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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-03-07 · 98 added, 73 removed, 221 unchanged (44% of the section changed)

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You should read the “Risk Factors” and “Special Note Regarding Forward-Looking Statements” sections 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.

We are a biotechnology company devoted to discovering innovative therapies designed to treat immune-mediated diseases.

We are developing a novel pharmaceutical platform targeting a class of toxic endogenous small molecules known as RASP (reactive aldehyde species) that are associated with many inflammatory, metabolic, and neurodegenerative diseases.

Our RASP modulator product pipeline includes ADX-629, a novel orally administered RASP modulator in clinical development for moderate alcohol-associated hepatitis and Sjögren-Larsson Syndrome.

Our preclinical RASP platform includes ADX-246, ADX-248, and other drug candidates in development for systemic inflammatory, metabolic, and retinal diseases.

The validity of the RASP platform is supported by reproxalap, our first-in-class product candidate in late-stage development for the treatment of dry eye disease.

Reproxalap has demonstrated broad-based, rapid-onset activity and consistent safety across a number of Phase 2 and Phase 3 clinical trials.

We have additional product candidates in development, including ADX-2191, which is in clinical development for the treatment of retinitis pigmentosa, a rare retinal disease characterized by inflammation and vision loss.

ADX-2191 has received Orphan Drug Designation for the treatment of retinitis pigmentosa.

We are a biotechnology company devoted to discovering and developing innovative therapies designed to treat immune-mediated and metabolic diseases.

Our approach is to develop pharmaceuticals that modulate protein systems, instead of directly inhibiting or activating single protein targets, with the goal of optimizing multiple pathways at once while minimizing toxicity.

Our late-stage product candidates are reproxalap, a RASP modulator for the potential treatment of dry eye disease and allergic conjunctivitis, and ADX‑2191, a novel formulation of intravitreal methotrexate for the potential treatment of retinitis pigmentosa.

Our preclinical RASP platform includes ADX‑248, ADX‑743, ADX‑631, ADX‑246, and other product candidates in development for inflammatory and metabolic diseases.

Since our incorporation, we have devoted substantially all of our resources to the preclinical and clinical development of our product candidates.

Our ability to generate revenues largely depends upon our ability, alone or with others, to complete development of our product candidates to obtain regulatory approvals for and to manufacture, market, and sell our product candidates.

Our ability to generate revenue largely depends upon our ability, alone or with others, to complete development of our product candidates to obtain regulatory approvals for and to manufacture, market, and sell our product candidates.

The results of our operations will vary significantly from year-to-year and quarter-to-quarter, and depend on a number of factors, including risks related to our business and industry, risks relating to intellectual property and other legal matters, risks related to our common stock, and other risks that are detailed in the section of this annual report on Form 10-K entitled “Risk Factors".

In March 2019, we entered into the Hercules Credit Facility, which provided for a term loan of up to $60.0 million, $15.0 million of which has been drawn-down as of December 31, 2023.

In March 2019, we entered into the Hercules Credit Facility, which provided for a term loan of up to $60.0 million, $15.0 million of which has been funded as of September 30, 2024.

In April 2021, the Hercules Credit Facility was amended to, among other things, increase the amount which may become available for draw-down prior to May 2023, subject to the satisfaction of certain conditions contained therein, from $10.0 million to $20.0 million.

In December 2022, the Hercules Credit Facility was further amended to, among other things, (i) extend the expiration of the period in which interest-only payments on borrowings from May 1, 2023 to May 1, 2024;

In December 2022, the Hercules Credit Facility was amended to, among other things, (i) extend the expiration of the period in which interest-only payments on borrowings from May 1, 2023 to May 1, 2024;

(ii) extend the Maturity Date from October 1, 2023 to October 1, 2024;

and (iii) extend the availability of the $20.0 million draw-down from May 2023 to May 2024, subject to the satisfaction of certain conditions contained therein.

In April 2024, the Hercules Credit Facility was amended to, among other things, extend the expiration of the period in which interest-only payments on borrowings under the Hercules Credit Facility were to be made from May 1, 2024 to October 1, 2024.

In September 2024, the Hercules Credit Facility was amended to, among other things, (i) extend the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from October 1, 2024 to April 1, 2026;

(ii) extend the Maturity Date from October 1, 2024 to April 1, 2026;

and (iii) amend the term loan interest rate to be the greater of (a) the Prime Rate (as defined in the Hercules Credit Facility) plus 3.10%, or (b) 11.10%.

The Hercules Credit Facility contains customary affirmative and negative covenants and events of default.

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The Hercules Credit Facility, as amended, is described in Note 9 to the notes to the consolidated financial statements contained in this annual report on Form 10-K.

As of December 31, 2023, $15.0 million was outstanding under the Hercules Credit Facility, and an additional $20.0 million may be available under the Loan and Security Agreement at our option through May 1, 2024, subject to approval of the Lender’s investment committee.

In March 2021, we entered into an Open Market Sales Agreement SM (2021 Jefferies Sales Agreement) with Jefferies LLC (Jefferies), as sales agent, pursuant to which we may offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $100.0 million.

We have no obligation to sell any shares under the 2021 Jefferies Sales Agreement, and could at any time suspend solicitations and offers under the 2021 Jefferies Sales Agreement.

As of December 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility, and no amounts remained available for borrowing.

In August 2024, we entered into an Open Market Sales Agreement SM with Jefferies, as sales agent (the 2024 Jefferies Sales Agreement), under which we have the ability to offer and sell, from time to time through Jefferies,

shares of common stock providing for aggregate sales proceeds of up to $75.0 million.

No sales had been made pursuant to the 2024 Jefferies Sales Agreement as of December 31, 2024.

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On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise Period Extension) by paying us a non-refundable payment of $5.0 million (the Option Extension Fee).

As a result of the Exercise Period Extension, AbbVie may exercise the Option by delivering written notice to us at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the date, if any, that we receive approval from the U.S.

Food and Drug Administration of the new drug application (NDA) for reproxalap in dry eye disease (the FDA Decision) and (b) the date that is eighteen (18) months after the Option Agreement Effective Date.

If the Collaboration Agreement is entered into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.

On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option Agreement.

The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that we will conduct certain launch activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be considered allowable expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry into the Collaboration Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise.

If AbbVie does not deliver a written notice of exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs.

AbbVie has also independently initiated pre-commercialization planning activities.

In addition, the Exercise Period (as defined in the Option Agreement) was further modified to ten (10) business days following the date, if any, that we receive approval from the U.S.

Food and Drug Administration of the new drug application (NDA) for reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it will not exercise the Option.

Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100 million upfront cash payment, less the Option Payment and the Option Extension Fee.

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Outside of the United States, we would be eligible to receive tiered royalties on net sales of reproxalap.

As of February 28, 2025, AbbVie has not exercised the Option.

Our Agreement with MEEI

We are developing ADX-2191 pursuant to an Exclusive License Agreement with Massachusetts Eye and Ear Infirmary (MEEI) originally entered into in July 2016 between MEEI and Helio Vision, Inc.

(Helio), as amended, (MEEI Agreement).

We previously developed ADX‑2191 for the treatment of proliferative vitreoretinopathy pursuant to an Exclusive License Agreement with Massachusetts Eye and Ear Infirmary (MEEI), originally entered into in

July 2016 between MEEI and Helio Vision, Inc.

(Helio), as amended, (the MEEI Agreement).

We assumed the MEEI Agreement in connection with our 2019 acquisition of Helio.

Pursuant and subject to the MEEI Agreement, we obtained an exclusive, worldwide license from MEEI to develop and commercialize ADX-2191 under certain patents and patent applications, and other licenses to intellectual property (MEEI Patent Rights).

Pursuant to the MEEI Agreement, we obtained an exclusive, worldwide license from MEEI to develop and commercialize ADX‑2191 under certain patents and patent applications, in addition to other licenses to intellectual property (the MEEI Patent Rights).

We have agreed to use our commercially reasonable efforts to develop ADX‑2191 and to meet certain specified effort and achievement benchmarks by certain dates.

In consideration for the rights licensed under the MEEI Agreement, Helio issued MEEI a number of shares of its preferred stock and Helio agreed to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second and third anniversary of the MEEI Agreement, $25,000 on each of the fourth and fifth anniversary of the MEEI Agreement and $35,000 on the sixth and each subsequent anniversary of the MEEI Agreement during the term of such agreement.

In addition, Helio was obligated to make future sales-dependent milestone payments to MEEI of up to the low seven figures in the aggregate, as well as royalty payments to MEEI at a rate which, as a percentage of net sales, is in the low single digits for products that incorporate or use the MEEI Patent Rights in the United States and as a percentage in the low single digits for products that incorporate or use the MEEI Patent Rights outside the United States.

We are also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue that we receive in connection with entering into any sublicensing arrangements with any third parties, at a percentage rate which tiers downward from low-double digits to mid-single digits based on the date of the sublicense.

Following our acquisition of Helio, we became obligated to make any future payments owed under the MEEI Agreement.

In consideration for the rights licensed under the MEEI Agreement, Helio issued MEEI a number of shares of its preferred stock and Helio agreed, during the term of the MEEI Agreement, to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second and third anniversary of the MEEI Agreement, $25,000 on each of the fourth and fifth anniversary of the MEEI Agreement and $35,000 on the sixth and each subsequent anniversary of the MEEI Agreement.

Helio is also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue at a percentage rate that descends from low-double digits to mid-single digits based on the date of the sublicense.

Following our acquisition of Helio, we became obligated to make any future payments previously owed by Helio under the MEEI Agreement.

There is no additional equity consideration issuable under the MEEI Agreement.

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We may terminate the MEEI Agreement with timely written notice to MEEI.

MEEI has the right to terminate the MEEI Agreement if we, subject to certain specified cure periods, cease all business operations with respect to licensed products, fail to pay amounts due under the MEEI Agreement, fail to comply with certain due diligence obligations, default in our obligation to maintain insurance, one of our officers is convicted of a felony relating to the manufacture, use, sale or importation of licensed products, we materially breach any provisions of the MEEI Agreement or in the event of our insolvency or bankruptcy.

In the event of an early termination of the MEEI Agreement, all rights licensed and developed by us under the MEEI Agreement may revert back to MEEI.

MEEI has the right to terminate the MEEI Agreement, subject to certain specified cure periods, in the event of our insolvency or bankruptcy or if we cease all business operations with respect to licensed products, fail to pay amounts due under the MEEI Agreement, fail to comply with certain due diligence obligations, do not maintain specific levels of insurance, one of our officers is convicted of a felony relating to the manufacture, use, sale or importation of licensed products, or we materially breach any provisions of the MEEI Agreement or in the event of our insolvency or bankruptcy.

In the event of an early termination of the MEEI Agreement, all rights licensed and developed by us under the MEEI Agreement will revert to MEEI.

We have agreed to indemnify MEEI for certain claims that may arise under the MEEI Agreement.

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Research and Development Expenses

We expense all of our research and development expenses as they are incurred.

We expense all of our research and development expenses as incurred.

Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred.

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• employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.

Substantially all of our research and development expenses to date have been incurred in connection with reproxalap and ADX-2191, as well as the proof of concept trials with ADX-629.

We expect our research and development expenses to increase for the foreseeable future as we advance ADX-246 and ADX-248 and other

compounds through preclinical and clinical development.

Substantially all of our research and development expenses to date have been incurred in connection with reproxalap and ADX‑2191, as well as proof of concept trials with ADX‑629.

We expect our research and development expenses to increase for the foreseeable future as we advance other compounds through preclinical and clinical development.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming.

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Our general and administrative expenses consisted primarily of employee-related expenses, including benefits and stock-based compensation for our full-time employees during the years ended December 31, 2024 and 2023.

Other general and administrative expenses include insurance premiums, consulting including pre-commercial costs, and professional fees for auditing, tax, investor relations, and legal services, including patent-related costs.

Other general and administrative expenses include insurance premiums;

consulting including pre-commercial costs;

and professional fees for auditing, tax, investor relations, and legal services, including patent-related costs.

We expect that general and administrative expenses will increase in the future as we expand our operating activities, continue to incur additional costs associated with being a publicly-traded company, and maintaining compliance with exchange listing and SEC requirements.

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Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources.

For the year ended December 31, 2024, comprehensive loss is equal to our net loss of $55.9 million and our net unrealized gain on marketable securities of approximately $0.1 million.

For the year ended December 31, 2023, comprehensive loss is equal to our net loss of $37.5 million and $0.1 million of losses on marketable securities reclassified to net loss.

For the year ended December 31, 2022, comprehensive loss is equal to our net loss of $62.0 million and $0.1 million of unrealized loss on marketable securities.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States (US GAAP).

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses during the reported periods.

We evaluate these estimates and judgments on an ongoing basis.

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States (US GAAP).

The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses during the reported periods.

We evaluate estimates and judgments on an ongoing basis.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Our actual results may differ materially from these estimates under different assumptions or conditions.

Our actual results may differ materially from estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this annual report on Form 10-K, we believe that the following accounting estimates are the most critical in order to fully understand and evaluate our financial condition and results of operations.

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As part of the process of preparing financial statements, we are required to estimate our accrual for and any remaining deferred balances pertaining to our research and development expenses.

This process involves the following:

Our estimates involve the following:

• communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost;

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The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.

Payments under some of these

contracts may depend on many factors, such as the successful enrollment of patients, site initiation, and the completion of clinical study milestones.

Payments under some of these contracts may depend on many factors, such as the successful enrollment of patients, site initiation, and the completion of clinical study milestones.

Our service providers generally invoice us monthly in arrears for services performed.

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As of December 31, 2024, we had federal and state research and development tax credit carryforwards of approximately $12.1 million and $2.8 million, respectively, which will expire at various dates through 2044.

Additionally, as of December 31, 2023, we had a federal orphan drug tax credit carryforward of approximately $2.1 million that expires in 2043.

Additionally, as of December 31, 2024, we had a federal orphan drug tax credit carryforward of approximately $2.4 million which expires at various dates throughout 2044.

Future changes in federal and state tax laws pertaining to net operating loss carryforwards may also cause limitations or restrictions from us claiming such net operating losses.

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federal and state tax credits, and the funds otherwise available for general corporate purposes would be reduced.

Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax assets (tax attributes) to offset future taxable income.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax assets (tax attributes) to offset future taxable income or tax due.

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

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We believe, prior to December 31, 2021 that four ownership changes occurred since inception.

Management believes that its aggregate Section 382 and 383 limitation (including the additional limitation for recognized "built-in gains") is sufficient so that no current impairment of its pre-ownership change tax attributes is required.

Management believes that the aggregate Section 382 and 383 limitation (including the additional limitation for recognized "built-in gains") is sufficient so that no current impairment of pre-ownership change tax attributes is required.

We believe there were no ownership changes from December 31, 2021 through December 31, 2024, based on a review of our equity history during that period.

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Recent Accounting Pronouncements

Recent accounting pronouncements which may be applicable to us are described in Note 2 to our Consolidated Financial Statements included in the annual report on Form 10-K.

Recent accounting pronouncements that may be applicable to us are described in Note 2 to our Consolidated Financial Statements included herein.

Results of Operations

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Comparison of Years Ended December 31, 2024 and 2023

Years ended December 31,

Increase (Decrease)

Research and development

General and administrative

Loss from operations

Other income (expense):

Interest income

Interest expense

Total other income, net

Net loss for the years ended December 31, 2024 and 2023 was approximately $55.9 million and $37.5 million, respectively.

As of December 31, 2024, we had total stockholders’ equity of $71.0 million.

Losses have resulted principally from costs incurred in our clinical trials and other research and development programs, and from our general and administrative expenses.

Losses have resulted primarily from costs incurred in our clinical trials, drug manufacturing costs, and other research and development programs, and from our general and administrative expenses.

Research and Development Expenses.

Research and development expenses were $48.2 million for the year ended December 31, 2024 compared to $29.5 million for the same period in 2023.

The decrease of $17.8 million is primarily related to a decrease in external clinical development costs, drug product manufacturing costs, consulting expenditures, and personnel costs, partially offset by an increase in external preclinical development costs.

The increase of $18.7 million is primarily related to an increase in $10.1 million in external clinical development costs, $8.3 million in drug product manufacturing costs, and $1.2 million in personnel costs, partially offset by an decrease in $0.6 million in external preclinical development costs and $0.3 million in consulting expenditures.

For the year ended December 31, 2024, approximately 48% of the total research and development expenses related to the advancement of late-stage product candidates.

Of the total late-stage product candidate spend during the year ended December 31, 2024, approximately 45% was attributable to reproxalap and 3% to ADX‑2191.

We do not track labor associated with each program and have allocated headcount costs on a pro-rated basis.

Management believes the pro rata allocation results is a reasonable estimate of the headcount costs associated with each of the programs noted above.

General and Administrative Expenses.

General and administrative expenses were $11.9 million for the year ended December 31, 2024, compared to $13.3 million for the year ended December 31, 2023.

The decrease of approximately $2.1 million is primarily related to lower consulting expenditures and personnel costs, partially offset by an increase in legal expenditures.

The decrease of approximately $1.4 million is primarily related to decreases in consulting and legal expenditures.

Other Income (Expense).

Total other income (expense) was approximately $5.3 million for the year ended December 31, 2023, compared to $0.7 million for the year ended December 31, 2022.

The increase in total other income (expense), was principally due to an increase in interest income as a result of increased interest rates on our investments.

Total other income (expense), net, was approximately $4.3 million and $5.3 million for the year ended December 31, 2024 and 2023, respectively, was principally due to a decrease in interest income as a result of decreased interest rates on our investments.

Liquidity and Capital Resources

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Since inception, we have incurred operating losses and negative cash flows from operating activities and have devoted substantially all our efforts to research and development.

At December 31, 2023, we had total stockholders’ equity of approximately $119.8 million and cash and cash equivalents of $142.8 million.

At December 31, 2024, we had total stockholders’ equity of approximately $71.0 million and cash, cash equivalents, and marketable securities of $101.2 million.

During the year ended December 31, 2024, we had net loss of approximately $55.9 million.

We expect to generate operating losses for the foreseeable future.

We have no obligation to sell any shares under the 2021 Jefferies Sales Agreement, and could at any time suspend solicitations and offers under the 2021 Jefferies Sales Agreement.

No sales had been made pursuant to the 2021 Jefferies Sales Agreement as of December 31, 2023.

In August 2024, we entered into the 2024 Jefferies Sales Agreement under which we have the ability to offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $75.0 million.

As of December 31, 2024, no shares of common stock were sold under the 2024 Jefferies Sales Agreement.

In March 2019, we entered into the Hercules Credit Facility (the Loan and Security Agreement), pursuant to which a term loan of up to an aggregate principal amount of $60.0 million may be made available to us.

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and (iv) following the satisfaction of certain conditions, which conditions were satisfied in April 2021, further extended the expiration of the interest-only period and the deadline for drawing down the Fourth Loan Tranche to May 1, 2023.

On December 22, 2022, we entered into the Second Amendment (Second Amendment) to the Loan and Security

Agreement with Hercules, which became effective as of December 31, 2022 (Second Amendment Effective Date).

On December 22, 2022, we entered into the Second Amendment (Second Amendment) to the Loan and Security Agreement with Hercules, which became effective as of December 31, 2022 (Second Amendment Effective Date).

The Second Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2023 to May 1, 2024;

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The existing end of term charge of $1,042,500 (End of Term Charge) was paid on October 2, 2023.

Repayment of the aggregate outstanding principal balance of the term loan, in monthly installments, commences upon expiration of the interest-only period and continues through the Maturity Date.

On April 29, 2024, we entered into the Third Amendment (Third Amendment) to the Loan and Security Agreement with Hercules.

The Third Amendment, among other things, extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from May 1, 2024 to October 1, 2024.

On May 1, 2024, the Fourth Loan Tranche commitment expired unutilized.

On September 30, 2024, we entered into the Fourth Amendment (Fourth Amendment) to the Loan and Security Agreement with Hercules.

The Fourth Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from October 1, 2024 to April 1, 2026;

(ii) extended the Maturity Date from October 1, 2024 to April 1, 2026;

and (iii) amended the term loan interest rate to be the greater of (a) the Prime Rate (as defined in the Loan and Security Agreement) plus 3.10%, or (b) 11.10%.

In addition, a supplemental end of term charge of $300,000 (Second Supplemental End of Term Charge) shall be due on the earlier of (A) the Maturity Date, as amended, or (B) repayment of the aggregate amount of advances under the Loan and Security Agreement.

The Supplemental End of Term Charge of $292,500 was paid on October 1, 2024.

The Loan and Security Agreement contains customary affirmative and negative covenants and events of default.

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and creating other liens on our assets, in each case subject to customary exceptions.

As of December 31, 2023, $15.0 million was outstanding under the Loan and Security Agreement, and an additional $20.0 million under the Fourth Loan Tranche at our option through May 1, 2024, subject to approval of the Lender’s investment committee.

As of December 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility and no amounts remained available for borrowing.

On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie Inc.

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Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision) and (b) the date that is eighteen (18) months after the Option Agreement Effective Date.

If the Collaboration Agreement is entered into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.

AbbVie may exercise the Option by delivering the Option Exercise Notice to us at any time during the period following the Option Agreement Effective Date until the earlier of (a) the tenth (10th) business day after the FDA Decision Date and (b) the date that is eighteen (18) months after the Option Agreement Effective Date.

On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option Agreement.

If AbbVie does not deliver a written notice of exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs.

AbbVie has also independently initiated pre-commercialization planning activities.

In addition, the Exercise Period (as defined in the Option Agreement) was further modified to ten (10) business days following the date, if any, that we receive approval from the U.S.

Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it will not exercise the Option.

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Outside of the United States, we would be eligible to receive tiered royalties on net sales of reproxalap.

Based on our current operating plan, we believe that our cash and cash equivalents, as of December 31, 2023, will be sufficient to fund our currently projected operating expenses and debt obligations beyond 2026, including continued early and late-stage development of our product candidates in ocular and systemic immune-mediated diseases.

Based on our current operating plan, we believe that our cash and cash equivalents, as of December 31, 2024, will be sufficient to fund our currently projected operating expenses and debt obligations into 2027, including continued early and late-stage development of our product candidates in ocular and systemic immune-mediated and metabolic diseases.

We base our projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development, and commercialization (as applicable) of product candidates, we are unable to estimate the exact amount of our working capital requirements.

We will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of our planned research and development activities and regulatory activities, commence or continue ongoing commercialization, including manufacturing, sales, marketing and distribution for our product candidates, or conduct any substantial additional development requirements requested by the FDA.

activities and regulatory activities, commence or continue ongoing commercialization, including manufacturing, sales, marketing and distribution for our product candidates, or conduct any substantial additional development requirements requested by the FDA.

At this time, due to the risks inherent in the drug development process, we are unable to estimate with any certainty the costs we will incur in the continued clinical development of reproxalap, and our other product candidates.

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The issuance of debt could require us to grant additional liens on certain of our assets that may limit our flexibility.

If we raise additional capital by issuing equity securities, the terms and prices for these financings may be much more favorable to the new investors than the terms obtained by our existing stockholders.

These financings also may significantly dilute the ownership of our existing stockholders.

If we raise additional capital by issuing equity securities, the terms and prices may be much more favorable to the new investors than the terms obtained by our existing stockholders.

Subsequent financings also may significantly dilute the ownership of our existing stockholders.

We are in a period of economic uncertainty, inflation, and capital markets disruption, which has been significantly impacted by adverse developments affecting the financial services industry, geopolitical instability due to, among other things, the continued hostilities between Russia and Ukraine and Hamas’ attack against Israel and the ensuing conflict.

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Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Net decrease in cash and cash equivalents

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The primary use of cash was to fund our operations.

The decrease in the amount of cash used in operating activities for 2023 as compared to 2022 was principally due to a decrease in our net loss, primarily from research and development activities;

changes in accrued expenses, due to the amount and timing of payments for research and development activities;

changes in prepayments, due to timing of payment and collection of a receivable;

and a decrease in stock compensation and an increase in deferred collaboration revenue with AbbVie.

The increase in the amount of cash used in operating activities for 2024 as compared to 2023 was primarily due to increases in research and development activities, increases in accrued expenses due to the amount and timing of payments for research and development activities, and increases in prepayments, due to changes in working capital needs.

Investing Activities .

Net cash provided by investing activities in 2023 was $30.0 million compared to net cash used in investing activities in 2022 of $30.0 million.

Net cash provided by investing activities primarily related to the maturities of marketable securities in 2023.

Net cash used in investing activities primarily related to the net purchases and maturities activity of marketable securities for 2022.

Net cash used in investing activities in 2024 was $44.9 million compared to net cash provided by investing activities in 2023 of $30.0 million.

Net cash used in investing activities related to purchases of marketable securities in 2024.

Net cash provided by investing activities primarily related to maturities of marketable securities in 2023.

Financing Activities .

Net cash used in financing activities was $1.3 million for the year ended December 31, 2023 and consisted of stock withheld for tax obligations on option settlement proceeds and repayment of the end of term fee on our long-term debt, offset by proceeds from stock option exercises and stock purchases under the employee stock purchase plan.

Net cash provided by financing activities of $1.2 million for year ended 2022, consisted of proceeds from stock option exercises and stock purchases under the employee stock purchase plan.

Net cash used in financing activities was $0.2 million for the year ended December 31, 2024 and consisted of offering costs offset by stock purchases under the employee stock purchase plan.

Net cash used in financing activities of $1.3 million for year ended 2023 consisted of stock withheld for tax obligations on option settlement proceeds and repayment of the end of term fee on our long-term debt, offset by proceeds from stock option exercises and stock purchases under the employee stock purchase plan.

Off-Balance Sheet Arrangements.

6 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis