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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-30 · 111 added, 111 removed, 132 unchanged (63% of the section changed)

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Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Annual Report on Form 10-K, and other factors that we have not identified.

We are a clinical stage ophthalmic company developing a pipeline of advanced therapeutics based on our proprietary microdose array print (MAP™) platform technology.

We aim to achieve clinical microdosing of next-generation formulations of novel and existing ophthalmic pharmaceutical agents using our high-precision targeted ocular delivery system, branded the Optejet®.

Optejet µ-therapeutics have the potential to replace conventional eye dropper delivery and improve safety, tolerability, patient compliance and topical delivery success for ophthalmic eye treatments.

In the clinic, the Optejet has demonstrated that its targeted horizontal microdose delivery can achieve a significantly higher rate of successful ocular topical delivery compared to the established rate reported with traditional eye drops (~ 90% vs.

Our technology is designed to achieve single-digit µl-volume physiologic drug delivery with up to a 75% reduction in ocular drug and preservative topical dosing and has demonstrated significant improvement in the therapeutic index in drugs used for presbyopia, mydriasis and IOP lowering through six Phase II and Phase III trials.

Conventional eye formulations lack high-precision micro-volume delivery and expose the ocular surface to approximately 300% more medication and preservatives than are physiologically indicated leading to clinically recognized ocular and non-ocular side effects.

Using the Optejet, we are developing the next generation of smart ophthalmic therapeutics targeting new indications or new combinations where there are currently none or few drug therapies approved by the U.S.

Food and Drug Administration, (the “FDA”).

Our microdose therapeutics follow the FDA’s regulatory and approval process for combination products.

Our products are classified by the FDA as drug-device combination drug/-device products with drug primary mode of action, meaning that the Center for Drug Evaluation and Research, or CDER, is designated as the lead center with primary jurisdictional oversight.

Accordingly, the product candidates are submitted to FDA CDER for premarket review and approval under new drug applications, or NDAs.

Our pipeline is currently focused on the late-stage development of novel, potential first-in-class therapeutic indications for an estimated 25 million potential pediatric patients with progressive myopia in the United States and an estimated over 100 million potential patients with age-related near vision impairment, or presbyopia – indications where there is tremendous unmet need and, to our knowledge, there exists only one known FDA-approved therapy, developed by Allergan.

We are also developing the first microdose fixed combination ophthalmic pharmaceutical for mydriasis to address the estimated over 100 million annual comprehensive eye exams with pupil dilation.

We are a pre-commercial ophthalmic technology company developing the Optejet® delivery system for use both in combination with our own drug-device therapeutic programs as well as out-licensing for additional indications.

Our aim is to improve the delivery of topical ophthalmic medication through ergonomic design that facilitates ease-of-use, delivery of more physiologically appropriate medication volume, with the goal to reduce side effects and improve tolerability, and introduce digital health technology to improve therapy compliance and ultimately medical outcomes.

The ergonomic and functional design of the Optejet® allows for horizontal drug delivery and eliminates the need to tilt the head back or the manual dexterity to squeeze a bottle, to administer medications.

Drug is delivered in a microscopic array of droplets faster than the blink reflex to help ensure instillation success.

The precise delivery of a low-volume columnar spray by the Optejet® device minimizes contamination with a non-protruding nozzle and self-closing shutter.

In clinical trials, the Optejet® has demonstrated that its targeted delivery achieves a high rate of successful administration, with 98% of sprays being accurately delivered upon first attempt compared to the established rate reported with traditional eye drops of ~ 50%.

A more physiologically appropriate volume of medication in the range of seven to nine microliters is delivered by the Optejet, approximately one fifth of the 35 to 50 microliter dose typically delivered in a single eye drop.

Lower volume of medication exposes the ocular surface to less active ingredient and preservatives, potentially reducing ocular stress and surface damage and improving tolerability.

The lower volume also minimizes the potential for drug to enter systemic circulation, with the goal of avoiding some common side effects that are related to overdosing of the eye.

Versions of the Optejet are being developed with on-board digital technology to provide reminders via Bluetooth to smart devices and date and time stamp device use.

This information can then be used by practitioners and health care systems to measure treatment compliance and improve medical decision making.

In this way, the Optejet could serve as an extension of the physician’s office by providing information that is not currently possible to collect except through the use of diaries.

Our drug-device therapeutic programs include MicroPine, MicroLine and Mydcombi™.

MicroPine is our first-in-class topical therapy for the treatment of progressive myopia, a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching.

In the United States, myopia is estimated to affect approximately 25 million children, with up to five million considered to be at risk for high myopia.

In February 2019, the FDA accepted our investigational new drug application, or IND, to initiate a Phase III registration trial of MicroPine (the CHAPERONE study) to reduce the progression of myopia in children.

We enrolled the first patient in the CHAPERONE study in June 2019.

Due to the COVID-19 pandemic, there have been delays in trial enrollment as a result of supply chain issues with our third party suppliers, which in turn diminished our inventory supply.

On October 9, 2020, we entered into the Bausch License Agreement, pursuant to which Bausch Health may develop and commercialize MicroPine in the United States and Canada.

In the United States, myopia is estimated to affect approximately 25 million children, with up to five million considered to be at high risk for progressive myopia.

In February 2019, the FDA accepted our IND to initiate the CHAPERONE study to reduce the progression of myopia in children.

The first patient was enrolled in the CHAPERONE study in June 2019.

On October 9, 2020, we entered into the Bausch License Agreement with Bausch + Lomb, pursuant to which Bausch + Lomb may develop and commercialize MicroPine in the United States and Canada.

Under the terms of the Bausch License Agreement, we received an upfront payment of $10.0 million and we may receive up to a total of $35.0 million in additional payments, based on the achievement of certain regulatory and launch-based milestones.

Bausch Health also will pay us royalties on a tiered basis (ranging from mid-single digit to mid-teen percentages) on gross profits from sales of MicroPine in the United States and Canada, subject to certain adjustments.

Under the terms of the Bausch License Agreement, Bausch Health assumed sponsorship of the IND as well as oversight and the costs related to the ongoing CHAPERONE study.

MicroLine (or Apersure) is our investigational pharmacologic treatment for presbyopia.

Bausch + Lomb also will pay royalties to Eyenovia on a tiered basis (ranging from mid-single digit to mid-teen percentages) on gross profits from sales of MicroPine in the United States and Canada, subject to certain adjustments.

Under the terms of the Bausch License Agreement, Bausch + Lomb assumed sponsorship of the IND as well as ownership and the costs related to the ongoing CHAPERONE study.

We have also successfully expanded our manufacturing capabilities through a partnership with Coastline International, Inc.

located in Tijuana, Mexico, and the construction of our own fill and finish facility in Redwood City, California.

As of the date of filing, we are up-to-date supplying clinical product for this study.

MicroLine is our investigational pharmacologic treatment for presbyopia.

Presbyopia is a non-preventable, age-related hardening of the lens, which causes the gradual loss of the eye’s ability to focus on near objects and impairs near visual acuity.

Allergan recently received FDA approval for and launched Vuity TM , a pilocarpine solution for the treatment of presbyopia.

We are currently enrolling our second Phase III study, VISION-2, using the same molecule, but with the advantages of our Optejet delivery system.

We anticipate top-line results from VISION-2 in mid-2022.

Mydcombi™ (or MicroStat) is our fixed combination formulation of tropicamide-phenylephrine for mydriasis, designed to be a novel approach for the estimated over 100 million office-based comprehensive and diabetic eye exams performed every year in the United States.

We have completed two Phase III trials for Mydcombi and announced positive results from these studies, known as MIST-1 and MIST-2, and have submitted an NDA to the FDA seeking approval to market the product in the U.S..

In October 2021, we received a CRL in response to our NDA, which in part informed us that pre-filled or co-packaged ophthalmic drug dispenser products like Mydcombi have been reclassified as drug-device combination products.

Allergan recently launched Vuity™, a pilocarpine drug product for the treatment of presbyopia.

Our second Phase III study, VISION-2, used the same drug, delivered with the advantages of our Optejet® device.

We released positive top-line results from VISION-2 in the fourth quarter of 2022.

Mydcombi™ is our fixed combination formulation of tropicamide-phenylephrine for mydriasis and a novel approach for the over 100 million office-based comprehensive and diabetic eye exams performed every year in the United States.

We completed two Phase III trials for Mydcombi and announced positive results from these studies, known as MIST-1 and MIST-2, and have submitted an NDA to the FDA seeking approval to market the product in the U.S.

In October 2021, we received a CRL in response to our NDA, which in part informed us that pre-filled or co-packaged ophthalmic drug dispenser products like Mydcombi had been reclassified as drug-device combination products.

This reclassification was based upon the U.S.

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After the ruling, however, the dispenser must be considered as a distinct device constituent part of a drug-device combination product.

We are in the process of providing additional non-clinical device information and expect to file our NDA resubmission in the third quarter of 2022.

On August 10, 2020, we entered into the Arctic Vision License Agreement, which was amended on September 14, 2021, with Arctic Vision, pursuant to which Arctic Vision may develop and commercialize MicroPine, MicroLine and Mydcombi in Greater China (mainland China, Hong Kong, Macau and Taiwan) and South Korea.

Under the terms of the Arctic Vision License Agreement, we received an upfront payment of $4.25 million before any payments to Senju.

We resubmitted the NDA on November 8, 2022, and announced on December 13, 2022 that the FDA has accepted the resubmission.

The FDA has assigned the resubmitted NDA a standard review with a Prescription Drug User Fee Act (PDUFA) target action date of May 8, 2023.

On August 10, 2020, we entered into the Arctic Vision License Agreement with Arctic Vision, which was amended on September 14, 2021, pursuant to which Arctic Vision may develop and commercialize MicroPine, MicroLine and Mydcombi in Greater China (mainland China, Hong Kong, Macau and Taiwan) and South Korea.

Under the terms of the Arctic Vision License Agreement, as amended, we received an upfront payment of $4.25 million before any payments to Senju.

In addition, we may receive up to a total of $39.7 million in additional payments, based on various development and regulatory milestones, including the initiation of clinical research and approvals in Greater China and South Korea, and development costs.

Arctic Vision also will purchase its supply of MicroPine, MicroLine and Mydcombi from us or, for such products not supplied by us, pay us a mid-single digit percentage royalty on net sales of such products, subject to certain adjustments.

We will pay between 30 and 40 percent of such payments, royalties, or net proceeds of such supply to Senju pursuant to the Exclusive License Agreement with Senju dated March 8, 2015, as amended by the License Amendment 2, executed on September 14, 2021.

Arctic Vision also will purchase its supply of MicroPine, MicroLine and Mydcombi from Eyenovia or, for such products not supplied by Eyenovia, pay a mid-single digit percentage royalty on net sales of such products, subject to certain adjustments.

We will pay between 30 and 40 percent of such payments, royalties, or net proceeds of such supply to Senju pursuant to an exclusive license agreement with Senju dated March 8, 2015, as amended.

See Note 2— Summary of Significant Accounting Policies—Arctic Vision License Agreement and Note 10—Related Party Transactions— Senju License Agreement to our audited financial statements included in this Annual Report on Form 10-K for further details.

We are in active discussions with manufacturers of existing and late-stage ophthalmic medications to explore whether development with the Optejet technology can solve unmet medical and business needs.

Some of those business needs could include extension of exclusivity under the Optejet patents, improvement in a drug’s tolerability profile, or potential improvement in treatment compliance.

Historically, we have financed our operations principally through equity offerings.

We have also generated cash through licensing arrangements and our credit facility with Silicon Valley Bank (“SVB”).

However, b ased upon our current operating plan, there is substantial doubt about our ability to continue as a going concern for at least one year from the date that these financial statements are issued.

We have also generated cash through licensing arrangements and our credit facilities with SVB and Avenue.

However, based upon our current operating plan, there is substantial doubt about our ability to continue as a going concern for at least one year from the date that these financial statements are issued.

Our ability to continue as a going concern depends on our ability to complete additional licensing or business development transactions or raise additional capital, through the sale of equity or debt securities to support our future operations.

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Both of these agreements provide for the Company to earn revenue from an upfront licensing fee, the achievement of various development and regulatory milestones, and royalty income on sales of licensed products.

Pursuant to the Senju License agreement, we will pay a percentage between 30 and 40 percent of such payments from the Arctic Vision License Agreement to Senju.

Pursuant to the Senju License

agreement, we will pay a percentage between 30 and 40 percent of such payments from the Arctic Vision License Agreement to Senju.

See Note 10 – Related Party Transactions in the accompanying financial statements for the years ended December 31, 2022 and 2021.

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As a result, we recognized the deferred license fees as revenue during the year ended December 31, 2021.

On September 14, 2021, we executed Amendment 1 to the Arctic Vision License Agreement with Arctic Vision, which provides for a one-time upfront payment to us of $250,000 and milestone payments to us of $2.0 million based on the achievement of certain milestones.

In December 2020, we satisfied the performance obligation which resulted in us recognizing $2.0 million of milestone revenues.

We did not recognize revenue for the $250,000 upfront payment because it was passed through to Senju pursuant to our agreement with them.

Pursuant to the terms of the Senju License Agreement, we are required to pay Senju a percentage of payments received from Arctic Vision.

See Note 10 – Related Party Transactions in the accompanying financial statements for the years ended December 31, 2021 and 2020.

Accordingly, we accrued $1.6 million of license costs related to payments to Senju in connection with the upfront license fees received from Arctic Vision, which is reflected as cost of revenue for the year ended December 31, 2021 (see Note 10 – Related Party Transactions in the accompanying financial statements for the years ended December 31, 2022 and 2021).

On September 14, 2021, we executed Amendment 1 to the Arctic Vision License Agreement, which provides for a one-time upfront payment to us of $250,000 and milestone payments to us of $2.0 million based on the achievement of certain milestones.

We did not recognize revenue for the $250,000 upfront payment because it was passed through to Senju pursuant to our agreement with them.

In October 2020, we received a $10.0 million upfront payment under the Bausch Health License Agreement.

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Accordingly, the upfront payment was earned and recognized as revenue during the year ended December 31, 2021.

No revenue was earned or recognized during the year ended December 31, 2022.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2021 totaled $14.5 million, an increase of $1.1 million, or 9%, as compared to $13.4 million recorded for the year ended December 31, 2020.

Research and development expenses for the year ended December 31, 2022 totaled $13.4 million, a decrease of $1.5 million, or 10%, as compared to $14.9 million recorded for the year ended December 31, 2021.

Research and development expenses consisted of the following:

For the Year Ended

Direct clinical and non-clinical expenses

Personnel-related expenses

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Non-cash stock-based compensation expenses

Direct clinical and non-clinical expenses

Facilities expenses

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Total research and development expenses

The decrease in direct clinical and non-clinical expenses was primarily due to the Vision I Study having concluded in early 2021 and significantly higher cost reimbursements from Bausch Health and Arctic Vision.

The cost reimbursements are booked as contra expense.

The increase in personnel-related expenses is primarily due to new hires and 2021 salary increases in the R&D group in preparation for commercialization.

The decrease in supplies and materials is primarily due to us producing the bulk of our current 2021 needs for clinical cartridge supply in 2020.

The increase in stock-based compensation expense is primarily due to stock option grants for new hires and executives in 2021.

The increase in facilities and other expenses was primarily due to rent and utilities related to the new Redwood City facility in preparation for commercialization.

The increase in other expense primarily reflects the depreciation of additional equipment purchased for clinical trials.

The increase in personnel-related expenses and non-cash stock-based compensation expenses was primarily due to new hires.

The increase in supplies and materials was primarily due to costs expended for clinical dispenser cartridge supplies in 2022.

The decrease in direct clinical and non-clinical expenses resulted from the sharp decrease in expenses resulting from Bausch + Lomb assuming full control of its clinical trial in December 2021 and the Vision 2 study in 2022 costing less than the Vision 1 study completed in 2021.

The increase in other expense primarily reflects additional travel expenses due to the easing of COVID-19 restrictions.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2022 totaled $13.5 million, an increase of $2.9 million, or 27%, as compared to $10.6 million recorded for the year ended December 31, 2021.

The increase was primarily attributable to increases of approximately $0.9 million in payroll related expenses due to new hires, bonuses, and salary raises, increases in stock-based compensation of approximately $0.1 million due to option grants to new hires and officers, an increase of approximately $1.5 million in sales and marketing, primarily related to the Mydcombi promotional campaign, an increase of approximately $0.3 million in insurance expenses, an increase of approximately $0.2 million in travel and conference expenses primarily due to a decreased impact of COVID-19 austerity measures, an increase of approximately $0.1 million due to a one-time fee paid towards a commercial product distribution wholesale service in 2021 and an increase of approximately $0.1 million in investor relations.

General and administrative expenses consisted of the following:

For the Year Ended

Salaries and benefits

Professional fees

Stock-based compensation

Sales and marketing

Insurance expense

Director fees and expense

Facilities expense

The increase in salaries and benefits and stock-based compensation was primarily attributable to new hires as we ramp up for the commercialization stage.

The increase in professional fees was primarily due to higher legal and professional recruiting expenses related to the addition of new directors in 2022.

The decrease in sales and marketing primarily related to the Mydcombi promotional campaign and trade show expenses incurred for the anticipated launch in late 2021.

The timing of that launch has been delayed.

Other Income (Expense)

Other income (expense) for the year ended December 31, 2021 totaled approximately $125,000 of income, an increase of approximately $106,000, or 558%, as compared to $19,000 of income for the year ended December 31, 2020.

The increase was primarily due to approximately $463,000 of other income recorded as a gain on extinguishment of the PPP (7a) loan, offset by an increase of approximately $371,000 of interest expense primarily related to a loan we entered into with SVB in 2021.

Other income (expense) for the year ended December 31, 2022 totaled approximately $1.1 million of net other expense, a change of approximately $1.3 million, as compared to $0.2 million of net other income for the year ended December 31, 2021.

Net other expense for the year ended December 31, 2022 primarily consisted of approximately $1.4 million of interest expense related to the SVB loan payoff and the Avenue loan, primarily offset by $0.2 million of income from the sale of clinical supplies and $0.1 million of interest income.

Net other income for the year ended December 31, 2021 primarily consisted of an approximately $0.5 million gain on extinguishment of the PPP (7a) loan, primarily offset by approximately $0.4 million of interest expense primarily related to a loan we entered into with SVB in 2021.

Liquidity and Going Concern

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Notes Payable (Gross)

Since inception, we have experienced negative cash flows from operations and our operations have primarily been funded through proceeds received in equity and debt financings.

Since inception, we have experienced negative cash flows from operations and our operations have primarily been funded by proceeds received in equity and debt financings.

At December 31, 2022, our accumulated deficit since inception was approximately $118.2 million.

Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures.

During the years ended December 31, 2021 and 2020, our sources and uses of cash were as follows:

Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services and competing market developments.During the years ended December 31, 2022 and 2021, our sources and uses of cash were as follows:

Net cash used in operating activities for the year ended December 31, 2022 was approximately $25.1 million, which includes cash used to fund a net loss of $28.0 million, reduced by $2.3 million of net cash used by changes in the levels of operating assets and liabilities, offset by $5.2 million of non-cash expenses.

Net cash used in operating activities for the year ended December 31, 2020 was approximately $6.4 million, which includes cash used to fund a net loss of $19.8 million, reduced by $2.6 million of non-cash expenses, offset by $10.8 million of net cash provided by changes in the levels of operating assets and liabilities.

Net cash used in operating activities for the year ended December 31, 2021 was approximately $20.9 million, which includes cash used to fund a net loss of $12.8 million, reduced by $10.7 million of net cash used by changes in the levels of operating assets and liabilities, offset by $2.6 million of net non-cash expenses.

Net cash used in investing activities was approximately $0.9 million and $1.6 million for the years ended December 31, 2022 and 2021, respectively, which was attributable to purchases of property and equipment.

Net cash provided by financing activities for the year ended December 31, 2021 totaled approximately $21.5 million, which was primarily attributable to $12.4 million of net proceeds from the sale of common stock and warrants in our at-the-market offering pursuant to the Sales Agreement, dated May 14, 2021, with SVB Securities LLC (formerly known as SVB Leerink LLC), $2.1 million of proceeds from exercises of stock warrants, $7.5 million of proceeds from the credit facility with SVB, $0.2 million of proceeds from the exercise of stock options, offset by $0.7 million from the repayment of notes payable and $0.1 million from the payment of loan issuance costs.

Net cash provided by financing activities for the year ended December 31, 2020 totaled approximately $20.9 million, which was primarily attributable to $12.4 million of net proceeds from the sale of common stock in our August 2020 public offering, $5.6 million of net proceeds from the sale of common stock and warrants in our March 2020 private placement, $2.9 million of proceeds from the exercise of warrants issued in our March 2020 private placement and stock options held by certain employees, and $0.5 million from the proceeds of the PPP Loan, offset by $0.5 million from the repayment of notes payable.

In addition, on March 3, 2022, we raised approximately $15 million through the issuance and sale of 3,000,000 shares of common stock, pre-funded warrants to purchase an aggregate of 1,870,130 shares of common stock and warrants to purchase an aggregate of 4,870,130 shares of common stock at an exercise price of $3.54 per share.

Subsequent to December 31, 2021, we received approximately $0.9 million in gross and net proceeds from the sale of 252,449 shares of our common stock pursuant to an at-the-market offering.

Net cash provided by financing activities for the year ended December 31, 2022 totaled approximately $21.5 million, which was primarily attributable to $14.9 million of net proceeds from the sale of common stock and warrants from a registered direct offering, $5.3 million of net proceeds from the sale of common stock and warrants in our at-the-market offering pursuant to the Sales Agreement with SVB Securities LLC, or SVB Securities (formerly known as SVB Leerink LLC), and $9.5 million of net proceeds from the credit facility with Avenue, offset by $8.2 million from the repayment of notes payable.

Net cash provided by financing activities for the year ended December 31, 2021 totaled approximately $21.5 million, which was primarily attributable to $12.4 million of net proceeds from the sale of common stock and warrants in our at-the-market offering pursuant to the Sales Agreement, dated May 14, 2021, with SVB Securities, $2.1 million of proceeds from exercises of stock warrants, $7.4 million of net proceeds from the credit facility with SVB Securities, $0.2 million of proceeds from the exercise of stock options, offset by $0.7 million from the repayments of notes payable.

Contractual Obligations and Commitments

During the next twelve months we have commitments to pay (a) $4.0 million to settle our December 31, 2021 accounts payable and accrued expenses, (b) $0.5 million relating to our non-cancelable operating lease commitments;

During the next twelve months we have commitments to pay (a) $3.7 million to settle our December 31, 2022 accounts payable, accrued expenses and other current liabilities, (b) $0.5 million relating to our non-cancelable operating lease commitments;

and (d) $7.5 million of payments due under our notes payable.

After twelve months we have commitments to pay (a) an additional $0.3 million relating to our non-cancelable operating lease commitments.

SVB Loan Agreement

On May 7, 2021 (the “Effective Date”), we entered into a Loan and Security Agreement (the “Loan”) with SVB for an aggregate principal amount of up to $25.0 million.

The Loan bears interest at an annual rate equal to the greater of (a) the sum of 1.25% plus the prime rate as reported in The Wall Street Journal and (b) 5.00%.

The Loan is secured by all of our tangible assets.

The Loan matures on May 1, 2025.

The Loan requires monthly interest-only payments until June 1, 2022.

The interest-only period can be extended to June 1, 2023, upon the occurrence of a milestone event.

Upon the end of the interest-only period, we will make regular monthly amortizing payments of principal and interest through the maturity date.

The Loan indicates a prepayment fee of 1.0% to 3.0%, as follows:

(i) prepayment fee of 3.0% of the principal balance made on or prior to the first anniversary of the Effective Date;

(ii) prepayment fee of 2.0% of the principal balance made on or prior to the second anniversary of the Effective Date;

or (iii) prepayment fee of 1.0% of the principal balance made on or prior to the third anniversary of the Effective Date.

The Loan also provides for a final payment in an amount equal to the original aggregate principal amount of the multiplied by 5.0%.

The final payment is in addition to and not a substitution for the regular monthly payments of principal plus accrued interest and is due on the earliest to occur of the loan maturity date, the repayment of the loan in full or the termination of the Loan Agreement.

The initial tranche of the Loan, in the amount of $7.5 million was received on May 7, 2021.

At our option, we have the ability to draw down the remaining $17.5 million in gross proceeds in two tranches over the next two years based upon the achievement of several milestones in accordance with the terms of the Loan.

On September 29, 2021, we executed the First Amendment to the Loan and Security Agreement (the “Amendment”) with SVB.

In accordance with the Amendment, we must maintain a collateralized money market account in the amount of $7,875,000.

We have recorded this amount as restricted cash.

This account must be maintained until the Release Event occurs, which was defined as when we have received approval by the FDA of Mydcombi and have achieved the minimum equity raise under the terms of the amended agreement, on or prior to November 30, 2021.

On October 25, 2021, we announced the reclassification of Mydcombi as a drug-device combination product by the FDA in a CRL received on October 22, 2021.

We have prepared the necessary documents for expedited filing of the NDA resubmission for Mydcombi in response to the CRL.

Given the FDA’s recent reclassification of Mydcombi as a drug-device combination and the need to file an NDA resubmission in 2022, the restricted cash became callable on November 30, 2021, at SVB’s election, to satisfy the Loan obligations.

On February 8, 2022, we issued a press release announcing that we successfully completed a Type A meeting with the FDA related to the refiling of the NDA for Mydcombi.

Following the Type A meeting, we reached alignment on the path forward toward an NDA resubmission with the FDA.

We expect to file the NDA resubmission during the third quarter of 2022.

On November 30, 2021, we entered into a Waiver Agreement, pursuant to which SVB waived the existing default related to the failure to comply with the minimum equity raise financial covenant set forth in the Loan.

However, the Loan is currently callable by SVB, due to having not yet received FDA approval of Mydcombi.

In connection with the Loan, we issued warrants to SVB to purchase 91,884 shares of common stock at an exercise price per share equal to $4.76.

The warrants are exercisable for a period of ten years from the date of issuance.

We incurred $66,618 of debt issuance costs.

and (d) $0.4 million of gross payments due under our notes payable and convertible notes payable (if not previously converted).

After twelve months we have commitments to pay (a) an additional $0.9 million relating to our non-cancelable operating lease commitments, and $10.0 million of gross payments due in connection with notes payable and convertible notes payable (if not previously converted).

Avenue Loan Agreement

On November 22, 2022, we entered into a Loan and Security Agreement, or the Avenue Loan with Avenue Venture Opportunities Fund, L.P., or Avenue 1 and Avenue Venture Opportunities Fund, L.P.

II, or Avenue 2, for an aggregate principal amount of up to $15,000,000.

The initial tranche of the Avenue Loan is $10,000,000, consisting of $4,000,000 from Avenue 1 and $6,000,000 from Avenue 2.

Up to $5,000,000 of the principal amount outstanding may be converted at the option of the lender into shares of the Company’s common stock at a conversion price of $2.148 per share, subject to typical anti-dilution adjustments.

The Avenue Loan bears interest at an annual rate equal to the greater of (A) 7.0% and (B) the prime rate as reported in The Wall Street Journal plus 4.45%.

The Avenue Loan maturity date is November 1, 2025.

We may request an additional $5,000,000 of gross funding between April 1, 2023 and July 31, 2023, subject to agreed-upon conditions.

We must also make an incremental final payment equal to 4.25% of the aggregate funding.

We are required to make monthly interest-only payments during the first twelve months of the Avenue Loan, which could be increased to up to eighteen months upon the achievement of specified performance milestones.

Following the interest-only period, we will make equal monthly payments of principal until the maturity date, plus interest.

If we prepay the Avenue Loan, we will be required to pay a prepayment fee of 3% if the Avenue Loan is prepaid during the first year, 2% if the Avenue Loan is prepaid during the second year and 1% if the Avenue Loan is repaid during the third year.

The Avenue Loan requires us to make and maintain representations and warranties and other agreements that are customary in loan agreements of this type.

The Avenue Loan is secured by all of our assets globally, including intellectual property.

The Avenue Loan also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments.

Upon the occurrence of an event of default, all interest and principal will be accelerated and immediately become due and payable.

In addition, Avenue will have the right to exercise any other right or remedy provided by applicable law.

Going Concern

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If we are unable to generate sufficient recurring revenues or secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash.

On March 3, 2022, we raised approximately $15 million through the issuance and sale of 3,000,000 shares of common stock, pre-funded warrants to purchase an aggregate of 1,870,130 shares of common stock and warrants to purchase an aggregate of 4,870,130 shares of common stock at an exercise price of $3.54 per share.

Subsequent to December 31, 2021, we received approximately $0.9 million in gross and net proceeds from the sale of 252,449 shares of our common stock pursuant to an at-the-market offering.

Risks and Uncertainties

Due to the COVID-19 pandemic, there have been delays in trial enrollment as a result of supply chain issues with our third party suppliers, which in turn diminished our inventory supply.

The short- and long-term worldwide implications of Russia’s invasion of Ukraine are difficult to predict at this time.

The imposition of sanctions on Russia by the United States or other countries and possible counter sanctions by Russia, and the resulting economic impacts on oil prices and other materials and goods, could affect the price of materials used in the manufacture of our product candidates.

As of March 15, 2023, the amount of our assets held on deposit with SVB is immaterial with respect to our total cash, cash equivalents and marketable securities.

We do not expect that SVB’s liquidity concern will have a significant adverse impact on our operations due to our limited exposure to SVB and the Federal Reserve’s decision to make all of SVB’s depositors whole.

We will continue to monitor the situation with SVB as it evolves.

The continuing worldwide implications of the war between Russia and Ukraine remain difficult to predict at this time.

The imposition of sanctions on Russia by the United States and other countries and counter sanctions by Russia, and the resulting economic impacts on oil prices and other materials and goods, could affect the price of materials used in the manufacture of our product candidates.

If the price of materials used in the manufacturing of our product candidates increase, that would adversely affect our business and the results of our operations.

Critical Accounting Estimates

The following represent our most critical accounting estimates

Critical Accounting Policies

The following represent our most critical accounting policies:

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S.

GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and the amounts disclosed in the related notes to the financial statements.

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An impairment would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

Deferred License Fee

We enter into license agreements which provides for the receipt of non-refundable, upfront licensing payments.

These payments are recorded as deferred license fees and will be earned and recognized as revenue upon the satisfaction of performance obligations.

See Revenue Recognition below for additional details.

Deferred License Costs

We enter into license agreements which provides for payment of license costs in connection with our receipt of license fees.

These payments are recorded as deferred license costs and will be recorded as an expense when the related license fee revenue is recognized.

Revenue Recognition

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We analyze our arrangements to assess whether such arrangements involve joint operating activities.

For collaboration arrangements that are deemed to be within the scope of ASC Topic 808, “Collaborative Arrangements” (“ASC 808”), we allocate the contract consideration between such joint operating activities and elements that are reflective of a vendor-customer relationship and, therefore, within the scope of ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

For collaboration arrangements that are deemed to be within the scope of ASC Topic 808, “Collaborative Arrangements,” or ASC 808, we allocate the contract consideration between such joint operating activities and elements that are reflective of a vendor-customer relationship and, therefore, within the scope of ASC Topic 606, “Revenue from Contracts with Customers,” or ASC 606.

Our policy is to recognize amounts allocated to joint operating activities as a reduction in research and development expense.

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Upon the exercise of an option, the Company issues new shares of common stock out of the shares reserved for issuance under its equity plans.

Operating Leases

We adopted the Accounting Standards Update, or ASU 2016-02,“Leases (Topic 842)” as of December 31, 2022, effective January 1, 2022.

We lease our facilities under non-cancellable operating leases.

We evaluate the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the ROU asset and lease liabilities based on the present value of future minimum lease payments over the expected lease term.

We recognize a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”.

The lease liability is measured at the present value of the remaining lease payments, discounted at our incremental borrowing rate.

Our leases do not generally contain an implicit interest rate and therefore the we use the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.

The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset.

Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.

Recently Issued Accounting Standards

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Quantitative and Qualitative Disclosures About Market Risk.

Smaller reporting companies such as us are not required to provide the information required by this Item.

As a smaller reporting company, we are not required to provide the information required by this Item.

Financial Statements and Supplementary Data.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis