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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36554
Ocular Therapeutix, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
24 Crosby Drive
Bedford, MA
(Address of principal executive offices)
20-5560161
(I.R.S. Employer
Identification No.)
01730
(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
Common Stock, $0.0001 par value per share
Trading Symbol
OCUL
Name of each exchange on which registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ⌧ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ⌧ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ⌧ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ⌧ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer
☐
Accelerated filer
Smaller reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of June 30, 2021, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$1,079 million. The number of shares outstanding of the registrant’s class of common stock, as of February 24, 2022: 76,754,160.
DOCUMENTS INCORPORATED BY REFERENCE
Emerging growth company
☐
Part III of this Annual Report incorporates by reference information from the definitive Proxy Statement for the registrant’s 2022 Annual Meeting of
Stockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended
December 31, 2021.
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PART II
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
PART III
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
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FORWARD-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 statements regarding our strategy, future operations, future financial position, future revenues, projected costs,
prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,”
“could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:
● our ongoing and planned clinical trials, including our Phase 1 clinical trials of OTX-TKI for the treatment of
wet age-related macular degeneration, or wet AMD, our Phase 2 clinical trial of OTX-TIC for the reduction of
intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension, and our clinical trials
to evaluate DEXTENZA in pediatric subjects following cataract surgery and in pediatric subjects with ocular
itching associated with allergic conjunctivitis;
● our commercialization efforts for our product DEXTENZA®;
● our plans to develop, seek regulatory approval for and commercialize OTX-TKI; OTX-TIC; OTX-CSI; OTX-
DED and our other product candidates based on our proprietary bioresorbable hydrogel technology platform;
● our ability to manufacture DEXTENZA, ReSure® Sealant and our product candidates in compliance with
Current Good Manufacturing Practices and in sufficient quantities for our clinical trials and commercial use;
● the timing of and our ability to submit applications and obtain and maintain regulatory approvals for
DEXTENZA, and other product candidates;
● our estimates regarding future revenue; expenses; the sufficiency of our cash resources; our ability to fund our
operating expenses, debt service obligations and capital expenditure requirements; and our needs for additional
financing;
● our plans to raise additional capital, including through equity offerings, debt financings, collaborations, strategic
alliances, licensing arrangements, royalty agreements and marketing and distribution arrangements;
● the potential advantages of DEXTENZA, ReSure Sealant, and our product candidates;
● the rate and degree of market acceptance and clinical utility of our products;
● our ability to secure and maintain reimbursement for our products as well as the associated procedures to insert,
implant or inject our products;
● our estimates regarding the market opportunity for DEXTENZA, ReSure Sealant and our product candidates;
● our license agreement and collaboration with AffaMed Therapeutics Limited under which we are collaborating
on the commercialization of DEXTENZA and our product candidate OTX-TIC in mainland China, Taiwan,
Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations;
● our capabilities and strategy, and the costs and timing of manufacturing, sales, marketing, distribution and other
commercialization efforts with respect to DEXTENZA, ReSure Sealant and any additional products for which
we may obtain marketing approval in the future;
● our intellectual property position;
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● our ability to identify additional products, product candidates or technologies with significant commercial
potential that are consistent with our commercial objectives;
● the impact of government laws and regulations;
● the costs and outcomes of legal actions and proceedings;
● uncertainty regarding the extent to which the COVID-19 pandemic and related response measures will
adversely affect our business, results of operations and financial condition; and
●
our competitive position.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included
important factors in the cautionary statements included in this 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, licensing agreements or investments we may make.
You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual
Report on Form 10-K completely and with the understanding that our actual future results may be materially different from
what we expect. The forward looking statements included in this Annual Report on Form 10-K are made as of the date of
this Annual Report on Form 10-K. We do not assume, and we expressly disclaim, any obligation or undertaking to update
any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by
applicable law.
This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from
industry publications and research, surveys and studies conducted by third parties. All of the market data used in this
Annual Report on Form 10-K involves a number of assumptions and limitations, and you are cautioned not to give undue
weight to such data. We believe that the information from these industry publications, surveys and studies is reliable. The
industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors,
including those described in the section titled “Risk Factors.”
This Annual Report on Form 10-K contains references to our trademarks and service marks and to those belonging to
other entities. Solely for convenience, trademarks and trade names referred to in this prospectus and the documents
incorporated by reference herein may appear without the ® or ™ symbols, but such references are not intended to indicate,
in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable
licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names,
trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
SUMMARY OF RISKS RELATED TO OUR BUSINESS
Our business, financial condition, results of operations, future growth prospects and common stock price are subject
to numerous risks and uncertainties that you should be aware of before making an investment decision, as more fully
described under the heading “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks include, but
are not limited to, the following:
● We have a history of incurring significant losses. Our net loss was $155.6 million for the year ended
December 31, 2020, primarily due to a loss from operations of $62.8 million and a change in fair value of a
derivative liability of $86.2 million. Our net loss was $6.6 million for the year ended December 31, 2021,
primarily due to a loss from operations of $78.0 million offset by a change in fair value of a derivative liability
of $78.1 million. As of December 31, 2021, we had an accumulated deficit of $545.8 million. We expect to
incur operating losses over the next several years and may never achieve or maintain profitability.
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● We will need substantial additional funding. If we are unable to raise capital when needed or on attractive terms,
we could be forced to delay, reduce or eliminate our research and development programs or our
commercialization efforts.
● We depend heavily on the success of DEXTENZA and our product candidates. Our ability to generate product
revenues sufficient to achieve profitability is dependent on our successful commercialization of DEXTENZA
for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated
with allergic conjunctivitis and our obtaining marketing approval for and successfully commercializing our
product candidates.
● Clinical trials of our product candidates may not be successful. If we experience delays or difficulties in
enrollment, serious adverse events or side effects are identified, or any other unforeseen events occur in
connection with clinical trials of any of our product candidates, or if clinical trials of any of our product
candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities
or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing,
or ultimately be unable to complete, the development and commercialization of such product candidates.
● We may not be successful in our efforts to develop additional products and product candidates based on our
bioresorbable hydrogel technology platform or to expand the use of our bioresorbable hydrogel technology for
treating additional ophthalmic diseases and conditions.
● The COVID-19 pandemic has disrupted, and is expected to continue to adversely affect, our operations,
including our commercialization of DEXTENZA, our ability to generate revenue from sales of DEXTENZA
and ReSure Sealant and our enrollment of certain clinical trials. We cannot be certain of the overall impact of
COVID-19 on our business, financial condition and results of operations.
● We have a single-site clinical and commercial manufacturing facility. We also depend from time to time on
single-source suppliers for certain materials used in the manufacturing of our products and product candidates.
If we have a material disruption in our manufacturing operations at this facility, or if we are unable to obtain
sufficient components of our products and product candidates from our suppliers on acceptable terms or at all,
we may not have sufficient quantities of our product candidates to meet our clinical trial requirements or of our
product inventory to meet our commercial requirements. Such an event could delay our clinical trials or,
particularly because we maintain limited commercial inventory, could reduce our product sales.
● DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval may become
subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform
initiatives, which could harm our business. We expect DEXTENZA to be reimbursed by CMS for the treatment
of post-surgical ocular inflammation and pain separately from the underlying surgical procedure in the
ambulatory surgery center, or ASC, and hospital out-patient, or HOPD, settings through 2022 and in the ASC
setting beyond 2022. However, there can be no assurance that CMS will not change the criteria for separate
reimbursement in the ASC for 2023 or beyond. If DEXTENZA is no longer eligible for reimbursement separate
from ophthalmic surgery, due to the loss of pass-through status or otherwise, our net product revenues would
decline significantly, and our ability to generate revenues from future sales of DEXTENZA to ASCs and
HOPDs for the treatment of post-surgical ocular inflammation and pain would be adversely affected. CMS has
also adopted fixed reimbursement amounts for the procedure of inserting DEXTENZA, effective January 1,
2022, that are lower than the prior procedure reimbursement levels, and there can be no assurance the rates will
not be further reduced in the future. A low procedure reimbursement could adversely impact our ability to
generate revenues related to DEXTENZA. Additionally, competitive products that realize superior product
reimbursement and/or higher procedure payment could also negatively impact our ability to generate revenues
from future sales of DEXTENZA.
●
If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, maintain
regulatory compliance for our manufacturing operations, obtain and maintain patent protection for or gain
market acceptance by physicians, patients and third-party payors and others in the medical community of
DEXTENZA, ReSure Sealant or any of our product candidates for which we obtain marketing approval, or
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experience significant delays in doing so, our business will be materially harmed and our ability to generate
revenues from product sales will be materially impaired.
● Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified
personnel. The loss of the services of our executive officers or other key employees could impede the achievement of
our research, development and commercialization objectives and seriously harm our ability to successfully implement
our business strategy.
● Our products face and, if approved, our product candidates will face competition from generic and branded
versions of existing drugs, many of which have achieved widespread acceptance among physicians, payors and
patients for the treatment of ophthalmic diseases and conditions. In addition, because the active pharmaceutical
ingredients in our products and leading product candidates are 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 as these
competitors do not infringe our patent rights.
● Even if we successfully obtain marketing approval for one or more of our product candidates, the approved
product will be subject to ongoing review and extensive regulation.
● Our stock price may be volatile and fluctuate substantially. As a result of this volatility, our stockholders may
not be able to sell their common stock at or above the price at which they purchased it. We have previously, and
we may in the future, be the target of legal proceedings related to declines in our stock price.
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Item 1.
Business
Overview of Ocular Therapeutix
PART I
We are a biopharmaceutical company focused on the formulation, development, and commercialization of innovative
therapies for diseases and conditions of the eye using our proprietary bioresorbable hydrogel-based formulation technology.
Core to our strategy is (i) to continue to build upon our experience commercializing ophthalmology products that can be
administered primarily in the surgical and/or office settings and (ii) to continue to develop a clinical pipeline of innovative
ophthalmology products that address large areas of unmet need.
We currently have two FDA-approved products in commercialization in the United States: DEXTENZA, an
intracanalicular insert for the treatment of both post-surgical ocular inflammation and pain and ocular itching associated
with allergic conjunctivitis, and ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions
following cataract surgery. We also have product candidates in preclinical and clinical development designed to utilize our
proprietary, bioresorbable hydrogel technology to treat retinal diseases including wet age-related macular degeneration, or
wet AMD; glaucoma and ocular hypertension; and ocular surface diseases and conditions including dry eye disease.
We incorporate therapeutic agents that have previously received regulatory approval from the U.S. Food and Drug
Administration, or FDA, including small molecules and proteins, into our proprietary bioresorbable hydrogel-based
formulation technology in our internal drug development activities, with the goal of providing local programmed release to
tailor the duration and amount of drug to be delivered to the eye. We believe that our local programmed-release drug
delivery technology has the potential to treat conditions and diseases of both the front and the back of the eye and can be
administered through a range of different modalities including intravitreal implants, suprachoroidal implants, intracameral
implants and intracanalicular inserts.
Commercial Portfolio
Post-Surgical Ocular Inflammation and Pain
Ocular Itching Associated with Allergic Conjunctivitis
DEXTENZA (dexamethasone ophthalmic insert) 0.4 mg for intracanalicular use for the Treatment of Post-Surgical Ocular
Inflammation and Pain
DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active
pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert for the treatment of post-surgical ocular
inflammation and pain. The FDA approved a new drug application, or NDA, for DEXTENZA for the treatment of post-
surgical ocular pain in November 2018 and approved a supplemental new drug application, or sNDA, for DEXTENZA for
the treatment of post-surgical ocular inflammation in June 2019. In July 2019, we commercially launched DEXTENZA in
the United States. DEXTENZA is the first FDA-approved, physician-administered intracanalicular insert delivering
dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.
In October 2021, the FDA approved an sNDA for DEXTENZA to include the treatment of ocular itching associated
with allergic conjunctivitis as an additional indication. With the approval, DEXTENZA is the first FDA-approved,
physician-administered intracanalicular insert for the delivery of a preservative-free drug for the treatment of ocular itching
associated with allergic conjunctivitis with a single administration for up to 30 days. DEXTENZA for the treatment of
ocular itching associated with allergic conjunctivitis also represents our first indication approved to be administered in a
physician’s office during a routine, non-surgical appointment. In the first quarter of 2022, we are commercially launching
DEXTENZA in the United States for the treatment of ocular itching associated with allergic conjunctivitis.
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Prevention of Wound Leaks Following Cataract Surgery
ReSure Sealant
In 2014, we commercially launched ReSure Sealant in the United States as a device approved to prevent wound leaks
in corneal incisions following cataract surgery. In the pivotal clinical trials that formed the basis for FDA approval, ReSure
Sealant provided superior wound closure and a better safety profile than sutured closure.
As of the fourth quarter of 2021, we have suspended the production of ReSure in order to focus our manufacturing
resources to support the commercialization of DEXTENZA. We have received only limited revenues from ReSure Sealant
to date.
Clinical Portfolio
Our clinical portfolio is comprised of our development efforts in our retinal disease program, glaucoma program and
ocular surface disease programs.
Retinal Disease Program
OTX-TKI (axitinib intravitreal implant)
Our product candidate OTX-TKI is a preformed, bioresorbable hydrogel fiber implant incorporating a small
molecule tyrosine kinase inhibitor, or TKI, axitinib, with anti-angiogenic properties delivered by intravitreal injection and
designed for a duration of six months or longer. We are conducting a Phase 1 clinical trial of OTX-TKI in Australia and a
Phase 1 clinical trial in the United States. The U.S.-based Phase 1 clinical trial is fully enrolled, and we expect to report
interim, six-month data in the second half of 2022.
At the Angiogenesis, Exudation, and Degeneration 2022 Meeting held in February 2022, we presented interim data
from the ongoing Phase 1 clinical trial of OTX-TKI for the treatment of wet AMD conducted in Australia. In subjects with
subretinal and/or intraretinal fluid due to wet AMD, OTX-TKI was observed to be generally well tolerated with a favorable
safety profile to date. This data also showed a preliminary signal of biological activity as observed by a clinically-
meaningful decrease in intraretinal and/or subretinal fluid. Extended duration of activity was observed with over 60% of
subjects across all cohorts and with over 80% of subjects in cohort 3a (600μg) with a duration of activity of six months or
more that we believe could represent a compelling drug product profile.
Glaucoma Program
OTX-TIC (travoprost intracameral implant)
Our product candidate OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be
administered by a physician as an intracameral injection with an initial target duration of drug release of four to six months.
In the fourth quarter of 2021, we initiated a randomized, double-masked, active-controlled Phase 2 clinical trial in which
we plan to enroll approximately 105 subjects with open-angle glaucoma at 15-20 sites between three arms of
approximately 35 subjects each to evaluate two formulations of OTX-TIC for the treatment of open-angle glaucoma or
ocular hypertension in patients compared to DURYSTA™. We expect to dose the first patient in the first quarter of 2022.
At Glaucoma 360 in February 2022, we presented interim data from a Phase 1 clinical trial evaluating OTX-TIC for
the treatment of open-angle glaucoma or ocular hypertension. This data highlighted the product candidate’s ability to cause
a clinically meaningful decrease in intraocular pressure for six months or longer while preserving corneal health. We
believe these results are comparable to the decrease in intraocular pressure seen with topical travoprost, the current
standard of care, and represent OTX-TIC’s potential for a unique and differentiated drug product profile. OTX-TIC was
observed to be generally well tolerated with a favorable safety profile to date and endothelial cell counts, pachymetry
assessments, and slit lamp examinations in subjects indicated no changes from baseline.
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Ocular Surface Disease Programs
Dry Eye Disease
OTX-CSI (cyclosporine intracanalicular insert)
Our product candidate OTX-CSI incorporates the FDA-approved immunomodulator cyclosporine as a preservative-
free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert. The product candidate is
designed for a duration of three to four months for patients suffering from moderate to severe dry eye and to be
administered by a physician as a bioresorbable intracanalicular insert.
We announced topline results from a Phase 2 clinical trial evaluating two different formulations of OTX-CSI for the
chronic treatment of dry eye disease in October 2021. The study did not show separation between the subjects receiving
OTX-CSI (two formulations) and the subjects receiving the vehicle (both formulations). Overall, the OTX-CSI insert (both
formulations) was observed to be generally well tolerated with a favorable safety profile to date.
We are currently developing an appropriate clinical-regulatory development and manufacturing plan. This plan will
include additional formulation work for the OTX-CSI insert to allow improved retention and the development of an
appropriate vehicle comparator.
OTX-DED (dexamethasone intracanalicular insert)
Our product candidate OTX-DED incorporates the FDA-approved corticosteroid dexamethasone as a preservative-
free active pharmaceutical ingredient in a hydrogel, drug-eluting intracanalicular insert. OTX-DED incorporates the same
active drug as DEXTENZA, but it includes a lower dose of the drug, delivers it via a smaller insert, and is designed to
release it over a period of two to three weeks, compared with up to thirty days in the case of DEXTENZA.
We announced the topline results for a Phase 2 clinical trial evaluating OTX-DED for the short-term treatment of the
signs and symptoms of dry eye disease in December 2021. The clinical trial achieved its pre-specified primary endpoint.
While the clinical trial was not powered to show statistical significance, the topline results demonstrated a statistically
significant change of bulbar conjunctival hyperemia from baseline to day 15 compared to vehicle hydrogel using a central
reading photographic assessment in the modified ITT population. Both formulations of OTX-DED were observed to have a
favorable safety profile and to be generally well tolerated.
We are currently developing an appropriate clinical-regulatory development and manufacturing plan. This plan will
include additional formulation work for the OTX-DED insert and the development of an appropriate vehicle comparator.
AffaMed License Agreement
In October 2020, we entered into a license agreement and collaboration with AffaMed Therapeutics Limited, or
AffaMed, for the development and commercialization of DEXTENZA and OTX-TIC in mainland China, Hong Kong,
Macau, and Taiwan; South Korea; and the ASEAN markets (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam). Under the terms of the agreement, we received an upfront payment of $12
million and became eligible to receive development, regulatory and commercial milestone payments and clinical
development support payments of up to $91 million in the aggregate, as well as royalties from future product sales. In the
fourth quarter of 2021, we received a $1 million milestone payment; we expect to recognize a clinical support payment of
another $2 million in the first quarter of 2022 in connection with dosing the first patient in a Phase 2 clinical trial
evaluating OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension. Royalties are tiered and will range
from the low teens to low twenty percent range. In return, we agreed to grant AffaMed exclusive rights to develop and
commercialize DEXTENZA for the treatment of post-surgical inflammation and pain following ophthalmic surgery and
ocular itching in patients with allergic conjunctivitis, and OTX-TIC for the reduction of elevated intraocular pressure in
patients with primary open-angle glaucoma or ocular hypertension in specified Asian markets. In January 2022, AffaMed
announced that it had dosed its first patient in a real-world study conducted in China evaluating the safety and efficacy of
DEXTENZA for the treatment of ocular inflammation and pain post-cataract surgery. We retain the right to develop and
commercialize DEXTENZA and OTX-TIC in all other global markets.
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Additional Potential Areas for Growth
We continue to leverage the potential of our hydrogel platform to explore areas for growth with our focus on
formulating, developing and commercializing innovative therapies for diseases and conditions of the eye. In June 2021, we
entered into an agreement with Mosaic Biosciences, Inc., or Mosaic, to identify new targets and discover novel therapeutic
agents aimed at the treatment of dry age-related macular degeneration, or dAMD.
Market Background
Our clinical stage product candidates and our marketed products are based on a proprietary bioresorbable hydrogel
technology platform that uses polyethylene glycol, or PEG, as a key component. Bioresorbable materials gradually break
down in the body into non-toxic, water soluble compounds that are cleared by normal biological processes. PEG is used in
many pharmaceutical products and is widely considered to be safe and biocompatible. Our technology platform allows us
to tailor the physical properties, drug release profiles and bioresorption rates of our hydrogels to meet the needs of specific
clinical indications. We have used this platform to engineer each of our intracanalicular insert, intracameral implant, and
intravitreal implant product candidates; our suprachoroidal formulations; and ReSure Sealant. Our technical capabilities
include a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the specialized
manufacturing processes required to achieve a reliable, preservative-free and high purity product.
Product Pipeline
The following table summarizes the status of our key product development programs and DEXTENZA, our primary
marketed product. We hold worldwide exclusive commercial rights to the core technology underlying all of our products in
development and have not granted commercial rights to any marketing partners that remain outstanding other than a license
agreement and collaboration with AffaMed for the development and commercialization of DEXTENZA and OTX-TIC in
the geographies agreed to between the parties.
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Our Strategy
Our strategy is to build an ophthalmology-focused biopharmaceutical company that capitalizes on the gaps that we
believe increasingly exist in the ophthalmology sector between single product companies and large, multi-product
pharmaceutical companies. Core to our strategy is (i) to continue to build upon our experience in commercializing
ophthalmology products that can be administered primarily in the surgical and/or office settings and (ii) to continue to
develop a clinical pipeline of innovative ophthalmology products that address large areas of unmet need. The key tactics of
our strategy are:
● Expand commercialization of DEXTENZA for the treatment of ocular inflammation and pain following
ophthalmic surgery and ocular itching associated with allergic conjunctivitis. We are reorganizing our
established commercial sales effort into two business units in the United States: the surgical business unit,
which will focus primarily on ambulatory surgery centers, or ASCs, that generate the largest volume of cataract
surgeries, for the treatment of ocular inflammation and pain; and the office business unit, which will focus on the
offices of ophthalmologists and optometrists and the promotion of DEXTENZA for both the treatment of
inflammation and pain and ocular itching associated with allergic conjunctivitis. We expect to grow our
salesforce in both the surgical and office settings not only to increase the active number of accounts but to also
penetrate each of those account types more deeply.
● Advance our clinical development programs. We have deep experience in developing innovative ophthalmology
products from discovery through regulatory approval while minimizing the development risks often associated
with new chemical entities. Our current development pipeline includes:
● OTX-TKI: We are conducting an Australian based Phase 1 clinical trial and a U.S.-based Phase 1
clinical trial to treat wet AMD by addressing the limitations of durability associated with the
existing standard of care. If we obtain favorable results, we intend to advance the program into a
Phase 2 clinical trial in the United States.
● OTX-TIC: We have initiated a U.S.-based Phase 2 clinical trial for the treatment of open-angle
glaucoma or ocular hypertension. If we obtain favorable data from this clinical trial, we intend to
advance the program into a Phase 3 clinical trial.
● OTX-CSI: We have completed a Phase 2 clinical trial for the treatment of chronic dry eye disease.
We continue to evaluate the data from this trial including, among other things, retention rates of
the OTX-CSI inserts, or how long the inserts were observed to remain in the canaliculus, as well as
the duration of the vehicle hydrogel inserts.
● OTX-DED: We have completed a Phase 2 clinical trial for the treatment of the short-term signs
and symptoms of dry eye disease. We continue to evaluate the data from this trial including, among
other things, the duration of the vehicle hydrogel inserts.
● Leverage our commercial infrastructure with additional ophthalmology products for both the surgical and office
settings. We have an active business development effort to identify and assess opportunities to partner, in-
license or potentially acquire ophthalmology products that we believe could complement our existing product
offerings.
● Continue to develop experience and expertise with buy and bill products. Key to our success is the ability to
effectively commercialize buy and bill products in both the surgical and office settings. We intend to continue to
develop expertise in the selling and reimbursement of these types of products. Buy and bill refers to the process
by which an ASC, hospital outpatient department, or HOPD, or physician’s office acquires medication that the
provider then administers in its respective site of care. The “buy” part refers to the provider being responsible
for ordering and purchasing the drug. The “bill” part refers to the provider directly billing third-party payors for
reimbursement, typically Medicare or commercial payors.
● Apply our local programmed-release hydrogel-based technology to create additional proprietary solutions for
ophthalmic diseases and conditions. We are assessing preclinical product candidates for the ophthalmic space
that leverage not only our proprietary PEG-based bioresorbable hydrogel technology platform, but also active
pharmaceutical ingredients used in FDA-approved ophthalmic drugs that are or are expected to become
available on a generic basis. From time to time, we are also in discussions with other ophthalmic companies
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regarding potential collaborations to combine our local programmed-release hydrogel technology with their
proprietary drug formulations to address additional diseases and conditions of the eye.
●
Address rest-of-world commercial opportunities through licensing and collaboration agreements. Similar to
the collaboration that we have established with AffaMed, we will continue to consider arrangements with other
companies to address market opportunities outside of the United States.
Eye Disease
Eye disease can be caused by many factors and can affect both the front and back of the eye.
The front of the human eye consists of the cornea on the surface of the eye, the lens and the aqueous humor, which is
a transparent fluid that fills the anterior chamber between the lens and the cornea. The tissue surrounding the eye also
serves important functions. There is a natural opening, called a punctum, located in the inner portion of each upper and
lower eyelid near the nose. The puncta open into nasolacrimal ducts, which collect and drain tears. The conjunctiva is the
membrane covering the inside of the eyelids and the white part of the eye, known as the sclera. It helps to protect the eye
from microbes and to lubricate the eye. Diseases and conditions affecting the front of the eye have generally been treated
with either surgery or with medications delivered to the ocular surface by eye drops.
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 transmits visual
information from the retina to the brain. Intravitreal injections or oral pills have typically been used to deliver medications
to the back of the eye.
Cross Section of Eye
Tear Drainage System
We currently focus on some of the largest markets in ophthalmology. According to the Market Scope 2021 reports,
our product candidates seek to address select indications within segments of ophthalmology that, in the aggregate, account
for more than $20 billion in global annual sales.
Retinal Diseases
Wet AMD
One of the principal retinal diseases is wet AMD, a serious disease of the central portion of the retina, known as the
macula, an oval-shaped pigmented area that is responsible for detailed central vision and color perception. Wet AMD is
characterized by abnormal new blood vessel formation, referred to as neovascularization, which results in blood vessel
leakage and retinal distortion. If untreated, neovascularization in wet AMD patients typically results in formation of a scar
under the macular region of the retina. The current standard of care for wet AMD is treatment with drugs that target VEGF,
one of several proteins involved in neovascularization.
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Wet AMD is the most common cause of visual impairment among elderly patients in developed countries.
According to the Market Scope 2021 Retinal Pharmaceuticals Market Report, there are approximately 8.8 million people in
the United States who suffer from vision-threatening retinal diseases. This population is expected to grow at a 2.2%
compound annual growth rate through 2026.
Because eye drops are unable to carry effective drug concentrations to the back of the eye, intravitreal injections or
oral medications are used to deliver medications to this location. However, the frequency of intravitreal injection can be a
significant burden on patients, caregivers and clinicians. For example, the current treatment protocol for wet AMD
involves monthly or bi-monthly injections. Intravitreal injections can lead to patient discomfort, a transient increase in IOP,
and ocular inflammation and infection. Although serious adverse event rates after treatment with anti-VEGF compounds
are low, intravitreal injections can result in severe complications and damage to the retina and other structures of the eye,
such as ocular hemorrhage and tears in the retinal pigment epithelium.
Market Data
The global market for retinal disease was approximately $14.1 billion in 2021 and is estimated to grow at
approximately 6% per year through 2026 according to Market Scope. The U.S. market accounted for just over 50% of the
global market or $7.6 billion in 2021.
The anti-VEGF market for the treatment of wet AMD consists predominantly of three drugs that are approved for
marketing and primarily prescribed for the treatment of wet AMD: Eylea, marketed in the United States by Regeneron;
Lucentis, marketed in the United States by Genentech; and bevacizumab, an anti-VEGF therapy approved for the treatment
of certain cancers, used off-label in ophthalmology.
Glaucoma
Glaucoma is a progressive and highly individualized disease in which elevated levels of IOP are associated with
damage to the optic nerve, which results in irreversible vision loss. According to the World Health Organization, glaucoma
is the second leading cause of blindness in the world. Ocular hypertension is characterized by elevated levels of IOP
without any optic nerve damage. Patients with ocular hypertension are at high risk of developing glaucoma.
According to Market Scope, it is estimated that there were 111.1 million people globally in 2021 with primary open-
angle glaucoma or ocular hypertension. In the United States, it is estimated there were 4.3 million and 3.5 million who had
primary open-angle glaucoma or ocular hypertension, respectively. Both groups are estimated to grow by 2.3% annually
through 2026. The primary goal of glaucoma treatment is to slow the progression of this chronic disease by reducing IOP,
and many medications can accomplish this. Importantly, however, adherence to current topical glaucoma therapies is
known to be particularly poor with reported rates of non-adherence from 30% to 80%. These low compliance rates may be
associated with disease progression and loss of vision and may be part of the reason that glaucoma is a leading cause of
blindness in people over 60 years of age.
In a healthy eye, fluid is continuously produced and drained to maintain pressure equilibrium and provide nutrients to
the ocular tissue. Excess fluid production or insufficient drainage of fluid in the front of the eye or a combination of these
problems causes increased IOP. The increased IOP associated with uncontrolled glaucoma results in degeneration of the
optic nerve in the back of the eye and loss of peripheral vision. Once glaucoma develops, it is a chronic condition that
requires life-long treatment.
Prostaglandins are the most commonly used class of medications to treat patients with glaucoma and are
administered via daily eye drops as the current standard of care. The ability of patients to use and place daily eye drops is
challenging. The products that we are developing are designed to address the issue of compliance by delivering a
prostaglandin analog, or PGA, formulated with our programmed release hydrogel to lower IOP for several months with a
single insert.
Market Data
The global market for glaucoma was estimated by Market Scope at $4.8 billion in 2021 with the U.S. market
representing $1.9 billion. The global market is estimated to grow at 6.6% annually to approximately $6.6 billion in 2026
while the U.S. market is expected to grow 7.1% annually to approximately $2.7 billion in 2026.
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The market for drugs administered by eye drops for the treatment of glaucoma consists of both branded and generic
products. Branded products have maintained premium pricing and significant market share. These products include
Lumigan® (bimatoprost) marketed by Allergan, Travatan Z (travoprost) marketed by Novartis and Tapros marketed by
Santen. The relevant patents covering travoprost expired in December 2014. Commonly used generic drugs include
latanoprost and timolol.
Ocular Surface Diseases
Dry Eye Disease
Dry eye disease is a chronic, multifactorial disease affecting the tears and ocular surface that can result in dryness,
inflammation, irritation, pain, tear film instability, visual disturbance and ocular surface damage. Dry eye disease can have
a significant impact on quality of life and can potentially cause long-term damage to the ocular surface. Due to the impact
of dry eye disease on tear film dynamics, the condition can affect performance of common vision-related activities such as
reading, using a computer and driving, and can lead to complications associated with visual impairment. In addition, the
vast majority of dry eye patients experience acute episodic exacerbations of their symptoms, which are commonly referred
to as flares, at various times throughout the year. These flares can be triggered by numerous factors, including exposure to
allergens, pollution, wind and low humidity, intense visual concentration such as watching television and working at a
computer, hormonal changes, contact lens wear, smoking and sleep deprivation, which cause ocular surface inflammation
and impact tear production and/or tear film stability.
There are approximately 17.6 million patients diagnosed with dry eye disease in the United States, according to the
Market Scope 2021 Dry Eye Products Market Report. Approximately 9.1 million of those patients are diagnosed with
moderate to severe dry eye while the remaining 8.5 million patients are diagnosed with mild dry eye disease. The
prevalence of dry eye disease increases with age, and we expect that the number of dry eye disease cases will increase as
the U.S. population continues to age.
The current standard of care for moderate to severe dry eye disease is the use of artificial tears and topical
anti- inflammatory and immune modulating drugs administered by prescription eye drops. The anti-inflammatory and
immune modulating prescription drug market consists of Restasis, for increasing tear production, marketed by Allergan;
Cequa™ for increasing tear production, marketed by Sun Ophthalmics in the United States; lifitegrast, for the treatment of
the signs and symptoms of dry eye disease, marketed by Novartis under the brand name Xiidra®; and off-label use of
corticosteroids. As each of Restasis and Xiidra have a relatively long onset of action, they are not generally used for the
short-term treatment of episodic dry eye flares. In addition, patients have reported significant issues with stinging and
burning when using several of the current treatments.
Market Data
The global market for dry ocular surface disease, which we refer to as dry eye disease, was estimated by Market
Scope at $5.9 billion in 2021 with the U.S. market representing $2.2 billion. Within the prescription category, Restasis®
recorded sales in 2021 of approximately $1.2 billion in the United States while Xiidra® recorded estimated sales of $0.3
billion in the United States. With the approval by the FDA of Viatris’ generic to Allergan’s Restasis, 2022 Restasis
revenues are anticipated to be lower.
Allergic Conjunctivitis
Allergic conjunctivitis, another ocular surface disease, is an inflammatory disease of the conjunctiva resulting
primarily from a reaction to allergy- causing substances such as pollen or pet dander. The primary sign of this inflammation
is redness and the primary symptom is acute itching. Allergic conjunctivitis ranges in clinical severity from relatively mild,
common forms to more severe forms that can cause impaired vision. According to a study on the management of seasonal
allergic conjunctivitis published 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 to reduce the signs and symptoms of the early phase allergic reaction. For the subset of patients with
chronic or more severe forms of allergic conjunctivitis, anti-histamines and mast cell stabilizers are often not sufficient to
treat their signs and symptoms. These refractory patients are frequently treated with topical corticosteroids administered by
prescription eye drops.
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It is estimated that up to 10 million people in the United States seek medical attention annually for the inflammatory
response associated with allergic conjunctivitis caused by both seasonal and perennial allergens.
Market Data
According to IMS Health data, approximately 4.9 million anti-allergy eye drop prescriptions were filled in the United
States in 2021, resulting in sales of approximately $270.6 million. The market to treat allergic conjunctivitis consists of
antihistamines, mast-cell stabilizers and steroid eye drops and consists of both branded 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.
Post-Surgical Ocular Inflammation and Pain
Ocular inflammation and pain are common side effects following ophthalmic surgery. Frequently performed
ophthalmic 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 through
disruption 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
therapy to 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 Data
Market Scope has estimated that approximately 4.5 million ocular surgeries were performed in the United States in
2021, of which approximately 4.4 million are estimated to have been cataract surgeries. In 2022, Market Scope estimates
5.1 million cataract surgeries are to be performed. We currently focus our sales efforts for DEXTENZA for the treatment
of inflammation and pain on patients covered by Medicare Part B which accounts for roughly 50% of all cataract surgeries
or approximately 2 million surgeries annually. At the current wholesale acquisition price of $555 per insert, we estimate
that there is a near-term addressable market of approximately $1 billion per year in the surgical space.
According to IMS Health data, approximately 19.8 million prescriptions were filled in the United States in 2021 for
anti-inflammatory drugs administered by prescription eye drops for ocular diseases and conditions, resulting in sales of
approximately $4.9 billion. These prescriptions consisted of approximately 8.4 million prescriptions and $662.4 million in
sales for single-agent corticosteroids, 3.2 million prescriptions and $312.6 million in sales for NSAIDs, 4.4 million
prescriptions and $358.6 million in sales for corticosteroid and antibiotic combination products and approximately
4.0 million prescriptions and $3.5 billion in sales for dry eye disease products.
The Use of Eye Drops and its Limitations
Eye drops are widely used to deliver medications directly to the ocular surface and to intraocular tissue in the front of
the 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 frequent
administration, including:
● Lack of patient compliance. Eye drops require frequent administration. For example, steroids for ophthalmic use
require administration as frequently as four to six times daily and require tapered dosing over the course of the
therapy. As a result, patient compliance with required dosing regimens frequently suffers. According to a
published third-party study, more than 50% of glaucoma patients are not compliant with their prostaglandin
therapy and do not refill prescriptions as required or do not follow the prescribed regimen within six months of
initiating therapy. Poor patient compliance can lead to diminished efficacy and disease progression.
● 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 may
lead to bacterial contamination in the bottle resulting from incorrect usage, limited accuracy
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administering the drops directly into the eye and the potential washout of drops from the eye. We believe that
this also may play a large 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
contact time with the ocular surface is short, less than 5% of the applied dose actually penetrates to reach
intraocular tissues. As a result, eye drops generally require frequent administration at high drug concentrations to
deliver a meaningful amount of drug to the eye. This pulsed therapy results in significant variations in drug
concentrations over a treatment period, which we refer to as peak and valley dosing. At peak levels, the high
concentrations can result 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 concentration levels, 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 antimicrobial
preservatives, most commonly benzalkonium chloride, or BAK. Patients on long term or chronic therapy, such
as glaucoma 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 many
diseases and conditions of the front of the eye.
Challenges of Back-of-the-Eye Injections
An intravitreal injection is a procedure to place a medication directly into the space in the back of the eye called the
vitreous cavity, which is filled with a jelly-like fluid called the vitreous humor gel. The procedure is usually performed by a
trained retina specialist in the office setting. Intravitreal injections are used to administer medications to treat a variety of
chronic conditions; wet AMD, DME and RVO are among the most common conditions treated with intravitreal anti-VEGF
drugs. Anti-VEGF drugs and steroids help to reduce fluid leakage associated with these disorders.
While anti-VEGF treatment regimens can be very effective therapies, there are a number of significant drawbacks,
driven primarily by the frequency of injections that typically range from every six to eight weeks. The actual injection at
the time of administration is uncomfortable for patients and can be a deterrent in terms of compliance. Then there is the
burden to both patients and their caregivers of regular office visits. These patients may not be mobile enough to travel to
the office on their own and therefore require not only the assistance of a caregiver but also transportation to and from the
office. And finally, while intravitreal injections are typically safe, there is the potential risk of endophthalmitis (infection in
the eye), inflammation, bleeding into the vitreous gel and retinal detachment that comes with injections.
As a result of these limitations, there is a significant unmet need for technologies that will allow for a longer
duration of effect and an overall reduced number of injections.
The Ocular Therapeutix Approach
Our Hydrogel Technology Platform
We apply our expertise with an established bioresorbable hydrogel technology to the development of products for
local programmed-release of known, FDA-approved therapeutic agents for a variety of ophthalmic diseases and conditions
and to ophthalmic wound closure.
Our bioresorbable hydrogel technology is based on the use of a proprietary form of PEG. Our technical capabilities
include a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the highly specialized
manufacturing processes required to achieve a reliable, preservative-free and pure product. We tailor the hydrogel to act as
a vehicle for local programmed-release drug delivery to the eye and as an ocular tissue sealant.
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We create our hydrogels by cross-linking PEG molecules to form a network that resembles a three-dimensional mesh
on a molecular level. Our PEG molecules are branched, with four to eight branches or arms. Each arm bears a reactive site
on its end. 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 molecular network 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 selecting the number of arms of the PEG molecule and the biodegradable linkage, we can design hydrogels
with varying mechanical properties and bioresorption rates. Because the body has an abundance of water at a constant
temperature and pH level, hydrolysis provides a predictable and reproducible degradation rate. Our technology enables us
to make hydrogels that can bioresorb over days, weeks or several months. The figure below depicts the formation and
bioresorption of the hydrogel for ReSure Sealant.
Intracanalicular Inserts
A punctum is a natural opening located in the inner portion of the eyelid near the nose. There is a punctum in each of
the lower eyelids and the upper eyelids. The puncta open into nasolacrimal ducts, which collect and drain tears produced
by the eyes’ lacrimal glands. Tears produced in the lacrimal glands sweep across the eye surface and drain through the
puncta to the 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 physically blocking tear drainage. Because intracanalicular inserts stay in contact with the tear film, they are well suited
for local programmed-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 the
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inserts in place. We design our inserts to release drug in a programmed fashion, tailored to each disease state, back through
the punctum to the surface of the eye. Over time the inserts liquefy and are cleared through the nasolacrimal duct. If
necessary due to excessive tearing, discomfort or improper placement, a healthcare professional can remove an
intracanalicular insert by 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 inflammation and pain and ocular itching associated with allergic
conjunctivitis, we have designed our intracanalicular inserts to provide a local programmed-release of therapeutic levels of
drug for the duration of treatment. For chronic diseases, such as glaucoma, we have designed our intracanalicular inserts
for repeat administration with extended dosing periods. We are concentrating our initial development efforts on
intracanalicular inserts incorporating active pharmaceutical ingredients that are approved by the FDA for the targeted
indication and that satisfy other specific selection criteria that we have developed.
We manufacture our intracanalicular inserts from dried PEG-based hydrogel formed into tiny rods that hold an active
pharmaceutical 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 of
our 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.
Upon hydration with tear fluid, the insert swells, softens, and conforms to roughly the size and shape of the vertical
canaliculus, to secure it in place. We incorporate the active pharmaceutical ingredient in the form of micronized particles
embedded directly in the hydrogel or as bioresorbable microspheres.
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We have included a fluorescent label, or marker, in our intracanalicular insert hydrogel to serve as a visualization aid
for the healthcare professional to confirm the insert’s presence. The viewer applies a blue handheld light and a clear yellow
filter 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 of
intracanalicular punctum plugs containing active drugs for local programmed release to the ocular surface. However, these
earlier product designs had significant limitations with respect to drug capacity, drug release kinetics and patient comfort
and 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. The
external cap was in constant contact with the surface of the eye, which may cause irritation and discomfort in some cases.
In addition, some prior designs resorted to plugging both the upper and lower puncta, which could cause excessive tearing
and patient discomfort. These designs did not incorporate a visualization agent to allow the patient and physician to assess
the presence 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 for
higher drug capacity and better control over drug release;
● be bioresorbable so that removal is not required for acute conditions and required infrequently for chronic
conditions;
● 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
of the 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 hydrogel
insert systems. We consider the following selection criteria:
● prior approval by the FDA for the targeted ophthalmic indication, except for our OTX-TKI program in which
the active pharmaceutical ingredient, axitinib, is not currently approved for an 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.
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We believe our intracanalicular insert, intracameral implant and intravitreal implant product candidates may offer a
range of favorable attributes as compared to eye drops and immediate release back-of-the-eye injections, including:
● Improved patient compliance. Our inserts and implants are placed by a healthcare professional and are designed
to provide local programmed-release of drug to the ocular surface. Because patients are not responsible for self-
administration of the drug and the inserts and implants dissipate over time and do not require removal for acute
conditions or frequent removal for chronic conditions, we believe our inserts and implants address the problem
of patient compliance.
● Ease of administration. We have designed our inserts and implants to provide the entire course of medication
with a single administration by a healthcare professional for acute conditions or for several months for chronic
conditions. We believe this avoids the need for frequent administration and the potential complications that
could result if doses are missed.
● Local programmed-release of drug. We have designed our inserts and implants to deliver drug in a programmed
fashion in order to avoid the peak and valley dosing and related side effects and spikes in IOP associated with
eye drops. We also believe programmed-release dosing may improve the therapeutic profile of the active
pharmaceutical ingredient because it eliminates periods of little or no drug presence between eye drop or back
of the eye injection administrations. Further, we are designing our products and product candidates so that their
drug release profiles can be tailored or programmed to match the treatment needs of the disease. For example,
steroids for 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 inserts
and implants are designed to fully dissipate and can be removed if necessary by a healthcare professional.
● Avoidance of preservative side effects. Our inserts and implants do not involve the use of preservatives, such as
BAK, which have been linked to side effects including burning, stinging, hyperemia, irritation, eye dryness and,
less frequently, conjunctivitis or corneal damage.
Intracameral Implants
We are engaged in the clinical development of our hydrogel administered via intracameral injection to address retinal
diseases.
Intracameral implants refer to biodegradable or bioresorbable implants placed into the anterior chamber or front of
the eye for the treatment of ocular conditions. The implants are designed to be held in place by currents and gravity
present in the anterior chamber of an eye. In the case of OTX-TIC, the implant is designed to infuse with liquid, settle into
the inferior angle of the eye and demonstrate little to no movement. The implants are preferably polymeric, biodegradable
and provide sustained release of at least one therapeutic agent to both the trabecular meshwork and associated ocular tissue
and the fluids within the anterior chamber of an eye.
OTX-TIC implant
Injection needle
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Intravitreal Implants
We are engaged in the clinical development of our hydrogel administered via intravitreal injection to address the
large and growing markets for diseases and conditions of the back of the eye. Our intravitreal implant product candidates
consist of a PEG-based hydrogel suspension, which contains embedded micronized particles of active drug. We designed
the intravitreal implant to be injected and retained in the vitreous humor, as depicted in the figure below, to provide local
programmed-release intravitreal delivery of anti-VEGF compounds.
Our initial intravitreal implant development efforts are focused on the use of our programmed-release hydrogel in
combination with anti-angiogenic compounds or small molecule drugs, such as TKIs, for the treatment of retinal diseases,
including wet AMD, RVO and DME. Our initial goal for these programs is to provide extended delivery of a protein-based
large molecule or small molecule TKI targeting VEGF and other indications over a six-month period or longer following
administration of a bioresorbable hydrogel incorporating the drug by an injection into the vitreous humor. This approach
would reduce the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD and other
retinal diseases and potentially provide a more consistent, uniform release of drug over the treatment period.
We believe TKIs are well suited for use with our platform given their high potency, multi-target capability, and
compatibility with a hydrogel vehicle. In the absence of a sophisticated drug delivery system, these drugs have been
difficult to deliver to the eye for acceptable timeframes at therapeutic levels without causing local and systemic toxicity
due to low drug solubility and notably short half-lives in solution. We believe our local drug delivery technology gives us
potential advantages in this regard.
We have designed our intravitreal implant for delivery using typically available syringes and fine gauge needles
compatible with the current standard of care. Once in the vitreous humor, the hydrogel is designed to retain properties of
TKI and anti-VEGF compounds until they are released. We have designed the hydrogel to liquefy, dissolve and be cleared
from the 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.
By selecting a compound that is compatible with our hydrogel platform technology and that will have expiration of
relevant patents within the timeline of our development program, we avoid the need to license the TKI molecule, thus
retaining full worldwide rights to any products we develop.
Development Pipeline and Marketed Products
The following table summarizes important information about our key product development programs and our
marketed products, DEXTENZA and ReSure Sealant. We hold worldwide commercial rights to DEXTENZA, ReSure
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Sealant and each of our product candidates other than rights we have licensed to AffaMed for the development and
commercialization of DEXTENZA and OTX-TIC in specified Asian markets.
Product / Program
Indication
Description
(Active Pharmaceutical
Ingredient)
Stage of
Development
Status
Early-Stage Clinical
Product
Candidates
OTX-TKI
Wet AMD
Intravitreal implant
(Axitinib)
Phase 1
Australian Phase 1 clinical trial
ongoing. United States Phase 1 trial
initiated in July 2021. Plan to
initiate a Phase 2 clinical trial in the
United States, pending the receipt
and review of topline data from the
Phase 1 clinical trial in the United
States, which is expected in the
second half of 2022.
Phase 2 clinical trial in the United
States initiated in Q4 2021; first
patient dosed expected Q1 2022.
Phase 2 topline data reported in
October 2021; evaluating additional
data to inform the future of this
program.
Phase 2 topline data reported in
December 2021; evaluating
additional data to inform the future
of this program.
Intracameral implant
(Travoprost)
Phase 2
Intracanalicular insert
(Cyclosporine)
Phase 2
Intracanalicular insert
(Dexamethasone)
Phase 2
OTX-TIC
OTX-CSI
OTX-DED
Approved Product
DEXTENZA
Open-angle
glaucoma or
ocular
hypertension
Chronic
treatment of dry
eye disease
Short-term
treatment of
signs and
symptoms of dry
eye disease
Post-surgical
ocular
inflammation
and pain
Intracanalicular insert
(Dexamethasone)
Marketed
Product commercially launched in
the United States in July 2019.
DEXTENZA
Allergic
conjunctivitis
Intracanalicular insert
(Dexamethasone)
Marketed
Product commercially launching in
the United States in first quarter of
2022.
ReSure Sealant
Cataract incision
closure
Ocular sealant
Marketed
Product commercially launched in
the United States in February 2014.
Retinal Disease Programs
OTX-TKI (axitinib intravitreal implant)
Our current intravitreal implant development efforts are focused on the use of our sustained-release hydrogel in
combination with anti-angiogenic compounds, including anti-VEGF compounds, for the treatment of wet AMD. Our initial
implants have delivered anti-VEGF compounds in vitro over our targeted four to six month period, which we believe could
make it possible to reduce the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD.
In addition, our preclinical studies demonstrated a sustained pharmacodynamic effect in vivo of over six months with a
small molecule TKI.
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We believe axitinib is well suited for use with our platform given its high potency, multi-target capability, and
compatibility with a hydrogel vehicle. In the absence of a sophisticated drug delivery system, TKIs have been difficult to
deliver to the eye for acceptable time frames at therapeutic levels without causing local and systemic toxicity due to low
drug solubility and very short half-lives in solution. We believe our local programmed-release drug delivery technology
gives us potential advantages in this regard.
In Vitro and preclinical results
We have conducted in vivo pharmacokinetic and pharmacodynamic studies with hydrogels loaded with axitinib
injected intravitreally. Pharmacokinetic data showed retinal tissue drug concentrations in excess of 3,000 times the
published concentration needed to inhibit VEGF after six months and pharmacodynamic results show sustained efficacy for
six months. Preclinical studies to date have demonstrated suppression of vascular leakage and favorable pharmacokinetics
in the relevant ocular tissues.
Phase 1 clinical development (Australia)
We are conducting an open-label, multi-center, proof-of-concept, dose-escalation Phase 1 clinical trial of OTX-TKI
for the treatment of patients with wet AMD caused by excessive blood vessel growth in the back of the eye due to VEGF.
This Phase 1 clinical trial is designed to evaluate the safety, durability and tolerability of OTX-TKI. OTX-TKI is a
preformed, bioresorbable hydrogel implant incorporating axitinib that is designed to be delivered via intravitreal injection
into the vitreous humor of the eye and has an initial target duration of drug release for approximately six to nine months.
The Phase 1 clinical trial was submitted to the Therapeutic Goods Administration, Australia’s regulatory authority for
therapeutic goods, in July 2018 and is being conducted at multiple sites in Australia.
In the Phase 1 clinical trial of OTX-TKI, we are evaluating biological activity by measuring central subfield
thickness, or CSFT, using spectral domain optical coherence tomography, or OCT, and following visual acuity over time as
measured by BCVA, or Best Corrected Visual Acuity. We have fully enrolled three cohorts to date: a lower dose cohort of
200 µg with six subjects; a higher dose cohort of 400 µg with seven subjects; and a third cohort with two parallel arms, one
arm of six subjects receiving a concomitant anti-VEGF injection with 400 µg of OTX-TKI and the other arm of six
subjects receiving a 600 µg of OTX-TKI with no anti-VEGF injection. We are actively enrolling a fourth cohort with two
parallel arms, one arm of six subjects receiving a 600 µg single implant of OTX-TKI and the other arm of six subjects
receiving a 600 µg single implant of OTX-TKI with anti-VEGF injection.
In February 2022, interim data as of January 11, 2022 from this Phase 1 clinical trial of OTX-TKI was presented at
the Angiogenesis, Exudation and Degeneration Virtual Symposium. We believe that this data showed a preliminary signal
of biological activity for OTX-TKI as observed by a clinically-meaningful decrease in retinal fluid as measured by high
resolution OCT that provides cross-sectional images of the anatomical structure of the retina. Some subjects have shown a
decrease in intraretinal or subretinal fluid by two months in cohorts 2 (400 µg) and 3a (600 µg). In cohort 3b (400 µg dose
plus anti-VEGF induction injection of aflibercept), two subjects showed a decrease in intraretinal or subretinal fluid as
early as a week after treatment. Extended duration of activity was observed over 60% of subjects across all cohorts over
80% of subjects in cohort 3a (600 µg) with a duration of activity of six months or longer.
In addition, the OTX-TKI implants in cohort 1 (single implant) were observed to have biodegraded in all subjects
within nine to 10.5 months of injection. It has also been observed in the trial that the implants were able to be adequately
monitored and that there was limited to no movement of the implant in the anterior segment of the eye.
In the trial, OTX-TKI has been observed to have a favorable safety profile and be generally well-tolerated to date.
There have been no ocular serious adverse events in treatment naïve and previously treated wet AMD subjects. Plasma
concentrations of the active drug (axitinib) were measured to be below the limit of quantification of assay, or BLQ < 0.1
ng/ml, at all sampled time points for all patients in cohorts 1, 2, 3a and 3b. This assessment indicates that there is no
measurable systemic exposure to axitinib.
Phase 1 Clinical Trial (United States)
In July 2021, we announced that we had dosed the first patient in a prospective, multi-center, randomized, controlled
Phase 1 clinical trial in the United States under an exploratory investigational new drug, or eIND, application to evaluate a
single implant 600 µg dose of OTX-TKI with an anti-VEGF injection in comparison with a 2 mg dose of
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aflibercept. The trial consists of approximately 20 subjects previously treated with standard of care anti-VEGF therapy in
two arms: a fifteen-subject arm that will receive OTX-TKI in combination with an anti-VEGF injection and a five-subject
arm that will receive aflibercept at eight week intervals. The trial is designed to assess the safety, durability and tolerability
of OTX-TKI as well as to assess preliminary biological activity in subjects by measuring anatomical and functional
changes. At a pre-investigational new drug, or pre-IND, application meeting in April 2021, we discussed with the FDA
the possibility of transitioning from an eIND application to a traditional investigational new drug application.
The population being studied in this U.S.-based clinical trial is different than the population being studied in our
ongoing Phase 1 clinical trial of OTX-TKI in Australia. In this trial, we are including only subjects who have been
previously treated with anti-VEGF therapy and evaluating how long we are able to maintain subjects without the need for
retreatment. In the Australian trial, we studied subjects who had pre-existing intraretinal and/or subretinal fluid and
evaluated whether a TKI could reduce existing fluid levels.
The U.S.-based Phase 1 clinical trial is fully enrolled and we expect interim, six-month data in the second half of
2022.
Regulatory Pathway
We expect to receive topline data from the Phase 1 clinical trial in the United States in the second half of 2022. If
we receive positive data, we plan to initiate a Phase 2 clinical trial and two Phase 3 clinical trials in the United States for
the treatment of wet AMD, DME and RVO. If our development efforts are successful, we expect that we would submit an
NDA under Section 505(b)(2) of the FDCA. See “—Government Regulation—Section 505(b)(2) NDAs” for additional
information.
Glaucoma Program
OTX-TIC (travoprost intracameral implant)
Our development efforts for our glaucoma program have focused on the use of our extended-delivery hydrogel in
combination with travoprost, an FDA-approved prostaglandin analog designed to lower elevated IOP. Our product
candidate OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by a
physician as an intracameral injection into the anterior chamber of the eye with an initial target duration of drug release
over four to six months with a single treatment.
In Vitro and Preclinical results
Preclinical studies to date have demonstrated clinically meaningful IOP lowering and good pharmacokinetics in the
aqueous humor.
Phase 1 clinical development
We filed an IND for OTX-TIC in February 2018 and have completed a prospective, multi-center, open-label, dose-
escalation, proof-of-concept Phase 1 clinical trial of OTX-TIC in the United States that we initiated in the second quarter of
2018 for the treatment of subjects with moderate to severe glaucoma or ocular hypertension. The clinical trial was designed
to evaluate the safety, biological activity, durability and tolerability of OTX-TIC in subjects with controlled open-angle
glaucoma or ocular hypertension. The clinical trial consisted of four patient cohorts: cohort 1 included five subjects who
received a 15 µg dose, cohort 2 included four subjects who received a 26 µg dose, cohort 3 included five subjects who
received a 15 µg dose with a fast-degrading implant, and cohort 4 included five subjects who received a 5 µg dose with a
fast-degrading implant.
In February 2022, at the Glaucoma 360 virtual meeting, we presented interim results from all four subject cohorts in
the Phase 1 clinical trial. We believe, based on these results, that OTX-TIC shows potential as a sustained-release therapy
with a long duration of action. In the Phase 1 clinical trial, at least one subject in each of the four cohorts receiving OTX-
TIC were observed to experience a mean change in IOP from baseline as measured at 8:00 am, 10:00 a.m. and 4:00 p.m. as
early as two days following injection. We believe these results are comparable to the decrease in
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IOP seen with topical travoprost, the current standard of care. IOP lowering effects lasted more than six months in subjects
in cohorts 1 and 2 and three to six months in subjects in cohorts 3 and 4.
The OTX-TIC implant was observed to biodegrade in between five and seven months in subjects in cohorts 1 and 2.
In subjects in cohorts 3 and 4, the fast-degrading implants biodegraded between three and five months. Within all four
cohorts, implants were not observed to move when viewed with a slit lamp biomicroscope and were visible at all
examinations in all subjects using gonioscopy. Corneal health as measured by endothelial cell counts, pachymetry
assessments, and slit lamp examinations did not indicate any clinically meaningful changes from baseline in any of the four
cohorts. IOP elevation was observed in three subjects in cohort 3 at the approximate time of the implant resorption.
Phase 2 Clinical Trial
In November 2021, we filed an IND amendment for a randomized, double-masked, active-controlled Phase 2 clinical
trial in which we plan to enroll approximately 105 subjects at 15-20 sites between three arms of approximately 35 subjects
each to evaluate two formulations of OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension in subjects
compared to DURYSTA. We initiated the Phase 2 clinical trial in the fourth quarter of 2021 and expect to dose the first
subject in the first quarter of 2022. One arm in the Phase 2 clinical trial will receive the same formulation used in cohort 1
of the Phase 1 clinical trial, containing a 26 µg dose of drug and utilizing a standard implant, and a second arm will receive
the same formulation used in cohort 4 of the Phase 1 clinical trial, containing a 5 µg dose of drug and utilizing a fast-
degrading implant. The non-study eye of each subject will receive a topical prostaglandin daily. The goals of the study will
be to assess safety, tolerability and efficacy. Efficacy will be measured by diurnal IOP mean change from baseline (8 a.m.,
10 a.m. and 4 p.m.) at two, six and 12 weeks. The active comparator control arm will receive one injection of DURYSTA
in one eye and a topical prostaglandin daily in the non-study eye.
Regulatory Pathway
If our Phase 2 clinical trial is successful, we would then be required to successfully complete two well-controlled
Phase 3 clinical trials conducted under an IND to obtain marketing approval from the FDA. If we were to obtain favorable
results from these two pivotal clinical trials, we expect that we would submit an NDA to the FDA for marketing approval
of OTX-TIC under Section 505(b)(2) of the Food, Drug and Cosmetic Act, or FDCA. See “—Government Regulation—
Section 505(b)(2) NDAs.”
Ocular Surface Disease Programs
We are engaged in the development of formulations of our hydrogel administered via intracanalicular inserts to
address large markets for diseases and conditions of the surface of the eye. Our initial development efforts are focused on
the use of our extended-delivery hydrogel in combination with well-known and well-understood drugs (cyclosporine and
corticosteroids) for the treatment of dry eye disease, allergic conjunctivitis and inflammation and pain following
ophthalmic surgery.
Dry Eye Disease
OTX-CSI (cyclosporine intracanalicular insert)
OTX-CSI incorporates the FDA-approved immunomodulator cyclosporine as a preservative-free active
pharmaceutical ingredient into a hydrogel, drug-eluting, intracanalicular insert. The product candidate is designed for
subjects suffering from moderate to severe dry eye and to be administered by a physician as a bioresorbable
intracanalicular insert. OTX-CSI is designed to release cyclosporine to the ocular surface for approximately three to four
months in order to increase tear production for the chronic treatment of dry eye disease.
Phase 1 clinical development
We filed an IND for OTX-CSI in the United States in December 2019 and initiated a Phase 1 clinical trial in the first
quarter of 2020. The Phase 1 clinical trial was a U.S.-based, open-label, single-center trial that included five subjects (ten
eyes) who were followed for approximately four months. The study was designed to evaluate the safety,
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tolerability and durability of OTX-CSI and assess the biological activity by measuring signs and symptoms of dry eye
disease over this time period.
On October 8, 2020, we announced topline data from our Phase 1 clinical trial evaluating OTX-CSI in the chronic
treatment of dry eye disease. All subjects completed the 16-week study period with no drop-outs. There were no serious
adverse effects reported. The inserts were observed to be well-tolerated, and there were no adverse events of stinging,
irritation, blurred vision or tearing reported or observed.
Tear production as measured by the Schirmer’s test improved from mean values of 4.2 mm at baseline to 8.2 mm at
Week 12. One of five subjects (20%) had a greater than 10 mm increase from baseline in Schirmer’s score at Week 12.
Subjects saw an improvement in signs of dry eye disease as measured by CFS, or corneal total fluorescein staining (a mean
value of 6.7 at baseline, improved to a mean value of 2.7 at Week 12, on a scale of 0 to 15). Further, subjects saw an
improvement in symptoms of dry eye disease as measured by the Visual Analog Score, or VAS, eye dryness severity score
(a mean value of 51 at baseline, improved to a mean value of 33 at Week 12, on a scale of 0 to 100) and the VAS dry eye
frequency score (a mean value of 51 at baseline, improved to a mean value of 31 at Week 12, on a scale of 0 to 100). The
onset of action of OTX-CSI was seen as early as two weeks for both signs and symptoms of dry eye disease and was
observed to continue over the sixteen-week study period.
Phase 2 clinical development
In September 2020, we dosed the first subjects in a U.S.-based, randomized, double-masked, multi-center, vehicle-
controlled Phase 2 clinical trial designed to assess the safety, tolerability and durability and to evaluate the efficacy of
OTX-CSI in the chronic treatment of dry eye disease. The Phase 2 clinical trial evaluated two different formulations of
OTX-CSI compared with a hydrogel vehicle insert in approximately 140 subjects who are to be followed for a period of 16
weeks (12 week study period, with an additional 4-week safety follow-up). Included subjects must have been diagnosed
with dry eye disease in both eyes for a period of greater than six months and have a VAS, eye dryness severity score of
greater than 30. The primary endpoints are incidence of treatment-emergent adverse events and the absolute value and
change from baseline at week 12 in tear production as measured by the Schirmer’s test. Secondary endpoints include signs
of dry eye disease as measured by CFS and symptoms of dry eye disease as measured by the VAS eye dryness severity
score and the VAS dry eye frequency score.
We announced topline results from our Phase 2 clinical trial in October 2021. In the Phase 2 clinical trial, OTX-CSI
was administered to 147 subjects with dry eye disease at 15 sites in the United States. The four groups evaluated in this
study were: OTX-CSI for a shorter duration (two to three months formulation-F1, n=42), OTX-CSI for a longer duration
(three to four months formulation-F2a, n=40), vehicle insert for a longer duration (three to four months formulation-F2b,
n=43) and vehicle insert for a very short duration (one week formulation-F3, n=22).
The study did not show separation between subjects receiving OTX-CSI (both formulations) and subjects receiving
the vehicle (both formulations) for the primary endpoint of increased tear production at 12 weeks as measured by the
Schirmer’s Test. Mean change from baseline (improvement) in Schirmer’s Test scores for the four groups were as follows:
OTX-CSI F1: 1.98 mm, OTX-CSI F2a: 1.91 mm, Vehicle F2b: 2.24 mm and Vehicle F3: 3.08 mm.
The study did show an improvement compared with baseline in signs of dry eye disease as measured by total CFS
and symptoms of dry eye disease as measured by the VAS eye dryness in subjects treated with the OTX-CSI insert (both
formulations) starting as early as two weeks after insertion and continuing over the 12 weeks study period. These
improvements were not statistically significant compared with vehicle insert (both formulations) for either CFS or VAS eye
dryness (severity and frequency) at 12 weeks.
Overall, the OTX-CSI insert (both formulations) was generally observed to have a favorable safety profile and be
well tolerated. There were no ocular serious adverse events. No subjects dropped out of the trial due to an adverse event.
The most common ocular adverse event was ocular pruritis, or itchy eyes, which was seen in less than 16% of subjects. The
adverse events of ocular discomfort or pain were seen in less than 3% of subjects. The most common non-ocular event was
COVID-19 and was seen in 3% of subjects.
We continue to evaluate the data from the Phase 2 clinical trial for additional information that may inform the future
development of this program. This data includes, among other things, retention rates of the OTX-CSI inserts, or how long
the inserts were observed to remain in the canaliculus, as well as the duration of the vehicle hydrogel inserts.
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Regulatory Pathway
If we determined to advance the program, we believe we would need to complete another Phase 2 clinical trial. If
this Phase 2 clinical trial were successful, we would then be required to successfully complete two well-controlled Phase 3
clinical trials conducted under an IND to obtain marketing approval from the FDA. If our development efforts are
successful, we expect that we would submit an NDA under Section 505(b)(2) of the FDCA. See “—Government
Regulation—Section 505(b)(2) NDAs” for additional information.
OTX-DED (dexamethasone intracanalicular insert)
One of the causes of dry eye disease is inflammation. Topical anti-inflammatory drugs are used as one of several
therapies to treat dry eye disease and are administered by eye drops. As the understanding of dry eye disease, specifically
the inflammatory components of dry eye disease, has evolved, the use of corticosteroids has become common to offer
short-term relief of signs and symptoms of the disease. Physicians typically prescribe a topical corticosteroid for a period
of two to four weeks, tapered over the course of delivery as the inflammation and symptoms subside. However, safety
limitations associated with the use of corticosteroids for dry eye disease have limited widespread adoption. We believe that
OTX-DED has potential as a short-term treatment of the signs and symptoms of dry eye disease caused by inflammation.
OTX-DED incorporates the FDA-approved corticosteroid dexamethasone, its preservative-free active
pharmaceutical ingredient, into a hydrogel, drug-eluting intracanalicular insert. OTX-DED incorporates the same active
drug as DEXTENZA, but it includes a lower dose of the drug, delivers it via a smaller insert, and is designed to release it
over a period of two to three weeks.
Phase 2 clinical trial
We filed an IND in November 2020 for OTX-DED. In February 2021, we initiated a U.S.-based, randomized,
double-masked, vehicle-controlled, multi-center Phase 2 clinical trial evaluating two different-strength formulations of
OTX-DED (0.2 mg and 0.3 mg of dexamethasone) versus hydrogel implant in a total of approximately 150 subjects with
dry eye disease, approximately 50 subjects per arm. The subjects were followed for approximately two months after
randomization. This trial is designed to assess the safety and efficacy of these two formulations of OTX-DED for the short-
term treatment of signs and symptoms of dry eye disease. Included subjects were required to have diagnosed dry eye
disease in both eyes for at least six months, a VAS eye dryness severity score of at least 30 and bulbar conjunctival
hyperemia grade of at least 2 on the Cornea Contact Lens Research Unit (CCLRU) Grading scale. The primary endpoint is
mean change in bulbar conjunctival hyperemia from baseline measured at 15 days post treatment by central reading center
photographic assessment. Secondary endpoints include eye dryness symptoms using VAS, total CFS using the National
Eye Institute scale and adverse events, both ocular and non-ocular.
We announced the topline Phase 2 clinical results in December 2021. The clinical trial achieved its pre-specified
primary endpoint. Although the clinical trial was not powered to show statistical significance, the topline results
demonstrated a statistically significant change of bulbar conjunctival hyperemia from baseline to day 15 compared to
vehicle hydrogel using a central reading photographic assessment in the modified ITT population. Change from baseline
using the CCLRU Grading scale (0-4) was -0.51 for the OTX-DED 0.2 mg group (n=55), -0.43 for the OTX-DED 0.3 mg
group (n=56), and -0.21 for the vehicle hydrogel insert group (n=55). These differences were statistically significant
compared with the vehicle hydrogel for both the OTX-DED 0.2 mg group (p=.004) and the OTX-DED 0.3 mg group
(p=.028). Sensitivity analysis using different methods of imputation including last observation carry forward (LOCF),
Markov Chain Monte Carlo (MCMC), and fully conditioned specifications (FCS) were consistent with the primary
analysis. Improvements from baseline were noted in the VAS dry eye symptoms for both OTX-DED 0.2 mg and OTX-
DED 0.3 mg groups, but there was little separation between OTX-DED and the vehicle hydrogel insert. Other secondary
endpoints are being evaluated.
Both formulations of OTX-DED were generally observed to have a favorable safety profile and be well tolerated.
There were no ocular serious adverse events. The most common ocular adverse events for subjects treated with OTX-DED
were epiphora (lacrimation increase) (8.1%) and elevated IOP (3.6%). All other ocular adverse events occurred in less than
1% of subjects. The most common non-ocular adverse event for subjects treated with OTX-DED was arthralgia
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(joint pain) which was seen in 1.8% of subjects. All other non-ocular adverse events occurred in less than 1% of subjects.
We continue to evaluate the data from the Phase 2 clinical trial for additional information that may inform the future
development of this program. This data includes, among other things, the duration of the vehicle hydrogel inserts.
Regulatory Pathway
If we determined to advance the program, we believe we would need to complete another Phase 2 clinical trial. If
this Phase 2 clinical trial were successful, we would then be required to successfully complete two well-controlled Phase 3
clinical trials conducted under an IND to obtain marketing approval from the FDA. If our development efforts are
successful, we expect that we would submit an NDA under Section 505(b)(2) of the FDCA. See “—Government
Regulation—Section 505(b)(2) NDAs” for additional information.
Allergic Conjunctivitis
DEXTENZA (dexamethasone ophthalmic insert) for the Treatment of Ocular Itching Associated with Allergic Conjunctivitis
In October 2021, the FDA approved our sNDA, for DEXTENZA to include the treatment of ocular itching
associated with allergic conjunctivitis as an additional indication. With the approval, DEXTENZA became the first, FDA-
approved, physician-administered intracanalicular insert capable of delivering a preservative-free drug for the treatment of
ocular itching associated with allergic conjunctivitis with a single administration for up to 30 days. DEXTENZA for the
treatment of ocular itching associated with allergic conjunctivitis also represents our first indication approved to be
administered in a physician’s office during a routine, non-surgical appointment.
We are launching DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first
quarter of 2022 utilizing a small, dedicated and highly focused sales force of four KAMs, or key account managers and two
FRMs, or field reimbursement managers that will call exclusively on the offices of ophthalmologists and optometrists. We
believe that many of the specialists who treat patients for post-surgical inflammation and pain also treat patients suffering
from allergic conjunctivitis.
We believe that allergic conjunctivitis represents a discrete potential market opportunity for preservative-free
DEXTENZA because it is a physician-administered, hands-free, therapy administered in the office setting and designed to
release the FDA-approved corticosteroid dexamethasone to the ocular surface for up to 30 days.
Although dexamethasone is clinically effective in the treatment of late-phase inflammatory allergic reactions, the
safety limitations associated with eye drop administration, including the potential to generate spikes in IOP due to the high
levels of drug due to potential patient abuse to treat this symptomatic condition, have limited its widespread adoption.
These elevations in IOP can lead to drug-induced glaucoma, although the incidence is low. Further, use of oral anti-
histamine medications as well as anti-histamine eye drops for allergic conjunctivitis may dry out the eye and exacerbate the
discomfort to some patients. Based on our clinical trial results to date, we believe that using DEXTENZA for allergic
conjunctivitis could create a low, tapered, consistent dose of dexamethasone, potentially minimizing or eliminating side
effects associated with the eye drop formulation, while retaining the drug’s anti-inflammatory effects.
Phase 3 Clinical Program
The approval of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis was based on
three randomized, multicenter, double-masked, parallel group, vehicle-controlled studies in subjects with a positive history
of ocular allergies and positive skin test reaction to perennial and seasonal allergens (n=255). Our first Phase 3 clinical trial
assessed both ocular itching and conjunctival redness associated with allergic conjunctivitis. Our second and third Phase 3
clinical trials focused on the ocular itching indication only.
In all three trials, DEXTENZA demonstrated lower mean ocular itching scores compared with the vehicle group at
all time points throughout the study duration of up to 30 days. In two of the three studies, a higher proportion of subjects
had statistically significant reductions in ocular itching on Day 8, at three minutes, five minutes and seven minutes post-
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challenge in the DEXTENZA group compared to the vehicle group. Data for the primary endpoint, ocular itching at Day 8,
is shown below for all three studies (scale 0-4):
Reduction in Ocular Itching
Clinical Trial 1
Clinical Trial 2
Clinical Trial 3
DEXTENZA
(N=35)
Vehicle
(N=38)
Least Square Means
Difference
(95% CI)
DEXTENZA
(N=44)
Vehicle
(N=42)
Least Square Means
Difference
(95% CI)
DEXTENZA
(N=48)
Vehicle
(N=48)
Least Square Means
Difference
(95% CI)
1.9
2.1
1.9
2.7
2.8
2.7
-0.7 (-1.2, -0.3)
-0.7 (-1.2, -0.3)
-0.8 (-1.2, -0.4)
2.1
2.1
2.1
2.3
2.3
2.4
-0.2 (-0.7, 0.3)
-0.2 (-0.8, 0.3)
-0.3 (-0.8, 0.3)
1.8
1.8
1.7
2.7
2.7
2.7
-0.9 (-1.2, -0.4)
-1.0 (-1.4, -0.6)
-1.0 (-1.4, -0.6)
Visit
Day 8
Time
Point
3 min
5 min
7 min
DEXTENZA was observed to have a favorable safety profile and be generally well-tolerated in the allergic
conjunctivitis as well as the ocular inflammation and pain clinical populations. The most common ocular adverse events
seen in the pooled analysis of the allergic conjunctivitis studies were: increased intraocular pressure (3%), increased
lacrimation (1%), eye discharge (1%) and reduced visual acuity (1%). The most common non-ocular adverse reaction that
occurred in subjects treated with DEXTENZA for allergic conjunctivitis was headache (1%).
First Phase 3 Clinical Trial
We initiated our first planned Phase 3 clinical trials in June 2015, and we reported topline efficacy results in October
2015. This first Phase 3 clinical trial was a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-
masked trial. A total of 73 subjects were enrolled in this trial and were randomized in a 1:1 ratio to receive either
DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. This trial was conducted using the
CAC Model. We evaluated subjects using three allergen challenges in series for each of two efficacy measures at days 7, 14
and 28 following placement of intracanalicular insert as described below. In this Phase 3 clinical trial, we placed the
intracanalicular inserts 48 to 72 hours after exposure to the allergen. In our completed Phase 2 clinical trial, we obtained
better efficacy results with this design protocol as noted in the description of the Phase 2 efficacy results above.
The primary efficacy measures for this trial were ocular itching graded by the subject and conjunctival redness
graded by the trial investigator, in each case based on a five point scale from zero to four. The primary efficacy endpoints
were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale
measured on 7 days post-insertion of the intracanalicular insert for all three time points measured for both ocular itching
and conjunctival redness and differences of at least 1.0 unit for the majority of the three time points measured on 7 days
post-insertion of the intracanalicular insert for both ocular itching and conjunctival redness. The secondary endpoints were
similar to the primary efficacy endpoints except that each variable was assessed at day 14 and day 28 following insertion of
the intracanalicular insert. The primary efficacy measure of conjunctival redness is typically included in Phase 3 trials for
allergic conjunctivitis but has not been required for FDA approval of drugs for allergic conjunctivitis. Most commercially
available prescription medications for the treatment of allergic conjunctivitis have an ocular itching indication only. As
described below, ocular itching was the only primary efficacy endpoint in the second Phase 3 trial of DEXTENZA for the
treatment of allergic conjunctivitis, with conjunctival redness being moved to a secondary efficacy endpoint.
We enrolled subjects in this trial who were at least 18 years of age with a positive history of ocular allergies and a
positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded subjects from this trial if, among
other reasons, they had an active ocular infection or itching or conjunctival redness at screening.
We evaluated safety in all subjects at each study visit with an assessment of general eye conditions, including visual
acuity and IOP, along with any adverse events.
Efficacy: In this trial, there was a statistically significant mean difference (p<0.0001) between the DEXTENZA
treatment group and the placebo vehicle group for ocular itching at all three time points measured on 7 days post-
placement of the intracanalicular insert. DEXTENZA also met the primary efficacy endpoint for ocular itching. The
DEXTENZA treatment group achieved a mean difference compared to the vehicle group of greater than 0.5 units on a five
point scale on 7 days post-insertion at each time point and greater than 1.0 unit at a majority of the time points on 7 days
post-insertion for ocular itching. There was a statistically significant mean difference (p=0.01 or less) between the
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DEXTENZA treatment group and the placebo vehicle group for conjunctival redness at all three time points measured on 7
days post-placement of the intracanalicular insert. However, the DEXTENZA group did not achieve the pre-specified
primary efficacy endpoints on 7 days post-insertion with respect to conjunctival redness.
Safety: There were no serious adverse events reported in this trial. There were a variety of adverse events in both
the DEXTENZA group and the vehicle control group, with three subjects in the DEXTENZA treatment group with a total
of three ocular adverse events and one non-ocular adverse event and four subjects in the vehicle control group with a total
of six ocular adverse events and one non-ocular adverse events. The most common ocular adverse event was increased
lacrimation, which was experienced by one subject in the DEXTENZA group and two subjects in the vehicle control
group. Other treatment-related ocular adverse events included increased IOP in the DEXTENZA group, and blepharospasm
in the vehicle control group.
Second Phase 3 Clinical Trial
We initiated our second Phase 3 clinical trial of DEXTENZA for the treatment of allergic conjunctivitis in November
2015, 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 subjects were enrolled in this
trial and randomized in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without
active drug. This trial was conducted using the CAC Model. Subjects were evaluated using three allergen challenges in
series for each of two efficacy measures at days 7, 14 and 28 following insertion of the intracanalicular insert. In this Phase
3 clinical 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 subject based on a five point scale
from zero to four. The primary efficacy endpoints were the differences between the treatment group and the vehicle group
of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points
measured for ocular itching and differences of at least 1.0 unit for the majority of the three time points measured 7 days
post-insertion of the intracanalicular insert for ocular itching. The secondary endpoints for ocular itching were similar to
the primary efficacy endpoints except that each variable was assessed at day 14 and day 28 following placement of the
intracanalicular insert. The secondary endpoints for conjunctival redness were the differences between the treatment group
and the vehicle group of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all
three time points measured and differences of at least 1.0 unit for the majority of the three time points measured 7 days
post-insertion of the intracanalicular insert.
We enrolled subjects in this trial who are at least 18 years of age with a positive history of ocular allergies and a
positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded subjects from this trial if, among
other reasons, they had an active ocular infection or itching or conjunctival redness at screening.
We evaluated safety in all subjects at each study visit with an assessment of general eye conditions, including visual
acuity 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
DEXTENZA treatment 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, the trial did not achieve the requirement of at least a 0.5 unit difference at all three time points 7
days following insertion of the inserts and at least a 1.0 unit difference at a majority of the three time points between the
treatment group and the placebo group 7 days following insertion of the inserts.
The trial also assessed conjunctival redness as a secondary endpoint. The differences in the mean scores in
conjunctival redness between the DEXTENZA treatment group and the placebo group 7 days following insertion of the
inserts at 7, 15 and 20 minutes were -0.35, -0.39 and -0.42, respectively.
Safety: There were no serious adverse events reported in this trial. There were a variety of adverse events in both
the DEXTENZA group and the vehicle control group, with six subjects in the DEXTENZA treatment group with a total of
six ocular and one non-ocular adverse events and 11 subjects in the vehicle control group with a total of nine ocular and
eight non-ocular adverse events. The lower rate of ocular adverse events in the DEXTENZA group could potentially
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be due to the presence of an anti-inflammatory active pharmaceutical ingredient. Ocular adverse events reported more than
one subject in either treatment group included increased IOP, which was experienced by two subjects in the DEXTENZA
group, as well as dacryostenosis acquired and dacryocanaliculitis, each experienced by two subjects in the vehicle control
group. Both cases of IOP increased were considered treatment related, as were both cases of dacryocanaliculitis and a
single case of dacryostenosis. All other ocular adverse events were reported by single subjects in either the DEXTENZA or
vehicle control group, with most in the PV group considered treatment related.
Third Phase 3 Clinical Trial
In the third quarter of 2019, we began dosing subjects in a 96-subject, pivotal Phase 3 clinical trial evaluating
DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis and we reported topline efficacy
results in April 2020. This Phase 3 clinical trial was a U.S.-based, multi-center, 1:1 randomized, double-masked, placebo-
controlled trial designed to evaluate the safety and efficacy of DEXTENZA versus a punctum plug using the CAC Model.
The trial was designed to assess the effect of DEXTENZA compared with a placebo on allergic reactions using a series of
successive allergen challenges over a 30-day period. The primary efficacy endpoint for this trial was ocular itching
(subject-reported 5-point scale (0 to 4)) on day 8 at 3 minutes, 5 minutes and 7 minutes post-challenge and included
subjects with seasonal and perennial allergens.
Efficacy: DEXTENZA-treated subjects demonstrated a statistically significant (p-value < 0.0001) difference in mean
ocular itching scores, compared to vehicle-treated subjects, at all three pre-specified time points (see the figure below). An
assessment of the secondary endpoint of ocular itching at all other visits (day 7, day 8 (morning), day 8 (afternoon at 10
minutes following exposure), day 14, and day 15 (morning and afternoon)) also showed that DEXTENZA-treated subjects
reported lower itching scores than vehicle-treated subjects at 3 minutes, 5 minutes, 7 minutes and 10 minutes post-exposure
to the allergen challenge (p-value <0.05 for all 21 time points except day 7 at 3 minutes).
Safety: In the trial, DEXTENZA was generally observed to have a favorable safety profile and be well-tolerated. No
serious adverse events were observed. No subjects required rescue medication and no subjects experienced elevated IOP.
There were 8 ocular treatment-emergent adverse events in this trial (2 in the DEXTENZA group and 6 in the vehicle
group).
Post-Surgical Ocular Inflammation and Pain
DEXTENZA (dexamethasone intracanalicular insert)
DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active
pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert. Following FDA approval, we commercially
launched DEXTENZA for the treatment of post-surgical inflammation and pain in July 2019. DEXTENZA is the first
FDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocular inflammation and pain for up
to 30 days with a single administration.
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;
● is available on a generic basis;
● is highly potent and is typically prescribed for prevention of ocular inflammation and pain following ocular
surgery;
● is available from multiple qualified suppliers; and
● has physical properties that are well suited for incorporation within our hydrogel technology.
Embedded within our DEXTENZA intracanalicular insert are dexamethasone drug particles that gradually erode and
release the drug in a programmed fashion until the drug is depleted. As the dexamethasone drug particles erode and
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the hydrogel 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
times daily for one week, with a gradual tapering in the number of eye drops over a four-week period. Such a regimen is
often confusing to patients as they must remember to taper the number of times per day they administer the steroid, while
also taking multiple drops of other drugs, such as antibiotics and NSAIDs. We believe that local programmed-release of
drug to the eye may result in better control of ocular inflammation and pain as compared to prescription eye drops and that
a low dose amount may provide enhanced safety by eliminating spikes in IOP associated with high-dose steroid eye drops.
Overview of Clinical Development for Post-Surgical Ocular Inflammation and Pain
In March and April 2015, we reported topline results from two Phase 3 clinical trials for the treatment of post-
surgical ocular inflammation and pain. In the first Phase 3 clinical trial, DEXTENZA met both primary efficacy endpoints,
absence of pain at day 8 and absence of inflammatory cells at day 14, with statistical significance. In the second Phase 3
clinical trial, DEXTENZA met the primary efficacy endpoint for absence of pain at day 8 with statistical significance but
did not meet the primary efficacy endpoint for absence of inflammatory cells at day 14. In September 2015, we submitted
to the FDA an NDA for DEXTENZA for the treatment of post-surgical ocular pain. In July 2016, we received a complete
response letter, or CRL, from the FDA regarding our NDA for DEXTENZA. We resubmitted our NDA for DEXTENZA
for the treatment of post-surgical ocular pain in June 2018 and received approval for the pain indication in November 2018.
We initiated a third Phase 3 clinical trial for DEXTENZA for the treatment of post-surgical ocular inflammation and
pain in October 2015. In the third Phase 3 clinical trial, DEXTENZA met both primary efficacy endpoints, absence of pain
at day 8 and absence of inflammatory cells at day 14. In January 2019, we submitted an sNDA for the treatment of post-
surgical inflammation based, in part, on the results from the third Phase 3 clinical trial. In June 2019, we received approval
for the inflammation indication.
Investigator-Initiated Trials
We have received proposals for, and plan to support, several investigator-initiated trials evaluating DEXTENZA in
different clinical situations. To date, third-party clinical investigators have initiated over 25 trials to study the use of
DEXTENZA in cataract surgery, other ophthalmic surgeries and other potential indications. Over 15 of the trials have
completed enrollment, and the remaining trials are actively enrolling and treated subjects are being followed.
Post-Approval Studies
In September 2020, we announced that we had dosed the first pediatric subjects in a U.S.-based, randomized,
multicenter Phase 3 clinical trial evaluating DEXTENZA for the treatment of post-surgical ocular inflammation and pain in
children following cataract surgery. This clinical trial is a post-approval requirement of the FDA in accordance with the
Pediatric Research Equity Act of 2003, in connection with the FDA’s prior approval of DEXTENZA for the treatment of
inflammation and pain following ophthalmic surgery in adults. We intend to enroll approximately 60 subjects in this
clinical trial. It is designed to evaluate the safety and biological activity of DEXTENZA compared to an active control,
prednisolone acetate suspension eye drops, for the treatment of inflammation and pain following ocular surgery for
pediatric cataract in children between zero and three years of age. The primary endpoint is the absence of pain at day eight
post-treatment as measured by a FLACC (Face, Legs, Activity, Cry, Consolability) score of zero. Enrollment is ongoing.
We intend to discuss with the FDA whether this Phase 3 clinical trial evaluating DEXTENZA for the treatment of post-
surgical ocular inflammation and pain in children following cataract surgery may also satisfy the post-approval requirement
for a pediatric trial as it relates to indication ocular itching associated with allergic conjunctivitis.
Foreign Approvals
Outside the United States, we continue to assess whether to seek regulatory approval for DEXTENZA in markets
such as the European Union, Australia and Japan based on the market opportunity, particularly pricing, and the
requirements for marketing approval. Given our prioritization of the clinical development of our sustained-release
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product candidates and our planned commercialization efforts for our initial intracanalicular insert product candidates in
the United States, we will need to engage a third parties to assist us in the approval process. We have entered into a license
agreement and collaboration with AffaMed for the development and commercialization of DEXTENZA, along with OTX-
TIC, in specified Asian markets. In January 2022, AffaMed dosed its first subject in a study conducted in China evaluating
the safety and efficacy of DEXTENZA for the treatment of ocular inflammation and pain post-cataract surgery. We retain
the right to develop and commercialize DEXTENZA in all other global markets. From time to time, we may consider
additional arrangements with other companies to address markets outside of the United States.
If we or our collaborators obtain regulatory approval to market and sell DEXTENZA in international markets, we
expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third
parties to commercialize DEXTENZA. See “—Government Regulation—Review and Approval of Medical Devices in the
European Union” for additional information.
ReSure Sealant
ReSure Sealant is a topical liquid hydrogel that creates a temporary, adherent, soft and lubricious sealant to prevent
post-surgical leakage from clear corneal incisions that are made during cataract surgery. The main components of ReSure
hydrogel are water and PEG. ReSure hydrogel is completely synthetic, with no animal or human derived components. The
FDA granted marketing approval for ReSure Sealant in January 2014. We commercially launched ReSure Sealant in the
United States in February 2014.
ReSure Sealant provides a novel means of definitive wound closure in situations in which the surgeon observes a
wound leak at the conclusion of surgery and/or would otherwise use sutures. We believe ReSure Sealant offers important
benefits over sutures, including superior wound closure, a better safety profile and less follow-up.
The market opportunity for a surgical sealant following cataract surgery may be modest because sutures are used in
a minority of cataract surgeries and, currently, there is no direct separate reimbursement for ReSure Sealant—meaning
ReSure Sealant is only reimbursed as part of a bundled payment for the associated surgery. While ReSure Sealant remains
commercially available in the United States, we are not providing any sales support and only modest commercial support
for this product at this time. As of the fourth quarter of 2021, we have suspended manufacturing ReSure in order to focus
our manufacturing resources to support the further commercialization of DEXTENZA. As a result, we do not expect to
generate meaningful levels of revenue from the sale of ReSure Sealant.
Product Design
A surgeon forms ReSure Sealant hydrogel by combining three components: PEG, a cross-linker and a diluent buffer
solution. The cross-linker interacts with the PEG molecules to form a molecular network that comprises the hydrogel. The
components are mixed to initiate the cross-linking reaction to form a biocompatible, resorbable hydrogel. The hydrogel is
approximately 90% water and is blue in color to help the surgeon visualize the sealant during application. The surgeon
applies the sealant to the corneal incision as a liquid using a soft foam-tipped applicator. The sealant forms a conformal
coating that adheres to the ocular tissue through mechanical interlocking of the hydrogel with the tissue surfaces. The blue
color fades within a few hours following surgery. The soft, pliable hydrogel remains on the corneal surface during the
critical wound healing period of one to three days and provides a barrier to fluid leakage. ReSure Sealant softens over time,
detaches and is sloughed off in the tears as a liquid or extremely soft gel pieces. ReSure Sealant is designed to completely
liquefy over a five to seven day duration. Complete epithelial healing takes place over this time period, providing long-
term wound closure.
We provide ReSure Sealant in a sterile, single patient use package. The package contains a tray with two elongated
mixing wells. Each well contains dried deposits of reactants, separated within the well. The package also contains one
plastic dropper bottle filled with diluent solution and two applicators. The device is stored at room temperature for easy
access.
Post-Approval Studies
ReSure Sealant is classified in the United States as a class III medical device subject to the rules and regulation of
premarket approval by the FDA. Before granting approval of the premarket approval, or PMA, application, the FDA
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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 application for ReSure Sealant in January 2014.
The FDA required two post-approval studies as a condition for approval of our PMA application for ReSure Sealant.
The first post-approval study, identified as the Clinical PAS, was to confirm that ReSure Sealant can be used safely by
physicians in a standard cataract surgery practice and to confirm the incidence of the most prevalent adverse ocular events
identified in our pivotal study in eyes treated with ReSure Sealant. We submitted the final study report to the FDA in June
2016 and the FDA has confirmed the Clinical PAS has been completed.
The second post-approval study, which we refer to as the Device Exposure Registry Study, was a retrospective
analysis of the IRIS Registry, comparing endophthalmitis rates from sites that purchased ReSure Sealant versus those sites
that did not. We completed the retrospective study in accordance with our agreement with the FDA and submitted the final
study report for the Device Exposure Registry Study to the FDA in January 2021. In April 2021, the FDA confirmed that
the Device Exposure Registry Study had been completed and that we had fulfilled our post-approval study requirements.
Sales, Marketing and Distribution
We plan to prioritize our commercialization efforts in the United States. We generally expect to retain commercial
rights in the United States to any of our product candidates for which we may receive marketing approvals and which we
believe we can successfully commercialize. In general, if we receive approval to market any of our product candidates in
the United States, we plan to then evaluate the regulatory approval requirements and commercial potential for any such
product candidate in Europe, Japan and other selected geographies. If we decide to commercialize our products outside of
the United States, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements
with one or more third parties to commercialize any product of ours that receives marketing approval.
DEXTENZA
We sell DEXTENZA in the United States to a network of specialty distributors, who then resell DEXTENZA to
ASCs and hospital outpatient departments, or HOPDs. In connection with the commercialization of DEXTENZA, we have
built a highly targeted, key account sales force that focuses on the ASCs responsible for the largest volumes of cataract
surgery in the United States and their affiliates, with an initial emphasis on the approximately two million cataract
procedures performed annually under Medicare Part B.
We expect to grow our salesforce in 2022 to increase our active number of accounts and penetrate each account more
deeply. Our current field sales team consists of approximately 35 KAMs, nine FRMs and four Regional Directors, or RDs,
all of whom are focused on selling DEXTENZA for the treatment of ocular inflammation and pain to surgical sites,
primarily ASCs. We intend to hire at least five additional KAMs who will also be focused on surgical sites.
With the approval of DEXTENZA for the indication of ocular itching associated with allergic conjunctivitis, we are
launching a commercial effort in the first quarter of 2022 and intend to hire four KAMs and two FRMs dedicated to selling
DEXTENZA to the offices of ophthalmologists and optometrists, where the vast majority of prescriptions for allergies are
written.
We have entered into a license agreement and collaboration with AffaMed for the development and
commercialization of DEXTENZA, along with OTX-TIC, in specified Asian markets.
ReSure Sealant
We commercially launched ReSure Sealant in the United States in February 2014. While ReSure Sealant remains
commercially available in the United States, we are not providing any sales support. As of the fourth quarter of 2021, we
have suspended manufacturing ReSure in order to focus our manufacturing resources to support the further
commercialization of DEXTENZA. As a result, we do not expect to generate meaningful levels of revenue from the sale
of ReSure Sealant.
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Manufacturing
We fabricate devices and drug products for use in our clinical trials, research and development and commercial
efforts for all of our products and product candidates using current Good Manufacturing Practices, or cGMP, at our
approximately 20,000 square foot facility located in Bedford, Massachusetts. In June 2016, we entered into a new lease
agreement for approximately 71,000 square feet of a facility in Bedford, Massachusetts that primarily houses our research
and development functions but may include additional manufacturing space in the future. We are currently evaluating a
long-term master facilities plan to accommodate our manufacturing needs in the future.
We purchase active pharmaceutical ingredient drug substance from independent suppliers on a purchase order basis
for incorporation into our drug product candidates. We purchase our PEG and other raw materials from different vendors
on a purchase order basis according to our specifications. While we believe that multiple vendors are available for each
component we purchase, we have historically sole-sourced each component. We qualify vendors according to our quality
system requirements. We do not have any long-term supply agreements in place for any raw materials or drug substances.
We do not license any technology or pay any royalties to any of our drug or raw material vendors for the current or
potential front and back-of-the-eye products.
We believe that our strategic investment in manufacturing capabilities allows us to advance product candidates at a
more rapid pace and with more flexibility than a contract manufacturer, although we will continue to evaluate outsourcing
unit operations for cost advantages. Our manufacturing capability also enables us to produce products in a cost-effective
manner while retaining control over the manufacturing process and prioritizing the timing of internal programs.
Our manufacturing capabilities encompass the full manufacturing process through quality control and quality
assurance and are integrated with our project teams from discovery through development and commercial release. This
structure enables us to efficiently transfer research stage product concepts into manufacturing. We have designed our
manufacturing facility and processes to provide flexibility for the manufacture of different product candidates. We
outsource sterilization services for our products.
We believe that we can scale our manufacturing processes to support DEXTENZA sales as well as development of
our 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, product
candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others
from infringing our proprietary rights. We rely on patent protection, trade secrets, know-how, continuing technological
innovation and in-licensing opportunities to develop and maintain our proprietary position.
We have patents and/or patent applications pending for all of our commercial products and product candidates, as
well as trade secrets to protect proprietary manufacturing processes. The number of U.S. patents and applications owned by
us may increase, on a product-by-product basis or in the aggregate, if we, for example, file additional patent applications
and/or obtain patent grants from patent applications. The number of patents and applications owned by us may decrease,
on a product-by-product basis or in the aggregate, if we, for example, voluntarily abandon patents or patent applications,
allow patent applications to expire, or have patents invalidated. As of February 19, 2022, patents and/or patent applications
pending owned by us, are 49 pending applications: 14 pending provisional applications, 12 pending U.S. patent
applications, 8 pending World Intellectual Property Organization applications and 15 foreign applications.
Several U.S. patents and applications, and foreign counterparts, have been in-licensed from Incept, and we may in-
license additional U.S. patents and applications, and foreign counterparts. As of February 19, 2022, there have been 33
granted of which 15 are U.S. patents and there are 45 patent applications pending of which 7 are U.S. applications that are
in-licensed from Incept. The license from Incept is limited to the fields of human ophthalmic diseases and conditions,
acute post-surgical pain and ear, nose and/or throat diseases or conditions.
The following is a summary of patents and patent applications that cover our commercial products and potentially
cover our product candidates:
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OTX-TKI (axitinib intravitreal implant) for Wet AMD, DME and RVO
We have licenses to several U.S. patents and patent applications, and certain foreign counterparts, with the potential
to cover this product candidate, expected to expire between 2027 and 2032. We own pending patent applications in the
United States with the potential to cover this product candidate that, if granted, are expected to expire in 2041.
OTX-TIC (travoprost intracameral implant) for open-angle glaucoma or ocular hypertension
We have licenses to a pending U.S. application and certain foreign patent applications pending that potentially cover
this product candidates that, if granted, are expected to expire in 2037. We own pending patent application in the United
States and under the Patent Cooperation Treaty, or PCT, with the potential to cover this product candidate that, if granted,
are expected to expire in 2042.
OTX-CSI (cyclosporine intracanalicular insert) for dry eye disease
We have licenses to U.S. patents and patent applications, and certain foreign counterparts, that potentially cover this
product candidate, and which are expected to expire in 2030, relating to methods of use of this product candidate. We own
a pending patent application in the United States with the potential to cover this product candidate that, if granted, is
expected to expire in 2041.
OTX-DED (dexamethasone intracanalicular insert) for episodic dry eye disease
We have licenses to U.S. patents and pending applications, and certain foreign counterparts, which are expected to
expire in 2030 and relate to compositions and methods of use of this product candidate. We own a pending patent
application in the United States with the potential to cover this product candidate that, if granted, is expected to expire in
2041.
DEXTENZA ® (dexamethasone ophthalmic insert) 0.4 mg
We have licenses to U.S. patents and pending applications, and certain foreign counterparts, which are expected to
expire in 2030 and potentially cover compositions and methods of use of this product candidate.
We also own a U.S. patent application with the potential to cover this product that, if granted, is expected to expire in
2036.
DEXTENZA ® (dexamethasone ophthalmic insert) 0.4 mg for allergic conjunctivitis
We have licenses to U.S. patents, and certain foreign counterparts, which are expected to expire in 2030 and
potentially cover compositions and methods of use of this product candidate. We own a pending patent application in the
United States with the potential to cover this product candidate that, if granted, is expected to expire in 2041.
ReSure® Sealant
We have licenses to two U.S. patents that cover ReSure Sealant. One U.S. patent is expected to expire in 2024 and
relating to the process of making and using hydrogel compositions, and one U.S. patent is expected to expire in 2032 and
relates to certain features of the ReSure Sealant package.
The existence of patent applications does not guarantee that a patent will issue, or that any patent that does issue will
cover the product or product candidate. Issued patents are subject to validity, enforceability and infringement challenges
by third parties with uncertain chances of success.
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In
most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be
lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent
and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally
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disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.
The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term
extension of up to five years beyond the expiration date of a U.S. patent for certain patents as partial compensation for the
length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the
remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each
regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a
method for manufacturing it may be extended.
Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a
patent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or
foreign regulatory authorities, where applicable, we expect to apply for patent term extensions on issued patents covering
those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates
referred to above are without regard to potential patent term extension or other market exclusivity that may be available to
us.
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be
difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with
our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of
our data.
Licenses
Incept, LLC
In January 2012, we entered into an amended and restated license agreement, which we refer to as either the Prior
Agreement or Original License, with Incept under which we hold an exclusive, worldwide, perpetual, irrevocable license
under 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 a
significant portion of the patent rights and the technology for DEXTENZA, ReSure Sealant and our hydrogel platform
technology product candidates. The agreement supersedes an April 2007 license agreement between us and Incept. Amar
Sawhney, our former President and Chief Executive Officer and former Executive Chairman of the Board of Directors, is a
general partner of Incept.
On September 13, 2018, or the Effective Date, we entered into a second amended and restated license agreement, or
the Second Amended Agreement, with Incept. The Second Amended Agreement amends and restates in full the Prior
Agreement, to expand the scope of our intellectual property license and modify future intellectual property ownership and
other rights thereunder.
License Rights; Ownership of Intellectual Property. We and Incept have agreed to expand the field of use of the
exclusive, worldwide, perpetual, irrevocable license held by us under the Prior Agreement to include specified intellectual
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 or around the
human eye for diagnostic, therapeutic or prophylactic purposes relating to all human ophthalmic diseases or conditions, or
the Ophthalmic Field of Use, and (ii) as a result of the expansion of the scope of the Original License, products delivered
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. We and Incept have further agreed to expand the field of use of the
Original License for certain patents, patent applications and other rights pertaining to shape-changing hydrogel
formulations thereunder, or the Shape-Changing IP, to include all fields except those involving the nerves and associated
tissues specified in the Second Amended Agreement.
We will solely own, without a license to Incept, all intellectual property rights conceived solely by one or more
individuals from our company, or the Company Individuals, after the Effective Date, subject to exceptions specified
therein. Subject to certain exceptions specified in the Second Amended Agreement, Incept will own and license to the us
(i) all intellectual property rights included in the Original License, or the Original IP, in the Ophthalmic Field of Use and
the Additional Field of Use, (ii) intellectual property rights in the field of drug delivery conceived solely by the Company
Individuals on or before the Effective Date, or Incept IP, and (iii) intellectual property rights in the field of
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drug delivery 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. We and any of our sublicensees are obligated to pay Incept royalties as follows under the Second
Amended Agreement: (i) consistent with the Prior Agreement, a royalty equal to a low single-digit percentage of net sales
by the us or our affiliates of products, devices, materials, or components thereof, or Licensed Products, including or
covered by Original IP, excluding the Shape-Changing IP, in the Ophthalmic Field of Use; (ii) a royalty equal to a mid-
single-digit percentage of net sales by us or our affiliates of Licensed Products including or covered by Original IP,
excluding the Shape-Changing IP, in the Additional Field of Use; and (iii) a royalty equal to a low single-digit percentage
of net sales by us or our affiliates of Licensed Products including or covered by Incept IP or Joint IP in the field of drug
delivery. Royalty obligations under the Second Amended Agreement commence with the first commercial sale of a
Licensed Product described above and terminate upon the expiration of the last-to-expire patents included in the Licensed
IP, as applicable. Any sublicensee of us also will be obligated to pay Incept royalties on net sales of Licensed Products
made by it and will be bound by the terms of the Second Amended Agreement to the same extent as us. Additionally, at its
sole discretion, Incept may require, as a condition of any sublicense by us in the Additional Field of Use and in exchange
for a reduction in the royalties owed on net sales of Licensed Products described above, payments equal to a mid-teen
percentage of any upfront payment and, subject to certain conditions, other payments received by us from the sublicensee.
Patent Prosecution and Litigation. Incept will continue to have sole control and responsibility for ongoing
prosecution of patents included in the Original IP, and we will have sole control and responsibility for ongoing prosecution
of patents and patent applications included in or arising under the Incept IP or Joint IP. The parties have agreed to work
together in good faith to enter into a separate agreement under which, subject to certain limitations, we would assume
control of the prosecution of patents and patent applications included in or arising under the Shape-Changing IP. We have
the right, subject to certain conditions, to bring suit against third parties who infringe the patents included in the Original IP
in the Ophthalmic Field of Use or the Additional Field of Use, patents included in the Incept IP in the 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. We have also agreed, if requested by Incept, to enter into a joint defense and prosecution agreement
for the purpose of allowing the parties to share confidential and attorney-client privileged information regarding the
possible infringement of one or more patents covered by the Second Amended Agreement. We are 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
by us of the last valid claim of an issued and unexpired patent included in the Licensed IP or (ii) the final unappealable
rejection or abandonment of the last pending patent application arising under the Licensed IP. Either party may terminate
the Second Amended Agreement in the event of the other party’s insolvency, bankruptcy or comparable proceedings, or if
the other party materially breaches the agreement and does not cure such breach during a specified cure period.
AffaMed License Agreement
On October 29, 2020, we entered into a license agreement, or the License Agreement, with AffaMed for the
development and commercialization of DEXTENZA regarding ocular inflammation and pain following cataract surgery
and allergic conjunctivitis, or collectively, the DEXTENZA Field, and for OTX-TIC, or collectively with DEXTENZA, the
AffaMed Licensed Products, regarding open-angle glaucoma and ocular hypertension, or collectively, the TIC Field and,
with the DEXTENZA Field, each a Field, in each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and
the countries of the Association of Southeast Asian Nations, or collectively, the Territories. We retain development and
commercialization rights for the AffaMed Licensed Products in the rest of the world.
Under the License Agreement, we granted AffaMed (i) a non-exclusive, royalty-free, non-sublicensable license
under certain of our intellectual property rights and know-how to use the AffaMed Licensed Products in connection with
specified activities in accordance with a development plan agreed between the parties and (ii) an exclusive, royalty-
bearing, sublicensable, non-transferable (subject to specified exceptions), license under certain of our intellectual property
rights and know-how to commercialize the AffaMed Licensed Products in the applicable Field in the Territories. We have
further agreed not to, and to cause its affiliates or agents not to, develop or commercialize in the Territories (i) the AffaMed
Licensed Products outside of the applicable Fields and (ii) any other product containing the
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same active pharmaceutical ingredients as the AffaMed Licensed Products and administered into the anterior chamber of
the eye, in each case without AffaMed’s prior written consent. AffaMed has agreed not to, and to cause its affiliates or
agents not to, engage in the development, manufacture, or commercialization of any competing product in the Territories.
Under the terms of the License Agreement, we received upfront payments totaling $12 million in the fourth quarter
of 2020. We also became eligible to receive up to an additional $91 million in aggregate, inclusive of a low-seven-figure
clinical support payment, upon the achievement of certain development and commercial milestones. In the fourth quarter
of 2021, we received a $1 million milestone payment under the License Agreement from AffaMed; we expect to recognize
a clinical support payment of another $2 million in the first quarter of 2022 in connection with dosing the first subject in a
Phase 2 clinical trial evaluating OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension. There can be
no guarantee, however, that any of these milestones will be achieved. We are also entitled to receive tiered, escalating
royalties on the net sales of the AffaMed Licensed Products ranging from a low-teen to low-twenties percentage. Royalties
under the License Agreement are payable on an AffaMed Licensed Product-by-AffaMed Licensed Product and
jurisdiction-by-jurisdiction basis and are subject to potential reductions in specified circumstances, subject to a specified
floor.
Pursuant to the terms of the License Agreement, we are generally responsible for expenses related to the
development of the AffaMed Licensed Products in the applicable Fields in the Territories, provided that AffaMed
(i) reimburse us a low-teen percentage of expenses incurred in connection with certain clinical trials conducted by us and
designed to support marketing approval of the AffaMed Licensed Product by FDA or the European Medicines Agency, or
the Global Studies; (ii) is solely responsible for expenses incurred in connection with territory-specific clinical trials that it
conducts in furtherance of the development plan agreed between the parties in the applicable Fields in the Territories, or the
Local Studies; and (iii) reimburse us in full for expenses incurred in connection with obtaining and maintaining regulatory
approvals of the AffaMed Licensed Products in the applicable Fields in the Territories. In the event AffaMed declines to
participate in a Global Study or to conduct a Local Study in any jurisdiction in which we determine to conduct such a
study, we are relieved of our obligation to provide AffaMed clinical data from such study, other than safety data, unless
AffaMed subsequently reimburses us in the amounts described above plus a prespecified premium.
AffaMed is further obligated, at its sole cost and expense, to use commercially reasonable efforts to commercialize
the AffaMed Licensed Products in the applicable Fields in the Territories. The License Agreement contemplates that the
parties negotiate and enter into a future agreement requiring us to use commercially reasonable efforts to manufacture and
supply finished drug products in sufficient quantity for clinical development and commercialization of the AffaMed
Licensed Products in the applicable Fields in the Territories.
In accordance with its terms, the License Agreement expires upon the expiration of the last royalty term for the last
AffaMed Licensed Product in any applicable Field in the Territories. Either party may, subject to specified cure periods,
terminate the License Agreement in the event of the other party’s uncured breach. Either party may also terminate the
License Agreement under specified circumstances relating to the other party’s insolvency. During an established period
following a change of control of us or our entry into a global licensing agreement that includes the Territories with a third
party, we have the option to terminate the License Agreement, subject to a specified notice period and the repayment of any
costs and expenses incurred by AffaMed in connection with the License Agreement, including upfront and milestone
payments AffaMed has previously paid to us, at a prespecified premium. AffaMed has the right to terminate the License
Agreement at any time following the completion of a Phase 3 clinical trial to evaluate OTX-TIC.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience
and scientific resources provide us with competitive advantages, potential competitors include large pharmaceutical and
biotechnology companies, specialty pharmaceutical and generic drug companies, and compounding pharmacies. Potential
competitors also include academic institutions, government agencies and other public and private research organizations
that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization. Many of our potential competitors have significantly 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. These competitors also
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compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
The key competitive factors affecting the success of each of our product candidates, if approved for marketing, are
likely to be efficacy, safety, method of administration, convenience, price, the level of generic competition and the
availability of coverage and adequate reimbursement from government and other third-party payors.
Because the active pharmaceutical ingredients in our 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 active pharmaceutical
ingredient as our products so long as these competitors do not infringe the patents that we license. For example, our
licensed patents related to our intracanalicular insert product candidates largely relate to the hydrogel composition of the
intracanalicular inserts and certain drug-release features of the intracanalicular inserts. As such, if a third party were able to
design around the formulation and process patents that we license and create a different formulation using a different
production process not covered by our licensed patents or patent applications, we would likely be unable to prevent that
third 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 our retinal
implants, intracameral implants, intracanalicular insert and wound sealant products and product candidates, as set forth
below.
Competitors of OTX-TKI
Our intravitreal implant for the treatment of wet AMD will compete with anti-VEGF compounds administered in
their current formulation and prescribed for the treatment of wet AMD as these agents can in some instances deliver one to
two months or more of therapeutic effect. They include Lucentis, Eylea, Beovu, Vabysmo and off-label use of the cancer
therapy Avastin. Multiple companies, although all in early stages of development, are exploring ways to deliver anti-VEGF
products in a sustained-release fashion, including Clearside Biomedical, Inc., which is pursuing a TKI (axitinib)
administered into the suprachoroidal space; Eyepoint Pharmaceuticals, Inc., which is pursuing a sustained-release
bioerodible device containing a TKI (vorolanib) using its Durasert™ technology; Aerie Pharmaceuticals, which is pursuing
development of a 4-6 month TKI implant (axitinib) using its Print® manufacturing technology; Graybug Vision, Inc. which
is pursuing a sustained-release microparticle depot TKI formulation (sunitinib) to extend therapeutic drug levels in ocular
tissue for up to six months; and Kodiak Sciences Inc., which is pursuing sustained release therapies based on its anti-VEGF
biopolymer conjugate technology. Recently, Genentech received approval for Susvimo which utilizes the company’s port
delivery system for delivery of ranibizumab. In addition, there are several companies pursuing gene therapy to treat retinal
diseases including Adverum Biotechnologies, Inc. and REGENXBIO Inc. There also are a number of companies with
products in development targeting the inhibition of the complement system to address retinal diseases, specifically
geographic atrophy including Apellis Pharmaceuticals, IVERIC bio, Inc., Annexion Biosciences, Novartis (Gyroscope
Therapeutics), Genentech/Ionis and Janssen Pharmaceuticals, among others.
Competitors of OTX-TIC
Allergan PLC, now owned by AbbVie, Inc., received approval in March 2020 of DURYSTA, a biodegradable
bimatoprost intracameral implant consisting of a PGA and a biodegradable polymer matrix for the reduction of IOP in
patients with open-angle glaucoma or ocular hypertension. Allergan purchased ForSight VISION5 who was conducting a
Phase 2 clinical trial with the Helios insert, a sustained-release ocular insert placed below the eyelid that delivers
bimatoprost for the treatment of glaucoma. Glaukos, Inc. is in Phase 3 trials with its iDose technology to deliver travoprost
for the treatment of glaucoma. In addition, several other companies have announced their intention to develop products for
treatment of glaucoma using sustained-release therapy, although each of these is at an early stage of development. Mati
Therapeutics has conducted a Phase 2 clinical trial with an intracanalicular insert for the treatment of glaucoma.
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Competitors of OTX-CSI and OTX-DED
A number of therapies are currently available for the treatment of dry eye disease in the United States. The most commonly
used treatments for dry eye disease in the United States are over-the-counter eye drops, often referred to as “artificial
tears,” and three FDA-approved prescription eye drop therapies: Restasis, Xiidra and Cequa. Artificial tears are intended to
supplement insufficient tear production or improve tear film instability but are primarily saline-based and provide only
temporary relief. Restasis and Cequa, both calcineurin inhibitor immunosuppressants, and Xiidra, a LFA-1 antagonist,
address chronic inflammation associated with dry eye disease. Kala Pharmaceuticals received approval in 2020 and
launched EYSUVIS™, (loteprednol etabonate ophthalmic suspension) 0.25% for the short term (up to two weeks)
treatment of the signs and symptoms of dry eye disease. Oyster Point Pharma received approval in 2021 for TYRVAYA™
(varenicline solution) Nasal Spray, a cholinergic agonist indicated for the treatment of the signs and symptoms of dry eye
disease. Other treatment options include ointments, gels, warm compresses, omega-3 fatty acid supplements and a number
of medical devices. We are aware of many other companies developing therapies for dry eye disease, including Aerie
Pharmaceuticals, Alcon, Aldeyra Therapeutics, Allergan, Aurinia Pharmaceuticals, Azura Ophthalmics, Bausch Health
(Novaliq), HanAll BioPharma, Johnson & Johnson, Mitotech, Novartis, Parion Sciences, ReGenTree, Silk Technologies,
Sylentis, TearSolutions, and TopiVert Pharma.
Competitors of DEXTENZA
Icon Biosciences, Inc. received FDA approval of DEXYCU® in February 2018. DEXYCU is an injection of
dexamethasone at the time of surgery into the posterior chamber of the eye (behind the iris) to treat inflammation
associated with cataract surgery. Icon Biosciences Inc. was subsequently bought by pSvidia Corporation in March 2018
and, at the same time, the new entity was renamed Eyepoint. Eyepoint launched DEXYCU commercially in the first
quarter of 2019. OMIDRIA®, recently purchased by Rayner Surgical Group Limited, is a prescription medication used
during cataract surgery. According to the OMIDRIA website, this product helps the black part in the center of your eye
(pupil) stay open (dilated) during cataract surgery and decreases eye pain after surgery.
Competitors of ReSure Sealant
ReSure Sealant is the first and only surgical sealant approved for ophthalmic use in the United States. Outside the
United States, Beaver Visitec is commercializing its product OcuSeal, which is designed to provide a protective hydrogel
film barrier to stabilize ocular wounds. This product has received a CE Mark in Europe but is not approved for use in the
United States. Sutures are the primary alternative device for closing ophthalmic wounds. Most commonly, however, a
technique called stromal hydration, which involves the localized injection of a balanced salt solution at the wound edges, is
often used to facilitate the sealing of a wound.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and
jurisdictions, 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 of
pharmaceutical products and medical devices. The processes for obtaining regulatory approvals in the United States and in
foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other
regulatory 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 also
subject to other federal, state and local statutes and regulations. Biological products are licensed for marketing under the
Public Health Service Act, or PHSA, and subject to regulation under the FDCA and related regulations, and other federal,
state and local statutes and regulations.
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An applicant seeking approval to market and distribute a new drug or biological product in the United States must
typically undertake the following:
● completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s
good laboratory practice, or GLP, regulations;
● design of a clinical protocol and 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
clinical trial may be initiated;
● performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices,
or GCP, 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 a
biological licensing application, or BLA, for a biological product requesting marketing for one or more
proposed indications;
● 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 the
product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices,
or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the
product’s identity, strength, quality and purity;
● satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of
clinical 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 Risk
Evaluation 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 or
active pharmaceutical ingredient and the formulated product, as well as in vitro and animal studies to assess the safety and
activity of the investigational product for initial testing in humans and to establish a rationale for therapeutic use. The
conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations and standards
and the United States Department of Agriculture’s Animal Welfare Act. The results of the preclinical tests, together with
manufacturing information, analytical data, any available clinical data or literature 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 adverse
events and carcinogenicity, and must also develop additional information about the chemistry and physical characteristics
of the investigational product and finalize a process for manufacturing the product in commercial quantities in accordance
with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
candidate product and, among other things, the manufacturer must develop methods for testing the identity, strength,
quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies
must be conducted to demonstrate that the candidate product does not undergo unacceptable deterioration over its shelf life.
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The IND and IRB Processes
Clinical trials involve the administration of the investigational product to human subjects under the supervision of
qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all
research subjects provide their voluntary informed consent in writing before their participation in any clinical trial. Clinical
trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the
objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A
protocol 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 interstate
commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational
drug to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug or
biologic that is not the subject of an approved NDA or BLA. In support of a request for an IND, applicants must submit a
protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period
is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to
unreasonable health risks. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions
about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the
IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. For our intracanalicular
insert product candidates, we have typically conducted our initial and earlier-stage clinical trials outside the United States.
We generally plan to conduct our later stage and pivotal clinical trials of our intracanalicular insert product candidates in
the United States.
A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical
trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not
conducted under an IND, the sponsor must ensure that the trial complies with certain regulatory requirements of the FDA
in order to use the trial as support for an IND or application for marketing approval. Specifically, the FDA requires such
trials to be conducted in accordance with GCP, including review and approval by an independent ethics committee and
informed consent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical
trials. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in 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.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial
must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct
continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the
study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance
with FDA 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 been associated 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
that the quality of the investigation will be adequate to permit an evaluation of the drug’s effectiveness and safety and of
the biological product’s safety, purity and potency. The decision to terminate development of an investigational drug or
biological product may be made by either a health authority body such as the FDA, an IRB or ethics committee, or by us
for various reasons. Additionally, some trials are overseen by an independent group of qualified experts organized by the
trial sponsor, known as a data safety monitoring board, or DSMB, or committee. This group provides authorization for
whether or not a trial may 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 the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension
or termination may be made by us based on evolving business objectives and/or competitive climate.
Reporting Clinical Trial Results
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Under the PHSA, sponsors of clinical trials of certain FDA-regulated products, including prescription drugs and
biologics, are required to register and disclose certain clinical trial information on a public registry (clinicaltrials.gov)
maintained by the U.S. National Institutes of Health, or NIH. In particular, information related to the product, patient
population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part
of the registration of the clinical trial. Although sponsors are also obligated to disclose the results of their clinical trials
after completion, disclosure of the results can be delayed in some cases for up to two years after the date of completion of
the trial. The NIH’s Final Rule on registration and reporting requirements for clinical trials became effective in 2017, and
both NIH and the FDA have recently signaled the government’s willingness to begin enforcing those requirements against
non-compliant clinical trial sponsors.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of
clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no
comparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended
to improve access to investigational drugs for patients who may benefit from investigational therapies. FDA regulations
allow access 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-
emergency settings); intermediate-size patient populations; and larger populations for use of the drug under a treatment
protocol or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating
a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of
the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no
comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient
benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition
to be 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 the potential development of the product.
There is no obligation for a sponsor to make its investigational products available for expanded access; however, as
required by amendments to the FDCA included in the 21st Century Cures Act, or the Cures Act, passed in 2016, if a
sponsor has a policy regarding how it responds to expanded access requests with respect to product candidates in
development to treat serious diseases or conditions, it must make that policy publicly available. Sponsors are required to
make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study for a covered
investigational product; or 15 days after the investigational product receives designation from the FDA 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 a
federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1
clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can
seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access
program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result
of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to
that policy.
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 of
qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all
research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are
conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives
of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
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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 patients
with 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 effects
and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
● Phase 3: The drug or biologic is administered to an expanded patient population, generally at geographically
dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the
efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to
provide adequate information for the labeling of the product.
A clinical trial may combine the elements of more than one phase, and the FDA often requires more than one Phase 3
trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a
particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase
because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA.
Moreover, as noted above, a pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of
a product candidate’s safety and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to
support regulatory approval. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides
a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
In some cases, the FDA may approve an NDA or BLA for a product candidate but require the sponsor to conduct
additional clinical trials to further assess the product candidate’s safety and effectiveness after approval. Such post-
approval trials, typically referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These
trials are used to gain additional experience from the treatment of a larger number of patients in the intended treatment
group. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials, such as to verify clinical
benefit in the case of products approved under accelerated approval regulations. Failure to exhibit due diligence with
regard to conducting mandatory Phase 4 clinical trials could result in withdrawal of FDA approval for products.
In response to the COVID-19 pandemic, FDA issued guidance on March 18, 2020, and has updated it periodically
since that time to address the conduct of clinical trials during the pandemic. The guidance sets out a number of
considerations for sponsors of clinical trials impacted by the pandemic, including the requirement to include in the clinical
study report (or as a separate document) contingency measures implemented to manage the study, and any disruption of the
study as a result of COVID-19; a list of all study participants affected by COVID-19-related study disruptions by a unique
subject identifier and by investigational site, and a description of how the individual’s participation was altered; and
analyses and corresponding discussions that address the impact of implemented contingency measures (e.g., participant
discontinuation from investigational product and/or study, alternative procedures used to collect critical safety and/or
efficacy data) on the safety and efficacy results reported for the study, among other things. The FDA has indicated that it
will continue to provide any necessary guidance to sponsors, clinical investigators, and research institutions as the public
health emergency evolves.
Interactions with FDA During the Clinical Development Program
Following the clearance of an IND and the commencement of clinical trials, the sponsor will continue to have
interactions with the FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the
FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA
for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in
vitro testing that suggest a significant risk in humans exposed to the product candidate; and any clinically important
increase in the occurrence of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or
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at all. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the
clinical data submitted.
In addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development
program. Specifically, sponsors may meet with the FDA prior to the submission of an IND (pre-IND meeting), at the end
of Phase 2 clinical trial (EOP2 meeting) and before an NDA or BLA is submitted (pre-NDA or pre-BLA meeting).
Meetings at other times may also be requested. There are three types of meetings that occur between sponsors and the
FDA. Type A meetings are those that are necessary for an otherwise stalled product development program to proceed or to
address an important safety issue. Type B meetings include pre-IND and pre-NDA/pre-BLA meetings, as well as end of
phase meetings such as EOP2 meetings. A Type C meeting is any meeting other than a Type A or Type B meeting
regarding the development and review of a product, including for example meetings to facilitate early consultations on the
use of a biomarker as a new surrogate endpoint that has never been previously used as the primary basis for product
approval in the proposed context of use.
These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the
FDA and for the FDA to provide advice on the next phase of development. For example, at an EOP2 meeting, a sponsor
may discuss its Phase 2 clinical results and present its plans for the pivotal Phase 3 clinical trial(s) that it believes will
support the approval of the new product. Such meetings may be conducted in person, via teleconference/videoconference
or written response only with minutes reflecting the questions that the sponsor posed to the FDA and the FDA’s responses.
The FDA has indicated that its responses, as conveyed in meeting minutes and advice letters, only constitute mere
recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations and/or
advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design of a
clinical program may put the program at significant risk of failure.
Manufacturing and Other Regulatory Requirements
Concurrently with clinical trials, sponsors usually complete additional animal safety studies, develop additional
information about the chemistry and physical characteristics of the product candidate and finalize a process for
manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing
process must be capable of consistently producing quality batches of the product candidate and, among other criteria, the
sponsor must develop methods for testing the identity, strength, quality, and purity of the finished product. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product
candidate does not undergo unacceptable deterioration over its shelf life.
Specifically, the FDA’s regulations require that pharmaceutical products be manufactured in specific approved
facilities and in accordance with cGMPs. The cGMP regulations include requirements relating to organization of personnel,
buildings and facilities, equipment, control of components and product containers and closures, production and process
controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or
salvaged products. Manufacturers and other entities involved in the manufacture and distribution of approved
pharmaceuticals are required to register their establishments with the FDA and some state agencies, and they are subject to
periodic unannounced inspections by the FDA for compliance with cGMPs and other requirements. Inspections must
follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers
may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying,
limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. Changes to the
manufacturing process, specifications or container closure system for an approved product are strictly regulated and often
require prior FDA approval before being implemented. The FDA’s regulations also require, among other things, the
investigation and correction of any deviations from cGMP and the imposition of reporting and documentation requirements
upon the sponsor and any third-party manufacturers involved in producing the approved product.
Pediatric Studies
Under the Pediatric Research Equity Act, or PREA, applications and certain types of supplements to applications
must contain data that are adequate to assess the safety and effectiveness of the 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. The sponsor must submit an initial Pediatric Study Plan, or PSP, within 60 days of an EOP2
meeting or as may be agreed between the sponsor and the FDA. Those plans must contain an outline of the
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proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, age groups,
relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request
for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies
along with supporting information. The sponsor and the FDA must reach agreement on a final plan. A sponsor can submit
amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data
collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all
pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data
requirements. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is
ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs
to be collected before the pediatric trials begin. The law now requires the FDA to send a PREA Non-Compliance letter to
sponsors who have failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a
deferral or deferral extension or have failed to request approval for a required pediatric formulation. It further requires the
FDA to publicly post the PREA Non-Compliance letter and sponsor’s response. Unless otherwise required by regulation,
the pediatric data requirements do not apply to products with orphan designation, although the FDA has recently taken
steps to limit what it considers abuse of this statutory exemption in PREA by announcing that it does not intend to grant
any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease. The
FDA also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the
pediatric population.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of
the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the
FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA.
This type of application allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a
similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the
investigations made to show whether 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 the person by or for whom the investigations were conducted.”
Section 505(b)(2) thus authorizes the FDA to approve an NDA based on safety and effectiveness data that were not
developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious
pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2)
applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may
eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require
companies to perform additional studies or measurements to support the change from the approved product. The FDA may
then approve the new drug candidate for all or some of the label indications for which the referenced product has been
approved, 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 product candidates under
Section 505(b)(2).
Acceptance and Review of NDAs and BLAs
Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical
trials, along with information relating to the product’s chemistry, manufacturing, controls, safety updates, patent
information, abuse information and proposed labeling, are submitted to the FDA as part of an application requesting
approval to market the product candidate for one or more indications. Data may come from company-sponsored clinical
trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies
initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to
establish the safety and efficacy of a drug product and the safety, potency and purity of the biological product to the
satisfaction of the FDA. The fee required for the submission and review of an application under the Prescription Drug User
Fee Act, or PDUFA, is substantial (for example, for FY2022 this application fee is approximately $3.1 million), and the
sponsor of an approved application is also subject to an annual program fee, currently more than $369,000 per eligible
prescription product. These fees are typically adjusted annually, and exemptions and waivers may be available
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under certain circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a
significant barrier to innovation, or where the applicant is a small business submitting its first human therapeutic
application for review.
The FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at
that time or before whether an application is sufficiently complete to permit substantive review. In pertinent part, FDA’s
regulations state that an application “shall not be considered as filed until all pertinent information and data have been
received” by the FDA. In the event that FDA determines that an application does not satisfy this standard, it will issue a
Refuse to File, or RTF, determination to the applicant. Typically, an RTF will be based on administrative incompleteness,
such as clear omission of information or sections of required information; scientific incompleteness, such as omission of
critical data, information or analyses needed to evaluate safety and efficacy or provide adequate directions for use; or
inadequate content, presentation, or organization of information such that substantive and meaningful review is precluded.
The FDA may request additional information rather than accept an application for filing. In this event, the application must
be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA
accepts it for filing.
After the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The
FDA reviews the application to determine, among other things, whether the proposed product is safe and effective for its
intended use, whether it has an acceptable purity profile and whether the product is being manufactured in accordance with
cGMP. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from the filing date in
which to complete its initial review of a standard application that is a new molecular entity, and six months from the filing
date for an application with “priority review.” The review process may be extended by the FDA for three additional months
to consider new information or in the case of a clarification provided by the applicant to address an outstanding deficiency
identified by the FDA following the original submission. Despite these review goals, it is not uncommon for FDA review
of an application to extend beyond the PDUFA target action date.
In connection with its review of an application, the FDA will typically submit information requests to the applicant
and set deadlines for responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing
facilities for the new product to determine whether the manufacturing processes and facilities comply with cGMPs. The
FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance
with cGMP requirements and are adequate to assure consistent production of the product within required specifications.
The FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP
requirements and the integrity of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its
employees and third-party contractors, an applicant may incur significant expenditure of time, money and effort in the
areas of training, record keeping, production and quality control.
Additionally, the FDA may refer an application, including applications for novel product candidates which present
difficult questions of safety or efficacy, to an advisory committee for review, evaluation and recommendation as to whether
the application should be approved and under what conditions. 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 what conditions. The FDA is not bound by the recommendation of
an advisory committee, but it considers such recommendations when making final decisions on approval. Data from
clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the
sponsor interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive
discussions between the FDA and the applicant during the review process.
The FDA also may require submission of a Risk Evaluation and Mitigation Strategy, or REMS, if it determines that a
REMS is necessary to ensure that the benefits of the product outweigh its risks and to assure the safe use of the product.
The REMS could include medication guides, physician communication plans, assessment plans and/or elements to assure
safe use, such as restricted distribution methods, patient registries or other risk minimization tools. The FDA determines
the requirement for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a
REMS is needed, the sponsor of the application must submit a proposed REMS and the FDA will not approve the
application without a REMS.
Decisions on NDAs and BLAs
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The FDA reviews an applicant to determine, among other things, whether the product is safe and whether it is
effective for its intended use(s), with the latter determination being made on the basis of substantial evidence. The term
“substantial evidence” is defined under the FDCA as “evidence consisting of adequate and well-controlled investigations,
including clinical investigations, by experts qualified by scientific training and experience to evaluate the effectiveness of
the product involved, on the basis of which it could fairly and responsibly be concluded by such experts that the product
will have the effect it purports or is represented to have under the conditions of use prescribed, recommended, or suggested
in the labeling or proposed labeling thereof.”
The FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical
investigations to establish effectiveness of a new product. Under certain circumstances, however, FDA has indicated that a
single trial with certain characteristics and additional information may satisfy this standard. This approach was
subsequently endorsed by Congress in 1998 with legislation providing, in pertinent part, that “If FDA determines, based on
relevant science, that data from one adequate and well-controlled clinical investigation and confirmatory evidence
(obtained prior to or after such investigation) are sufficient to establish effectiveness, FDA may consider such data and
evidence to constitute substantial evidence.” This modification to the law recognized the potential for FDA to find that one
adequate and well controlled clinical investigation with confirmatory evidence, including supportive data outside of a
controlled trial, is sufficient to establish effectiveness. In December 2019, FDA issued draft guidance further explaining
the studies that are needed to establish substantial evidence of effectiveness. It has not yet finalized that guidance.
After evaluating the application and all related information, including the advisory committee recommendations, if
any, and inspection reports of manufacturing facilities and clinical trial sites, the FDA will issue either a CRL or an
approval letter. To reach this determination, the FDA must determine that the drug is effective and that its expected
benefits outweigh its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of
evidence about the product’s safety and efficacy in the NDA or BLA. This assessment is also informed by other factors,
including: the severity of the underlying condition and how well patients’ medical needs are addressed by currently
available therapies; uncertainty about how the premarket clinical trial evidence will extrapolate to real-world use of the
product in the post-market setting; and whether risk management tools are necessary to manage specific risks. In
connection with this assessment, the FDA review team will assemble all individual reviews and other documents into an
“action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior
FDA official makes a decision.
A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its
present form. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or
information in order for the FDA to reconsider the application. The CRL may require additional clinical or other data,
additional pivotal Phase 3 clinical trial(s) and/or other significant and time- consuming requirements related to clinical
trials, preclinical studies or manufacturing. If a CRL is issued, the applicant will have one year to respond to the
deficiencies identified by the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant
the applicant an additional six-month extension to respond. The FDA has committed to reviewing resubmissions in
response to an issued CRL in either two or six months depending on the type of information included. Even with the
submission of this additional information, however, the FDA ultimately may decide that the application does not satisfy the
regulatory criteria for approval. The FDA has taken the position that a CRL is not final agency action making the
determination subject to judicial review.
An approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing
information for specific indications. That is, the approval will be limited to the conditions of use (e.g., patient population,
indication) described in the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA
may require that contraindications, warnings or precautions be included in the product labeling, require that post-approval
trials, including Phase 4 clinical trials, be conducted to further assess a product’s safety after approval, require testing and
surveillance programs to monitor the product after commercialization or impose other conditions, including distribution
and use restrictions or other risk management mechanisms under a REMS which can materially affect the potential market
and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-
marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding
new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and
FDA review and approval.
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Under the Ensuring Innovation Act, which was signed into law in April 2021, the FDA must publish action packages
summarizing its decisions to approve new drugs and biologics within 30 days of approval of such products. To date, CRLs
are not publicly available documents.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides
meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an
effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated
approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured
earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the
condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same
statutory standards for safety and effectiveness 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 of
clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An
intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the
clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on
intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the
therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a
basis 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 an
extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or
intermediate clinical endpoint occurs rapidly. The accelerated approval pathway is usually contingent on a sponsor’s
agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s
clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical
endpoint. 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 product
candidates approved under accelerated regulations are subject to prior review by the FDA.
Post-Approval Regulation
Drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing
regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product
sampling 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 FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the
establishments at which such products are manufactured, as well as new application fees for supplemental applications
with clinical data.
In addition, manufacturers and other entities involved in the manufacture and distribution of approved products are
required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced
inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing
process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements
upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must
continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain
tests on each lot of the product before it is released for distribution. If the product is subject to official release, the
manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of
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manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in
addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the
FDA will conduct laboratory research 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 and
standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems 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
safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of
distribution or other 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 withdrawal
of 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 of
product 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.
If a company is found to have promoted off-label uses, it may become subject to adverse public relations and
administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of
the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of
penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially
restrict the manner in which a company promotes or distributes drug products. In September 2021, the FDA published final
regulations which describe the types of evidence that the agency will consider in determining the intended use of a drug or
biologic.
In addition, the distribution of prescription pharmaceutical products is subject to a variety of federal and state laws,
the most recent of which is still in the process of being phased into the U.S. supply chain and regulatory framework. The
Prescription Drug Marketing Act, or PDMA, was the first federal law to set minimum standards for the registration and
regulation of drug distributors by the states and to regulate the distribution of drug samples. Today, both the PDMA and
state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure
accountability in distribution. Congress more recently enacted the Drug Supply Chain Security Act, or DSCSA, which
made significant amendments to the FDCA, including by replacing certain provisions from the PDMA pertaining to
wholesale distribution of prescription drugs with a more comprehensive statutory scheme. The DSCSA now requires
uniform national standards for wholesale distribution and, for the first time, for third-party logistics providers; it also
provides for preemption of certain state laws in the areas of licensure and prescription drug traceability.
Generic Drugs and Regulatory Exclusivity
In 1984, with passage of the Hatch-Waxman Act, Congress established an abbreviated regulatory scheme authorizing
the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to,
drugs previously approved by the FDA pursuant to NDAs and it also enacted Section 505(b)(2). To obtain approval of a
generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such
applications, a generic manufacturer may rely on the preclinical and clinical testing conducted for a drug product
previously approved under an NDA, known as the reference listed drug, or RLD.
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Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the
RLD with respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the
conditions of use of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to
the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the
drug do not show a significant difference from the rate 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 RLD in its publication
“Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians
and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD.
Under the Hatch-Waxman Act, the FDA may not approve an ANDA or 505(b)(2) application until any applicable
period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data
exclusivity for a new drug containing a new chemical entity, or NCE. For the purposes of this provision, FDA has
consistently taken the position that an NCE is a drug that contains no active moiety that has previously been approved by
the FDA in any other NDA. This interpretation was confirmed with enactment of the Ensuring Innovation Act in April
2021. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug
substance. In cases where such NCE exclusivity has been granted, a generic or follow-on drug application may not be filed
with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in
which case the applicant may submit its application four years following the original product approval.
The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new
clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and
are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously
approved drug product, such as new indications, dosage forms, route of administration or combination of ingredients.
Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided
the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-
year exclusivity does not block the FDA from accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions
of the drug as of the date of approval of the original drug product; rather, this three-year exclusivity covers only the
conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from
approving follow-on applications for drugs containing the original active ingredient.
Five-year and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under
Section 505(b)(1) of the FDCA; however, an applicant submitting a traditional NDA would be required to conduct or
obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
As part of the submission of an NDA or certain supplemental applications, NDA sponsors are required to list with
the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Upon
approval of a new drug, each of the patents listed in the application for the drug is then published in the Orange Book. The
FDA’s regulations governing patient listings were largely codified into law with enactment of the Orange Book
Modernization Act in January 2021. When an ANDA applicant files its application with the FDA, the applicant is required
to certify to the FDA concerning any patents listed for the reference product in the Orange Book. Specifically, the ANDA
applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the
listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the
listed patent is invalid or will not be infringed by the new product. Moreover, to the extent that the Section 505(b)(2) NDA
applicant is relying on studies conducted for an already approved product, the applicant also is required to certify to the
FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that an ANDA
applicant would.
If the generic drug or follow-on drug applicant does not challenge the innovator’s listed patents, FDA will not
approve the ANDA or 505(b)(2) application until all the listed patents claiming the referenced product have expired. A
certification that the new generic product will not infringe the already approved product’s listed patents or that such patents
are invalid or unenforceable is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA owner and patent
holders once the ANDA has been accepted for filing by the FDA. The NDA owner and patent holders may then initiate a
patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement
lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the
ANDA or 505(b)(2) NDA until the earliest of 30 months after the receipt of the Paragraph IV
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notice, expiration of the patent and a decision in the infringement case that is favorable to the ANDA or 505(b)(2) NDA
applicant.
Regulatory Exclusivity Governing Biologics
When a biological product is licensed for marketing by FDA with approval of a BLA, the product may be entitled to
certain types of market and data exclusivity barring FDA from approving competing products for certain periods of time.
In March 2010, the Patient Protection and Affordable Care Act was enacted in the United States and included the Biologics
Price Competition and Innovation Act of 2009, or the BPCIA. The BPCIA amended the PHSA to create an abbreviated
approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference
biological product. To date, the FDA has approved a number of biosimilars and the first interchangeable biosimilar product
was approved on July 30, 2021 and a second product previously approved as a biosimilar was designated as
interchangeable in October 2021. The FDA has also issued numerous guidance documents outlining its approach to
reviewing and licensing biosimilars and interchangeable biosimilars under the PHSA, including a draft guidance issued in
November 2020 that seeks to provide additional clarity to manufacturers of interchangeable biosimilars.
Under the BPCIA, a manufacturer may submit an application for a product that is “biosimilar to” a previously
approved biological product, which the statute refers to as a “reference product.” In order for the FDA to approve a
biosimilar product, it must find that there are no clinically meaningful differences between the reference product and the
proposed biosimilar product in terms of safety, purity and potency. The biosimilar applicant may demonstrate that its
product is biosimilar to the reference product on the basis of data from analytical studies, animal studies and one or more
clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the
reference product is approved. In addition, the applicant must show that the biosimilar and reference products have the
same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the
production facility must meet standards designed to assure product safety, purity and potency.
For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find not
only that the product is biosimilar to the reference product but also that it can be expected to produce the same clinical
results as the reference product such that the two products may be switched without increasing safety risks or risks of
diminished efficacy relative to exclusive use of the reference biologic. Upon licensure by the FDA, an interchangeable
biosimilar may be substituted for the reference product without the intervention of the health care provider who prescribed
the reference product. Following approval of the interchangeable biosimilar product, the FDA may not grant
interchangeability status for any second biosimilar until one year after the first commercial marketing of the first
interchangeable biosimilar product.
A reference biological product is granted 12 years of exclusivity from the time of first licensure of the product, and
the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological
product until four years after the date of first licensure of the reference product. Even if a product is considered to be a
reference product eligible for exclusivity, however, another company could market a competing version of that product if
the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and
well controlled clinical trials to demonstrate the safety, purity, and potency of their product. There have been recent
government proposals to reduce the 12-year reference product exclusivity period, but none has been enacted to date. At the
same time, since passage of the BPCIA, many states have passed laws or amendments to laws, which address pharmacy
practices involving biosimilar products.
Pediatric Exclusivity
Pediatric exclusivity is a type of non-patent marketing exclusivity in the United States and, if granted, provides for
the attachment of an additional six months of exclusivity. For drug products, the six-month exclusivity may be attached to
the term of any existing patent or regulatory exclusivity, including the orphan exclusivity and regulatory exclusivities
available under the Hatch-Waxman Act. For biologic products, the six month period may be attached to any existing
regulatory exclusivities but not to any patent terms. The conditions for pediatric exclusivity include the FDA’s
determination that information relating to the use of a new product in the pediatric population may produce health benefits
in that population, the FDA making a written request for pediatric clinical trials, and the applicant agreeing to perform, and
reporting on, the requested clinical trials within the statutory timeframe. This six-month exclusivity may be granted if an
NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data.
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The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is
deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies
are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of
exclusivity or patents that cover the product are extended by six months. Although this is not a patent term extension, it
effectively extends the regulatory period during which the FDA cannot approve another application. With regard to
patents, the six-month pediatric exclusivity period will not attach to any patents for which an ANDA or 505(b)(2) applicant
submitted a paragraph IV patent certification, unless the NDA sponsor or patent owner first obtains a court determination
that the patent is valid and infringed by the proposed product.
Patent Term Restoration and Extension
In the United States, a patent claiming a new product, its method of use or its method of manufacture may be eligible
for a limited patent term extension under the Hatch Waxman Act, which permits a patent extension of up to five years for
patent term lost during product development and FDA regulatory review. Assuming grant of the patent for which the
extension is sought, the restoration period for a patent covering a product is typically one half the time between the
effective date of the IND involving human beings and the submission date of the NDA or BLA, plus the time between the
submission date of the application and the ultimate approval date. Patent term restoration cannot be used to extend the
remaining term of a patent past a total of 14 years from the product’s approval date in the United States. Only one patent
applicable to an approved product is eligible for the extension, and the application for the extension must be submitted
prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which
approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the
application for any patent term extension in consultation 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
as an 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 other
conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or intended to affect the
structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes
through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized
for the achievement of any of its primary intended purposes. This definition provides a clear distinction between a medical
device and other FDA regulated products such as drugs. If the primary intended use of the product is achieved through
chemical 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 has
been cleared through filing of a 510(k) premarket notification, or 510(k), or approved by the FDA pursuant to a PMA
application. The information that must be submitted to the FDA in order to obtain clearance or approval to market a new
medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into
one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness.
Class I devices are low-risk devices for which reasonable assurance of safety and effectiveness can be provided by
adherence to the FDA’s general controls for medical devices, which include applicable portions of the FDA’s Quality
System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events and malfunctions
and appropriate, truthful and non-misleading labeling, advertising and promotional materials. Many Class I devices are
exempt from 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
provide reasonable assurance of the devices’ safety and effectiveness. Premarket review and clearance by the FDA for
Class II devices are accomplished through the 510(k) premarket notification procedure, although some Class II devices are
exempt from the 510(k) requirements. Premarket notifications are subject to user fees, unless a specific exemption applies.
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Class III devices are deemed by the FDA to pose the greatest risk, such as those for which reasonable assurance of
the device’s safety and effectiveness cannot be assured solely by the general controls and special controls described above
and that are life-sustaining or life-supporting. A PMA application must provide valid scientific evidence, typically
extensive preclinical and clinical trial data and information about the device and its components regarding, among other
things, device design, manufacturing and labeling. PMA applications (and supplemental PMA applications) are subject to
significantly higher 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 proposed
device is “substantially equivalent” to a predicate device, which is a previously cleared 510(k) device or a pre-amendment
device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for the submission
of a PMA application. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the
application is submitted and filed with the FDA, but it can take significantly longer and clearance is never assured. The
FDA has issued guidance documents meant to expedite review of a 510(k) and facilitate interactions between applicants
and the agency. To demonstrate substantial equivalence, a manufacturer must show that the device has the same intended
use as a predicate device and the same technological characteristics, or the same intended use and different 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
finds that it requires more information to review the 510(k). If the FDA determines that the device is substantially
equivalent to a predicate device, the subject device may be marketed. However, if the FDA concludes that a new device is
not substantially equivalent to a predicate device, the new device will be classified in Class III and the manufacturer will be
required to submit a PMA application to market the product. Devices of a new type that the FDA has not previously
classified based on risk are automatically 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 enacted section 513(f)(2) of the FDCA. This provision allows the FDA to classify a low- to
moderate-risk device not previously classified into Class I or II, a process known as the de novo process. A company may
apply directly to the FDA for classification of its device as de novo or may submit a de novo petition within 30 days of
receiving a not substantially equivalent determination.
Modifications to a 510(k)-cleared medical device may require the submission of another 510(k). Modifications to a
510(k)-cleared device frequently require the submission of a traditional 510(k), but modifications meeting certain
conditions may be candidates for FDA review under a Special 510(k). If a device modification requires the submission of a
510(k), but the modification does not affect the intended use of the device or alter the fundamental technology of the
device, then summary information that results from the design control process associated with the cleared device can serve
as the basis for clearing the application. A Special 510(k) allows a manufacturer to declare conformance to design controls
without providing new data. When the modification involves a change in material, the nature of the “new” material will
determine whether 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 change
that could significantly affect the safety or effectiveness of the device may, in some circumstances, requires the submission
of a PMA application, if the change raises complex or novel scientific issues or the product has a new intended use. A
manufacturer 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
the first instance, but the FDA may review any manufacturer’s decision. If the FDA disagrees with the manufacturer’s
determination and requires new 510(k) clearances or PMA application approvals for modifications to previously cleared
products for which the manufacturer concluded that new clearances or approvals are unnecessary, the manufacturer may be
required to cease marketing or distribution of the products or to recall the modified product until it obtains clearance or
approval, and the manufacturer may be subject to significant regulatory fines or penalties. In addition, the FDA is currently
evaluating the 510(k) process and may make substantial changes to industry requirements.
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Premarket Approval Application
The PMA application process for approval to market a medical device is more complex, costly, and time- consuming
than the 510(k) clearance procedure. A PMA application must be supported by extensive data, including technical
information regarding device design and development, preclinical studies, clinical trials, manufacturing and controls
information and labeling information that demonstrate the safety and effectiveness of the device for its intended use. After
a PMA application is submitted, the FDA has 45 days to determine whether it is sufficiently complete to permit a
substantive review. If the PMA application is complete, the FDA will file the PMA application. If the FDA accepts the
application for filing, the agency will begin an in-depth substantive review of the application. By statute, the FDA has 180
days to review the application although, generally, review of the application often takes between one and three years, and
may take significantly longer. If the FDA has questions, it will likely issue a first major deficiency letter within 150 days of
filing. It may also refer the PMA application to an FDA advisory panel for additional review, and will conduct a
preapproval inspection of the manufacturing facility to ensure compliance with the QSR, either of which could extend the
180-day response target. In addition, the FDA may request additional information or request the performance of additional
clinical trials in which case the PMA application approval may be delayed while the trials are conducted and the data
acquired are submitted in an amendment to the PMA. Even with additional trials, the FDA may not approve the PMA
application.
If the FDA’s evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will
either issue an approval letter authorizing commercial marketing or an approvable letter that usually contains a number of
conditions that must be met in order to secure final approval. If the FDA’s evaluations are not favorable, the FDA will deny
approval of the PMA application or issue a not approvable letter. The PMA application process, including the gathering of
clinical and nonclinical data and the submission to and review by the FDA, can take several years, and the process can be
expensive and uncertain. Moreover, even if the FDA approves a PMA application, the FDA may approve the device with
an indication that is narrower or more limited than originally sought. The FDA can impose post-approval conditions that it
believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on
labeling, promotion, sale and distribution. After approval of a PMA application, a new PMA application or PMA
application supplement may be required for a modification to the device, its labeling, or its manufacturing process. PMA
application supplements often require submission of the same type of information as an initial PMA application, except
that the supplement is limited to information needed to support any changes from the device covered by the approved PMA
application and may or may not require as extensive technical or clinical data or the convening of an advisory panel. The
time for review of a PMA application supplement may vary depending on the type of change, but it can be lengthy. In
addition, in some cases the FDA might require additional clinical data.
PMA applications are subject to an application fee. For federal fiscal year 2022, the standard fee is $374,858 and the
small business fee is $93,714.
Investigational Device Exemption
A clinical trial is typically required for a PMA application and, in a small percentage of cases, the FDA may require
a clinical study in support of a 510(k) submission. A manufacturer that wishes to conduct a clinical study involving the
device is subject to the FDA’s IDE regulation. The IDE regulation distinguishes between significant and non-significant
risk device studies and the procedures for obtaining approval to begin the study differ accordingly. Also, some types of
studies are exempt from the IDE regulations. A significant risk device presents a potential for serious risk to the health,
safety, or welfare of a subject. Significant risk devices are devices that are substantially important in diagnosing, curing,
mitigating, or treating disease or in preventing impairment to human health. Studies of devices that pose a significant risk
require both FDA and an IRB approval prior to initiation of a clinical study. Non-significant risk devices are devices that
do not pose a significant risk to 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
that it is safe to test the device in humans and that the testing protocol is scientifically sound. An IDE application is
considered approved 30 days after it has been received by the FDA, unless the FDA otherwise informs the sponsor prior to
30 calendar days from the date of receipt, that the IDE is approved, approved with conditions, or disapproved. The FDA
typically grants IDE approval for a specified number of subjects to be enrolled at specified study centers. The clinical trial
must be conducted in accordance with applicable regulations, including but not limited to the FDA’s IDE regulations and
GCP. The investigators must obtain subject informed consent, rigorously follow the investigational plan
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and study protocol, control the disposition of investigational devices, and comply with all reporting and record keeping
requirements. A clinical trial may be suspended or terminated by the FDA, the IRB or the sponsor at any time for various
reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial.
Approval of an IDE does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and
efficacy, even if the trial meets its intended 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, and
other quality assurance controls during the manufacturing process;
● unannounced routine or for-cause device inspections by the FDA, which may include our suppliers’ facilities
labeling regulations, which prohibit the promotion of products for uncleared or unapproved or “off-label” uses
and impose other restrictions on labeling; and
● post-approval restrictions or conditions, including requirements to conduct post-market surveillance studies to
establish 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
to the FDA information that a device has or may have caused or contributed to a death or serious injury or has
malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or a
similar device of such manufacturer were to recur. The decision to file an MDR involves a judgment by the manufacturer.
If the FDA disagrees with 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 material
deficiencies or defects in design or manufacture. The authority to require a recall must be based on an FDA finding that
there is 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 be reported 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
may include 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 new
products;
● withdrawals of 510(k) clearance or PMA application approvals; or
● in the most serious cases, criminal prosecution.
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To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance
and periodic, pre-scheduled and unannounced inspections by the FDA, and these inspections may include the
manufacturing facilities of subcontractors.
Review and Approval of Combination Products in the United States
● A combination product is a product composed of any combination of a drug and a device; a biological product
and a device; a drug and a biological product; or a drug, device, and a biological product. Under FDA’s
regulations, a combination product is defined to include: a product comprised of two or more regulated
components that are physically, chemically, or otherwise combined or mixed and produced as a single entity (a
“single-entity” combination product);
● two or more separate products packaged together in a single package or as a unit and comprised of drug and
device products, device and biological products, or biological and drug products (“co-packaged” combination
product);
● a drug, device, or biological product packaged separately that according to its investigational plan or proposed
labeling is intended for use only with an approved individually specified drug, device, or biological product (a
“cross-labeled” combination product); or
● any investigational drug, device, or biological product packaged separately that according to its proposed
labeling is for use only with another individually specified investigational drug, device, or biological product
where both are required to achieve the intended use, indication, or effect (a “cross-labeled” investigational
combination product).
The FDA has established an Office of Combination Products to serve as a focal point for combination product issues
and for medical product classification and assignment issues for agency staff and industry. That office issues guidance and
regulations to clarify the regulation of combination products, and is responsible for assigning products to an FDA center
for premarket review and regulation where their classification or assignment is unclear or in dispute. Combination
products are assigned to an FDA center based on a determination of the “primary mode of action” or PMOA of the
combination product. The FDCA defines PMOA as “the single mode of action of a combination product that provides the
most important therapeutic action of the combination product.” For example, if the PMOA of a device-biological
combination product is attributable to the biological product, the FDA Division responsible for premarket review of that
biological product would have primary jurisdiction for the combination product. One investigational application is
generally sufficient for a combination product, but that application must include all information on the entire combination
product. In most cases, the type of investigational application is that typically required by the lead center. Thus, if the drug
constituent part of a drug/device combination product provides the PMOA, the investigation would be under an IND.
Federal and State Data Privacy Laws
There are multiple privacy and data security laws that may impact our business activities, in the United States and in
other countries where we conduct trials or where we may do business in the future. These laws are evolving and may
increase both our obligations and our regulatory risks in the future. In the health care industry generally, under the federal
Health Insurance Portability and Accountability Act of 1996, or HIPAA, the HHS has issued regulations to protect the
privacy and security of protected health information, or PHI, used or disclosed by covered entities including certain
healthcare providers, health plans and healthcare clearinghouses. HIPAA also regulates standardization of data content,
codes and formats used in healthcare transactions and standardization of identifiers for health plans and providers. HIPAA
also imposes certain obligations on the business associates of covered entities that obtain protected health information in
providing services to or on behalf of covered entities. HIPAA may apply to us in certain circumstances and may also apply
to our business partners in ways that may impact our relationships with them. Our clinical trials are regulated by the
Common Rule, which also includes specific privacy-related provisions. In addition to federal privacy regulations, there are
a number of state laws governing confidentiality and security of health information that may be applicable to our business.
In addition to possible federal civil and criminal penalties for HIPAA violations, state attorneys general are authorized to
file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs
associated with pursuing federal civil actions. In addition, state attorneys general
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(along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations
of HIPAA’s privacy and security rules. State attorneys general also have authority to enforce state privacy and security
laws. New laws and regulations governing privacy and security may be adopted in the future as well.
At the state level, California has enacted legislation that has been dubbed the first “GDPR-like” law in the United
States. Known as the California Consumer Privacy Act, or CCPA, it creates new individual privacy rights for consumers
(as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling
personal data of consumers or households. The CCPA went into effect on January 1, 2020 and requires covered companies
to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of
personal information, and allow for a new cause of action for data breaches. Additionally, effective starting on January 1,
2023, the California Privacy Rights Act, or CPRA, will significantly modify the CCPA, including by expanding
consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that
will be vested with authority to implement and enforce the CCPA and the CPRA. The CCPA and CPRA could impact our
business activities depending on how it is interpreted and exemplifies the vulnerability of our business to not only cyber
threats but also the evolving regulatory environment related to personal data and individually identifiable health
information. These provisions may apply to some of our business activities. In addition, other states, including Virginia and
Colorado, already have passed state privacy laws and other states will likely be considering similar laws in the near future.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors
available under such laws, it is possible that some of our current or future business activities, including certain clinical
research, sales and marketing practices and the provision of certain items and services to our customers, could be subject to
challenge under one or more of such privacy and data security laws. The heightening compliance environment and the need
to build and maintain robust and secure systems to comply with different privacy compliance and/or reporting requirements
in multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more
of these requirements. If our operations are found to be in violation of any of the privacy or data security laws or
regulations described above that are applicable to us, or any other laws that apply to us, we may be subject to penalties,
including potentially significant criminal, civil and administrative penalties, damages, fines, contractual damages,
reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become
subject to a consent decree or similar agreement to resolve allegations of non-compliance with these laws, and the
curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and
our results of operations. To the extent that any product candidates we may develop, once approved, are sold in a foreign
country, we may be subject to similar foreign laws.
Review and Approval of Medical Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying
regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among
other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it
obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign
regulatory 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 and
additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might
differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction
does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or
jurisdiction may negatively impact the regulatory process in others.
Clinical Trial Approval
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union
has been implemented through national legislation of the member states. Under this system, an applicant must obtain
approval from the competent national authority of a European Union member state in which the clinical trial is to be
conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a
favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with
supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the
member states and further detailed in applicable guidance documents.
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In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014, or the Clinical Trials Regulation, was adopted.
The Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The
main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU portal”;
a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for
clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in
two parts. Part I is assessed by the competent authorities of all European Union Member States in which an application for
authorization of a clinical trial has been submitted (Member States concerned). Part II is assessed separately by each
Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of
the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the
concerned European Union Member State. However, overall related timelines will be defined by the Clinical Trials
Regulation.
The new Regulation came into application on January 31, 2022, following confirmation of full functionality of the
Clinical Trials Information System through an independent audit by the European Commission in mid-2020. The Clinical
Trials Regulation repealed the prior Clinical Trials Directive 2001/20/EC. According to the transitional provisions, if a
clinical trial initiated prior to the effectiveness of the new Regulation continues for more than three years from the day on
which the Clinical Trials Regulation becomes applicable, the Clinical Trials Regulation will at that time begin to apply to
the clinical trial.
Parties conducting certain clinical trials must, as in the United States, post clinical trial information in the European
Union at the EudraCT website: https://eudract.ema.europa.eu.
Marketing Authorization
To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a
marketing authorization application, or MAA, either under a centralized or decentralized procedure. The centralized
procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all
European Union member states. The centralized procedure is compulsory for specific products, including for medicines
produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy
products and products with a new active substance indicated for the treatment of certain diseases. For products with a new
active substance indicated for the treatment of other diseases and products that are highly innovative or for which a
centralized 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 at
the European Medicines Agency, or EMA, is responsible for conducting the initial assessment of a drug. The CHMP is also
responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions
to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe
for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral
explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be
granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public
health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the
opinion of the CHMP is given within 150 days.
The decentralized procedure is available to applicants who wish to market a product in various European Union
member states where such product has not received marketing approval in any European Union member states before. The
decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an
application performed by one member state designated by the applicant, known as the reference member state. Under this
procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary
of 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 receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report and related
materials, each concerned 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
to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the
European Commission, whose decision is binding on all member states.
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Conditional Approval
In particular circumstances, European Union legislation (Article 14–a Regulation (EC) No 726/2004 (as amended by
Regulation (EU) 2019/5 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal
Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the
comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may
be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the product
candidate is intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening
diseases; (2) the product candidate is intended to meet unmet medical needs of patients; (3) a marketing authorization may
be granted prior to submission of comprehensive clinical data provided that the benefit of the immediate availability on the
market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required; (4)
the risk-benefit balance of the product candidate is positive, and (5) it is likely that the applicant will be in a position to
provide the required comprehensive clinical trial data. A conditional marketing authorization may contain specific
obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of
ongoing or new studies and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations
are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of
the need for additional or modified conditions or specific obligations. The timelines for the centralized procedure described
above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
Periods of Authorization and Renewals
A marketing authorization has an initial validity for five years in principle. The marketing authorization may be
renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent
authority of the European Union Member State. To this end, the marketing authorization holder must provide the EMA or
the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all
variations introduced since the marketing authorization was granted, at least six months before the marketing authorization
ceases to be valid. The European Commission or the competent authorities of the European Union Member States may
decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year period of marketing
authorization. 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 (in
case of centralized procedure) or on the market of the authorizing European Union Member State within three years after
authorization ceases 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 European Union is obtained, the holder of the marketing
authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion
and sale of medicinal products. These include:
● Compliance with the European Union’s stringent pharmacovigilance or safety reporting rules must be ensured.
These rules can impose post-authorization studies and additional monitoring obligations.
● The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory,
must also be conducted in strict compliance with the applicable European Union laws, regulations and guidance,
including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European
Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with
European Union cGMP standards when manufacturing medicinal products and active pharmaceutical
ingredients, including the manufacture of active pharmaceutical ingredients outside of the European Union with
the intention to import the active pharmaceutical ingredients into the European Union.
● The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education
and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the
European Union notably under Directive 2001/83EC, as amended, and European Union Member State laws.
Direct-to-consumer advertising of prescription medicines is prohibited across the European Union.
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Regulatory Data Protection in the European Union
In the European Union, innovative medicinal products approved on the basis of a complete independent data package
qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity
pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized
in accordance the centralized authorization procedure. Data exclusivity prevents applicants for authorization of generics of
these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period of
eight years. During an additional two-year period of market exclusivity, a generic marketing authorization application can
be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed
on the European Union market until the expiration of the market exclusivity. The overall ten-year period will be extended
to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an
authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their
authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is
considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another
company nevertheless could also market another version of the product if such company obtained marketing authorization
based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.
Pediatric Exclusivity
If an applicant obtains a marketing authorization in all European Union Member States, or a marketing authorization
granted in the centralized procedure by the European Commission, and the study results for the pediatric population are
included in the product information, even when negative, the medicine is then eligible for an additional six-month period of
qualifying patent protection through extension of the term of the Supplementary Protection Certificate, or SPC, or
alternatively a one year extension of the regulatory market exclusivity from ten to eleven years, as selected by the
marketing authorization holder.
Patent Term Extensions
The European Union also provides for patent term extension through SPCs. The rules and requirements for obtaining
a SPC are similar to those in the United States. An SPC may extend the term of a patent for up to five years after its
originally scheduled expiration date and can provide up to a maximum of fifteen years of marketing exclusivity for a drug.
In certain circumstances, these periods may be extended for six additional months if pediatric exclusivity is obtained.
Although SPCs are available throughout the European Union, sponsors must apply on a country by country basis. Similar
patent term extension rights exist in certain other foreign jurisdictions outside the European Union.
Reimbursement and Pricing of Prescription Pharmaceuticals
In the European Union, similar political, economic and regulatory developments to those in the United States may
affect our ability to profitably commercialize our product candidates, if approved. In markets outside of the United States
and the European Union, reimbursement and healthcare payment systems vary significantly by country and many countries
have instituted price ceilings on specific products and therapies. In many countries, including those of the European
Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.
To obtain reimbursement or pricing approval in some countries, pharmaceutical firms may be required to conduct a clinical
trial that compares the cost-effectiveness of the product to other available therapies.
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 European Union, or
the European Union, medical devices must comply with the Essential Requirements in Annex I to the currently applicable
European Union Medical Devices Directive (Council Directive 93/42/EEC), or the Essential Requirements. Compliance
with these requirements is a prerequisite to be able to affix the CE Mark of Conformity to medical devices, without which
they cannot be marketed or sold in the European Economic Area, or EEA, comprised of the European Union member states
plus Norway, Iceland, and Liechtenstein.
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To demonstrate compliance with the Essential Requirements a manufacturer must undergo a conformity assessment
procedure, 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
products with the Essential Requirements, a conformity assessment procedure requires the intervention of a third-party
organization designated 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 Union and authorized by the European member states to perform the required conformity assessment tasks, such
as quality system audits and device compliance testing. The Notified Body would typically audit and examine the product’s
Technical File and the quality system for the manufacture, design and final inspection of the product before issuing a CE
Certificate of Conformity demonstrating compliance with the relevant Essential Requirements.
Medical device manufacturers must carry out a clinical evaluation of their medical devices to demonstrate
conformity with the relevant Essential Requirements. This clinical evaluation is part of the product’s Technical File. A
clinical evaluation includes an assessment of whether a medical device’s performance is in accordance with its intended
use, and that the known and foreseeable risks linked to the use of the device under normal conditions are minimized and
acceptable when weighed against the benefits of its intended purpose. The clinical evaluation conducted by the
manufacturer must also address 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 assessment
must 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 clinical
studies and scientific literature.
With respect to implantable devices or devices classified as Class III in the European Union, the manufacturer must
conduct clinical studies to obtain the required clinical data, unless relying on existing clinical data from similar devices can
be justified. As part of the conformity assessment process, depending on the type of devices, the Notified Body will review
the manufacturer’s clinical evaluation process, assess the clinical evaluation data of a representative sample of the device’s
subcategory or generic group, or assess all the clinical evaluation data, verify the manufacturer’s assessment of that data
and assess 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 products
and the right to sell the products in the EEA countries, a Notified Body or a competent authority may require post-
marketing studies of the products. Failure to comply with such requirements in a timely manner could result in the
withdrawal of the CE Certificate 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
any planned 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
conformity with the Essential Requirements or the conditions for the use of the devices. If the assessment is favorable, the
Notified Body will issue a new CE Certificate of Conformity or an addendum to the existing CE Certificate of Conformity
attesting compliance with the Essential Requirements. If it is not, the manufacturer may not be able to continue to market
and sell the product in the EEA.
In the European Union, medical devices may be promoted only for the intended purpose for which the devices have
been CE marked. Failure to comply with this requirement could lead to the imposition of penalties by the competent
authorities of the European Union Member States. The penalties could include warnings, orders to discontinue the
promotion of the medical device, seizure of the promotional materials and fines. Promotional materials must also comply
with various laws and codes of conduct developed by medical device industry bodies in the European Union governing
promotional claims, comparative advertising, advertising of medical devices reimbursed by the national health insurance
systems and advertising to the general public.
Additionally, all manufacturers placing medical devices in the market in the European Union are legally bound to
report any serious or potentially serious incidents involving devices they produce or sell to the competent authority in
whose jurisdiction the incident occurred. In the European Union, manufacturers must comply with the European Union
Medical Device Vigilance System. Under this system, incidents must be reported to the relevant authorities of the
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European Union countries, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a
risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed
on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a
device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or
might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An
FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be
communicated by the manufacturer or its European Authorized Representative to its customers and to the end users of the
device through Field Safety Notices.
The legal framework currently applicable for medical devices in the European Union was amended by Medical
Devices Regulation (Regulation (EU) 2017/745) adopted in 2017, which we refer to as the MDR and which repeals and
replaces the European Union Medical Devices Directive. Unlike directives, which must be implemented into the national
laws of the European Economic Area, or EEA, member states, the MDR is directly applicable (i.e., without the need for
adoption of EEA member State laws implementing them) in all EEA member states and is intended to eliminate current
differences in the regulation of medical devices among EEA member states. The MDR, among other things, is intended to
establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical and ensure a
high level of safety and health.
The MDR became applicable on May 26, 2021 and will, among other things:
● strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
● establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and
safety of devices placed on the market;
● improve the traceability of medical devices throughout the supply chain to the end-user or patient through a
unique identification number;
● set up a central database to provide patients, healthcare professionals and the public with comprehensive
information on products available in the European Union; and
● strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an
additional check by experts before they are placed on the market.
Brexit and the Regulatory Framework in the United Kingdom
The United Kingdom’s withdrawal from the European Union took place on January 31, 2020. The European Union
and the U.K. reached an agreement on their new partnership in the Trade and Cooperation Agreement, or the Trade and
Cooperation Agreement, which was applied provisionally beginning on January 1, 2021 and which entered into force on
May 1, 2021. The Trade and Cooperation Agreement focuses primarily on free trade by ensuring no tariffs or quotas on
trade in goods, including healthcare products such as medicinal products. Thereafter, the European Union and the U.K. will
form two separate markets governed by two distinct regulatory and legal regimes. As such, the Trade and Cooperation
Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a
consequence that the U.K. is no longer part of the single market. As of January 1, 2021, the Medicines and Healthcare
products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great
Britain, comprising England, Scotland and Wales under domestic law whereas Northern Ireland continues to be subject to
European Union rules under the Northern Ireland Protocol. The MHRA will rely on the Human Medicines Regulations
2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into the
domestic law the body of European Union law instruments governing medicinal products that pre-existed prior to the
U.K.’s withdrawal from the European Union.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the
European Union’s General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now
effective in the United Kingdom, it is still unclear whether transfer of data from the European Economic Area, or EEA, to
the United Kingdom will remain lawful under GDPR. The Trade and Cooperation Agreement provides for a transitional
period during which the United Kingdom will be treated like an European Union member state in relation to
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processing and transfers of personal data for four months from January 1, 2021. This may be extended by two further
months. After such period, the United Kingdom will be a “third country” under the GDPR unless the European
Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom. The United
Kingdom has already determined that it considers all of the European Union 27 and EEA member states to be adequate for
the purposes of data protection, ensuring that data flows from the United Kingdom to the European Union/EEA remain
unaffected.
General Data Protection Regulation
Many countries outside of the United States maintain rigorous laws governing the privacy and security of personal
information. The collection, use, disclosure, transfer, or other processing of personal data, including personal health data,
regarding individuals who are located in the EEA, and the processing of personal data that takes place in the EEA, is
subject to the 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, and it imposes heightened requirements on companies
that process health and other sensitive data, such as requiring in many situations that a company obtain the consent of the
individuals to whom the sensitive personal data relate before processing such data. Examples of obligations imposed by the
GDPR on companies processing personal data that fall within the scope of the GDPR include providing information to
individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of
personal data, appointing a data protection officer, providing notification of data breaches and taking certain measures
when engaging third-party processors.
The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including the
United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including
potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private
right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial
remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR is a
rigorous and time-intensive process that may increase the cost of doing business or require companies to change their
business practices to ensure full compliance. In July 2020, the Court of Justice of the European Union, or the CJEU,
invalidated the European Union-U.S. Privacy Shield framework, one of the mechanisms used to legitimize the transfer of
personal data from the EEA to the United States. The CJEU decision also drew into question the long-term viability of an
alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the
United States. Following the withdrawal of the U.K. from the European Union, the U.K. Data Protection Act 2018 applies
to the processing of personal data that takes place in the U.K. and includes parallel obligations to those set forth by GDPR.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and
other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be
covered 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 provide
coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay
for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list,
or formulary, which might not include all of the approved products for a particular indication. Additionally, the
containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a
focus in this effort. 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 generic products. Adoption of price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions 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
to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of
the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision
to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Third-party
reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in
product development.
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Section 1833(t)(6) of the Social Security Act provides for temporary additional payments or “transitional pass-
through payments” for certain drugs and biological agents. As originally enacted by the Balanced Budget Refinement Act
of 1999, this provision required Centers for Medicare and Medicaid Services, or CMS, to make additional payments to
hospitals for current orphan drugs, as designated under section 526 of the FDCA; current drugs and biological agents and
brachytherapy 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
paid for as a hospital outpatient department service as of December 31, 1996, and whose cost is “not insignificant” in
relation to the Outpatient Prospective Payment System payment for the procedures or services associated with the new
drug, device, or biological. Under the statute, transitional pass-through payments can be made for at least two years but not
more than three years.
DEXTENZA is scheduled to lose transitional pass-through status in July 2022. In November 2021, CMS, in its
annual rulemaking, has indicated that DEXTENZA will be paid separately in the ASC and HOPD settings through 2022
despite its scheduled loss of pass-through status. CMS also indicated that DEXTENZA is eligible for separate payment in
the ASC setting beyond 2022 because it meets the criteria set forth for non-opioid pain management drugs as a surgical
supply provision. In addition, CMS, during the same rulemaking cycle, made a final recommendation on the fixed
reimbursement amount for the procedure of inserting DEXTENZA, a Category I Current Procedural Terminology, or CPT,
code 68841 to replace DEXTENZA’s current Category III CPT code 0365T, effective January 1, 2022. The physician fee
for the insertion of DEXTENZA into the canaliculus will be $31.58 in the ASCs and HOPDs and $37.29 in the physician’s
office for unilateral insertion as of January 1, 2022 under the new Category I code. Additionally, although CMS
established these reimbursement amounts for 2022, CMS will review such determination as part of its annual rulemaking
cycle. A specific and permanent J-Code for ophthalmic inserts containing dexamethasone including DEXTENZA is in
effect. J-Codes are familiar to both medical practices and their billing staffs, as well as Medicare (Part B and Part C) and
commercial insurers. As a result, J-Codes generally allow for a simpler and more convenient reimbursement process.
Separately, a CPT procedure code has been established for the administration of drug-eluting intracanalicular inserts to
facilitate reimbursement for physicians for the procedure of inserting DEXTENZA into the canaliculus. We expect pricing
for DEXTENZA while in pass-through payment status to be approximately $555 per insert.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries
provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require
the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently
available therapies. For example, the European Union provides options for its member states to restrict the range of drug
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. European Union member states may approve a specific price for a drug product or it may instead
adopt 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.
The downward 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
imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has
price controls 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
of drug products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and
customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such 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 willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service,
for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and
Medicaid;
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● 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 an
obligation to pay money to the federal government;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil
liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to
healthcare matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its
implementing regulations, including the Final Omnibus Rule published in January 2013, also imposes
obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and
transmission of individually identifiable health information;
● the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
● the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making,
or offering or promising to make improper payments to non-U.S. officials for the purpose of obtaining or
retaining business 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 the
Department of Health and Human Services information related to payments and other transfers of value to
physicians, other healthcare providers and teaching hospitals and physician ownership and investment interests
held by physicians, other healthcare providers and their immediate family members; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply
to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers.
Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, exclusion
from participation in federal and state health care programs, such as Medicare and Medicaid. Ensuring compliance is time
consuming and costly. Similar healthcare laws and regulations exist in the EU and other jurisdictions, including reporting
requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security
of personal information.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to payments to physicians and other health care providers or
marketing expenditures. State and foreign laws also govern the privacy and security of health information in some
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
Healthcare Reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of
federal and state proposals during the last few years regarding the pricing of drug and biologic products, limiting coverage
and reimbursement for medical products and other changes to the healthcare system in the United States.
In March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010, or collectively the PPACA, which, among other things, includes
changes to the coverage and payment for pharmaceutical products under government healthcare programs. Other
legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011, the Budget Control
Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select
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Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the
years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to
several government programs. These changes included aggregate reductions to Medicare payments to providers of up to
2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2031. Pursuant to the
Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and subsequent legislation, these Medicare sequester
reductions have been suspended through the end of March 2022. From April 2022 through June 2022 a 1% sequester cut
will be in effect, with the full 2% cut resuming thereafter.
Since enactment of the PPACA, there have been, and continue to be, numerous legal challenges and Congressional
actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, or
the Tax Act, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.”
The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective
in 2019. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual
mandate portion of the PPACA is an essential and inseverable feature of the PPACA, and therefore because the mandate
was repealed as part of the Tax Act, the remaining provisions of the PPACA are invalid as well. The U.S. Supreme Court
heard this case on November 10, 2020 and, on June 17, 2021, dismissed this action after finding that the plaintiffs do not
have standing to challenge the constitutionality of the ACA. Litigation and legislation over the PPACA are likely to
continue, with unpredictable and uncertain results.
The Trump Administration also took executive actions to undermine or delay implementation of the PPACA,
including directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant
exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory
burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices. On January 28, 2021, however, President Biden rescinded those orders and issued a new executive order that
directs federal agencies to reconsider rules and other policies that limit access to healthcare, and consider actions that will
protect and strengthen that access. Under this order, federal agencies are directed to re-examine: policies that undermine
protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and
waivers under Medicaid and the PPACA that may reduce coverage or undermine the programs, including work
requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that
make it more difficult to enroll in Medicaid and under the PPACA; and policies that reduce affordability of coverage or
financial assistance, including for dependents.
Pharmaceutical Prices
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States.
There have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation
designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between
pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid. In
2020, President Trump issued several executive orders intended to lower the costs of prescription products and certain
provisions in these orders have been incorporated into regulations. These regulations include an interim final rule
implementing a most favored nation model for prices that would tie Medicare Part B payments for certain physician-
administered pharmaceuticals to the lowest price paid in other economically advanced countries, effective January 1, 2021.
That rule, however, has been subject to a nationwide preliminary injunction and, on December 29, 2021, CMS issued a
final rule to rescind it. With issuance of this rule, CMS stated that it will explore all options to incorporate value into
payments for Medicare Part B pharmaceuticals and improve beneficiaries' access to evidence-based care.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a
Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States. The final
rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico,
and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing
SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing safe
harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or
through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been
delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule
also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe
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harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of
which have also been delayed by the Biden administration until January 1, 2023.
On July 9, 2021, President Biden signed Executive Order 14063, which focuses on, among other things, the price of
pharmaceuticals. The Executive Order directs the HHS to create a plan within 45 days to combat “excessive pricing of
prescription pharmaceuticals and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal
government for such pharmaceuticals, and to address the recurrent problem of price gouging.” On September 9, 2021,
HHS released its plan to reduce pharmaceutical prices. The key features of that plan are to: (a) make pharmaceutical prices
more affordable and equitable for all consumers and throughout the health care system by supporting pharmaceutical price
negotiations with manufacturers; (b) improve and promote competition throughout the prescription pharmaceutical
industry by supporting market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase
transparency; and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and
private research and making sure that market incentives promote discovery of valuable and accessible new treatments.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations
designed 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. A number of states, for example,
require drug manufacturers and other entities in the drug supply chain, including health carriers, pharmacy benefit
managers, wholesale distributors, to disclose information about pricing of pharmaceuticals. In addition, regional healthcare
organizations and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical
products and which suppliers will be included in their prescription pharmaceutical and other healthcare programs. These
measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We
expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit
the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced
demand for our product candidates or additional pricing pressures.
Human Capital
As of December 31, 2021, we had 228 full-time employees. The following table provides an overview of the
distribution of those employees:
Department
Research & Development
Sales & Marketing
Manufacturing
General & Administrative
Total Employees
Headcount
99
76
13
40
228
We are committed to inclusion and diversity and believe that these are important elements of our culture that enables
us to attract and retain a high quality workforce. As of December 31, 2021, our workforce was composed of 47% female
and 53% male, and 39% of the workforce was non-white.
The development, attraction and retention of employees is a critical success factor for us for the execution of our
business strategy and succession planning. To support the advancement of our employees, we offer training and
development programs encouraging advancement from within and continue to fill our team with strong and experienced
management talent. We leverage both formal and informal programs to identify, foster, and retain top talent at both the
corporate and operating unit level.
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We provide employee wages and benefits that are competitive and consistent with the employee positions, skill
levels, experience, knowledge and geographic location. None of our employees are represented by labor unions or covered
by collective bargaining agreements. We consider our relationship with our employees to be good.
We value the health, safety and wellbeing of our employees and their families. In response to the COVID-19
pandemic, we have implemented significant changes that we determined were in the best interest of our employees, as well
as the communities in which we operate, and which comply with government regulations. This includes allowing a number
of our corporate employees to work remotely, as appropriate, while implementing significant safety measures designed to
protect the health of all those entering our office.
Our Corporate Information
We were incorporated under the laws of the State of Delaware in 2006. Our principal executive offices are located at
24 Crosby Drive, Bedford, MA 01730, and our telephone number is (781) 357-4000. Our manufacturing is located at 36
Crosby Drive, Suite 101, Bedford, MA 01730 and our research and development operations are located at 15 Crosby Drive,
Bedford, MA 01730. Our website address is www.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 the Securities Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available through 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 copies of
those filings are provided to us by those persons. The information contained on, or that can be access through, our website
is 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, including under the
heading “Summary of Risk Factors” in this Annual Report, should be carefully considered. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we
presently deem less significant may also impair our business operations. Please see page 2 of this Annual Report on
Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the
following risks occur, our business, financial condition, results of operations and future growth prospects could be
materially and adversely affected.
Risks Related to the Coronavirus Pandemic
The coronavirus (COVID-19) pandemic has disrupted, and is expected to continue to adversely affect, our operations,
including our commercialization of DEXTENZA, our ability to generate revenue from sales of DEXTENZA and
ReSure Sealant, and our enrollment of certain clinical trials. In the future, the COVID-19 pandemic or other
pandemics may have other adverse effects on our business, operations and ability to raise capital.
The COVID-19 coronavirus pandemic, which began in December 2019 and has spread worldwide, has caused many
governments to implement measures to slow the spread of the pandemic through quarantines, strict travel restrictions,
heightened border scrutiny, and other measures. The pandemic and government measures taken in response have also had a
significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains
have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as
medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. As the
recent resurgence of cases due to the delta and omicron variants have illustrated, the future progression of the pandemic
and its effects on our business and operations are uncertain.
We believe the COVID-19 pandemic has adversely affected, and we expect it to continue to adversely affect, our
commercialization of DEXTENZA and our ability to generate revenue from sales of DEXTENZA, as a result of many
factors, including:
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● a decrease in patients attending routine ophthalmology appointments or undergoing elective surgical procedures,
including cataract surgery;
● diversion of healthcare resources away from elective surgical procedures, including cataract surgery, to focus on
pandemic concerns;
● government and institutional restrictions limiting the ability of our key account managers to conduct sales
activities or access accounts and healthcare professionals, which could adversely impact our commercialization
of DEXTENZA;
● limitations of employees being able to fulfill their job requirements because they have chosen or may choose not
to be vaccinated;
● challenges in retaining and recruiting key personnel in certain operations of our business; and
● potential interruptions in global shipping affecting the transport of raw materials used in the manufacture of our
product, drug product, patient samples and related literature and similar issues related to current economy-wide
supply chain concerns.
While we saw improvement in certain of these factors earlier in 2021 as a result of the increased availability of
vaccines and a reduction in COVID-19 infections in the United States, we saw the renewed impact of the COVID-19
pandemic in the second half of 2021 with the surges of the delta and omicron variants. Elective ophthalmology surgeries
declined during the periods of these surges, which we believe led to slower than expected in-market sales of DEXTENZA
during both the third and fourth quarters of 2021.
The COVID-19 pandemic has delayed, and has the potential to further delay or otherwise adversely affect, our
clinical development activities, including our ability to recruit or retain subjects in and otherwise conduct our ongoing
clinical trials, as a result of many factors, including:
● diversion of healthcare resources away from the conduct of our clinical trials to focus on pandemic concerns,
including the availability of necessary materials, the attention of physicians serving as our clinical trial
investigators, access to hospitals serving as our clinical trial sites, and availability of hospital staff supporting
the conduct of our clinical trials;
● the inability or reluctance of subjects enrolled in our clinical trials to visit clinical trial sites if subjects are
affected by the virus or are fearful of traveling to our clinical trial sites because of the pandemic;
● potential interruptions in global shipping affecting the transport of clinical trial materials, such as investigational
drug product, patient samples, and raw materials used in the manufacture of our product candidates; medical
and laboratory supplies used in our clinical trials or preclinical studies; or animals that are used for preclinical
testing, and other supplies used in our clinical trials and preclinical studies;
● the impact of personnel shortages, further limitations on travel, or other operational challenges that could
interrupt key clinical trial activities, such as clinical trial site initiations and monitoring and reporting activities,
travel by our employees, contract research organizations, or CROs, or patients to clinical trial sites, or the ability
of employees at our manufacturing facility to report to work, any of which could delay or adversely impact the
conduct or progress of our clinical trials or limit the amount of clinical data we will be able to report;
● potential interruptions in the operations of the U.S. Food and Drug Administration, or the FDA, or other
regulatory authorities, which could delay or adversely impact the review of any investigational new drug, or
IND, application or new drug application, or NDA, we submit to the FDA or such other regulatory authorities or
delay our ability to discuss and receive guidance on the clinical development of our product candidates; and
● any future interruption of, or delays in receiving, supplies of clinical trial material from our manufacturing
facility due to stay-at-home orders, production slowdowns or stoppages, or disruptions in delivery systems.
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If delays related to the COVID-19 pandemic affect the enrollment of any of our ongoing or planned clinical trials, as
they did for our Phase 1 clinical trial evaluating OTX-TIC, the completion of such trials could be delayed. We are
currently experiencing slow enrollment of the fourth cohort in our OTX-TKI Phase 1 clinical trial due to COVID-19
restrictions in Australia.
The COVID-19 pandemic has also impacted, and may in the future impact, the administration of our clinical trials. In
May 2020, we disclosed the receipt of interim data regarding our ongoing Phase 1 clinical trial of OTX-TKI for the
potential treatment of wet AMD and other retinal diseases. Subsequently, we learned that the data collection and other
administrative activities of a clinical trial site in Australia had been adversely impacted by the effects of the COVID-19
pandemic and the site had, as a result, erroneously reported the status of a subject to us because certain information had not
been entered into the clinical trial database in a timely manner. In July 2020, we reported the updated data.
The COVID-19 pandemic continues to evolve and its ultimate scope, duration and effects are unknown. The extent of
the impact on our business, preclinical studies and clinical trials, commercialization activities and revenue will depend on
future developments, which are highly uncertain and cannot be predicted with confidence. These include, but are not
limited to, the duration of the pandemic; actions to contain the pandemic or treat its impact, such as travel restrictions,
vaccination campaigns, social distancing, masking requirements and quarantines or lock-downs in the United States and
other countries; staffing shortages in the healthcare industry; business closures or business disruptions; and the
effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We cannot be certain what the overall impact of the COVID-19 pandemic or any future pandemic will be on our
business or as to its potential to continue to adversely affect our business, financial condition, results of operations, and
prospects.
Risks Related to Our Financial Position and Need for Additional Capital
We have a history of incurring significant losses. We expect to incur losses over the next several years and may never
achieve or maintain profitability.
We have a history of incurring significant losses. Our net loss was $155.6 million for the year ended December 31,
2020, primarily due to a loss from operations of $62.8 million and a change in fair value of a derivative liability of $86.2
million. Our net loss was $6.6 million for the year ended December 31, 2021, primarily due to a loss from operations of
$78.0 million offset by a change in fair value of a derivative liability of $78.1 million. As of December 31, 2021, we had
an accumulated deficit of $545.8 million. We have financed our operations primarily through sales of our products, private
placements of our preferred stock, public offerings of our common stock, the private placement of convertible notes in the
aggregate principal amount of our $37.5 million, or the Convertible Notes, and borrowings under credit facilities. We have
devoted substantially all of our financial resources and efforts to research and development, including preclinical studies
and clinical trials, and the commercialization of DEXTENZA® for the treatment of ocular inflammation and pain following
ophthalmic surgery and ocular itching associated with allergic conjunctivitis. Although we expect to continue to generate
revenue from sales of DEXTENZA, we expect to continue to incur significant expenses and operating losses over the next
several years. Our net losses may fluctuate significantly from quarter to quarter and year to year.
We anticipate we will incur substantial expenses if and as we:
● continue to commercialize DEXTENZA in the United States, including the commercial launch of DEXTENZA
in the office setting for the treatment of ocular itching associated with allergic conjunctivitis;
● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any
other products or product candidates we intend to commercialize;
● continue ongoing clinical trials for our product candidates OTX-TKI (in both Australia and the United States)
for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension
and our ongoing clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery in
accordance with the FDA’s post-approval requirement;
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● determine to initiate new clinical trials to evaluate OTX-TKI for the treatment of wet AMD, OTX-CSI for the
chronic treatment of dry eye disease and OTX-DED for the short-term treatment of the signs and symptoms of
dry eye disease and to initiate a new clinical trial to evaluate DEXTENZA in pediatric subjects with ocular
itching associated with allergic conjunctivitis in accordance with the FDA’s post-approval requirement;
● conduct or support research and development activities on, and seek regulatory approvals for, DEXTENZA and
OTX-TIC in mainland China, Taiwan, Hong Kong, Macau, South Korea and the countries of the Association of
Southeast Asian Nations pursuant to our license agreement and collaboration with AffaMed Therapeutics
Limited, or AffaMed;
● continue the research and development of our other product candidates;
● seek to identify and develop additional product candidates;
● seek marketing approvals for any of our product candidates that successfully complete clinical development;
● scale up our manufacturing processes and capabilities to support sales of commercial products, clinical trials of
our product candidates and commercialization of any of our product candidates for which we obtain marketing
approval, and expand our facilities to accommodate this scale up and any corresponding growth in personnel;
● renovate our existing facilities including research and development laboratories, manufacturing space and office
space;
● maintain, expand and protect our intellectual property portfolio;
● expand our operational, financial, administrative and management systems and personnel, including personnel
to support our clinical development, manufacturing and commercialization efforts;
● defend ourselves against legal proceedings;
● make investments to improve our defenses against cybersecurity and establish and maintain cybersecurity
insurance;
● increase our product liability and clinical trial insurance coverage as we expand our clinical trials and
commercialization efforts; and
● continue to operate as a public company.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable
to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our
development expenses will increase if:
● we are required by the FDA or the other regulatory authorities such as the European Medicines Agency, or
EMA, to perform trials or studies in addition to those currently expected;
● there are any delays in receipt of regulatory clearance to begin our planned clinical programs;
● there are any delays in enrollment of subjects in or completion of our clinical trials or the development of our
product candidates; or
● there are any delays in receiving marketing approval of any of our product candidates.
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For us to become and remain profitable, we will need to continue to successfully commercialize DEXTENZA and to
successfully develop and commercialize other products with significant market potential. This will require us or our current
or future collaborators to be successful in a range of challenging activities, including:
● continuing to commercialize DEXTENZA in the United States, including by further developing our
manufacturing, marketing, sales force, and distribution capabilities;
● completing clinical development of our product candidates, including OTX-TKI, OTX-TIC, OTX-CSI and
OTX-DED;
● obtaining marketing approval for these product candidates;
● manufacturing, marketing, selling and distributing any other products for which we obtain marketing approval;
● achieving an adequate level of market acceptance of and obtaining and maintaining coverage and adequate
reimbursement from CMS and other third-party payors for our products; and
● protecting our rights to our intellectual property portfolio.
Even if we succeed in our commercialization efforts, we may never generate revenue that is sufficient to achieve
profitability. We do not anticipate revenue from sales of DEXTENZA for the treatment of ocular inflammation and pain
following ophthalmic surgery and ocular itching associated with allergic conjunctivitis will be sufficient for us to become
profitable for several years, if ever.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would depress the value of our common stock and could impair our
ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings
or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part
of their investment.
We will need substantial additional funding. If we are unable to raise capital when needed or on attractive terms, we
could be forced to delay, reduce or eliminate our research and development programs or commercialization efforts.
We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we continue
to commercialize DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery, begin to
commercialize DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, and advance OTX-
TKI, OTX-TIC, OTX-CSI and OTX-DED through clinical development. We expect to devote substantial financial
resources as we conduct late-stage clinical trials for our product candidates, seek marketing approval for any such product
candidate for which we obtain favorable pivotal clinical results, and commercialize any products for which we receive
marketing approval. In addition, we plan to devote significant financial resources to conduct research and development of
our other product candidates. Accordingly, we will need to obtain substantial additional funding to fully support our
continuing and planned operations. If we are unable to raise capital when needed or on attractive terms, we could be forced
to delay, reduce or eliminate our research and development programs or commercialization efforts.
As of December 31, 2021, we had cash and cash equivalents of $164.2 million, outstanding debt of $25.0 million, net
of unamortized discount, and $37.5 million aggregate principal amount of Convertible Notes plus accrued interest of $6.5
million. We believe that our existing cash and cash equivalents will enable us to fund our planned operating expenses, debt
service obligations and capital expenditure requirements through 2023. This estimate is based on our current operating plan
which includes estimates of anticipated cash inflows from product sales and cash outflows from operating expenses. These
estimates are subject to various assumptions including those related to the severity and duration of the COVID-19
pandemic, the commercialization of DEXTENZA, the pace of our research and clinical development programs and other
aspects of our business. Our assumptions may prove to be wrong, and we could use our
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capital resources sooner than we currently expect and would therefore need to raise additional capital sooner or adjust our
plans accordingly. Our future capital requirements will depend on many factors, including:
● the level of product sales from DEXTENZA and any additional products for which we obtain marketing
approval in the future and the level of third-party reimbursement of such products;
● the costs of sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA and
any additional products for which we obtain marketing approval in the future, including costs increases due to
inflation;
● the progress, costs and outcome of our clinical trials of our product candidates, in particular OTX-TIC for the
treatment of open-angle glaucoma or ocular hypertension and OTX-TKI for the treatment of wet AMD;
● the scope, progress, costs and outcome of preclinical development and clinical trials of our other product
candidates;
● the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA or other
regulatory authorities;
● the costs of scaling up our manufacturing processes and capabilities to support sales of commercial products,
clinical trials of our product candidates and commercialization of any of our product candidates for which we
obtain marketing approval and of expanding our facilities to accommodate this scale up and any corresponding
growth in personnel;
● the extent of our debt service obligations and our ability, if desired, to refinance any of our existing debt on
terms that are more favorable to us;
● the amounts we are entitled to receive, if any, as reimbursements for clinical trial expenditures, development,
regulatory, and sales milestone payments, and royalty payments under our license agreement with AffaMed;
● the extent to which we choose to establish additional collaboration, distribution or other marketing arrangements
for our products and product candidates;
● the costs and outcomes of any legal actions and proceedings;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our
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 processes that take years to complete. We may never generate the necessary data or
results required to obtain regulatory approval of products with the market potential sufficient to enable us to generate
significant revenues from the sale of such products. Accordingly, we will need to obtain substantial additional financing to
achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish
rights to 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 finance
our cash needs through equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty
agreements, and marketing and distribution arrangements. We do not have any committed external source of funds,
although our license agreement with AffaMed provides for AffaMed’s reimbursement of certain clinical expenses incurred
by us in connection with our collaboration and for our potential receipt of development and sales milestone payments and
royalty payments. To the extent that we raise additional capital through the sale of
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equity, preferred equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms
of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights as
holders of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. Our pledge of our assets as collateral to secure our obligations under our
Credit Facility pursuant to which we have a total borrowing capacity of $25.0 million, which has been fully drawn down,
may limit our ability to obtain additional debt financing.
If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements or
marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue
streams, research programs, products or product candidates or grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings or other arrangements 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 market products 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.
Under our credit facility, or the Credit Facility, we have $25.0 million, net of unamortized discount, of outstanding
principal indebtedness. Under the accompanying credit and security agreement, as amended and/or restated to date, which
we refer to as the Credit Agreement, we are permitted to make interest-only payments through April 2024, at which time
we will be required to make, in addition to the monthly interest payments, principal payments on the term loans in
accordance with the amortization schedules set forth in the Credit Agreement. Our obligations under the Credit Agreement
are secured by all of our assets, including our intellectual property. The Credit Agreement also includes customary
affirmative and negative covenants, including limitations on dispositions, mergers or acquisitions; incurring indebtedness,
liens or encumbrances; paying dividends; making certain investments; and engaging in certain other business transactions.
In March 2019, we issued $37.5 million aggregate principal amount of issued and outstanding Convertible Notes. The
Convertible Notes 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 Agreement.
Our substantial debt combined with our other financial obligations and contractual commitments could have
significant adverse consequences, including:
● requiring us to dedicate a substantial portion of cash and cash equivalents and marketable securities to the
payment of interest on, and principal of, our debt, which would reduce the amounts available to fund working
capital, commercialization expenditures, capital expenditures, product development efforts and other general
corporate purposes;
● obligating us to additional negative covenants further restricting our activities;
● 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 debt servicing
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 funds from external sources. However, we may not have sufficient
funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from
external sources may not be available on acceptable terms, if at all.
A failure to comply with conditions of our Credit Agreement or the Convertible Notes could result in an event of
default under those instruments. In the event of an acceleration of amounts due under our Credit Agreement or the
Convertible Notes as a result of an event of default, including upon the occurrence of an event that would reasonably be
expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any
amount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our
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indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral
securing such indebtedness.
The elimination of LIBOR could adversely affect our business, results of operations or financial condition.
In July 2017, the head of the United Kingdom Financial Conduct Authority, or FCA, announced plans to phase out
the use of LIBOR by the end of 2021. In November 2020, the International Exchange Benchmark Administration, the
administrator of LIBOR, announced its decision to consult on ceasing the publication of rates for certain short-term LIBOR
tenors effective December 31, 2021, and for the remaining tenors effective June 30, 2023. Financial regulatory authorities
including the U.S. Federal Reserve and the FCA expressed support for announcement. Although the impact is uncertain at
this time, the elimination of LIBOR could have an adverse impact on our business, results of operations, or financial
condition. We may incur significant expenses to amend our LIBOR-indexed loans and other applicable financial or
contractual obligations, including our Credit Facility, to a new reference rate, which may differ significantly from LIBOR.
Accordingly, the use of an alternative rate could result in increased costs, including increased interest expense on our credit
facilities, and increased borrowing and hedging costs in the future. At this time, no consensus exists as to what rate or rates
may become acceptable alternatives to LIBOR and we are unable to predict the effect of any such alternatives on our
business, results of operations or financial condition.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and
development tax credit carryforwards.
As of December 31, 2021, we had net operating loss, or NOL, carryforwards for federal and state income tax
purposes of $423.6 million and $297.0 million, respectively. The federal and state NOLs generated for annual periods
prior to January 1, 2018 begin to expire in 2026. Our federal NOLs generated for the years ended after December 31, 2018,
which amounted to a total of $297.8 million, can be carried forward indefinitely. As of December 31, 2021, we also had
available research and development tax credit carryforwards for federal and state income tax purposes of $10.9 million and
$6.1 million, respectively, which begin to expire in 2026 and 2025, respectively. These NOL and tax credit carryforwards
could expire unused and be unavailable to offset our future income tax liabilities. As described below under the heading
“Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial
condition,” the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, as amended by the Coronavirus Aid, Relief, and
Economic Security Act, or the CARES Act, includes changes to U.S. federal tax rates and the rules governing NOL
carryforwards that may significantly impact our ability to utilize our NOLs to offset taxable income in the future. Nor is it
clear how various states will respond to the 2017 Tax Act; the Families First Coronavirus Response Act, or FFCR Act; or
the CARES Act. In addition, state NOLs generated in one state cannot be used to offset income generated in another state.
Furthermore, the use of NOL carryforwards may become subject to an annual limitation under Section 382 of the Internal
Revenue Code of 1986, as amended, or the Code, and similar state provisions in the event of certain cumulative changes in
the ownership interest of significant shareholders in excess of 50 percent over a three-year period. This could limit the
amount of NOL carryforwards that can be utilized annually to offset future taxable income or tax liabilities. The amount of
the annual limitation is determined based on the value of a company immediately prior to the ownership change. We have
not conducted a full study to assess whether a change of control has occurred or whether there have been multiple changes
of control since inception due to the significant complexity and cost associated with such a study. As a result, we are
uncertain as to whether we have completed one or more transactions since our inception which may have resulted in an
ownership change under Section 382 of the Code. In addition, there may be changes in our stock ownership, some of
which are outside of our control, that could result in ownership changes in the future. For these reasons, even if we attain
profitability, we may be unable to use a material portion of our NOLs and other tax attributes.
Risks Related to Product Development
Clinical trials of our product candidates may not be successful. If clinical trials of our product candidates fail to
demonstrate safety and efficacy to the satisfaction of the FDA, the EMA or other regulatory authorities or do not
otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be
delayed or unable to complete, the development and commercialization of such product candidate and our business may
be harmed.
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must
complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our
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product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to
complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The
outcome of preclinical testing and early clinical trials may not be predictive of the success of later stage clinical trials,
interim results of a clinical trial do not necessarily predict final results and 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 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 and more advanced clinical trials. Moreover, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that have believed their product candidates performed
satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their
products. The protocols for our clinical trials and other supporting information are subject to review by the FDA and
regulatory authorities outside the United States. However, the FDA is not obligated to comment on our trial protocols
within any specified time period or at all or to affirmatively clear or approve our planned pivotal clinical trials. Subject to a
waiting period of 30 days, we could choose to initiate our pivotal clinical trials in the United States without waiting for any
additional period for comments from the FDA.
We have devoted a significant portion of our financial resources and business efforts to the development of
DEXTENZA and our product candidates. We are currently investing substantial resources to advance the development of
OTX-TKI for the treatment of wet AMD, OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension,
OTX-CSI for the chronic treatment of dry eye disease, and OTX-DED for the short-term treatment of the signs and
symptoms of dry eye disease. We currently have several ongoing clinical trials, including our Phase 1 clinical trials of
OTX-TKI in Australia and the United States and our Phase 2 clinical trial of OTX-TIC.
We have, however, experienced the uncertainty of clinical trials in our own development programs. In our Phase 2
clinical trial for OTX-CSI for the treatment of dry eye disease, for example, OTX-CSI did not meet the primary endpoint of
the clinical trial. The Phase 2, U.S.-based, randomized, double-masked, multi-center, vehicle-controlled clinical trial was
designed to evaluate safety, tolerability, durability, and efficacy of two different formulations of OTX-CSI by measuring
signs and symptoms of dry eye disease in 140 subjects treated in both eyes over approximately 16 weeks (a 12-week study
period, with an additional 4-week safety follow-up). The four groups evaluated in this study were: OTX-CSI for a shorter
duration, OTX-CSI for a longer duration, vehicle insert for a longer duration and vehicle insert for a very short duration.
The study did not show separation between the OTX-CSI treated subjects (both formulations) and the vehicle treated
subjects (both formulations) for the primary endpoint of increased tear production at 12 weeks as measured by the
Schirmer’s Test. We are continuing to review the Phase 2 data, including baseline characteristics of the subject population
and retention data showing lower than anticipated insert retention rates in the active drug groups, and to assess the impact
and reasons for lower than expected retention rates before determining next steps for this program.
If clinical trials of any product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of
the FDA or other regulatory authorities or do not otherwise produce clear or favorable results, we may incur additional
costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of
such product candidate. We cannot accurately predict when or if any of our product candidates will prove effective or safe
in humans or whether our product candidates will receive marketing approval or reach successful commercialization. Our
ability to generate product revenues sufficient to achieve profitability will depend heavily on our development and
commercialization of products with significant market potential.
If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential
marketing approval 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
our ability to receive marketing approval or commercialize our product candidates, 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 development programs;
● the number of subjects required for clinical trials of our product candidates may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical
trials at a higher rate than we anticipate;
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● our third-party contractors may fail to comply with regulatory requirements or meet their obligations to us in a
timely manner, or at all;
● regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial 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 or
clinical trial protocols with prospective trial sites;
● we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical
research for various reasons, including noncompliance with regulatory requirements or a finding that the
participants 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 our
product candidates may be insufficient or inadequate.
From time to time, we may decide to conduct clinical trials to assess subjects’ clinical response to treatment and
choose not to power such trials to measure the applicable efficacy endpoints with statistical significance, as we did in our
Phase 2 clinical trials of our former product candidate OTX-TP for the treatment of open-angle glaucoma or ocular
hypertension. In addition, post-hoc analyses such as those that we performed on certain results of Phase 2 clinical trials of
OTX-TP may not be predictive of success in future clinical trials, including as a result of differences in trial design. Post-
hoc analyses performed using an unlocked clinical trial database can also result in the introduction of bias and are given
less weight by regulatory authorities than pre-specified analyses.
The FDA may also require that NDA submissions for our product candidates include pediatric data. We applied for a
deferral from the FDA for this requirement for DEXTENZA for the treatment of post-surgical ocular inflammation and
pain following cataract surgery until after approval of such product in adult populations. While the FDA ultimately
approved our request, if the FDA had required us to conduct pediatric studies in advance of FDA approval in adult
populations, we would have experienced significant delays in our ability to obtain marketing approval for DEXTENZA for
these indications. We will face a similar risk if we seek a comparable 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 we
currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if
the 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
not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will
be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during
which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products
to market before we do and impair our ability to successfully commercialize our product candidates.
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If we experience delays or difficulties in the enrollment of subjects in clinical trials, our receipt of necessary regulatory
approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates or other product candidates that
we might develop if we are unable to locate and enroll a sufficient number of eligible subjects to participate in these trials
as required by the FDA, the EMA or similar regulatory authorities outside the United 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 subject 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 any subjects, we closed this trial in
the second quarter of 2018. Additionally, we intended to initiate our ongoing Phase 1 clinical trial of OTX-TKI outside the
United States in 2018, but delays in enrollment prevented us from dosing subjects until the first quarter of 2019.
A variety of factors affect subject 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 subjects;
● actual or threatened public health emergencies or outbreaks of disease (including, for example, the COVID-19
pandemic);
● the conduct of clinical trials by competitors for product candidates that treat the same indications as our product
candidates; and
● the lack of adequate compensation for prospective subjects.
Delays can be more pronounced with later-stage clinical trials because they tend to be larger than early-stage trials.
For example, enrollment in our completed Phase 3 clinical trial of our former product candidate OTX-TP, the largest
clinical trial we have conducted to date, was significantly slower than expected. It had a target enrollment of 550 subjects
and was conducted at approximately 49 sites in the United States. Enrollment in our ongoing Phase 3 clinical trial to
evaluate DEXTENZA in pediatric subjects following cataract surgery, to fulfill FDA post-approval regulatory
requirements, is proceeding slowly due to the relative scarcity of pediatric cataract surgical subjects.
Our inability to enroll a sufficient number of subjects in any of our clinical trials would result in significant delays,
could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary
regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for our product
candidates, which could cause the value of our common stock to decline and limit our ability to obtain additional financing.
If serious adverse or unacceptable side effects are identified during the development of our product candidates or any
other product candidates that we may develop, we may need to abandon or limit our development of such product
candidates.
If any of our product candidates are associated with serious adverse events or undesirable side effects in clinical trials
or have characteristics that are unexpected, we may need to abandon their development or limit development to
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more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics
are less prevalent, less severe or more acceptable from a risk-benefit perspective.
Many compounds that initially showed promise in clinical or early-stage testing for treating ophthalmic disease have
later been found to cause side effects that prevented further development of the compound. In addition, adverse events
which had initially been considered unrelated to the study treatment may later be found to be caused by the study
treatment.
We may not be successful in our efforts to develop additional products and product candidates based on our
bioresorbable hydrogel technology platform or expand the use of our bioresorbable hydrogel technology for treating
additional diseases and conditions.
We are currently directing most of our development efforts towards applying our proprietary, bioresorbable hydrogel
technology platform to products and product candidates that are designed to provide local programmed-release hydrogel-
based therapeutic agents to the eye using active pharmaceutical ingredients that are currently used in FDA-approved
ophthalmic drugs. In addition to DEXTENZA and ReSure Sealant, we have a number of product candidates at various
stages of development based on our bioresorbable hydrogel technology platform and are exploring the potential use of our
platform for other ophthalmic diseases and conditions. These product candidates include intracanalicular inserts eluting
drug product to the ocular surface; hydrogel drug delivery implants designed to release therapeutic antibodies and small
molecules such as TKIs to modulate the biological activity of VEGF over a sustained period following administration by
an intravitreal injection for the treatment of diseases and conditions of the back of the eye, including wet AMD; and
hydrogel drug delivery implants designed to release drug product into the anterior chamber of the eye via an intracameral
injection for the treatment of diseases and conditions of the front of the eye.
Our product candidates and any other product candidates that we may develop based on our platform may not be
suitable for continued preclinical or clinical development, including as a result of being shown to have harmful side effects
or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve
market acceptance. If we do not successfully develop and commercialize products and product candidates that are based
on our platform, we will not be able to obtain substantial product revenues in future periods.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on
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 candidates
that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product
candidates or for other indications that later prove to have greater commercial potential. In addition, if we do not
accurately evaluate the commercial potential of a target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it
would have been more advantageous for us to retain sole development and commercialization rights to such product
candidate.
We are currently prioritizing the continued commercialization of DEXTENZA, the advancement through Phase 1
clinical development of OTX-TKI for the treatment of wet AMD, and the advancement through Phase 2 clinical
development of OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension and are assessing the further
development of OTX-CSI for the chronic treatment of dry eye disease and OTX-DED for the short-term treatment of the
signs and symptoms of dry eye disease. Although we believe our prioritization of resources is currently the best use of our
resources, we may not be correct.
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 United
States. We have often conducted our initial and earlier-stage clinical trials for our product candidates outside the United
States. We are currently conducting a Phase 1 clinical trial for our product candidate OTX-TKI for the treatment of wet
AMD in Australia. We generally plan to conduct our later stage and pivotal clinical trials of our product candidates in the
United States.
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Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is
subject to conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and
performed by qualified investigators in accordance with ethical principles. The trial population must also adequately
represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that
the FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDA
acceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws and
regulations. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely
result in the need for additional trials, which would be costly and time-consuming and would delay or permanently halt our
development of the applicable product candidates. Even if the FDA accepted such data, it could require us to modify our
planned clinical trials to receive clearance to initiate such trials in the United States or to continue such trials once initiated.
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 subjects to adhere to clinical protocols as a result of differences in healthcare services or
cultural customs;
● foreign exchange fluctuations;
● diminished protection of intellectual property in some countries; and
● political and economic risks relevant to foreign countries.
Risks Related to Commercialization
We depend heavily on the success of DEXTENZA and any product candidates for which we may obtain marketing
approval. If we fail to commercialize these products successfully, our ability to generate significant product revenues
and our business would be materially harmed.
The commercial success of DEXTENZA and any other product candidate for which we obtain marketing approval
will depend on many factors, including the following:
● successful completion of preclinical studies and clinical trials;
● applying for and receiving and maintaining marketing approvals from applicable regulatory authorities;
● scaling up our manufacturing processes and capabilities to support commercialization efforts;
● developing, validating and maintaining a commercially viable manufacturing process that is compliant with
current good manufacturing practices, or cGMP;
● developing our sales, marketing and distribution capabilities and launching commercial sales of our products, if
and when approved, whether alone or in collaboration with others;
● partnering successfully with our current and future collaborators;
● gaining acceptance of our products, if and when approved, by patients, the medical community and third-party
payors, competing effectively with other therapies, and obtaining and maintaining coverage and adequate
reimbursement from third-party payors;
● maintaining a continued acceptable safety profile of our products following approval;
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● 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 AffaMed and our prior collaboration with Regeneron, many of
these factors may be or were beyond our control, including clinical development and sales, marketing and distribution
efforts. If we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could
experience significant delays or an inability to successfully commercialize our products and product candidates, which
would materially harm our business.
Even though DEXTENZA and ReSure Sealant have received marketing approval from the FDA and even if any of our
product candidates receives marketing approval, any of these products may fail to achieve the degree of market
acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial
success, and the market 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 gain
market acceptance by physicians, patients, third-party payors and others in the medical community. We commercially
launched ReSure Sealant in the first quarter of 2014, DEXTENZA for the treatment of post-surgical ocular inflammation
and pain in July 2019, and are commercially launching DEXTENZA for the treatment of ocular itching associated with
allergic conjunctivitis in the first quarter of 2022, and we cannot yet accurately predict the extent to which these products
will gain market acceptance and become commercially successful, if at all. We previously commenced commercialization
in Europe of an earlier version of ReSure Sealant that was approved and marketed as an ocular bandage, but we were
unsuccessful and ceased commercialization efforts of the product. If our products do not achieve an adequate 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 obtain
marketing 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 of
alternative treatments;
● the clinical indications for which the product is approved;
● the convenience and ease of administration compared to alternative treatments, including the intracanalicular
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 these
therapies;
● 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 ReSure Sealant, the lack of
separate reimbursement when used as part of a cataract surgery procedure;
● 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 DEXTENZA
directly to currently approved alternative treatments for post-surgical ocular inflammation and pain following cataract
surgery or allergic conjunctivitis, it is possible that the market acceptance of DEXTENZA could be less than if we had
conducted such trials, and we may not be able to achieve the market share we anticipate.
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We also expect DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis to be priced at
a premium to certain treatment alternatives. As a result, we believe that certain payors will “step-edit” DEXTENZA for this
indication, meaning that patients will be asked to try lower priced therapeutics before the payor may be willing to
reimburse for the use of DEXTENZA.
Our assessment of the potential market opportunity for DEXTENZA, ReSure Sealant and our product candidates is
based on industry and market data that we obtained from industry publications and research, surveys and studies conducted
by third parties. Industry publications and third-party research, surveys and studies generally indicate that their
information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or
completeness of such information. While we believe these industry publications and third-party research, surveys and
studies are reliable, we have not independently verified such data. If the actual market for DEXTENZA, ReSure Sealant or
any of our product candidates is smaller than we expect, our product revenue may be limited and it may be more difficult
for us to achieve or maintain profitability.
If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, we may not be
successful 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 achieve
commercial success for DEXTENZA, ReSure Sealant, and any product candidate for which we obtain marketing approval,
we will need to establish and maintain adequate sales, marketing and distribution capabilities, either ourselves or through
collaborations or other arrangements with third parties. We have built our own highly targeted, key account sales force for
DEXTENZA that has focused primarily on ambulatory surgical centers, or ASCs, responsible for the largest volumes of
cataract surgery.
In connection with our commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic
conjunctivitis, we intend to launch a separate sales force focused on ophthalmologists’ offices. We believe that certain
other of our product candidates, if they are successfully developed and obtain marketing approval, would also be primarily
used in the office setting. We believe the office setting offers a unique set of potential challenges. If we are unsuccessful in
adapting our marketing efforts to include the office setting, our ability to commercialize DEXTENZA to its fullest potential
or any future product candidates used in the office setting would be adversely affected.
Because we have not historically evaluated whether to seek regulatory approval for any of our products or product
candidates outside of the United States, pending potential receipt of regulatory approval for the applicable product
candidate in the United States, at this time we cannot be certain when, if ever, we will recognize revenue from
commercialization of our products or product candidates in any international markets. If we decide to commercialize our
products outside of the United States, we expect to utilize a variety of types of collaboration, distribution and other
marketing arrangements with one or more third parties to commercialize any product of ours that receives marketing
approval. These may include independent distributors, pharmaceutical companies or our own direct sales organization.
For example, we intend to rely on AffaMed to commercialize DEXTENZA and OTX-TIC, if approved for marketing, in
specified jurisdictions in Asia in connection with our collaboration agreement with AffaMed.
There are risks involved with both establishing our own sales, marketing and distribution capabilities and with
entering into arrangements with third parties to perform these services. We may not be successful in entering into
arrangements with third parties to sell, market and distribute our products or may be unable to do so on terms that are most
beneficial to us. Such third parties may have interests that differ from ours. We likely will have little control over such
third parties, and any of them may fail to devote the necessary resources and attention to market, sell and distribute our
products effectively. Our product revenues and our profitability, if any, under third-party collaboration, distribution or
other marketing arrangements may also be lower than if we were to sell, market and distribute a product ourselves. On the
other hand, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If
the commercial launch of any product or product candidate for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these
commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our
sales and marketing personnel.
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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 lack of adequate number of physicians to use or
prescribe our products;
● the lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage 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 and maintain sales, marketing and distribution capabilities successfully, either on our own or in
collaboration with third parties, we will not be successful in commercializing DEXTENZA, ReSure Sealant or any of our
product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before
or more successfully than we do.
The development and commercialization of new drug and device products is highly competitive. We face
competition with respect to our products and product candidates, and will face competition with respect to any other
product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include
academic institutions, government agencies and other public and private research organizations that conduct research, seek
patent protection and establish collaborative arrangements for research, development, manufacturing and
commercialization.
Our products and product candidates target markets that are already served by a variety of competing products based
on a number of active 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 available on a generic basis, and our products and 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, insurers or other third-party payors, particularly Medicare, encourage the use of generic products. Given that we are
primarily developing products based on FDA-approved therapeutic agents, our products and product candidates, if
approved, will face competition from generic and branded versions of existing drugs based on the same active
pharmaceutical ingredients that are administered in a different manner, typically through eye drops or intravitreal
injections.
Because the active pharmaceutical ingredients in our products and product candidates are primarily 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 as these competitors do not infringe the patents that we
license or own. For example, our licensed patents related to our intracanalicular insert products and product candidates
largely relate to the hydrogel composition of the intracanalicular inserts and certain drug-release features of the inserts. As
such, if a third party were able to design around the formulation and process patents that we license or own and create a
different formulation using a different production process not covered by our licensed patents or patent applications, we
would likely be unable to prevent that third party from manufacturing and marketing its product.
Icon Biosciences, Inc. received FDA approval of DEXYCU in February 2018. DEXYCU is an injection of
dexamethasone into the anterior chamber of the eye to treat inflammation associated with cataract surgery. Other
companies have also advanced into Phase 3 clinical development biodegradable, programmed-release drug delivery
product candidates that could compete with our intracanalicular insert products and product candidates. ReSure Sealant is
the first and only surgical sealant approved as a device for ophthalmic use in the United States, but it competes with sutures
as an alternative method for closing ophthalmic wounds. Multiple companies are exploring in early-stage development
alternative means to deliver anti-VEGF and TKI products in an extended-delivery fashion to the back of the eye. There are
also multiple branded, generic and over-the-counter products, in the dry eye space, including Restasis®, for increasing tear
production, marketed by Allergan; Cequa™ for increasing tear production, marketed by
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Sun Ophthalmics in the United States; lifitegrast, for the treatment of the signs and symptoms of dry eye disease, marketed
by Novartis under the brand name Xiidra®; and off-label use of corticosteroids.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side effects, are more convenient, are less expensive than our
products or have better reimbursement. Our competitors also may obtain FDA or other regulatory approval for their
products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market.
Many of the companies against which we are competing or against which we may compete in the future have
significantly 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 and
acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated
among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies. These third parties
compete with us in recruiting and retaining qualified scientific, manufacturing, marketing, and management personnel,
establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval may become subject
to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives,
which could harm our business.
Our ability to commercialize DEXTENZA, ReSure Sealant or any product candidates that we may develop
successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and
related treatments will be available from government healthcare programs, private health insurers, managed care plans and
other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance
organizations, 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 to
control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party
payors are requiring that drug and device companies provide them with predetermined discounts from list prices and are
challenging 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 may
not be satisfactory.
Inadequate reimbursement may adversely affect the demand for, or the price of, DEXTENZA, ReSure Sealant or any
product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our
products may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and
reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not
available or reimbursement is available only to limited levels, we may not be able to successfully commercialize
DEXTENZA, 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,
and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory
authorities outside the United States. Moreover, eligibility for coverage and reimbursement does not imply that a drug will
be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and
distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our
costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical
setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated
into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required
by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of
drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon
Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly
obtain coverage and adequate reimbursement rates from both government-funded and private payors for any FDA-
approved products that we develop would compromise our ability to generate revenues and become profitable.
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The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug and device
products vary widely from country to country. Current and future legislation may significantly change the approval
requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require
approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after
marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains
subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing
approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of
the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of
the product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct
a clinical trial that compares the cost-effectiveness of our product or product candidate to other available
therapies. Adverse pricing limitations may hinder our ability to recoup our investment in one or more products or product
candidates, even if our product candidates obtain marketing approval.
DEXTENZA, ReSure Sealant or any product candidate for which we obtain marketing approval in the United States
or in other countries may not be considered medically reasonable and necessary for a specific indication, may not be
considered cost-effective by third-party payors, coverage and an adequate level of reimbursement may not be available,
and reimbursement policies of third-party payors may adversely affect our ability to sell our products and product
candidates profitably. ReSure Sealant is not separately reimbursed when used as part of a cataract surgery procedure,
which limits the degree of market acceptance of this product by surgeons. DEXTENZA is currently considered a post-
surgical product, in the same fashion as eye drops. However, if DEXTENZA were instead categorized as an intra-
operative product, it would not be subject to separate reimbursement in ASCs and hospital out-patient departments, or
HOPDs, which could likewise limit its market acceptance.
A specific and permanent J-Code for ophthalmic inserts containing dexamethasone including DEXTENZA is in
effect, and DEXTENZA currently benefits from transitional pass-through status. However, DEXTENZA is scheduled to
lose transitional pass-through status in July 2022. In November 2021, Centers for Medicare & Medicaid Services, or CMS,
in its annual rulemaking, indicated that DEXTENZA will be paid separately in the ASC and HOPD settings through 2022
despite its scheduled loss of pass-through status. CMS also indicated that DEXTENZA is eligible for separate payment in
the ASC setting beyond 2022 because it meets the criteria set forth for non-opioid pain management drugs as a surgical
supply provision. There can be no assurance that CMS will not change the criteria applicable to non-opioid pain
management drugs for 2023 or beyond. If DEXTENZA is no longer eligible for reimbursement separately from
ophthalmic surgery, due to the loss of pass-through status or otherwise, our net product revenues, which currently consist
primarily of DEXTENZA sales in reliance on separate reimbursement through pass-through status, would decline
significantly, and our ability to generate revenues from future sales of DEXTENZA to ASCs and HOPDs for the treatment
of post-surgical ocular inflammation and pain would be adversely affected.
In addition, CMS, during the same rulemaking cycle, made a final recommendation on the fixed reimbursement
amount for Category I Current Procedural Terminology, or CPT, code 68841, the procedure code for the insertion of
DEXTENZA, effective January 1, 2022. As this new fee schedule is lower than reimbursement many physicians received
under the prior Category III CPT code for DEXTENZA, physicians may have less incentive to use DEXTENZA and, as a
result, our ability to continue to commercialize DEXTENZA may decrease. Additionally, although CMS established these
reimbursement amounts for 2022, CMS will review such determination as part of its annual rulemaking cycle, and such
amount could be further reduced in the future. Physicians’ desire to use DEXTENZA could also be adversely impacted if
competitive products secure higher procedure payments for their use than DEXTENZA, negatively impacting our ability to
continue to commercialize DEXTENZA.
There are no assurances that we will be successful in maintaining reimbursement for DEXTENZA or of obtaining or
maintaining reimbursement for any products or product candidates for which we might receive marketing approval in the
future.
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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any
products that we develop.
We face an inherent risk of product liability exposure related to the use of our product candidates that we develop in
human clinical trials. We face an even greater risk for any products we develop and commercially sell, including
DEXTENZA and ReSure Sealant. If we cannot successfully defend ourselves against claims that our product candidates or
products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may
result 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 subjects;
● 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
limit of $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
liabilities that we may incur and we may need to increase our insurance coverage as we expand our clinical trials and our
sales of DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval. We may not be
able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Manufacturing
If our sole clinical and commercial manufacturing facility is damaged or destroyed or production at this facility is
otherwise interrupted, our business and prospects would be negatively affected.
If our single-site manufacturing facility or the equipment in it is damaged or destroyed, we may not be able to
quickly or inexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted
loss of this facility or equipment, we might not be able to transfer manufacturing to another facility or to a third
party. Even if we could transfer 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 and qualified. We would also need FDA approval before any products manufactured at that facility
could be used for commercial supply. In the case of any disruption in our manufacturing operations at this facility, we may
not have sufficient quantities of our product candidates to meet our clinical trial requirements or of our product inventory to
meet our commercial requirements. Such an event could delay our clinical trials or, particularly because we have sought to
adopt just-in-time manufacturing practices and maintain limited commercial product inventory with our distributors, reduce
our product sales.
Currently, we maintain insurance coverage against damage to our property and equipment in the amount of up to
$27.8 million and to cover business interruption and research and development restoration expenses in the amount of up to
$15.8 million. However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any
expenses or losses we may suffer. We may be unable to meet our requirements for DEXTENZA, ReSure Sealant, or any of
our product candidates if there were a catastrophic event or failure of our current manufacturing facility or processes.
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We will need to upgrade and expand our manufacturing facility or relocate to another facility and to augment our
manufacturing personnel and processes in order to meet our business plans. If we fail to do so, we may not have
sufficient quantities 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 and
development and commercial efforts at our single-site clinical and commercial manufacturing facility located in Bedford,
Massachusetts. In order to meet our business plan, which contemplates our scaling up manufacturing processes to support
the commercialization of our current products and the development and potential commercialization of our current and
future product candidates, we will need to upgrade and expand our existing manufacturing facility, or relocate to another
manufacturing facility; add manufacturing, quality and support personnel; ensure that new processes, systems, and
facilities are qualified and validated; and ensure that any new processes and systems are consistently implemented in our
facility or facilities. The upgrade and expansion of our facility, or the relocation to an additional facility, will require
additional regulatory approvals including FDA audits of such new processes, systems, and facilities. 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 unable to expand our manufacturing facility or relocate to another facility in compliance with
regulatory requirements or to hire additional 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 and meeting customer demand for our products, which could materially damage our business and
financial position. For example, we are not currently manufacturing ReSure Sealant in order to focus our manufacturing
resources on supporting the commercialization of DEXTENZA.
We must comply with federal, state and foreign regulations, including quality standards applicable to medical device
and pharmaceutical manufacturers, such as cGMP, which are enforced by the FDA through its facilities inspection program
and by similar regulatory authorities in other jurisdictions where we do business. These requirements include, among other
things, quality control, quality systems and the maintenance of records and documentation. For example, between March
2015 and May 2018, we received multiple Form 483s from the FDA containing inspectional observations relating to
inadequate procedures for documenting follow-up information pertinent to the investigation of complaints and for
evaluation of complaints for adverse event reporting; process controls, analytical testing and physical security procedures
related to manufacture of our drug product for stability and commercial production purposes; and procedures for
manufacturing processes and analytical testing related to the manufacture of drug product for commercial production. In
each of July 2016 and July 2017, we also received a Complete Response Letter, or CRL, from the FDA regarding our NDA
for DEXTENZA pertaining to, among other things, the deficiencies in manufacturing processes, controls, and analytical
testing identified during pre-NDA approval inspections of our manufacturing facility documented on Form 483s. We may
be subject to similar inspections and requirements in connection with subsequent applications for other product candidates
or DEXTENZA or in connection with periodic, routine inspections for products for which we have received marketing
authorization.
As our facility is an approved pharmaceutical and medical device commercial manufacturing location, we are subject
to routine inspections and system audits in connection with, among other things, our Safety, Identity, Strength, Purity, and
Quality, or SISPQ; our process controls; and our standard operating procedures. If we fail to respond or comply in a
satisfactory manner with any directives or observations that we may receive from the FDA as a result of inspections or
informational requests, the FDA may take regulatory or other actions that would adversely impact our ability to continue
manufacturing our commercial products and clinical or preclinical product candidates or to otherwise hinder or delay the
clinical development and commercialization of our products and product candidates. In January and February 2021, the
FDA requested information and records from us relating to our DEXTENZA commercial manufacturing operations and
quality systems pursuant to Form 4003 in advance or in lieu of a drug inspection. In early March 2021, the FDA provided
confirmation of receipt of the records that had been requested from us.
The FDA or similar foreign regulatory authorities at any time also may implement new standards, or change their
interpretation and enforcement of existing standards, for the manufacture, packaging or testing of our products. Any failure
to comply with applicable regulations may result in fines and civil penalties, suspension of production, product seizure or
recall, imposition of a consent decree, or withdrawal of product approval, and would limit the availability of DEXTENZA,
ReSure Sealant and our product candidates that we manufacture.
Any manufacturing defect, failure against SISPQ, or error discovered after products have been produced and
distributed could result in significant consequences, including costly recall procedures, re-stocking costs, damage to our
reputation and potential for product liability claims.
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We expect to continue to contract with third parties for at least some aspects of the production of our products and
product candidates. We also depend from time to time on single-source suppliers for certain materials used in the
manufacturing of our products and product candidates. This increases the risk that we will not have sufficient
quantities of our products or product candidates or such quantities 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
product candidates for commercialization and preclinical testing and clinical trials. While we expect that our existing
manufacturing facility, or additional facilities that we might be able to build, will be sufficient to meet our requirements for
manufacturing DEXTENZA, ReSure Sealant and any of our product candidates for which we obtain marketing approval,
we may in the future need to rely on third-party manufacturers for some aspects of the manufacture of our products or
product candidates.
We also depend on single-source suppliers for certain materials used in the manufacturing of our products and
product candidates, including our supply of PEG, the molecule that forms the basis of our hydrogels, and other raw
materials of DEXTENZA, ReSure Sealant and our product candidates and for sterilization of the finished product. We do
not have any long-term supply agreements in place for the clinical or commercial supply of any drug substances or raw
materials for DEXTENZA, ReSure Sealant or any of our product candidates. We purchase drug substance and raw
materials, including the chemical constituents for our hydrogel, from independent suppliers on a purchase order basis. We
cannot ensure that our suppliers will remain in business, have sufficient capacity or supply to meet our needs or that they
will not be purchased by one of our competitors or another company that is not interested in continuing to work with us.
Our use of single-source suppliers of raw materials and other components used in the manufacturing of our products and
product candidates could expose us to several risks, including disruptions in supply, price increases or late deliveries. Any
performance failure or refusal to supply drug substance or raw materials on the part of our existing or future suppliers
could delay clinical development, marketing approval or commercialization of our products. If our current suppliers do not
perform as we expect, we may be required to replace one or more of these suppliers. Establishing additional or replacement
suppliers could take a substantial amount of time, and it may be difficult to establish replacement suppliers who meet our
quality standards and applicable regulatory requirements. For example, we depend on a sole source supplier 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 of potential long-term
replacements to our suppliers, including our PEG supplier, we may incur added costs and delays in identifying 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;
● 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 or inconvenient
for us.
Third-party suppliers or manufacturers may not be able to comply with our specifications, quality assurance
standards, cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our
third parties, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds,
fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of
product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect supplies of our products and product candidates.
Our potential future dependence upon others for the manufacture of our products and product candidates may
adversely affect our future profit margins and our ability to commercialize any products that receive regulatory approval on
a timely and competitive basis.
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Risks Related to Our Dependence on Third Parties
We have entered into collaborations with third parties to develop certain product candidates, and in the future we may
enter into additional collaborations for the development or commercialization of our product candidates. We may also
enter into collaboration, distribution or marketing arrangements for the commercialization of DEXTENZA, ReSure
Sealant, or any product candidates for which we obtain marketing approval outside of the United States. If our
collaborations are not successful, we may not be able to capitalize on the market potential of these products or product
candidates.
We have in the past entered into collaboration agreements with third parties, including our collaborations with
AffaMed and with our former collaborator, Regeneron, and expect to utilize a variety of types of collaboration, distribution
and other marketing arrangements with third parties to commercialize DEXTENZA, ReSure Sealant, or any of our product
candidates for which we obtain marketing approval in markets outside the United States. We also may enter into
arrangements with third parties to perform these services in the United States if we do not establish our own sales,
marketing and distribution capabilities in the United States for such products or if we determine that such third-party
arrangements are otherwise beneficial. We also may seek additional third-party collaborators for development and
commercialization of product candidates. Our likely collaborators for any sales, marketing, distribution, development,
licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and
national pharmaceutical companies and biotechnology companies. Our ability to generate revenues from these
arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them
in these arrangements.
Our collaboration with AffaMed poses, and any future collaborations likely will pose, a number of risks including the
following:
● collaborators have significant discretion in determining the amount and timing of efforts and resources that they
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 candidates that
receive marketing approval or may elect not to continue or renew development or commercialization programs
based on results of clinical trials or other studies, changes in the collaborators’ strategic focus or available
funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
● collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical
trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a
product candidate for clinical testing;
● collaborators could independently develop, or develop with third parties, products that compete directly or
indirectly with our products or product candidates if the collaborators believe that competitive products are
more likely to be successfully developed or can be commercialized under terms that are more economically
attractive than ours;
● product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with
their own product candidates or products, which may cause collaborators to cease to devote resources to the
commercialization of our product candidates;
● a collaborator with marketing and distribution rights to one or more of our product candidates that achieve
regulatory approval may not commit sufficient resources to the marketing and distribution of such product or
products;
● disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the
preferred course of development, might cause delays or termination of the research, development or
commercialization of products or product candidates, might lead to additional responsibilities for us with
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respect to products or product candidates, or might result in litigation or arbitration, any of which would divert
management attention and resources, be time-consuming and expensive;
● collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or
proprietary information or expose us to potential litigation;
● collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and
potential liability; and
● collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be
required to raise additional capital to pursue further development or commercialization of the applicable
products or product candidates.
Collaboration agreements may not lead to the development or commercialization of products or product candidates
in the most efficient manner, or at all. If any collaborations that we enter into do not result in the successful development
and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any
future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we
expect under these agreements, our development of our products or product candidates could be delayed and we may need
additional resources to develop our products or product candidates. For example, our former collaborator Regeneron
terminated our collaboration in August 2021. As a result of the termination, we were relieved of obligations to reimburse
Regeneron for certain development costs, up to an aggregate amount of $30.0 million in certain circumstances, were
Regeneron to exercise its option but also ceased to be eligible to receive (i) reimbursement from Regeneron for ongoing
research and development activities, (ii) a fee upon exercise of its option, (iii) payments upon the achievement of specified
development and regulatory milestones of the products developed under the collaboration, or (iv) tiered, escalating
royalties on such products. All of the risks relating to product development, regulatory approval and commercialization
described in this periodic report also apply to the activities of our collaborators.
Additionally, if one of our collaborators terminates its agreement with us, we may find it more difficult to attract new
collaborators 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 commercialization
plans and our business could be adversely affected.
For some of our other product candidates, we may decide to collaborate with pharmaceutical, biotechnology and
medical device companies for the development and potential commercialization of those product candidates. We face
significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors
may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities
outside the United States, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to subjects, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without
regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider
alternative product candidates or technologies for similar indications that may be available to collaborate on and whether
such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted
under current or future license and collaboration agreements from entering into agreements on certain terms with potential
collaborators. Collaborations are complex and time-consuming to negotiate, document, and operate under. In addition,
there have been a significant number of recent business combinations among large pharmaceutical companies that have
resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we
may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our
other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities,
or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to
fund and undertake development or commercialization activities on our own, we will need to
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obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail
to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and
commercialization activities, we may not 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
not perform 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
for DEXTENZA for the treatment of post-surgical ocular inflammation and pain following cataract surgery. However, we
have relied on third parties, such as CROs, to conduct clinical trials of certain of our product candidates, including OTX-
TKI for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, and we
may continue to do so. If we deem necessary, we may engage additional third parties, such as CROs, clinical data
management organizations, medical institutions and clinical investigators, to conduct or assist in our clinical trials or other
clinical 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 does
not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is
conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to
comply with standards, commonly referred to as good clinical practices for conducting, recording and reporting the results
of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and
confidentiality of trial participants are protected. For example, in May 2020, we disclosed the receipt of interim data
regarding our ongoing Phase 1 clinical trial of OTX-TKI, in Australia, for the potential treatment of wet AMD and other
retinal diseases. In July 2020, however, we received further, and partially contradictory, information from the clinical trial
site where certain subjects were being treated. As the clinical trial site had not entered certain data concerning these
subjects into the clinical trial database in a timely manner, complete information was not available to or known by us at the
time of our prior disclosures. We are also required to register ongoing clinical trials and post the results of completed
clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can
result in fines, adverse publicity and civil and criminal sanctions. If we engage third parties and they do not successfully
carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory
requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for
our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our 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 patent
protection obtained may not be sufficiently broad, such that our competitors could develop and commercialize
technology and products similar or identical to ours, and our ability to successfully commercialize our technology and
products may be impaired.
Our success depends in large part on our and our licensor’s ability to obtain and maintain patent protection in the
United States and other countries with respect to our proprietary technology and products. We and our licensor have
sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel
technologies, products and product candidates. Some of our licensed patents that we believe are integral to our hydrogel
technology platform have terms that extend through at least 2024. However, other broader patents within our patent
portfolio have already expired. Given the amount of time required for the development, testing and regulatory review of
new product candidates, patents protecting our candidates might expire before or shortly after such candidates are
commercialized. As a result, our patent portfolio would be less effective in excluding others from commercializing
products similar or identical to ours. The patent prosecution process is expensive and time-consuming, and we may not
have filed or prosecuted and may not be able to file and prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent protection.
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In some circumstances, we do not have the right to control the preparation, filing and prosecution of patent
applications, or to enforce or maintain the patents, covering technology that we license from third parties. In particular, the
license agreement that we have entered into with Incept LLC, or Incept, an intellectual property holding company, which
covers a significant portion of the patent rights and the technology for DEXTENZA, ReSure Sealant and our product
candidates, provides that, with limited exceptions, Incept has sole control and responsibility for ongoing prosecution
for certain patents covered by the license agreement. In addition, although we have a right under the Incept license to
bring suit against third parties who infringe such licensed patents in our fields, other Incept licensees may also have the
right to enforce these patents in their own respective fields without our oversight or control. Those other licensees may
choose to enforce our licensed patents in a way that harms our interest, for example, by advocating for claim interpretations
or agreeing on invalidity positions that conflict with our positions or our interest. For example, three of our licensed
patents related to ReSure Sealant were 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 is challenged before the U.S. Patent and Trademark Office, or USPTO,
European Patent Office, or other patent office or tribunal. Instead, we would essentially rely on our licensor to defend such
challenges, and it may not do so in a way that would 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 or maintain 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, the
issuance, scope, validity, enforceability and commercial value of our patent rights, including our licensed patent rights, are
highly uncertain. Our and our licensor’s pending and future patent applications may not result in patents being issued
which protect our technology or products or which effectively prevent others from commercializing competitive
technologies and products. In addition, the laws of foreign countries may not protect our rights to the same extent as the
laws of the United States. For example, unlike patent law in the United States, European patent law precludes the
patentability of methods of treatment of the human body and imposes substantial restrictions on the scope of claims it will
grant if broader than specifically disclosed embodiments. We have only three issued patents outside of the United States
that cover all three intracanalicular insert products and product candidates. We have three licensed patent families in
Europe and certain other parts of the world for our intravitreal drug delivery product candidates, but only one patent
issuance to date outside of the United States. Patents might not be issued and we may never obtain any patent protection or
may only obtain substantially 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
in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at
all. Therefore, we cannot know with certainty whether we or our licensor were the first to make the inventions claimed in
our licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of
such inventions. Databases for patents and publications, and methods for searching them, are inherently limited so it is not
practical 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 patent
applications may not result in patents being issued which protect our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution
of any patent application, the issuance of any patents based on the application may depend upon our ability to generate
additional preclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate
sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the
patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent
protection.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent
applications 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
way patent applications are prosecuted and may also affect patent litigation. The USPTO developed new regulations and
procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated
with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. The first
to file provisions limit the rights of an inventor to patent an invention if not the first to file an application for patenting that
invention, even if such invention was the first invention. Accordingly, it is not clear what, if any, impact the Leahy-Smith
Act will have on the operation of our business. However, the Leahy-Smith Act and its
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implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents. For example, the Leahy-Smith Act provides an administrative tribunal
known as the Patent Trial and Appeals Board, or PTAB, that provides a venue for companies to challenge the validity of
competitor patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although
it is not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the initial
results of 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
challenging patents could therefore increase the likelihood that our own licensed patents will be challenged, thereby
increasing the uncertainties and costs of maintaining and enforcing them. Moreover, if such challenges occur, as indicated
above, we have no right to control the defense. Instead, we would essentially rely on our licensor to consider our
suggestions and to defend such 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 other
contested proceedings such as opposition, derivation, reexamination, inter partes review, post-grant review or interference
proceedings 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 our
technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or
commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection
provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to
license, 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 not
described 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 such
infringement is difficult to detect, prevent or prosecute. In addition, patents that cover methods of use for a medical device
cannot be enforced against the party that uses the device, but rather only against the party that makes them. Such indirect
enforcement is more difficult to achieve.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed
patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in
loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could
limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the
duration of the patent protection of our technology and products. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly
after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to
exclude others from commercializing products similar or identical to ours.
Because the active pharmaceutical ingredients in our products and product candidates are primarily 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 as these competitors do not infringe our patents or any
patents that we license. These patents largely relate to the hydrogel composition of our intracanalicular inserts and the
drug-release design scheme of our inserts. As such, if a third party were able to design around the formulation and process
patents that we license and create a different formulation using a different production process not covered by our patents or
patent applications, we would 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 foreign
countries under similar legislation, thereby potentially extending the term of our marketing exclusivity for our product
and product candidates, our business may be impaired.
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one of the
U.S. patents covering each of such product candidates or the use thereof may be eligible for up to five years of patent term
restoration 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 upon regulatory approval
of our product candidates. Nevertheless, we may not be granted patent term extension either in the United States or in any
foreign country because of, for example, failing to apply within applicable deadlines, failing to
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apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of
extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority
could be less than we request.
Further, our license from Incept does not provide us with the right to control decisions by Incept or its other licensees
on Orange Book listings or patent term extension decisions under the Hatch-Waxman Act. Thus, if one of our important
licensed patents is eligible for a patent term extension under the Hatch-Waxman Act, and it covers a product of another
Incept licensee in addition to our own product candidate, we may not be able to obtain that extension if the other licensee
seeks 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, the period during which we will have the right to exclusively market our product may be shortened and our
competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be
reduced, possibly materially.
We may become involved in lawsuits to protect or enforce our licensed patents or other intellectual property, which
could be expensive, time-consuming and unsuccessful.
Competitors may infringe our licensed patents or other intellectual property. As a result, to counter infringement or
unauthorized use, we may file infringement claims, which can be expensive and time-consuming. Under the terms of our
license agreement with Incept, we have the right to initiate suit against third parties who we believe infringe on the patents
subject to the license. Any claims we assert against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court
may decide that a patent we have rights to is invalid or unenforceable, in whole or in part, construe the patent’s claims
narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of
being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the
outcome of 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 product
candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is
considerable intellectual property litigation in the biotechnology, medical device, and pharmaceutical industries. We may
become party to, or threatened with, infringement litigation claims regarding our products and technology, including claims
from competitors or from non-practicing entities that have no relevant product revenue and against whom our own patent
portfolio may have no deterrent effect. Moreover, we may become party to future adversarial proceedings or litigation
regarding our patent portfolio or the patents of third parties. Such proceedings could also include contested post-grant
proceedings such as oppositions, inter partes review, reexamination, interference or derivation proceedings before the
USPTO or foreign patent offices. The legal threshold for initiating litigation or contested proceedings is low, so that even
lawsuits or proceedings with a low probability of success might be initiated and require significant resources to
defend. Litigation and contested proceedings can also be expensive and time-consuming, and our adversaries in these
proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or
our licensor can. The risks of being involved in such litigation and proceedings may increase as our products or product
candidates near commercialization and as we gain the greater visibility associated with being a public company. Third
parties may assert infringement claims against us based on existing patents or patents that may acquire or be granted in the
future. We may not be aware of all such intellectual property rights potentially relating to our products or product
candidates and their uses, or we may incorrectly determine that a patent is invalid or does not cover a particular product or
product candidate. Thus, we do not know with certainty that DEXTENZA, ReSure Sealant or any of our product
candidates, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s
intellectual property.
We have been made aware by a third party of patents relating to intracanalicular inserts that may relate to, and
potentially could be asserted against, our intracanalicular insert product and product candidates, including DEXTENZA.
We believe that DEXTENZA does not infringe any claims of these patents. We also believe that such claims, if and to
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the extent they were asserted against our product candidates, would be subject to claims of invalidity. We initiated legal
proceedings against one of these patents and administrative proceedings against the other two patents in order to show that
DEXTENZA does not infringe the claims of these patents or that these patents are invalid. Legal proceedings related to
one of these patents has been dismissed by agreement of the parties without prejudice. The USPTO decided to proceed
with the administrative proceeding related to one of the patents while declining to do so for the other after determining that
we had not established a reasonable likelihood that we would prevail in establishing the unpatentability of certain claims.
In June 2020, for the patent for which the USPTO decided to proceed with administrative proceedings, the PTAB, after an
inter partes review, determined that we had proven by a preponderance of the evidence that all claims of the patent at issue
held by such third party were invalid. The third party appealed this decision, and in November 2021, the United States
Court of Appeals for the Federal Circuit affirmed the holding of the PTAB. The period during which such third party may
appeal the decision of the Court of Appeals has lapsed. We continue to believe that DEXTENZA does not infringe the
claims of these patents and that, if and to the extent it were asserted against DEXTENZA, such patent would be subject to a
claim of invalidity. We have become aware that the USPTO has recently issued a patent filed by this third party related to
intracanalicular inserts containing dexamethasone. If this patent were asserted against DEXTENZA or other of our product
candidates, we believe such patent would be non-infringed and subject to a claim of invalidity.
If we are found to infringe a third party’s intellectual property rights, such as the patents referred to in the preceding
paragraph, we could be required to obtain a royalty-bearing license from such third party to continue developing and
marketing our products and technology. However, we may not be able to obtain any 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 by court order, to cease
commercializing the infringing technology or product including our intracanalicular insert product and product candidates.
In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found
to have willfully infringed a patent and could be forced to indemnify our customers or collaborators. A finding of
infringement could also result in an injunction that prevents us from commercializing our products or product candidates or
forces us to cease some of our business operations. In addition, we may be forced to redesign our products or product
candidates, seek new regulatory approvals thereby causing delays, and indemnify third parties pursuant to contractual
agreements. Claims that we have misappropriated the confidential information 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 a significant portion of our patent rights and the
technology for DEXTENZA, ReSure Sealant and our product candidates, imposes royalty and other financial obligations
and other substantial performance obligations on us. We also may enter into additional licensing and funding arrangements
with third 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 and
collaboration agreements, our counterparties may have the right to terminate these agreements, in which event we might
not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties
under the agreements. Such an occurrence could diminish the value of our product. Termination of these agreements or
reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated
agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to
important intellectual property or technology.
Under the terms of our license agreement with Incept, we have agreed to assign to Incept our rights in certain patent
applications filed at any time in any country for which one or more inventors are under an obligation of assignment to
us. These assigned patent applications and any resulting patents are included within the specified patents owned or
controlled by Incept to which we receive a license under the agreement. Incept has retained rights to practice the patents
and technology 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 or
prophylactic 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 significant
portion of our rights to important intellectual property or technology upon which our business depends. Additionally, the
field limit of the license and the requirement that we assign to Incept our rights in certain patent applications may restrict
our ability to use certain of our licensed rights to expand our business outside of
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the specified fields. If we determine to pursue a strategy of expanding the use of the hydrogel technology outside of the
specified fields, we would need to negotiate and enter into an amendment to our existing license agreement with Incept or a
new license agreement with Incept covering one or more additional such fields of use or utilize technologies that do not
infringe on such licensed rights. We may not be able to obtain any such required amendment or new license or to invent or
otherwise access other technology on commercially reasonable terms or at all.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual
property, 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 or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our
employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims
that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary
information, 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
of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and
their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against
third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual
property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such
claims, litigation could 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
normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause
us to incur significant expenses and could distract our technical and management personnel from their normal
responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a
substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our
operating losses and reduce the resources available for development activities or any future sales, marketing or distribution
activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings
adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively
than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of
patent litigation 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. We
seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who
have 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
assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the
agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain
adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is
difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the
United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained
or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate
it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or
independently developed by a competitor, our competitive position would be harmed.
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Risks 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 our product candidates. If we or any current or future collaborator of ours is not able to obtain, or if there are delays
in obtaining, required regulatory approvals, we or they will not be able to commercialize our product candidates, and
our ability 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 authorities in the United
States and by the EMA and similar regulatory authorities outside the United States. Failure to obtain marketing approval
for a product candidate will prevent us from commercializing the product candidate. We have only received approval to
market DEXTENZA and ReSure Sealant in the United States, and have not received approval to market any of our product
candidates or to market DEXTENZA or ReSure Sealant in any jurisdiction outside the United States. Further, we have only
received approval to market DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery
and ocular itching associated with allergic conjunctivitis and have not received approval to market DEXTENZA for any
other indications. We may determine to seek a CE Certificate of Conformity, which demonstrates compliance with relevant
requirements and provides approval to commercialize ReSure Sealant in the European Union. If we are unable to obtain a
CE Certificate of Conformity for DEXTENZA, ReSure Sealant, or any of our product candidates for which we seek
European regulatory approval, we will be prohibited from commercializing such product 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 many
years, especially if additional clinical trials are required, if approval is obtained at all. Securing marketing approval
requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for
each therapeutic indication to establish the product candidate’s safety and purity. Securing marketing approval also
requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities. The FDA, the EMA or other regulatory authorities may determine that our product
candidates are not safe or effective, are only moderately effective or have undesirable or unintended side effects, toxicities
or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use.
As part of its review of the NDA for DEXTENZA for post-surgical ocular pain, the FDA completed inspections of
three sites from our two completed Phase 3 clinical trials for compliance with the study protocol and Good Clinical
Practices. During the first of these inspections, the FDA identified storage temperature excursions for the investigational
product that is labeled to be stored in a refrigerated condition between two degrees and eight degrees Celsius. We also had
previously addressed a minor temperature deviation report during the conduct of the Phase 3 trials and communicated a
response to the trial sites. In addition, while investigating the report stemming from the FDA inspection, several more
noteworthy temperature excursions were found to have occurred that had not been fully reported.
The FDA also completed two inspections of our manufacturing facility in connection with our NDA for
DEXTENZA for the treatment of post-surgical ocular pain. After each inspection, we received a Form 483 from the FDA
pertaining to deficiencies in our manufacturing processes identified during such inspection. After we responded to the
issues which had been identified with corrective action plans, we subsequently received CRLs from the FDA. We may be
subject to similar inspections in the future for DEXTENZA or for other product candidates for which we seek FDA
approval. For example, in February 2021, the FDA requested information and records from us relating to our DEXTENZA
commercial manufacturing operations and quality systems pursuant to Form 4003 in advance or in lieu of a drug
inspection. If we are unable to address any identified issues successfully or if the FDA determines that the actions we take
to remediate any identified issues to be inadequate, our ability to commercialize any products could be limited, which
could adversely affect our ability to achieve or sustain profitability.
Changes in marketing approval policies during the development period, changes in or the enactment of additional
statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the
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approval or rejection of an application. The FDA, the EMA and regulatory authorities in other countries have substantial
discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for
approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data
obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any
marketing approval 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.
Finally, disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed
and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last
several years, the U.S. government has shut down several times and certain regulatory authorities, such as the FDA, have
had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could
significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a
material adverse effect on our business.
Accordingly, if we or any current or future collaborator of ours experiences delays in obtaining approval or if we or
they fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed
and our ability to generate revenues will be materially impaired.
Even if we, or any current or future collaborators, obtain marketing approvals for our product candidates, the terms of
approvals, ongoing regulations and post-marketing restrictions for our products may limit how we manufacture and
market 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 to
ongoing review and extensive regulation. We, and any current or future collaborators, must therefore comply with
requirements concerning advertising and promotion for any of our products for which we or our collaborators obtain
marketing approval. Promotional communications with respect to drug products, biologics, and medical devices are
subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s
approved labeling. Thus, if any of our product candidates receives marketing approval, the accompanying label may limit
the 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 premarket approval application for
ReSure Sealant. The first post-approval study, identified as the Clinical PAS, was to enroll at least 598 subjects to confirm
that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of
the most prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSure
Sealant. We submitted the final study report of the Clinical PAS to the FDA in June 2016. The second post-approval
study, identified as the Device Exposure Registry, or DER, Study, was intended to link to the Medicare database to
ascertain if subjects are diagnosed or treated for endophthalmitis within 30 days following cataract surgery and application
of ReSure Sealant. The originally approved DER Study was required to include at least 4,857 subjects. Due to difficulties
in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we
were unable to enroll trial sites and subjects, collect subject data and report study data to the FDA. On October 18, 2018,
we received a warning letter from the FDA, dated October 17, 2018, relating to our compliance with data collection and
information reporting obligations in this study. A teleconference was held with the FDA in January 2019 resulting in
tentative agreement on a proposed retrospective registry study of endophthalmitis rates to satisfy the DER Study
requirements. In December 2019, we submitted the protocol for the agreed-upon retrospective study and the prospective
study outline, as required per the terms of the warning letter. In May 2020, the FDA approved the protocol. We completed
the retrospective study in accordance with our agreement with the FDA and submitted the final study report for the DER
Study to the FDA in January 2021. In April 2021, the FDA confirmed that the DER Study had been completed and that we
had fulfilled our post-approval study requirements.
The FDA is also requiring us to conduct clinical trials of DEXTENZA for the treatment of post-surgical ocular
inflammation and pain and for the treatment of ocular itching associated with allergic conjunctivitis in pediatric
populations. These are post-approval requirements in accordance with the Pediatric Research Equity Act of 2003.
In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with
extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs
applicable 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
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maintenance of records and documentation and reporting requirements. We, any contract manufacturers we may engage in
the future, our current 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 or clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to
implement a risk evaluation and mitigation strategy.
Accordingly, in connection with our currently approved products and assuming we, or any current or future
collaborators, receive marketing approval for one or more of our product candidates, we, and any current or future
collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of
regulatory compliance, including manufacturing, production, product surveillance and quality control. If we, and any
current or future collaborators, are not able to comply with post-approval regulatory requirements, we, and any current or
future collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or
any current or future collaborators’, ability to market any products could be limited, 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 experience
unanticipated problems with our products.
Any product candidate for which we obtain marketing approval will be subject to continual requirements of and
review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-
marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control and
manufacturing, quality assurance and corresponding maintenance of records and documents, and requirements regarding
the distribution of samples to physicians and recordkeeping. In addition, the approval may be subject to limitations on the
indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the medicine, including the requirement to
implement a risk evaluation and mitigation strategy. Accordingly, if we receive marketing approval for one or more of our
product candidates, we will continue to expend time, money and effort in all areas of regulatory compliance, including
manufacturing, production, product surveillance and quality control. If we fail to comply with these requirements, we could
have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any products
could be limited, which could adversely affect our ability to achieve or sustain profitability.
We must also comply with requirements concerning advertising and promotion for any of our product candidates for
which we obtain marketing approval. Promotional communications with respect to prescription products are subject to a
variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling.
Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. The
FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval
marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and
in accordance with the provisions of the approved labeling. In September 2021, the FDA published final regulations which
describe the types of evidence that the agency will consider in determining the intended use of a drug or biologic.
Violations of the Federal Food, Drug, and Cosmetic Act, or the FDCA Act, and other statutes, including the False Claims
Act, relating to the promotion and advertising of prescription products may lead to investigations and enforcement actions
alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws. 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;
● restrictions on product distribution or use of a product;
● requirements to conduct post-marketing studies or clinical trials;
● warning letters or untitled letters;
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● 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.
Similar restrictions apply to the approval of our products in the European Union. The holder of the marketing
authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion
and sale of medicinal products.
Our relationships with healthcare providers, physicians and third-party payors will be subject, directly or indirectly, to
applicable 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
and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and
prescription and use of DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing
approval. Our future arrangements with healthcare providers, physicians and third-party payors may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing
approval. 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 willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or
arranging of, any good or service, for which payment may be made under a federal healthcare program such as
Medicare and Medicaid;
● the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui
tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be
presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or
record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to
the federal government, with potential liability including mandatory treble damages and significant per-claim
penalties;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil
liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to
healthcare matters;
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● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its
implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to
safeguarding the privacy, security and transmission of individually identifiable health information;
● the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report
payments and other transfers of value to physicians and teaching hospitals; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and
transparency statutes, may apply to sales 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
compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require
product manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health
information in some circumstances, many of which differ from each other in significant ways and often are not preempted
by HIPAA, thus complicating compliance efforts.
If our operations or the operations of our present and future collaborators are found to be in violation of any of the
laws described above or any governmental regulations that apply to us or them, we or they may be subject to penalties,
including civil 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
developing and implementing a corporate compliance program designed to ensure that we will market and sell any future
products that we successfully develop from our product candidates in compliance with all applicable laws and regulations,
but we cannot guarantee that this program will protect us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and
we are not successful 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 will
involve substantial costs. For example, we are engaged in an ongoing effort to improve our healthcare compliance program
and establish a more robust compliance infrastructure. We may fail to establish appropriate compliance measures, and even
with a stronger program in place, it is possible that governmental authorities will conclude that our business practices may
not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare
laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental
regulations 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 with
whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal,
civil or 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 other jurisdictions. The provision of
benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States and
the U.K. Bribery Act 2010. Payments made to physicians in certain European Union Member States must be publicly
disclosed and often must be the subject of prior notification and approval by the physician’s employer, his or her competent
professional organization and/or the regulatory authorities of the individual European Union Member States. Failure to
comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or
imprisonment.
Current and future legislation or executive actions may increase the difficulty and cost for us and any current or future
collaborators to obtain marketing approval of and commercialize our products or product candidates and affect the
prices we, or they, may obtain.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and
proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval
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of our drug candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any future
collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval. We expect that current laws, as
well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria
and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved drugs.
If reimbursement of our products is unavailable or limited in scope, our business could be materially harmed.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Affordability Reconciliation Act, or collectively, the ACA. In addition, other legislative
changes have been proposed and adopted since the ACA was enacted. 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 $1.2 trillion for the years 2013 through 2021,
was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,
which went into effect in April 2013 and will remain in effect through 2031 under the CARES Act. Pursuant to subsequent
legislation, however, these Medicare sequester reductions have been suspended through the end of March 2022. From April
2022 through June 2022 a 1% sequester cut is scheduled to go into effect, with the full 2% cut scheduled to resume
thereafter. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several
providers and increased the statute of limitations period for the government to recover overpayments to providers from
three to five years. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise
affect the prices we may obtain for any of our products or product candidates for which we may obtain regulatory approval
or the frequency with which any such product is prescribed or used.
Since enactment of the ACA, there have been and continue to be, numerous legal challenges and Congressional
actions to repeal and replace provisions of the law. For example, with enactment of the 2017 Tax Act, Congress repealed
the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health
insurance, became effective in 2019. Further, on December 14, 2018, a U.S. District Court judge in the Northern District
of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA and
therefore because the mandate was repealed as part of the 2017 Tax Act, the remaining provisions of the ACA are invalid
as well. The U.S. Supreme Court heard this case on November 10, 2020 and on June 17, 2021, dismissed this action after
finding that the plaintiffs did not have standing to challenge the constitutionality of the ACA. Litigation and legislation
over the ACA are likely to continue, with unpredictable and uncertain results.
The Trump Administration also took executive actions to undermine or delay implementation of the ACA, including
directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from or
delay 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. On January 28,
2021, however, President Biden revoked those Executive Orders and issued a new Executive Order which directs federal
agencies to reconsider rules and other policies that limit Americans’ access to health care and consider actions that will
protect and strengthen that access. Under this Executive Order, federal agencies are directed to re-examine: policies that
undermine protections for people with pre-existing conditions, including complications related to COVID-19;
demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including
work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance;
policies that make it more difficult to enroll in Medicaid and the ACA; and policies that reduce affordability of coverage or
financial assistance, including for dependents.
We 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
payment methodologies and additional downward pressure on the price that we receive for any approved product and/or
the level of reimbursement physicians receive for administering any approved product we might bring to market.
Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products
are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result
in a similar reduction in payments from private payors. Accordingly, such reforms, if enacted, could have an adverse effect
on anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing
approval and may affect our overall financial condition and ability to develop or commercialize product candidates.
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The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable
legislative and executive actions and could impact the prices we obtain for our products, if and when licensed.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States.
There have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation
designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between
pricing and manufacturer patient programs, reduce the costs of pharmaceuticals under Medicare and Medicaid, and reform
government program reimbursement methodologies for products. In 2020, President Trump issued several Executive
Orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated
into regulations. These regulations include an interim final rule implementing a most-favored-nation model for prices that
would tie Medicare Part B payments for certain physician-administered pharmaceuticals to the lowest price paid in other
economically advanced countries, effective January 1, 2021. That rule, however, has been subject to a nationwide
preliminary injunction and, on December 29, 2021, CMS issued a final rule to rescind it. With issuance of this rule, CMS
stated that it will explore all options to incorporate value into payments for Medicare Part B pharmaceuticals and improve
beneficiaries' access to evidence-based care.
In addition, in October 2020, the Department of Health and Human Services, or HHS, and the FDA published a final
rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription
drugs from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states
(Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of
drugs from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20,
2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers
to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required
by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1,
2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-
sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and
manufacturers, the implementation of which have also been delayed by the Biden administration until January 1, 2023.
On July 9, 2021, President Biden signed Executive Order 14063, which focuses on, among other things, the price of
pharmaceuticals. The Executive Order directed the HHS to create a plan to combat “excessive pricing of prescription
pharmaceuticals and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government
for such pharmaceuticals, and to address the recurrent problem of price gouging.” On September 9, 2021, HHS released its
plan to reduce pharmaceutical prices. The key features of that plan are to: (a) make pharmaceutical prices more affordable
and equitable for all consumers and throughout the health care system by supporting pharmaceutical price negotiations
with manufacturers; (b) improve and promote competition throughout the prescription pharmaceutical industry by
supporting market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase
transparency; and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and
private research and making sure that market incentives promote discovery of valuable and accessible new treatments.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations
designed 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 healthcare
organizations and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical
products and which suppliers will be included in their prescription drug and other healthcare programs. These measures
could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that
additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, which could result in reduced demand for
our product candidates or additional pricing pressures.
In countries outside of the United States, reimbursement and healthcare payment systems vary significantly by
country and many countries have instituted price ceilings on specific products and therapies. In many countries, including
those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In
these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing
approval for a product. To obtain reimbursement or pricing approval in some countries, we or our
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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 scope or amount or if pricing is set at
unsatisfactory levels, our business could be materially harmed.
Reporting and payment obligations under the Medicaid Drug Rebate Program and other governmental drug pricing
programs are complex and may involve subjective decisions. Any failure to comply with those obligations could subject
us to penalties and sanctions.
As a condition of reimbursement by various federal and state health insurance programs, pharmaceutical companies
are required to calculate and report certain pricing information to federal and state agencies. The regulations governing the
calculations, price reporting and payment obligations are complex and subject to interpretation by various government and
regulatory authorities, as well as the courts. Reasonable assumptions have been made where there is lack of regulations or
clear guidance and such assumptions involve subjective decisions and estimates. Pharmaceutical companies are required to
report any revisions to calculations, price reporting and payment obligations previously reported or paid. Such revisions
could affect liability to federal and state payers and also adversely impact reported financial results of operations in the
period of such restatement.
Uncertainty exists as new laws, regulations, judicial decisions, or new interpretations of existing laws, or regulations
related to our calculations, price reporting or payments obligations increases the chances of a legal challenge, restatement
or investigation. If a company becomes subject to investigations, restatements, or other inquiries concerning compliance
with price reporting laws and regulations, it could be required to pay or be subject to additional reimbursements, penalties,
sanctions or fines, which could have a material adverse effect on the business, financial condition and results of operations.
In addition, it is possible that future healthcare reform measures could be adopted, which could result in increased pressure
on pricing and reimbursement of products and thus have an adverse impact on financial position or business operations.
Further, state Medicaid programs may be slow to invoice pharmaceutical companies for calculated rebates resulting
in a lag between the time a sale is recorded and the time the rebate is paid. This results in a company having to carry a
liability on its consolidated balance sheets for the estimate of rebate claims expected for Medicaid patients. If actual claims
are higher than current estimates, the company’s financial position and results of operations could be adversely affected.
In addition to retroactive rebates and the potential for 340B Program refunds, if a pharmaceutical firm is found to
have knowingly submitted any false price information related to the Medicaid Drug Rebate Program to CMS, it may be
liable for civil monetary penalties. Such failure could also be grounds for CMS to terminate the Medicaid drug rebate
agreement, pursuant to which companies participate in the Medicaid program. In the event that CMS terminates a rebate
agreement, federal payments may not be available under government programs, including Medicaid or Medicare Part B,
for covered outpatient drugs.
Additionally, if a pharmaceutical company overcharges the government in connection with the Federal Supply
Schedules program or Tricare Retail Pharmacy Program, whether due to a misstated Federal Ceiling Price or otherwise, it
is required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract
overcharges can result in allegations against a company under the False Claims Act and other laws and regulations.
Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be
expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of
operations and growth prospects.
Our collaborators are also subject to similar requirements outside of the United States and thus the attendant risks
and uncertainties. If our collaborators suffer material and adverse effects from such risks and uncertainties, our rights and
benefits for our licensed products could be negatively impacted, which could have a material and adverse impact on our
revenues.
Failure to obtain marketing approval in foreign jurisdictions would prevent our products or product candidates from
being marketed abroad.
In order to market and sell DEXTENZA, ReSure Sealant or our product candidates in the European Union and many
other jurisdictions, including certain jurisdictions covered by our AffaMed collaboration, we or our third-party
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collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory
requirements. The approval procedure varies among countries and can involve additional testing. The time required to
obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process
outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many
countries outside the United States, it is required that the product be approved for reimbursement before the product can be
sold in that country. We or our collaborators may not obtain approvals from regulatory authorities outside the United States
on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or
jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory
authorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approval
in one country may have a negative effect on the regulatory approval process in other countries. We may not be able to file
for marketing approvals and may not receive necessary approvals to commercialize our products in any market.
Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a
result of the recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit. Any
delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, may force us to
restrict or delay efforts to commercialize any product candidates in the United Kingdom and restrict our ability to generate
revenue and achieve and sustain profitability, which could significantly and materially harm our business.
We expect that we will also be subject to additional risks in commercializing any of our product candidates that
receive marketing approval outside the United States, including tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign currency fluctuations,
which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in
another country; and workforce uncertainty in countries where labor unrest is more common than in the United States.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or
inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us
to significant fines and penalties, which may have a material adverse effect on our business, financial condition or
results of operations.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information
worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Globally, virtually every
jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply.
For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the
European Union, including personal health data, is subject to the EU General Data Protection Regulation, or the GDPR,
which took effect across all member states of the European Economic Area, or EEA, in May 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 whom the personal data
relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the
security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when
engaging third-party processors. The GDPR increases our obligations with respect to clinical trials conducted in the EEA
by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and
more detailed notices for clinical trial subjects and investigators. In addition, the GDPR also imposes strict rules on the
transfer of personal data to countries outside the European Union, including the United States and, as a result, increases the
scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries
that are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data
protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial
fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is
greater, and it also confers a private right of action on data subjects and consumer associations to lodge complaints with
supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the
GDPR. In addition, the GDPR provides that European Union member states may make their own further laws and
regulations limiting the processing of personal data, including genetic, biometric or health data. Similar laws and
regulations have been approved, or are expected to be approved, in several jurisdictions beyond the European Union
including the U.K. Data Protection Act 2018.
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Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws
that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can
review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade
Commission and state Attorneys General are aggressive in reviewing privacy and data security protections for consumers.
New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act,
or CCPA—which went into effect on January 1, 2020—is creating similar risks and obligations as those created by GDPR,
though the CCPA does currently exempt certain information collected as part of a clinical trial subject to the Federal Policy
for the Protection of Human Subjects, known as the Common Rule. The CCPA also has been amended through a recent
referendum in California that creates additional obligations beginning in 2023. At least two other states have adopted, and
many other states are considering, similar legislation. A broad range of legislative measures also have been introduced at
the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future
legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws.
There also is the threat of consumer class actions related to these laws and the overall protection of personal data. Even if
we are not determined to have violated these laws, government investigations into these issues typically require the
expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.
Given the breadth and depth of changes in data protection obligations, preparing for and complying with these
requirements is rigorous and time intensive and requires significant resources and a review of our technologies, systems
and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or
transfer personal data collected in applicable jurisdictions. These changes in laws or regulations associated with the
enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our
clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may
interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business,
and could lead to government enforcement actions, private litigation and significant fines and penalties against us and
could have a material adverse effect on our business, financial condition or results of operations.
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 costly compliance programs.
As we expand our operations outside of the United States, such as we have begun to do with our collaboration with
AffaMed, we must dedicate additional resources to comply with numerous 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 of the foreign entity in order to assist the
individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in
the United States to comply with certain accounting provisions requiring the company to maintain books and records that
accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and
maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized
problem. 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. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper
payments to government officials and have led to FCPA enforcement actions.
If we expand our presence outside of the United States, it will require us 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 growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and
criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission
also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting
provisions.
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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 qualified
personnel.
We remain highly dependent on the research and development, clinical and business development expertise of our
principal members of our management, scientific and clinical team, including Antony Mattessich, our President and Chief
Executive Officer. Although we have entered into employment agreements with our executive officers, each of them may
terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or
other employees.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is critical to
our success. The loss of the services of our executive officers or other key employees could impede the achievement of our
research, development and commercialization objectives and seriously harm our ability to successfully implement our
business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended
period of time because of the limited number of individuals in our industry with the breadth of skills and experience
required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this
limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms
given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also
experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our
research and development and commercialization strategy. Our consultants and advisors may be employed by employers
other than us and may have commitments under consulting or advisory contracts with other entities that may limit their
availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth
strategy will be limited.
Risks Related to Our Common Stock
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 or
remove our current management.
Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition
or other change in control of our company that stockholders may consider favorable, including transactions in which our
stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors
might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common
stock. In addition, because our board of directors is responsible for appointing the members of our management team,
these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management
by making 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 each year;
● 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;
● provide for advance notice requirements for stockholder proposals that can be acted on at stockholder meetings
and nominations to our board of directors;
● require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by
our stockholders by written consent;
● limit who may call stockholder meetings;
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● authorize our board of directors to issue preferred stock without stockholder approval, which could be used to
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 entitled to 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
Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock
from merging or combining with us for a period of three years after the date of the transaction in which the person acquired
in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
We have been subject to legal proceedings related to the decline in our stock price, and we could be subject to similar
legal proceedings in the future, which could distract our management and could result in substantial costs or large
judgments against us.
The market prices of securities of companies in the biotechnology and pharmaceutical industry have been extremely
volatile and have experienced 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 litigation has often been brought against companies following periods of volatility in the market prices of their
securities.
In July 2017, we experienced a decline in our stock price following our announcement that we had received notice of
the FDA’s determination that it could not approve our NDA for DEXTENZA in its then present form. In 2017 and 2018,
class action lawsuits were filed against us and certain of our current and former executive officers and shareholder
derivative actions were filed against certain of our current and former executive officers, certain of our current and former
board members, and two of our investors and against the company as a nominal defendant. While these legal proceedings
were ultimately resolved in our and/or the applicable defendants’ favor, they were distracting and were both time-
consuming and costly to defend. Around this time, we also received subpoenas from the Securities and Exchange
Commission seeking documents and information concerning DEXTENZA, including related communications with the
FDA and investors; in May 2019, the SEC notified us that it had concluded its investigation.
Due to the volatility in our stock price, we may be the target of similar proceedings in the future. We also may face
securities class-action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize
DEXTENZA or our other product candidates successfully. In connection with any such legal proceedings, we could incur
substantial costs and such costs and any related settlements or judgments may not be covered by insurance. We could also
suffer an adverse impact on our reputation and a diversion of management’s attention and resources, which could cause
serious harm to our business, operating results and financial condition.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for
holders of our common stock.
Our stock price may be volatile. The stock market in general and the market for smaller biopharmaceutical
companies in particular have experienced extreme volatility that has often been unrelated to the operating performance. As
a result of this volatility, our stockholders may not be able to sell their common stock at or above the price at which they
purchased it. The market price for our common stock may be influenced by many factors, including:
● our success in commercializing DEXTENZA and any product candidates for which we obtain marketing
approval;
● the success of competitive products or technologies;
● results of clinical trials of our product candidates and the product candidates of our competitors;
● regulatory or legal developments in the United States and other countries;
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● 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, acquire or
in-license additional products, product candidates or technologies for the treatment of ophthalmic diseases or
conditions, the costs of commercializing any such products and the costs of development of any such product
candidates or technologies;
● actual or anticipated changes in estimates as to financial results, development timelines or recommendations 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, political and social, industry and market conditions; and
● the other factors described in this “Risk Factors” section.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market
that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
In addition, certain holders of our convertible notes and their affiliates beneficially own approximately 9.5 million
shares of our common stock and have rights, subject to specified conditions, to require us to file registration statements
covering such common stock. Any sales of securities by these stockholders could have a material adverse effect on the
trading price of our common stock.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital
appreciation, 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 future
earnings, if any, to finance the growth and development of our business. In addition, the terms of our Credit Agreement
and any future debt agreements that we may enter into, may preclude us from paying dividends without the lenders’
consent or at all. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain
for the foreseeable future.
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General Risk Factors
We incur increased costs as a result of operating as a public company, and as a result, our management is required to
devote substantial time to compliance initiatives and corporate governance practices.
As a public company, we incur and will continue to incur significant legal, accounting and other expenses that we did
not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations
impose various requirements on public companies, including establishment and maintenance of effective disclosure and
financial controls and corporate governance practices. Our management and other personnel devote a substantial amount
of time to these compliance initiatives. Moreover, these rules and regulations generate significant legal and financial
compliance costs and make some activities more time-consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by
our management on our internal control over financial reporting. On January 1, 2020, we became subject to the
requirement to include an attestation report on internal control over financial reporting issued by our independent registered
public accounting firm because we were no longer an emerging growth company. It is both costly and challenging to
maintain compliance with other provisions of Section 404. In this regard, we will continue to dedicate internal resources,
potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal
control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that
controls are functioning as documented and implement a continuous reporting and improvement process for internal
control over financial reporting. Despite our efforts, there is a risk that neither we nor, if required, our independent
registered public accounting firm will be able to conclude, within the prescribed timeframe or at all, that our internal
control over financial reporting is effective as required by Section 404. If we or our independent registered public
accounting firm identify one or more material weaknesses in our internal control over financial reporting, it could result in
an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial
statements.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer
security 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 are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. While we have not experienced any such material system failure, accident or security breach to date,
if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our
development programs and our business operations, whether due to a loss of our trade secrets or other proprietary
information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position
could be harmed and the further development and commercialization of our products and product candidates could be
delayed.
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial
condition.
Changes in tax law may adversely affect our business or financial condition. On December 22, 2017, President
Trump signed the 2017 Tax Act into law, which significantly revised the Internal Revenue Code of 1986, as amended. The
2017 Tax Act, among other things, contained 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 of 21%, the limitation of the tax deduction
for net interest expense to 30% of adjusted earnings (except for certain small businesses), the limitation of the deduction
for NOLs to 80% of current year taxable income and elimination of NOL carrybacks, in each case, for losses arising in
taxable years beginning after December 31, 2017 (though any such NOLs may be carried forward indefinitely), the
imposition of one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, the
elimination of U.S. tax on foreign earnings (subject to certain important exceptions), the allowance of immediate
deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or
repeal of many business deductions and credits.
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As part of Congress’ response to the COVID-19 pandemic, the FFCR Act was enacted on March 18, 2020, and the
CARES Act was enacted on March 27, 2020. Both contain numerous tax provisions. In particular, the CARES Act
retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-
income limitation on the use of NOLs, which was enacted as part of the 2017 Tax Act. It also provides that NOLs arising
in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back
up to five years. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of
the tax deductibility for net interest expense by increasing the limitation from 30 to 50% of adjusted taxable income.
Regulatory guidance under the 2017 Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming,
and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. It is
also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic or that additional
tax legislation may also be enacted; any such additional legislation could have an impact on us. In addition, it is uncertain
if and to what extent various states will conform to the 2017 Tax Act, the FFCR Act or the CARES Act.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our facilities consist of leased office space, laboratory space and manufacturing facilities in Bedford, Massachusetts.
We occupy approximately 121,000 square feet of space. The lease for approximately 71,000 square feet of space expires in
July 2027, the lease for approximately 30,000 square feet of space expires in 2024, and the lease for approximately 20,000
square feet of space expires in 2023. We believe that our current facilities are suitable and adequate to meet our current
needs.
Item 3.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary
course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters
may arise from time to time that may harm our business. We are not presently a party to any material legal proceedings, nor
to the knowledge of management are any material legal proceedings threatened against us.
Item 4.
Mine Safety Disclosures
None.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity
Securities
Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “OCUL” since July 25,
2014.
Holders
As of February 25, 2022, there were approximately 16 holders of record of our common stock. This number does not
include 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
dividends on our common stock in the foreseeable future. In addition, the terms of our existing credit facility preclude us
from paying cash dividends without the consent of our lenders.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be set forth in the definitive proxy statement we will file in connection
with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein.
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 our
stock, or grant any stock options or restricted stock awards, during the year ended December 31, 2021 that were not
registered under the Securities Act of 1933, as amended, or the Securities Act, and that have not otherwise been described
in an Annual Report 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 Form
10-K.
Item 6. [Reserved.]
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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 together
with 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 this
Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on the formulation, development, and commercialization of innovative
therapies for diseases and conditions of the eye using our proprietary bioresorbable hydrogel-based formulation technology.
Core to our strategy is (i) to continue to build upon our experience commercializing ophthalmology products that can be
administered primarily in the surgical and/or office settings and (ii) to continue to develop a clinical pipeline of innovative
ophthalmology products that address large areas of unmet need.
We currently have two FDA-approved products in commercialization in the United States: DEXTENZA, an
intracanalicular insert for the treatment of both post-surgical ocular inflammation and pain and ocular itching associated
with allergic conjunctivitis, and ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions
following cataract surgery. We also have product candidates in preclinical and clinical development designed to utilize our
proprietary, bioresorbable hydrogel technology to treat retinal diseases including wet age-related macular degeneration, or
wet AMD; glaucoma and ocular hypertension; and ocular surface diseases and conditions including dry eye disease.
We incorporate therapeutic agents that have previously received regulatory approval from the U.S. Food and Drug
Administration, or FDA, including small molecules and proteins, into our proprietary bioresorbable hydrogel-based
formulation technology in our internal drug development activities, with the goal of providing local programmed release to
tailor the duration and amount of drug to be delivered to the eye. We believe that our local programmed-release drug
delivery technology has the potential to treat conditions and diseases of both the front and the back of the eye and can be
administered through a range of different modalities including intravitreal implants, suprachoroidal implants, intracameral
implants and intracanalicular inserts.
Commercial Portfolio
Post-Surgical Ocular Inflammation and Pain
Ocular Itching Associated with Allergic Conjunctivitis
DEXTENZA (dexamethasone ophthalmic insert) 0.4 mg for intracanalicular use for the Treatment of Post-Surgical Ocular
Inflammation and Pain
DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active
pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert for the treatment of post-surgical ocular
inflammation and pain. The FDA approved a new drug application, or NDA, for DEXTENZA for the treatment of post-
surgical ocular pain in November 2018 and approved a supplemental new drug application, or sNDA, for DEXTENZA for
the treatment of post-surgical ocular inflammation in June 2019. In July 2019, we commercially launched DEXTENZA in
the United States. DEXTENZA is the first FDA-approved, physician-administered intracanalicular insert delivering
dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.
In October 2021, the FDA approved an sNDA for DEXTENZA to include the treatment of ocular itching associated
with allergic conjunctivitis as an additional indication. With the approval, DEXTENZA is the first FDA-approved,
physician-administered intracanalicular insert for the delivery of a preservative-free drug for the treatment of ocular itching
associated with allergic conjunctivitis with a single administration for up to 30 days. DEXTENZA for the treatment of
ocular itching associated with allergic conjunctivitis also represents our first indication approved to be
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administered in a physician’s office during a routine, non-surgical appointment. In the first quarter of 2022, we are
commercially launching DEXTENZA in the United States for the treatment of ocular itching associated with allergic
conjunctivitis.
Prevention of Wound Leaks Following Cataract Surgery
ReSure Sealant
In 2014, we commercially launched ReSure Sealant in the United States as a device approved to prevent wound leaks
in corneal incisions following cataract surgery. In the pivotal clinical trials that formed the basis for FDA approval, ReSure
Sealant provided superior wound closure and a better safety profile than sutured closure.
As of the fourth quarter of 2021, we have suspended the production of ReSure in order to focus our manufacturing
resources to support the commercialization of DEXTENZA. We have received only limited revenues from ReSure Sealant
to date.
Clinical Portfolio
Our clinical portfolio is comprised of our development efforts in our retinal disease program, glaucoma program and
ocular surface disease programs.
Retinal Disease Program
OTX-TKI (axitinib intravitreal implant)
Our product candidate OTX-TKI is a preformed, bioresorbable hydrogel fiber implant incorporating a small
molecule tyrosine kinase inhibitor, or TKI, axitinib, with anti-angiogenic properties delivered by intravitreal injection and
designed for a duration of six months or longer. We are conducting a Phase 1 clinical trial of OTX-TKI in Australia and a
Phase 1 clinical trial in the United States. The U.S.-based Phase 1 clinical trial is fully enrolled, and we expect to report
interim, six-month data in the second half of 2022.
At the Angiogenesis, Exudation, and Degeneration 2022 Meeting held in February 2022, we presented interim data
from the ongoing Phase 1 clinical trial of OTX-TKI for the treatment of wet AMD conducted in Australia. In subjects with
subretinal and/or intraretinal fluid due to wet AMD, OTX-TKI was observed to be generally well tolerated with a favorable
safety profile to date. This data also showed a preliminary signal of biological activity as observed by a clinically-
meaningful decrease in intraretinal and/or subretinal fluid. Extended duration of activity was observed with over 60% of
subjects across all cohorts and with over 80% of subjects in cohort 3a (600μg) with a duration of activity of six months or
more that we believe could represent a compelling drug product profile.
Glaucoma Program
OTX-TIC (travoprost intracameral implant)
Our product candidate OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be
administered by a physician as an intracameral injection with an initial target duration of drug release of four to six months.
In the fourth quarter of 2021, we initiated a randomized, double-masked, active-controlled Phase 2 clinical trial in which
we plan to enroll approximately 105 subjects with open-angle glaucoma at 15-20 sites between three arms of
approximately 35 subjects each to evaluate two formulations of OTX-TIC for the treatment of open-angle glaucoma or
ocular hypertension in subjects compared to DURYSTA. We expect to dose the first subject in the first quarter of 2022.
At Glaucoma 360 in February 2022, we presented interim data from a Phase 1 clinical trial evaluating OTX-TIC for
the treatment of open-angle glaucoma or ocular hypertension. This data highlighted the product candidate’s ability to cause
a clinically meaningful decrease in intraocular pressure for six months or longer while preserving corneal health. We
believe these results are comparable to the decrease in intraocular pressure seen with topical travoprost, the current
standard of care, and represent OTX-TIC’s potential for a unique and differentiated drug product profile. OTX-TIC was
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observed to be generally well tolerated with a favorable safety profile to date and endothelial cell counts, pachymetry
assessments, and slit lamp examinations in subjects indicated no changes from baseline.
Ocular Surface Disease Programs
Dry Eye Disease
OTX-CSI (cyclosporine intracanalicular insert)
Our product candidate OTX-CSI incorporates the FDA-approved immunomodulator cyclosporine as a preservative-
free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert. The product candidate is
designed for a duration of three to four months for patients suffering from moderate to severe dry eye and to be
administered by a physician as a bioresorbable intracanalicular insert.
We announced topline results from a Phase 2 clinical trial evaluating two different formulations of OTX-CSI for the
chronic treatment of dry eye disease in October 2021. The study did not show separation between the subjects receiving
OTX-CSI (two formulations) and the subjects receiving the vehicle (both formulations). Overall, the OTX-CSI insert (both
formulations) was observed to be generally well tolerated with a favorable safety profile to date.
We are currently developing an appropriate clinical-regulatory development and manufacturing plan. This plan will
include additional formulation work for the OTX-CSI insert to allow improved retention and the development of an
appropriate vehicle comparator.
OTX-DED (dexamethasone intracanalicular insert)
Our product candidate OTX-DED incorporates the FDA-approved corticosteroid dexamethasone as a preservative-
free active pharmaceutical ingredient in a hydrogel, drug-eluting intracanalicular insert. OTX-DED incorporates the same
active drug as DEXTENZA, but it includes a lower dose of the drug, delivers it via a smaller insert, and is designed to
release it over a period of two to three weeks, compared with up to thirty days in the case of DEXTENZA.
We announced the topline results for a Phase 2 clinical trial evaluating OTX-DED for the short-term treatment of the
signs and symptoms of dry eye disease in December 2021. The clinical trial achieved its pre-specified primary endpoint.
While the clinical trial was not powered to show statistical significance, the topline results demonstrated a statistically
significant change of bulbar conjunctival hyperemia from baseline to day 15 compared to vehicle hydrogel using a central
reading photographic assessment in the modified ITT population. Both formulations of OTX-DED were observed to have a
favorable safety profile and to be generally well tolerated.
We are currently developing an appropriate clinical-regulatory development and manufacturing plan. This plan will
include additional formulation work for the OTX-DED insert and the development of an appropriate vehicle comparator.
AffaMed License Agreement
In October 2020, we entered into a license agreement and collaboration with AffaMed Therapeutics Limited, or
AffaMed, for the development and commercialization of DEXTENZA and OTX-TIC in mainland China, Hong Kong,
Macau, and Taiwan; South Korea; and the ASEAN markets (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam). Under the terms of the agreement, we received an upfront payment of $12
million and became eligible to receive development, regulatory and commercial milestone payments and clinical
development support payments of up to $91 million in the aggregate, as well as royalties from future product sales. In the
fourth quarter of 2021, we received a $1 million milestone payment; we expect to recognize a clinical support payment of
another $2 million in the first quarter of 2022 in connection with dosing the first subject in a Phase 2 clinical trial
evaluating OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension. Royalties are tiered and will range
from the low teens to low twenty percent range. In return, we agreed to grant AffaMed exclusive rights to develop and
commercialize DEXTENZA for the treatment of post-surgical inflammation and pain following ophthalmic surgery and
ocular itching in patients with allergic conjunctivitis, and OTX-TIC for the reduction of elevated intraocular pressure in
patients with primary open-angle glaucoma or ocular hypertension in specified Asian markets. In January 2022,
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AffaMed announced that it had dosed its first subject in a real-world study conducted in China evaluating the safety and
efficacy of DEXTENZA for the treatment of ocular inflammation and pain post-cataract surgery. We retain the right to
develop and commercialize DEXTENZA and OTX-TIC in all other global markets.
Additional Potential Areas for Growth
We continue to leverage the potential of our hydrogel platform to explore areas for growth with our focus on
formulating, developing and commercializing innovative therapies for diseases and conditions of the eye. In June 2021, we
entered into an agreement with Mosaic Biosciences, Inc., or Mosaic, to identify new targets and discover novel therapeutic
agents aimed at the treatment of dry age-related degeneration, or dAMD.
Business Update Regarding COVID-19
The pandemic caused by an outbreak of a new strain of coronavirus, or the COVID-19 pandemic, that is affecting the
U.S. and global economy and financial markets and the related responses of government, businesses and individuals are
impacting our employees, patients, communities and business operations. The implementation of travel bans and
restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders and shutdowns, for example, affected
our business in 2020 and 2021. The full extent to which the COVID-19 pandemic will continue to directly or indirectly
impact our business, results of operations and financial condition and those of our customers, vendors, suppliers, and
collaboration partners will depend on future developments that are highly uncertain and cannot be accurately predicted,
including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and
the economic impact on local, regional, national and international markets. Management continues to actively monitor this
situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. In the
paragraphs that follow, we have described impacts of the COVID-19 pandemic on our clinical development programs. For
additional information on risks posed by the COVID-19 pandemic, please see “Item 1A — Risk Factors — Risks Related
to the Coronavirus Pandemic,” included elsewhere in this Annual Report on Form 10-K.
Financial Position
We have product candidates in preclinical and clinical development, and we have two FDA-approved products—
DEXTENZA, an intracanalicular insert for the treatment of post-surgical ocular inflammation and pain and for the
treatment of ocular itching associated with allergic conjunctivitis, and ReSure Sealant, an ophthalmic device designed to
prevent wound leaks in corneal incisions following cataract surgery—in commercialization in the United States. Our
ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued
commercialization of DEXTENZA for both the treatment of ocular inflammation and pain following ophthalmic surgery,
which commenced in July 2019, and the treatment of ocular itching associated with allergic conjunctivitis, which
commenced in January 2022; OTX-TKI for the treatment of wet AMD, OTX-TIC for the treatment of open-angle
glaucoma or ocular hypertension, OTX-CSI for the chronic treatment of dry eye disease, and OTX-DED for the short-term
treatment of the signs and symptoms of dry eye disease. Since inception, we have incurred significant operating losses.
Our net losses were $6.6 million, $155.6 million and $86.4 million for the years ended December 31, 2021, 2020 and 2019,
respectively. As of December 31, 2021, we had an accumulated deficit of $545.8 million.
Our total cost and operating expenses were $121.6 million, $80.3 million and $90.0 million for the years ended
December 31, 2021, 2020 and 2019, respectively, including $15.0 million, $7.5 million and $8.8 million, respectively, in
non-cash stock-based compensation expense. Our operating expenses have grown as we continue to support the
commercialization of DEXTENZA following its entry into the market in July 2019; continue to pursue the clinical
development of OTX-TKI, OTX-TIC, OTX-CSI, and OTX-DED; continue the research and development of our other
product candidates; and seek marketing approval for any such product candidate for which we obtain favorable pivotal
clinical trial results. We expect to incur substantial sales and marketing expenses in connection with the expansion of our
commercialization efforts for DEXTENZA in response to the addition of ocular itching associated with allergic
conjunctivitis as an approved indication in October 2021 and commercialization efforts for any of our other product
candidates that may obtain marketing approval in the future. In addition, we will continue to incur additional costs
associated with operating as a public company.
Although we expect to generate revenue from sales of DEXTENZA, we will need to obtain substantial additional
funding to support our continuing operations and the commercialization of DEXTENZA. If we are unable to raise capital
or access our borrowing capacity when needed or on attractive terms, we could be forced to delay, reduce or eliminate
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our research and development programs or any future commercialization efforts or to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be
favorable to us.
Through December 31, 2019, we raised $412.6 million through the sale of common stock in various offerings $37.5
million of unsecured subordinated debt and $25.0 million through a credit facility.
In April 2019, we entered into an Open Market Sale AgreementSM, or the 2019 Sales Agreement, with Jefferies LLC,
or Jefferies, under which we could offer and sell shares of our common stock having an aggregate offering price of up to
$50.0 million from time to time through Jefferies, acting as agent. In the twelve months ended December 31, 2019, we
sold 7,337,459 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $32.7
million, after commissions and expenses. In the twelve months ended December 31, 2020, we sold 2,984,381 shares of
common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $14.4 million, respectively,
after commissions and expenses. In August 2021, we and Jefferies mutually terminated the 2019 Sales Agreement.
In 2020, we conducted three separate underwritten public offerings. In May 2020, we entered into an underwriting
agreement with Jefferies and Piper Sandler & Co., or the Underwriters, pursuant to which we issued and sold an aggregate
of 9,409,091 shares of our common stock in an underwritten public offering at a public offering price of $5.50 per share.
We refer to this offering as the May 2020 Offering. After deducting underwriting discounts and commissions and offering
expenses, we received net proceeds from the May 2020 Offering of approximately $48.3 million.
In October 2020, we entered into a separate underwriting agreement with the Underwriters pursuant to which we
issued and sold an aggregate of 8,257,000 shares of our common stock in an underwritten public offering at a public
offering price of $9.75 per share. We refer to this offering as the October 2020 Offering. After deducting underwriting
discounts and commissions and offering expenses, we received net proceeds from the October 2020 Offering of
approximately $75.4 million.
In December 2020, we entered into a third underwriting agreement with the Underwriters pursuant to which we
issued and sold an aggregate of 4,283,750 shares of our common stock in an underwritten public offering at a public
offering price of $21.50 per share. We refer to this offering as the December 2020 Offering. After deducting underwriting
discounts and commissions and offering expenses, we received net proceeds from the December 2020 Offering of
approximately $86.4 million.
In August 2021, we and Jefferies entered into another Open Market Sale AgreementSM, or the 2021 Sale Agreement,
under which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million
from time to time through Jefferies, acting as agent. As of February 24, 2022, we have not sold any shares of our common
stock under the 2021 Sales Agreement.
All of our product candidates are designed to be medical-benefit “buy-and-bill” products with associated procedure
codes. Products with these characteristics are designed to be attractive not only to physicians and patients but also to the
sites of care that participate in utilization. We primarily derive our product revenues from the sale of DEXTENZA in the
United States to a network of specialty distributors, who then sell DEXTENZA to ambulatory surgical centers, or ASCs;
hospital out-patient departments, or HOPDs; and physicians’ offices. In addition to distribution agreements with specialty
distributors, we enter into arrangements with government payors that provide for government-mandated rebates and
chargebacks with respect to the purchase of DEXTENZA. In the fourth quarter of 2021, in-market unit sales figures—unit
sales from specialty distributors to ASCs and HOPDs— were in excess of 29,000 billable units, representing sequential
quarterly growth of approximately 17% in in-market unit sales.
We believe that our existing cash and cash equivalents of $164.2 million as of December 31, 2021, will enable us to
fund our planned operating expenses, debt service obligations and capital expenditure requirements through 2023. This
estimate is based on our current operating plan which includes estimates of anticipated cash inflows from DEXTENZA
product sales and cash outflows from operating expenses. These estimates are subject to various assumptions including
those related to the severity and duration of the COVID-19 pandemic, the revenues and expenses associated with the
commercialization of DEXTENZA, the pace of our research and clinical development programs, and other aspects of our
business. These and other assumptions upon which we have based our estimate may prove to be wrong, and we could use
our capital resources sooner than we currently expect and would therefore need to raise
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additional capital to support our ongoing operations or adjust our plans accordingly. See “—Liquidity and Capital
Resources.”
Financial Operations Overview
Revenue
In June 2019, we began to recognize revenue from the sales of DEXTENZA. We also commenced sales of ReSure
Sealant in the first quarter of 2014, but we have received only limited revenues from ReSure Sealant. Following the FDA’s
October 2021 approval of our sNDA, we are launching DEXTENZA for the treatment of ocular itching associated with
allergic conjunctivitis, our first in-office indication, in the first quarter of 2022.
As further explained under “—Revenue Recognition—Product Revenue, Net” below, we recognize revenue when we
sell DEXTENZA in the United States to a network of specialty distributors, who then resell the product to ambulatory
surgical centers, or ASCs, and hospital outpatient departments, or HOPDs. We refer to these resales from the specialty
distributors to the ASCs and HOPDs as in-market unit sales.
For the year ended December 31, 2021, three specialty distributor customers accounted for 42%, 26% and 17% of
our total revenue and three specialty distributor customers accounted for 42%, 26% and 21% of our total accounts
receivable. No other customer accounted for more than 10% of total revenue or accounts receivable for the year ended
December 31, 2021.
For the year ended December 31, 2020, three specialty distributor customers accounted for 42%, 29% and 12% of
our total revenue and three specialty distributor customers accounted for 45%, 33% and 15% of our total accounts
receivable. No other customer accounted for more than 10% of total revenue or accounts receivable for the year ended
December 31, 2020.
For the year ended December 31, 2019, two specialty distributor customers accounted for 27% and 11% of our total
revenue and three specialty distributor customers accounted for 39%, 18% and 11% of our total accounts receivable. No
other customer accounted for more than 10% of total revenue or accounts receivable for the year ended December 31,
2019.
Operating Expenses
Cost of Product Revenue
Cost of product revenue consists primarily of costs of DEXTENZA and ReSure product revenue, which include:
● Direct materials costs;
● Royalties;
● Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes,
and stock-based compensation expense for employees engaged in the production process;
● Manufacturing overhead costs, which includes rent, depreciation, and indirect labor costs associated with the
production process;
● Transportation costs; and
● Cost of scrap material.
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Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product
candidates, which include:
● employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-based
compensation expense for employees engaged in research and development, clinical and regulatory and other
related functions;
● expenses incurred in connection with the clinical trials of our product candidates, including with the
investigative sites that conduct our clinical trials and under agreements with contract research organizations, or
CROs;
● expenses relating to regulatory activities, including filing fees paid to the FDA for our submissions for product
approvals;
● expenses associated with developing our pre-commercial manufacturing capabilities and manufacturing clinical
study materials;
● ongoing research and development activities relating to our core bioresorbable hydrogel technology and
improvements to this technology;
● facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance
of facilities, insurance and supplies;
● costs relating to the supply and manufacturing of product inventory, prior to approval by the FDA or other
regulatory agencies of our products; and
● expenses associated with preclinical development activities.
We expense research and development costs as incurred. We recognize external development costs based on an
evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical
investigative sites.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of
external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical
trials and regulatory fees. We do not allocate employee and contractor-related costs, costs associated with our platform
technology, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including
depreciation or other indirect costs, to specific product development programs because these costs are deployed across
multiple product development programs and, as such, are not separately classified. We use internal resources in
combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical
trials, monitor subject enrollment and perform data analysis for many of our clinical trials. These employees work across
multiple development programs and, therefore, we do not track their costs by program.
The successful development and commercialization of our products or product candidates is highly uncertain. This is
due to the numerous risks and uncertainties associated with product development and commercialization, including the
uncertainty of:
● the scope, progress, outcome and costs of our clinical trials and other research and development activities;
● the timing, receipt and terms of any marketing approvals;
● the efficacy and potential advantages of our products or product candidates compared to alternative treatments,
including any standard of care;
● the market acceptance of our products or product candidates; and
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● significant and changing government regulation.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in
clinical and preclinical development could mean a significant change in the costs and timing associated with the
development of these product candidates. For example, if the FDA or another regulatory authority were to require us to
conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in
enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time
on the completion of clinical development of that product candidate. We anticipate that our research and development
expenses will increase in the future as we support our continued development of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based
compensation, for personnel in executive, finance, information technology, human resources and administrative functions.
General and administrative expenses also include insurance, facility-related costs and professional fees for legal, patent,
consulting and accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we support our continued
development and commercialization of our product candidates
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketing
functions as well as consulting and advertising and promotion costs. Selling and marketing expenses for DEXTENZA
increased in 2020 after the product’s July 2019 commercial launch and further increased in 2021 with the continued
commercialization of DEXTENZA for the treatment of ocular inflammation and pain, focused on ASCs and HOPDs, and
preparations for the commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic
conjunctivitis in the first quarter of 2022, focused on the offices of ophthalmologists and optometrists. We anticipate that
our selling and marketing expenses associated with DEXTENZA will continue to increase, particularly as we grow our
salesforce supporting DEXTENZA in 2022 and beyond.
Other Income (Expense)
Interest Income. Interest income consists primarily of interest income earned on cash and cash equivalents. In each
of 2021, 2020 and 2019, our interest income has not been significant due to the low rates of interest being earned on our
invested balances.
Interest Expense. Interest expense consists of interest expense on our debt. We borrowed $15.0 million in aggregate
principal amount in April 2014. We refer to the credit facility under which we drew down this indebtedness, as amended
over time, as our Credit Facility and the associated credit and security agreement, as amended over time, as our Credit
Agreement. We have amended our Credit Agreement several times. In December 2018, we amended our Credit
Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $25.0 million, extend the
interest-only payment period through December 2020, and extend the maturity date to December 2023. In June 2021, we
amended our Credit Agreement to extend the interest-only payment period through May 2024 and extend the maturity date
to November 2025. In the event we achieve certain milestones under the amendment, we have the right to extend through
April 1, 2026.
On March 1, 2019, we issued $37.5 million of the 2026 Convertible Notes. The 2026 Convertible Notes accrue
interest at an annual rate of 6% of their outstanding principal amount, payable in cash at maturity, on March 1, 2026, unless
earlier converted, repurchased or redeemed.
Change in Fair Value of Derivative Liability. In 2019, in connection with the issuance of our 2026 Convertible
Notes, we identified an embedded derivative liability, which we are required to measure at fair value at inception and then
at the end of each reporting period until the embedded derivative is settled. The changes in fair value are recorded through
the statement of operations and comprehensive loss and are presented under the caption change in fair value of derivative
liability. Our derivative liability calculations are further described under the heading “—Critical Accounting Policies and
Significant Judgments and Estimates—Derivative Liability” below.
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Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in
the United States of America. The preparation of our consolidated financial statements and related disclosures requires us
to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and
expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing
basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and
development expenses and stock-based compensation. We base our estimates on historical experience, known trends and
events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial
statements appearing elsewhere in this annual report, we believe the following accounting policies to be most critical to the
judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize product revenue from DEXTENZA for the treatment of post-surgical ocular inflammation and pain,
which we began selling to customers in June 2019, and ReSure Sealant. We have generated limited revenues from ReSure
Sealant to date and do not expect significant future sales.
In November 2018, the FDA approved DEXTENZA for the treatment of ocular pain following ophthalmic surgery.
We entered into a limited number of arrangements with specialty distributors in the United States to distribute
DEXTENZA. Accounting Standards Codification 606 – Revenue from Contracts with Customers, or Topic 606, applies to
all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance
arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control
of promised goods or services, in an amount that reflects the consideration which the entity expects to be entitled to in
exchange for those goods or services.
To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the
entity performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only
apply the five-step model to arrangements that meet the definition of a contract with a customer under Topic 606, including
when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we
transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we
assess the goods or services promised within each contract, determines those that are performance obligations, and assesses
whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete
discussion of accounting for product revenue, see Product Revenue, Net (below).
Product Revenue, Net— We derive our product revenues from the sale of DEXTENZA in the United States to
customers, which includes a limited number of specialty distributors, who then subsequently resell DEXTENZA to
physicians, clinics and certain medical centers or hospitals. In addition to distribution agreements with customers, we enter
into arrangements with government payors that provide for government mandated rebates and chargebacks with respect to
the purchase of DEXTENZA.
We recognize revenue on product sales when the customer obtains control of our product, which occurs at a point in
time (upon delivery to the customer). We have determined that the delivery of DEXTENZA to our customers constitutes a
single performance obligation. There are no other promises to deliver goods or services beyond what is specified in each
accepted customer order. We have assessed the existence of a significant financing component in the agreements with our
customers. The trade payment terms with our customers do not exceed one year and therefore we have elected to apply the
practical expedient and no amount of consideration has been allocated as a financing component. Product revenues are
recorded net of applicable reserves for variable consideration, including discounts and allowances.
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Transaction Price, including Variable Consideration— Revenues from product sales are recorded at the net sales
price (transaction price), which includes estimates of variable consideration for which reserves are established.
Components of variable consideration include trade discounts and allowances, product returns, government chargebacks,
discounts and rebates, and other incentives, such as voluntary patient assistance, and other fee-for-service amounts that are
detailed within contracts between us and our customers relating to our sale of DEXTENZA. These reserves, as detailed
below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts
receivable or a current liability. These estimates take into consideration a range of possible outcomes which are probability-
weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and
statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and
payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled
based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained, and is included
in the net sales price, only to the extent that it is probable that a significant reversal in the amount of the cumulative
revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately
received may differ from our estimates. If actual results in the future vary from our original estimates, we will adjust these
estimates, which would affect net product revenue and earnings in the period such variances become known.
Trade Discounts and Allowances—We compensate (through trade discounts and allowances) our customers for sales
order management, data, and distribution services. However, we have determined such services received to date are not
distinct from our sale of products to the customer and, therefore, these payments have been recorded as a reduction of
revenue within the statement of operations and comprehensive loss, as well as a reduction to trade receivables, net on the
consolidated balance sheets.
Product Returns— Consistent with industry practice, we generally offer customers a limited right of return for
product that has been purchased from us in certain circumstances as further discussed below. We estimate the amount of
our product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the
related product revenue is recognized, as well as within accrued expenses and other current liabilities, in the accompanying
consolidated balance sheets. We currently estimate product return reserves using available industry data and our own sales
information, including our visibility into the inventory remaining in the distribution channel. We have received minimal
returns to date and believe the returns of DEXTENZA will be minimal.
Government Chargebacks— Chargebacks for fees and discounts to qualified government healthcare providers
represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S. Department
of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who directly
purchase the product from us. The 340B Drug Discount Program is a U.S. federal government program created in 1992
that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at
significantly reduced prices. Customers charge us for the difference between what they pay for the product and the
statutory selling price to the qualified government entity. These allowances are established in the same period that the
related revenue is recognized, resulting in a reduction of product revenue and trade receivables, net. Chargeback amounts
are generally determined at the time of resale to the qualified government healthcare provider by customers, and we
generally issue credits for such amounts within a few weeks of the customer’s notification to us of the resale. Allowances
for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel inventories at
each reporting period-end that we expect will be sold to qualified healthcare providers, and chargebacks that customers
have claimed, but for which we have not yet issued a credit.
Government Rebates— We are subject to discount obligations under state Medicaid programs and Medicare. These
reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and
the establishment of a current liability which is included in accrued expenses and other current liabilities on the
consolidated balance sheets. For Medicare, we also estimate the number of patients in the prescription drug coverage gap
for whom we will owe an additional liability under the Medicare Part D program. For Medicaid programs, we estimate the
portion of sales attributed to Medicaid patients and record a liability for the rebates to be paid to the respective state
Medicaid programs. Our liability for these rebates consists of invoices received for claims from prior quarters that have
not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated
future claims that will be made for product that has been recognized as revenue, but which remains in the distribution
channel inventories at the end of each reporting period.
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Rebates— We offer rebate payments for which ASCs, HOPDs and other prescribers qualify by meeting purchase
volumes of DEXTENZA under our rebate program. We calculate rebate payment amounts due under this program based on
actual qualifying purchases and apply a contractual discount rate. The calculation of the accrual for rebates is based on an
estimate of claims that we expect to receive associated with product that has been recognized as revenue, but remains in the
distribution channel inventories at the end of each reporting period. The adjustments are recorded in the same period the
related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which
is included as accrued expenses and other current liabilities on the consolidated balance sheets.
Other Incentives— Other incentives which we offer include voluntary patient assistance programs, such as the co-
pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with
prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an
estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as
revenue, but remains in the distribution channel inventories at the end of each reporting period. The adjustments are
recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the
establishment of a current liability which is included as accrued expenses and other current liabilities on the consolidated
balance sheets.
Derivative Liability
The 2026 Convertible Notes allow the holders to convert all or part of the outstanding principal of their 2026
Convertible Notes into shares our common stock provided that no conversion results in a holder beneficially owning more
than 19.99% of our issued and outstanding common stock. The entire embedded conversion option is required to be
separated from the 2026 Convertible Notes and accounted for as a freestanding derivative instrument subject to derivative
accounting. Therefore, the entire conversion option is bifurcated from the underlying debt instrument and accounted for
and valued separately from the host instrument. The main input when determining the fair value of the 2026 Convertible
Notes is the bond yield that pertains to the host instrument without the conversion option. The significant assumption used
in determining the bond yield is the market yield movements of a comparable instrument issued as of the valuation date,
which is assessed and updated each period. We measure the value of the embedded conversion option at its estimated fair
value and recognize changes in the estimated fair value in other income (expense), net in the consolidated statements of
operations and comprehensive loss during the period of change. The embedded conversion is recognized as a derivative
liability in our consolidated balance sheet.
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Results of Operations
Comparison of the Years Ended December 31, 2021 and December 31, 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:
Year Ended
December 31,
2021
2020
(in thousands)
Increase
(Decrease)
Revenue:
Product revenue, net
Total revenue, net
Costs and operating expenses:
Cost of product revenue
Research and development
Selling and marketing
General and administrative
Total costs and operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Change in fair value of derivative liability
Other income (expense), net
Total other income (expense), net
Net loss
Gross-to-Net Deductions
$ 43,522
43,522
$ 17,403
17,403
$ 26,119
26,119
4,406
50,083
35,190
31,880
121,559
(78,037)
2,083
28,694
26,614
22,859
80,250
(62,847)
2,323
21,389
8,576
9,021
41,309
(15,190)
168
(6,768)
(86,189)
33
(6,671)
78,121
1
71,484
(135)
97
164,310
1
164,273
$ (6,553) $ (155,636) $ 149,083
(92,789)
—
We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns.
These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provisions for the years
ended December 31, 2021 and 2020 were 25.5% and 22.4%, respectively, of gross DEXTENZA product sales. In 2020,
we introduced a rebate program under a purchase volume-discount program that primarily relates to the change over the
prior year in the gross-to-net provisions.
Net Revenue
We generated $43.5 million of net revenue during the year ended December 31, 2021 from sales of our products, of
which $42.0 million was attributable to sales of DEXTENZA and $1.5 million was attributable to sales of ReSure Sealant.
We generated $17.4 million of revenue during the year ended December 31, 2020 from sales of our products, of which
$15.7 million was attributable to sales of DEXTENZA and $1.7 million was attributable to sales of ReSure Sealant. The
growth in revenue for DEXTENZA was due to increased market acceptance and the continued commercialization efforts
during 2021.
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Research and Development Expenses
Year Ended
December 31,
2021
2020
(in thousands)
Increase
(Decrease)
Direct research and development expenses by program:
OTX-TKI for wet AMD
OTX-TIC for glaucoma or ocular hypertension
OTX-CSI for treatment of dry eye disease
OTX-DED for the short-term treatment of the signs and
symptoms of dry eye disease
DEXTENZA for post-surgical ocular inflammation and
pain
DEXTENZA for ocular itching associated with allergic
conjunctivitis
ReSure Sealant
OTX-TP for glaucoma and ocular hypertension
OTX-AFS for wet AMD, DME and RVO
Preclinical programs
Unallocated expenses:
Personnel costs
All other costs
Total research and development expenses
$ 4,464 $
3,127
3,367
1,534
924
1,389
$ 2,930
2,203
1,978
3,963
111
3,852
1,711
1,077
634
121
59
—
109
766
2,296
117
584
—
403
(2,175)
(58)
(584)
109
363
20,382
12,014
$ 50,083
11,458
8,801
$ 28,694
8,924
3,213
$ 21,389
Research and development expenses were $50.1 million for the year ended December 31, 2021, compared to $28.7
million for the year ended December 31, 2020. The increase of $21.4 million was primarily due to an increase of $12.1
million in unallocated expenses and direct research and development program expenses of $9.3 million. Unallocated
research and development costs increased $12.1 million for the year ended December 31, 2021, compared to the year
ended December 31, 2020 primarily due to an increase in unallocated personnel costs of $8.9 million and $3.2 million in
all other costs. For the year ended December 31, 2021, we incurred $16.9 million in direct research and development
expenses for our product candidates compared to $8.0 million for the year ended December 31, 2020. The increase of $8.9
million is related to timing and start of our various clinical trials for our product candidates. We expect that clinical trial
expenses will approximate the same level for 2022 for our product candidates including for OTX-TKI due to the
continuation of the ongoing U.S.-based Phase 1 clinical trial and for OTX-TIC due to the continuation of the ongoing
Phase 2 clinical trial.
Selling and Marketing Expenses
Personnel related (including stock-based compensation)
Professional fees
Facility related and other
Total selling and marketing expenses
2021
$ 22,862
8,074
4,254
$ 35,190
2020
(in thousands)
$ 17,331
5,996
3,287
$ 26,614
$ 5,531
2,078
967
$ 8,576
Year Ended
December 31,
Increase
(Decrease)
Selling and marketing expenses were $35.2 million for the year ended December 31, 2021, compared to $26.6
million for the year ended December 31, 2020. The increase of $8.6 million was primarily due to an increase of $5.5
million in personnel costs, including stock-based compensation as the Company increased the field-based team to support
the commercialization of DEXTENZA, and an increase of $2.1 million in professional fees including consulting, trade
shows, and conferences.
We expect our selling and marketing expenses to increase in 2022 and beyond as we continue to support the
commercialization of DEXTENZA, including the commercial launch of DEXTENZA for the treatment of ocular itching
associated with allergic conjunctivitis in the first quarter of 2022.
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General and Administrative Expenses
Year Ended
December 31,
Personnel related (including stock-based compensation)
Professional fees
Facility related and other
Total general and administrative expenses
2021
$ 16,929
12,402
2,549
$ 31,880
2020
(in thousands)
$ 11,688
8,886
2,285
$ 22,859
$ 5,241
3,516
264
$ 9,021
Increase
(Decrease)
General and administrative expenses were $31.9 million for the year ended December 31, 2021, compared to $22.9
million for the year ended December 31, 2020. The increase of $9.0 million was primarily due to an increase of $5.2
million in personnel related costs including stock-based compensation, $3.5 million in professional fees primarily related to
an increase in legal costs of $2.7 million and an increase of $0.2 million in facility related and other costs.
Other Income (Expense), Net
Other income, net was $71.5 million for the year ended December 31, 2021, compared to other expense, net of $92.8
million for the year ended December 31, 2020. The change of $164.3 million, was primarily due to an unrealized gain of
$78.1 million on the change in fair value of the derivative liability associated with the 2026 Convertible Notes. The
unrealized gain of $78.1 million during the year ended December 31, 2021 as compared to an unrealized loss in the amount
of $86.2 million in December 31, 2020 due to changes in the underlying inputs of the derivative liability, primarily related
to a decrease in our common stock price between December 31, 2021 and 2020. We expect the change in fair value of the
derivative liability will continue to fluctuate until it is settled based on the extent to which changes occur in the underlying
inputs.
Comparison of the Years Ended December 31, 2020 and 2019
A discussion of changes in our results of operations during the year ended December 31, 2020 compared to the year
ended December 31, 2019 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form
10-K for the year ended December 31, 2020, filed with the SEC on March 11, 2021, which discussion is incorporated
herein by reference and which is available free of charge on the SECs website at www.sec.gov.
Liquidity and Capital Resources
Since inception, we have incurred significant operating losses. Our net losses were $6.6 million, $155.6 million, and
$86.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an
accumulated deficit of $545.8 million.
In 2014, we began recognizing revenue from sales of ReSure Sealant. We commercially launched DEXTENZA for
the treatment of post-surgical ocular inflammation and pain in July 2019, and we are commercially launching DEXTENZA
for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022. All of our product
candidates are in various phases of clinical and preclinical development. Our ability to generate product revenues
sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for the
treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic
conjunctivitis and our obtaining marketing approval for and commercializing other products with significant market
potential, including OTX-TKI for wet AMD, OTX-TIC for open-angle glaucoma or ocular hypertension, and OTX-CSI
and OTX-DED for dry eye disease. While it is difficult to predict the extent or duration of the impact of the global
COVID-19 pandemic on future financial results, we anticipate current guidelines and recommendations from the global
health authorities, including the delay of elective surgeries, will impact revenue for 2022 and potentially beyond.
Through December 31, 2021, we have financed our operations primarily through private placements of our preferred
stock, public offerings of our common stock, private placements of our convertible notes and borrowings under credit
facilities, which has resulted in net proceeds of $637.2 million to us.
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On June 4, 2021, which we refer to as the Closing Date, we entered into a Fourth Amended and Restated Credit and
Security Agreement, or the Fourth Amendment, with MidCap Financial Trust, as administrative agent, or the
Administrative Agent, and the lenders party thereto, or the Lenders, which amended and restated our Credit Agreement to
refinance our Credit Facility.
Under the Fourth Amendment, the term loans outstanding under the Credit Facility, in the aggregate principal
amount of approximately $20.8 million were converted into a new term loan under the Credit Facility as of June 4, 2021, or
the Converted Term Loan. The Fourth Amendment also established an additional term loan under the Credit Facility in the
principal amount of approximately $4.2 million as of the Closing Date, or the 2021 Term Loan. We refer to the Converted
Term Loan and the 2021 Term Loan together as the Term Loans. Under the Credit Facility, the aggregate principal amount
of the Term Loans available under the Credit Facility, or the Total Credit Facility Amount, is $25.0 million, the entirety of
which was drawn at closing.
The Fourth Amendment extends the term of the Credit Facility until November 30, 2025, provided that the term is
not automatically extended until April 1, 2026, if the administrative agent receives evidence reasonably satisfactory to it,
by November 15, 2025, that the outstanding principal amount of the 2026 Convertible Notes has been converted into equity
interests of us and that such indebtedness is otherwise indefeasibly satisfied in full. We refer to the maturity date, as
applicable, as the Maturity Date. The Fourth Amendment requires us to make interest-only payments on the Term Loans on
a monthly basis until May 1, 2024. The Fourth Amendment requires that thereafter, in addition to the monthly interest
payments, we make principal payments on the Term Loans in accordance with the amortization schedules set forth in the
Fourth Amendment. Remaining unpaid principal and accrued interest outstanding on the Maturity Date is due on the
Maturity Date.
As of December 31, 2021, we had cash and cash equivalents of $164.2 million, notes payable of $25.0 million face
value and senior subordinated convertible notes of $37.5 million par value, plus accrued interest of $6.5 million.
Cash Flows
Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows
from DEXTENZA product sales and cash outflows from operating expenses, we believe that our existing cash and cash
equivalents, as of December 31, 2021, will enable us to fund our planned operating expenses, debt service obligations and
capital expenditure requirements through 2023. We have based this estimate on assumptions that may prove to be wrong,
and we could use our capital resources sooner than we currently expect.
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended December 31,
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
2021
2019
2020
(in thousands)
$ (65,550) $ (53,554) $ (77,578)
(2,238)
75,341
$ (4,475)
(841)
228,014
$ (63,893) $ 173,620
(1,194)
2,851
Operating activities. Net cash used in operating activities was $65.6 million for the year ended December 31, 2021,
primarily resulting from our net loss of $6.6 million and by non-cash adjustments of $56.1 million and cash used by
changes in our operating assets and liabilities of $2.9 million. Our net loss was primarily attributed to research and
development activities, selling and marketing costs and our general and administrative expenses partially offset by $43.5
million of revenue in the period. Our net non-cash charges during the year ended December 31, 2021 primarily consisted of
the change in fair value of the derivative liability of $78.1 million, $15.0 million of stock-based compensation expense,
$4.6 million of non-cash interest expense and $2.4 million of depreciation expense. Net cash used by changes in our
operating assets and liabilities during the year ended December 31, 2021 consisted primarily of an increase of $8.9 million
in accounts receivable partially offset by increases in accounts payable, accrued expenses and deferred revenue of $6.5
million.
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Net cash used in operating activities was $53.6 million for the year ended December 31, 2020, primarily resulting
from our net loss of $155.6 million, partially offset by non-cash charges of $100.9 million and cash provided by changes in
our operating assets and liabilities of $1.1 million. Our net loss was primarily attributed to research and development
activities, selling and marketing costs and our general and administrative expenses partially offset by $17.4 million of
revenue in the period. Our net non-cash charges during the year ended December 31, 2020 primarily consisted of the
change in fair value of the derivative liability of $86.2 million, $7.5 million of stock-based compensation expense, $4.4
million of non-cash interest expense and $2.8 million of depreciation expense. Net cash provided by changes in our
operating assets and liabilities during the year ended December 31, 2020 consisted primarily of a $12.0 million increase in
deferred revenue partially offset by a $9.7 million increase in accounts receivable.
Net cash used in operating activities was $77.6 million for the year ended December 31, 2019, primarily resulting
from our net loss of $86.4 million, partially offset by non-cash charges of $10.7 million and cash used by changes in our
operating assets and liabilities of $1.9 million. Our net loss was primarily attributed to research and development activities,
selling and marketing costs and our general and administrative expenses partially offset by $4.2 million of revenue in the
period. Our net non-cash charges during the year ended December 31, 2019 primarily consisted of $8.8 million of stock-
based compensation expense, $2.5 million of depreciation expense and non-cash interest expense of $3.7 million partially
offset by the change in fair value of the derivative liability of $4.3 million. Net cash used by changes in our operating
assets and liabilities during the year ended December 31, 2019 consisted primarily of a $1.7 million increase in accrued
expenses and a $2.3 million increase in accounts receivable.
Investing activities. Net cash used in investing activities was $1.2 million for the year ended December 31, 2021,
consisting of cash used to purchase property and equipment. Net cash used in investing activities was $0.8 million for the
year ended December 31, 2020, consisting of cash used to purchase property and equipment. Net cash used in investing
activities was $2.2 million for the year ended December 31, 2019, consisting of cash used to purchase property and
equipment.
Financing activities. Net cash provided by financing activities for the year ended December 31, 2021 was $2.9
million and consisted primarily of $3.7 million, net, of proceeds in borrowings under our amended credit facility, proceeds
from the exercise of stock options of $2.6 million; and proceeds from issuance of common stock pursuant to our employee
stock purchase plan of $1.0 million offset by payments on notes payable of $4.2 million.
Net cash provided by financing activities for the year ended December 31, 2020 was $228.0 million and consisted
primarily of proceeds from the May 2020 Offering, the October 2020 Offering and the December 2020 Offering of an
aggregate of $210.0 million, net of underwriting discounts and commissions and offering expenses; proceeds from sales
under the 2019 Sales Agreement of $14.4 million, net of commissions and other offering expenses; proceeds from the
exercise of stock options of $2.6 million; and proceeds from issuance of common stock pursuant to our employee stock
purchase plan of $0.8 million.
Net cash provided by financing activities for 2019 was $75.3 million and consisted primarily of proceeds from the
2026 Convertible Notes of $37.3 million and the 2016 Sales Agreement of $4.9 million, net of commissions and other
offering expenses and the 2019 Sales Agreement of $32.6 million, net of commissions and other offering expenses.
Funding Requirements
We expect to continue to incur losses in connection with our ongoing activities, particularly as we advance the
clinical trials of our products in development and increase our sales and marketing resources to support the DEXTENZA
launch and the potential launch of our product candidates, subject to receiving FDA approval.
We anticipate we will incur substantial expenses if and as we:
● continue to commercialize DEXTENZA in the United States, including the commercial launch of
DEXTENZA in the office setting for the treatment of ocular itching associated with allergic
conjunctivitis;
● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and
any of our products or product candidates we intend to commercialize;
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● continue ongoing clinical trials for our product candidates OTX-TKI (in both Australia and the United
States) for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or
ocular hypertension and our ongoing clinical trial to evaluate DEXTENZA in pediatric subjects
following cataract surgery in accordance with the FDA’s post-approval requirement;
● determine to initiate new clinical trials to evaluate OTX-TKI for the treatment of wet AMD, OTX-CSI
for the chronic treatment of dry eye disease and OTX-DED for the short-term treatment of the signs
and symptoms of dry eye disease and to initiate a new clinical trial to evaluate DEXTENZA in
pediatric subjects with ocular itching associated with allergic conjunctivitis in accordance with the
FDA’s post-approval requirement;
● conduct research and development activities on, and seek regulatory approvals for, DEXTENZA and
OTX-TIC in specified Asian markets pursuant to our license agreement and collaboration with
AffaMed;
● continue the research and development of our other product candidates;
● seek to identify and develop additional product candidates;
● seek marketing approvals for any of our product candidates that successfully complete clinical
development;
● scale up our manufacturing processes and capabilities to support sales of commercial products, clinical
trials of our product candidates and commercialization of any of our product candidates for which we
obtain marketing approval, and expand our facilities to accommodate this scale up and any
corresponding growth in personnel;
● renovate our existing facilities including research and development laboratories, manufacturing space
and office space;
● maintain, expand and protect our intellectual property portfolio;
● expand our operational, financial, administrative and management systems and personnel, including
personnel to support our clinical development, manufacturing and commercialization efforts;
● defend ourselves against legal proceedings;
● make investments to improve our defenses against cybersecurity and establish and maintain
cybersecurity insurance; and
● continue to operate as a public company.
Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows
from DEXTENZA and ReSure Sealant product sales and cash outflows from operating expenses, we believe that our
existing cash and cash equivalents, as of December 31, 2021, will enable us to fund our planned operating expenses, debt
service obligations and capital expenditure requirements through 2023. We have based this estimate on assumptions that
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:
● the level of product sales from DEXTENZA and any additional products for which we obtain marketing
approval in the future and the level of third-party reimbursement of such products;
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● the costs of sales, marketing, distribution and other commercialization efforts with respect to
DEXTENZA and any additional products for which we obtain marketing approval in the future,
including costs increases due to inflation;
● the progress, costs and outcome of our clinical trials of our product candidates, in particular OTX-TIC
for the treatment of open-angle glaucoma or ocular hypertension and OTX-TKI for the treatment of wet
AMD;
● the scope, progress, costs and outcome of preclinical development and clinical trials of our other product
candidates;
● the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA or
other regulatory authorities;
● the costs of scaling up our manufacturing processes and capabilities to support sales of commercial
products, clinical trials of our product candidates and commercialization of any of our product
candidates for which we obtain marketing approval and of expanding our facilities to accommodate this
scale up and any corresponding growth in personnel;
● the extent of our debt service obligations and our ability, if desired, to refinance any of our existing debt
on terms that are more favorable to us;
● the amounts we are entitled to receive, if any, as reimbursements for clinical trial expenditures,
development, regulatory, and sales milestone payments, and royalty payments under our license
agreement with AffaMed;
● the extent to which we choose to establish additional collaboration, distribution or other marketing
arrangements for our products and product candidates;
● the costs and outcomes of legal actions and proceedings;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing
our 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 finance
our cash needs through equity offerings, debt financings, government or other third-party funding, collaborations, strategic
alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements. We do not have any
committed external source of funds, development, regulatory and sales milestone payments and royalty payments and our
license agreement with AffaMed provides for AffaMed’s reimbursement of certain clinical expenses incurred by us in
connection with our collaboration and for our potential receipt of development and sales milestone payments as well as
royalty payments. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
each security holder’s ownership interest will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect each security holder’s rights as a common stockholder. Debt financing and preferred
equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. The covenants
under our existing Credit Agreement, the pledge of our assets as collateral limit our ability to obtain additional debt
financing. If we raise additional funds through government or other third-party funding, collaborations, strategic alliances,
licensing arrangements, royalty agreements, or marketing and distribution arrangements, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on
terms that may not be favorable to us. In addition, the COVID-19 pandemic has already caused significant disruptions in
the financial markets, and may continue to cause such disruptions, which could adversely impact our ability to raise
additional funds through equity or debt financings. If we are unable to raise additional funds through equity or debt
financings when needed, we may be required to delay, limit, reduce or terminate
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our product development or future commercialization efforts or grant rights to develop and market products or product
candidates that we would otherwise prefer to develop and market ourselves.
Since our inception in 2006, we have not recorded any U.S. federal or state income tax benefits for the net losses we
have incurred in each year or our earned research and development tax credits, due to our uncertainty of realizing a benefit
from those items. As of December 31, 2021, we had net operating loss, or NOL, carryforwards for federal and state income
tax purposes of $423.6 million and $297.0 million, respectively. The federal and state NOLs generated for annual periods
prior to January 1, 2018 begin to expire in 2026. Our federal NOLs generated for the years ended after December 31, 2018,
which amounted to a total of $297.8 million, can be carried forward indefinitely. As of December 31, 2021, we also had
available research and development tax credit carryforwards for federal and state income tax purposes of $10.9 million and
$6.1 million , respectively, which begin to expire in 2026 and 2025, respectively. We have not completed a study to assess
whether an ownership change, generally defined as a greater than 50% change (by value) in the equity ownership of our
corporate entity over a three-year period, has occurred or whether there have been multiple ownership 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 during which these carryforwards may be
utilized against future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and
state tax purposes.
Contractual Obligations and Commitments
Total
Less Than
1 to 3
1 Year Years
3 to 5
Years
More than
5 Years
Operating lease commitments
Credit Agreement
2026 Convertible Notes
Total
$ 10,286
32,593
53,475
$ 96,354
$ 2,549
1,974
—
$ 4,523
(in thousands)
3,924
12,155
3,813
18,464
— 53,475
$ 75,752
$ 16,079
—
—
—
—
$
The table above includes our enforceable and legally binding obligations and future commitments at December 31,
2021, as well as obligations related to contracts that we are likely to continue, regardless of the fact that they may be
cancelable at December 31, 2021. Some of the figures that we include in this table are based on management’s estimates
and assumptions about these obligations, including their duration, and other factors. Because these estimates and
assumptions are necessarily subjective, the amounts we will actually pay in future periods may vary from those reflected in
the table.
We enter into contracts in the normal course of business to assist in the performance of our research and development
activities and other services and products for operating purposes. These contracts generally provide for termination on
notice, and therefore are cancelable contracts and not included in contractual obligations and commitments.
Operating lease commitments represent payments due under our leases of office, laboratory and manufacturing space
in Bedford, Massachusetts and certain office equipment under operating leases that expire in July 2023, March 2024 and
July 2027. We expect lease costs under these commitments to total $2.5 million in 2022 and increase annually. We expect
total costs of approximately $10.3 million over the terms of our current leases.
Under the Fourth Amendment, we are permitted to make interest-only payments under our Credit Facility through
April 2024. Commencing in May 2024, we are required to make 19 equal monthly installments of principal in the amount
of $1.0 million, plus interest, then on the maturity date, November 30, 2025 the remaining balance of $5.2 million plus the
exit fee. In the event we achieve certain milestones under the Fourth Amendment, we have the right to extend through
April 1, 2026 and make 5 equal monthly installments of principal in the amount of $1.0 million, plus interest. We have not
assumed the achievement of these milestones in the table above.
On March 2019, we issued the 2026 Convertible Notes pursuant to a note purchase agreement, or the Purchase
Agreement, with Cap 1 LLC, an affiliate of Summer Road LLC. The 2026 Convertible Notes accrue interest at an annual
rate of 6% of its outstanding principal amount, payable at maturity, on March 1, 2026, unless earlier converted, repurchased
or redeemed. The holders of the 2026 Convertible Notes may convert all or part of the outstanding principal
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amount of their 2026 Convertible Notes into shares of our common stock, par value $0.0001 per share, prior to maturity
and provided that no conversion results in a holder beneficially owning more than 19.99% of our issued and outstanding
common stock. The conversion rate is initially 153.8462 shares of our common stock per $1,000 principal amount of the
2026 Convertible Notes, which is equivalent to an initial conversion price is $6.50 per share. The conversion rate is
subject to adjustment in customary circumstances such as stock splits or similar changes to our capitalization. At our
election, we may choose to make such conversion payment in cash, in shares of common stock, or in a combination
thereof. Upon any conversion of any 2026 Convertible Note, we are obligated to make a cash payment to the holder of
such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted. Upon the occurrence of
a Corporate Transaction (as defined in the 2026 Convertible Notes), the holder of a 2026 Convertible Note is entitled, at
such holder’s option, to convert all of the outstanding principal amount of the 2026 Convertible Note in accordance with
the foregoing and receive an additional, “make-whole” cash payment in accordance with a table set forth in each 2026
Convertible Note.
Upon the occurrence of a Corporate Transaction, each holder of a 2026 Convertible Note has the option to require us
to repurchase all or part of the outstanding principal amount of such 2026 Convertible Note at a repurchase price equal to
100% of the outstanding principal amount of the 2026 Convertible 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
conversion rate then in effect for twenty of the preceding thirty trading days (including the last trading day of such period),
we are entitled, at our option, to redeem all or part of the outstanding principal amount of the 2026 Convertible Notes, on a
pro rata basis, at an optional redemption price equal to 100% of the outstanding principal amount of the 2026 Convertible
Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the optional redemption date.
The Purchase Agreement contains customary representations and warranties by us and the noteholder. The Purchase
Agreement does not include any financial covenants. Our obligations under the Purchase Agreement and the 2026
Convertible Notes are subject to acceleration upon the occurrence of specified events of default, including a default or
breach of certain contracts material to us and the delisting and deregistration of our common stock.
We have in-licensed a significant portion of our intellectual property from Incept, an intellectual property holding
company, under an amended and restated license agreement, or the License Agreement, that we entered into with Incept in
January 2012, which was most recently amended in September 2018. We are obligated to pay Incept a royalty equal to a
low-single-digit percentage of net sales made by us or our affiliates of any products, devices, materials, or components
thereof, or the Licensed Products, including or covered by Original IP (as defined in the License Agreement), excluding the
Shape-Changing IP (as defined in the License Agreement), in the Ophthalmic Field of Use (as defined in the License
Agreement). We are obligated to pay Incept a royalty equal to a mid-single-digit percentage of net sales made by us or our
affiliates of any Licensed Products including or covered by Original IP, excluding the Shape-Changing IP, in the Additional
Field of Use (as defined in the License Agreement). We are obligated to pay Incept a royalty equal to a low-single-digit
percentage of net sales made by us or our affiliates of any Licensed Products including or covered by Incept IP (as defined
in the License Agreement) or Joint IP (as defined in the License Agreement) in the field of drug delivery. Any sublicensee
of ours also will be obligated to pay Incept a royalty on net sales of Licensed Products made by it and will be bound by the
terms of the agreement to the same extent as we are. We are obligated to reimburse Incept for our share of the reasonable
fees and costs incurred by Incept in connection with the prosecution of the patent applications licensed to us under the
agreement. Our share of these fees and costs is equal to the total amount of such fees and costs divided by the total number
of Incept’s exclusive licensees of the patent application. We have not included in the table above any payments to Incept
under this license agreement as the amount, timing and likelihood of such payments are not known.
On October 29, 2020, we entered into the License Agreement with AffaMed. Pursuant to the terms of the License
Agreement, we are generally responsible for expenses related to the development and commercialization of DEXTENZA
regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis, or collectively, the
DEXTENZA Field, and for OTX-TIC, or collectively with DEXTENZA, the AffaMed Licensed Products, regarding open-
angle glaucoma or ocular hypertension, or collectively, the TIC Field and, with the DEXTENZA Field, each a Field, in
each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast
Asian Nations, or collectively, the Territories, provided that AffaMed (i) reimburse us a low-teen percentage of expenses
incurred in connection with certain clinical trials conducted by us and designed to support marketing approval of the
AffaMed Licensed Product by FDA or the European Medicines Agency,
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or the Global Studies; (ii) is solely responsible for expenses incurred in connection with territory-specific clinical trials that
it conducts in furtherance of the development plan agreed between the parties in the applicable Fields in the Territories, or
the Local Studies; and (iii) reimburse us in full for expenses incurred in connection with obtaining and maintaining
regulatory approvals of the AffaMed Licensed Products in the applicable Fields in the Territories. In the event AffaMed
declines to participate in a Global Study or to conduct a Local Study in any jurisdiction in which we determine to conduct
such a study, we are relieved of our obligation to provide AffaMed clinical data from such study, other than safety data,
unless AffaMed subsequently reimburses us in the amounts described above plus a prespecified premium.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as
defined in the rules and regulations of the Securities and Exchange Commission, such relationships with unconsolidated
entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established
for the 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 Accounting
Policies 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, 2021, we had cash and cash
equivalents of $164.2 million, which consisted of money market funds. We have policies requiring us to invest in high-
quality issuers, limit our exposure to any individual issuer, and ensure adequate liquidity. Our primary exposure to market
risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because
our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk
profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the
fair market value 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-35 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 President and Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, means controls and other procedures that are designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management, including our President and Chief
Executive Officer and Chief Financial Officer recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving their objectives and
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management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our President and
Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures
were 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
for Ocular Therapeutix, Inc. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance 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 and
dispositions of the assets of the company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company 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 or
disposition 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.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management, including our President and Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment,
management used the criteria set 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, 2021, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2021, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears
herein.
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 the
Exchange Act) occurred during the three months ended December 31, 2021 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not Applicable.
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Item 10.
Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
PART III
The information required by this item will be set forth in our Proxy Statement for the 2022 Annual Meeting of
Stockholders and is incorporated in this Annual Report on Form 10-K by reference.
Delinquent Section 16(a) Reports
The information required by this item will be set forth in our Proxy Statement for the 2022 Annual Meeting of
Stockholders, if applicable, 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 our
principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions) as well as our other employees. A copy of our code of business conduct and ethics is available on our
website. We intend to post on our website all disclosures that are required by applicable law, the rules of the Securities and
Exchange Commission or the Nasdaq Global Market concerning any amendment to, or waiver of, our code of business
conduct and ethics.
Director Nominees
The information required by this item will be set forth in our Proxy Statement for the 2022 Annual Meeting of
Stockholders 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 the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Additional information regarding the Audit
Committee that is required by this item will be set forth in our Proxy Statement for the 2022 Annual Meeting of
Stockholders and is incorporated in this Annual Report on Form 10-K by reference.
Audit Committee Financial Expert
Our board of directors has determined that each of Bruce Peacock, who has provided us with notice of his intent to
resign immediately following the 2022 Annual Meeting of Stockholders, and Merilee Raines, qualify as an “audit
committee financial expert” as defined by Item 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 2022 Annual Meeting of
Stockholders 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 2022 Annual Meeting of
Stockholders and is incorporated in this Annual Report on Form 10-K by reference.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be set forth in our Proxy Statement for the 2022 Annual Meeting of
Stockholders and is incorporated in this Annual Report on Form 10-K by reference.
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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 2022 Annual Meeting of
Stockholders 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 2022 Annual Meeting of
Stockholders and is incorporated in this Annual Report on Form 10-K by reference.
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Item 15.
Exhibits, Financial Statement Schedules
PART IV
The following financial statements are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
No financial statement schedules have been filed as part of this Annual Report on Form 10-K because they are not
applicable, not required or because the information is otherwise included in our consolidated financial statements or notes
thereto.
The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately
following Item 16. The Exhibit Index is incorporated herein by reference.
Item 16.
Form 10-K Summary
None.
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Exhibit
Number
3.1
3.2
4.1
4.2
Description of Exhibit
Restated Certificate of Incorporation
of the Registrant
Amended and Restated Bylaws of the
Registrant
Specimen Stock Certificate evidencing
the shares of common stock
Registration Rights Agreement, dated
as of March 1, 2019, by and among the
Registrant and the Purchasers
identified therein
4.3
Description of Securities Registered
under Section 12 of the Exchange Act
10.1+
2006 Stock Incentive Plan, as amended
10.2+
10.3+
Form of Stock Option Agreement
under 2006 Stock Incentive Plan
Form of Restricted Stock Agreement
under 2006 Stock Incentive Plan
EXHIBIT INDEX
Form
8-K
Incorporated by Reference
Date of
Filing
7/30/2014
File Number
001-36554
Exhibit
Number
3.1
Filed
Herewith
8-K
001-36554
7/30/2014
S-1/A
333-196932
7/11/2014
10-K
001-36554
3/7/2019
3.2
4.1
4.2
X
S-1
S-1
333-196932
6/20/2014
333-196932
6/20/2014
10.1
10.2
S-1
333-196932
6/20/2014
10.3
10.4+
2014 Stock Incentive Plan
S-1/A
333-196932
7/11/2014
S-1/A
333-196932
7/11/2014
10.4
10.5
10.5+
10.6+
Form of Incentive Stock Option
Agreement under 2014 Stock Incentive
Plan
Form of Non-statutory Stock Option
Agreement under 2014 Stock Incentive
Plan
10.7+
Form of Restricted Stock Agreement
under 2014 Stock Incentive Plan
S-1/A
333-196932
7/11/2014
10.6
S-1/A
333-196932
7/11/2014
10.7
10.8+
2019 Inducement Stock Incentive Plan
10-Q
001-036554
11/12/2019
10.9+
Amendment to 2019 Inducement Stock
Incentive Plan
10-K
001-36554
3/11/2021
10.1
10.9
10.10+
Form of Non-statutory Stock Option
Agreement under 2019 Inducement
Stock Incentive Plan
10-Q
001-036554
11/12/2019
10.2
138
Table of Contents
Exhibit
Number
Description of Exhibit
10.11† Amended and Restated License
Agreement, dated January 27, 2012,
between the Registrant and Incept LLC
10.12
Lease Agreement dated September 2,
2009, by and between the Registrant
and RAR2-Crosby Corporate Center
QRS, Inc., as amended.
Incorporated by Reference
Date of
Filing
6/20/2014
File Number
333-196932
Form
S-1
Exhibit
Number
10.8
Filed
Herewith
S-1
333-196932
6/20/2014
10.9
10.13+
2014 Employee Stock Purchase Plan
S-1/A
333-196932
7/11/2014
10.10
10.14
10.15
10.16
10.18
Form of Indemnification Agreement
by and between the Registrant and
each of its directors and executive
officers
Transition, Separation and Release of
Claims Agreement by and between the
Registrant and Dr. Amarpreet S.
Sawhney dated as of May 29, 2019
Lease Agreement dated June 17, 2016
between the WS NF 15 Crosby Drive,
LLC and the Registrant
Open Market Sale AgreementSM, dated
as of August 9, 2021, by and between
the Registrant and Jefferies LLC
10.19+
Employment Agreement, by and
between the Registrant and Philip
Strassburger, dated August 28, 2020
10.20
Consulting Agreement by and between
the Registrant and Dr. Amarpreet S.
Sawhney, dated as of May 29, 2019
10.21+
Employment Agreement, by and
between the Registrant and Antony C.
Mattessich, dated as of June 20, 2017
S-1
333-196932
6/20/2014
10.12
8-K
001-36554
5/30/2019
10.1
10-Q
001-36554
8/9/2016
10.1
8-K
001-36554
8/9/2021
1.1
10-K
001-36554
3/11/2021
10.19
8-K
001-36554
5/30/2019
10.2
8-K
001-36554
6/22/2017
10.2
10.22+ Non-Statutory Stock Option
8-K
001-36554
6/22/2017
10.3
Agreement, by and between the
Registrant and Antony C. Mattessich
dated as of June 20, 2017
10.23+
Employment Agreement, by and
between the Registrant and Donald
Notman, dated as of September 25,
2017
8-K
001-36554
9/25/2017
10.1
139
Table of Contents
Exhibit
Number
10.24
10.25+
10.26†
10.27
10.28
10.29
10.30
10.31
Description of Exhibit
Second Amendment to Lease, by and
between the Registrant and CCC
Investors LLC, dated October 10, 2017
Employment Agreement, by and
between the Registrant and Michael
Goldstein, dated as of September 25,
2017
Second Amended and Restated
License Agreement, dated September
13, 2018, by and between the
Registrant and Incept LLC
Third Amended and Restated Credit
and Security Agreement dated
December 21, 2018 by and among
MidCap Financial Trust, as
administrative agent, the Registrant,
and the Lenders listed therein
First Amendment to Third Amended
and Restated Credit and Security
Agreement, dated as of February 21,
2019, by and among the Registrant,
MidCap Financial Trust, as
administrative agent, and the Lenders
listed therein
Second Amendment to Third
Amended and Restated Credit and
Security Agreement, by and among the
Registrant, MidCap Financial Trust, as
administrative agent, and the Lenders
listed therein
Subordination Agreement, dated as of
February 21, 2019, by and among the
Registrant, MidCap Financial Trust, as
administrative agent, and the Lenders
listed therein
Note Purchase Agreement (including
Form of Senior Subordinated
Convertible Note), dated as of
February 21, 2019, by and among the
Registrant and the Purchasers listed
therein
Form
8-K
Incorporated by Reference
Date of
Filing
10/16/2017
File Number
001-36554
Exhibit
Number
10.1
Filed
Herewith
10-K
001-36554
3/8/2018
10.30
8-K
001-36554
9/19/2018
10.1
8-K
001-36554
12/28/2018
10.1
8-K
001-36554
2/22/2019
10.3
10-Q
001-36554
8/7/2019
10.5
8-K
001-36554
2/22/2019
10.4
8-K
001-36554
2/22/2019
10.1
10.32
Sublease, dated as of April 4, 2019, by
and among Ocular Therapeutix, Inc.
and Holcim (US) Inc.
10-Q
001-36554
5/10/2019
10.4
140
Table of Contents
Exhibit
Number
10.35*
10.36*
10.37
Description of Exhibit
Form
Incorporated by Reference
Date of
Filing
File Number
Exhibit
Number
Filed
Herewith
10-Q
001-36554
11/5/2020
10.1
10-K
001-36554
3/11/2021
10.36
8-K
001-36554
6/4/2021
10.1
License Agreement, by and between
the Registrant and AffaMed
Therapeutics Limited, dated as of
October 29, 2020
Supplement to License Agreement, by
and between the Registrant and
AffaMed Therapeutics Limited, dated
as of January 18, 2021
Fourth Amended and Restated Credit
and Security Agreement dated June 4,
2021 by and among the Registrant,
MidCap Financial Trust, as
administrative agent, and the Lenders
listen therein
10.38+
2021 Stock Incentive Plan
DEF 14A
001-36554
4/29/2021
Appendix A
10.39+
Form of Option Grant Agreement
under 2021 Stock Incentive Plan
10.40+
10.41
21.1
Form of Restricted Stock Unit
Agreement under 2021 Stock Incentive
Plan
Amendment No. 1 to License
Agreement, by and between the
Registrant and AffaMed Therapeutics
(HK) Limited, dated as of October 28,
2021
Subsidiaries of the Registrant
23.1
Consent of PricewaterhouseCoopers LLP
31.1
31.2
32.1
32.2
Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended
Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended
Certification of principal executive officer pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of principal financial officer pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File
because XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
141
X
X
X
X
X
X
X
X
X
X
X
X
Table of Contents
Exhibit
Number
Description of Exhibit
Form
Incorporated by Reference
Date of
Filing
File Number
Exhibit
Number
Filed
Herewith
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Database
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104
The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL and contained in
Exhibit 101
X
X
X
X
† Confidential treatment has been granted as to certain portions, which portions have been omitted and separately filed
with the Securities and Exchange Commission.
+ Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to the
Annual Report on Form 10-K.
* Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
142
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 2022
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 following
persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Antony Mattessich
Antony Mattessich
/s/ Donald Notman
Donald Notman
/s/ Charles Warden
Charles Warden
/s/ Jeffrey S. Heier, M.D.
Jeffrey S. Heier, M.D.
/s/ Seung Suh Hong, PH.D.
Seung Suh Hong, PH.D.
/s/ Richard L. Lindstrom, M.D.
Richard L. Lindstrom, M.D.
/s/ Merilee Raines
Merilee Raines
/s/ Bruce A. Peacock
Bruce A. Peacock
/s/ Leslie Williams
Leslie Williams
President and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2022
February 28, 2022
Chairman of the Board
February 28, 2022
Director
Director
Director
Director
Director
Director
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
Table of Contents
OCULAR THERAPEUTIX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ocular Therapeutix, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ocular Therapeutix, Inc. and its subsidiaries (the
“Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive
loss, of changes in stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December
31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
F-2
Table of Contents
detection of unauthorized acquisition, use, or disposition 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. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts
or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Derivative Liability
As described in Notes 2 and 4 to the consolidated financial statements, the Company’s derivative liability balance was
$20.2 million as of December 31, 2021 and the change in fair value recorded in other income (expense), net was $78.1
million for the year ended December 31, 2021. The derivative liability was recorded at fair value upon the issuance of the
2026 convertible notes and is subsequently remeasured to fair value at each reporting period. The derivative liability was
initially valued and remeasured using a “with-and-without” method. The “with-and-without” methodology involves
valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option.
The difference between the entire instrument with the embedded conversion option compared to the instrument without the
embedded conversion option is the fair value of the derivative, recorded as the derivative liability. The fair value of the
2026 convertible notes with and without the conversion option is estimated using a binomial lattice approach. The main
inputs to valuing the 2026 convertible notes with the conversion option as of December 31, 2021 include the Company’s
stock price on the valuation date, the expected annual volatility of the Company’s stock and the bond yield. The significant
assumption used in determining the bond yield is the market yield movements of a comparable instrument issued as of the
valuation date, which is assessed and updated each period
The principal considerations for our determination that performing procedures relating to the valuation of the derivative
liability is a critical audit matter are the significant judgment by management to determine the fair value of the derivative
liability using a binomial lattice approach; this in turn led to a high degree of auditor judgment, subjectivity, and effort in
performing procedures and in evaluating the audit evidence obtained related to the valuation of the derivative liability and
management’s significant assumption related to market yield movements used in determining the bond yield input. In
addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to the derivative liability, including controls over the main inputs and significant assumption used to estimate the
derivative liability. These procedures also included, among others (i) the involvement of professionals with specialized skill
and knowledge to assist in developing an independent range of fair values for the derivative liability and (ii) comparing the
independent estimate to management’s fair value estimate to evaluate the reasonableness of management’s estimate.
Developing the independent estimate involved testing the completeness and accuracy of the inputs provided by
management and evaluating the reasonableness of management’s significant assumption related to market yield movements
used in determining the bond yield by considering observable data.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 28, 2022
We have served as the Company’s auditor since 2008.
F-3
Table of Contents
OCULAR THERAPEUTIX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Operating lease assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities
Notes payable, net of discount, current
Total current liabilities
Other liabilities:
Operating lease liabilities, net of current portion
Derivative liability
Deferred revenue
Notes payable, net of discount
2026 convertible notes, net
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized and no shares issued
or outstanding at December 31, 2021 and December 31, 2020, respectively
Common stock, $0.0001 par value; 200,000,000 and 100,000,000 shares authorized
and 76,731,940 and 75,996,732 shares issued and outstanding at December 31, 2021
and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2021
December 31,
2020
$
$
$
$
$
$
164,164
21,135
1,250
4,751
191,300
6,956
1,764
4,867
204,887
4,592
20,121
1,624
—
26,337
5,924
20,192
13,000
25,000
26,435
116,888
228,057
12,252
1,201
4,650
246,160
8,095
1,764
5,844
261,863
2,709
14,307
1,358
8,290
26,664
7,548
98,313
12,000
16,936
24,307
185,768
—
—
8
633,795
(545,804)
87,999
204,887
$
8
615,338
(539,251)
76,095
261,863
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
OCULAR THERAPEUTIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Revenue:
Product revenue, net
Total revenue, net
Costs and operating expenses:
Cost of product revenue
Research and development
Selling and marketing
General and administrative
Total costs and operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Change in fair value of derivative liability
Other income (expense), net
Total other income (expense), net
Net loss and comprehensive loss
Net loss per share, basic
Weighted average common shares outstanding, basic
Net loss per share, diluted
Weighted average common shares outstanding, diluted
Year Ended December 31,
2021
2020
2019
$
43,522
43,522
$
17,403
17,403
$
4,227
4,227
4,406
50,083
35,190
31,880
121,559
(78,037)
2,325
41,091
24,491
22,122
90,029
(85,802)
2,083
28,694
26,614
22,859
80,250
(62,847)
168
(6,768)
(86,189)
33
(6,671)
78,121
1
71,484
(6,553) $
(0.09) $
—
(92,789)
(155,636) $
(2.56) $
$
$
76,392,870
$
82,162,102
60,752,225
(0.98) $
(2.56) $
60,752,225
1,229
(6,101)
4,310
(8)
(570)
(86,372)
(1.91)
45,273,231
(1.91)
45,273,231
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
OCULAR THERAPEUTIX, INC.
(In thousands, except share data)
Balances at December 31, 2018
Issuance of common stock upon exercise of stock options
Issuance of common stock in connection with employee stock purchase plan
Issuance of common stock upon public offering, net of issuance costs
Stock-based compensation expense
Net loss
Balances at December 31, 2019
Issuance of common stock upon exercise of stock options
Issuance of common stock in connection with employee stock purchase plan
Issuance of common stock upon public offering, net of issuance costs
Stock-based compensation expense
Net loss
Balances at December 31, 2020
Issuance of common stock upon exercise of stock options
Issuance of common stock in connection with employee stock purchase plan
Issuance of common stock upon cashless exercise of warrant
Common stock issuance costs
Stock-based compensation expense
Net loss
Balances at December 31, 2021
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
Common Stock
—
—
—
—
$
Additional
Paid-in
Par Value Capital
$ 333,114
4
78
—
451
—
37,578
1
—
8,759
—
5
1
—
2
—
—
8
—
—
—
—
—
—
8
615,338
2,586
985
—
(91)
14,977
—
$ 633,795
379,980
2,585
747
224,495
7,531
$
Shares
41,518,091
28,583
130,945
8,655,940
50,333,559
567,776
161,175
24,934,222
75,996,732
598,923
124,548
11,737
—
—
—
76,731,940
—
—
$ (297,243) $
—
—
—
—
(86,372)
(383,615)
—
—
—
—
(155,636)
(539,251)
—
—
—
—
—
(6,553)
$ (545,804) $
35,875
78
451
37,579
8,759
(86,372)
(3,630)
2,586
747
224,497
7,531
(155,636)
76,095
2,586
985
—
(91)
14,977
(6,553)
87,999
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
OCULAR THERAPEUTIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
$
(6,553)
$ (155,636)
$ (86,372)
Year Ended December 31,
2020
2019
2021
Stock-based compensation expense
Non-cash interest expense
Change in fair value of derivative liability
Depreciation and amortization expense
Gain on disposal of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Inventory
Operating lease assets
Accounts payable
Accrued expenses
Deferred revenue
Operating lease liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of notes payable, net
Proceeds from issuance of 2026 convertible notes, net of issuance costs
Proceeds from exercise of stock options
Proceeds from issuance of common stock pursuant to employee stock purchase plan
Proceeds from the Paycheck Protection Program Loan
Repayment of the Paycheck Protection Program Loan
Proceeds from issuance of common stock upon public offering, net of issuance costs
Issuance costs from the issuance of common stock upon public offering
Repayment of notes payable
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Supplemental disclosure of non-cash investing and financing activities:
Additional right of use asset and related lease liability
Additions to property and equipment included in accounts payable and accrued expenses
at balance sheet dates
Cashless exercise of warrant
Derivative liability in connection with issuance of 2026 convertible notes
Public offering costs included in accounts payable and accrued expenses at balance sheet
dates
14,977
4,628
(78,121)
2,421
(1)
(8,883)
(101)
(49)
977
1,796
3,717
1,000
(1,358)
(65,550)
(1,194)
(1,194)
3,722
—
2,586
985
—
—
—
7,531
4,415
86,189
2,773
—
(9,704)
(2,419)
(247)
811
(452)
2,311
12,000
(1,125)
(53,554)
(841)
(841)
—
—
2,585
747
3,201
(3,201)
224,682
—
—
(275)
(4,167)
2,851
(63,893)
229,821
$ 165,928
228,014
173,620
56,201
$ 229,821
1,932
$
2,354
$
$
8,759
3,683
(4,310)
2,530
7
(2,347)
(518)
(737)
733
124
1,714
—
(844)
(77,578)
(2,238)
(2,238)
—
37,275
78
451
—
—
37,537
—
—
75,341
(4,475)
60,676
56,201
2,298
— $
— $
2,044
181
$
— $
$
91
—
— $
214
—
16,434
— $
184
$
42
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
OCULAR 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 of
Delaware. The Company is a biopharmaceutical company focused on the formulation, development and commercialization
of innovative therapies for diseases and conditions of the eye using its proprietary, bioresorbable hydrogel platform
technology. The Company’s product pipeline candidates provide differentiated drug delivery solutions that reduce the
complexity and burden of the current standard of care by creating local programmed-release alternatives. Since inception,
the Company’s operations have been primarily focused on organizing and staffing the Company, acquiring rights to
intellectual property, business planning, raising capital, developing its technology, identifying product candidates,
undertaking preclinical studies and clinical trials, manufacturing initial quantities of its products and product candidates
and building the initial sales and marketing infrastructure for the commercialization of the Company’s approved products
and product candidates and launching its initial product.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to,
new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with
government regulations, regulatory approval and compliance, reimbursement, uncertainty of market acceptance of products
and the need to obtain additional financing. Recently approved products will require significant sales, marketing and
distribution support up to and including upon their launch. Product candidates currently under development will require
significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory
approval, prior to commercialization.
As of December 31, 2021, the Company had two FDA-approved products in commercialization in the United States:
DEXTENZA® (dexamethasone insert) 0.4mg, an intracanalicular insert for the treatment of post-surgical ocular
inflammation and pain and ReSure® Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions
following cataract surgery. In October 2021, DEXTENZA received approval for the treatment of ocular itching associated
with allergic conjunctivitis. While ReSure Sealant is commercially available in the United States, it does not receive sales
support, is not currently being manufactured by the Company, and has not in the past generated, nor is it anticipated to in
the future to generate, material revenues. The Company’s most advanced product candidates are in either Phase 1 or Phase
2 of clinical stage development. There can be no assurance that the Company’s research and development will be
successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any
products developed will obtain necessary government regulatory approval and adequate reimbursement or that any
approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is
uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an
environment of rapidly changing technology and substantial competition from pharmaceutical and biotechnology
companies. In addition, the Company is dependent upon the services of its employees and consultants. The Company may
not be able to generate significant revenue from sales of any product for several years, if at all. Accordingly, the Company
will need to obtain additional capital to finance its operations.
The Company has incurred losses and negative cash flows from operations since its inception, and the Company
expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future. As of
December 31, 2021, the Company had an accumulated deficit of $545,804. The Company believes that its existing cash
and cash equivalents of $164,164, as of December 31, 2021, along with its current operating plan, which includes revenues
from the sale of DEXTENZA, will enable it to fund its planned operating expenses, debt service obligations and capital
expenditure at least through the next 12 months. The future viability of the Company beyond that point is dependent on its
ability to generate cash flows from the sale of DEXTENZA and raise additional capital to finance its operations. The
Company will need to finance its operations through public or private securities offerings, debt financings or other sources,
which may include licensing, collaborations or other strategic transactions or arrangements. Although the Company has
been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional
financing on terms acceptable to the Company, if at all. If the Company is unable to obtain funding, the Company could be
forced to delay, reduce or eliminate some or all of its research and
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development programs for product candidates, product portfolio expansion or commercialization efforts, which could
adversely affect its business prospects, or the Company may be unable to continue operations.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
Risks and Uncertainties
The Company is monitoring the potential impact of the COVID-19 pandemic, if any, on the carrying value of certain
assets. To date, the Company has not experienced a material business disruption, nor has it incurred impairment of any
assets as a result of the COVID-19 pandemic. The extent to which these events may impact the Company’s business will
depend on future developments, which are highly uncertain and cannot be predicted at this time. The duration and intensity
of the COVID-19 pandemic and any resulting disruption to the Company’s operations is uncertain, and the Company will
continue to assess the impact of the COVID-19 pandemic on its financial position.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned
subsidiaries. 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
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include,
but are not limited to, revenue recognition, and the fair value of derivatives. 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
date of purchase to be cash equivalents. Cash equivalents, which primarily consist of money market accounts, are stated at
fair value.
Revenue Recognition
Product Revenue
The Company recognizes product revenue from DEXTENZA for the treatment of post-surgical ocular inflammation
and pain, which it began selling to customers in June 2019, and ReSure Sealant. The Company has generated limited
revenues from ReSure Sealant to date and does not expect significant future sales.
In November 2018, the FDA approved DEXTENZA for the treatment of ocular pain following ophthalmic surgery.
The Company entered into a limited number of arrangements with specialty distributors in the United States to distribute
DEXTENZA. The Company recognizes revenue in accordance with Accounting Standards Codification 606 – Revenue
from Contracts with Customers (“Topic 606”). Topic 606 applies to all contracts with customers, except for contracts that
are within the scope of other standards, such as leases, insurance arrangements and financial instruments. Under Topic 606,
an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects
the consideration which the entity expects to be entitled to in exchange for those goods or services.
To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the
entity performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The
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Company only applies the five-step model to arrangements that meet the definition of a contract with a customer under
Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the
goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope
of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are
performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as
revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied. For a complete discussion of accounting for product revenue, see Product Revenue,
Net (below).
Product Revenue, Net— The Company derives its product revenues from the sale of DEXTENZA in the United
States to customers, which includes a limited number of specialty distributors, who then subsequently resell DEXTENZA
to physicians, clinics and certain medical centers or hospitals. In addition to distribution agreements with customers, the
Company enters into arrangements with government payors that provide for government mandated rebates and
chargebacks with respect to the purchase of DEXTENZA.
The Company recognizes revenue on product sales when the customer obtains control of the Company's product,
which occurs at a point in time (upon delivery to the customer). The Company has determined that the delivery of
DEXTENZA to its customers constitutes a single performance obligation. There are no other promises to deliver goods or
services beyond what is specified in each accepted customer order. The Company has assessed the existence of a
significant financing component in the agreements with its customers. The trade payment terms with the Company’s
customers do not exceed one year and therefore the Company has elected to apply the practical expedient and no amount of
consideration has been allocated as a financing component. Product revenues are recorded net of applicable reserves for
variable consideration, including discounts and allowances.
Transaction Price, including Variable Consideration— Revenues from product sales are recorded at the net sales
price (transaction price), which includes estimates of variable consideration for which reserves are established.
Components of variable consideration include trade discounts and allowances, product returns, government chargebacks,
discounts and rebates, and other incentives, such as voluntary patient assistance, and other fee-for-service amounts that are
detailed within contracts between the Company and its customers relating to the Company’s sale of DEXTENZA. These
reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as
reductions of accounts receivable or a current liability. These estimates take into consideration a range of possible
outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors
such as current contractual and statutory requirements, specific known market events and trends, industry data, and
forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the
amount of consideration to which it is entitled based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained, and is included
in the net sales price, only to the extent that it is probable that a significant reversal in the amount of the cumulative
revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately
received may differ from the Company’s estimates. If actual results in the future vary from the Company’s original
estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such
variances become known.
Trade Discounts and Allowances—The Company compensates (through trade discounts and allowances) its
customers for sales order management, data, and distribution services. However, the Company has determined such
services received to date are not distinct from the Company’s sale of products to the customer and, therefore, these
payments have been recorded as a reduction of revenue within the statement of operations and comprehensive loss, as well
as a reduction to accounts receivables, net on the consolidated balance sheets.
Product Returns— Consistent with industry practice, the Company generally offers customers a limited right of
return for product that has been purchased from the Company in certain circumstances as further discussed below. The
Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a
reduction of revenue in the period the related product revenue is recognized, as well as within accrued expenses and other
current liabilities, in the accompanying consolidated balance sheets. The Company currently estimates product return
reserves using available industry data and its own sales information, including its visibility into the inventory remaining in
the distribution channel. The Company has received no returns to date and believes the returns of DEXTENZA will be
minimal.
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Government Chargebacks— Chargebacks for fees and discounts to qualified government healthcare providers
represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S. Department
of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who directly
purchase the product from the Company. The 340B Drug Discount Program is a U.S. federal government program created
in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered
entities at significantly reduced prices. Customers charge the Company for the difference between what they pay for the
product and the statutory selling price to the qualified government entity. These allowances are established in the same
period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables, net.
Chargeback amounts are generally determined at the time of resale to the qualified government healthcare provider by
customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification
to the Company of the resale. Allowance for chargebacks consist of credits that the Company expects to issue for units that
remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to
qualified healthcare providers, and chargebacks that customers have claimed, but for which the Company has not yet issued
a credit.
Government Rebates— The Company is subject to discount obligations under state Medicaid programs and
Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of
product revenue and the establishment of a current liability which is included in accrued expenses and other current
liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the
prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program.
For Medicaid programs, the Company estimates the portion of sales attributed to Medicaid patients and records a liability
for the rebates to be paid to the respective state Medicaid programs. The Company’s liability for these rebates consists of
invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received,
estimates of claims for the current quarter, and estimated future claims that will be made for product that has been
recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.
Rebates— The Company offers rebate payments for which ambulatory surgical centers, hospital out-patient
departments and other prescribers qualify by meeting quarterly purchase volumes of DEXTENZA under the Company’s
rebate program. The Company calculates rebate payment amounts due under this program quarterly, based on actual
qualifying purchase and applies a contractual discount rate. The calculation of the accrual for rebates is based on an
estimate of claims that the Company expects to receive associated with product that has been recognized as revenue, but
remains in the distribution channel inventories at the end of each reporting period. The adjustments are recorded in the
same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a
current liability which is included as an accrued expenses and other current liabilities on the consolidated balance sheets.
Other Incentives— Other incentives which the Company offers include voluntary patient assistance programs, such
as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured
patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is
based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has
been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. The
adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue
and the establishment of a current liability which is included as an accrued expenses and other current liabilities on the
consolidated balance sheets.
Collaboration Revenue
To determine the appropriate amount of revenue to be recognized for arrangements the Company determines are
within the scope of Topic 606, the Company performs the following steps: (i) identify the contract(s) with its customer; (ii)
identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price
to the performance obligations in the contract; and (v) recognize revenue when or as each performance obligation is
satisfied.
The Company accounts for a contract with a customer that is within the scope of Topic 606 when all of the following
criteria are met: (i) the arrangement has been approved by the parties and the parties are committed to perform their
respective obligations; (ii) each party’s rights regarding the goods and/or services to be transferred can be
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identified; (iii) the payment terms for the goods and/or services to be transferred can be identified; (iv) the arrangement has
commercial substance; and (v) collection of substantially all of the consideration to which the Company will be entitled in
exchange for the goods and/or services that will be transferred to the customer is probable. The Company also determines
the term of the contract based on the period in which the Company and its customer have present and enforceable rights
and obligations for purposes of identifying the performance obligations and determining the transaction price.
The Company evaluates contracts that contain multiple promises to determine which promises are distinct. Promises
are considered to be distinct and therefore, accounted for as separate performance obligations, provided that: (i) the
customer can benefit from the good or service either on its own or together with other resources that are readily available to
the customer and (ii) the promise to transfer the good or service to the customer is separately identifiable from other
promises in the contract. In assessing whether a promise is distinct, the Company considers factors such as whether: (i) the
Company provides a significant service of integrating goods and/or services with other goods and/or services promised in
the contract; (ii) one or more of the goods and/or services significantly modifies or customizes, or are significantly
modified or customized by one or more of the other goods and/or services promised in the contract; and (iii) the goods
and/or services are highly interdependent or highly interrelated. Individual goods or services (or bundles of goods and/or
services) that meet both criteria for being distinct are accounted for as separate performance obligations. Promises that are
not distinct at contract inception are combined and accounted for as a single performance obligation. Options to acquire
additional goods and/or services are evaluated to determine if such option provides a material right to the customer that it
would not have received without entering into the contract. If so, the option is accounted for as a separate performance
obligation. If not, the option is considered a marketing offer which would be accounted for as a separate contract upon the
customer’s election.
The transaction price is generally comprised of an upfront payment due at contract inception and variable
consideration in the form of payments for the Company’s goods and services and materials and milestone payments due
upon the achievement of specified events. Other payments the Company could be entitled to include tiered royalties earned
when customers recognize net sales of licensed products. The Company considers the existence of any significant financing
component within its arrangements and have determined that a significant financing component does not exist in its
arrangements as substantive business purposes exist to support the payment structure other than to provide a significant
benefit of financing. The Company measures the transaction price based on the amount of consideration to which the
Company expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The
Company utilizes either the expected value method or the most likely amount method to estimate the amount of variable
consideration, depending on which method is expected to better predict the amount of consideration to which the Company
will be entitled. Amounts of variable consideration are included in the transaction price to the extent that it is probable that
a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with
the variable consideration is subsequently resolved. With respect to arrangements that include payments for a development
or regulatory milestone payment, the Company evaluates whether the associated event is considered likely of achievement
and estimates the amount to be included in the transaction price using the most likely amount method. Milestone payments
that are not within the Company’s control or the licensee, such as those dependent upon receipt of regulatory approval, are
not considered to be likely of achievement until the triggering event occurs. At the end of each reporting period, the
Company re-evaluates the probability of achievement of each milestone and any related constraint, and if necessary, adjust
its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which
would affect revenue and net loss in the period of adjustment. For arrangements that include sales-based royalties,
including milestone payments based upon the achievement of a certain level of product sales, wherein the license is
deemed to be the sole or predominant item to which the payments relate, the Company recognizes revenue upon the later
of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been
allocated has been satisfied (or partially satisfied). Consideration that would be received for optional goods and/or services
is excluded from the transaction price at contract inception.
The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are
expected to be recovered. The Company has elected a practical expedient wherein it recognizes the incremental costs of
obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have
recognized is one year or less. To date, the Company has not incurred any incremental costs of obtaining a contract with a
customer.
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Table of Contents
Inventory
The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines
the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out
basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period,
and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the
impairment is first identified. Such impairment charges, should they occur, are recorded within cost of product
revenue. The determination of whether inventory costs will be realizable requires estimates by management. If actual
market conditions are less favorable than projected by management, additional write-downs of inventory may be required,
which would be recorded as a cost of product revenue in the consolidated statements of operations and comprehensive loss.
The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when,
based on management’s judgment, future commercialization is considered probable and the future economic benefit is
expected to be realized. Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as
research and development expense as incurred. Inventory that can be used in either the production of clinical or
commercial product is expensed as research and development expense when selected for use in a clinical manufacturing
campaign. Inventory produced that will be used in promotional marketing campaigns is expensed to selling and marketing
expense when it is selected for use in a marketing program.
Inventory consisted of the following:
Raw materials
Work-in-process
Finished goods
Restricted Cash
December 31,
2021
December 31,
2020
$
$
388
605
257
1,250
$
$
384
232
585
1,201
As of December 31, 2021, 2020 and 2019, the Company held restricted cash of $1,764, respectively, on its
consolidated balance sheet. The Company held restricted cash as security deposits for the lease of its manufacturing space
and corporate headquarters.
The Company’s statements of cash flows include restricted cash with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash
equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the
statement of cash flows is as follows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash as shown on
the statements of cash flows
December 31, December 31, December 31,
2020
$ 228,057
1,764
2021
$ 164,164
1,764
2019
54,437
1,764
$
$ 165,928
$ 229,821
$
56,201
Concentration of Credit Risk and of Significant Suppliers and Customers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company has all cash and cash equivalents balances at one accredited
financial institution, in amounts that exceed federally insured limits. The Company does not believe that it is subject to
unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company is dependent on a small number of third-party manufacturers to supply products for research and
development activities in its preclinical and clinical programs and for sales of its products. The Company’s development
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programs as well as revenue from future sales of its product sales could be adversely affected by a significant interruption
in the supply of any of the components of these products.
For the year ended December 31, 2021, three specialty distributor customers accounted for 42%, 26% and 17% of
the Company’s total revenue and three specialty distributor customers accounted for 42%, 26% and 21% of the Company’s
total accounts receivable. No other customer accounted for more than 10% of total revenue or accounts receivable for the
year ended December 31, 2021.
For the year ended December 31, 2020, three specialty distributor customers accounted for 42%, 29% and 12% of
the Company’s total revenue and three specialty distributor customers accounted for 42%, 33% and 15% of the Company’s
total accounts receivable. No other customer accounted for more than 10% of total revenue or accounts receivable for the
year ended December 31, 2020.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used 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
the fair 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
similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or
liabilities, or other inputs 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 to
determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
The Company’s cash equivalents at December 31, 2021 and 2020 were carried at fair value determined according to
the fair value hierarchy described above (Note 3). The Company’s derivative liability at December 31, 2021 and 2020 was
carried at fair value determined according to the fair value hierarchy described above and classified as a Level 3
measurement. The carrying value of accounts receivable, prepaid expenses and other current assets, accounts payable and
accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities.
The carrying value of the Company’s variable interest rate notes payable (Note 9) are recorded at amortized costs,
which approximates fair value due to their short-term nature.
On March 1, 2019, the Company issued $37,500 aggregate principal amount of unsecured senior subordinated
convertible notes (the “2026 Convertible Notes”) (Note 5) which is carried, net of derivative liability, at its amortized cost
of $26,435 at December 31, 2021. The estimated fair value of the 2026 Convertible Notes was $52,790 and $129,362 at
December 31, 2021 and 2020. The fair value of the 2026 Convertible Notes was estimated utilizing a binomial lattice
model which requires the use of Level 3 unobservable inputs. The main input when determining the fair value of the 2026
Convertible Notes is the bond yield that pertains to the host instrument without the conversion option. The significant
assumption used in determining the bond yield is the market yield movements of a comparable instrument issued as of the
valuation date, which is assessed and updated each period. The main input when determining the fair value for disclosure
purposes is the bond yield which is updated each period to reflect the yield of a comparable instrument issued as of the
valuation date. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a
current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these
estimates of fair value.
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Derivative Liability
The 2026 Convertible Notes allow the holders to convert all or part of the outstanding principal of their 2026
Convertible Notes into shares of the Company’s common stock provided that no conversion results in a holder beneficially
owning more than 19.99% of the issued and outstanding common stock of the Company. The entire embedded conversion
option is required to be separated from the 2026 Convertible Notes and accounted for as a freestanding derivative
instrument subject to derivative accounting. The main input when determining the fair value of the 2026 Convertible Notes
is the bond yield that pertains to the host instrument without the conversion option. The significant assumption used in
determining the bond yield is the market yield movements of a comparable instrument issued as of the valuation date,
which is assessed and updated each period. Therefore, the entire conversion option is bifurcated from the underlying debt
instrument and accounted for and valued separately from the host instrument. The Company measures the value of the
embedded conversion option at its estimated fair value and recognizes changes in the estimated fair value in other income
(expense), net in the consolidated statements of operations and comprehensive loss during the period of change. The
embedded conversion is recognized as a derivative liability in the Company’s consolidated balance sheet.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using
the straight-line method over a three- to five-year estimated useful life. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the related asset. Expenditures for repairs and maintenance of assets
are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets
disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.
Impairment of Long-Lived Assets and Right of Use Assets
Long-lived assets consist of property and equipment and right-of-use assets. Long-lived assets to be held and used
are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment
review include significant underperformance of the business in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed
to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to
result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be
recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its
carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair
value, determined based on discounted 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 and development 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 and facility-related expenses.
Research Contract Costs and Accruals
The Company has entered into various research and development contracts with research institutions and other
companies both inside and outside of the United States. Certain of these agreements have cancellation clauses, and related
payments are recorded as research and development expenses as incurred. The Company records accruals for estimated
ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the
studies, including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are
made in determining the accrued balances at the end of any reporting period. Actual results could differ from the
Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
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Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as general
and 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 fair
value on the date of the grant using the Black-Scholes option-pricing model. The fair value of the awards is recognized as
expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the
respective award. The straight-line method of expense recognition is applied to all awards with service-only conditions.
Following the Company’s adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), on
January 1, 2019, for stock-based awards issued to non-employees, the Company no longer revalues non-employee awards
at each reporting date and instead calculates the fair value of the awards as of the grant date using the Black-Scholes
option-pricing model. Compensation expense for these awards is recognized over the related service period.
The Company classifies stock-based compensation expense in its consolidated statement of operations and
comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award
recipient’s service payments are classified.
The Company recognizes compensation expense for only the portion of awards that are expected to vest. In
developing a 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 the actual forfeiture rate is materially different from the Company’s estimate, the Company may be
required to record adjustments 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 of
deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the
consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable
income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a
portion of deferred 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 by
applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax
position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of
benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the
largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income
taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well
as the related net interest and penalties.
Segment Data
The Company manages its operations as a single segment for the purposes of assessing performance and making
operating decisions. The Company’s singular focus is on advancing its bioresorbable hydrogel product candidates for the
programed-release delivery of therapeutic agents, specifically for ophthalmology. All tangible assets are held in the United
States. Revenue to date has been generated through product sales, all of which has been earned in the United States.
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Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from
transactions and economic events other than those with stockholders. For the years ended December 31, 2021, 2020 and
2019, there were no items that gave rise to other comprehensive loss and therefore, there was no difference between net
loss and comprehensive loss.
Net Loss Per Share
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to
common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net
loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to
reallocate undistributed earnings based on the potential impact of dilutive securities, including the assumed conversion of
the Company’s 2026 Convertible Notes, outstanding stock options and common stock warrants, except where the result
would be anti-dilutive. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted
net loss attributable to common stockholders by the weighted average number of common shares outstanding for the
period, including potential dilutive common shares assuming the dilutive effect of the conversion of the 2026 Convertible
Notes, the exercise of outstanding stock options and common stock warrants. In the diluted net loss per share calculation,
net loss would also be adjusted for the elimination of interest expense on the 2026 Convertible Notes (which includes
amortization of the discount created upon bifurcation of the conversion option from the debt) and, the mark-to-market gain
or loss each period to the bifurcated conversion option, if the impact was not anti-dilutive.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes Topic 740, Simplifying the Accounting for
Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and
interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The guidance is effective for
fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted
this accounting pronouncement as required effective January 1, 2021 and its adoption did not have a material impact on the
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected
credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model
with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses
related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction
in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November
2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses,
which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently
issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted
Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain
financial assets previously measured at amortized cost basis. The Company adopted this accounting pronouncement as
required and its adoption did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This
standard amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s
own equity and improves and amends the related earnings per share guidance for both Subtopics. The amendments in the
ASU are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be
smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15,
2020, including interim periods within those fiscal years. The FASB also specified that an entity should adopt the guidance
as of the beginning of its fiscal year and is not permitted to adopt the guidance in an interim period.
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The Company is assessing the potential impact of ASU 2020-06 and does not expect it to have a material impact on its
consolidated financial statements.
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 fair
value on a recurring basis as of December 31, 2021 and 2020 and indicate the level of the fair value hierarchy utilized to
determine such fair value:
Assets:
Cash equivalents:
Money market funds
Liability:
Derivative liability (Note 4)
Assets:
Cash equivalents:
Money market funds
Liability:
Derivative liability (Note 4)
Fair Value Measurements as of
December 31, 2021 Using:
Level 1 Level 2 Level 3
Total
$ 62,392
$ — $
— $ 62,392
$
— $ — $ 20,192
$ 20,192
Fair Value Measurements as of
December 31, 2020 Using:
Level 2 Level 3
Total
Level 1
$ 213,372
$ — $
— $ 213,372
$
— $ — $ 98,313
$ 98,313
During the year ended December 31, 2021 and 2020, there were no transfers between Level 1 and 2.
4. Derivative Liability
The 2026 Convertible Notes (Note 5) contained an embedded conversion option that met the criteria to be bifurcated
and accounted for separately from the 2026 Convertible Notes (the "Derivative Liability"). The Derivative Liability was
recorded at fair value upon the issuance of the 2026 Convertible Notes and is subsequently remeasured to fair value at each
reporting period. The Derivative Liability was initially valued and remeasured using a "with-and-without" method. The
"with-and-without" methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument
without the embedded conversion option. The difference between the entire instrument with the embedded conversion
option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as
the Derivative Liability.
The fair value of the 2026 Convertible Notes with and without the conversion option is estimated using a binomial
lattice approach. The main inputs to valuing the 2026 Convertible Notes with the conversion option are as follows:
Company's stock price
Expected annual volatility
Bond yield
As of
December 31,
December 31,
2021
2020
$
$
6.97
82.6 %
12.6 %
20.70
105.5 %
12.0 %
The bond yield was derived by making the fair value of the 2026 Convertible Notes equal to the face value on the
issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these
inputs would result in a significantly higher or lower fair value.
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A roll forward of the derivative liability is as follows:
Balance at December 31, 2019
Change in fair value
Balance at December 31, 2020
Change in fair value
Balance at December 31, 2021
5. Convertible Notes
As of
12,124
86,189
98,313
(78,121)
20,192
$
$
On March 1, 2019, the Company issued $37,500 of 2026 Convertible Notes. Each 2026 Convertible Note accrues
interest at an annual rate of 6% of its outstanding principal amount, which is payable, along with the principal amount at
maturity, on March 1, 2026, unless earlier converted, repurchased or redeemed. The Company presents accrued interest in
accrued current liabilities because the notes are currently convertible and the interest is payable in cash. The effective
annual interest rate for the 2026 Convertible Notes was 14.8% through December 31, 2021.
The holders of the 2026 Convertible Notes may convert all or part of the outstanding principal amount of their 2026
Convertible Notes into shares of the Company’s common stock, par value $0.0001 per share, prior to maturity and
provided that no conversion results in a holder beneficially owning more than 19.99% of the issued and outstanding
common stock of the Company. The conversion rate is initially 153.8462 shares of the Company’s common stock per
$1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of $6.50 per
share. The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to
the Company’s capitalization.
At its election, the Company may choose to make such conversion payment in cash, in shares of common stock, or a
combination thereof. Upon any conversion of any 2026 Convertible Note, the Company is obligated to make a cash
payment to the holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount
converted. Upon the occurrence of a Corporate Transaction (as defined below), each holder has the option to require the
Company to repurchase all or part of the outstanding principal amount of such note at a repurchase price equal to 100% of
the outstanding principal amount of the 2026 Convertible Note to be repurchased, plus accrued and unpaid interest to, but
excluding the repurchase date. In addition, each holder is entitled to receive an additional make-whole cash payment in
accordance with a table set forth in each 2026 Convertible Note.
Upon conversion by the holder, the Company has the right to select the settlement of the conversion in either shares
of common stock, cash, or in a combination thereof. In addition, the Company is obligated to make a cash payment to the
holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted.
● If the Company elects to satisfy such conversion by shares of common stock, the Company shall deliver to the
converting holder in respect of each $1,000 principal amount of 2026 Convertible Notes being converted a
number of common shares equal to the conversion rate in effect on the conversion date;
● If the Company elects to satisfy such conversion by cash settlement, the Company shall pay to the converting
holder in respect of each $1,000 principal amount of 2026 Convertible Notes being converted cash in an amount
equal to the sum of the Daily Conversion Values (as defined below) for each of the twenty (20) consecutive
trading days during a specified period. The “Daily Conversion Values” is defined as each of the 20 consecutive
trading days during the specified period, 5.0% of the product of (a) the conversion rate on such trading day and
(b) the Daily VWAP on such trading day. The Daily VWAP is defined as each of the 20 consecutive trading
days during the applicable Observation Period, the per share volume-weighted average price as displayed under
the heading “Bloomberg VWAP” on the Bloomberg page for the Company.
● If the Company elects to satisfy such conversion by combination, the Company shall pay or deliver, as the case
may be, in respect of each $1,000 principal amount of 2026 Convertible Notes being converted, a settlement
amount equal to the sum of the Daily Settlement Amounts (as defined below) for each of the twenty (20)
consecutive trading days during the specified period. The “Daily Settlement Amount” is defined as, for each of
the 20 consecutive trading days during the specified period: (a) cash in an amount equal to the lesser of (i) the
Daily Measurement Value (as defined below) and (ii) the Daily Conversion Value on such
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Trading Day; and (b) if the Daily Conversion Value on such trading day exceeds the Daily Measurement Value,
a number of Shares equal to (i) the difference between the Daily Conversion Value and the Daily Measurement
Value, divided by (ii) the Daily VWAP for such Trading Day. The “Daily Measurement Value” is defined as the
Specified Dollar Amount (as defined below), if any, divided by 20. The “Specified Dollar Amount” is defined
as the maximum cash amount per $1,000 principal amount of Notes to be received upon conversion as specified
in the notice specifying the Company’s chosen settlement method.
In the event of a Corporate Transaction, the noteholder shall have the right to either (a) convert all of the unpaid
principal at the conversion rate and receive a cash payment equal to (i) the outstanding accrued but unpaid interest under
the 2026 Convertible Note to, but excluding, the corporate transaction conversion date (to the extent such date occurs prior
to March 1, 2026, the maturity date of the 2026 Convertible Notes) plus (ii) and an additional amount of consideration
based on a sliding scale depending on the date of such as Corporate transaction or (b) require the Company to repurchase
all or part of the outstanding principal amount of such 2026 Convertible Note at a repurchase price equal to 100% of the
outstanding principal amount of the 2026 Convertible Note to be repurchased, plus accrued and unpaid interest to, but
excluding, the repurchase date.
A corporate transaction includes (i) a merger or consolidation executed through a tender offer or change of control
(other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the
surviving or acquiring corporation); (ii) a sale, lease, transfer, of all or substantially all of the assets of the Company; or (iii)
if the Company’s common stock ceases to be listed or quoted on any of the New York Stock Exchange, the Nasdaq Global
Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (the “Corporate Transaction”).
On or after March 1, 2022, if the last reported sale price of the common stock has been at least 130% of the
conversion rate then in effect for 20 of the preceding 30 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 2026 Convertible Notes,
on a pro rata basis, at an optional redemption price equal to 100% of the outstanding principal amount of the 2026
Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the optional redemption date.
The 2026 Convertible Notes are subject to acceleration upon the occurrence of specified events of default, including
a default or breach of certain contracts material to the Company and the delisting and deregistration of the Company’s
common stock.
As discussed in Note 4, the Company determined that the embedded conversion option is required to be separated
from the 2026 Convertible Notes and accounted for as a freestanding derivative instrument subject to derivative
accounting. The allocation of proceeds to the conversion option results in a discount on the 2026 Convertible Notes. The
Company is amortizing the discount to interest expense over the term of the 2026 Convertible Notes using the effective
interest method.
A summary of the 2026 Convertible Notes at December 31, 2021 and 2020 is as follows:
2026 Convertible Notes
Less: unamortized discount
Total
December 31, December 31,
2021
37,500
(11,065)
26,435
$
$
2020
37,500
(13,193)
24,307
$
$
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6. Property and Equipment, net
Property and equipment, net consisted of the following:
Equipment
Leasehold improvements
Furniture and fixtures
Software
Construction in progress
Less: Accumulated depreciation and amortization
December 31, December 31,
2021
10,989
9,074
1,286
236
578
22,163
(15,207)
6,956
$
$
$
$
2020
10,186
9,074
1,281
220
120
20,881
(12,786)
8,095
Depreciation and amortization expense was $2,421, $2,773 and $2,530 for the years ended December 31, 2021, 2020
and 2019, respectively.
7. Accrued Expenses
Accrued expenses consisted of the following:
Accrued payroll and related expenses
Accrued rebates and programs
Accrued professional fees
Accrued research and development expenses
Accrued interest payable on 2026 convertible notes
Accrued other
December 31, December 31,
2021
6,597
3,615
1,227
1,102
6,475
1,105
20,121
$
$
2020
5,853
1,438
868
1,013
4,194
941
14,307
$
$
8. Collaboration Agreements
AffaMed License Agreement
On October 29, 2020, the Company entered into license agreement (“License Agreement”) with AffaMed
Therapeutic Limited (“AffaMed”) for the development and commercialization of the Company’s DEXTENZA product
regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis (collectively, the
“DEXTENZA Field”) and for the Company’s OTX-TIC product candidate (collectively with DEXTENZA, the “AffaMed
Licensed Products”) regarding open-angle glaucoma or ocular hypertension (collectively, the “TIC Field” and, with the
DEXTENZA Field, each a “Field”), in each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the
countries of the Association of Southeast Asian Nations (collectively, the “Territories”). The Company retains development
and commercialization rights for the AffaMed Licensed Products in the rest of the world.
Under the License Agreement, the Company received a non-refundable upfront payment of $12,000 in December
2020 and additional $1,000 milestone in the fourth quarter of 2021. The Company is also eligible to receive up to an
additional $90,000 in aggregate, inclusive of a low-seven-figure clinical support payment, upon the achievement of certain
regulatory, development and commercial milestones. The Company is also entitled to receive tiered, escalating royalties on
the net sales of the AffaMed Licensed Products ranging from a low-teen to low-twenties percentage. Royalties under the
License Agreement are payable on an AffaMed Licensed Product-by-AffaMed Licensed Product and jurisdiction-by-
jurisdiction basis and are subject to potential reductions in specified circumstances, subject to a specified floor.
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Under the License Agreement, the Company is generally responsible for expenses related to the development of the
AffaMed Licensed Products in the applicable Fields in the Territories, provided that AffaMed (i) reimburse the Company a
low-teen percentage of expenses incurred in connection with certain clinical trials conducted by the Company and designed
to support marketing approval of the AffaMed Licensed Product by the FDA or the European Medicines Agency (“Global
Studies”); (ii) is solely responsible for expenses incurred in connection with territory-specific clinical trials that it conducts
in furtherance of the development plan agreed between the parties in the applicable Fields in the Territories (“Local
Studies”); and (iii) reimburse the Company in full for expenses incurred in connection with obtaining and maintaining
regulatory approvals of the AffaMed Licensed Products in the applicable Fields in the Territories. In the event AffaMed
declines to participate in a Global Study or to conduct a Local Study in any jurisdiction in which the Company determines
to conduct such a study, the Company is relieved of its obligation to provide AffaMed clinical data from such study, other
than safety data, unless AffaMed subsequently reimburses the Company in the amounts described above plus a prespecified
premium.
The License Agreement expires upon the expiration of the last royalty term for the last AffaMed Licensed Product in
any applicable Field in the Territories. Either party may, subject to specified cure periods, terminate the License Agreement
in the event of the other party’s uncured breach. Either party may also terminate the License Agreement under specified
circumstances relating to the other party’s insolvency. AffaMed has the right to terminate the License Agreement at any
time after completion of a Phase 3 clinical trial for OTX-TIC for any or no reason upon providing the Company three
months’ notice. During an established period following its change of control or its entry into a global licensing agreement
that includes the Territories with a third party, the Company has the option to terminate the License Agreement, subject to a
specified notice period and the repayment of any costs and expenses incurred by AffaMed in connection with the License
Agreement, including upfront and milestone payments AffaMed has previously paid to the Company, at a prespecified
premium.
The Company concluded that AffaMed is a customer in this arrangement, and as such, the arrangement falls within
the scope of the revenue recognition guidance in ASC 606.
At the inception of the License Agreement, the Company identified the following performance obligations in the
agreement:
● the license, regulatory filings and manufacturing of DEXTENZA;
● the license, regulatory filings and manufacturing for the Company’s OTX-TIC product candidate regarding
open-angle glaucoma or ocular hypertension in the Territories;
● obligations to participate on various joint research, development and project committees; and
● the conduct of a Phase 2 clinical trial of OTX-TIC
The Company has concluded there is a combined performance obligation for a development and commercialization
license and manufacturing obligations for DEXTENZA Field and the Company’s OTX-TIC product candidate regarding
open-angle glaucoma or ocular hypertension in the Territories.
Further, AffaMed cannot exploit the value of the development and commercialization license for DEXTENZA Field
and the Company’s OTX-TIC product candidate regarding open-angle glaucoma or ocular hypertension in the Territories
without receipt of supply as the development and commercialization license does not convey to AffaMed the right to
manufacture and therefore the Company has combined the development and commercialization license and the
manufacturing obligations into one performance obligation.
The Company has concluded that the right of AffaMed to opt into the Global Studies for DEXTENZA and OTX-TIC
are options that do not convey a material right to AffaMed. Therefore, these have not been recognized as performance
obligations upon the inception of the License Agreement.
With respect to the obligation of the Company to participate in joint research, development and project committees
the Company has concluded that these obligations are not material.
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The transaction price was allocated to the performance obligations based on the relative estimated standalone selling
prices of each performance obligation.
The Company developed the estimated standalone selling price for the services and/or manufacturing and supply
included in each of the performance obligation, as applicable, primarily based on the nature of the services to be performed
and/or goods to be manufactured and estimates of the associated costs, adjusted for a reasonable profit margin that would
be expected to be realized under similar contracts.
The Company has determined that any sales-based royalties and milestones will be recognized as the Company
delivers the clinical and commercial manufactured product to AffaMed. Any changes in estimates may result in a
cumulative catch-up based on the number of units of manufactured product delivered.
As of December 31, 2021, the transaction price was determined to be $13,000. All potential regulatory, development
and commercial milestone payments in the amount of $90,000 did not meet the recognition criteria under the most likely
method, because their achievement was highly dependent on factors outside the control of the Company and therefore,
were excluded from the transaction price as of December 31, 2021. Furthermore, under the expected value method the
Company excluded the potential royalties from the transaction price.
We recognize revenue related to the amounts allocated to the combined performance obligations for DEXTENZA
Field and the Company’s OTX-TIC product candidate based on the point in time upon which control of supply is
transferred to AffaMed for each delivery of the associated supply. The Company currently expects to recognize the
revenue over a period of approximately seven to eight years commencing on the date the Company begins delivering
product to AffaMed. This estimate of this period considers the timing of development and commercial activities under the
License Agreement and may be reduced or increased based on the various activities as directed by the joint committees,
decisions made by AffaMed, regulatory feedback or other factors not currently known.
The Company has not recognized any revenue under the License Agreement as of December 31, 2021 and 2020 as
there has been an insignificant amount of delivery of product under the License Agreement. The Company does not expect
to recognize material revenue from the License Agreement in 2022. The entire transaction price is recorded as deferred
revenue as of December 31, 2021 and 2020.
Regeneron Collaboration Agreement
On October 10, 2016, the Company entered into a Collaboration, Option and License Agreement (the “Collaboration
Agreement”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”) for the development and potential commercialization of
products using the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds for
the treatment of retinal diseases. On August 5, 2021, Regeneron notified the Company of its termination of the
Collaboration Agreement. The termination became effective immediately.
Under the terms of the Collaboration Agreement, the Company and Regeneron had agreed to conduct a joint research
program with the aim of developing a sustained-release formulation of aflibercept, currently marketed under the tradename
Eylea, that is suitable for advancement into clinical development. The Company had granted Regeneron an option (the
“Option”) to enter into an exclusive, worldwide license to develop and commercialize products 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 was responsible for funding an initial preclinical tolerability study.
In connection with the termination of the Collaboration Agreement, all licenses, options and other rights granted to
either party under the Collaboration Agreement automatically terminated, other than the surviving joint intellectual
property rights described below. The Company and Regeneron also became obligated to undertake certain transition
activities upon the termination, including the return of specified property of the other party. Each party retains an equal,
undivided ownership interest, which may be transferred, licensed and otherwise exploited without a duty to account to the
other party, in certain intellectual property rights jointly developed under the collaboration.
As a result of the termination, the Company is no longer eligible to receive (i) reimbursement from Regeneron for
ongoing research and development activities, (ii) a fee upon exercise of the Option, (iii) payments upon the achievement
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of specified development and regulatory milestones of the Regeneron Licensed Products, or (iv) tiered, escalating royalties
in a range from a high-single digit to a low-to-mid teen percentage of net sales of Regeneron Licensed Products, in each
case pursuant to the Collaboration Agreement. The Company is also no longer obligated to reimburse Regeneron for
certain development costs, up to an aggregate amount of $30,000 in certain circumstances, were Regeneron to have
exercised the Option.
On May 8, 2020, the Company entered into an amendment (the “Regeneron Amendment”) to the Collaboration
Agreement. Pursuant to the Regeneron Amendment, the Company and Regeneron have adopted a new work plan to
transition joint efforts under the Collaboration Agreement to the research and development of an extended-delivery
formulation of aflibercept to be delivered to the suprachoroidal space. Regeneron has agreed to pay personnel and material
costs of the Company for specified preclinical development activities in connection with the revised work plan, as well as
certain other costs. In addition, the Regeneron Amendment provides for the modification of the terms of the Option
previously granted to Regeneron under the Collaboration Agreement. As amended, the Option is exclusive for twenty-four
months following May 8, 2020.
As of December 31, 2021 and 2020, the Company had recorded $768 and $1,256 related to work performed for
preclinical development activities in connection with the revised work plan which the Company has recorded as a
reduction of research and development expense as this research is not an output of the Company’s ordinary business
activities. As of December 31, 2021 and 2020, the Company had included the $0 and $1,256 in prepaid expenses and other
current assets.
9. Notes Payable
The Company entered into a credit and security agreement in 2014 (as amended to date, the “Credit Agreement”)
establishing the Company’s credit facility (the “Credit Facility”). The Company has a total borrowing capacity of $25,000
under the Credit Facility, which was fully drawn down as of December 31, 2021.
In December 2018, the Company amended the terms of the Credit Agreement to increase total indebtedness under
the Credit Facility to $25,000 which was used primarily to pay-off outstanding balances as of the closing date. The
Company was required to make interest-only payments under the Credit Facility until December 2020. Commencing in
January 2021, the Company was required to make 36 equal monthly installments of principal in the amount of $694, plus
interest, through December 2023. Amounts borrowed under the Credit Facility were at LIBOR base rate, subject to 2.00%
floor, plus 7.25%. Prior to the Fourth Amendment (as defined below), the interest rate was 9.25%. The exit fee equal to
3.5%, or $429 that was previously accrued, has been paid.
In June 2021, the Company entered into a Fourth Amended and Restated Credit and Security Agreement (the
“Fourth Amendment”) to amend the terms of its debt with existing lenders for total indebtedness of $20,833 and borrowed
an incremental $4,167, for a total of $25,000 (the “2021 Amended Credit Facility”). The Company is required to make
interest-only payments under the 2021 Amended Credit Facility through April 2024. Commencing in May 2024, the
Company is required to make 19 equal monthly installments of principal in the amount of $1,042, plus interest, then on the
maturity date, November 30, 2025 the remaining balance of $5,208 plus the exit fee. In the event the Company achieves
certain milestones under the 2021 Amended Credit Facility, the Company has the right to extend through April 1, 2026 and
make 5 equal monthly installments of principal in the amount of $1,042, plus interest. The Company has not assumed the
achievement of these milestones for purposes of disclosures herein.
Amounts borrowed under the 2021 Amended Credit Facility are at LIBOR base rate, subject to 1.00% floor, plus
6.75%. The interest rate on the date of the amendment was 8.8%. In addition, a final payment (exit fee) equal to 3.5% of
amounts drawn under the Amended Credit Facility, or $875 based on borrowings of $25,000, is due upon the maturity date
of November 30, 2025. The Company is accruing the exit fee through November 30, 2025.
The Company accounted for the Fourth Amendment as a modification in accordance with the guidance in ASC 470-
50, Debt. Amounts paid to the lenders were recorded as debt discount and a new effective interest rate was established.
The effective annual interest rate of the outstanding debt under the Fourth Amendment is 8.8%.
There are no financial covenants associated with the Fourth Amendment. However, the Fourth Amendment does
contain negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or
acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain
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investments; and engaging in certain other business transactions. As of December 31, 2021, the Company was not in
violation of any of its covenants under the Fourth Amendment. The obligations under the Fourth Amendment are subject to
acceleration upon 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,
including its intellectual property.
In accordance with the Credit Agreement, in connection with the Company’s desire to issue and sell the 2026
Convertible Notes, the Company amended the terms of its debt with existing lenders in February 2019. The amendment
added to the Credit Agreement, among other provisions, a negative covenant restricting the Company from paying the
holders of the 2026 Convertible Notes ahead in priority to the existing lenders, for so long as indebtedness remains
outstanding under the Credit Facility, and a cross-default provision to establish that an event of default under the purchase
agreement for the 2026 Convertible Notes also constitutes an event of default under the Credit Agreement.
Borrowings outstanding are as follows:
Borrowings outstanding
Accrued exit fee
Unamortized discount
Less: current portion
Long-term notes payable
December 31, December 31,
$
2021
25,000
110
(110)
25,000
—
25,000 $
2020
25,000
355
(129)
25,226
(8,290)
16,936
$
$
As of December 31, 2021, the annual repayment requirements for the Credit Facility, inclusive of the final payment
of $875 due at expiration, were as follows:
Year Ending December 31,
2022
2023
2024
2025
10. Warrants
Principal Final Payment
Total
—
—
8,333
16,667
$ 25,000
$
—
—
—
875
875
—
—
8,333
17,542
$ 25,875
In April 2014, the Company entered into a credit facility with Silicon Valley Bank and MidCap Financial SBIC, LP,
and it issued the lenders warrants to purchase 100,000 shares of its Series D-1 redeemable convertible preferred stock with
an exercise price of $3.00 per share. Upon the closing of the Company’s IPO in July 2014, the preferred stock warrants
became warrants to purchase an aggregate of 37,878 shares of its common stock with an exercise price of $7.92 per share,
with Silicon Valley Bank and MidCap Financial SBIC, LP., each holding warrants of 18,939 shares of common stock.
On January 29, 2021, holders of warrants to purchase 18,939 shares of common stock at an exercise price of $7.92
exercised their right to purchase their warrants. The exercise price of the warrants was paid through a net share settlement
mechanism and as a result the Company issued 11,737 shares of common stock to satisfy the exercise of all the warrants.
There are no warrants outstanding as of December 31, 2021.
The Company had warrants for the purchase of 18,939 shares of common stock outstanding with MidCap Financial
SBIC, LP at December 31, 2020 at a weighted average exercise price of $7.92 per share and an expiration date of April 17,
2021.
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11. Preferred Stock
The Amended and Restated Certificate of Incorporation authorized 5,000,000 shares of preferred stock, $0.0001 par
value, all of which is undesignated and none of which are issued or outstanding at December 31, 2021 and 2020.
12. Common Stock
The Amended and Restated Certificate of Incorporation authorized 100,000,000 shares of the Company’s common
stock. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s
stockholders. In June 2021, the Company adopted an amended and restated certificate of incorporation increasing the
number of its authorized shares of its common stock to 200,000,000 shares.
On August 9, 2021, the Company and Jefferies mutually terminated the 2019 Sales Agreement and entered into
another Open Market Sale Agreement (the “2021 Sales Agreement”) under which the Company may offer and sell shares
of common stock of the Company having an aggregate offering price of up to $100,000 from time to time through
Jefferies, acting as agent. As of February 27, 2022, the Company has not sold any shares of common stock under the 2021
Sales Agreement.
On December 14, 2020, the Company entered into an underwriting agreement with Jefferies LLC (“Jefferies”) and
Piper Sandler & Co. (collectively with Jefferies, “the Underwriters”) in connection with an underwritten public offering of
3,725,000 shares of the Company’s common stock. Under the terms of this underwriting agreement, the Company also
granted the Underwriters an option to purchase up to an additional 558,750 shares of common stock at the public offering
price, less the underwriting discounts and commissions. The Underwriters subsequently exercised this option to purchase
such option shares in full. The public offering price of the shares in this offering was $21.50 per share, and the
Underwriters purchased all of the shares from the Company at a price of $20.21 per share. After deducting underwriting
discounts and commissions and offering expenses, the Company received net proceeds from the offering of $86,390.
On October 13, 2020, the Company entered into an underwriting agreement with the Underwriters, in connection
with an underwritten public offering of 7,180,000 shares of the Company’s common stock. Under the terms of this
underwriting agreement, the Company also granted the Underwriters an option to purchase up to an additional 1,077,000
shares of common stock at the public offering price, less the underwriting discounts and commissions. The Underwriters
subsequently exercised this option to purchase such option shares in full. The public offering price of the shares in this
offering was $9.75 per share, and the Underwriters purchased all of the shares from the Company at a price of $9.17 per
share. After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds
from the offering of $75,406.
In May 2020, the Company entered into an underwriting agreement with the Underwriters, in connection with an
underwritten public offering of 8,181,819 shares of the Company’s common stock. Under the terms of this underwriting
agreement, the Company also granted the Underwriters an option to purchase up to an additional 1,227,272 shares of
common stock at the public offering price, less the underwriting discounts and commissions. The Underwriters
subsequently exercised this option to purchase such option shares in full. The public offering price of the shares in this
offering was $5.50 per share, and the Underwriters purchased all of the shares from the Company at a price of $5.17 per
share. After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds
from the offering of $48,327.
On April 5, 2019, the Company entered into an Open Market Sales AgreementSM (the “2019 Sales Agreement”) with
Jefferies, under which the Company may offer and sell its common stock having aggregate proceeds of up to $50,000 from
time-to-time through Jefferies, acting as agent. In the twelve months ended December 31, 2020, the Company sold
2,984,381 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $14,359,
respectively, after commissions and expenses. From inception through March 1, 2021, the Company sold an aggregate of
10,321,840 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $46,985
after commissions and expenses.
As of December 31, 2021, the Company had reserved 10,934,828 shares of common stock for the exercise of
outstanding stock options and the number of shares remaining available for grant under the Company’s 2021 Stock
Incentive Plan (the “2021 Plan”), 2014 Stock Incentive Plan (the “2014 Plan”) and the 2019 Inducement Stock Incentive
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Plan (the “2019 Inducement Plan”), and the number of shares available for issuance under the 2014 Employee Stock
Purchase Plan (Note 13).
13. 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 for
issuance 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. The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first
day of each fiscal year, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218
shares of the Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the
first day of the applicable fiscal year, and an amount determined by the Company’s board of directors. On January 1, 2021,
the number of shares available for issuance under the 2014 Plan increased by 1,659,218. On June 18, 2021, the Company’s
stockholders approved the adoption of the 2021 Plan previously approved by the board of directors. Effective as of the
adoption of the 2021 Plan by the Company’s stockholders, no new awards will be granted under the 2014 Plan. However,
as of December 31, 2021, all then-outstanding awards under the 2014 Plan remained in effect and continued to be governed
by the terms of the 2014 Plan.
2021 Stock Incentive Plan
The 2021 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 of common stock that
may be issued under the 2021 Plan is 6,000,000 shares of common stock; plus 456,334 shares remaining available for grant
under the 2014 Plan as of immediately prior to the effective date of the 2021 Plan and 9,766,336 shares subject to awards
granted under the 2014 Plan or the Company’s 2006 Stock Incentive Plan, which awards expire, terminate or are otherwise
surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual
repurchase right (subject to certain limitations). As of December 31, 2021, 6,263,365 shares remained available for
issuance under the 2021 Plan.
As required by the 2006 Plan, 2014 Plan and 2021 Plan, the exercise price for stock options granted is not to be less
than the fair value of common shares as of 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,
2017 and the Company’s President and Chief Executive Officer on July 26, 2017, a non-statutory stock option to purchase
an aggregate 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 shares
underlying the option award vesting on the one year anniversary of the grant date and the remaining 75% of the shares
underlying the award vesting monthly thereafter. The stock option was issued outside of the Company’s 2014 Plan as an
inducement material to Mr. Mattessich’s acceptance of an offer of employment with the Company in accordance with
Nasdaq Listing Rule 5635(c)(4).
On July 9, 2019, the Company issued to the Senior Vice President, Head of Business Development, a non-statutory
stock option to purchase an aggregate of 60,000 shares of its common stock at an exercise price of $5.13 per share. Subject
to his continued service to the Company, the stock option will vest over a four-year period, with 25% of the shares
underlying the option award vesting on the one-year anniversary of the grant date and the remaining 75% of the shares
underlying the award vesting monthly thereafter. The stock option was issued outside of the Company’s 2014 Plan as an
inducement material to the individual’s acceptance of an offer of employment with the Company in accordance with
Nasdaq Listing Rule 5635(c)(4).
On October 29, 2019, the 2019 Inducement Plan was approved by the Board of Directors of the Company. The 2019
Inducement Plan provides for the following types of awards, each of which is referred to as an “Award”: non-
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statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards.
Awards under the 2019 Inducement Plan may only be granted to persons who (a) were not previously an employee or
director of the Company or (b) are commencing employment with the Company following a bona fide period of non-
employment, in either case as an inducement material to the individual’s entering into employment with the Company and
in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4). For the avoidance of doubt, neither
consultants nor advisors shall be eligible to participate in the 2019 Inducement Plan. Each person who is granted an Award
under the 2019 Inducement Plan is deemed a “Participant.”
On February 1, 2021, the Company issued to the Senior Vice President, Clinical Development, a non-statutory stock
option to purchase an aggregate of 100,000 shares of its common stock at an exercise price of $18.70 per share subject to a
time-based vesting and a non-statutory stock option to purchase 50,000 shares of its common stock at an exercise price of
$18.70 per share subject to performance-based vesting. The stock option was issued under the Company’s 2019
Inducement Plan as an inducement material to such individual’s acceptance of an offer of employment with the Company
in accordance with Nasdaq Listing Rule 5635(c)(4). Subject to her continued service to the Company, the time-based stock
option will vest over a four-year period, with 25% of the shares underlying the option award vesting on the one-year
anniversary of the grant date and the remaining 75% of the shares underlying the award vesting monthly thereafter. The
performance-based stock option vests and becomes exercisable in whole or in part if the Company achieves specified
milestones, subject to continued service to the Company through the applicable vesting dates. The stock options are
subject to the terms and conditions of stock option agreements covering the grant and the Company’s 2019 Inducement
Plan, as amended to date.
On December 10, 2020, the Board of Directors of the Company amended the 2019 Inducement Plan to increase the
aggregate number of shares issuable by 554,000 shares of common stock to 1,054,000. As of December 31, 2021, 510,252
shares remained available for issuance under the 2019 Inducement Plan.
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 common
stock reserved for issuance under this plan which increased to 232,402 shares of common stock on January 1, 2015. The
number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each
fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of 207,402
shares of the Company’s common stock, 0.5% of the number of shares of the Company’s common stock outstanding on the
first day of the applicable fiscal year, and an amount determined by the Company’s board of directors. On January 1, 2020,
the number of shares available for issuance under the ESPP increased by 207,402. As of December 31, 2021, 607,048
shares of common stock remained 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-pricing
model. The expected life of the options was calculated using the simplified method. The simplified method defines the life
as the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The
Company utilized the simplified method because the Company did not have sufficient historical exercise data over the life
of awards to provide a reasonable basis upon which to estimate expected term. The expected term of stock options granted
to nonemployees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference
to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the
expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends
and does not expect to pay any cash dividends in the foreseeable future.
As of December 31, 2021, there were 27,903 outstanding unvested service-based stock options held by
nonemployees.
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The assumptions that the Company used to determine the fair value of the stock options granted to employees and
directors are as follows, presented on a weighted average basis:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
The following table summarizes the Company’s stock option activity:
Year Ended
December 31,
2019
2020
0.80 % 1.12 % 2.25 %
2021
6
6
87.65 % 86.00 %
6
87 %
— % — % — %
Outstanding as of December 31, 2020
Granted
Exercised
Forfeited
Outstanding as of December 31, 2021
Options vested and expected to vest as of December 31, 2021
Options exercisable as of December 31, 2021
Weighted
Average
Exercise
Weighted
Average
Remaining
Contractual
Aggregate
Intrinsic
Shares Issuable
Under Options Price
Term Value
9,114,735
3,339,974
(598,924)
(920,957)
10,934,828
9,504,572
6,570,556
6.66
$
17.22
4.32
11.48
9.60
$
8.93
$
8.22
$
(In years)
7.4
$ 16,075
7.1
6.8
6.1
13,283
12,381
9,002
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock
options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the
fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised was $6,779, $4,307
and $54 during the years ended December 31, 2021, 2020 and 2019, respectively.
The weighted average grant date fair value of stock options granted to employees and directors during the years
ended December 31, 2021, 2020 and 2019 was $12.48, $5.93 and $2.99 per share, respectively.
Stock-based Compensation
The Company recorded stock-based compensation expense related to stock options in the following expense
categories of its statements of operations:
Research and development
Selling and marketing
General and administrative
Year Ended December 31,
2021
$ 3,750
4,014
7,214
$ 14,978
2020
$ 1,514
1,719
4,298
$ 7,531
2019
$ 2,312
1,013
5,434
$ 8,759
As of December 31, 2021, the Company had an aggregate of $20,382 of unrecognized stock-based compensation
cost, which is expected to be recognized over a weighted average period of 2.8 years.
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14. Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows for the years
ended December 31, 2020 and 2019:
Numerator:
Net loss
Denominator:
Weighted average common shares outstanding, basic and diluted
Net loss per share - basic and diluted
Year Ended December 31,
2020
2019
$
(155,636) $
(86,372)
60,752,225 45,273,231
(1.91)
$
(2.56) $
For the year ended December 31, 2020 and 2019, there is no dilutive impact. Therefore, diluted net loss per share is
the same as basic net loss per share. Basic and diluted net loss per share was calculated as follows for the year ended
December 31, 2021:
Net loss attributable to common stockholders, basic
Interest expense on 2026 Convertible Notes
Change in fair value of derivative liability
Net loss attributable to common stockholders, diluted
Weighted average common shares outstanding, basic
Shares issuable upon conversion of 2026 Convertible Notes, as if converted
Weighted average common shares outstanding, diluted
Net loss per share attributable to common stockholders, basic
Net loss per share attributable to common stockholders, diluted
Year Ended
December 31,
2021
(6,553)
4,409
(78,121)
(80,265)
76,392,870
5,769,232
82,162,102
(0.09)
(0.98)
$
$
$
$
The Company excluded the following common stock equivalents, outstanding as of December 31, 2021, 2020 and
2019 from the computation of diluted net loss per share attributable to common stockholders for the years ended
December 31, 2021, 2020 and 2019 because they had an anti-dilutive impact due to the net loss incurred for the periods.
The Company also excluded the shares issuable upon conversion of the 2026 Convertible Notes from the computation of
diluted net loss per share for the year ended December 31, 2020 and 2019 because they had an anti-dilutive impact.
Options to purchase common stock
Shares issuable upon conversion of 2026 Convertible Notes, if converted
Warrants for the purchase of common stock
15. Commitments and Contingencies
Intellectual Property Licenses
December 31,
2020
2021
10,934,828
—
—
2019
7,920,417
5,769,232
18,939
10,934,828 14,902,906 13,708,588
9,114,735
5,769,232
18,939
The Company has a license agreement with Incept, LLC (“Incept”) 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 low
single-digit royalties on net sales of commercial products developed using the licensed technology, commencing with
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the date of the first commercial sale of such products and until the expiration of the last to expire of the patents covered by
the license. Any of the Company’s sublicensees also will be obligated to pay Incept a royalty equal to a 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 the Company. The
Company is obligated to reimburse Incept for its share of the reasonable fees and costs incurred by Incept in connection
with the prosecution of the patent applications licensed to the Company under the Incept License. From inception through
December 31, 2021, royalties paid under this agreement related to product sales were $1,908 and have been charged to cost
of product revenue.
On September 13, 2018, the Company entered into a second amended and restated license agreement (the “Second
Amended Agreement”) with Incept. The Second Amended Agreement amends and restates in full the Company’s prior
amended and restated Incept License (the “Prior Agreement” or “Original License”) to expand the scope of the 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 of
breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the
Company has entered into indemnification agreements with members of its board of directors and senior management team
that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of
their status or service as directors or officers. The maximum potential amount of future payments the Company could be
required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not
incurred any material costs as a result of such indemnifications. As of December 31, 2021, the Company was not aware of
any claims that could have a material effect on its financial position, results of operations or cash flows, and it has not
accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2021.
16. Leases
The Company leases real estate, including laboratory, manufacturing and office space. The Company’s leases have
remaining lease terms ranging from less than 1 year to 8 years. Certain leases include one or more options to renew,
exercised at the Company’s sole discretion, with renewal terms that can extend the lease term from one year to six years.
All of the Company’s leases qualify as operating leases.
In October 2017, the Company entered into an amendment to a lease agreement for the Company’s laboratory and
manufacturing space located at 34 Crosby Drive and 36 Crosby Drive, each in Bedford, Massachusetts. The lease term
commenced on June 30, 2018 and will expire on July 31, 2023.
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 located at 15 Crosby Drive in Bedford, Massachusetts. The lease term
commenced on February 1, 2017 and will expire on July 31, 2027. The Company has the option to extend the lease for two
additional periods of five years each by delivering written notice of the exercise not earlier than fifteen months nor later
than 12 months before expiration of the original term.
On April 4, 2019, the Company entered into a non-cancelable lease for 30,036 square feet of space located at 24
Crosby Drive in Bedford, Massachusetts to be used for office space. The five-year lease commenced on April 18, 2019 and
terminates on March 24, 2024 and does not include any lease renewal options.
Operating lease costs
Variable lease costs
Total lease costs
For the
For the
For the
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2021
2020
2019
$
$
2,482 $
629
3,111 $
2,418
677
3,095
$
$
2,070
538
2,608
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The following table summarizes the presentation in the Company’s consolidated balance sheet of its operating leases:
Assets:
Operating lease assets
Liability:
Current operating lease liabilities
Non-current operating lease
liabilities
Total Operating lease liabilities:
Balance sheet location
Operating lease assets
Operating lease liabilities
Operating lease liabilities, net of
current portion
December 31,
2021
December 31,
2020
4,867 $
5,844
1,624 $
1,358
5,924
7,548 $
7,548
8,906
$
$
$
The minimum lease payments for the next five years and thereafter are expected to be as follows:
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: interest
Present value of operating lease liabilities
December 31,
2021
2,549
2,355
1,569
1,447
1,482
884
10,286
2,738
7,548
$
$
The following table summarizes the weighted average remaining lease term and the weighted average incremental
borrowing rate used to determine the operating lease liability:
Weighted average remaining lease term in years
Weighted average discount rate
December 31,
2021
December 31,
2020
4.8
13.55 %
5.6
13.55 %
Supplemental disclosure of cash flow information related to the Company’s operating leases included in cash flows
provided by operating activities in its consolidated statements of cash flows is as follows:
Cash paid for amounts included in the measurement of lease liabilities
$
2,482 $
2,418
$
2,215
For the
Year Ended
December 31,
2021
For the
Year Ended
December 31,
2020
For the
Year Ended
December 31,
2019
17. Income Taxes
During the years ended December 31, 2021, 2020 and 2019, the Company recorded no income tax benefits for the
net operating losses incurred or the research and development tax credits generated in each year, due to its uncertainty of
realizing a benefit from those items.
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A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as
follows:
Federal statutory income tax rate
Research and development tax credits
State taxes, net of federal benefit
Stock-based compensation
Derivative liability
Other
Change in the valuation allowance
2019
Year Ended December 31,
2020
2021
21.0 % 21.0 % 21.0 %
1.0
35.9
1.0
19.3
—
(7.8)
(11.5)
244.7
—
(12.2)
(11.5)
(300.9)
2.1
2.7
(1.3)
(0.5)
(24.0)
Effective income tax rate
— % — % — %
Changes in the valuation of the derivative liability do not provide a future tax benefit. To the extent the deferred tax
asset related to the derivative liability exceeds the deferred tax liability related to the 2026 Convertible Notes, the excess is
recorded as a permanent item.
Net deferred tax assets consisted of the following:
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Capitalized start-up costs
Capitalized research and development expenses, net
Operating lease liabilities
Derivative liability
Accrued expenses and other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Operating lease right of use assets
2026 Convertible Notes
Total deferred tax liabilities
Net deferred tax assets
December 31,
2021
2020
$
106,265
15,853
373
7,828
1,705
2,499
11,712
146,235
(142,637)
3,598
$
90,797
13,514
514
10,657
2,066
3,061
6,828
127,437
(123,020)
4,417
(1,099)
(2,499)
(3,598)
$
— $
(1,356)
(3,061)
(4,417)
—
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021, 2020 and
2019 related primarily to the increase in net operating loss carryforwards, amortization of capitalized research and
development expenses, and increase in research and development tax credit carryforwards were as follows:
Valuation allowance as of beginning of year
Increases recorded to income tax provision
Valuation allowance as of end of year
2021
$ 123,020
19,617
$ 142,637
Year Ended December 31,
2020
$ 105,062
17,958
$ 123,020
2019
$ 84,343
20,719
$ 105,062
As of December 31, 2021, the Company had net operating loss (“NOL”) carryforwards for federal and state income
tax purposes of $423,628 and $296,998, respectively. The federal and state NOLs generated for annual periods prior to
January 1, 2018 begin to expire in 2026. The Company’s federal NOLs generated for the years ended since December 31,
2018, which amounted to a total of $297,823, can be carried forward indefinitely. As of December 31, 2021, the Company
also had available research and development tax credit carryforwards for federal and state income tax purposes of $10,898
and $6,142, respectively, which begin to expire in 2026 and 2025, respectively. Utilization of the NOL carryforwards and
research and development tax credit carryforwards may be subject to a substantial annual
F-33
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limitation under Section 382 of the Internal 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 certain shareholders or public groups in the stock of a corporation by more than
50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred
or whether there have been multiple changes of control since inception due to the significant complexity and cost
associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time
since inception, utilization of the NOL carryforwards or research and development tax credit carryforwards would be
subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s
stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to
additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL carryforwards or
research and development tax credit carryforwards before utilization. Further, until a study is completed and any 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 tax
assets. Management considered the Company’s cumulative net losses and concluded that it is more likely than not that the
Company would not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance was established
against the net deferred tax assets as of December 31, 2021, 2020 and 2019.
The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2021, 2020 or 2019.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal
course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are
currently no pending income tax examinations. The Company’s tax years are still open under statute from December 31,
2017 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used
in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax
provision. As of December 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax
positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss.
18. 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 to
defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the
discretion of the board of directors. Through December 31, 2021, the Company has made contributions of $493 made to
the plan by the Company.
19. Related Party Transactions
Since October 2017, the Company has engaged McCarter English LLP (“McCarter”) to provide legal services to the
Company, including with respect to intellectual property matters. Mr. Jonathan M. Sparks, Ph.D., a partner at McCarter &
English, served in the capacity as the Company’s in-house counsel from October 2017 through August 31, 2020. The
Company incurred fees for legal services rendered by McCarter of $766 and $1,119 for the years ended December 31, 2020
and 2019, respectively. As of December 31, 2020, there was $47 recorded in accounts payable for McCarter. As of
December 31, 2021, there was $0 recorded in accrued expenses for McCarter.
In November 2020, the Company engaged Specialty Pharma Consulting, LLC (“Specialty Pharma”), an entity
affiliated with Kevin Coughenour, to provide services for quality engineering and validation activities in the ordinary
course of business. Mr. Coughenour is married to the Company’s former Chief Operating Officer Patricia Kitchen. The
Company incurred fees for quality engineering and validation activities rendered by Specialty Pharma of $155, for the for
the year ended December 31, 2021. As of December 31, 2020, there was $47 recorded in accounts payable and $0
recorded in accrued expenses for Specialty Pharma. On April 26, 2021, the Company and Specialty Pharma terminated
their relationship.
F-34
Table of Contents
The Company has engaged Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to provide certain legal
services to the Company. The Company's Chief Business Officer’s sister is a managing partner at WilmerHale, who has not
participated in providing legal services to the Company. The Company incurred fees for legal services rendered by
WilmerHale of approximately $1,396 and $1,772 for the year ended December 31, 2021 and 2020, respectively. As of
December 31, 2021 and 2020, there was $119 and $114 recorded in accounts payable for WilmerHale. As of December 31,
2021 and 2020, there was $68 and $239 recorded in accrued expenses for WilmerHale.
20. Subsequent Events
The number of shares of common stock that may be issued under the ESPP will automatically increase on the first
day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least
of 207,402 shares of the Company’s common stock, 0.5% of the number of shares of the Company’s common stock
outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.
On January 1, 2022, the number of shares available for issuance under the ESPP increased by 207,402.
F-35
DESCRIPTION OF SECURITIES REGISTERED
UNDER SECTION 12 OF THE EXCHANGE ACT
Exhibit 4.3
The following description of registered securities of Ocular Therapeutix, Inc. is intended as a summary
only and therefore is not a complete description. The following description is qualified by reference to our
certificate of incorporation, which we refer to as our Certificate of Incorporation; our by-laws, which we refer to
as our “By-laws”; and applicable provisions of the Delaware General Corporation Law, or the “DGCL”. The
Certificate of Incorporation and the By-laws are incorporated by reference as Exhibit 3.1 and Exhibit 3.2,
respectively, to the Annual Report on Form 10-K of which this Exhibit 4.3 is a part. As used in this “Description
of Securities Registered Under Section 12 of the Exchange Act,” the terms “Company,” “we,” “our” and “us”
refer to Ocular Therapeutix, Inc.
Authorized Capital Stock
Our authorized capital stock consists of 200,000,000 shares of our common stock, par value $0.0001 per
share, and 5,000,000 shares of our preferred stock, par value $0.0001 per share, all of which preferred stock is
undesignated. Our common stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act.
Common Stock
Voting Rights. Holders of our common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights. Each election of directors by our
stockholders will be determined by a plurality of the votes cast by the stockholders entitled to vote on the election.
In general, except (1) for the election of directors, (2) as described below under “—Provisions of Our Certificate
of Incorporation and By-laws and Delaware Law That May Have Anti-Takeover Effects—Super-Majority
Voting,” (3) in the future to the extent that we have two or more classes or series of stock outstanding with
separate voting rights and (4) as otherwise required by law, any matter to be voted on by our stockholders at any
meeting is decided by the vote of the holders of a majority in voting power of the votes cast by the holders of
shares of our stock present or represented at the meeting and voting affirmatively or negatively on such matter.
Dividends. Holders of common stock are entitled to receive proportionately any dividends as may be
declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.
Liquidation and Dissolution. In the event of our liquidation or dissolution, the holders of our common
stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment
of all debts and other liabilities and subject to the prior rights of any of our outstanding preferred stock.
Other Rights. Holders of our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our
common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of
our preferred stock that we may designate and issue in the future.
Preferred Stock
Under the terms of our Certificate of Incorporation, our board of directors is authorized to issue shares of
our preferred stock in one or more series without stockholder approval, subject to any limitations imposed by
applicable exchange rules. Our board of directors has the discretion to determine the rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of
preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other
corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could
discourage a third party from seeking to acquire, a majority of our outstanding voting stock.
Provisions of Our Certificate of Incorporation and By-laws and Delaware Law That May Have Anti-
Takeover Effects
Delaware Law
We are subject to Section 203 of the DGCL. Subject to certain exceptions, Section 203 prevents a publicly
held Delaware corporation from engaging in a “business combination” with any “interested stockholder” for three
years following the date that such person became an interested stockholder, unless either the interested
stockholder attained such status with the approval of our board of directors, the business combination is approved
by our board of directors and stockholders in a prescribed manner or the interested stockholder acquired at least
85% of our outstanding voting stock in the transaction in which it became an interested stockholder. A “business
combination” includes, among other things, (i) a merger or consolidation involving us and the “interested
stockholder” and (ii) the sale of more than 10% of our assets. In general, an “interested stockholder” is any entity
or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated
with or controlling or controlled by such entity or person. The restrictions contained in Section 203 are not
applicable to any of our existing stockholders that owned 15% or more of our outstanding voting stock upon the
closing of our initial public offering.
Staggered Board; Removal of Directors
Our Certificate of Incorporation and our By-laws divide our board of directors into three classes with
staggered three-year terms. In addition, our Certificate of Incorporation and our By-laws provide that directors
may be removed only for cause and only by the affirmative vote of the holders of 75% of the votes that all our
stockholders would be entitled to cast in any annual election of directors . Under our Certificate of Incorporation
and By-laws, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only
by vote of a majority of our directors then in office. Furthermore, our Certificate of Incorporation provides that the
authorized number of directors may be changed only by the resolution of our board of directors. The classification
of our board of directors and the limitations on the ability of our stockholders to remove directors, change the
authorized number of directors and fill vacancies could make it more difficult for a third party to acquire, or
discourage a third party from seeking to acquire, control of our company.
Stockholder Action; Special Meeting of Stockholders; Advance Notice Requirements for Stockholder Proposals
and Director Nominations
Our Certificate of Incorporation and our By-laws provide that any action required or permitted to be taken
by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting and may not be taken by written action in lieu of a meeting. Our Certificate of
Incorporation and our By-laws also provide that, except as otherwise required by law, special meetings of the
stockholders can only be called by the chairman of our board of directors, our chief executive officer, our
president or our board of directors. In addition, our Bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates
for election to our board of directors. Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of
directors, or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting
and who has delivered timely written notice in proper form to our secretary of the stockholder’s intention to bring
such business before the meeting. These provisions could have the effect of delaying until the next stockholder
meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.
These provisions also could discourage a third party from making a tender offer for our common stock because
even if the third party acquired a majority of our outstanding voting stock, it would be able to take action as a
stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting and
not by written consent.
Super-Majority Voting
The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any
matter is required to amend a corporation’s certificate of incorporation or by-laws unless a corporation’s
certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our By-laws may be
amended or repealed by a majority vote of our board of directors or the affirmative vote of the holders of at least
75% of the votes that all our stockholders would be entitled to cast in any annual election of directors. In addition,
the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in
any election of directors is required to amend or repeal or to adopt any provisions inconsistent with any of the
provisions of our Certificate of Incorporation described above.
OCULAR THERAPEUTIX, INC.
STOCK OPTION AGREEMENT
Exhibit 10.39
Ocular Therapeutix, Inc. (the “Company”) hereby grants the following stock option pursuant to its 2021
Stock Incentive Plan. The terms and conditions attached hereto are also a part hereof.
Notice of Grant
Name of optionee (the “Participant”):
Grant Date:
Incentive Stock Option or Nonstatutory Stock Option:
Number of shares of the Company’s Common Stock
subject to this option (“Shares”):
Option exercise price per Share:1
Number, if any, of Shares that vest immediately on the
grant date:
Shares that are subject to vesting schedule:
Vesting Start Date:
Final Exercise Date: 2
Vesting Schedule:
Vesting Date:
Number of Options that Vest:
All vesting is dependent on the Participant remaining an Eligible Participant, as provided herein.
[Signature Page follows]
This must be at least 100% of the Grant Date Fair Market Value (as defined in the Plan) of the Common Stock on the date of
1
grant (110% in the case of a Participant that owns more than 10% of the total combined voting power of all classes of stock of the
Company or its parent or subsidiary (a “10% Shareholder”) if the option is to qualify as an ISO).
2
an ISO) from the date of grant. The correct approach to calculate the final exercise date is to use the day immediately prior to the date ten
years out from the date of the stock option award grant (5 years in the case of a 10% stockholder being granted an ISO).
The Final Exercise Date must be no more than 10 years (5 years in the case of a 10% Shareholder if the option is to qualify as
This option satisfies in full all commitments that the Company has to the Participant with respect to the
issuance of stock, stock options or other equity securities.
OCULAR THERAPEUTIX, INC.
By:
Name of Officer
Title:
Signature of Participant
Street Address
City/State/Zip Code
Signature of Participant’s Spouse (if applicable)*
Street Address
City/State/Zip Code
Required for Participants residing in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
*
Wisconsin, or the Commonwealth of Puerto Rico.
OCULAR THERAPEUTIX, INC.
Stock Option Agreement
Incorporated Terms and Conditions
1.
Grant of Option.
This agreement evidences the grant by the Company, on the grant date (the “Grant Date”) set forth in the
Notice of Grant that forms part of this agreement (the “Notice of Grant”), to the Participant of an option to
purchase, in whole or in part, on the terms provided herein and in the Company’s 2021 Stock Incentive Plan (the
“Plan”), the number of Shares set forth in the Notice of Grant of common stock, $0.0001 par value per share, of
the Company (“Common Stock”), at the exercise price per Share set forth in the Notice of Grant. Unless earlier
terminated, this option shall expire at 5:00 p.m., Eastern time, on the Final Exercise Date set forth in the Notice of
Grant (the “Final Exercise Date”).
The option evidenced by this agreement is intended to be an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”)
to the maximum extent permitted by law, solely to the extent designated as an incentive stock option in the Notice
of Grant. Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be
deemed to include any person who acquires the right to exercise this option validly under its terms.
2.
Vesting Schedule.
This option will become exercisable (“vest”) in accordance with the vesting schedule set forth in the
Notice of Grant.
The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to
the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares
for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3
hereof or the Plan.
3.
Exercise of Option.
(a)
Form of Exercise. Each election to exercise this option shall be in writing, in the form of the Stock
Option Exercise Notice attached as Annex A, signed by the Participant, and received by the Company at its
principal office, accompanied by this agreement, or in such other form (which may be electronic) as is approved
by the Company, together with payment in full in the manner provided in the Plan. The Participant may purchase
less than the number of shares covered hereby, provided that no partial exercise of this option may be for any
fractional share.
(b)
Continuous Relationship with the Company Required. Except as otherwise provided in this
Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is,
and has been at all times since the Grant Date, an employee, director or officer of, or consultant or advisor to, the
Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to
receive option grants under the Plan (an “Eligible Participant”).
(c)
Termination of Relationship with the Company. If the Participant ceases to be an Eligible
Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this
option shall terminate three months after such cessation (but in no event after the Final Exercise Date),
provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this
option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise
Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and
nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
(d)
Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the
meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant
and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option
shall be exercisable, within the period of 180 days following the date of death or disability of the Participant, by
the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable
only to the extent that this option was exercisable by the Participant on the date of his or her death or disability,
and further provided that this option shall not be exercisable after the Final Exercise Date.
(e)
Termination for Cause. If, prior to the Final Exercise Date, the Participant’s employment or other
relationship with the Company is terminated by the Company for Cause (as defined below), the right to exercise
this option shall terminate immediately upon the effective date of such termination of employment or other
relationship. “Cause” shall have the meaning set forth in any employment or other agreement between the
Participant and the Company or, in the absence of such an agreement, shall mean, in the good faith determination
of the Company, the Participant has: (i) committed gross negligence or willful malfeasance in the performance of
the Participant’s work or duties; (ii) committed a breach of fiduciary duty or a breach of any non-competition,
non-solicitation or confidentiality obligations to the Company; (iii) failed to follow the proper directions of the
Participant’s direct or indirect supervisor after written notice of such failure; (iv) been convicted of, or pleaded
“guilty” or “no contest” to, any misdemeanor relating to the affairs of the Company or any felony; (v) disregarded
the material rules or material policies of the Company which has not been cured within 15 days after notice
thereof from the Company; or (vi) engaged in intentional acts that have generated material adverse publicity
toward or about the Company.
4.
Tax Matters.
(a)
Withholding. No Shares will be issued pursuant to the exercise of this option unless and until the
Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal,
state or local withholding taxes required by law to be withheld in respect of this option.
(b)
Disqualifying Disposition. If this option is an incentive stock option and the Participant disposes of
Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares
were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such
disposition.
- 2 -
5.
Transfer Restrictions; Clawback.
(a)
This option may not be sold, assigned, transferred, pledged, encumbered or otherwise disposed of
by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution,
and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.
(b)
In accepting this option, the Participant agrees to be bound by any clawback policy that the
Company has in place or may adopt in the future.
6.
Provisions of the Plan.
This option is subject to the provisions of the Plan (including the provisions relating to amendments to the
Plan), a copy of which is furnished to the Participant with this option.
- 3 -
ANNEX A
Ocular Therapeutix, Inc.
24 Crosby Drive
Bedford, MA 01730
Dear Sir or Madam:
Ocular Therapeutix, Inc.
Stock Option Exercise Notice
I, (the “Participant”), hereby irrevocably exercise the right to purchase shares of the
Common Stock, $0.0001 par value per share (the “Shares”), of Ocular Therapeutix, Inc. (the “Company”) at
$ per share pursuant to the Company’s 2021 Stock Incentive Plan and a stock option agreement with the
Company dated (the “Option Agreement”). Enclosed herewith is a payment of $ , the
aggregate purchase price for the Shares. The certificate for the Shares should be registered in my name as it
appears below or, if so indicated below, jointly in my name and the name of the person designated below, with
right of survivorship.
Dated:
Signature
Print Name:
Address:
Name and address of persons in whose name the Shares are to be jointly registered (if applicable):
- 4 -
OCULAR THERAPEUTIX, INC.
RESTRICTED STOCK UNIT AGREEMENT
Exhibit 10.40
Ocular Therapeutix, Inc. (the “Company”) hereby grants the following restricted stock units pursuant to its
2021 Stock Incentive Plan. The terms and conditions attached hereto are also a part hereof.
Notice of Grant
Name of recipient (the “Participant”):
Grant Date:
Number of restricted stock units (“RSUs”) granted:
Number, if any, of RSUs that vest immediately on the
grant date:
RSUs that are subject to vesting schedule:
Vesting Start Date:
Vesting Schedule:
Vesting Date:
Number of RSUs that Vest:
All vesting is dependent on the Participant remaining an Eligible Participant, as provided herein.
This grant of RSUs satisfies in full all commitments that the Company has to the Participant with respect
to the issuance of stock, stock options or other equity securities.
Signature of Participant
Street Address
City/State/Zip Code
Ocular Therapeutix, Inc.
By:
Name of Officer
Title:
Ocular Therapeutix, Inc.
Restricted Stock Unit Agreement
Incorporated Terms and Conditions
1.
Award of Restricted Stock Units. In consideration of services rendered and to be rendered to the
Company, by the Participant, the Company has granted to the Participant, subject to the terms and conditions set
forth in this Restricted Stock Unit Agreement (this “Agreement”) and in the Company’s 2021 Stock Incentive
Plan (the “Plan”), an award with respect to the number of restricted stock units (the “RSUs”) set forth in the
Notice of Grant that forms part of this Agreement (the “Notice of Grant”). Each RSU represents the right to
receive one share of common stock, $0.0001 par value per share, of the Company (the “Common Stock”) upon
vesting of the RSU, subject to the terms and conditions set forth herein.
2.
Vesting. The RSUs shall vest in accordance with the Vesting Schedule set forth in the Notice of
Grant (the “Vesting Schedule”). Any fractional shares resulting from the application of any percentages used in
the Vesting Schedule shall be rounded down to the nearest whole number of RSUs. As soon as practicable after
the vesting of the RSU, the Company will deliver to the Participant, for each RSU that becomes vested, one share
of Common Stock, subject to the payment of any taxes pursuant to Section 7. The Common Stock will be
delivered to the Participant as soon as practicable following each vesting date, but in any event within 30 days of
such date.
3.
Forfeiture of Unvested RSUs Upon Cessation of Service. In the event that the Participant ceases to
be an Eligible Participant (as defined below) for any reason or no reason, with or without cause, all of the RSUs
that are unvested as of the time of such cessation shall be forfeited immediately and automatically to the
Company, without the payment of any consideration to the Participant, effective as of such cessation. The
Participant shall have no further rights with respect to the unvested RSUs or any Common Stock that may have
been issuable with respect thereto. The Participant shall be an “Eligible Participant” if the individual is an
employee, director or officer of, or consultant or advisor to, the Company or any other entity the employees,
officers, directors, consultants or advisors of which are eligible to receive awards of RSUs under the Plan.
4.
Restrictions on Transfer. The Participant shall not sell, assign, transfer, pledge, hypothecate,
encumber or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any RSUs, or any
interest therein. The Company shall not be required to treat as the owner of any RSUs or issue any Common Stock
to any transferee to whom such RSUs have been transferred in violation of any of the provisions of this
Agreement.
5.
Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with
respect to any shares of Common Stock that may be issuable with respect to the RSUs until the issuance of the
shares of Common Stock to the Participant following the vesting of the RSUs.
6.
Provisions of the Plan. This Agreement is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this Agreement.
7.
Tax Matters.
(a)
Acknowledgments; No Section 83(b) Election. The Participant acknowledges that he or
she is responsible for obtaining the advice of the Participant’s own tax advisors with respect to the award of RSUs
and the Participant is relying solely on such advisors and not on any statements or representations of the Company
or any of its agents with respect to the tax consequences relating to the RSUs. The Participant understands that
the Participant (and not the Company) shall be responsible for the Participant’s tax liability that may arise in
connection with the acquisition, vesting and/or disposition of the RSUs. The Participant acknowledges that no
election under Section 83(b) of the Internal Revenue Code of 1986, as amended, (the “Code”) is available with
respect to RSUs.
(b) Withholding. The Participant acknowledges and agrees that the Company has the right to
deduct from payments of any kind otherwise due to the Participant any federal, state, local or other taxes of any
kind required by law to be withheld with respect to the vesting of the RSUs. At such time as the Participant is not
aware of any material nonpublic information about the Company or the Common Stock and the Participant is not
subject to any restriction on trading activities with respect to the Common Stock pursuant to any Company insider
trading or other policy, the Participant shall execute the instructions set forth in Schedule A attached hereto (the
“Durable Automatic Sale Instructions”) as the means of satisfying such tax obligation, unless the Participant has
already executed such Durable Automatic Sale Instructions and the Company has such instructions on file. If the
Participant has not executed the Durable Automatic Sale Instructions prior to an applicable vesting date, then the
Participant agrees that if under applicable law the Participant will owe taxes at such vesting date on the portion of
the award then vested the Company shall be entitled to immediate payment from the Participant of the amount of
any tax required to be withheld by the Company. The Company shall not deliver any shares of Common Stock to
the Participant until it is satisfied that all required withholdings have been made.
8.
Miscellaneous.
(a)
Section 409A. The RSUs awarded pursuant to this Agreement are intended to be exempt
from or comply with the requirements of Section 409A of the Code and the Treasury Regulations issued
thereunder (“Section 409A”). The delivery of shares of Common Stock on the vesting of the RSUs may not be
accelerated or deferred unless permitted or required by Section 409A.
(b)
Participant’s Acknowledgements. The Participant acknowledges that he or she: (i) has read
this Agreement; (ii) has been represented in the preparation, negotiation and execution of this Agreement by legal
counsel of the Participant’s own choice or has voluntarily declined to seek such counsel; (iii) understands the
terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement;
and (v) agrees that in accepting this award, the Participant will be bound by any clawback policy that the
Company may adopt in the future.
Schedule A
DURABLE AUTOMATIC SALE INSTRUCTION
This Durable Automatic Sale Instruction is being delivered to Ocular Therapeutix, Inc. (the “Company”) by the
undersigned on the date set forth below.
I hereby acknowledge that the Company has granted, or may in the future from time to time grant, to me restricted
stock units (“RSUs”) under the Company’s equity incentive plans as in effect from time to time.
I acknowledge that upon the vesting dates applicable to any such RSUs, I will have compensation income equal to
the fair market value of the shares of the Company’s common stock subject to the RSU that vest on such date and that the
Company is required to withhold income and employment taxes in respect of that compensation income on the applicable
vesting date.
I desire to establish a process to satisfy such withholding obligation in respect of all RSUs that have been, or may in
the future be, granted by the Company to me through an automatic sale of a portion of the shares of the Company’s common
stock that would otherwise be issued to me on each applicable vesting date, such portion to be in an amount sufficient to
satisfy such withholding obligation, with the proceeds of such sale delivered to the Company in satisfaction of such
withholding obligation.
I understand that the Company has arranged for the administration and execution of its equity incentive plans and
the sale of securities by plan participants thereunder pursuant to an Internet-based platform administered by a third party (the
“Administrator”) and the Administrator’s designated brokerage partner.
Upon any vesting of my RSUs from and after the date of this Durable Automatic Sale Instruction, I hereby appoint
the Administrator (or any successor administrator) to automatically sell such number of shares of the Company’s common
stock issuable with respect to my RSUs that vest as is sufficient to generate net proceeds sufficient to satisfy the Company’s
minimum statutory withholding obligations with respect to the income recognized by me upon the vesting of the RSUs
(based on minimum statutory withholding rates for all tax purposes, including payroll and social security taxes, that are
applicable to such income), and the Company shall receive such net proceeds in satisfaction of such tax withholding
obligation.
I hereby appoint the Chief Executive Officer, the Chief Financial Officer and the Corporate Counsel, and any of
them acting alone and with full power of substitution, to serve as my attorneys in fact to arrange for the sale of shares of
common stock in accordance with these durable automatic sale instructions. I agree to execute and deliver such documents,
instruments and certificates as may reasonably be required in connection with the sale of the shares of common stock
pursuant to these durable automatic sale instructions.
By signing below, I hereby represent to the Company that, as of the date hereof, I am not aware of any
material nonpublic information about the Company or its common stock and that I am not prohibited from entering
into these durable automatic sale instructions by the Company’s insider trading policy or otherwise. I have
structured these automatic sale instructions to constitute a “binding contract” relating to the sale of common stock,
consistent with the affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under
Rule 10b5-1(c) promulgated under such Act.
Print Name:
Date:
Exhibit 10.41
AMENDMENT NO. 1 TO LICENSE AGREEMENT
This Amendment No. 1 to License Agreement (this “Amendment”) by and between Ocular Therapeutix,
Inc., a corporation organized and existing under the laws of Delaware with a principal place of business at 24
Crosby Drive, Bedford, MA 01730 (‘Ocular”), and Affamed Therapeutics (HK) Limited, a corporation duly
organized and existing under the laws of Hong Kong, with a principal place of business at Room 3306-3307, Two
Exchange Square, 8 Connaught, Hong Kong (“AffaMed”), is made and entered into as of October 28, 2021 (the
“Amendment Effective Date”).
WHEREAS, Ocular and Affamed Therapeutics Limited entered into a License Agreement dated as of
October 28, 2020 (the “License Agreement”);
WHEREAS, Affamed is the wholly owned subsidiary of Affamed Therapeutics Limited, which assigned
the License Agreement to Affamed on August 3, 2021 in accordance with Section 16.01(a) of the License
Agreement.
WHEREAS, Ocular and Affamed desire to amend the License Agreement to modify the responsibilities of
the Parties with respect to Regulatory Filings and certain other matters;
NOW THEREFORE, the Parties agree as follows:
1.
All terms used in this Amendment and not defined shall have the meanings ascribed to them in the
License Agreement.
2.
Section 2.03 is amended to read in its entirety as follows:
“No Other Rights and Retained Rights. Nothing in this Agreement shall be interpreted to grant a Party any
rights or right of reference under any Patent Rights or Know-How Controlled by the other Party that are not
expressly granted herein, whether by implication, estoppel or otherwise, and, notwithstanding the foregoing
provisions of Section 2.01, except as expressly set forth in this Agreement, neither Party grants any right or
license in this Agreement to the other Party to any data, rights to make Regulatory Filings or any right or license
under Patent Rights or Know-How Controlled by the first Party with respect to APIs or drug products other than
the Licensed Product. Any rights not expressly granted to a Party by the other Party under this Agreement are
hereby retained by such other Party.”
3.
Section 4.01(d) is amended to read in its entirety as follows:
“(d) To the extent supported by clinical results, unless otherwise agreed by the Parties, Licensee shall file
for, and endeavor to obtain or cause to be obtained, Regulatory Approval for the Licensed Products in each
Jurisdiction in the Territory, including by providing all necessary resources required to seek and maintain
Regulatory Approval for the Licensed Products in each Jurisdiction in the Territory. All Regulatory Filings will be
made by Licensee acting as Ocular’s agent, with Ocular listed as Sponsor and/or Marketing Authorization Holder
and shall be subject to Ocular’s approval to the same extent as set forth in Section 5.01(a). In addition, Licensee
shall keep Ocular informed of all communications with Regulatory Authorities and provide copies of all
communications and of all meetings intended to be held with such Regulatory Authorities with an opportunity to
attend to the same extent as set forth in Section 5.01(a).”
3.
Section 5.01 (a) is amended to read in its entirety as follows:
“(a) Subject to Section 4.01(a) and Section 5.01(b), Licensee shall have the responsibility to prepare,
obtain, and maintain all Regulatory Filings, Licensed Product labeling and Regulatory Approvals, and to conduct
communications with the Regulatory Authorities in the Territory, for the Development of Licensed Products in the
Field in the Territory undertaken by Ocular and for the Commercialization of Licensed Products in the Field in the
Territory undertaken by Licensee. Licensee shall be responsible for all of its costs and expenses incurred in
connection with the foregoing and shall reimburse Ocular for its documented out of pocket costs (including
expenses and costs associated with internal resources) at a rate of $200 per full time equivalent hour. Such rate
will be adjusted on each annual anniversary of the date of this Amendment based on the percentage increase or
decrease, if any, in the applicable CPI (determined based on the location of the applicable personnel) since the
later of the date of this Amendment and the date of the latest adjustment date hereunder, through June 30 of the
prior calendar year. For the avoidance of doubt, the Parties intend that the forgoing rate shall apply to any
assistance or cooperation provided by Ocular in connection with the foregoing other than any assistance or
cooperation for which the Parties have expressly agreed in writing to a cost allocation. All Regulatory Filings and
Licensed Product labeling prepared by Licensee shall be delivered to Ocular (together with an English translation
prepared at the expense of Licensee) no later than seven (7) Business Days prior to the date Licensee intends to
submit them to a Regulatory Authority in the Territory and shall be subject to Ocular’s review and approval prior
to such submission. All Regulatory Filings will be made by Licensee acting as Ocular’s agent, with Ocular listed
as Sponsor and/or Marketing Authorization Holder. All material included in Regulatory Filings shall be
considered Confidential Information of Ocular. Licensee shall provide copies of any communications received
from Regulatory Authorities in the Territory relating to any Regulatory Filing or the Licensed Product (together
with an English translation prepared at the expense of Licensee). Any Regulatory Authority communications that
result in product deficiencies, or inquiries and require a response to the Regulatory Authority shall be provided to
Ocular immediately, and such responses shall be reviewed and approved by Ocular prior to submission; provided
that, if Ocular does not provide approval to Licensee within the timeline for response required by the Regulatory
Authority, Licensee shall consider in good faith any comments received from Ocular with respect thereto and shall
have the right to submit such responses within such timeline. In addition, Licensee shall inform Ocular of all
meetings intended to be held with Regulatory Authorities in the Territory and provide Ocular the opportunity to
attend any such meeting together with an interpreter at Ocular’s expense. For purposes of this Section 5.01(a), CPI
means (a) for personnel located in the United States, the Consumer Price Index-All Urban Consumers published
by the United States Department of Labor, Bureau of Statistics (or its successor equivalent index), or (b) for
personnel located in any other country, the applicable equivalent index published in such foreign country
applicable to personnel in such country.”
4.
Section 5.01(c) is amended to read in its entirety as follows:
2
“(c) Within five (5) Business Days following the end of each Calendar Quarter, Ocular shall invoice
Licensee for the amounts reimbursable to Ocular set forth in Section 5.01(a). Licensee shall pay all amounts
payable under such invoice within thirty (30) days after the end of each Calendar Quarter.”
5.
Except as modified hereby, each of the terms and provisions of the License Agreement shall remain
in full force and effect.
6.
This Amendment may be executed in counterparts, all of which taken together shall be regarded as
one and the same instrument.
3
IN WITNESS WHEROF, the Parties have executed this Amendment through their duly authorized
representatives to be effective as of the Amendment Effective Date.
OCULAR THERAPEUTIX, INC.
By: /s/Antony Mattessich
Name: Antony Mattessich
Title: President and Chief Executive Officer
AFFAMED THERAPEUTICS (HK) LIMITED
By: /s/ Dayao Zhao
Name: Dayao Zhao
Title: Director and Chief Executive Officer
4
Subsidiaries of Ocular Therapeutix, Inc.
Ocular Therapeutix Europe B.V.
Ocular Therapeutix Securities Corp.
Jurisdiction of Incorporation or Organization
The Netherlands
The Commonwealth of Massachusetts
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-230659 and
333-251327) and Form S-8 (Nos. 333-198240, 333-202886, 333-210059, 333-216622, 333-223513, 333-230126, 333-
237115, 333-254143, and 333-258642) of Ocular Therapeutix, Inc. of our report dated February 28, 2022 relating to
the financial statements, and the effectiveness of internal control over financial reporting, which appears in this Form
10-K.
Exhibit 23.1
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 28, 2022
Exhibit 31.1
CERTIFICATIONS
I, 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 a
material 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, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined 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 be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during 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 financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2022
By: /s/ Antony Mattessich
Antony Mattessich
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATIONS
I, 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 a
material 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, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined 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 be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during 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 financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2022
By:
/s/ Donald Notman
Donald Notman
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Ocular Therapeutix, Inc. (the “Company”) for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Antony Mattessich, President and Chief Executive 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
of operations of the Company.
Date: February 28, 2022
By:/s/ Antony Mattessich
Antony Mattessich
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Ocular Therapeutix, Inc. (the “Company”) for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, 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
of operations of the Company.
Date: February 28, 2022
By:/s/ Donald Notman
Donald Notman
Chief Financial Officer
(Principal Financial and Accounting Officer)