KALA BIO, Inc. 10-Q

Item 1. Financial Statements KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 128,023 ​ $ 85,449 Short-term investments ​ ​ 56,536 ​ ​ — Accounts receivable, net ​ ​ 4,281 ​ ​ 11,563 Inventory ​ ​ 5,711 ​ ​ 4,648 Prepaid expenses and other current assets ​ ​ 2,473 ​ ​ 3,824 Total current assets ​ ​ 197,024 ​ ​ 105,484 Non-current assets: ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ 2,964 ​ ​ 2,698 Long-term inventory ​ ​ 4,109 ​ ​ 3,778 Right-of-use assets ​ ​ 28,829 ​ ​ 29,781 Restricted cash ​ ​ 12,584 ​ ​ 12,582 Total assets ​ $ 245,510 ​ $ 154,323 Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 1,548 ​ $ 2,518 Accrued expenses and other current liabilities ​ ​ 13,967 ​ ​ 20,929 Current portion of lease liabilities ​ ​ 1,425 ​ ​ 1,327 Total current liabilities ​ ​ 16,940 ​ ​ 24,774 Long-term liabilities: ​ ​ ​ ​ ​ ​ Long-term lease liabilities - less current portion ​ ​ 27,930 ​ ​ 28,673 Long-term debt ​ ​ 71,697 ​ ​ 71,184 Total long-term liabilities ​ ​ 99,627 ​ ​ 99,857 Total liabilities ​ ​ 116,567 ​ ​ 124,631 Commitments and Contingencies (Note 14) ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value; 120,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 55,831,021 and 36,086,254 shares issued and outstanding as of June 30, 2020 and December 31, 2019 , respectively ​ ​ 56 ​ ​ 36 Additional paid-in capital ​ ​ 469,627 ​ ​ 325,112 Accumulated other comprehensive income ​ ​ ( 17 ) ​ ​ — Accumulated deficit ​ ​ ( 340,723 ) ​ ​ ( 295,456 ) Total stockholders' equity ​ ​ 128,943 ​ ​ 29,692 Total liabilities and stockholders' equity ​ $ 245,510 ​ $ 154,323 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 3 Table of Contents KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenues, net ​ $ 833 ​ $ 2,057 ​ $ 1,904 ​ $ 3,443 Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of product revenues ​ ​ 759 ​ ​ 352 ​ ​ 1,113 ​ ​ 593 Selling, general and administrative ​ ​ 15,301 ​ ​ 17,007 ​ ​ 30,709 ​ ​ 35,243 Research and development ​ ​ 6,053 ​ ​ 7,108 ​ ​ 11,487 ​ ​ 14,067 Total costs and expenses ​ ​ 22,113 ​ ​ 24,467 ​ ​ 43,309 ​ ​ 49,903 Loss from operations ​ ​ ( 21,280 ) ​ ​ ( 22,410 ) ​ ​ ( 41,405 ) ​ ​ ( 46,460 ) Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and other income ​ ​ 102 ​ ​ 646 ​ ​ 400 ​ ​ 1,402 Interest and other expense ​ ​ ( 2,134 ) ​ ​ ( 2,061 ) ​ ​ ( 4,262 ) ​ ​ ( 4,155 ) Total interest and other expense ​ ​ ( 2,032 ) ​ ​ ( 1,415 ) ​ ​ ( 3,862 ) ​ ​ ( 2,753 ) Net loss ​ $ ( 23,312 ) ​ $ ( 23,825 ) ​ $ ( 45,267 ) ​ $ ( 49,213 ) Net loss per share—basic and diluted ​ $ ( 0.42 ) ​ $ ( 0.70 ) ​ $ ( 0.94 ) ​ $ ( 1.45 ) Weighted average shares outstanding—basic and diluted ​ ​ 55,703,882 ​ ​ 33,882,939 ​ ​ 48,232,933 ​ ​ 33,880,494 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 23,312 ) ​ $ ( 23,825 ) ​ $ ( 45,267 ) ​ $ ( 49,213 ) Other comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in unrealized gains/losses on investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in fair value of investments, net of tax ​ ​ 17 ​ ​ — ​ ​ 17 ​ ​ — Total change in unrealized gains/losses on investments, net of tax ​ ​ 17 ​ ​ — ​ ​ 17 ​ ​ — Total other comprehensive income ​ ​ 17 ​ ​ — ​ ​ 17 ​ ​ — Total comprehensive loss ​ $ ( 23,295 ) ​ $ ( 23,825 ) ​ $ ( 45,250 ) ​ $ ( 49,213 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 4 Table of Contents ​ KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ Total ​ ​ $0.001 Par Value ​ Paid-In ​ Other Comprehensive ​ Accumulated ​ Stockholders' ​ Shares Amount Capital Income Deficit Equity Balance as of March 31, 2019 ​ 33,882,857 ​ $ 34 ​ $ 308,830 ​ $ — ​ $ ( 226,497 ) ​ $ 82,367 Exercise of stock options ​ 110 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,524 ​ ​ — ​ ​ — ​ ​ 2,524 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 23,825 ) ​ ​ ( 23,825 ) Balance as of June 30, 2019 ​ 33,882,967 ​ $ 34 ​ $ 311,354 ​ $ — ​ $ ( 250,322 ) ​ $ 61,066 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of March 31, 2020 ​ 54,585,636 ​ $ 55 ​ $ 458,866 ​ $ — ​ $ ( 317,411 ) ​ $ 141,510 Exercise of stock options ​ 249,870 ​ ​ — ​ ​ 772 ​ ​ — ​ ​ — ​ ​ 772 Common stock offering, net of issuance cost and underwriting fees of $ 0.5 million ​ 979,371 ​ ​ 1 ​ ​ 7,215 ​ ​ — ​ ​ — ​ ​ 7,216 Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,774 ​ ​ — ​ ​ — ​ ​ 2,774 Warrant exercises ​ 16,144 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accumulated other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ ( 17 ) ​ ​ — ​ ​ ( 17 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 23,312 ) ​ ​ ( 23,312 ) Balance as of June 30, 2020 ​ 55,831,021 ​ $ 56 ​ $ 469,627 ​ $ ( 17 ) ​ $ ( 340,723 ) ​ $ 128,943 ​ See accompanying notes to these unaudited condensed consolidated financial statements ​ 5 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ Total ​ ​ $0.001 Par Value ​ Paid-In ​ Other Comprehensive ​ Accumulated ​ Stockholders' ​ ​ Shares Amount Capital Income Deficit Equity Balance as of December 31, 2018 ​ 33,863,077 ​ $ 34 ​ $ 306,053 ​ $ — ​ $ ( 201,109 ) ​ $ 104,978 Exercise of stock options ​ 19,890 ​ ​ — ​ ​ 39 ​ ​ — ​ ​ — ​ ​ 39 Stock-based compensation expense ​ — ​ ​ — ​ ​ 5,262 ​ ​ — ​ ​ — ​ ​ 5,262 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 49,213 ) ​ ​ ( 49,213 ) Balance as of June 30, 2019 ​ 33,882,967 ​ $ 34 ​ $ 311,354 ​ $ — ​ $ ( 250,322 ) ​ $ 61,066 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2019 ​ 36,086,254 ​ $ 36 ​ $ 325,112 ​ $ — ​ $ ( 295,456 ) ​ $ 29,692 At the market offering, net of sales agent commission of $ 0.4 million ​ 2,352,671 ​ ​ 3 ​ ​ 12,543 ​ ​ — ​ ​ — ​ ​ 12,546 Exercise of stock options ​ 311,028 ​ ​ — ​ ​ 938 ​ ​ — ​ ​ — ​ ​ 938 Common stock offering, net of issuance cost and underwriting fees of $ 8.1 million ​ 16,979,371 ​ ​ 17 ​ ​ 125,406 ​ ​ — ​ ​ — ​ ​ 125,423 Issuance under employee stock purchase plan ​ 85,553 ​ ​ — ​ ​ 270 ​ ​ — ​ ​ — ​ ​ 270 Stock-based compensation expense ​ — ​ ​ — ​ ​ 5,358 ​ ​ — ​ ​ — ​ ​ 5,358 Warrant exercises ​ 16,144 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accumulated other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ ( 17 ) ​ ​ — ​ ​ ( 17 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 45,267 ) ​ ​ ( 45,267 ) Balance as of June 30, 2020 ​ 55,831,021 ​ $ 56 ​ $ 469,627 ​ $ ( 17 ) ​ $ ( 340,723 ) ​ $ 128,943 ​ See accompanying notes to these unaudited condensed consolidated financial statements ​ ​ ​ 6 Table of Contents KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ 2020 ​ 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 45,267 ) ​ $ ( 49,213 ) Adjustments to reconcile net loss to cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation ​ ​ 454 ​ ​ 388 Non-cash operating lease cost ​ ​ 952 ​ ​ 840 Amortization of debt discount and other non-cash interest ​ ​ 513 ​ ​ 466 Stock-based compensation ​ ​ 5,271 ​ ​ 5,094 Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 7,282 ​ ​ ( 5,648 ) Prepaid expenses and other current assets ​ ​ 1,351 ​ ​ 1,106 Inventory ​ ​ ( 1,306 ) ​ ​ ( 3,955 ) Accounts payable ​ ​ ( 973 ) ​ ​ ( 2,249 ) Accrued expenses and other current liabilities ​ ​ ( 6,782 ) ​ ​ 1,776 Lease liabilities and other long-term liabilities ​ ​ ( 629 ) ​ ​ ( 201 ) Net cash used in operating activities ​ ​ ( 39,134 ) ​ ​ ( 51,596 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ​ ( 915 ) ​ ​ ( 943 ) Purchases of short-term investments ​ ​ ( 56,535 ) ​ ​ — Net cash used in investing activities ​ ​ ( 57,450 ) ​ ​ ( 943 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Proceeds from common stock offerings, net of underwriters' discounts and offering cost ​ ​ 137,969 ​ ​ — Payment of principal on finance lease ​ ​ ( 16 ) ​ ​ ( 20 ) Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan ​ ​ 1,207 ​ ​ 39 Net cash provided by financing activities ​ ​ 139,160 ​ ​ 19 Net increase/(decrease) in cash and restricted cash: ​ ​ 42,576 ​ ​ ( 52,520 ) Cash and restricted cash at beginning of period ​ ​ 98,031 ​ ​ 183,104 Cash and restricted cash at end of period ​ ​ 140,607 ​ ​ 130,584 Reconciliation of cash and restricted cash: ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at end of period ​ ​ 140,607 ​ ​ 130,584 Less restricted cash ​ ​ ( 12,584 ) ​ ​ ( 12,578 ) Cash and cash equivalents at end of period ​ $ 128,023 ​ $ 118,006 Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Right-of-use asset obtained in exchange for finance lease obligation ​ $ — ​ $ 136 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 3,749 ​ $ 3,683 Right-of-use assets obtained in exchange of operating lease obligations ​ ​ — ​ ​ 1,852 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 7 Table of Contents 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Nature of Business — Kala Pharmaceuticals, Inc. (the “Company”) was incorporated on July 7, 2009, and is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies for diseases of the eye. The Company has applied its AMPPLIFY ® mucus-penetrating particle (“MPP”) Drug Delivery Technology to loteprednol etabonate (“LE”), a corticosteroid designed for ocular applications, resulting in the U.S. Food and Drug Administration’s (the “FDA”) approval of INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1% as the first and only topical twice-daily ocular corticosteroid for treatment of post-operative inflammation and pain following ocular surgery, and the development of its lead product candidate, KPI-121 0.25%, which if approved it plans to commercialize under the brand name EYSUVIS TM (loteprednol etabonate ophthalmic suspension) 0.25%, for the short-term treatment of the signs and symptoms of dry eye disease. In October 2018, the Company submitted a New Drug Application (“NDA”) to the FDA for EYSUVIS. In August 2019, the Company announced that it received a complete response letter (“CRL”) from the FDA indicating that positive efficacy data from an additional clinical trial would be needed to support a resubmission of the NDA. Based upon the previous recommendation of the FDA, the Company initiated an additional Phase 3 clinical trial (“STRIDE 3”) (STRIDE- S hort T erm R elief I n D ry E ye), in July 2018. On March 9, 2020, the Company announced that STRIDE 3 met both of its primary symptom endpoints and its key secondary sign endpoint and on April 30, 2020, the Company resubmitted its NDA with the positive data from STRIDE 3. The Company believes that the data from STRIDE 3 replicates the positive efficacy data from previous clinical trials for both signs and symptoms of dry eye disease and will satisfy the recommendation in the CRL for an additional positive trial. On May 26, 2020, the Company announced that the FDA stated that our NDA resubmission was a complete, Class 2 response to the CRL and set a Prescription Drug User Fee Act (“PDUFA”) goal date of October 30, 2020 for the completion of its review of the NDA. In January 2019, the Company launched its first commercial product, INVELTYS, in the United States. The Company is engaged in the commercialization of INVELTYS, pursuing FDA approval of, and preparing to launch, EYSUVIS, research and development activities, raising capital and recruiting skilled personnel. The Company is subject to a number of risks similar to those of other companies conducting high-risk, research and development of pharmaceutical product candidates and launching products for the first time. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies and the technical risks associated with the successful research, development and marketing of its product candidates. The Company’s success is dependent upon its ability to obtain regulatory approval of EYSUVIS, the success of commercializing its products, the success of its research and development efforts, its ability to obtain regulatory approval of its other product candidates, its ability to raise additional capital when needed and, ultimately, attain profitable operations. The Company is also evaluating other opportunities for MPP nanosuspensions of LE, compounds in its receptor Tyrosine Kinase Inhibitor program (the “rTKI program”), that inhibit the vascular endothelial growth factor (“VEGF”), pathway, for the potential treatment of a number of retinal diseases, and novel next-generation anti-inflammatories designed to exhibit steroid-like anti-inflammatory action for eye disease with the goal of eliminating the risk of interocular pressure (“IOP”) increase and cataract formation. ​ Liquidity — Since inception, the Company has incurred significant losses from operations and negative cash flows from operations. As of June 30, 2020, the Company had an accumulated deficit of $ 340.7 million. The Company has generated only limited revenues to date from product sales and has financed operations primarily through proceeds from its initial public offering of common stock (“IPO”), public common stock offerings and sales of its common stock under its at-the-market offering facility, private placements of preferred stock, convertible debt financings, borrowings under credit facilities and warrants. The Company has devoted substantially all of its financial resources and efforts to research and development, including preclinical studies and clinical trials and engaging in activities to launch and commercialize INVELTYS. The Company expects to continue to incur significant expenses and operating losses. Net losses may fluctuate significantly from quarter-to-quarter and year-to-year. The Company believes that its existing cash, cash equivalents and short-term investments as of June 30, 2020, will enable it to fund its planned operating expenses, debt service obligations and capital expenditure requirements for at 8 Table of Contents least twelve months from the date these condensed consolidated financial statements were issued. This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the condensed consolidated financial statements are issued. As a result, the Company could deplete its available capital resources sooner than it currently expects. COVID-19 – The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has caused federal, state, and local governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restriction and bans, heightened border scrutiny and other measures. The Company is following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention as well as federal, state, and local governments regarding working-from-home practices for non-essential employees. As a result, the Company previously suspended substantially all in-person interactions with customers, including visits to physician offices, clinics, and hospitals, and was limited to conducting educational and promotional activities virtually, and the Company may be forced to suspend all or some in-person interactions again in the future. In addition, all office-based personnel have been instructed to work from home and the Company’s laboratory facilities, that support our early-stage research activities, are being utilized as necessary. The moratoria on routine medical appointments and elective surgeries that have occurred at times in many jurisdictions, including ocular surgeries, has adversely affected the market for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery, resulting in a significant reduction in the demand for INVELTYS. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the length and severity of this pandemic, impact on its customers, employees, vendors, and government agencies, all of which are uncertain and cannot be predicted. The Company cannot reasonably estimate the extent to which the disruption may materially impact its condensed consolidated results of operations or financial position. Use of Estimates —The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense, and related disclosures. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and assumptions relied upon in preparing these condensed consolidated financial statements relate to, but are not limited to, revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock compensation, accrued expenses and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Actual results may differ from these estimates under different assumptions or conditions. Net Loss per Share —Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants. The weighted average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options and warrants. Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the three and six months ended June 30, 2020 and 2019. Unaudited Interim Financial Information —The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. The accompanying condensed consolidated financial statements reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations, 9 Table of Contents statement of stockholders’ equity and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”). The unaudited condensed consolidated financial statements include the accounts of Kala Pharmaceuticals, Inc. and its wholly owned subsidiary, Kala Pharmaceuticals Security Corporation. All intercompany transactions and balances have been eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in the Annual Report. There have been no material changes to the significant accounting policies during the period ended June 30, 2020, other than the addition of the Investments section below. Investments — The Company determines the appropriate classification of its investments at the time of purchase. The Company’s investments are classified as available-for-sale in accordance with Accounting Standards Codification (“ASC”) Topic 320. The Company classifies investments available to fund current operations as current assets on its condensed consolidated balance sheets. Investments are classified as long-term assets on the condensed consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. ​ Available-for-sale investments are recorded at fair value, with unrealized gains or losses included in comprehensive loss on the condensed consolidated statements of operations and in accumulated other comprehensive loss on the condensed consolidated balance sheets. Realized gains and losses, interest income earned on the Company’s cash, cash equivalents and investments, and amortization or accretion of discounts and premiums on investments are included within other income (expense). ​ The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. ​ Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measuremen t (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The ASU was effective on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the Company’s condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-15 , Intangibles - Goodwill and Other - Internal-Use Software -Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU became effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The ASU was effective on January 1, 2020 and the adoption of ASU 2018-15 did not have a material effect on the Company’s condensed consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes the impairment model 10 Table of Contents for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”) , which is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be Smaller Reporting Companies (“SRCs”) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim period within those fiscal years and for all other entities, including SRCs, for fiscal years beginning December 15, 2022, including interim periods within those fiscal years. Upon adoption, beginning January 1, 2023, the Company does not expect ASU 2019-10 to have a material effect on its condensed consolidated financial statements. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has short-term investments which are considered financial instruments that are measured on a recurring basis. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels: ● Level 1—Quoted prices in active markets for identical assets or liabilities. ● Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. ● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. Our financial instruments consist primarily of cash, cash equivalents, and short-term investments in money market funds and short-term securities. Cash, cash equivalents and short-term investments are reported at their respective fair values on our Condensed Consolidated Balance Sheets. See Note 4 (Investments) for additional information. The following table sets forth the fair value of the Company’s financial assets by level within the fair value hierarchy at June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying Amount ​ ​ Fair Value ​ ​ Level 1 ​ ​ Level 2 ​ ​ Level 3 Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 128,023 ​ $ 128,023 ​ $ 128,023 ​ $ - ​ $ - Short-term investments ​ ​ 56,536 ​ ​ 56,536 ​ ​ 56,536 ​ ​ - ​ ​ - Total Assets ​ $ 184,559 ​ $ 184,559 ​ $ 184,559 ​ $ - ​ $ - ​ During the three and six months ended June 30, 2020, there were no transfers between Level 1, Level 2, and Level 3. ​ ​ 11 Table of Contents 4. INVESTMENTS Investments by security type consisted of the following as of June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ ​ Cost ​ Gains ​ Losses ​ Value ​ U.S. treasury securities $ 27,980 ​ $ - ​ $ ( 8 ) ​ $ 27,972 ​ U.S. government agencies securities ​ 28,573 ​ ​ - ​ ​ ( 9 ) ​ ​ 28,564 ​ Total $ 56,553 ​ $ - ​ $ ( 17 ) ​ $ 56,536 ​ ​ As of June 30, 2020, all of our investments had a contractual maturity within one year. The fair value of all our investments are classified as short-term on our Condensed Consolidated Balance Sheets. 5. REVENUE & ACCOUNTS RECEIVABLE, NET The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services. The Company performs the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer. Product revenues, net The Company sells INVELTYS to wholesalers and/or specialty distributors in the United States (collectively, “Customers”). These Customers subsequently resell the Company’s products to specialty and other retail pharmacies. In addition to agreements with Customers, the Company enters into arrangements with payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of the Company’s products. The goods promised in the Company’s product sales contracts represent a single performance obligation; as the promise to transfer the individual products to the Customer is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which occurs upon delivery. The transaction price (“net sales price”) that is recognized as revenue for product sales includes the selling price to the Customer and an estimate of variable consideration. Components of variable consideration include prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers where a distinct good or service is not received. Variable consideration is recorded on the condensed consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer. The Company considers all relevant information when estimating variable consideration such as assessment of its current and anticipated sales and demand forecasts, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that are reasonably available. The Company includes estimated amounts in the net sales price to the extent it is determined probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. 12 Table of Contents Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a significant financing component in its arrangements. The Company expenses incremental cost of obtaining a contract with a Customer when incurred as the period of benefit is less than one year. Reserves for Variable Consideration : Trade Discounts and Allowances The Company provides its Customers with certain trade discounts and allowances including discounts for prompt payments and fees paid for distribution, data and administrative services. These discounts and fees are based on contractually-determined percentages and are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized. Chargebacks Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Reserves for chargebacks consist of credits the Company expects to issue for units that remain in the distribution channel at the end of each reporting period and that the Company expects will be sold to qualified healthcare providers, as well as chargebacks that Customers have claimed, but for which the Company has not yet issued a credit. Product Returns Consistent with industry practice, the Company has a product returns policy that provides Customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its products that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. Commercial Payor and Medicare Part D Rebates The Company contracts with certain third-party payors, primarily pharmacy benefit managers (“PBMs”) and health plans (“Plans”), for the payment of rebates with respect to utilization of its product. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the PBMs or the Plans with which it contracts. The Company estimates the rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for INVELTYS as well as future rebates that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. The Company also estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. Such estimates are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Government Rebates The Company is subject to discount obligations under Medicaid and other government programs. For Medicaid, reserves are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Centers for Medicaid and Medicare Services. The Company’s liability for these rebates consists of estimates of claims for the current period and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. These reserves are 13 Table of Contents recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Co-pay Assistance Program The Company offers a co-pay assistance program (the “co-pay program”), which is intended to provide financial assistance to patients who may or may not be covered by commercial insurance or who opt out of Medicare Part D programs. The calculation of accruals for the co-pay program is based on actual claims processed during the period as well as an estimate of the number and cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. Allowances for estimated co-pay claims are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trade Discounts, ​ ​ ​ ​ ​ ​ ​ ​ Allowances and ​ ​ ​ ​ Rebates and ​ ​ Chargebacks (1) Product Returns (2) Incentives (3) Balance at December 31, 2019 ​ $ 1,783 ​ $ 180 ​ $ 10,044 Provision related to current period sales ​ ​ 725 ​ ​ — ​ ​ 4,576 Changes in estimate related to prior period sales ​ ​ 2 ​ ​ ( 66 ) ​ ​ 93 Credit/payments made ​ ​ ( 1,114 ) ​ ​ — ​ ​ ( 8,090 ) Balance at March 31, 2020 ​ $ 1,396 ​ $ 114 ​ $ 6,623 Provision related to current period sales ​ ​ 335 ​ ​ — ​ ​ 2,194 Changes in estimate related to prior period sales ​ ​ 3 ​ ​ ( 51 ) ​ ​ ( 234 ) Credit/payments made ​ ​ ( 1,336 ) ​ ​ 1 ​ ​ ( 3,013 ) Balance at June 30, 2020 ​ $ 398 ​ $ 64 ​ $ 5,570 (1) Trade discounts, allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks. Trade discounts, allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s Condensed Consolidated Balance Sheets. (2) Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets. (3) Rebates and incentives includes managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances. Provisions for rebates and discounts are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets. ​ Accounts Receivable, net Accounts receivable are reported on the condensed consolidated balance sheets at outstanding amounts due from Customers for product sales. The Company deducts sales discounts for prompt payments and contractual fees for service arrangements from accounts receivable. The Company evaluates the collectability of accounts receivable on a regular basis, by reviewing the financial condition and payment history of Customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible. The Company recorded no allowance for doubtful accounts as of June 30, 2020 or June 30, 2019. The Company recorded an allowance of $ 0.4 million and $ 0.9 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to wholesalers and distributors as of June 30, 2020 and June 30, 2019, respectively. 14 Table of Contents 6. INVENTORY Current inventory and long-term inventory consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ Raw materials ​ $ 1,025 ​ $ 1,387 Work in progress ​ ​ 4,589 ​ ​ 4,166 Finished goods ​ ​ 4,206 ​ ​ 2,873 Total inventory ​ $ 9,820 ​ $ 8,426 ​ As of June 30, 2020, the Company had $ 5.7 million of current inventory and $ 4.1 million of long-term inventory. As of December 31, 2019, the Company had $ 4.6 million of current inventory and $ 3.8 million of long-term inventory. 7. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ Compensation and benefits ​ $ 5,347 ​ $ 6,502 Accrued revenue reserves (1) ​ ​ 5,061 ​ ​ 9,482 Development costs ​ ​ 179 ​ ​ 1,600 Professional services ​ ​ 938 ​ ​ 760 Commercial cost ​ ​ 800 ​ ​ 930 Contract manufacturing ​ ​ 1,462 ​ ​ 630 Other ​ ​ 180 ​ ​ 1,025 Accrued expenses ​ $ 13,967 ​ $ 20,929 (1) There were additional revenue reserves included in accounts payable of $ 0.6 million and $ 0.7 million, as of June 30, 2020 and December 31, 2019, respectively. ​ ​ 8. LEASES Operating leases On February 28, 2018, the Company entered into a lease agreement for the lease of a portion of the building located at 490 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”) to be used as the Company’s corporate headquarters. The Company recognized the right-of-use asset and corresponding lease liability on November 15, 2018, by calculating the present value of lease payments, discounted at 9.9 %, the Company’s estimated incremental borrowing rate, over the 13-year expected term. In connection with the Watertown Lease, the Company issued a letter of credit to the landlord for $ 2.0 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which is reported as restricted cash as of June 30, 2020 and December 31, 2019. For the six months ended June 30, 2020 and 2019, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes, was $ 1.1 million and $ 0.5 million, respectively. The remaining lease term was 11.3 years as of June 30, 2020. 15 Table of Contents Vehicle Fleet lease During the year ended December 31, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it currently leases approximately 65 vehicles. In connection with the Vehicle Fleet Lease, the Company issued a letter of credit for $ 0.5 million, which was reported as restricted cash on the balance sheet. The lease has an expected term of three years , which commenced upon the delivery of the vehicles in March 2019. As of June 30, 2020, the remaining lease term was 1.7 years. ​ The components of lease expense and related cash flows were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ Six Months Ended June 30, ​ 2020 2019 2020 2019 Lease cost ​ ​ ​ ​ Operating lease cost ​ $ 1,185 ​ $ 1,187 ​ $ 2,371 ​ $ 2,243 Variable lease cost ​ ​ 658 ​ ​ 383 ​ ​ 1,068 ​ ​ 507 Total lease cost ​ $ 1,843 ​ $ 1,570 ​ $ 3,439 ​ $ 2,750 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash outflows from operating leases ​ $ 1,686 ​ $ 911 ​ $ 3,130 ​ $ 1,654 ​ ​ ​ ​ 9. DEBT Athyrium Credit Facility On October 1, 2018, the Company entered into a credit agreement (the “Athyrium Credit Facility”), with Athyrium Opportunities III Acquisition LP (“Athyrium”) for up to $ 110.0 million. The Athyrium Credit Facility provided for a Term Loan A in the aggregate principal amount of $ 75.0 million (the “Term Loan A”), and a Term Loan B in the aggregate principal amount of $ 35.0 million (the “Term Loan B”). On October 1, 2018, the Company borrowed the entire principal amount of the Term Loan A. The Company did not satisfy the conditions to draw down any of the Term Loan B funds, and as a result, the Term Loan B funds are no longer available. The maturity date of the Athyrium Credit Facility is October 1, 2024, the six-year anniversary of the close. The Term Loan A bears interest at a rate of 9.875 % per annum, with quarterly, interest-only payments until the fourth anniversary of the Term Loan A. The unpaid principal amount of the Term Loan A is due and payable in quarterly installments starting on the fourth anniversary of the loan. The Company may make voluntary prepayments, in whole or in part, and subject to certain exceptions, is required to make mandatory prepayments upon the occurrence of certain events of default as defined in the agreement, including but not limited to, the occurrence of a change of control. In addition, upon payment or repayment of any outstanding balance under the Athyrium Credit Facility, the Company will have to pay a 1 % exit fee of the total principal payments (whether mandatory, voluntary, or at maturity) made throughout the term. The exit fee of $ 0.7 million based on the $ 75.0 million principal amount outstanding, will be accreted to the carrying amount of the debt using the effective interest method over the term of the loan. All mandatory and voluntary prepayments of the Athyrium Credit Facility are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the second anniversary of the applicable date of issuance, an amount equal to the amount by which (a) the present value of 105 % of the principal prepaid plus all interest that would have accrued on such principal through such second anniversary exceeds (b) the amount of principal prepaid, (ii) if prepayment occurs on or after the second anniversary of the applicable date of issuance but prior to the third anniversary of such issuance, an amount equal to 3 % of the principal prepaid, and (iii) if prepayment occurs on or after the third anniversary of the applicable date of issuance but prior to the fourth anniversary of such issuance, an amount equal to 2 % of the principal prepaid. No prepayment premium is due on any principal prepaid after the fourth anniversary of the applicable date of issuance. 16 Table of Contents The Athyrium Credit Facility includes features requiring (1) additional interest rate upon an event of default accrued at an additional 3 % , or a total interest rate of 12.875 % , and (2) the lender’s right to declare all outstanding principal and interest immediately payable upon an event of default. These two features were analyzed and determined to be embedded derivatives to be valued as separate financial instruments. These embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging transactions. The Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of June 30, 2020. The derivative liability will be remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the condensed consolidated statements of operations. The Athyrium Credit Facility is secured by a pledge of substantially all of the Company’s assets and contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability to, among other things, incur and prepay additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, change in the nature of business, enter into sale and leaseback transactions, make distributions, and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Athyrium Credit Facility also contains a financial covenant requiring the Company to maintain at least $ 10.0 million of cash and cash equivalents. As a result of this financial covenant, the Company has recorded $ 10.0 million as restricted cash as of June 30, 2020 and December 31, 2019. In connection with the Athyrium Credit Facility, the Company issued a warrant (“Warrant”), to purchase up to 270,835 shares of the Company’s common stock, at an exercise price per share of $ 12.18456 . The Warrant is immediately exercisable as to 184,660 shares. The remaining 86,175 shares under the Warrant were exercisable only upon the Company’s draw of the Term Loan B and, as a result, the remaining 86,175 shares under the Warrant are no longer exercisable. The Warrant is exercisable through October 1, 2025 and is classified as an equity instrument. The Company allocated the proceeds from the Term Loan A to the Warrant using the relative fair value method. The fair value of the Warrant of $ 1.9 million was recognized as equity and a corresponding debt discount. In addition, the Company paid certain fees to Athyrium and other third-party service providers. These fees paid to Athyrium were recorded as a debt discount while the fees paid to other third-party service providers were recorded as debt issuance cost. These costs, along with the fair value of the Warrant of $ 1.9 million are being amortized using the effective interest method over the term of the Athyrium Credit Facility. The amortization of debt discount and debt issuance cost is included in interest expense within the Condensed Consolidated Statements of Operations. As of June 30, 2020 and June 30, 2019, the effective interest rate was 11.63 %, which takes into consideration the non-cash accretion of the exit fee and the amortization of the debt discount and issuance costs. During each of the three months ended June 30, 2020 and June 30, 2019, the Company recognized interest expense of $ 2.1 million, which consisted of amortization of the debt discount of $ 0.2 million, and the contractual coupon interest expense of $ 1.9 million. During the six months ended June 30, 2020, and June 30, 2019, the Company recognized interest expense of $ 4.2 million and $ 4.1 million, respectively. This consisted of amortization of debt discount of $ 0.4 million for the periods ended June 30, 2020 and June 30, 2019, and the contractual coupon interest expense of $ 3.8 million and $ 3.7 million as of June 30, 2020 and June 30, 2019, respectively. The components of the carrying value of the debt as of June 30, 2020, and December 31, 2019 are detailed below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 Principal loan balance ​ $ 75,000 ​ $ 75,000 Unamortized debt discount and issuance cost ​ ​ ( 3,559 ) ​ ​ ( 3,999 ) Cumulative accretion of exit fee ​ ​ 256 ​ ​ 183 Long-term debt, net ​ $ 71,697 ​ $ 71,184 ​ ​ 17 Table of Contents The annual principal payments due under the Athyrium Credit Facility as of June 30, 2020 were as follows (in thousands): ​ ​ ​ ​ Years Ending December 31, ​ ​ 2020 (remaining six months) ​ $ — 2021 ​ ​ — 2022 ​ ​ 16,665 2023 ​ ​ 33,330 2024 ​ ​ 25,005 Total ​ $ 75,000 ​ ​ ​ 10. WARRANTS The Company issued warrants in connection with debt transactions that were completed prior to 2017. Upon the completion of the IPO, the Company’s then outstanding warrants to purchase preferred stock converted into warrants to purchase common stock. The Company also issued the Warrant to purchase common stock in connection with the Athyrium Credit Facility, described further in Note 9. The following table summarizes the common stock warrants outstanding as of June 30, 2020 and December 31, 2019, each exercisable into the number of shares of common stock set forth below as of the specified dates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Exercisable at ​ ​ Exercise Expiration Exercisable June 30, December 31, Issued Price ​ Date ​ From ​ 2020 ​ 2019 2013 ​ $ 7.50 ​ April 2021 ​ July 2017 ​ 33,333 ​ 82,816 2014 ​ $ 7.50 November 2024 July 2017 ​ 16,000 ​ 16,000 2016 ​ $ 8.27 October 2026 September 2017 ​ 14,512 ​ 14,512 2018 ​ $ 12.18 ​ October 2025 ​ October 2018 ​ 184,660 ​ 184,660 2018 ​ $ 12.18 ​ October 2025 ​ (1) ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ 248,505 ​ 297,988 (1) As of June 30, 2020, and December 31, 2019, the warrant outstanding to acquire 86,175 shares of common stock was not exercisable. As of June 30, 2020, the Company did not satisfy the conditions to draw down the Term Loan B, and as a result, the warrant to acquire 86,175 shares of common stock expired. ​ 11. EQUITY FINANCINGS On August 9, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on August 27, 2018 (the “2018 Shelf Registration”). Under the 2018 Shelf Registration, the Company may offer and sell up to $ 250.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the 2018 Shelf Registration becoming effective. In connection with the filing of the 2018 Shelf Registration, the Company entered into a sales agreement (the “2018 Sales Agreement”) with Jefferies, LLC (“Jefferies”) pursuant to which the Company could issue and sell, from time to time, up to an aggregate of $ 50.0 million of its common stock in an at-the-market equity offering (“ATM Offering”) through Jefferies, as sales agent. As of December 31, 2019, the Company issued 2,592,934 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of $ 13.1 million. During the first quarter of 2020, the Company issued an aggregate of 2,352,671 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of $ 12.5 million. On March 10, 2020 , the Company notified Jefferies that it was suspending and terminating the prospectus related to the 2018 Sales Agreement. On March 11, 2020, the Company sold 16,000,000 shares of the Company’s common stock (the “2020 Offering Shares”) in an underwritten offering (the “2020 Offering”), pursuant to the 2018 Shelf Registration, at a public offering 18 Table of Contents price of $ 7.89 per share, before underwriting discounts, commissions, and offering expenses, resulting in net proceeds of $ 118.2 million. In addition, the underwriters of the 2020 Offering were granted the option for a period of 30 days to purchase up to an additional 2,400,000 shares of common stock offered in the public offering at the public offering price, less underwriting discounts, commissions and offering expenses. On April 3, 2020, the underwriters exercised their option and purchased an additional 979,371 shares of common stock at $ 7.89 per share, before underwriting discounts, commissions, and offering expenses, resulting in net proceeds to the Company of $ 7.2 million. The total number of shares sold by the Company in the 2020 Offering was 16,979,371 , resulting in total net proceeds to the Company, after underwriting discounts, commissions, and offering expenses, of $ 125.4 million. As of June 30, 2020, there was $ 18.3 million of securities available to be issued under the 2018 Shelf Registration. On May 7, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020 (the “2020 Shelf Registration”). Under the 2020 Shelf Registration, the Company may offer and sell up to $ 350.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities or units during the three-year period that commenced upon the 2020 Shelf Registration becoming effective. In connection with the filing of the 2020 Shelf Registration, the Company entered into an amended and restated sales agreement with Jefferies pursuant to which the Company may issue and sell, from time to time, up to an aggregate of $ 75.0 million of its common stock under its ATM Offering through Jefferies, as a sales agent. 12. STOCK-BASED COMPENSATION Stock Incentive Plans —In December 2009, the Board of Directors (the “Board”) adopted the 2009 Employee, Director and Consultant Equity Incentive Plan (the “2009 Plan”) for the issuance of common stock and stock options to employees, officers, directors, consultants, and advisors. In July 2017, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective. The 2017 Plan was established to provide equity-based ownership opportunities for employees, officers, directors, consultants, and advisors. On June 25, 2020, the 2017 Plan was amended to increase the number of shares of common stock authorized for issuance thereunder by 2,000,000 shares. As of June 30, 2020, there were 1,181,416 shares of common stock available for grant under the 2017 Plan. In addition, any shares of common stock subject to awards under the 2009 Plan that expire, are forfeited, or are otherwise surrendered, without having been fully exercised or resulting in any common stock being issued will become available for issuance under the prior plan, up to an additional 2,262,070 shares, which is the number of shares issuable pursuant to outstanding awards granted under the prior plan. Also approved under the 2017 Plan is an annual increase for each of the years through December 31, 2027, equal to the least of (i) 3,573,766 shares of common stock, (ii) 4 % of the shares of common stock outstanding on December 31 of the prior year and (iii) an amount determined by the Board. Under the plans, the Board determines the number of shares of common stock to be granted pursuant to the awards, as well as the exercise price and terms of such awards. The exercise price of incentive stock options cannot be less than the fair value of the common stock on the date of grant. Stock options awarded under the plans expire 10 years after the grant date, unless the Board sets a shorter term. Options granted under the plans generally vest over a four-year period. A portion of the unvested stock options will vest upon the sale of all or substantially all of the stock or assets of the Company. In the past, the Company had granted stock options which contain performance-based vesting criteria. These criteria were milestone events that were specific to the Company’s corporate goals. Stock-based compensation expense associated with performance-based stock options is recognized if the achievement of the performance condition is considered probable using management’s best estimates. As of June 30, 2020, there were no performance-based stock option awards outstanding. 19 Table of Contents Inducement Stock Option Awards —During the six months ended June 30, 2020 and 2019, the Company granted non-statutory stock options to purchase an aggregate of 12,000 shares and 63,000 shares of the Company’s common stock, respectively. These stock options will vest over a four-year period, with 25 % of the shares underlying each option award vesting on the one-year anniversary of the applicable employees’ new hire date and the remaining 75 % of the shares underlying each award vesting monthly thereafter for three-years . Vesting of each option is subject to such employee’s continued service with the Company through the applicable vesting dates. These stock options were granted outside of the 2017 Plan as an inducement material to each employee’s acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). A summary of option activity for employee awards under the 2009 Plan, the 2017 Plan and inducement grants for the six months ended June 30, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Number of ​ Exercise ​ Contractual ​ Intrinsic ​ Shares Price Term Value ​ ​ ​ ​ ​ ​ ​ (Years) ​ (in thousands) Outstanding at January 1, 2020 ​ 7,453,076 ​ $ 7.46 ​ 7.7 ​ $ 1,313 Granted ​ 1,477,422 ​ ​ 3.88 ​ ​ ​ ​ ​ Exercised ​ ( 311,028 ) ​ ​ 3.02 ​ ​ ​ ​ ​ Forfeited ​ ( 45,897 ) ​ ​ 6.26 ​ ​ ​ ​ ​ Outstanding at June 30, 2020 ​ 8,573,573 ​ $ 7.01 ​ 7.7 ​ $ 40,475 Vested or expected to vest at June 30, 2020 ​ 8,573,573 ​ $ 7.01 ​ 7.7 ​ $ 40,475 Options exercisable at June 30, 2020 ​ 4,656,466 ​ $ 7.39 ​ 6.8 ​ $ 21,417 ​ The Company records stock-based compensation related to stock options granted at fair value. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates. The assumptions used in determining fair value of the stock options granted during the six months ended June 30, 2020 and 2019, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2020 2019 Expected volatility 80 % – 81 % ​ 61 % – 82 % Risk-free interest rate 0.42 % – 1.73 % ​ 1.87 % – 2.58 % Expected dividend yield ​ 0 % ​ ​ ​ 0 % ​ Expected term (in years) 5.91 – 6.08 ​ 0.5 – 6.63 ​ The Company derived the risk-free interest rate assumption from the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. The Company based the assumed dividend yield on its expectation of not paying dividends in the foreseeable future. The Company calculated the weighted-average expected term of options using the simplified method, as the Company lacks relevant historical data due to the Company’s limited operating experience. The estimated volatility is based upon the historical volatility of comparable companies with publicly available share prices. The impact of forfeitures on compensation expense is recorded as they occur. During the three months June 30, 2020 and 2019, the weighted average grant-date fair value of options granted was $ 9.35 and $ 3.71 , respectively. During the six months ended June 30, 2020 and 2019, the weighted average grant-date fair value of options granted was $ 3.88 and $ 3.71 , respectively. The fair value is being expensed over the vesting period of the options on a straight-line basis as the services are being provided. As of June 30, 2020 and 2019, there was 20 Table of Contents $ 19.1 million and $ 23.0 million, respectively, of unrecognized compensation cost related to the stock options granted, which is expected to be expensed over a weighted-average period of 2.59 years and 2.67 years, respectively. Stock-based compensation costs for the Company’s manufacturing employees related to INVELTYS manufactured since FDA approval totaled $ 0.01 million for the three months ended June 30, 2020 and 2019, and has been capitalized into inventory as a component of overhead expense. Stock-based compensation costs for the Company’s manufacturing employees related to INVELTYS manufactured since FDA approval totaled $ 0.03 million and $ 0.3 million for the six months ended June 30, 2020 and 2019, respectively, and has been capitalized into inventory as a component of overhead expense. Capitalized stock-based compensation is recognized as an expense when the related product is sold or expensed to selling, general and administrative expense when the related sample is issued. Restricted Stock Units —In June 2020, the Company issued restricted stock units (“RSUs”) to certain executives and board members, as well as performance-based restricted stock units (“PSUs”) to certain executives and other employees. The Company granted 135,560 RSUs to certain executives which vest 50 % on the first anniversary of the grant date, and 50 % on the second anniversary of the grant date. Additionally, the Company issued 128,000 RSUs to members of the board which will vest upon the earlier of the first anniversary of the 2020 Annual Meeting of Stockholders or the date of the 2021 Annual Meeting of Stockholders. The Company issued 693,537 PSUs to certain executives and other employees tied to certain performance criteria, which will vest, if at all, as to 50 % on the first anniversary of satisfying the performance criteria and the remaining 50 % vesting upon the second anniversary of satisfying the performance criteria. For the three and six months ended June 30, 2020, stock-based compensation costs associated with these RSUs and PSUs are immaterial. A summary of the outstanding RSUs and PSUs as of June 30, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ ​ Grant Date ​ ​ Shares ​ ​ Fair Value Non-vested and outstanding balance at December 31, 2019 ​ - ​ $ - Changes during the period: ​ ​ ​ ​ ​ RSUs granted ​ 263,560 ​ ​ 11.70 PSUs granted ​ 693,537 ​ ​ 11.70 Non-vested and outstanding balance at June 30, 2020 ​ 957,097 ​ $ 11.70 ​ Employee Stock Purchase Plan —In 2017, the Company approved the 2017 Employee Stock Purchase Plan, which was amended and restated in December 2018 (as amended, the “ESPP”). The ESPP reserved an aggregate of 223,341 shares of common stock and provides for an annual increase on the first day of each fiscal year, beginning on January 1, 2019 and ending on December 31, 2029, in an amount equal to the lowest of: (1) 893,441 shares of the Company’s common stock; (2) 1 % of the total number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year; and (3) an amount determined by the Company’s board of directors. The ESPP provides for two six-month offering periods each year; the first offering period begins on the first trading day on or after each January 1; the second offering period begins on the first trading day on or after each July 1. Under the ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85 % of the lesser of the closing price of the common stock on (i) the first business day of the plan period or (ii) the exercise date. The fair value of the purchase rights granted under the ESPP was estimated on the date of grant, using the Black-Scholes option-pricing model. In January 2020, employees of the Company purchased an aggregate of 85,553 shares under the ESPP. In July 2020, employees of the Company purchased an aggregate of 228,844 shares under the ESPP. 21 Table of Contents Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows for the three and six months ended June 30, 2020 and 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of product revenues ​ $ 9 ​ $ 39 ​ $ 28 ​ $ 41 ​ Research and development ​ ​ 551 ​ ​ 795 ​ ​ 1,274 ​ ​ 1,402 ​ Selling, general and administrative ​ ​ 1,933 ​ ​ 1,787 ​ ​ 3,686 ​ ​ 3,651 ​ Total ​ $ 2,493 ​ $ 2,621 ​ $ 4,988 ​ $ 5,094 ​ ​ Reserved Shares —As of June 30, 2020 and December 31, 2019, the Company had reserved the following shares of common stock issuable upon exercise of rights under equity compensation plans, inducement stock option awards, and warrant rights to acquire common stock: ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ​ ​ ​ ​ ​ Warrant rights to acquire Common Stock ​ 334,680 ​ 384,163 ESPP ​ 523,860 ​ 438,307 Outstanding inducement stock option awards ​ 717,500 ​ 705,500 2009 Plan ​ 2,262,070 ​ 2,530,586 2017 Plan ​ 7,836,141 ​ 4,429,849 Total ​ 11,674,251 ​ 8,488,405 ​ ​ ​ 13. INCOME TAXES The Company did not record a provision or benefit for income taxes during the three months ended June 30, 2020 and 2019. The Company continues to maintain a full valuation allowance for its U.S. federal and state deferred tax assets. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its generation of limited revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income. The Company recently completed an analysis and determined that an ownership change had occurred prior to December 31, 2019 and that such change has materially limited the net operating loss carryforwards and research and development tax credits available to offset future tax liabilities. The Company may be further limited by any changes that may have occurred or may occur subsequent to December 31, 2019. The Company files its corporate income tax returns in the United States and various states. All tax years since the date of incorporation remain open to examination by the major taxing jurisdictions (state and federal) to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the 22 Table of Contents Internal Revenue Service (“IRS”) or other authorities if they have or will be used in a future period. The Company is not currently under examination by the IRS or any other jurisdictions for any tax year. As of June 30, 2020, and 2019, the Company had no uncertain tax positions. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the three and six months ended June 30, 2020 and 2019. 14. COMMITMENTS AND CONTINGENCIES License Agreement —In 2009, the Company entered into an exclusive license agreement with The Johns Hopkins University (“JHU”), as amended in November 2012, May 2014, August 2014, October 2014 and June 2018, which licensed to the Company a portfolio of specified patent rights and remains in full force and effect. Pursuant to the terms of the agreement, as amended, the Company agreed to pay an initial license fee, minimum annual payments beginning in 2017, certain development and commercial milestone payments, royalties on product sales and reimburse all or a portion of the costs associated with the preparation, filing, prosecution and maintenance of the agreed-upon patents and patent applications to JHU. After 2016 and until the first commercial sale of product, which occurred in January 2019, the minimum annual payment was $ 37,500 . Upon the first commercial sale of INVELTYS, the annual minimum payment increased to $ 0.1 million. The Company is obligated to pay JHU low single-digit running royalties based upon a percentage of net sales of the licensed products, which is applied to the annual minimum payment. The Company also has an obligation to pay JHU certain one-time development and commercial milestone payments. During the three months ended June 30, 2020 and 2019, the Company paid JHU $ 0.01 million and $ 0.3 million, respectively, in royalty payments associated with the sale of INVELTYS. During the six months ended June 30, 2020 and 2019, the Company paid JHU $ 0.02 million and $ 0.3 million, respectively, in royalty payments associated with the sale of INVELTYS. The Company recorded other expenses related to the JHU agreement of $ 0.03 million and $ 0.1 million for the three months ended June 30, 2020 and 2019, respectively. The Company recorded other expenses related to the JHU agreement of $ 0.1 million and $ 0.1 million for the six months ended June 30, 2020 and 2019, respectively. Litigation —The Company is not currently subject to any material legal proceedings. Other Commitments — The Company entered into a commercial supply agreement with Catalent Pharma Solutions, LLC to manufacture commercial supplies of INVELTYS and EYSUVIS, with annual minimum purchase requirements. The Company is only subject to the minimum purchase requirements for EYSUVIS upon receiving FDA approval for the product. 15. SUBSEQUENT EVENTS The Company has evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its condensed consolidated financial statements or disclosures. ​ ​ ​ ​ 23 Table of Contents