and capabilities to support sales of commercial products, ourongoing clinical trials of our product candidates and commercialization of any of our product candidatesfor which we obtain marketing approval, and expand our facilities to accommodate this scale up and theexpected growth in personnel; ·renovate our new facility including research and development laboratories, manufacturing space andoffice space; ·maintain, expand and protect our intellectual property portfolio; ·expand our operational, financial and management systems and personnel, including personnel tosupport our clinical development, manufacturing and commercialization efforts and our operations as apublic company;·defend ourselves against legal proceedings; ·increase our product liability and clinical trial insurance coverage as we expand our clinical trials andcommercialization efforts; and ·continue to operate as a public company. Based on our current plans and forecasted expenses, we believe that our existing cash and cash equivalents, as ofDecember 31, 2018, together with the net proceeds from our private placement of convertible notes, without giving effect toany potential payment under our Collaboration Agreement with Regeneron, will enable us to fund our operating expenses,debt service obligations and capital expenditure requirements into early 2020. We have based this estimate on assumptionsthat may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: ·our ability to successfully commercialize and sell DEXTENZA in the United States; ·the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA orother regulatory authorities; ·the level of product sales from DEXTENZA and any additional products for which we obtain marketingapproval in the future; 145 Table of Contents·the costs of manufacturing, sales, marketing, distribution and other commercialization efforts with respectto DEXTENZA and any additional products for which we obtain marketing approval in the future; ·the costs of expanding our facilities to accommodate our manufacturing needs and expected growth inpersonnel; ·the progress, costs and outcome of the clinical trials of our extended-delivery drug delivery productcandidates, in particular OTX-TP and DEXTENZA for additional indications; ·the progress and status of our collaboration with Regeneron, including any development costs for whichwe reimburse Regeneron, the potential exercise by Regeneron of its option for a license for thedevelopment and potential commercialization of products containing our extended-delivery hydrogelformulation in combination with Regeneron’s large molecule VEGF-targeting compounds, and ourpotential receipt of future milestone payments from Regeneron; ·the costs of advancing our internal development efforts for the back-of-the-eye small molecule TKIprogram through the remaining preclinical steps and potentially into an initial clinical trial; ·the scope, progress, costs and outcome of preclinical development and clinical trials of our other productcandidates; ·the extent of our debt service obligations; ·the amounts we receive, if any, from Regeneron for option exercise, development, regulatory and salesmilestones and royalty payments under our collaboration; ·the extent to which we choose to establish additional collaboration, distribution or other marketingarrangements for our products and product candidates; ·the costs and outcomes of legal actions and proceedings, including the current lawsuits described under“Item 3 — Legal Proceedings”; ·the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcingour intellectual property rights and defending any intellectual property-related claims; and ·the extent to which we acquire or invest in other businesses, products and technologies. Until such time, if ever, as we can generate product revenues sufficient to achieve profitability, we expect to financeour cash needs through equity offerings, debt financings, government or other third-party funding, collaborations, strategicalliances, licensing arrangements and marketing and distribution arrangements. We do not have any committed externalsource of funds other than amounts we may receive from Regeneron for potential option exercise, development, regulatoryand sales milestones and royalties under our collaboration. To the extent that we raise additional capital through the sale ofequity or convertible debt securities, each security holder’s ownership interest will be diluted, and the terms of thesesecurities may include liquidation or other preferences that adversely affect each security holder’s rights as a commonstockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenantslimiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures ordeclaring dividends. The covenants under our existing credit facility, the pledge of our assets as collateral and the negativepledge of intellectual property limit our ability to obtain additional debt financing. If we raise additional funds throughgovernment or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing anddistribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, researchprograms or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additionalfunds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or future commercialization efforts or grant rights to develop and market products or product candidates that wewould otherwise prefer to develop and market ourselves. 146 Table of ContentsAs discussed in Note 1 of the Notes to the Consolidated Financial Statements under Accounting Standards Update,or ASU, 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40), or, ASC 205-40, we have theresponsibility to evaluate whether conditions or events raise substantial doubt about our ability to meet our future financialobligations as they become due within one year after the date the financial statements are issued. Under ASC 205-40, thisevaluation initially cannot take into consideration the potential mitigating effects of plans that have not been fullyimplemented as of the date the financial statements are issued. Since we currently anticipate that our existing capitalresources, together with the net proceeds from our private placement of convertible notes, without giving effect to anypotential payment under our Collaboration Agreement with Regeneron, will enable us to meet our planned operationalexpenses, debt service obligations, and capital expenditures, based on our current operating plans, into early 2020, we havedetermined that this cash runway of less than 12 months along with our accumulated deficit, history of losses, and futureexpected losses meet the ASC 205-40 standard for raising substantial doubt about our ability to continue as a going concernwithin one year of the issuance date of these financial statements. While we have plans in place to mitigate this risk, whichprimarily consist of raising additional capital through a combination of equity or debt financings, and, depending on theavailability and level of additional financings, potentially new collaborations and reducing cash expenditures, there is noguarantee that we will be successful in these mitigation efforts Since our inception in 2006, we have not recorded any U.S. federal or state income tax benefits for the net losses wehave incurred in each year or our earned research and development tax credits, due to our uncertainty of realizing a benefitfrom those items. As of December 31, 2018, we had federal net operating loss carryforwards of $190.6 million, which begin toexpire in 2026, and state net operating loss carryforwards of $161.8 million, which begin to expire in 2026. As ofDecember 31, 2018, we also had federal research and development tax credit carryforwards of $7.0 million and state researchand development tax credit carryforwards $3.6 million, which begin to expire in 2026 and 2025, respectively. We have notcompleted a study to assess whether an ownership change, generally defined as a greater than 50% change (by value) in theequity ownership of our corporate entity over a three-year period, has occurred or whether there have been multipleownership changes since our inception, due to the significant costs and complexities associated with such studies.Accordingly, our ability to utilize our tax carryforwards may be limited. Additionally, U.S. tax laws limit the time duringwhich these carryforwards may be utilized against future taxes. As a result, we may not be able to take full advantage of thesecarryforwards for federal and state tax purposes. Contractual Obligations and Commitments The following table summarizes our contractual obligations at December 31, 2018 and the effects such obligationsare expected to have on our liquidity and cash flow in future periods: Less Than 1 to 3 3 to 5 More than Total 1 Year Years Years 5 Years (in thousands)Operating lease commitments $14,434 $1,808 $3,736 $3,666 $5,224Purchase commitments 3,504 1,930 1,444 130 —Manufacturing commitments 66 66 — — —Debt obligations including interest 34,638 2,474 12,908 19,256 —Total $52,642 $6,278 $18,088 $23,052 $5,224 In the table above, we set forth our enforceable and legally binding obligations and future commitments atDecember 31, 2018, as well as obligations related to contracts that we are likely to continue, regardless of the fact that theymay be cancelable at December 31, 2018. Some of the figures that we include in this table are based on management’sestimates and assumptions about these obligations, including their duration, and other factors. Because these estimates andassumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those reflectedin the table. Operating lease commitments represent payments due under our leases of office, laboratory and manufacturing space inBedford, Massachusetts and certain office equipment under operating leases that expire in July 2023 and July 2027. In June 2016, we entered into a lease agreement for approximately 70,712 square feet of general office, research anddevelopment and manufacturing space. The lease term commenced on February 1, 2017 and expires on July 31, 2027. Nobase rent was due under the lease until August 1, 2017. The initial annual base rent is approximately $1.2 million and willincrease annually beginning on February 1 of each year. We are obligated to pay all real estate taxes147 Table of Contentsand costs related to the premises, including costs of operations, maintenance, repair, and replacement and management of thenew leased premises. We posted a customary letter of credit in the amount of $1.5 million as a security deposit. We relocatedour corporate headquarters to the new leased premises in June 2017 and are evaluating the potential relocation of ourmanufacturing operations to the new leased premises. The lease agreement allowed for a construction allowance not toexceed approximately $2.8 million to be applied to the total construction costs of the new leased premises. The constructionallowance had to be used before December 31, 2017, or it would be deemed forfeited with no further obligation by thelandlord of the new leased premises. As of December 31, 2017, we billed the landlord for $2.7 million and subsequently, wehave received payments of $2.7 million from the landlord. We forfeited $0.1 million under the construction allowance. On October 10, 2017, we entered into an amendment to the lease agreement for our laboratory and manufacturing spacelocated at 34 Crosby Drive and 36 Crosby Drive, each in Bedford, Massachusetts, which we refer to as the SecondAmendment. The Second Amendment extends the term of our lease for 36 Crosby Drive from June 30, 2018 to July 31,2023. Further, the Second Amendment acknowledges that we have previously vacated and surrendered, and the lease hasexpired with regards to 34 Crosby Drive, reducing the total laboratory and manufacturing space subject to the lease to 20,445square feet. Accordingly, the Second Amendment reduces the required security deposit under the lease from $0.2 million to$0.1 million. Under the Second Amendment, the annual base rent for 36 Crosby Drive shall be approximately $0.5 millionuntil June 30, 2018, shall be $0 from July 1, 2018 to July 31, 2018, and shall be approximately $0.5 million from August 1,2018 to July 31, 2019. The annual base rent shall increase annually thereafter. The Second Amendment also provides us aone-time option to terminate the Lease on July 31, 2021, upon the delivery to the landlord on or before July 31, 2020, of atermination notice and the payment to the landlord of a termination fee of approximately $0.3 million. Purchase commitments represent non-cancelable contractual commitments associated with certain clinical trialactivities with our CROs. Manufacturing commitments generally provide for termination on notice, and therefore are cancelable contracts butare contracts that we are likely to continue, regardless of the fact that they are cancelable. We enter into contracts in the normal course of business to assist in the performance of our research anddevelopment activities and other services and products for operating purposes. These contracts generally provide fortermination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations andcommitments. In April 2014, we entered into a credit facility with Silicon Valley Bank and MidCap Financial SBIC, LP, pursuantto which we were able to borrow an aggregate principal amount of up to $20.0 million, of which we borrowed $15.0 million.We did not borrow the remaining $5.0 million, and this amount is no longer available to us. The credit facility carries a fixedannual interest rate of 8.25% on outstanding borrowings. In April 2014, we issued the lenders warrants to purchase 100,000shares of our Series D-1 redeemable convertible preferred stock with an exercise price of $3.00 per share. Upon the closing ofour IPO in July 2014, the preferred stock warrants became warrants to purchase an aggregate of 37,878 shares of our commonstock with an exercise price of $7.92 per share. In December 2015, we amended the credit facility to increase the aggregate principal amount to $15.6 million tocapitalize certain accrued interest. The amended facility provides for monthly, interest-only payments on outstandingborrowings through December 2016. Thereafter, we were required to pay thirty-six consecutive, equal monthly installmentsof principal and interest through December 1, 2019. In March 2017, we further amended the credit facility to $18.0 million ofborrowings. The interest-only payment period was extended through February 1, 2018. There are no financial covenantsassociated with the credit facility. In December 2018, we further amended the credit facility to increase the aggregateprincipal amount borrowed to $25.0 million. The interest-only payments was extended through December2020. Commencing in January 2021, we are required to make 36 equal monthly installments of principal in the amount of$0.7 million, plus interest, through December 2023. Under the December 2018 amendment, we are required to maintain aminimum of $5.0 million of cash and/or cash equivalents on hand as a financial covenant to the borrowingarrangement. There are no other financial covenants associated with the amended facility; however, there are negativecovenants restricting our activities, including limitations on dispositions, mergers or acquisitions; incurring indebtedness, liens or encumbrances; paying dividends; making certain investments; and engaging in certain other businesstransactions. The obligations under the amended facility are subject to acceleration upon the occurrence of148 Table of Contentsspecified events of default, including a material adverse change in our business, operations or financial or othercondition. The debt is collateralized by a first-priority lien on all of our assets, including our intellectual property. In connection with our entry into the Purchase Agreement, as described below, in February 2019, we furtheramended the credit facility to permit our issuance and sale of the Notes in March 2019. The February amendment added,among other provisions, a negative covenant restricting us from paying the holders of the Notes ahead in priority to thesenior lenders, for so long as indebtedness remains outstanding under the Credit Facility, and a cross-default provision toestablish that an event of default under the Purchase Agreement also constituted an event of default under the credit facility. We have in-licensed a significant portion of our intellectual property from Incept, an intellectual property holdingcompany, under an amended and restated license agreement that we entered into with Incept in January 2012. We areobligated to pay Incept a royalty equal to a low single-digit percentage of net sales made by us or our affiliates of anyproducts covered by the licensed technology. Any sublicensee of ours also will be obligated to pay Incept a royalty equal toa low single-digit percentage of net sales made by it and will be bound by the terms of the agreement to the same extent as weare. We are obligated to reimburse Incept for our share of the reasonable fees and costs incurred by Incept in connection withthe prosecution of the patent applications licensed to us under the agreement. Our share of these fees and costs is equal to thetotal amount of such fees and costs divided by the total number of Incept’s exclusive licensees of the patent application. Wehave not included in the table above any payments to Incept under this license agreement as the amount, timing andlikelihood of such payments are not known. In October 2016, we entered into the Collaboration Agreement with Regeneron. If the Option is exercised, Regeneronwill conduct further preclinical development and an initial clinical trial under a collaboration plan. We are obligated toreimburse Regeneron for certain development costs during the period through the completion of the initial clinical trial,subject to a cap of $25.0 million, which cap may be increased by up to $5.0 million under certain circumstances. We havenot included in the table above any payments to Regeneron under this Collaboration Agreement as the timing of suchpayments are not known. Regeneron will be responsible for funding an initial preclinical tolerability study, whichRegeneron initiated in early 2018. We do not expect our funding requirements under our collaboration with Regeneron to bematerial over the next twelve months. If Regeneron elects to proceed with further development beyond the initial clinicaltrial, it will be solely responsible for conducting and funding further development and commercialization of productcandidates. In February 2019, we entered into a note purchase agreement, or the Purchase Agreement, with Cap 1 LLC, an affiliateof Summer Road LLC, or the Purchaser, to issue and sell to the Purchaser unsecured senior subordinated convertible notes, orthe Notes, in the original aggregate principal amount of $37.5 million. In accordance with the Purchase Agreement, eachNote accrues interest at a rate of 6% of its outstanding principal amount per annum, payable at maturity. The maturity date ofeach Note is March 1, 2026, unless earlier converted, repurchased or redeemed as described below. Holders may, subject to certain conditions, convert all or part of the outstanding principal amount of their Notes intoshares of our common stock, provided that no conversion results in a holder beneficially owning more than 19.99% of ourissued and outstanding common stock. The conversion rate for the Notes will initially be 153.8462 shares of our commonstock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $6.50 pershare. The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes ourcapitalization. At our election, we may choose to make such conversion payment in cash, in shares of common stock, or in acombination thereof. Upon any conversion of any Note, we are obligated to make a cash payment to the holder of such Notefor any interest accrued but unpaid on the principal amount converted. Upon the occurrence of a Corporate Transaction (asdefined in the Notes), the holder of a Note is entitled, at such holder’s option, to convert all of the outstanding principalamount of the Note in accordance with the foregoing and receive an additional, “make-whole” cash payment in accordancewith a table set forth in each Note. Upon the occurrence of a Corporate Transaction, each holder of a Note has the option to require us to repurchase all orpart of the outstanding principal amount of such Note at a repurchase price equal to 100% of the outstanding principalamount of the Note to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. On or after March 1, 2022, if the last reported sale price of the common stock has been at least 130% of the conversionrate then in effect for twenty of the preceding thirty trading days (including the last trading day of such149 Table of Contentsperiod), we are entitled, at our option, to redeem all or part of the outstanding principal amount of the Notes, on a pro ratabasis, at an optional redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed, plusaccrued and unpaid interest to, but excluding, the optional redemption date. The Purchase Agreement contains customary representations and warranties by us and the Purchaser. The PurchaseAgreement does not include any financial covenants. Our obligations under the Purchase Agreement and the Notes aresubject to acceleration upon the occurrence of specified events of default, including a default or breach of certain contractsmaterial to us and the delisting and deregistration of our common stock. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, asdefined in the rules and regulations of the Securities and Exchange Commission, such relationships with unconsolidatedentities or financial partnerships, which are often referred to as structured finance or special purpose entities, established forthe purpose of facilitating financing transactions that are not required to be reflected on our balance sheets. Recently Issued Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 2 – Summary of Significant AccountingPolicies to the current period’s consolidated financial statements. Item 7A.Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk related to changes in interest rates. As of December 31, 2018, we had cash and cashequivalents of $54.1 million, which consisted of money market funds. We have policies requiring us to invest in high-qualityissuers, limit our exposure to any individual issuer, and ensure adequate liquidity. Our primary exposure to market risk isinterest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because ourinvestments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile ofour investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair marketvalue of our portfolio. Item 8.Financial Statements and Supplementary Data Our consolidated financial statements, together with the report of our independent registered public accounting firm,appear on pages F-1 through F-28 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A.Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures as of December 31, 2018. The term “disclosure controls andprocedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or theExchange Act, means controls and other procedures of a company that are designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controlsand procedures include, without limitation, controls and procedures designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated tothe company’s management, including its principal executive and principal financial officers, as appropriate to allow timelydecisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving their objectives and management necessarilyapplies its judgment in evaluating the cost-benefit relationship of possible150 Table of Contentscontrols and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, ourChief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedureswere effective at the reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting forthe company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under theExchange Act as a process designed by, or under the supervision of, the company’s principal executive and principalfinancial officers and effected by the company’s board of directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles and includes those policies and procedures that: ·Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; ·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company;and ·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of ourinternal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteriaset forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment, our management concluded that, as of December 31, 2018, ourinternal control over financial reporting was effective. As an “emerging growth company,” as defined in the JOBS Act, our independent registered accounting firm is notrequired to issue an attestation report on the internal control over financial reporting. Changes in Internal Control Over Financial Reporting No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the three months ended December 31, 2018 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting. Item 9B.Other Information None.151 Table of Contents PART III Item 10.Directors, Executive Officers and Corporate Governance Directors and Executive Officers The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Compliance with Section 16(a) of the Exchange Act The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Code of Ethics We have adopted a code of business conduct and ethics that applies to our directors and officers (including ourprincipal executive officer, principal financial officer, principal accounting officer or controller, or persons performingsimilar functions) as well as our other employees. A copy of our code of business conduct and ethics is available on ourwebsite. We intend to post on our website all disclosures that are required by applicable law, the rules of the Securities andExchange Commission or the Nasdaq Global Market concerning any amendment to, or waiver of, our code of businessconduct and ethics. Director Nominees The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Audit Committee We have separately designated a standing Audit Committee established in accordance with Section 3(a)(58)(A) of theSecurities Exchange Act of 1934, as amended, or the Exchange Act. Additional information regarding the Audit Committeethat is required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders and isincorporated in this Annual Report on Form 10-K by reference. Audit Committee Financial Expert Our board of directors has determined that Bruce Peacock is the “audit committee financial expert” as defined byItem 407(d)(5) of Regulation S-K of the Exchange Act and is “independent” under the rules of the Nasdaq Global Market. Item 11.Executive Compensation The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Securities Authorized for Issuance under Equity Compensation PlansThe information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference.152 Table of Contents Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference. Item 14.Principal Accounting Fees and Services The information required by this item will be set forth in our Proxy Statement for the 2019 Annual Meeting ofStockholders and is incorporated in this Annual Report on Form 10-K by reference.153 Table of Contents PART IV Item 15.Exhibits, Financial Statement Schedules The following financial statements are filed as part of this Annual Report on Form 10-K: PageReport of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets F-3Consolidated Statements of Operations and Comprehensive Loss F-4Consolidated Statements of Changes in Stockholders’ Equity F-5Consolidated Statements of Cash Flows F-6Notes to Consolidated Financial Statements F-7 No financial statement schedules have been filed as part of this Annual Report on Form 10-K because they are notapplicable, not required or because the information is otherwise included in our consolidated financial statements or notesthereto. The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately followingour consolidated financial statements. The Exhibit Index is incorporated herein by reference. Item 16.Form 10-K Summary None. 154 Table of ContentsEXHIBIT INDEX Incorporated by Reference ExhibitNumber Description of Exhibit Form File Number Date ofFiling ExhibitNumber FiledHerewith3.1 Restated Certificate of Incorporation ofthe Registrant 8-K 001-36554 7/30/2014 3.1 3.2 Amended and Restated Bylaws of theRegistrant 8-K 001-36554 7/30/2014 3.2 4.1 Specimen Stock Certificate evidencingthe shares of common stock S-1/A 333-196932 7/11/2014 4.1 4.2 Registration Rights Agreement, datedas of March 1, 2019, by and among theRegistrant and the Purchasersidentified therein X 10.1+ 2006 Stock Incentive Plan, as amended S-1 333-196932 6/20/2014 10.1 10.2+ Form of Stock Option Agreement under2006 Stock Incentive Plan S-1 333-196932 6/20/2014 10.2 10.3+ Form of Restricted Stock Agreementunder 2006 Stock Incentive Plan S-1 333-196932 6/20/2014 10.3 10.4+ 2014 Stock Incentive Plan S-1/A 333-196932 7/11/2014 10.4 10.5+ Form of Incentive Stock OptionAgreement under 2014 Stock IncentivePlan S-1/A 333-196932 7/11/2014 10.5 10.6+ Form of Non-statutory Stock OptionAgreement under 2014 Stock IncentivePlan S-1/A 333-196932 7/11/2014 10.6 10.7+ Form of Restricted Stock Agreementunder 2014 Stock Incentive Plan S-1/A 333-196932 7/11/2014 10.7 10.8† Amended and Restated LicenseAgreement, dated January 27, 2012,between the Registrant and Incept LLC S-1 333-196932 6/20/2014 10.8 10.9 Lease Agreement dated September 2,2009, by and between the Registrantand RAR2-Crosby Corporate CenterQRS, Inc., as amended. S-1 333-196932 6/20/2014 10.9 10.10+ 2014 Employee Stock Purchase Plan S-1/A 333-196932 7/11/2014 10.10 10.11 Form of Indemnification Agreement byand between the Registrant and each ofits directors and executive officers S-1 333-196932 6/20/2014 10.12 155 Table of Contents Incorporated by Reference ExhibitNumber Description of Exhibit Form File Number Date ofFiling ExhibitNumber FiledHerewith 10.12+ Amended and Restated EmploymentAgreement, dated June 24, 2014, byand between the Registrant andAmarpreet S. Sawhney, Ph.D. S-1/A 333-196932 7/11/2014 10.13 10.13 Lease Agreement dated June 17, 2016between the WS NF 15 Crosby Drive,LLC and the Registrant 10-Q 001-36554 8/9/2016 10.1 10.14† Collaboration, Option and LicenseAgreement between the Registrant andRegeneron Pharmaceuticals, Inc. datedOctober 10, 2016 10-Q 001-36554 11/9/2016 10.1 10.15 Controlled Equity Offering SalesAgreement, dated November 29, 2016,by and between the Registrant andCantor Fitzgerald & Co. 8-K 001-36554 11/30/2016 1.1 10.16 Second Amended and Restated Creditand Security Agreement, dated March7, 2017, by and among MidCapFinancial Trust, the Registrant and theLenders listed therein 10-Q 001-36554 5/5/2017 10.1 10.17+ Amendment to EmploymentAgreement, by and between theRegistrant and Amarpreet S. Sawhney,dated as of June 20, 2017 8-K 001-36554 6/22/2017 10.1 10.18+ Employment Agreement, by andbetween the Registrant and Antony C.Mattessich, dated as of June 20, 2017 8-K 001-36554 6/22/2017 10.2 10.19+ Non-Statutory Stock OptionAgreement, by and between theRegistrant and Antony C. Mattessichdated as of June 20, 2017 8-K 001-36554 6/22/2017 10.3 10.20+ Transition, Separation and Release ofClaims Agreement by and between theRegistrant and Eric Ankerud, dated asof July 31, 2017 8-K 001-36554 8/3/2017 10.1 10.21 Consulting Agreement by and betweenthe Registrant and Anchor BiotechConsulting, LLC dated as of July 31,2017 8-K 001-36554 8/3/2017 10.2 10.22+ Employment Agreement, by andbetween the Registrant and DonaldNotman, dated as of September 25,2017 8-K 001-36554 9/25/2017 10.1 156 Table of Contents Incorporated by Reference ExhibitNumber Description of Exhibit Form File Number Date ofFiling ExhibitNumber FiledHerewith 10.23 Second Amendment to Lease, by andbetween the Registrant and CCCInvestors LLC, dated October 10, 2017 8-K 001-36554 10/16/2017 10.1 10.24+ Transition, Separation and Release ofClaims Agreement by and between theRegistrant and James Fortune, dated asof October 13, 2017 8-K 001-36554 10/13/2017 10.1 10.25+ Employment Agreement, by andbetween the Registrant and DanielBollag, dated as of July 31, 2017 10-K 001-36554 3/8/2018 10.29 10.26+ Employment Agreement, by andbetween the Registrant and MichaelGoldstein, dated as of September 25,2017 10-K 001-36554 3/8/2018 10.30 10.27+ Employment Agreement, by andbetween the Registrant and KevinHanley, dated as of January 5, 2018 10-K 001-36554 3/8/2018 10.31 10.28+ Second Amendment to EmploymentAgreement, by and between theRegistrant and Amarpreet S. Sawhney,dated August 6, 2018 10-Q 001-36554 8/7/2018 10.1 10.29† Second Amended and Restated LicenseAgreement, dated September 13, 2018,by and between the Registrant andIncept LLC 8-K 001-36554 9/19/2018 10.1 10.30 Third Amended and Restated Creditand Security Agreement datedDecember 21, 2018 by and amongMidCap Financial Trust, asadministrative agent, the Registrant,and the Lenders listed therein 8-K 001-36554 12/28/2018 10.1 10.31 First Amendment to Third Amendedand Restated Credit and SecurityAgreement, dated as of February 21,2019, by and among the Registrant,MidCap Financial Trust, asadministrative agent, and the Lenderslisted therein 8-K 001-36554 2/22/2019 10.3 10.32 Subordination Agreement, dated as ofFebruary 21, 2019, by and among theRegistrant, MidCap Financial Trust, asadministrative agent, and the Lenderslisted therein 8-K 001-36554 2/22/2019 10.4 157 Table of Contents Incorporated by Reference ExhibitNumber Description of Exhibit Form File Number Date ofFiling ExhibitNumber FiledHerewith10.33 Note Purchase Agreement (includingForm of Senior SubordinatedConvertible Note), dated as of February21, 2019, by and among the Registrantand the Purchasers listed therein 8-K 001-36554 2/22/2019 10.1 23.1 Consent of PricewaterhouseCoopers LLP X 31.1 Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) of the SecuritiesExchange Act of 1934, as amended X 31.2 Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) of the SecuritiesExchange Act of 1934, as amended X 32.1 Certification of principal executive officer pursuant to 18 U.S.C. §1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 X 32.2 Certification of principal financial officer pursuant to 18 U.S.C. §1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Label Linkbase Document X 101.PRE XBRL Taxonomy Presentation Linkbase Document X†Confidential treatment has been granted as to certain portions, which portions have been omitted and separately filed withthe Securities and Exchange Commission.+Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to theAnnual Report on Form 10-K. 158 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 7, 2019 Onald OCULAR THERAPEUTIX, INC. By:/s/ Donald Notman Donald Notman Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the followingpersons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Antony Mattessich President and Chief Executive Officer Antony Mattessich (Principal Executive Officer) March 7, 2019 /s/ Donald Notman Chief Financial Officer March 7, 2019Donald Notman (Principal Financial and Accounting Officer) /s/ Amarpreet Sawhney, Ph.D. Chairman of the Board March 7, 2019Amarpreet Sawhney, Ph.D /s/ Jaswinder Chadha Director March 7, 2019Jaswinder Chadha /s/ Jeffrey S. Heier, M.D. Director March 7, 2019Jeffrey S. Heier, M.D. /s/ Richard L. Lindstrom, M.D. Director March 7, 2019Richard L. Lindstrom, M.D. /s/ William James O’Shea Director March 7, 2019William James O’Shea /s/ Bruce A. Peacock Director March 7, 2019Bruce A. Peacock /s/ Charles Warden Director March 7, 2019Charles Warden Table of ContentsOCULAR THERAPEUTIX, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets F-3Consolidated Statements of Operations and Comprehensive Loss F-4Consolidated Statements of Changes in Stockholders’ Equity F-5Consolidated Statements of Cash Flows F-6Notes to Consolidated Financial Statements F-7 F-1 Table of ContentsReport of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders ofOcular Therapeutix, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ocular Therapeutix, Inc. and its subsidiary (the“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensiveloss, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2018,including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, theconsolidated financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt About the Company’s Ability to Continue as a Going ConcernThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as agoing concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses andnegative cash flows from operations since its inception, which raise substantial doubt about its ability to continue as a goingconcern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statementsdo not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firmregistered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Ouraudits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonablebasis for our opinion. /s/ PricewaterhouseCoopers LLPBoston, MassachusettsMarch 7, 2019We have served as the Company’s auditor since 2008. F-2 Table of ContentsOCULAR THERAPEUTIX, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, December 31, 2018 2017Assets Current assets: Cash and cash equivalents $54,062 $41,538Accounts receivable 201 226Inventory 217 122Prepaid expenses and other current assets 1,713 1,453Total current assets 56,193 43,339Property and equipment, net 10,236 10,478Restricted cash 6,614 1,614Total assets $73,043 $55,431Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $2,965 $3,571Accrued expenses and deferred rent 6,194 4,310Notes payable, net of discount, current — 5,545Total current liabilities 9,159 13,426Deferred rent, long-term 3,221 3,387Notes payable, net of discount, long-term 24,788 12,471Total liabilities 37,168 29,284Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000,000 shares authorized and no shares issuedor outstanding at December 31, 2018 and December 31, 2017, respectively — —Common stock, $0.0001 par value; 100,000,000 shares authorized and 41,518,091and 29,658,202 shares issued and outstanding at December 31, 2018 andDecember 31, 2017 4 3Additional paid-in capital 333,114 263,409Accumulated deficit (297,243) (237,265)Total stockholders’ equity 35,875 26,147Total liabilities and stockholders’ equity $73,043 $55,431 The accompanying notes are an integral part of these consolidated financial statements.F-3 Table of ContentsOCULAR THERAPEUTIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Year Ended December 31, 2018 2017 2016 Revenue: Product revenue $1,990 $1,923 $1,845 Collaboration revenue — — 42 Total revenue 1,990 1,923 1,887 Costs and operating expenses: Cost of product revenue 465 457 443 Research and development 36,915 30,880 27,065 Selling and marketing 4,942 17,000 6,701 General and administrative 18,786 15,509 11,004 Total costs and operating expenses 61,108 63,846 45,213 Loss from operations (59,118) (61,923) (43,326) Other income (expense): Interest income 879 424 304 Interest expense (1,739) (1,892) (1,680) Other income (expense), net — 5 (1) Total other expense, net (860) (1,463) (1,377) Net loss $(59,978) $(63,386) $(44,703) Net loss per share, basic and diluted $(1.57) $(2.20) $(1.80) Weighted average common shares outstanding, basic and diluted 38,115,142 28,818,196 24,816,348 Comprehensive loss: Net loss $(59,978) $(63,386) $(44,703) Other comprehensive loss: Unrealized gain on marketable securities — 5 63 Total other comprehensive income — 5 63 Total comprehensive loss $(59,978) $(63,381) $(44,640) The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of ContentsOCULAR THERAPEUTIX, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share data) Accumulated Total Additional Other Stockholders’ Preferred Stock Common Stock Paid-in Accumulated Comprehensive Equity Shares Amount Shares Par Value Capital Deficit Loss (Deficit)Balances at December 31, 2015 — $ — 24,750,281 $ 2 $218,830 $(129,176) $(68) $89,588Issuance of common stock upon exercise ofstock options — — 105,114 — 199 — — 199Issuance of common stock in connectionwith employee stock purchase plan — — 66,628 — 278 — — 278Issuance of common stock upon publicoffering, net of issuance costs — — 102,077 1 626 — — 627Unrealized loss on marketable securities — — — — — — 63 63Stock-based compensation expense — — — — 5,956 — — 5,956Net loss — — — — — (44,703) — (44,703)Balances at December 31, 2016 — — 25,024,100 3 225,889 (173,879) (5) 52,008Issuance of common stock upon exercise ofstock options — — 220,520 — 685 — — 685Issuance of common stock in connectionwith employee stock purchase plan — — 53,662 — 276 — — 276Issuance of common stock upon publicoffering, net of issuance costs — — 4,359,920 — 29,238 — — 29,238Unrealized gain on marketable securities — — — — — — 5 5Stock-based compensation expense — — — — 7,321 — — 7,321Net loss — — — — — (63,386) — (63,386)Balances at December 31, 2017 — — 29,658,202 3 263,409 (237,265) — 26,147Issuance of common stock upon exercise ofstock options — — 182,261 — 397 — — 397Issuance of common stock in connectionwith employee stock purchase plan — — 81,455 — 297 — — 297Issuance of common stock upon publicoffering, net of issuance costs — — 11,596,173 1 61,528 — — 61,529Stock-based compensation expense — — — — 7,483 — — 7,483Net loss — — — — — (59,978) — (59,978)Balances at December 31, 2018 — $ — 41,518,091 $ 4 $333,114 $(297,243) $ — $35,875 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of ContentsOCULAR THERAPEUTIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net loss $(59,978) $(63,386) $(44,703) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 7,483 7,321 5,956 Non-cash interest expense 397 408 371 Depreciation and amortization expense 2,286 1,625 881 (Gain)/loss on disposal of property and equipment — (5) 1,269 Purchase of premium on marketable securities — (3) (37) Amortization of premium on marketable securities — 17 186 Changes in operating assets and liabilities: Accounts receivable 25 24 (57) Prepaid expenses and other current assets (260) 45 924 Inventory (95) (9) 21 Accounts payable (796) 932 (159) Accrued expenses and deferred rent 1,711 2,558 1,389 Deferred revenue — — (42) Net cash used in operating activities (49,227) (50,473) (34,001) Cash flows from investing activities: Purchases of property and equipment (1,889) (8,252) (1,919) Proceeds from sale of property and equipment — 5 2 Purchases of marketable securities — (3,000) (41,699) Proceeds from maturities of marketable securities — 38,200 80,684 Net cash (used in) provided by investing activities (1,889) 26,953 37,068 Cash flows from financing activities: Proceeds from issuance of notes payable 12,032 3,700 — Proceeds from exercise of stock options 397 685 199 Proceeds from issuance of common stock pursuant to employee stock purchase plan 297 276 278 Proceeds from issuance of common stock offering, net 61,571 29,238 627 Payments of insurance costs financed by a third party — (591) (519) Repayment of notes payable (5,657) (1,300) — Net cash provided by financing activities 68,640 32,008 585 Net increase in cash, cash equivalents and restricted cash 17,524 8,488 3,652 Cash, cash equivalents and restricted cash at beginning of period 43,152 34,664 31,012 Cash, cash equivalents and restricted cash at end of period $60,676 $43,152 $34,664 Supplemental disclosure of cash flow information: Cash paid for interest $1,515 $1,461 $1,301 Supplemental disclosure of non-cash investing and financing activities: Additions to property and equipment included in accounts payable and accrued expenses atbalance sheet dates $155 $538 $451 Insurance premium financed by a third party $ — $ — $722 Public offering costs included in accounts payable and accrued expenses at balance sheet dates $42 $108 $ — The accompanying notes are an integral part of these consolidated financial statements.F-6 Table of ContentsOCULAR THERAPEUTIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data) 1. Nature of the Business and Basis of Presentation Ocular Therapeutix, Inc. (the “Company”) was incorporated on September 12, 2006 under the laws of the State ofDelaware. The Company is a biopharmaceutical company focused on the formulation, development and commercializationof innovative therapies for diseases and conditions of the eye using its proprietary, bioresorbable hydrogel platformtechnology. The Company’s product pipeline candidates are provide differentiated drug delivery solutions that reduce thecomplexity and burden of the current standard of care by creating local programmed-release alternatives. Since inception, theCompany’s operations have been primarily focused on organizing and staffing the Company, acquiring rights to intellectualproperty, business planning, raising capital, developing its technology, identifying potential product candidates,undertaking preclinical studies and clinical trials, manufacturing initial quantities of its products and product candidates andbuilding the initial sales and marketing infrastructure for the commercialization of the Company’s approved products andproduct candidates. 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 withgovernment regulations, regulatory approval, uncertainty of market acceptance of products and the need to obtain additionalfinancing. Product candidates currently under development will require significant additional research and developmentefforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. As of December 31, 2018, the Company’s lead product candidate DEXTENZA (dexamethasone insert) 0.4mg, has beenapproved by the FDA and the other product candidates are in clinical stage development. There can be no assurance that theCompany’s research and development will be successfully completed, that adequate protection for the Company’sintellectual property will be obtained, that any products developed will obtain necessary government regulatory approvaland adequate reimbursement or that any approved products will be commercially viable. Even if the Company’s productdevelopment efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from productsales. The Company operates in an environment of rapid change in technology and substantial competition frompharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employeesand consultants. The Company may not be able to generate significant revenue from sales of any product for several years, ifat all. Accordingly, the Company will need to obtain additional capital to finance its operations, including to support theplanned commercial launch of DEXTENZA. The Company believes that its existing cash and cash equivalents at December 31, 2018 along with the net proceeds of$37,100 from the issuance of convertible notes payable issued in March 2019 (Note 19) and the $4,967 net proceedsobtained from the issuance of common stock in January and February 2019 (Note 19), will enable it to fund its operatingexpenses, debt service obligations and capital expenditure requirements into early 2020. Management has determined that the Company’s accumulated deficit, history of losses, negative cash flows fromoperations and future expected losses raise substantial doubt about the Company’s ability to continue as a going concernwithin one year of the issuance date of these consolidated financial statements. The Company expects to continue togenerate operating losses and negative cash flows from operations in the foreseeable future. As of December 31, 2018, theCompany had an accumulated deficit of $297,243. While the Company has raised capital in the past, the ability to raise capital in future periods is not consideredprobable, as defined under the accounting standards and therefore, were not considered in management’s assessment of theCompany’s ability to continue as a going concern. The Company expects to seek additional funds through equity or debtfinancings. If the Company is unable to obtain other financing, the Company would be forced to delay, reduce or eliminateits research and development programs or any future commercialization efforts or to relinquish valuable rights to itstechnologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not befavorable to the Company. The actions necessary to reduce spending to a level that mitigates the factorsF-7 Table of Contentsdescribed above are not considered probable, as defined in the accounting standards and therefore were not considered inmanagement’s assessment of the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principlesgenerally accepted in the United States of America (“GAAP”). 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of ConsolidationThe accompanying consolidated financial statements reflect the operations of the Company and its wholly-ownedsubsidiary. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities atthe date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reportingperiods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are notlimited to, revenue recognition, the accrual of research and development expenses, including clinical trials, and thevaluation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances,facts and experience. Actual results could differ from the Company’s estimates. Cash Equivalents The Company considers all short-term, highly liquid investments with original maturities of ninety days or less at dateof purchase to be cash equivalents. Cash equivalents, which primarily consist of money market accounts, are stated at fairvalue. Revenue RecognitionOn January 1, 2018, the Company adopted the new revenue standard, Accounting Standards Codification (“ASC”)606 – Revenue from Contracts with Customers, which amended revenue recognition principles and provides a single,comprehensive set of criteria for revenue recognition within and across all industries. The Company’s adoption of the newrevenue standard did not have a material impact on its consolidated financial statements. This new revenue standard appliesto all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance,collaboration arrangements and financial instruments. The new revenue standard provides a five-step framework wherebyrevenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenuerecognition for arrangements that the Company determines are within the scope of the new revenue standard, the Companyperforms the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in thecontract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in thecontract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goodsor services the Company transfers to the customer is determined to be probable. At contract inception, once the contract isdetermined to be within the scope of the new revenue standard, the Company assess whether the goods or services promisedwithin each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that aredetermined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. TheCompany then allocates the transaction price (the amount of consideration the Company expects to be entitled to from acustomer in exchange for the promised goods or services) to each performance obligation and recognizes the associatedrevenue when (or as) each performance obligation is satisfied.Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. TheCompany does do not assess whether a contract has a significant financing component if the expectation at contractinception is that the period between payment by the customer and the transfer of the promised goods or services to thecustomer will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurredF-8 Table of Contentsif the expected amortization period of the asset that the Company would have recognized is one year or less or the amount isimmaterial. At December 31, 2018, the Company had not capitalized any costs to obtain any of our contracts.The Company recognizes revenue on product sales at the time control of the product transfers to the customer. Insubstantially all of the Company’s arrangements, title of its products transfers at shipping point and, as a result, the Companydetermined control transfers at the point of shipment. In more limited cases, there are destination-based shipping terms and,thus, control is deemed to transfer when the product arrives at the customer site. Incremental costs of obtaining a contract areexpensed as and when incurred if the expected amortization period of the asset that would have been recognized is one yearor less. Shipping and handling costs are included as a component of cost of product revenue.Payment terms and conditions vary among the Company’s customers, although terms generally include a requirementof payment within 30 days of product shipment. Prior to providing payment terms to customers, an evaluation of thecustomer’s credit risk is performed. Returns and customer credits are infrequent and insignificant and are recorded as areduction to sales. Rights of return are not included in sales arrangements and, therefore, there is minimal variableconsideration included in the transaction price of our products. Inventory Valuation Inventory is valued at the lower of cost or net realizable value, determined by the first-in, first-out (“FIFO”) method. Prior to approval by the Food and Drug Administration (“FDA”) or other regulatory agencies of the Company’sproducts, the Company expenses inventory costs in the period incurred as research and development expenses. After suchtime as the product receives approval, the Company begins to capitalize the inventory costs related to the product. TheCompany also reviews its inventories for potential obsolescence. Inventory consisted of the following: December 31, 2018 2017Raw materials $112 $68Work-in-process 33 37Finished goods 72 17 $217 $122 Restricted Cash As of December 31, 2018 and 2017, the Company held restricted cash of $6,614 and $1,614, respectively, on itsconsolidated balance sheet. The Company held restricted cash as security deposits for the lease of its manufacturing spaceand corporate headquarters (Note 13). In 2018, restricted cash increased due to a financial covenant associated with the 2018Amended Credit Facility which restricts the Company's withdrawal or usage of $5,000. Concentration of Credit Risk and of Significant Suppliers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cashand cash equivalents. The Company has all cash and cash equivalents balances at one accredited financial institution, inamounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyondthe 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 anddevelopment activities in its preclinical and clinical programs and for sales of its ReSure Sealant product. The Company’sdevelopment programs as well as revenue from future sales of ReSure Sealant could be adversely affected by a significantinterruption in the supply of any of the components of these products. F-9 Table of ContentsFair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price thatwould be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market forthe asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniquesused to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of thefair value hierarchy, of which the first two are considered observable and the last is considered unobservable: ·Level 1—Quoted prices in active markets for identical assets or liabilities. ·Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similarassets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or otherinputs that are observable or can be corroborated by observable market data. ·Level 3—Unobservable inputs that are supported by little or no market activity and that are significant todetermining the fair value of the assets or liabilities, including pricing models, discounted cash flowmethodologies and similar techniques. The Company’s cash equivalents are carried at fair value determined according to the fair value hierarchy describedabove (Note 3). The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fairvalue due to the short-term nature of these assets and liabilities. At December 31, 2018 and 2017, the carrying value of theCompany’s outstanding notes payable (Note 7) approximates fair value based on the interest rate for the borrowingsoutstanding. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using thestraight-line method over a three- to five-year estimated useful life. Leasehold improvements are amortized over the shorter ofthe lease term or the estimated useful life of the related asset. Expenditures for repairs and maintenance of assets are chargedto expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of areremoved from the accounts and any resulting gain or loss is included in loss from operations. Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverabilitywhenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fullyrecoverable. Factors that the Company considers in deciding when to perform an impairment review include significantunderperformance of the business in relation to expectations, significant negative industry or economic trends, andsignificant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-livedasset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use andeventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimatedundiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairmentloss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based ondiscounted cash flows. The Company has had no impairment triggers of long-lived assets. Research and Development Costs Research and development costs are expensed as incurred. Included in research and development expenses are salaries,stock-based compensation and benefits of employees and other operational costs related to the Company’s research anddevelopment activities, including external costs of outside vendors engaged to conduct preclinical studies and clinical trials,manufacturing costs of the Company’s products prior to regulatory approval, costs related to collaboration agreements andfacility-related expenses. F-10 Table of ContentsResearch Contract Costs and Accruals The Company has entered into various research and development contracts with research institutions and othercompanies both inside and outside of the United States. Certain of these agreements have cancellation clauses, and relatedpayments are recorded as research and development expenses as incurred. The Company records accruals for estimatedongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of thestudies, including the phase or completion of events, invoices received and contracted costs. Significant judgments andestimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ fromthe Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actualcosts. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as generaland administrative expenses as incurred, as recoverability of such expenditures is uncertain. Accounting for Stock-Based Compensation The Company measures all stock options and other stock-based awards granted to employees and directors at the fairvalue on the date of the grant using the Black-Scholes option-pricing model. The fair value of the awards is recognized asexpense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respectiveaward. The straight-line method of expense recognition is applied to all awards with service-only conditions. For stock-based awards granted to consultants and non-employees, compensation expense is recognized over theperiod during which services are rendered by such consultants and non-employees until completed. At the end of eachfinancial reporting period prior to completion of the service, the fair value of these awards is re-measured using the then-current fair value of the Company’s common stock and updated assumption inputs in the Black-Scholes option-pricingmodel. The Company classifies stock-based compensation expense in its consolidated statement of operations andcomprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the awardrecipient’s service payments are classified. The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developinga forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if theactual forfeiture rate is materially different from the Company’s estimate, the Company may be required to recordadjustments to stock-based compensation expense in future periods. Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition ofdeferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in theconsolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the differencebetween the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in whichthe differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for incometaxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, tothe extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion ofdeferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements byapplying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluatedto determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position isdeemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit torecognize in the consolidated financial statements. The amount of the benefit that may be recognized is theF-11 Table of Contentslargest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for incometaxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well asthe related net interest and penalties. Segment Data The Company manages its operations as a single segment for the purposes of assessing performance and makingoperating decisions. The Company’s singular focus is on advancing its bioresorbable hydrogel product candidates for theprogramed-release delivery of therapeutic agents, specifically for ophthalmology. All tangible assets are held in the UnitedStates. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions andeconomic events other than those with stockholders. For the years ended December 31, 2017 and 2016, other comprehensiveloss consisted of unrealized gains (losses) from marketable securities. For the years ended December 31, 2018, there were noitems that gave rise to other comprehensive loss and therefore, was no difference between net loss and comprehensive loss. Net Income (Loss) Per Share The Company applies the two-class method which determines net income (loss) per share for each class of common andparticipating securities according to dividends declared or accumulated and participation rights in undistributed earnings.The two-class method requires income available to common stockholders for the period to be allocated between common andparticipating securities based upon their respective rights to receive dividends as if all income for the period had beendistributed. Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss)attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.Diluted net income (loss) attributable to common stockholders is computed by adjusting income (loss) attributable tocommon stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, includingoutstanding stock options, unvested restricted common stock, common stock warrants. Diluted net income (loss) per shareattributable to common stockholders is computed by dividing the diluted net income (loss) attributable to commonstockholders by the weighted average number of common shares outstanding for the period, including potential dilutivecommon shares assuming the dilutive effect of outstanding stock options, common stock warrants and unvested restrictedcommon stock. Restricted stock awards granted by the Company entitle the holder of such awards to dividends declared or paid by theboard of directors, regardless of whether such awards are unvested, as if such shares were outstanding common shares at thetime of the dividend. However, the unvested restricted stock awards are not entitled to share in the residual net assets (deficit)of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders,diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to commonstockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Companyreported a net loss attributable to common stockholders for the years ended December 31, 2018, 2017 and 2016. Deferred Offering Costs The Company capitalizes certain legal and other third-party fees that are directly associated with in-process equityfinancings as deferred offering costs until such financings are consummated. After consummation of the equity financing,these costs are recorded as a reduction of the proceeds generated as a result of the offering. Should the planned equityfinancing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expense in theconsolidated statements of operations and comprehensive loss. There were no deferred offering costs at December 31,2018. Deferred offering costs amounted to $108 at December 31, 2017 and are capitalized in prepaid expenses and othercurrent assets. F-12 Table of ContentsRecently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (“ASU 2016-09”). ASU2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions,including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize grossstock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on thestatement of cash flows. The amendments in this update became effective for the first interim period within annual reportingperiods beginning after December 15, 2016. The Company adopted ASU 2016-09 on January 1, 2017 and continues toestimate forfeitures at each period. The adoption of ASU 2016-09 did not have a material impact to the consolidatedfinancial statements. The Company adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method. Theadoption of the New Revenue Standard did not have a material impact on its consolidated financial statements. Under theNew Revenue Standard, the Company recognizes revenue when the customer obtains control of the good in an amount thatreflects the consideration which the Company expects to receive in exchange for those goods. The Company only appliesthe New Revenue Standard to contracts when it is probable that the Company will collect the consideration it is entitled to inexchange for the goods transferred to the customer. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receiptsand Cash Payments (“ASU 2016-15”). ASU 2016-15 is intended to clarify guidance on the classification of certain cashreceipts and payments in the statement of cash flows and to eliminate the diversity in practice related to suchclassifications. The Company adopted ASU 2016-15 effective January 1, 2018 and its adoption did not have a materialimpact on its consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash” (“ASU2016-18”). ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cashequivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally describedas restricted cash and restricted cash equivalents should be included with cash and cash equivalentswhen reconciling the beginning-of-period and end-of- period total amounts shown on the statement of cash flows. TheCompany adopted ASU 2016-18 effective January 1, 2018 and has reflected the adoption retrospectively to all periodspresented. The Company’s statements of cash flows includes restricted cash with cash and cash equivalents when reconcilingthe beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cashequivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amountsshown in the consolidated statement of cash flows: December 31, December 31, December 31, 2018 2017 2016Cash and cash equivalents $54,062 $41,538 $32,936Restricted cash 6,614 1,614 1,728Total cash, cash equivalents and restricted cash asshown on the statement of cash flow $60,676 $43,152 $34,664 In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope ofModification Accounting” (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of ashare-based payment award as a modification. The new standard does not change the accounting for modifications butclarifies that modification accounting guidance should only be applied if the fair value, vesting conditions, or classificationof the award changes as a result of the change in terms or conditions. The new standard is effective for fiscal years, andinterim periods within, beginning after December 15, 2017. Early adoption is permitted. A reporting entity must apply theamendments in the ASU prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 effective January 1, 2018 and its adoption did not have a material impact on the Company’s consolidated financialstatements. The adoption of ASU 2017-09 will have an impact on the accounting for the modification of stock-based awards,if any, to the extent stock-based awards are modified. F-13 Table of Contents Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842) (“ASU 2016-02”). ASU 2016-02 requireslessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. Thenew lease standard does not substantially change lessor accounting. The Company adopted the new leasing standard onJanuary 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered intoafter, January 1, 2019. The Company elected to apply the package of practical expedients which allows entities not toreassess whether contracts are or contain leases, lease classification, and whether initial direct costs qualify for capitalization.Additionally, the Company elected not to separate lease and non-lease components. The Company’s primary operatingleases represent the lease of its corporate headquarters at 15 Crosby and a lease for additional space at 36 Crosby, both inBedford, Massachusetts. Upon adoption of the new leasing standard, the Company expects to recognize a lease liability ofapproximately $9,000 and a related right-of-use asset of approximately $6,000 on its consolidated balance sheet with thedifference being due to the elimination of previously reported lease incentive obligations and deferred rent. The impact ofadoption of the new leasing standards will have an immaterial impact to the Company’s consolidated statements ofoperations and comprehensive loss and cash flows. 3. Fair Value of Financial Assets and Liabilities The following tables present information about the Company’s financial assets and liabilities that are measured at fairvalue on a recurring basis as of December 31, 2018 and 2017 and indicate the level of the fair value hierarchy utilized todetermine such fair value: Fair Value Measurements as of December 31, 2018 Using: Level 1 Level 2 Level 3 TotalAssets: Cash equivalents: Money market funds $ — $50,906 $ — $50,906Total $ — $50,906 $ — $50,906 Fair Value Measurements as of December 31, 2017 Using: Level 1 Level 2 Level 3 TotalAssets: Cash equivalents: Money market funds $ — $40,386 $ — $40,386Total $ — $40,386 $ — $40,386 During the years ended December 31, 2018, 2017 and 2016, there were no transfers between Level 1, Level 2 andLevel 3. F-14 Table of Contents4. Property and Equipment, net Property and equipment, net consisted of the following: December 31, 2018 2017Equipment $7,917 $6,183Leasehold improvements 8,675 8,553Furniture and fixtures 760 740Software 180 118Construction in progress 331 225 17,863 15,819Less: Accumulated depreciation (7,627) (5,341) $10,236 $10,478 Depreciation expense was $2,286, $1,625 and $881 for the years ended December 31, 2018, 2017 and 2016,respectively. For the year ended December 31, 2016, the Company wrote off $1,263 of manufacturing equipment that was includedin construction in progress at December 31, 2015. 5. Accrued Expenses and Deferred Rent Accrued expenses consisted of the following: December 31, December 31, 2018 2017Accrued payroll and related expenses $3,558 $2,936Accrued rent 267 267Accrued professional fees 1,393 534Accrued research and development expenses 380 217Accrued other 596 356 $6,194 $4,310 6. Collaboration and Feasibility Agreements On October 10, 2016, the Company entered into a Collaboration, Option and License Agreement (the “CollaborationAgreement”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”) for the development and potential commercialization ofproducts using the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds forthe treatment of retinal diseases. The Collaboration Agreement does not cover the development of any products that deliversmall molecule drugs, including TKIs for any target including VEGF, or any product that deliver large molecule drugs otherthan those that target VEGF proteins. Under the terms of the Collaboration Agreement, the Company and Regeneron have agreed to conduct a joint researchprogram with the aim of developing a sustained-release formulation of aflibercept, currently marketed under the tradenameEylea, that is suitable for advancement into clinical development. The Company has granted Regeneron an option (the“Option”) to enter into an exclusive, worldwide license under its intellectual property to develop and commercializeproducts using the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds(“Licensed Products”). Under the term of the Collaboration Agreement, Regeneron is responsible for funding an initialpreclinical tolerability study, which it initiated in early 2018. If Regeneron decided to exercise the Option, Regeneron will conduct further preclinical development and an initialclinical trial under a collaboration plan. The Company is obligated to reimburse Regeneron for certain development costsincurred by Regeneron under the collaboration plan during the period through the completion of the initial clinical trial,subject to a cap of $25,000, which cap may be increased by up to $5,000 under certain circumstances. If Regeneron elects toproceed with further development following the completion of the collaboration plan, it will be solelyF-15 Table of Contentsresponsible for conducting and funding further development and commercialization of product candidates. If the Option isexercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least oneLicensed Product. Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified timeperiods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subjectto certain extensions.Under the terms of the Collaboration Agreement, Regeneron has agreed to pay the Company $10,000 upon the exerciseof the Option. In December 2017, the Company delivered to Regeneron the final formulation for Regeneron’s initialpreclinical tolerability study. Although the Company is engaged in ongoing discussions with Regeneron, Regeneron has notinformed the Company of its decision to exercise the Option. Pending a decision from Regeneron, the Company is notactively pursuing further formulation development or other preclinical testing under the Collaboration Agreement. TheCompany is also eligible to receive up to $145,000 per Licensed Product upon the achievement of specified developmentand regulatory milestones, $100,000 per Licensed Product upon first commercial sale of such Licensed Product and up to$50,000 based on the achievement of specified sales milestones for all Licensed Products. In addition, the Company isentitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net sales ofLicensed Products. 7. Notes Payable The Company entered into a credit and security agreement in 2014 (the “2014 Credit Facility”) which most recentlywas amended in March 2017 and in December 2018 has a total borrowing capacity of $25,000 which has been fully drawndown. In March 2017, the Company amended (the “2017 Amended Credit Facility”) the terms of its debt with existing lendersfor total indebtedness of $18,000, which was used primarily to pay-off outstanding balances as of the closing date. Theinterest only period was extended through February 1, 2018. The Company was obligated to make interest-only paymentsunder the 2017 Amended Credit Facility until February 1, 2018. Thereafter, it was required to make monthly principal andinterest payments through December 1, 2020. Amounts borrowed under the Amended Credit Facility were at LIBOR baserate, subject to 1.00% floor, plus 7.25% with an indicative interest rate of 8.25% as of the amendment date. In addition, afinal payment equal to 3.5% of amounts drawn under the Amended Credit Facility was due upon the maturity date ofDecember 1, 2020. In December 2018, the Company amended (the “2018 Amended Credit Facility”) the terms of its debt with existinglenders for total indebtedness of $25,000, which was used primarily to pay-off outstanding balances as of the closingdate. The Company is required to make interest-only payments under the 2018 Amended Credit Facility until December2020. Commencing in January 2021, the Company is required to make 36 equal monthly installments of principal in theamount of $694, plus interest, through December 2023. In the event the Company achieves certain milestones under the2018 Amended Credit Facility, the Company has the right to extend the interest-only payments through December 21, 2021and make 24 equal monthly installments of principal in the amount of $1,042, plus interest. The Company has not assumedthe achievement of these milestones for purposes of disclosures herein. Amounts borrowed under the 2018 Amended Credit Facility are at LIBOR base rate, subject to 2.00% floor, plus7.25%. The interest rate on the date of the amendment was 9.76%. In addition, a final payment (exit fee) equal to 3.5% ofamounts drawn under the Amended Credit Facility, or $875 based on borrowings of $25,000, is due upon the maturity date ofDecember 21, 2023. The Company is accruing the exit fee through December 21, 2023. The Company accounted for the 2017 and 2018 Amended Credit Facility as a modification in accordance with theguidance in ASC 470-50, Debt. Amounts paid to the lenders were recorded as debt discount and a new effective interest ratewas established. The effective annual interest rate of the outstanding debt under the Amended Credit Facility is 13.9%. Under the 2018 Amended Credit Facility the Company is required to maintain a minimum of $5,000 of cash on hand asa financial covenant to the borrowing arrangement, which the Company has included in long-term restricted cash in theaccompanying consolidated balance sheet. There are no other financial covenants associated with the 2018 Amended CreditFacility; however, there are negative covenants restricting the Company’s activities, including limitations on dispositions,mergers or acquisitions; encumbering its intellectual property; incurring indebtedness orF-16 Table of Contentsliens; paying dividends; making certain investments; and engaging in certain other business transactions. The Company isnot in violation of any of the covenants. The obligations under the 2018 Amended Credit Facility are subject to accelerationupon the occurrence of specified events of default, including a material adverse change in the Company’s business,operations or financial or other condition. The debt is collateralized by substantially all of the Company’s assets, includingits intellectual property. Borrowings outstanding are as follows: December 31, 2018 December 31, 2017Borrowings outstanding $25,000 $18,000Accrued exit fee 5 221Unamortized discount (217) (205) $24,788 $18,016 As of December 31, 2018, the annual repayment requirements for the 2018 Amended Credit Facility, inclusive ofinterest and the final payment of $875 due at expiration, were as follows: Interest and Year Ending December 31, Principal FinalPayment Total2019 $ — $2,474 $2,4742020 — 2,481 2,4812021 8,333 2,094 10,4272022 8,333 1,270 9,6032023 8,334 1,319 9,653 $25,000 $9,638 $34,638 8. Warrants The Company has warrants for the purchase of 18,939 shares of common stock outstanding at December 31, 2018 at aweighted average exercise price of $7.92 per share and an expiration date of April 17, 2021. 9. Preferred Stock The Amended and Restated Certificate of Incorporation authorized 5,000,000 shares of preferred stock, $0.0001 parvalue, all of which is undesignated and none of which are issued or outstanding at December 31, 2018. 10. Common Stock The Amended and Restated Certificate of Incorporation authorized 100,000,000 shares of the Company’s commonstock. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’sstockholders. In November 2016, the Company entered into a controlled equity offering sales agreement, (the “2016 SalesAgreement”) with Cantor Fitzgerald & Co., (“Cantor”), under which the Company may offer and sell its common stockhaving aggregate proceeds of up to $40,000 may be sold from time to time. During the fourth quarter of 2016, the Companysold 102,077 shares of common stock under the 2016 Sales Agreement resulting in net proceeds of approximately $626 afterunderwriting discounts, commission and other offering expenses. During the year ended December 31, 2017, the Companysold 788,491 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $5,977after underwriting discounts and commissions. During the year ended December 31, 2018, the Company sold 4,121,173shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $26,824 afterunderwriting discounts, commissions and expenses. Through December 31, 2018, the Company has sold 5,011,741 shares ofcommon stock at-the-market under the 2016 Sales Agreement, resulting in net proceeds of approximately $33,427 afterunderwriting discounts, commissions and expenses. F-17 Table of ContentsIn January 2017, the Company completed a follow-on offering of its common stock at a public offering price of $7.00per share. The offering consisted of 3,571,429 shares of common stock sold by the Company. The Company received netproceeds from the follow-on offering of $23,261 after deducting underwriting discounts, commissions and expenses. In January 2018, the Company completed a follow-on offering of its common stock at a public offering price of $5.00per share. The offering consisted of 7,475,000 shares of common stock sold by the Company, including those shares sold inconnection with the exercise by the underwriter of its option to purchase additional shares. The Company received netproceeds from the follow-on offering of $34,704 after deducting underwriting discounts, commissions and expenses. As of December 31, 2018, the Company had reserved 7,232,523 shares of common stock for the exercise of outstandingstock options and the number of shares remaining available for grant under the Company’s 2014 Stock Incentive Plan (the“2014 Plan”), the number of shares available for issuance under the 2014 Employee Stock Purchase Plan (Note 11), and theoutstanding warrants to purchase common stock (Note 8). 11. Stock-Based Awards 2014 Stock Incentive Plan The 2014 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards,restricted stock units, stock appreciation rights and other stock-based awards. The number of shares initially reserved forissuance under the 2014 Plan was 1,336,907 shares of common stock, which was increased to 2,126,907 on January 1, 2015.The number of shares reserved for issuance may be increased by the number of shares under the 2006 Stock Option Plan (the“2006 Plan”) that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company. Thenumber of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day of each fiscalyear, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218 shares of theCompany’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the first day of theapplicable fiscal year, and an amount determined by the Company’s board of directors. On January 1, 2018, the number ofshares available for issuance under the 2014 Plan increased by 1,186,328. As of December 31, 2018, 1,581,243 sharesremained available for issuance under the 2014 Plan. As required by the 2006 Plan and 2014 Plan, the exercise price for stock options granted is not to be less than the fairvalue of common shares as of the date of grant. Prior to the IPO, the value of common stock was determined by the board ofdirectors by taking into consideration its most recently available valuation of common shares performed by management andthe board of directors as well as additional factors which might have changed since the date of the most recentcontemporaneous valuation through the date of grant. Inducement Stock Option Awards On June 20, 2017, the Company issued to Antony Mattessich, who became a director of the Company on June 20, 2017and the Company’s President and Chief Executive Officer on July 26, 2017, a non-statutory stock option to purchase anaggregate of 590,000 shares of the Company’s common stock at an exercise price of $10.94 per share. Subject to Mr.Mattessich’s continued service to the Company, the stock option will vest over a four-year period, with 25% of the sharesunderlying the option award vesting on the one year anniversary of the grant date and the remaining 75% of the sharesunderlying the award vesting monthly thereafter. The stock option was issued outside of the Company’s 2014 StockIncentive Plan as an inducement material to Mr. Mattessich’s acceptance of entering into employment with the Company inaccordance with Nasdaq Listing Rule 5635(c)(4). 2014 Employee Stock Purchase Plan The Company’s has a 2014 Employee Stock Purchase Plan (the “ESPP”) with a total of 207,402 shares of commonstock reserved for issuance under this plan which increased to 232,402 shares of common stock on January 1, 2015. Thenumber of shares of common stock that may be issued under the ESPP will automatically increase on the first day of eachfiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of 207,402shares of the Company’s common stock, 0.5% of the number of shares of the Company’s common stock outstanding on thefirst day of the applicable fiscal year, and an amount determined by the Company’s board ofF-18 Table of Contentsdirectors. On January 1, 2018, the number of shares available for issuance under the 2014 Plan increased by 148,291. As ofDecember 31, 2018, 401,510 shares of common stock remain available for issuance. Stock Option Valuation The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricingmodel. The Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peercompanies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of itsown traded stock price. Beginning in 2016, the Company estimates its expected volatility using a weighted average of thehistorical volatility of its publicly traded peer companies and the volatility of its common stock, and expect to continue todo so until such time as the Company has adequate historical data regarding the volatility of its traded stock price. Theexpected term of the Company’s stock options to employees has been determined utilizing the “simplified” method forawards that qualify as “plain-vanilla” options. The expected term of stock options granted to nonemployees is equal to thecontractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve ineffect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expecteddividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cashdividends in the foreseeable future. As of December 31, 2018, there were outstanding unvested service-based stock options held by nonemployees for thepurchase of 7,917 shares of common stock. The assumptions that the Company used to determine the fair value of the stock options granted to employees anddirectors are as follows, presented on a weighted average basis: Year Ended December 31, 2018 2017 2016 Risk-free interest rate 2.65% 2.00% 1.42%Expected term (in years) 6 6 6 Expected volatility 102% 102% 85%Expected dividend yield —% —% —% The following table summarizes the Company’s stock option activity: Weighted Weighted Average Average Remaining Aggregate Shares Issuable Exercise Contractual Intrinsic Under Options Price Term Value (In years) Outstanding as of December 31, 2017 4,002,374 $10.08 7.2 $1,222Granted 1,883,157 5.59 Exercised (182,261) 2.18 Forfeited (472,439) 10.83 Outstanding as of December 31, 2018 5,230,831 $8.67 7.5 $654Options vested and expected to vest as of December 31, 2018 4,954,183 $8.82 7.4 $654Options exercisable as of December 31, 2018 2,629,571 $10.57 6.2 $654 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stockoptions and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fairvalue of the Company’s common stock. The aggregate intrinsic value of stock options exercised was $551, $408 and $575during the years ended December 31, 2018, 2017 and 2016, respectively. The weighted average grant date fair value of stock options granted to employees and directors during the years endedDecember 31, 2018, 2017, 2016 was $4.48, $6.44 and $4.52 per share, respectively. F-19 Table of ContentsRestricted Common Stock The 2006 and 2014 Plans provide for the award of restricted common stock. The Company has granted restrictedcommon stock with time-based vesting conditions. Unvested shares of restricted common stock may not be sold ortransferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. The aggregate intrinsic value of restricted stock awards is calculated as the positive difference between the prices paid,if any, of the restricted stock awards and the fair value of the Company’s common stock. There was no aggregate intrinsicvalue of restricted stock awards that vested during the years ended December 31, 2018, 2017 and 2016 and there was noremaining restricted shares at December 31, 2018 and 2017. Stock-based Compensation The Company recorded stock-based compensation expense related to stock options, vesting of restricted commonstock and grants of common stock in the following expense categories of its statements of operations: Year Ended December 31, 2018 2017 2016 Research and development $2,557 $2,584 $1,900 Selling and marketing 449 633 490 General and administrative 4,477 4,104 3,566 $7,483 $7,321 $5,956 As of December 31, 2018, the Company had an aggregate of $11,486 of unrecognized stock-based compensation cost,which is expected to be recognized over a weighted average period of 2.5 years. 12. Net Loss Per Share Basic and diluted net loss per share attributable to common stockholders was calculated as follows for the years endedDecember 31, 2018, 2017 and 2016: Year Ended December 31, 2018 2017 2016Numerator: Net loss attributable to common stockholders $(59,978) $(63,386) $(44,703)Denominator: Weighted average common shares outstanding, basic and diluted 38,115,142 28,818,196 24,816,348Net loss per share attributable to common stockholders, basicand diluted $(1.57) $(2.20) $(1.80) The Company excluded the following common stock equivalents, outstanding as of December 31, 2018, 2017, and2016, from the computation of diluted net loss per share attributable to common stockholders for the years endedDecember 31, 2018, 2017 and 2016 because they had an anti-dilutive impact due to the net loss incurred for the periods. December 31, 2018 2017 2016 Options to purchase common stock 5,230,831 4,002,374 3,091,480 Warrants for the purchase of common stock 18,939 18,939 18,939 5,249,770 4,021,313 3,110,419 13. Commitments and Contingencies Leases The Company leases office, laboratory and manufacturing space in Bedford, Massachusetts and certain officeequipment under non-cancelable operating leases that expire in July 2023 and July 2027.F-20 Table of Contents Future minimum lease payments for its operating leases as of December 31, 2018 are as follows: Year Ending December 31, 2019 1,8092020 1,8502021 1,8862022 1,9362023 1,730Thereafter 5,224Total $14,435 In October 2017, the Company and CCC Investors LLC (the “Landlord”) entered into an amendment (the “SecondAmendment”) to a lease agreement for the Company’s laboratory and manufacturing space located at 34 Crosby Drive and 36Crosby Drive, each in Bedford, Massachusetts. The Second Amendment amends the original lease agreement and extends theterm of the Lease for 36 Crosby Drive from June 30, 2018 to July 31, 2023. Further, the Second Amendment acknowledgesthat the Company has previously vacated and surrendered, and the Lease has expired with regards to, 34 Crosby Drive, whichreduces the Company’s required security deposit under the Lease from $228 to $114. Under the Second Amendment, theannual base rent for 36 Crosby Drive shall be approximately $524 until June 30, 2018, was $0 from July 1, 2018 to July 31,2018, and shall be approximately $544 from August 1, 2018 to July 31, 2019. The annual base rent shall increase annuallythereafter. The Second Amendment also provides the Company a one-time option to terminate the Lease on July 31, 2021,upon the Company’s delivery to the Landlord on or before July 31, 2020 of a termination notice and the payment to theLandlord of a termination fee of approximately $273. In June 2016, the Company entered into a lease agreement for approximately 70,712 square feet of general office,research and development and manufacturing space in Bedford, Massachusetts. The lease term commenced on February 1,2017 and will expire on July 31, 2027. The Company relocated its corporate headquarters to the new leased premises duringJune 2017 and is evaluating the potential relocation of its manufacturing operations to the new leased premises. No base rentwas due under the lease until August 1, 2017. The initial annual base rent is approximately $1,200 and will increase annuallybeginning on February 1 of each year. The Company is obligated to pay all real estate taxes and costs related to the premises,including costs of operations, maintenance, repair, and replacement and management of the new leased premises. TheCompany posted a customary letter of credit in the amount of approximately $1,500 as a security deposit. The leaseagreement allows for a landlord provided construction allowance not to exceed approximately $2,800 to be applied to thetotal construction costs of the new leased premises. The construction allowance was to be used on or before December 31,2017, or it would be deemed forfeited with no further obligation by the landlord of the new leased premises. As of December31, 2017, the Company has billed the landlord for $2,725 and received payments of $2,656 from the landlord. The Companyforfeited $0.1 million under the construction allowance. Build out costs being reimbursed under the tenant improvementallowance have been recorded as deferred rent and will be amortized as a deduction to rent expense over the lease term. The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent forrent expense incurred but not yet paid. During the years ended December 31, 2018, 2017 and 2016, the Companyrecognized $1,788, $1,733 and $1,084, respectively, of rental expense, related to its office, laboratory and manufacturingspace and office equipment. Intellectual Property Licenses The Company has a license agreement with Incept, LLC (“Incept”) (Note 16) to use and develop certain patent rights(the “Incept License”). Under the Incept License, as amended and restated, the Company was granted a worldwide, perpetual,exclusive license 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 lowsingle-digit royalties on net sales of commercial products developed using the licensed technology, commencing with thedate of the first commercial sale of such products and until the expiration of the last to expire of the patents covered by thelicense. Any of the Company’s sublicensees also will be obligated to pay Incept a royalty equal to a low single-digitpercentage of net sales made by it and will be bound by the terms of the agreement to the same extent as the Company. TheCompany is obligated to reimburse Incept for its share of the reasonable fees andF-21 Table of Contentscosts incurred by Incept in connection with the prosecution of the patent applications licensed to the Company under theIncept License. Through December 31, 2018, royalties paid under this agreement related to product sales were $214. On September 13, 2018, (the “Effective Date) the Company entered into a second amended and restated licenseagreement (the “Second Amended Agreement”) with Incept. The Second Amended Agreement amends and restates in full theCompany’s prior amended and restated Incept License (the “Prior Agreement” or “Original License”) to expand the scope ofthe Company’s intellectual property license and modify future intellectual property ownership and other rights thereunder. Indemnification Agreements In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors,lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out ofbreach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Companyhas entered into indemnification agreements with members of its board of directors and senior management team that willrequire the Company, among other things, to indemnify them against certain liabilities that may arise by reason of theirstatus or service as directors or officers. The maximum potential amount of future payments the Company could be requiredto make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred anymaterial costs as a result of such indemnifications. The Company does not believe that the outcome of any claims underindemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and ithas not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2018. Purchase Commitments Purchase commitments represent non-cancelable contractual commitments associated with certain clinical trialactivities within the Company’s clinical research organization. Manufacturing Commitments Manufacturing contracts generally provide for termination on notice, and therefore are cancelable contracts but arecontracts that the Company is likely to continue, regardless of the fact that they are cancelable. Collaboration Agreement On October 10, 2016, the Company entered into a Collaboration Agreement with Regeneron (Note 6). If the Option toenter into an exclusive worldwide license is exercised, Regeneron will conduct further preclinical development and an initialclinical trial under a collaboration plan. The Company is obligated to reimburse Regeneron for certain development costsincurred by Regeneron under the collaboration plan during the period through the completion of the initial clinical trial,subject to a cap of $25,000, which cap may be increased by up to $5,000 under certain circumstances, the timing of suchpayments are not known. If Regeneron elects to proceed with further development following the completion of thecollaboration plan, it will be solely responsible for conducting and funding further development and commercialization ofproduct candidates. If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research,develop and commercialize at least one Licensed Product. Such efforts shall include initiating the dosing phase of asubsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or theinitiation of preclinical toxicology studies, subject to certain extensions. Through December 31, 2018, the Option has notbeen exercised and no payments have been made to Regeneron. Legal Proceedings Securities Class Actions On July 7, 2017, a putative class action lawsuit was filed against the Company and certain of the Company’s currentand former executive officers in the United States District Court for the District of New Jersey, captioned Thomas Gallagherv. Ocular Therapeutix, Inc, et al., Case No. 2:17-cv-05011. The complaint purports to be brought on behalf of shareholderswho purchased the Company’s common stock between May 5, 2017 and July 6, 2017. TheF-22 Table of Contentscomplaint generally alleges that the Company and certain of the Company’s current and former officers violated Sections10(b) and/or 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder bymaking allegedly false and/or misleading statements concerning the Form 483 issued by the FDA related to DEXTENZA andthe Company’s manufacturing operations for DEXTENZA. The complaint seeks unspecified damages, attorneys’ fees, andother costs. On July 14, 2017, an amended complaint was filed; the amended complaint purports to be brought on behalf ofshareholders who purchased the Company’s common stock between May 5, 2017 and July 11, 2017, and otherwise includesallegations similar to those made in the original complaint. On July 12, 2017, a second putative class action lawsuit was filed against the Company and certain of the Company’scurrent and former executive officers in the United States District Court for the District of New Jersey, captioned DylanCaraker v. Ocular Therapeutix, Inc., et al., Case No. 2:17-cv-05095. The complaint purports to be brought on behalf ofshareholders who purchased the Company’s common stock between May 5, 2017 and July 6, 2017. The complaint includesallegations similar to those made in the Gallagher complaint, and seeks similar relief. On August 3, 2017, a third putative class action lawsuit was filed against the Company and certain of the Company’scurrent and former executive officers in the United States District Court for the District of New Jersey, captioned Shawna Kimv. Ocular Therapeutix, Inc., et al., Case No. 2:17-cv-05704. The complaint purports to be brought on behalf of shareholderswho purchased the Company’s common stock between March 10, 2016 and July 11, 2017. The complaint includesallegations similar to those made in the Gallagher complaint, and seeks similar relief. On October 27, 2017, a magistrate judge for the United States District Court for the District of New Jersey granted thedefendants’ motion to transfer the above-referenced Gallagher, Caraker, and Kim litigations to the United States DistrictCourt for the District of Massachusetts. These matters were assigned the following docket numbers in the District ofMassachusetts: 1:17-cv-12288 (Gallagher), 1:17-cv-12146 (Caraker), and 1:17-cv-12286 (Kim). On March 9, 2018, the court consolidated the three actions and appointed co-lead plaintiffs and co-lead counsel for theconsolidated action. On May 7, 2018, co-lead plaintiffs filed a consolidated amended class action complaint. The amendedcomplaint makes allegations similar to those in the original complaints, against the same defendants, and seeks similar reliefon behalf of shareholders who purchased the Company’s common stock between March 10, 2016 and July 11, 2017. Theamended complaint generally alleges that defendants violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule10b-5 promulgated thereunder. On July 6, 2018, defendants filed a motion to dismiss the consolidated amendedcomplaint. Plaintiffs’ filed an opposition to the motion to dismiss on September 4, 2018, and defendants filed a reply onOctober 4, 2018. The court held oral argument on the motion to dismiss on February 6, 2019 and took the matter underadvisement. The Company denies any allegations of wrongdoing and intends to vigorously defend against these lawsuits. Shareholder Derivative Litigation On July 11, 2017, a purported shareholder derivative lawsuit was filed against certain of the Company’s current andformer executive officers, certain current and former board members, and the Company as a nominal defendant, in the UnitedStates District Court for the District of Massachusetts, captioned Robert Corwin v. Sawhney et al., Case No. 1:17-cv-11270. The complaint generally alleged that the individual defendants breached fiduciary duties owed to the Company bymaking allegedly false and/or misleading statements concerning the Form 483 related to DEXTENZA and our manufacturingoperations for DEXTENZA. The complaint purported to assert claims against the individual defendants for breach offiduciary duty, and sought to recover on behalf of the Company for any liability the Company incurs as a result of theindividual defendants’ alleged misconduct. The complaint also sought contribution on behalf of the Company from allindividual defendants for their alleged violations of Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5promulgated thereunder. The complaint sought declaratory, equitable, and monetary relief, an unspecified amount ofdamages, with interest, and attorneys’ fees and costs. On September 20, 2017, counsel for the plaintiff filed a notice ofvoluntary dismissal, stating that the plaintiff wished to coordinate his efforts and proceed in a consolidated fashion with theplaintiff in a similar derivative suit that was pending in the Superior Court of Suffolk County of the Commonwealth ofMassachusetts captioned Angel Madera v. Sawhney et al., Case. No. 17-2273 (which is discussed in the paragraphimmediately below) by filing an action in that court subsequent to the dismissal of this lawsuit. The Corwin lawsuit wasdismissed without prejudice on September 21, 2017. On October 24, 2017, the plaintiff filed a new derivative complaint inMassachusetts Superior Court (Suffolk County), captioned Robert Corwin v. Sawhney et al., Case No. 17-3425 (BLS2). Thenew Corwin complaint includes allegations similar to those made in theF-23 Table of Contentsfederal court complaint and asserts a derivative claim for breach of fiduciary duty against certain of our current and formerofficers and directors. The complaint also asserts an unjust enrichment claim against two additional defendants, SV LifeSciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP. The complaint also names the Company as anominal defendant. On July 19, 2017, a second purported shareholder derivative lawsuit was filed against certain of the Company’s currentand former executive officers, all current board members, one former board member, and the Company as a nominaldefendant, in the Superior Court of Suffolk County of the Commonwealth of Massachusetts, captioned Angel Madera v.Sawhney et al., Case. No. 17-2273. The complaint included allegations similar to those made in the Corwin complaint. Thecomplaint purported to assert derivative claims against the individual defendants for breach of fiduciary duty, unjustenrichment, abuse of control, gross mismanagement, and waste of corporate assets, and sought to recover on behalf of theCompany for any liability the Company incurs as a result of the individual defendants’ alleged misconduct. The complaintsought declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees andcosts. On November 6, 2017, the court dismissed this action without prejudice due to plaintiff’s failure to complete service ofprocess within the time permitted under applicable court rules. On December 21, 2017, the same plaintiff filed a newderivative complaint in the same court, captioned Angel Madera v. Sawhney et al., Case. No. 17-4126 (BLS2). The newMadera complaint is premised on substantially similar allegations as the previous complaint and purports to assert derivativeclaims against certain current and former executive officers and board members for breach of fiduciary duty, unjustenrichment, and waste of corporate assets, and names the Company as a nominal defendant. Like the new Corwin complaint,the new Madera complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences FundIV, LP and SV Life Sciences Fund IV Strategic Partners, LP. By order dated January 29, 2018, the court consolidated the state court Corwin and Madera complaints under theCorwin docket and appointed lead counsel for plaintiffs. On February 28, 2018, plaintiffs filed a consolidated amendedcomplaint. The consolidated complaint names substantially the same defendants and is premised on substantially similarallegations as the previous Corwin and Madera complaints, asserting claims for breach of fiduciary duty against theindividual defendants and unjust enrichment against the two SV entity defendants. On April 17, 2018, all defendants serveda motion to dismiss the consolidated amended complaint. On June 22, 2018, plaintiffs served their opposition to the motionto dismiss and a cross-motion to stay the proceedings pending a decision on the motion to dismiss in the above-referencedsecurities class action in the District of Massachusetts. On July 30, 2018, the parties filed a joint motion to stay theproceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District ofMassachusetts. On August 3, 2018, the court granted the motion to stay. On January 31, 2018, a third purported shareholder derivative suit was filed against certain of the Company’s currentand former executive officers, certain current and former board members, and the Company as a nominal defendant, in theUnited States District Court for the District of Massachusetts, captioned Brian Robinson v. Sawhney et al., Case. No. 1:18-cv-10199. The complaint includes allegations similar to those made in the Corwin and Madera complaints. The complaintdoes not name either SV Life Sciences Fund, IV, LP or SV Life Sciences Fund IV Strategic Partners, LP as defendants, andadds two former officers as defendants. The complaint purports to assert derivative claims against the individual defendantsfor breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seeks to recover on behalf of the Companyfor any liability the Company incurs as a result of the individual defendants’ alleged misconduct. The complaint seeksdeclaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs. On April 30, 2018, all defendants filed a motion to dismiss or stay the complaint. Plaintiff filed his opposition on June 22,2018. On July 26, 2018, the parties filed a joint motion to extend the deadline for defendants to file their reply brief pendingthe potential substitution of the named shareholder plaintiff. On August 20, 2018, the parties filed a joint stipulation andproposed order regarding plaintiff’s unopposed request to substitute a new shareholder plaintiff and the parties’ joint requestthat the court stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities classaction in the District of Massachusetts. On September 4, 2018, the court entered the requested order substituting the namedplaintiff and staying the matter. On February 16, 2018, a fourth purported shareholder derivative suit was filed against certain of the Company’s currentand former executive officers, certain current and former board members, and the Company as a nominal defendant, in theUnited States District Court for the District of Delaware, captioned Terry Kelly v. Sawhney et al., Case. No. 1:18-cv-00277. The complaint includes allegations similar to those made in the Corwin and Madera complaints. The complaintpurports to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment andwaste of corporate assets, and seeks to recover on behalf of the Company for any liability the Company incurs as a result ofthe individual defendants’ alleged misconduct. The complaint also asserts an unjust enrichmentF-24 Table of Contentsclaim against SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP. The complaint seeksdeclaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs.On June 11, 2018, the parties filed a stipulation staying the lawsuit pending final judgment in the consolidated derivativeaction pending in Massachusetts state court under the Corwin docket, described above. The court entered an order stayingthe case on June 12, 2018. The Company denies any allegations of wrongdoing and intend to vigorously defend against these lawsuits. In addition, the Company has received a subpoena from the SEC, dated December 15, 2017, requesting documents andinformation concerning DEXTENZA (dexamethasone insert) 0.4mg, including related communications with the FDA,investors and others. The Company received a second subpoena from the SEC on August 21, 2018, requesting documentsand information concerning its participation in two investor conferences in June 2017. The Company intends to fullycooperate with the SEC regarding this non-public, fact-finding inquiry. The SEC has informed the Company that thisinquiry should not be construed as an indication that any violations of law have occurred or that the SEC has any negativeopinion of any person, entity or security. The Company is unable to predict the outcome of these lawsuits or proceedings at this time. Moreover, any conclusionof these matters in a manner adverse to the Company and for which it incurs substantial costs or damages not covered by ourdirectors’ and officers’ liability insurance would have a material adverse effect on the Company’s financial condition andbusiness. In addition, the proceedings could adversely impact the Company’s reputation and divert management’s attentionand resources from other priorities, including the execution of business plans and strategies that are important to theCompany’s ability to grow the Company’s business, any of which could have a material adverse effect on the Company’sbusiness. 14. Income Taxes 2017 U.S. Tax Reform On December 22, 2017 President Trump signed into law the “Tax Cuts and Jobs Act” (“TCJA”) that significantlyreforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes tocorporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%effective as of January 1, 2018. Additionally, the TCJA contained provisions for the limitation of the tax deduction forinterest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and eliminationof net operating loss carrybacks in each case for losses arising in taxable years beginning after December 31, 2017(thoughany such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions andcredits. This includes reducing the business tax credit for certain clinical testing expenses incurred in the testing of certaindrugs for rare disease or conditions generally referred to as ‘orphan drugs’. The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address theapplication of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared oranalyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of theTCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets andliabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurementof the Company’s deferred tax assets and liabilities was offset by a corresponding change in the valuation allowance for theyear ended December 31, 2017. As a result, there was no impact to the Company’s consolidated statements of operations andcomprehensive loss as a result of the reduction in tax rates. The other provisions of the TCJA did not have a material impacton the Company’s consolidated financial statements. The Company’s final determination of the TCJA impact and theremeasurement of its deferred assets and liabilities was completed prior to the deadline of one year from the enactment of theTCJA. For the year ended December 31, 2018, there were no material changes to the analysis originally performed as ofDecember 31, 2017. F-25 Table of ContentsIncome Taxes During the years ended December 31, 2018, 2017 and 2016, the Company recorded no income tax benefits for the netoperating losses incurred or the research and development tax credits generated in each year, due to its uncertainty ofrealizing a benefit from those items. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2018 2017 2016 Federal statutory income tax rate (21.0)% (34.0)% (34.0)%Tax reform change — 43.0 — Research and development tax credits (3.6) (3.3) (2.9) State taxes, net of federal benefit (4.5) (3.8) (4.8) Stock-based compensation 1.3 2.2 1.4 Other 0.1 (0.2) (0.6) Change in deferred tax asset valuation allowance 27.7 (3.9) 40.9 Effective income tax rate —% —% —% Net deferred tax assets consisted of the following: December 31, 2018 2017Net operating loss carryforwards $49,699 $33,094Tax credit carryforwards 10,160 7,971Capitalized start-up costs 870 1,022Capitalized research and development expenses, net 18,418 21,869Accrued expenses and other temporary differences 5,196 3,770Total gross deferred tax assets 84,343 67,726Valuation allowance (84,343) (67,726)Net deferred tax assets $ — $ — Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2018, 2017 and 2016related primarily to the increase in net operating loss carryforwards, capitalized research and development expenses andresearch and development tax credit carryforwards offset in 2017 by a decrease in a deferred tax asset resulting from thedecreased federal corporate tax rate and were as follows: Year Ended December 31, 2018 2017 2016Valuation allowance as of beginning of year $67,726 $70,236 $51,969Increases recorded to income tax provision 16,617 24,773 18,267Decreases recorded to income tax provision — (27,283) —Valuation allowance as of end of year $84,343 $67,726 $70,236 As of December 31, 2018, the Company had net operating loss carryforwards for federal and state income tax purposesof $190,555 and $161,837, respectively. The federal and state net operating losses generated for annual periods prior toJanuary 1, 2018 begin to expire in 2026. The Company’s federal net operating losses generated for the year ended December31, 2018, which amounted to $64,327, can be carried forward indefinitely. As of December 31, 2018, the Company also hadavailable research and development tax credit carryforwards for federal and state income tax purposes of $7,036 and $3,611,respectively, which begin to expire in 2026 and 2025, respectively. Utilization of the net operating loss carryforwards andresearch and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of theInternal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certainshareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has notconducted a study to assess whether a change of control hasF-26 Table of Contentsoccurred or whether there have been multiple changes of control since inception due to the significant complexity and costassociated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any timesince inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwardswould be subject to an annual limitation under Section 382, which is determined by first multiplying the value of theCompany’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subjectto additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating losscarryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed andany limitation is known, no amounts are being presented as an uncertain tax position. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred taxassets. Management considered the Company’s cumulative net losses and concluded that it is more likely than not that theCompany would not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance was establishedagainst the net deferred tax assets as of December 31, 2018 and 2017. The valuation allowance increased by approximately$16,617 in 2018 as a result of the increase in deferred tax assets primarily related to net operating loss carryforwards. In 2017,the valuation allowance, on a net basis, decreased by approximately $2,510 due to the decrease in corporate tax rate offset byan increase in deferred tax assets related to net operating loss carryforwards. The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2018 or 2017. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normalcourse of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There arecurrently no pending income tax examinations. The Company’s tax years are still open under statute from December 31,2015 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used infuture periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income taxprovision. As of December 31, 2018 and 2017, the Company had no accrued interest or penalties related to uncertain taxpositions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss. 15. 401(k) Savings Plan The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code.This plan covers substantially all employees who meet minimum age and service requirements and allows participants todefer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at thediscretion of the board of directors. Through December 31, 2018, no contributions have been made to the plan by theCompany. 16. Related Party Transactions The Company has a license agreement with Incept to use and develop certain patent rights that it entered into in 2007.Royalties incurred and payable to Incept have not been material to date. The Company’s former President and ChiefExecutive Officer and current Executive Chairman and Chairman of the Company’s board of directors is a general partner ofIncept. Since October 2017, the Company has engaged McCarter English LLP (“McCarter”) to provide legal services to theCompany, including with respect to intellectual property matters. The Company’s Senior Vice President, TechnicalOperations, Kevin Hanley, who joined the Company in January 2018, is married to a partner at McCarter, who has notparticipated in providing legal services to the Company. The Company incurred fees for legal services rendered by McCarterof $1,019 and $42 for the year ended December 31, 2018 and 2017, respectively. As of December 31, 2018, there was $526recorded in accounts payable for McCarter. In March 2016, the Company entered into a Master Services Agreement with Axtria, Inc. (“Axtria”). In March 2016,the Company entered into a statement of work totaling approximately $104 under which Axtria would provide certain salesand marketing analytics to the Company. In February 2017, the Company entered into a separate statement of work totalingapproximately $1,400 under which Axtria would provide data warehouse implementation, operations and maintenancesupport services to the Company. Jaswinder Chadha, co-founder and CEO of Axtria, is also a member of the Company’sBoard of Directors and a cousin to the Company’s Executive Chairman of the Board of Directors and former President andChief Executive Officer. For the years ended December 31, 2017 and 2016, payments paid toF-27 Table of ContentsAxtria were $864 under the 2017 statement of work and $150 under the 2016 statement of work, respectively. As ofDecember 31, 2017, there were no amounts due in accounts payable to Axtria. On July 20, 2017, the Company terminatedthe 2017 and 2016 statements of work with Axtria. Since 2014, the Company has engaged Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to provide legalservices to the Company, including with respect to general corporate, finance, securities law, regulatory and licensingmatters. The Company’s former Chief Medical Officer, Jonathan H. Talamo, M.D., who served as Chief Medical Officer fromJuly 2016 until his resignation in June 2017, is married to a partner at WilmerHale, who has not participated in providinglegal services to the Company. The Company incurred fees for legal services rendered by WilmerHale of $1,368 and $874for the year ended December 31, 2017 and 2016, respectively. As of December 31, 2017, there was $194, recorded inaccounts payable for WilmerHale. As of December 31, 2017, there was $80, recorded in accrued expenses for WilmerHale. 17. Restructuring and Other Costs On July 31, 2017, the Board of Directors approved a strategic restructuring to eliminate a portion of the Company’sworkforce as part of an initiative to enhance operations and reduce expenses. As part of this strategic restructuring, theCompany eliminated 30 positions across the organization. During the twelve months ended December 31, 2017, theCompany recorded $1,703 of restructuring-related costs in operating expenses in research and development and selling andmarking, including employee severance, benefits and related costs. On July 31, 2017, the Company entered into a transition, separation and release of claims agreement (the “AnkerudTransition Agreement”), pursuant to which Eric Ankerud resigned from his role as Executive Vice President, Regulatory,Quality and Compliance of the Company, effective immediately. Mr. Ankerud continued to serve as an at-will employee ofthe Company in the capacity of Senior Advisor until October 31, 2017. He currently serves as a consultant to theCompany. Under the Ankerud Transition Agreement, Mr. Ankerud is entitled to separation benefits until October 31,2018, in the form of continuation of his base salary in the same amount in effect as of October 31, 2018; the payment ofmonthly premiums for healthcare and/or dental coverage; and provided he continues to provide services to the Company as aconsultant, the continued vesting of his outstanding stock options awards in accordance with the applicable equity plans andstock option agreements. During the twelve months ended December 31, 2017, the Company recorded $386 of severanceexpense which are included in operating expenses in research and development. On October 13, 2017, the Company entered into a transition, separation and release of claims agreement (the “FortuneTransition Agreement”) with James Fortune, pursuant to which Mr. Fortune resigned from his role as Chief Operating Officerand any and all other positions he holds as an officer or employee of the Company, effective December 31, 2017 (the“Separation Date”). Pursuant to the Fortune Transition Agreement, effective as of October 13, 2017, the EmploymentAgreement, by and between the Company and Mr. Fortune, dated June 19, 2014, was terminated. Under the FortuneTransition Agreement, Mr. Fortune will be entitled to separation benefits in the form of (i) the continuation of his base salaryfor twelve months after the Separation Date in the same amount in effect as of the October 13, 2017 and (ii) the payment ofmonthly premiums for healthcare and/or dental coverage at the same rate that is in effect on the Separation Date until theearlier of twelve months from the Separation Date or the date Mr. Fortune becomes eligible to receive such benefits underanother employer’s benefit plan. Should any annual bonus payments be made to active Company executives for the calendaryear 2017, Mr. Fortune will also be eligible to receive a bonus payment in such amount, if any, he would have received hadhe remained employed with the Company through the date of such bonus payments. During the twelve months endedDecember 31, 2017, the Company recorded $417 of severance expense which are included in operating expenses in generaland administration.F-28 Table of ContentsThe following table summarizes the restructuring and other costs by category during the twelve months endedDecember 31, 2017: wwe Twelve Months EndedDecember 31, 2017 Total Research and development $690 Selling and marketing 1,399 General and administration 417 $2,506 The following table summarizes the restructuring and other costs reserve for the periods indicated: Year Ended December 31, 2018Restructuring and other costs at December 31, 2017 $960Amounts paid during the period (960)Restructuring and other costs at December 31, 2018 $ — 18. Selected Quarterly Financial Data (Unaudited) Three Months Ended Dec. 31, Sept. 30, June 30, Mar 31, Dec. 31, Sept. 30, June 30, Mar 31, 2018 2018 2018 2018 2017 2017 2017 2017Statements ofOperations Data: Product revenue $504 $498 $648 $340 $487 $523 $438 $475Revenue 504 498 648 340 487 523 438 475Loss fromoperations (17,283) (14,816) (13,564) (13,455) (12,716) (15,196) (18,339) (15,672)Net loss (17,399) (15,010) (13,804) (13,765) (13,102) (15,567) (18,694) (16,023)Basic and dilutednet loss percommon share $(0.42) $(0.38) $(0.37) $(0.40) $(0.44) $(0.54) $(0.64) $(0.58) 19. Subsequent Events The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day ofeach fiscal year, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218 shares ofthe Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the first day ofthe applicable fiscal year, and an amount determined by the Company’s board of directors. On January 1, 2019, the numberof shares available for issuance under the 2014 Plan increased by 1,659,218. The number of shares of common stock that may be issued under the ESPP will automatically increase on the first dayof each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of207,402 shares of the Company’s common stock, 0.5% of the number of shares of the Company’s common stock outstandingon the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors. On January 1,2019, the number of shares available for issuance under the ESPP increased by 207,402.The Company sold an additional 1,318,481 shares of common stock between January 1, 2019 and February 22, 2019,at-the-market under the 2016 Sales Agreement discussed in Note 10, resulting in net proceeds of approximately $4,967 afterunderwriting discounts, commissions and expenses. As of February 25, 2019, the Company had nothing remaining availablefor future sale under the 2016 Sales Agreement. On February 28, 2019, pursuant to the 2016 Sales Agreement, the Companydelivered a termination notice to Cantor, terminating the 2016 Sales Agreement.Private Placement of Convertible Debt F-29 Table of ContentsIn March 2019, the Company entered into a Note Purchase Agreement (the “Purchase Agreement”), with Cap 1 LLC,(the “Purchaser”) an affiliate of Summer Road LLC, to issue and sell to the Purchaser unsecured senior subordinatedconvertible notes, (“the Notes”), in the original aggregate principal amount of $37.5 million within five business days of theAgreement Date or upon such later date as mutually agreed between the Company and the Purchaser in writing (such date,the “Closing Date”). In accordance with the Purchase Agreement, each Note accrues interest at a rate of 6% of its outstandingprincipal amount per annum, payable at maturity. The maturity date of each Note is March 1, 2026, unless earlier converted,repurchased or redeemed as described below. Holders may, subject to certain conditions, convert all or part of the outstanding principal amount of their Notesinto shares of the Company’s common stock, par value $0.0001 per share, or the Common Stock, provided that noconversion results in a holder beneficially owning more than 19.99% of the issued and outstanding Common Stock of theCompany. The conversion rate for the Notes will initially be 153.8462 shares of the Company’s common stock per $1,000principal amount of the Notes, which is equivalent to an initial conversion price of approximately $6.50 per share. Theconversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to the Company’scapitalization. At its election, the Company may choose to make such conversion payment in cash, in shares of CommonStock, or in a combination thereof. Upon any conversion of any Note, the Company is obligated to make a cash payment tothe holder of such Note for any interest accrued but unpaid on the principal amount converted. Upon the occurrence of aCorporate Transaction (as defined in the Notes), the holder of a Note is entitled, at such holder’s option, to convert all of theoutstanding principal amount of the Note in accordance with the foregoing and receive an additional, “make-whole” cashpayment in accordance with a table set forth in each Note. Upon the occurrence of a Corporate Transaction, each holder of a Note has the option to require the Company torepurchase all or part of the outstanding principal amount of such Note at a repurchase price equal to 100% of theoutstanding principal amount of the Note to be repurchased, plus accrued and unpaid interest to, but excluding, therepurchase date. On or after March 1, 2022, if the last reported sale price of the Common Stock has been at least 130% of theconversion rate then in effect for twenty of the preceding thirty trading days (including the last trading day of such period),the Company is entitled, at its option, to redeem all or part of the outstanding principal amount of the Notes, on a pro ratabasis, at an optional redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed, plusaccrued and unpaid interest to, but excluding, the optional redemption date. The Purchase Agreement contains customary representations and warranties by the Company and the Purchaser. The Purchase Agreement does not include any financial covenants. The Company’s obligations under the PurchaseAgreement and the Notes are subject to acceleration upon the occurrence of specified events of default, including a default orbreach of certain contracts material to the Company and the delisting and deregistration of the Common Stock. In connection with the execution of the Purchase Agreement and the issuance and sale of the Notes thereunder, theCompany and the Purchaser have agreed to enter into a registration rights agreement on the Closing Date, (the “RegistrationRights Agreement”). Under the terms of the Registration Rights Agreement and subject to specified exceptions, theCompany will be obligated to use commercially reasonable efforts, at its expense, to file a resale registration statement (the“Registration Statement”) with the SEC to register the Common Stock underlying the Notes within 30 days of the ClosingDate and to have the SEC declare the Registration Statement effective within 90 days of the Closing Date. The Company willbe further obligated to use commercially reasonable efforts to cause the Registration Statement to remain continuouslyeffective until the earlier of the dates when all securities registrable under the Registration Rights Agreement (i) have beensold or (ii) may be sold without restriction, subject to certain conditions, pursuant to Rule 144 promulgated under theSecurities Act of 1993, as amended. Amendment to Existing 2018 Amended Credit Facility In accordance with the 2018 Amended Credit Facility, in connection with the Company’s desire to enter into thePurchase Agreement and issue and sell the Notes thereunder, the Company, MidCap, and the Senior Lenders entered into anamendment to the 2018 Amended Credit Facility (“Subsequent Amendment”) on February 21, 2019 (the “Agreement Date”). The Subsequent Amendment added to the 2018 Amended Credit Facility, among other provisions, a negative covenantrestricting the Company from paying the holders of the Notes ahead in priority to the Senior Lenders, for so long asindebtedness remains outstanding under the Credit Facility, and a cross-default provision toF-30 Table of Contentsestablish that an event of default under the Purchase Agreement also constituted an event of default under the CreditAgreement. Subordination Agreement In connection with the execution of the Subsequent Amendment, the Company; Cap 1, for itself and on behalf of anyfuture holder of the Notes, or collectively, the Subordinated Creditors; and MidCap, as agent for the Senior Lenders, entereda subordination agreement on the Agreement Date (the “Subordination Agreement”). Under the terms of the SubordinationAgreement, as an inducement to the Senior Lenders to permit the issuance and sale of the Notes, the Senior Lenders and theSubordinated Creditors agreed that the Notes are subordinate to the Credit Facility and that any and all payments to theholders of the Notes are subject to the payment in full of the Credit Facility. Until the Credit Facility is paid in full, asdefined in the Subordination Agreement, the Subordinated Creditors agree not to take any enforcement action, as defined inthe Subordination Agreement, with respect to all or any portion of the Notes, without the prior written consent of the agentfor the Senior Lenders. F-31Exhibit 4.2 REGISTRATION RIGHTS AGREEMENTThis REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of March 1,2019 by and among Ocular Therapeutix, Inc., a Delaware corporation (the “Company”), and the “Purchasers” namedin that certain Note Purchase Agreement by and among the Company and the Purchasers dated as of February 21,2019 (the “Purchase Agreement”). Capitalized terms used herein have the respective meanings ascribed thereto in thePurchase Agreement unless otherwise defined herein.The parties hereby agree as follows:1. Certain Definitions.As used in this Agreement, the following terms shall have the following meanings:“Closing Date” means the date of the purchase and sale of the Notes pursuant to the Purchase Agreement.“Common Stock” means the common stock, $0.0001 par value per share, of the Company.“Conversion Shares” means shares of Common Stock issued or issuable upon the conversion of the Notes.“Exchange Act” means the Securities Exchange Act of 1934, as amended, including the rules and regulationspromulgated thereunder.“Note” or “Notes” means senior subordinated convertible notes issued by the Company pursuant to thePurchase Agreement.“Purchasers” means (i) the Purchasers identified in the Purchase Agreement and (ii) any permitted transferee ofany Purchaser who is a subsequent holder of Registrable Securities.“Prospectus” means (i) the prospectus included in any Registration Statement, as amended or supplemented byany prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securitiescovered by such Registration Statement and by all other amendments and supplements to the prospectus, includingpost-effective amendments and all material incorporated by reference in such prospectus, and (ii) any “free writingprospectus” as defined in Rule 405 under the Securities Act.“Register,” “registered” and “registration” refer to a registration made by preparing and filing a RegistrationStatement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness ofsuch Registration Statement or document.“Registrable Securities” means (i) the Conversion Shares, (ii) the shares of Common Stock set forth onSchedule A hereto and (iii) any other securities issued or issuable with respect to or in exchange for Conversion Sharesor the shares of Common Stock set forth on Schedule A, whether by merger, charter amendment or otherwise;provided that a security shall cease to be a Registrable Security upon the earlier of (A) a sale pursuant to a RegistrationStatement or a valid exemption under the Securities Act, and (B) such security becoming eligible for sale without restriction by the Purchaserspursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)promulgated under the Securities Act.“Registration Statement” means any registration statement of the Company under the Securities Act that coversthe resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments andsupplements to such Registration Statement, including post-effective amendments, all exhibits and all materialincorporated by reference in such Registration Statement.“Required Purchasers” means the Purchaser (or Purchasers) holding a majority of the issued or issuableRegistrable Securities.“SEC” means the U.S. Securities and Exchange Commission.“Securities Act” means the Securities Act of 1933, as amended, including the rules and regulationspromulgated thereunder.“Selling Securityholder Questionnaire” means a form of selling securityholder questionnaire as may bereasonably requested by the Company from time to time.2. Registration.(a) Registration Statement. The Company shall use commercially reasonable efforts to (i) promptlyprepare and file with the SEC one Registration Statement covering the resale of all of the Registrable Securities withinthirty (30) days after the Closing Date (the “Filing Deadline”) and (ii) make such Registration Statement becomeeffective with the SEC within ninety (90) days after the Closing Date (or as soon as practicable thereafter). Subject toany SEC comments, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A;provided, however, that no Purchaser shall be named as an “underwriter” in such Registration Statement without thePurchaser’s prior written consent. Such Registration Statement also shall cover, to the extent allowable under theSecurities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additionalshares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to theRegistrable Securities. Such Registration Statement (and each amendment or supplement thereto, and each request foracceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) hereof to the Purchasers prior toits filing or other submission.(b) Expenses. The Company will pay all expenses associated with each Registration Statement,including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated withclearing the Registrable Securities for sale under applicable state securities laws and listing fees, but excludingdiscounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industryprofessionals with respect to the Registrable Securities being sold.(c) Effectiveness.- 2 - (i) The Company shall use commercially reasonable efforts to have each RegistrationStatement declared effective as soon as practicable. The Company shall notify the Purchasers by facsimile or e-mail aspromptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declaredeffective and shall simultaneously provide the Purchasers with copies of any related Prospectus to be used inconnection with the sale or other disposition of the securities covered thereby.(ii) For not more than sixty (60) consecutive days or for a total of not more than one hundredtwenty (120) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included inany Registration Statement contemplated by this Section 2 in the event that the Company determines in good faith thatsuch suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company,the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of theCompany, (B) amend or supplement the affected Registration Statement or the related Prospectus so that suchRegistration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a materialfact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of thecircumstances under which they were made, not misleading, (C) permit the Company to conduct a sale of securities orother financing that is not a sale of Registrable Securities or (D) file a replacement Registration Statement covering theresale of Registrable Securities in connection with the expiration or anticipated expiration of an effective RegistrationStatement (an “Allowed Delay”); provided that the Company shall promptly (a) notify each Purchaser in writing of thecommencement of an Allowed Delay, but shall not (without the prior written consent of an Purchaser) disclose to suchPurchaser any material non-public information giving rise to an Allowed Delay, (b) advise the Purchasers in writing tocease all sales under such Registration Statement until the end of the Allowed Delay and (c) use commerciallyreasonable efforts to terminate an Allowed Delay as promptly as practicable.(d) Rule 415; Cutback. If at any time the SEC takes the position that the offering of some or all ofthe Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis underthe provisions of Rule 415 under the Securities Act or requires any Purchaser to be named as an “underwriter,” theCompany shall use commercially reasonable efforts to persuade the SEC that the offering contemplated by suchRegistration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined inRule 415 and that none of the Purchasers is an “underwriter.” The Purchasers shall have the right to select one legalcounsel to review and oversee any registration or matters pursuant to this Section 2(d), including participation in anymeetings or discussions with the SEC regarding the SEC’s position and to comment on any written submission madeto the SEC with respect thereto, which counsel shall be designated by the Required Purchasers. In the event that,despite the Company’s commercially reasonable efforts and compliance with the terms of this Section 2(d), the SECdoes not alter its position, the Company shall (i) remove from such Registration Statement such portion of theRegistrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registrationand resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with therequirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agreeto name any Purchaser as an “underwriter” in such Registration Statement without the prior written consent of suchPurchaser. Any cut-back imposed on the Purchasers pursuant to this- 3 - Section 2(d) shall be allocated among the Purchasers on a pro rata basis and shall be applied first to any of theRegistrable Securities of such Purchaser as such Purchaser shall designate, unless the SEC Restrictions otherwiserequire or provide or the Purchasers otherwise agree. From and after such date as the Company is able to effect theregistration of such Cut Back Shares, the Company shall use commercially reasonable efforts to file a RegistrationStatement relating to such Cut Back Shares and to have such Registration Statement declared effective by the SEC.3. Company Obligations. The Company will use commercially reasonable efforts to effect the registrationof the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, asexpeditiously as possible:(a) use commercially reasonable efforts to cause such Registration Statement to remaincontinuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securitiescovered by such Registration Statement as amended from time to time, and actually issued or issuable upon conversionof the Notes have been sold and (ii) the date on which all Registrable Securities covered by such RegistrationStatement and actually issued or issuable upon conversion of the Notes may be sold without restriction pursuant toRule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) promulgatedunder the Securities Act (the “Effectiveness Period”), and advise the Purchasers promptly in writing when theEffectiveness Period has expired;(b) use commercially reasonable efforts to prepare and file with the SEC such amendments andpost-effective amendments to such Registration Statement and the related Prospectus as may be necessary to keep suchRegistration Statement effective for the Effectiveness Period and to comply with the provisions of the Securities Actand the Exchange Act with respect to the distribution of all of the Registrable Securities covered thereby;(c) provide copies to and permit any counsel designated by the Purchasers to review eachRegistration Statement and all amendments and supplements thereto (but excluding any documents incorporated byreference in such Registration Statement, amendments or supplements that are available on the SEC’s Electronic DataGathering, Analysis, and Retrieval system (or any successor system)) no fewer than three (3) Business Days prior totheir filing with the SEC and not file any document to which such counsel reasonably objects;(d) furnish to each Purchaser whose Registrable Securities are included in any RegistrationStatement (i) promptly after the same is prepared and filed with the SEC, if requested by the Purchaser, one (1) copy ofany Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and eachamendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of theSEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such RegistrationStatement (other than any portion of any of the foregoing which contains information for which the Company hassought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, andall amendments and supplements thereto and such other documents as each Purchaser may reasonably request in orderto facilitate the disposition of the Registrable Securities owned by such Purchaser that are covered by such RegistrationStatement;- 4 - (e) use commercially reasonable efforts to (i) prevent the issuance of any stop order or othersuspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliestpractical moment;(f) prior to any public offering of Registrable Securities, use commercially reasonable efforts toregister or qualify or cooperate with the Purchasers and their counsel in connection with the registration or qualificationof such Registrable Securities for the offer and sale under the securities or blue sky laws of such jurisdictions requestedby the Purchasers and do any and all other commercially reasonable acts or things necessary or advisable to enable thedistribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided,however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to dobusiness in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subjectitself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or(iii) file a general consent to service of process in any such jurisdiction;(g) use commercially reasonable efforts to cause all Registrable Securities covered by a RegistrationStatement to be listed on each securities exchange, interdealer quotation system or other market on which similarsecurities issued by the Company are then listed;(h) promptly notify the Purchasers, at any time prior to the end of the Effectiveness Period, upondiscovery that, or upon the happening of any event as a result of which, the Prospectus includes an untrue statement ofa material fact or omits to state any material fact required to be stated therein or necessary to make the statementstherein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnishto such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shallnot include an untrue statement of a material fact or omit to state a material fact required to be stated therein ornecessary to make the statements therein not misleading in light of the circumstances then existing;(i) otherwise use commercially reasonable efforts to comply with all applicable rules andregulations of the SEC under the Securities Act and the Exchange Act, including, without limitation, Rule 172 underthe Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant toRule 424 under the Securities Act, promptly inform the Purchasers in writing if, at any time during the EffectivenessPeriod, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Purchasers arerequired to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actionsas may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make availableto its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve(12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfythe provisions of Section 11(a) of the Securities Act, including Rule 158 promulgated thereunder; and(j) with a view to making available to the Purchasers the benefits of Rule 144 (or its successor rule)and any other rule or regulation of the SEC that may at any time permit the Purchasers to sell shares of Common Stockto the public without registration, the Company covenants and agrees to: (i) make and keep public informationavailable, as those terms are- 5 - understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the RegistrableSecurities may be sold without restriction by the holders thereof pursuant to Rule 144 and without the requirement tobe in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under the Securities Act or any other ruleof similar effect or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in atimely manner all reports and other documents required of the Company under the Exchange Act; and (iii) furnish toeach Purchaser upon request, as long as such Purchaser owns any Registrable Securities, (A) a written statement by theCompany that it has complied with the reporting requirements of the Exchange Act, (B) a copy of the Company’s mostrecent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may bereasonably requested in order to avail such Purchaser of any rule or regulation of the SEC that permits the selling ofany such Registrable Securities without registration.Notwithstanding the foregoing, it is understood and agreed that a Registration Statement may expire pursuant tothe rules and regulations of the SEC on the date that is three years following the date it is declared effective by the SECand that in such case either prior to or promptly following such expiration time, the Company agrees to usecommercially reasonable efforts to prepare, file and caused to be declared effective a replacement RegistrationStatement. It is agreed that the expiration of a Registration Statement pursuant to the rules and regulations of the SECshall not represent a violation or breach of any of the Company’s obligations under this Agreement; provided that insuch case the Company uses commercially reasonable efforts to file and caused to be declared effective a replacementRegistration Statement.4. Obligations of the Purchasers.(a) It shall be a condition precedent to the obligations of the Company to take any action pursuantto Section 2 hereof with respect to the Registrable Securities of any Purchaser that such Purchaser furnish in writing tothe Company a Selling Securityholder Questionnaire and any other information regarding itself, the RegistrableSecurities held by it and the intended method of disposition of the Registrable Securities held by it, as shall bereasonably required to effect the registration of such Registrable Securities, and such Purchaser shall execute suchdocuments in connection with such registration as the Company may reasonably request. At least five (5) BusinessDays prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Purchaser ofthe information the Company requires from such Purchaser if such Purchaser elects to have any of the RegistrableSecurities included in such Registration Statement. A Purchaser shall provide such information to the Company atleast two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Purchaserelects to have any of the Registrable Securities included in such Registration Statement.(b) Each Purchaser, by its acceptance of the Registrable Securities, agrees to cooperate with theCompany as reasonably requested by the Company in connection with the preparation and filing of a RegistrationStatement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of itsRegistrable Securities from such Registration Statement.(c) Each Purchaser agrees that, upon receipt of any notice from the Company of either (i) thecommencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the- 6 - happening of an event pursuant to Section 3(h) hereof, such Purchaser will immediately discontinue disposition ofRegistrable Securities pursuant to any Registration Statement covering such Registrable Securities, until the Purchaseris advised by the Company that such dispositions may again be made.(d) Each Purchaser covenants and agrees that it will comply with the prospectus deliveryrequirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of RegistrableSecurities pursuant to any Registration Statement.(e) The Purchaser listed on Schedule A hereto represents that the number of shares opposite itsname is the total number of shares of Common Stock beneficially owned by such Purchaser as of the date of thisAgreement.5. Indemnification.(a) Indemnification by the Company. The Company will indemnify and hold harmless eachPurchaser and its officers, directors, members, employees and agents, successors and assigns, and each other person, ifany, who controls such Purchaser within the meaning of the Securities Act, against any losses, claims, damages orliabilities, joint or several, to which they may become subject under the Securities Act or otherwise, insofar as suchlosses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untruestatement or alleged untrue statement or omission or alleged omission of any material fact contained in any RegistrationStatement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any violationby the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to theCompany or its agents and relating to action or inaction required of the Company in connection with such registration;or (iii) any failure to register or qualify the Registrable Securities included in any such Registration Statement in anystate where the Company or its agents has affirmatively undertaken or agreed in writing that the Company willundertake such registration or qualification on an Purchaser’s behalf and will reimburse such Purchaser, and each suchofficer, director or member and each such controlling person for any legal or other expenses reasonably incurred bythem in connection with investigating or defending any such loss, claim, damage, liability or action; provided,however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage orliability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or allegedomission so made in conformity with information furnished by such Purchaser or any such controlling person inwriting specifically for use in such Registration Statement or Prospectus, (ii) the use by an Purchaser of an outdated ordefective Prospectus after the Company has notified such Purchaser in writing that such Prospectus is outdated ordefective, (iii) an Purchaser’s failure to send or give a copy of the Prospectus or supplement (as then amended orsupplemented), if required (and not exempted) to the Persons asserting an untrue statement or omission or allegeduntrue statement or omission at or prior to the written confirmation of the sale of Registrable Securities or (iv) thedisposition of any Registrable Securities pursuant to any Registration Statement or Prospectus covering suchRegistrable Securities during an Allowed Delay.(b) Indemnification by the Purchasers. Each Purchaser agrees, severally but not jointly, toindemnify and hold harmless, to the fullest extent permitted by law, the Company,- 7 - its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of theSecurities Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees)resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in anyRegistration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary tomake the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omissionis contained in any information furnished in writing by such Purchaser to the Company specifically for inclusion insuch Registration Statement or Prospectus or amendment or supplement thereto. Except to the extent that any suchlosses claims, damages, liabilities or expenses are finally judicially determined to have resulted from a Purchaser’sfraud or willful misconduct, in no event shall the liability of an Purchaser be greater in amount than the dollar amountof the proceeds (net of all expense paid by such Purchaser in connection with any claim relating to this Section 5 andthe amount of any damages such Purchaser has otherwise been required to pay by reason of such untrue statement oromission) received by such Purchaser upon the sale of the Registrable Securities included in such RegistrationStatement giving rise to such indemnification obligation.(c) Conduct of Indemnification Proceedings. Any person entitled to indemnification hereundershall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and(ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to theindemnified party; provided that any person entitled to indemnification hereunder shall have the right to employseparate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be atthe expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, (b) theindemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory tosuch person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflictof interest exists between such person and the indemnifying party with respect to such claims (in which case, if theperson notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense ofthe indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf ofsuch person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall notrelieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shallmaterially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood thatthe indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees orexpenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifyingparty will, except with the consent of the indemnified party, which shall not be unreasonably withheld or conditioned,consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof thegiving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim orlitigation.(d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs(a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specifiedtherein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a resultof such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifiedparty and the indemnifying party, as well as any other relevant equitable considerations. No person- 8 - guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled tocontribution from any person not guilty of such fraudulent misrepresentation. Except to the extent that any such lossesclaims, damages, liabilities or expenses are finally judicially determined to have resulted from a holder of RegistrableSecurities’ fraud or willful misconduct, in no event shall the contribution obligation of a holder of RegistrableSecurities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder inconnection with any claim relating to this Section 5 and the amount of any damages such holder has otherwise beenrequired to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by itupon the sale of the Registrable Securities giving rise to such contribution obligation.6. Miscellaneous.(a) Amendments and Waivers. This Agreement may be amended only by a writing signed by theCompany and the Required Purchasers. The Company may take any action herein prohibited, or omit to perform anyact herein required to be performed by it, only if the Company shall have obtained the written consent to suchamendment, action or omission to act of the Required Purchasers.(b) Notices. All notices and other communications provided for or permitted hereunder shall bemade as set forth in Section 6.1 of the Purchase Agreement.(c) Assignments and Transfers by Purchasers. The provisions of this Agreement shall be bindingupon and inure to the benefit of the Purchasers and their respective successors and assigns. A Purchaser may transferor assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with thetransfer of Registrable Securities by such Purchaser to such person, provided that such Purchaser complies with alllaws applicable thereto and the provisions of the Purchase Agreement and the Notes, and provides written notice ofassignment to the Company promptly after such assignment is effected, and such person agrees in writing to be boundby all of the provisions contained herein.(d) Assignments and Transfers by the Company. This Agreement may not be assigned by theCompany (whether by operation of law or otherwise) without the prior written consent of the Required Purchasers;provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similarbusiness combination transaction in which the Common Stock is converted into the equity securities of another Person,from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed tohave assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Personand the term “Registrable Securities” shall be deemed to include the securities received by the Purchasers in connectionwith such transaction unless such securities are otherwise freely tradable by the Purchasers after giving effect to suchtransaction.(e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure to thebenefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in thisAgreement, express or implied, is intended to confer upon any party other than the parties hereto or their respectivesuccessors and assigns any rights, remedies,- 9 - obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.(f) Counterparts. This Agreement may be executed in several counterparts, and by each Party onseparate counterparts, each of which and any photocopies or other electronic transmission (including by PDF) thereofshall be deemed an original, but all of which together shall constitute one and the same agreement.(g) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenienceonly and are not to be considered in construing or interpreting this Agreement.(h) Severability. Any provision of this Agreement that is prohibited or unenforceable in anyjurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to themaximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall notinvalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law,the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in anyrespect.(i) Further Assurances. The parties shall execute and deliver all such further instruments anddocuments and take all such other actions as may reasonably be required to carry out the transactions contemplatedhereby and to evidence the fulfillment of the agreements herein contained.(j) Entire Agreement. This Agreement is intended by the parties as a final expression of theiragreement and intended to be a complete and exclusive statement of the agreement and understanding of the partieshereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements andunderstandings between the parties with respect to such subject matter.(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. All questions concerning theconstruction, validity, enforcement and interpretation of this Agreement shall be governed by and construed andenforced in accordance with the internal laws of the State of New York without regard to the choice of law principlesthereof. Each Party agrees that all legal proceedings concerning the interpretations, enforcement and defense of thetransactions contemplated by this Agreement (whether brought against a Party hereto or its respective Affiliates,directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courtssitting in the City of New York. Each Party hereby irrevocably submits to the exclusive jurisdiction of the state andfederal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder orin connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocablywaives, and agrees not to assert in any suit, action or other proceeding, any claim that it is not personally subject to thejurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for suchproceeding. Each Party hereby irrevocably waives personal service of process and consents to process being served inany such suit, action or other proceeding by mailing a copy thereof via registered or certified United States mail orovernight delivery (with- 10 - evidence of delivery) to such Party at the address in effect for notices to it under this Agreement and agrees that suchservice shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall bedeemed to limit in any way any right to serve process in any other manner permitted by law. THE PARTIESHEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.[remainder of page intentionally left blank] - 11 - IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officersto execute this Agreement as of the date first above written.COMPANY:OCULAR THERAPEUTIX, INC. By:/s/ Donald Notman Name: Donald Notman Title: Chief Financial Officer  PURCHASERS: CAP 1 LLC By:/s/ Stephen A. Ives Name:Stephen A. Ives Title:Vice President Address: c/o Summer Road LLC 655 Madison Avenue, 19th Floor New York, New York 10065 Attn: Richard A. Silberberg, Chief Operating Officer Email: With a copy to: Norton Rose Fulbright US LLP 1301 Avenue of the Americas New York, New York 10019-6022 Attn: Frank S. Vellucci, Esq. Email: frank.vellucci@nortonrosefulbright.com SCHEDULE A PurchaserAdditional Registrable SecuritiesCap 1 LLC3,804,788 shares of Common Stock EXHIBIT APlan of DistributionThe selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectusfrom a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell,transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock onany stock exchange, market or trading facility on which the shares are traded or in private transactions. Thesedispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailingmarket price, at varying prices determined at the time of sale, or at negotiated prices.The selling stockholders may use any one or more of the following methods when disposing of shares orinterests therein:– ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;– block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell aportion of the block as principal to facilitate the transaction;– purchases by a broker-dealer as principal and resale by the broker-dealer for its account;– an exchange distribution in accordance with the rules of the applicable exchange;– privately negotiated transactions;– short sales effected after the date the registration statement of which this prospectus is a part is declaredeffective by the SEC;– through the writing or settlement of options or other hedging transactions, whether through an optionsexchange or otherwise;– broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulatedprice per share;– a combination of any such methods of sale; and– any other method permitted by applicable law.The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the sharesof common stock owned by them and, if they default in the performance of their secured obligations, the pledgees orsecured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under anamendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, asamended (the “Securities Act”), amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer theshares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interestwill be the selling beneficial owners for purposes of this prospectus.In connection with the sale of common stock or interests therein, the selling stockholders may enter intohedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of thecommon stock in the course of hedging the positions they assume. The selling stockholders may also sell shares ofcommon stock short and deliver these securities to close out their short positions, or loan or pledge the common stockto broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or othertransactions with broker-dealers or other financial institutions or the creation of one or more derivative securities whichrequire the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, whichshares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented oramended to reflect such transaction).The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will bethe purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholdersreserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposedpurchase of common stock to be made directly or through agents. We will not receive any of the proceeds from thisoffering.The selling stockholders also may resell all or a portion of the shares in open market transactions in relianceupon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of thatrule.The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of thecommon stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the SecuritiesAct. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwritingdiscounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaningof Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, therespective purchase prices and public offering prices, the names of any agents, dealer or underwriter, and anyapplicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectussupplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.In order to comply with the securities laws of some states, if applicable, the common stock may be sold in thesejurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock maynot be sold unless it has been registered or qualified for sale or an exemption from registration or qualificationrequirements is available and is complied with.We have advised the selling stockholders that the anti-manipulation rules of Regulation M promulgated underthe Securities Exchange Act of 1934, as amended, may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, to the extent applicable wewill make copies of this prospectus (as it may be supplemented or amended from time to time) available to the sellingstockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The sellingstockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares againstcertain liabilities, including liabilities arising under the Securities Act.We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the SecuritiesAct and state securities laws, relating to the registration of the shares offered by this prospectus.We have agreed with the selling stockholders to keep the registration statement of which this prospectusconstitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus and actuallyissued or issuable upon conversion of the Notes have been sold and (2) the date on which all of the shares may be soldwithout restriction pursuant to Rule 144 of the Securities Act.* * * * *  Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-210777 and333-229085) and Form S-8 (Nos. 333-198240, 333-202886, 333-210059, 333-216622 and 333-223513) of OcularTherapeutix, Inc. of our report dated March 7, 2019 relating to the financial statements, which appears in this Form10‑K. /s/PricewaterhouseCoopers LLPBoston, MassachusettsMarch 7, 2019 Exhibit 31.1CERTIFICATIONSI, Antony Mattessich, certify that:1. I have reviewed this Annual Report on Form 10-K of Ocular Therapeutix, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting.Date: March 7, 2019By:/s/ Antony Mattessich Antony Mattessich President and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CERTIFICATIONSI, Donald Notman, certify that:1. I have reviewed this Annual Report on Form 10-K of Ocular Therapeutix, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting.9Date: March 7, 2019By:/s/ Donald Notman Donald Notman Chief Financial Officer (Principal Financial and Accounting Officer) Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Ocular Therapeutix, Inc. (the “Company”) for the period endedDecember 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Antony Mattessich, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18U.S.C. Section 1350, that to his knowledge:(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 7, 2019By:/s/ Antony Mattessich Antony Mattessich President and Chief Executive Officer (Principal Executive Officer) Exhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Ocular Therapeutix, Inc. (the “Company”) for the period endedDecember 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Donald Notman, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,that to his knowledge:(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 7, 2019By:/s/ Donald Notman Donald Notman Chief Financial Officer (Principal Financial and Accounting Officer) 

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