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Item 7. Management’s Discussion and Analysis

2024-03-18 compared with 2023-03-31 · 85 added, 106 removed, 137 unchanged (58% 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 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.

We are an ophthalmic technology company commercializing Mydcombi™ (tropicamide and phenylephrine HCL ophthalmic spray) for inducing mydriasis for routine diagnostic procedures and in conditions where short term pupil dilation is desired, and clobetasol propionate ophthalmic suspension, for the treatment of post-operative pain and inflammation following ocular surgery, and developing the Optejet® delivery system both for use in combination with our own drug-device therapeutic programs and for out-licensing for use in combination with therapeutics for additional indications.

Our aim is to improve the delivery of topical ophthalmic medication through the ergonomic design of the Optejet which facilitates ease-of-use and 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.

The precise delivery of a low-volume columnar spray by the Optejet device minimizes contamination risk 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.

A more physiologically appropriate volume of medication in the range of seven to nine microliters is delivered by the Optejet, which is 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.

We are developing versions of the Optejet with on-board digital technology that records the date and time of each use.

These data may be used to provide reminders via Bluetooth to smart devices and to allow healthcare practioners to monitor usage.

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.

Our drug-device product line includes Mydcombi (tropicamide and phenylephrine HCL ophthalmic spray) and therapeutic programs MicroPine (atropine ophthalmic spray) and MicroLine (pilocarpine ophthalmic spray).

MicroPine is our first-in-class topical therapy for the treatment of progressive myopia, a disease associated with pathologic axial elongation of the eye 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 high risk for progressive myopia.

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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 + 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.

On October 9, 2020, we entered into a license agreement with B+L, pursuant to which B+L had the rights to 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 were eligible to receive up to a total of $35.0 million in additional payments, based on the achievement of certain regulatory and launch-based milestones.

B+L also agreed to 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

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

On January 12, 2024, we entered into a subsequent agreement with B+L to repatriate our rights to MicroPine and take control of the CHAPERONE study.

In this agreement, we agreed to pay B+L $2 million in cash and an additional $3 million in common stock upon successful transfer of the regulatory documents and study elements to Eyenovia.

We also agreed to pay B+L a 2% royalty on net sales once MicroPine is commercialized in the United States, assuming receipt of regulatory approvals.

We believe that this new arrangement is in our and our shareholders’ best interests, as it may substantially increase the value of the asset through potential improvements in the conduct of the study, including a planned interim analysis of the data in late 2024.

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 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.

located in Tijuana, Mexico, as well as the construction of our new manufacturing facility in Reno, Nevada and the construction of our own fill and finish facility in Redwood City, California.

We have received FDA clearance for using both Coastline International and our Redwood City facility for the production of Mydcombi cartridges, and FDA clearance for using our Reno facility for the production of technical elements such as the base unit for the Optejet device.

MicroLine is our investigational pharmacologic treatment for presbyopia, 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.

There are two FDA-approved treatments for presbyopia which use pilocarpine, the same drug used in our investigational product.

We have completed two Phase III studies using our Optejet® device.

In these studies, patients reported high satisfaction with using the device and a strong preference over using an eye dropper bottle.

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.

Court of Appeals for the D.C.

Circuit’s decision in Genus Medical Technologies v.

FDA, not involving Eyenovia, which ordered that products meeting the statutory definition of a device but were previously classified by the FDA as drugs must be regulated as devices.

Before this ruling, the FDA regulated pre-filled or co-packaged ophthalmic dispensers as part of the approved ophthalmic drug distributed and sold with the dispenser.

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

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.

We are planning to meet with the FDA in mid-2024 to discuss a transition of the product into our new Gen-2 Optejet device, which has a significantly lower cost to manufacture than the first generation device.

Mydcombi is the only FDA-approved fixed combination of the two leading mydriatic agents, tropicamide and phenylephrine in the United States and our first FDA-approved product.

As an ophthalmic spray delivered with Optejet technology, Mydcombi may present a number of benefits for ophthalmic surgical centers, optometric and ophthalmic offices and patients.

Those benefits may include improved cost-effectiveness in centers that employ single-use bottles for mydriasis, more efficient use of office time and resources, and an overall improved doctor-patient experience.

We have begun the commercialization of Mydcombi, with the first commercial sale of the product occurring on August 3, 2023 as part of a targeted launch, and are planning to expand our launch with the onboarding of ten sales representatives in early 2024.

We received FDA approval for our primary Mydcombi manufacturing facility in February 2024, which we believe will allow us to expand and continue to build our manufacturing operations.

On August 10, 2020, we entered into a license agreement 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, as amended, we received an upfront payment of $4.25 million before any payments to Senju.

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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 will pay between 30 and 40 percent of such payments, royalties, or net proceeds of such supply to Senju pursuant to the Senju License Agreement.

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.

On August 15, 2023, we entered into a license agreement with Formosa, whereby we acquired the exclusive U.S.

rights to commercialize any product related to a novel formulation of clobetasol propionate ophthalmic suspension 0.05% (the “Licensed Product”), which was approved by the FDA, for post-operative inflammation and pain after ocular surgery, on March 4, 2024.

The License will remain in effect for ten years from the date of the first commercial sale of a Licensed Product, unless earlier terminated.

We paid Formosa an upfront payment in an aggregate amount of $2,000,000 which consisted of (a) cash in the amount of $1,000,000 and (b) 487,805 shares of common stock valued at $1,000,000.

We also capitalized $122,945 of transaction costs in connection with the License.

In addition, we must pay Formosa up to $4 million upon the achievement of certain development milestones and up to $80 million upon the achievement of certain sales milestones.

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

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.

We have also generated cash through licensing arrangements and our credit facilities with Leerink Partners 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 our financial statements were 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.

If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs.

If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and/or take additional measures to reduce costs.

Our net losses were $27.3 million and $28.0 million for the years ended December 31, 2023 and 2022.

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Revenue and Cost of Revenue

In August and October 2020, we entered into the Arctic Vision License Agreement and Bausch License Agreement, respectively.

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.

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

Revenue is earned from the sale of our product, Mydcombi.

The first commercial sale of the product occurred on August 3, 2023 as part of a targeted launch.

Cost of sales consisted of the cost of the production of the Mydcombi ophthalmic spray that was sold.

Research and Development Expenses

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Revenue and Cost of Revenue

In August 2020, we received a non-refundable, upfront payment of $4.0 million under the terms of the Arctic Vision License Agreement, which was recorded as deferred license fees until such time that the related performance obligation was satisfied and the payment was earned.

Payment is earned and revenue is recognized once certain trial data has been fully submitted to Arctic Vision, permitting Arctic Vision to seek regulatory approval with the National Medical Products Administration of China.

The trial data for one of the two products (MicroPine) was fully submitted to Arctic Vision in March 2021 and trial data for the other product (MicroLine) was fully submitted to Arctic Vision in June 2021.

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

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

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.

We recorded this payment as a deferred license fee until certain trial data was fully submitted to Bausch Health and clinical trial supervisory oversight

was transferred to Bausch Health.

The required trial data and oversight functions were transferred to Bausch Health during the fourth quarter of 2021.

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

Revenue for the year ended December 31, 2023 totaled $3,787, which was offset by cost of revenues of $3,787.

We expect to generate flat gross margins (after writing inventories down to net realizable value) during the early stages of the commercialization process for Mydcombi until such time as we can roll out our second generation Optejet device and scale up production.

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

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Facilities expenses

Depreciation expense

Other expenses

Total research and development expenses

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.

The increase in personnel-related expenses was primarily due to new staff additions made throughout 2023 and higher payroll tax expense due to us no longer being eligible for R&D payroll tax credits in 2023, compared to $0.3 million in 2022.

The increase in supplies and materials was primarily due to an increase in dispenser parts and materials.

The decrease in non-cash stock-based compensation expenses was primarily due to the ending of the amortization period for older grants.

The decrease in direct clinical and non-clinical expenses was primarily due to the VISION-2 study being concluded in 2022, B+L taking over responsibility for the MicroPine clinical process and the decrease in the use of external consultants.

The increase in facilities expenses was primarily due to costs related to the new Reno facility.

The increase in depreciation expense was primarily due to increased equipment purchases.

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.

General and administrative expenses for the year ended December 31, 2023 totaled $12.4 million, a decrease of $1.1 million, or 8%, as compared to $13.5 million recorded for the year ended December 31, 2022.

General and administrative expenses consisted of the following:

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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.

The decrease in professional fees was primarily due to reduced costs for legal activity, as well as reduced recruiting expenses for 2022 director searches.

The decrease in non-cash stock-based compensation expenses was primarily due to the ending of the amortization period for older equity grants.

Other Income (Expense)

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.

Other income (expense) for the year ended December 31, 2023 totaled approximately $1.9 million of net other expense, an increase of $0.8 million, as compared to $1.1 million of net other expense for the year ended December 31, 2022.

Net other expense for the year ended December 31, 2023 primarily consisted of approximately $2.4 million of interest expense related to the Avenue loan and $0.4 million for the potential replacement cost for returned products, primarily offset by $0.2 million of income from the sale of clinical supplies and $0.7 million of interest income, mainly from Treasury bills.

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 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.

Liquidity and Going Concern

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Cash and Cash Equivalents

Restricted Cash

Working Capital

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

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:

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.

During the years ended December 31, 2023 and 2022, our sources and uses of cash were as follows:

Net cash used in operating activities for the year ended December 31, 2023 was approximately $23.8 million, which includes cash used to fund a net loss of $27.3 million, reduced by $1.4 million of net cash used by changes in the levels of operating assets and liabilities, offset by $4.9 million of non-cash expenses.

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 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 used in investing activities for the year ended December 31, 2023 was approximately $4.0 million, which includes $2.9 million attributable to purchases of property and equipment and $1.1 million attributable to the license agreement with Formosa.

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

Net cash provided by financing activities for the year ended December 31, 2023 totaled approximately $19.8 million, which was primarily attributable to $10.9 million of net proceeds from the sale of common stock and warrants from a registered direct offering, $4.6 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 and $4.9 million of net proceeds from the credit facility with Avenue, offset by $0.6 million from the repayment of notes payable.

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

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After twelve months we have commitments to pay (a) an additional $1.3 million relating to our non-cancelable operating lease commitments, and $9.8 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.

Avenue Loan and Security Agreement

As presented in Note 7 – Notes Payable and Convertible Notes Payable, on November 22, 2022, we entered into the Loan and Security Agreement with Avenue, for an aggregate principal amount of up to $15,000,000.

The initial tranche of the Loan and Security Agreement was $10,000,000.

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

On May 22, 2023, pursuant to the Loan and Security Agreement, we received an additional tranche of non-convertible debt funding in the amount of $5,000,000.

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.

The additional funding triggered the extension of the interest-only period from the original 12 months to 18 months (through May 2024) for the entire outstanding balance due under the Loan and Security Agreement (initial and additional tranches).

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.

We must also make a final payment equal to 4.25% of the initial and additional tranches, amounting to a premium of $637,500 on the aggregate borrowing.

If we prepay the Avenue loan, it will be required to pay a prepayment fee of 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.

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.

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Going Concern

As of December 31, 2022, we had unrestricted cash and cash equivalents of approximately $22.9 million and an accumulated deficit of approximately $118.2 million.

As of December 31, 2023, we had cash and cash equivalents of approximately $14.8 million and an accumulated deficit of approximately $145.5 million.

For the years ended December 31, 2023 and 2022, we incurred net losses of approximately $27.3 million and $28.0 million, respectively, and used cash in operations of approximately $23.8 million and $25.1 million, respectively.

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Risks and Uncertainties

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.

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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

We prepare our consolidated financial statements in accordance with U.S.

generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.

We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if:

(i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

There are items within our financial statements that require estimation but are not deemed critical, as defined above.

Critical Accounting Policies

The following is not intended to be a comprehensive list of all of our accounting policies or estimates.

Our accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies, in our financial statements included at the end of this Annual Report.

The following represent our most critical accounting policies:

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We base our estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances.

The amounts of assets and liabilities reported in our balance sheets and the amounts of expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, fair value calculations for equity securities, establishment of valuation allowances for deferred tax assets, revenue recognition, the recoverability and useful lives of long-lived assets, the recovery of deferred costs and the deferral of revenues.

The amounts of assets and liabilities reported in our balance sheets and the amounts of expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, fair value calculations for equity securities, establishment of valuation allowances for deferred tax assets, revenue recognition, the recoverability and useful lives of long-lived assets, the realization of inventories and deferred clinical supply costs, the recovery of deferred costs and the deferral of revenues.

Certain of our estimates could be affected by external conditions, including those unique to us and general economic conditions.

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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.

Revenue Recognition

Our revenues are generated primarily through research, development and commercialization agreements.

The terms of such agreements may contain multiple promised goods and services, which may include (i) licenses to our intellectual property, and (ii) in certain cases, payment in connection with the manufacturing and delivery of clinical supply materials.

Payments to us under these arrangements typically include one or more of the following:

non-refundable, upfront license fees;

milestone payments;

payments for clinical product supply, and royalties on future product sales.

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,” 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.

Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:

Identify the contract with the customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations in the contract;

Recognize revenue when the company satisfies a performance obligation.

We must make significant judgments in our revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

In addition, arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered discretionary purchase options.

We assess if these options provide a material right to the customer and if so, they are considered performance obligations.

For upfront license fees, we must consider how many performance obligations are in the contract and, if more than one, how to allocate the fee to those performance obligations upon satisfaction of the performance obligation(s).

Milestone payments represent variable consideration that will be recognized when the performance obligation is achieved.

Sales-based royalty payments derived from usage of intellectual property are recognized when those sales occur.

Stock-Based Compensation

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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