What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 148 added, 143 removed, 211 unchanged (58% of the section changed)

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We believe that these two key attributes enable even distribution of drug particles on mucosal surfaces and significantly increase drug delivery to target tissues by enhancing mobility of drug particles through mucus and preventing drug particles from becoming trapped and eliminated by mucus.

We have applied the AMPPLIFY technology to loteprednol etabonate, or LE, a corticosteroid designed for ocular applications, resulting in the August 2018 approval of INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1%, our topical twice-a-day ocular steroid for the treatment of inflammation and pain following ocular surgery, by the U.S.

Food and Drug Administration, or the FDA, and the development of our lead product candidate, KPI-121 0.25%, which if approved we plan 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.

We commercially launched INVELTYS in January 2019.

EYSUVIS is our product candidate for patients with dry eye disease utilizing a two-week course of therapy.

In January 2018, we announced topline results from two completed Phase 3 clinical trials, which we refer to as STRIDE 1 and STRIDE 2 (STRIDE - S hort T erm R elief I n D ry E ye), evaluating the safety and efficacy of EYSUVIS versus vehicle (placebo) in patients with dry eye disease.

In STRIDE 1, statistical significance was achieved for the primary sign endpoint of conjunctival hyperemia and the primary symptom endpoint of ocular discomfort severity change from baseline to day 15 in the intent-to-treat, or ITT population, in addition, statistical significance was also achieved in STRIDE 1 for a second pre-specified primary symptom endpoint of ocular discomfort severity change from baseline to day 15 in patients with more severe baseline ocular discomfort.

In STRIDE 2, statistical significance was achieved for the primary sign endpoint of conjunctival hyperemia, but statistical significance was not achieved for the primary symptom endpoint of ocular discomfort severity.

EYSUVIS was generally well tolerated in both STRIDE 1 and STRIDE 2, with no clinically significant treatment-related adverse events observed during the course of either trial, and with elevations in interocular pressure, or IOP, in both trials similar to placebo.

Based upon the previous recommendation of the FDA, we initiated an additional Phase 3 clinical trial, STRIDE 3, in July 2018.

In October 2018, we submitted a New Drug Application, or NDA, to the FDA for EYSUVIS.

In August 2019, we announced that we received a complete response letter, or CRL, from the FDA indicating that positive efficacy data from an additional clinical trial would be needed to support a resubmission of the NDA.

On March 9, 2020, we announced that STRIDE 3 achieved both of its independent primary endpoints, demonstrating a statistically significant reduction in the symptom endpoint of ocular discomfort severity, or ODS, from baseline to day 15 compared to vehicle control in both the overall ITT population (p=0.0002) and in a pre-defined

subgroup of ITT patients with more severe baseline ocular discomfort (p=0.0007), defined as patients who scored greater than or equal to 68 mm in baseline ocular discomfort.

These data replicate the achievement of both primary symptom endpoints of STRIDE 1 (p<0.0001 in the overall ITT population and p=0.0008 in the pre-defined ITT subgroup with more severe ocular discomfort at baseline).

Statistical significance was also achieved in the key secondary endpoint of conjunctival hyperemia at day 15 in the ITT population (p<0.0001).

We believe this result replicates the achievement of the positive results of STRIDE 1 and STRIDE 2, where statistical significance was demonstrated for conjunctival hyperemia at day 15 in the ITT population as a prespecified primary endpoint in each of those trials.

Statistical significance was also achieved for the key secondary endpoint of ODS at day 8 in the ITT population (p=0.0282), which was consistent with STRIDE 1 (p=0.0011) and STRIDE 2 (p=0.0408).

Significant improvement was also observed for corneal staining in the ITT population (p=0.0042), consistent with the result in STRIDE 2 (p=0.0314).

Consistent with STRIDE 1 and STRIDE 2, EYSUVIS was generally well tolerated in STRIDE 3, with no clinically significant treatment related adverse events observed during the course of either trial, and with elevations in interocular pressure, or IOP, in both trials similar to placebo.

On April 30, 2020, we resubmitted our NDA with the positive data from STRIDE 3 and on May 26, 2020 we announced that the FDA stated that our NDA resubmission was a complete, Class 2 response to the CRL and set the Prescription Drug User Fee Act, or PDUFA, goal date of October 30, 2020 for the completion of its review of the NDA.

If approved, we believe EYSUVIS could become the preferred first-line prescription therapy for the short-term treatment of the signs and symptoms of dry eye disease, which will include treatment of dry eye flares that affect the vast majority of dry eye patients.

We have applied the AMPPLIFY technology to loteprednol etabonate, or LE, a corticosteroid designed for ocular applications, resulting in the October 2020 approval of EYSUVIS TM (loteprednol etabonate ophthalmic suspension) 0.25%, for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease and the August 2018 approval of INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1%, our topical twice-a-day ocular steroid for the treatment of inflammation and pain following ocular surgery, by the U.S.

Food and Drug Administration, or the FDA.

We commercially launched INVELTYS in January 2019 and expect to begin shipping EYSUVIS to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021.

EYSUVIS is the first and only FDA-approved prescription product with an indication for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease.

The FDA approved EYSUVIS based on results from four clinical trials, including three Phase 3 clinical trials and one Phase 2 clinical trial, which demonstrated significant improvements in both the signs and symptoms of dry eye disease.

Specifically, statistical significance was achieved after two weeks of dosing for the sign endpoint of conjunctival hyperemia in all three Phase 3 clinical trials.

Statistical significance was observed in two of the three Phase 3 clinical trials for the symptom endpoints of ocular discomfort severity in both the overall intent-to-treat, or ITT, population and in a predefined subgroup of ITT patients with more severe ocular discomfort at baseline.

EYSUVIS was well-tolerated across the four trials, with adverse events and intraocular pressure, or IOP, increases comparable to that observed with vehicle.

We believe EYSUVIS could become the preferred first-line prescription therapy for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease, including the treatment of dry eye flares that affect the vast majority of dry eye patients.

INVELTYS is the first and only FDA-approved ocular corticosteroid product with a twice-a-day dosing regimen for the treatment of post-operative inflammation and pain.

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In clinical trials, INVELTYS showed statistical significance in the primary efficacy endpoints of complete resolution of inflammation at day eight maintained through day 15 with no need for rescue medication compared to placebo and complete resolution of pain at day eight maintained through day 15 with no need for rescue medications compared to placebo.

We are also evaluating other opportunities for MPP nanosuspensions of LE, compounds in our receptor Tyrosine Kinase Inhibitor program, or rTKI program, that inhibit the vascular endothelial growth factor, or 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 with the goal of eliminating the risk of IOP increase and cataract formation.

INVELTYS received FDA approval under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, which is the pathway we are pursuing for the approval of EYSUVIS as well.

We have retained worldwide commercial rights for INVELTYS and our current product candidates, including EYSUVIS.

Since the FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which includes 56 territory sales managers, 7 regional sales leaders, and 3 directors of national accounts.

If EYSUVIS is approved by the FDA, we plan to increase, pending the status of the COVID-19 pandemic, our sales force from 56 sales representatives to a total of approximately 100 to 125 sales representatives, who will promote both EYSUVIS and INVELTYS.

We expect to commercialize in the United States any of our other product candidates that receive marketing approval as well.

We are also evaluating other opportunities for MPP compounds in our receptor Tyrosine Kinase Inhibitor program, or rTKI program, that inhibit the vascular endothelial growth factor 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 with the goal of eliminating the risk of interocular pressure, or IOP, increase and cataract formation.

We have retained worldwide commercial rights for EYSUVIS, INVELTYS and our current product candidates.

Since FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which includes 56 territory sales managers, seven regional sales leaders, and three directors of national accounts.

As a result of the recent FDA approval of EYSUVIS, during the fourth quarter of 2020 we plan to increase our sales force from 56 sales representatives to approximately 90 sales representatives and from seven regional sales leaders to 14 sales leaders, and in 2021, we plan to further increase our sales force to approximately 125 sales representatives, in each case pending the status of the COVID-19 pandemic.

Our sales representatives will promote both EYSUVIS and INVELTYS.

We expect to commercialize in the United States any of our product candidates that receive marketing approval as well.

We also expect to explore commercialization of EYSUVIS for the treatment of dry eye disease in certain markets outside the United States, including the European Union, or EU, utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

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On March 10, 2020 , we notified Jefferies that we were suspending and terminating the prospectus related to the 2018 Sales Agreement.

Through June 30, 2020, we have issued an aggregate of 30,549,976 shares of common stock under our 2018 Shelf Registration, including the ATM Offering , resulting in aggregate gross proceeds to us of $231.7 million.

On May 7, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020, or 2020 Shelf Registration.

Through September 30, 2020, we have issued an aggregate of 30,549,976 shares of common stock under our 2018 Shelf Registration, including the ATM Offering , resulting in aggregate gross proceeds to us of $231.7 million.

On May 7, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020, or the 2020 Shelf Registration.

Under the 2020 Shelf Registration, we 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 the commenced upon the 2020 Shelf Registration becoming effective.

In connection with the filing of the 2020 Shelf Registration, we entered into an amended and restated sales agreement with Jefferies pursuant to which we may issue and sell, from time to time, up to an aggregate of $75.0 million of our common stock under our ATM Offering through Jefferies, as a sales agent.

Through June 30, 2020, we have no issued any shares of common stock under our 2020 Shelf Registration.

Through September 30, 2020, we have not issued any shares of common stock under our 2020 Shelf Registration.

We also have an aggregate amount of $75.0 million of indebtedness outstanding under our credit facility, or the Athyrium Credit Facility, with Athyrium Opportunities III Acquisition LP, or Athyrium.

Since inception, we have incurred significant losses from operations and negative cash flows from operations.

Our net losses were $45.3 million for the six months ended June 30, 2020 and $94.3 million for the year ended December 31, 2019.

As of June 30, 2020, we had an accumulated deficit of $340.7 million.

As we commercially launched our first product, INVELTYS, in January 2019, we have had only limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, public common stock offerings and sales of our common stock under our ATM Offering, private placements of preferred stock, convertible debt financings, borrowings under credit facilities and warrants.

We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials and engaging in activities to launch and commercialize INVELTYS.

Although we expect to continue to generate revenue from sales of INVELTYS, there can be no assurance as to the amount or timing of any such revenue, and we expect to continue to incur significant expenses and operating losses.

Our net losses were $73.2 million for the nine months ended September 30, 2020 and $94.3 million for the year ended December 31, 2019.

As of September 30, 2020, we had an accumulated deficit of $368.7 million.

As we commercially launched our first product, INVELTYS, in January 2019, and are planning full promotional launch of our second product, EYSUVIS, to begin in January of 2021, we have had only limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, public common stock offerings and sales of our common stock under our ATM Offering, private placements of preferred stock, convertible debt financings, borrowings under credit facilities and warrants.

Although we expect to continue to generate revenue from sales of INVELTYS and to begin to generate revenue from EYSUVIS following its commercial launch, there can be no assurance as to the amount or timing of any such revenue, and we expect to continue to incur significant expenses and operating losses.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

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In addition, we previously suspended our sales force from substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually.

If we suspend all or some in-person interactions with physicians and customers in the future, we will again be limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS and could adversely affect our ability to launch and market EYSUVIS, if and when approved.

The effects of COVID-19 may also disrupt the launch and commercialization of EYSUVIS.

In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which has significantly reduced, and may in the future continue to significantly reduce, the demand for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery.

The extent of the impact of COVID-19 on our commercialization efforts and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic, impact on our customers, employees, vendors, and government agencies, all of which are uncertain and cannot be predicted.

While we believe FDA review of our resubmitted NDA for EYSUVIS remains on track to be finalized by the PDUFA goal date of October 30, 2020, it is unknown whether the demands and operational restrictions placed on the FDA by COVID-19 will delay this review.

The effects of COVID-19 may also disrupt the commercialization of EYSUVIS, if approved.

The extent of the impact of COVID-19 on our commercialization efforts and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic and the impact on our customers, employees, vendors, and government agencies, all of which are uncertain and cannot be predicted.

Management is actively monitoring the COVID-19 pandemic and its possible effects on our financial condition, liquidity, operations, customers, sales force, contractors, and workforce.

For additional information on risks posed by the COVID-19 pandemic, please see Part II, Item 1A – “Risk Factors” of this Quarterly Report, including the risk factor

entitled “The ongoing novel coronavirus pandemic and the efforts to prevent its spread have adversely impacted our operations and the market for INVELTYS and may continue to adversely affect our business, results of operations and financial condition.”

For additional information on risks posed by the COVID-19 pandemic, please see Part II, Item 1A – “Risk Factors” of this Quarterly Report, including the risk factor entitled “The ongoing novel coronavirus pandemic and the efforts to prevent its spread have adversely impacted our operations and the market for INVELTYS, could impact the launch of EYSUVIS and may continue to adversely affect our business, results of operations and financial condition.”

Financial Operations Overview

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If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

Beginning in March 2020 and continuing through most of the second quarter of 2020, prescriptions of INVELTYS and revenue have been adversely affected by the ongoing COVID-19 pandemic as federal, state and local governments implemented restrictions on elective procedures, which include most ocular surgeries during the second quarter.

Beginning in March 2020 and continuing through most of the second quarter of 2020, prescriptions of INVELTYS and revenue had been adversely affected by the ongoing COVID-19 pandemic as federal, state and local governments implemented restrictions on elective procedures, which include most ocular surgeries during the second quarter.

While many deferred ocular surgeries have been rescheduled as individual states have released restrictions on elective procedures, and INVELTYS prescriptions have returned to growth, we are unable to project the specific timing or potential impact on future revenues given the continued uncertainty around the impact and duration of the restrictions related to COVID-19 .

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Cost of product revenues consists primarily of materials, third-party manufacturing costs, freight and distribution costs, royalty expense, allocation of labor, quality control and assurance, reserves for defective inventory, reserves for excess and obsolete inventory, and other manufacturing overhead costs.

We expensed cost of product revenues related to INVELTYS as research and development expenses prior to regulatory approval which we received on August 22, 2018.

We expensed cost of product

revenues related to INVELTYS as research and development expenses prior to regulatory approval which we received on August 22, 2018.

With respect to the ongoing COVID-19 pandemic, we expect that the cost of product revenues will be impacted consistent with the negative impact to product revenues, net.

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Selling, general and administrative expenses also includes external costs related to marketing, samples and professional fees for auditing, tax, information technology, consultants, legal services and allocated facility-related costs not otherwise included in research and development expenses.

We anticipate that our selling, general and administrative expenses will increase in the future as we continue to build our commercial infrastructure to support the commercialization of INVELTYS or of any product candidates for which we obtain marketing approval, and if and as we increase our administrative headcount to support our continued research activities and development of our product candidates or additional product candidates, including EYSUVIS.

In addition, we anticipate increased expenses related to supporting a larger organization and increase in selling expense related to EYSUVIS, if approved.

With respect to the ongoing COVID-19 pandemic, selling, general and administrative expenses were favorably impacted during the three and six months ended June 30, 2020 by a reduction in certain expenses associated with the restriction in the activities of our sales force, which had previously suspended substantially all in-person interactions with physicians and customers.

We anticipate that our selling, general and administrative expenses will increase in the future as we continue to build our commercial infrastructure to support the commercialization of EYSUVIS, which was approved by the FDA on October 26, 2020, INVELTYS or of any product candidates for which we obtain marketing approval, and if and as we increase our administrative headcount to support our continued research activities and development of our product candidates.

With respect to the ongoing COVID-19 pandemic, certain selling, general and administrative expenses were favorably impacted during the three and nine months ended September 30, 2020 by the restriction in the activities of our sales force, which had previously suspended substantially all in-person interactions with physicians and customers.

Our sales force has resumed in-person interactions in the field.

If we are forced to suspend all or some in-person sales force interactions again in the future as a result of the COVID-19

pandemic, selling, general and administrative expenses could be favorably impacted by a reduction in certain expenses associated with the restriction in activities for our sales force.

If we are forced to suspend all or some in-person sales force interactions again in the future as a result of the COVID-19 pandemic, selling, general and administrative expenses could again be favorably impacted by a reduction in certain expenses associated with the restriction in activities for our sales force.

We are unable to predict the specific amount of this impact if we are forced to resume such restrictions.

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● employee-related expenses, including salaries, related benefits, travel and stock-based compensation;

● expenses incurred for the preclinical and clinical development of our product candidates and under agreements with contract research organizations, or CROs, including costs of manufacturing product candidates prior to the determination that FDA approval of a drug candidate is probable and before the future economic benefit from the sale of the drug is expected to be realized;

● facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and supplies;

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We expense research and development costs as they are incurred.

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

Prior to regulatory approval, we expense costs relating to the production of inventory for our product candidates, as research and development expenses within our condensed consolidated statements of operations and comprehensive loss in the period incurred, unless we believe regulatory approval and subsequent commercialization of the product candidate is probable and we expect the future economic benefit from sales of the drug to be realized.

Research and development costs that are paid in advance of

performance are capitalized as a prepaid expense until incurred.

We track outsourced development costs by development program but do not allocate personnel costs, payments made under our license agreements or other costs to specific product candidates or development programs.

These costs are included in Employee-related costs and Other research and development costs in the line items in the tables under “Results of Operations”.

We expect that our research and development costs in 2020 will remain consistent as compared to the year ended December 31, 2019 as a result of the completion of STRIDE 3, which will largely be offset by costs to manufacture EYSUVIS included in research and development.

We expect that such costs will increase if and as we continue to advance our product candidates and conduct additional late-stage clinical trials.

We expect that our total research and development costs in 2020 will decrease as compared to the year ended December 31, 2019 as a result of the completion of our Phase 3 clinical trial of EYSUVIS, which we refer to as STRIDE 3 (STRIDE- S hort T erm R elief I n D ry E ye), and as a result of the capitalization of EYSUVIS manufacturing costs to inventory beginning in the third quarter of 2020.

We expect that research and development costs will increase if and as we continue to advance our product candidates and conduct preclinical studies and clinical trials.

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

We may never succeed in obtaining marketing approval for any of our product candidates, including EYSUVIS.

We may never succeed in obtaining marketing approval for any of our product candidates.

The probability of success for each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

With respect to the ongoing COVID-19 pandemic, we may incur reduced research and development costs resulting from any continuing limitations placed on our laboratory facilities that support our early-stage research.

With respect to the ongoing COVID-19 pandemic, we may incur reduced research and development costs resulting from any limitations that may be placed on our laboratory facilities that support our early-stage research.

However, we are unable to predict the specific amount of this impact, nor are we able to predict the additional costs, if any, associated with personnel safely resuming their full activities.

Our research and development programs are at various stages of development.

Successful development and completion of clinical trials is uncertain and may not result in approved products.

Our research and development programs are at the early stage of development.

Successful development and completion of preclinical studies and clinical trials is uncertain and may not result in approved products.

Completion dates and completion costs can vary significantly for each product candidate and future product candidate and are difficult to predict.

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Results of Operations

Comparison of the Three Months Ended June 30, 2020 and 2019

The following table summarizes the results of our operations for the three months ended June 30, 2020 and 2019:

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes the results of our operations for the three months ended September 30, 2020 and 2019:

Three Months Ended

September 30,

(in thousands)

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Product revenues, net

Product revenues, net was $0.8 million for the three months ended June 30, 2020 compared to $2.1 million for the three months ended June 30, 2019.

The decrease in net revenue of $1.3 million was driven primarily by a decrease in total units sold in the three months ended June 30, 2020 as compared to those sold during the three months ended June 30, 2019, which we attribute to the reductions in elective surgeries as a result of the restrictions related to COVID-19.

INVELTYS is our first product to receive regulatory approval, which we launched in the United States in January 2019.

Product revenues, net was $2.2 million for the three months ended September 30, 2020 compared to $1.5 million for the three months ended September 30, 2019.

The increase in product revenues, net of $0.7 million was driven primarily by an increase in total units of INVELTYS sold in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Also contributing to this increase was a $0.6 million reduction in revenue included in product revenues, net for the three months ended September 30, 2019 relating to the first two quarters of 2019 as a result of an adjustment to the estimated number of prescriptions reported by our third-party data provider, which resulted in a change in the estimated payor mix for INVELTYS.

INVELTYS was our first product to receive regulatory approval, which we launched in the United States in January 2019.

We expect product revenues to increase if and as we increase our market share, and obtain and maintain coverage and adequate reimbursement for INVELTYS from third-party payors;

however, we expect full-year product revenues to be negatively impacted for 2020 as a result of the COVID-19 pandemic.

however, we expect full-year product revenues to be negatively impacted for 2020 and revenues could continue to be negatively impacted into 2021 as a result of the COVID-19 pandemic.

In addition, we expect to begin shipping EYSUVIS to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021, which we expect to result in an increase in product revenues.

Cost of product revenues

Cost of product revenues was $0.8 million for the three months ended June 30, 2020 compared to $0.4 million for the three months ended June 30, 2019, an increase of $0.4 million.

The primary driver of this increase was a reserve for excess inventory of $0.5 million, recorded during the three months ended June 30, 2020.

Also contributing to the increase was a $0.1 million write-off of INVELTYS inventory as a result of certain inventory units that did not pass quality inspection.

The increase was primarily offset by a $0.2 million decrease in cost of product revenues as a result of a decrease in units sold compared to the three months ended June 30, 2019.

Cost of product revenues was $0.7 million for the three months ended September 30, 2020 consistent with the three months ended September 30, 2019.

The three months ended September 30, 2019 included an additional $0.1 million in write offs of damaged inventory compared to the same period in 2020.

Offsetting this amount are higher overall cost of product revenues due to an increase in the total units of INVELTYS sold in the three months ended September 30, 2020 compared to the same period in 2019.

We expect cost of product revenues to increase as we continue to commercialize INVELTYS and as a result of the planned launch of EYSUVIS, which we expect to begin shipping to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021.

Selling, general and administrative expenses

Selling, general and administrative expenses were $15.3 million for the three months ended June 30, 2020 compared to $17.0 million for the three months ended June 30, 2019, which was a decrease of $1.7 million.

The decrease was driven by lower employee-related expenses of $1.9 million for the three months ended June 30, 2020 as a result of lower overall headcount, reduced travel due to COVID-19 and reduced variable compensation associated with lower unit sales of INVELTYS due to COVID-19.

Also contributing to the decrease in costs was a reduction in external sales and marketing costs of $0.7 million due primarily to COVID-19 as well as launch-related costs for INVELTYS incurred during the three months ended June 30, 2019 that were not incurred during the same period in 2020.

The decreases were partially offset by an increase in costs for insurance and professional services of $0.6 million and an increase in stock compensation of $0.3 million.

We anticipate that our selling, general and administrative expenses will increase in the future as we plan for the launch of EYSUVIS, if approved, and if and as we increase our administrative headcount to support our continued research activities and seek marketing approval for our product candidates.

Selling, general and administrative expenses were $23.9 million for the three months ended September 30, 2020 compared to $15.3 million for the three months ended September 30, 2019, which was an increase of $8.6 million.

The increase was driven by a $5.3 million increase in external sales and marketing costs related to preparation for the launch

of EYSUVIS, a $1.5 million increase in stock-based compensation expense, of which $1.4 million was a result of the issuance of restricted stock units, or RSUs, and performance-based restricted stock units, or PSUs, in June 2020, a $1.0 million increase in costs for administrative and professional service fees and a $0.8 million increase in other selling, general and administrative costs, which include facility related costs and certain medical affairs costs.

We anticipate that our selling, general and administrative expenses will increase in the future as we begin to commercialize EYSUVIS and if and as we increase our administrative headcount to support our continued research activities and seek marketing approval for our product candidates.

Research and development expenses

The following table summarizes the research and development expenses incurred during the three months ended June 30, 2020 and 2019:

The following table summarizes the research and development expenses incurred during the three months ended September 30, 2020 and 2019:

Three Months Ended

September 30,

(in thousands)

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Total research and development

Research and development expenses were $6.1 million for the three months ended June 30, 2020 compared to $7.1 million for the three months ended June 30, 2019, a $1.0 million decrease.

The decrease was primarily the result of a $1.9 million decrease in external spend on Stride 3, our clinical trial for EYSUVIS for which we announced topline data in March 2020.

Offsetting the decrease was a $0.7 million increase in EYSUVIS related manufacturing activities, a $0.1 million increase in employee-related costs as a result of manufacturing employees allocating more time to research and development for EYSUVIS related activities, and a $0.1 million increase in other research and development costs, which include facility related costs, pre-clinical studies, certain medical affairs and associated regulatory costs.

Research and development expenses were $3.5 million for the three months ended September 30, 2020 compared to $7.1 million for the three months ended September 30, 2019, a $3.6 million decrease.

The decrease was primarily the result of a $2.1 million decrease in EYSUVIS development costs, $1.8 million of which related to a decrease in external spend on STRIDE 3, our Phase 3 clinical trial of EYSUVIS, a $1.2 million decrease in employee-related costs largely due to the capitalization of manufacturing employees’ time dedicated to EYSUVIS production to inventory in the third quarter of 2020 and a $0.3 million decrease in o ther research and development costs, which include other facility related costs, preclinical studies, certain medical affairs and associated regulatory costs.

We expect research and development costs to increase if and as we conduct any necessary preclinical studies and clinical trials and other development activities for our product candidates.

Interest income

Interest income decreased by $0.5 million to $0.1 million for the three months ended June 30, 2020 compared to $0.6 million for the three months ended June 30, 2019.

Interest income decreased by $0.5 million to $0.1 million for the three months ended September 30, 2020 compared to $0.6 million for the three months ended September 30, 2019.

Interest income consists of interest earned on our cash balance held in an interest-bearing deposit account.

The decrease was attributable to a lower interest rate during the three months ended June 30, 2020.

The decrease was attributable to a lower interest rate during the three months ended September 30, 2020 as well as having less cash in interest bearing deposit accounts during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 as a result of purchases of cash equivalents and short-term investments in 2020.

Interest expense

We incurred interest expense of $2.1 million for the three months ended June 30, 2020, which remained consistent with interest expense of $2.1 million for the three months ended June 30, 2019.

Interest expense is comprised of the contractual coupon interest expense and the amortization of the debt discount associated with our Athyrium Credit Facility during the three months ended June 30, 2020 and 2019.

During the three months ended June 30, 2019, $75.0 million under the Athyrium Credit Facility was outstanding, and remained outstanding during the three months ended June 30, 2020.

Comparison of the Six Months Ended June 30, 2020 and 2019

The following table summarizes the results of our operations for the six months ended June 30, 2020 and 2019:

Six Months Ended

We incurred interest expense of $2.2 million for the three months ended September 30, 2020, which remained consistent with interest expense of $2.2 million for the three months ended September 30, 2019.

Interest expense was comprised of the contractual coupon interest expense and the amortization of the debt discount associated with our Athyrium Credit Facility during the three months ended September 30, 2020 and 2019.

During the three months ended September 30, 2019, $75.0 million of indebtedness was outstanding under the Athyrium Credit Facility and remained outstanding during the three months ended September 30, 2020.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes the results of our operations for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

(in thousands)

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Product revenues, net

Product revenues, net was $1.9 million for the six months ended June 30, 2020 compared to $3.4 million for the six months ended June 30, 2019.

The decrease in product revenues, net of $1.5 million was driven by a decrease in the total units sold in the six months ended June 30, 2020 as compared to those sold during the six months ended June, 30 2019, which we attribute to the reductions in elective surgeries as a result of the restrictions related to COVID-19.

INVELTYS is our first product to receive regulatory approval, which we launched in the United States in January 2019.

Product revenues, net was $4.1 million for the nine months ended September 30, 2020 compared to $4.9 million for the nine months ended September 30, 2019.

The decrease in product revenues, net of $0.8 million was driven by a decrease in the total units of INVELTYS sold in the nine months ended September 30, 2020 as compared to those sold during the nine months ended September, 30 2019, which we attribute to the reductions in elective surgeries as a result of the restrictions related to COVID-19.

INVELTYS was our first product to receive regulatory approval, which we launched in the United States in January 2019.

We expect product revenues to increase if and as we increase our market share, and obtain and maintain coverage and adequate reimbursement for INVELTYS from third-party payors;

however, we expect full-year product revenues to be negatively impacted for 2020 and revenues could continue to be negatively impacted into 2021 as a result of the COVID-19 pandemic.

In addition, we expect to begin shipping EYSUVIS to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021, which we expect to result in an increase in product revenues.

Cost of product revenues

Cost of product revenues was $1.1 million for the six months ended June 30, 2020, a $0.5 million increase compared to $0.6 million for the six months ended June 30, 2019.

The primary driver of this increase was a reserve for excess inventory of $0.5 million, recorded during the six months ended June 30, 2020.

Also contributing to the increase was a $0.1 million write-off of INVELTYS inventory as a result of certain inventory units that did not pass quality

The increase was primarily offset by a $0.1 million decrease in cost of product revenues as a result of a decrease in units sold compared to the six months ended June 30, 2019.

Cost of product revenues was $1.8 million for the nine months ended September 30, 2020, a $0.5 million increase compared to $1.3 million for the nine months ended September 30, 2019.

The primary driver of this increase was a reserve for excess inventory of $0.5 million during the nine months ended September 30, 2020.

Also contributing to the increase in cost of product revenues was an increase in the product cost per unit as a result of a portion of units sold during the nine months ended September 30, 2019 partially manufactured prior to FDA approval and previously expensed as research and development expenses, partially offset by a decrease in total units sold compared to the nine months ended September 30, 2019 for a net increase of $0.1 million.

We expect cost of product revenues to increase as we continue to commercialize INVELTYS and as a result of the planned launch of EYSUVIS, which we expect to begin shipping to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021.

Selling, general and administrative expenses

Selling, general and administrative expenses were $30.7 million for the six months ended June 30, 2020 compared to $35.2 million for the six months ended June 30, 2019, which was a decrease of $4.5 million.

The decrease was driven by lower employee-related expenses of $2.6 million for the six months ended June 30, 2020 primarily attributable to lower overall headcount, reduced travel due to COVID-19 and reduced variable compensation associated with lower unit sales of INVELTYS due to COVID-19.

Also contributing to the decrease in selling, general and administrative expenses was a reduction in external sales and marketing costs of $2.6 million due to COVID-19 as well as launch-related expenses incurred during the six months ended June 30, 2019 but were not incurred during the six months ended June 30, 2020.

Facilities costs allocated to selling, general and administrative were lower by $0.3 million during the six months ended June 30, 2020, which was offset by an increase in costs for insurance and professional service fees of $1.0 million.

Selling, general and administrative expenses were $54.6 million for the nine months ended September 30, 2020 compared to $50.5 million for the nine months ended September 30, 2019, an increase of $4.1 million.

Selling, general and administrative expenses for the nine months ended September 30, 2020 include a $2.7 million increase in external sales and marketing costs related to preparation for the launch of EYSUVIS.

External sales and marketing costs incurred during the nine-months ended September 30, 2019 primarily related to the commercial launch of INVELTYS.

contributing to the increase in selling, general and administrative expenses for the nine months ended September 30, 2020 was a $2.0 million increase in costs for administrative and professional service fees, a $1.6 million increase in stock-based compensation costs, of which $1.4 million was a result of the issuance of RSUs and PSUs in June 2020, and a $0.4 million increase in other selling, general and administrative costs, which includes facility related costs and certain medical affairs.

These costs were offset by lower employee-related expenses of $2.6 million for the nine months ended September 30, 2020 primarily attributable to reduced travel due to COVID-19, lower overall headcount throughout the period and reduced variable compensation associated with lower unit sales of INVELTYS due to COVID-19, partially offset by increased recruiting costs related to hiring efforts as we prepare for the launch of EYSUVIS.

We anticipate that our selling, general and administrative expenses will increase in the future as we prepare for the launch of EYSUVIS and if and as we increase our administrative headcount to support our continued research activities and seek marketing approval for our product candidates.

Research and development expenses

The following table summarizes the research and development expenses incurred during the six months ended June 30, 2020 and 2019:

Six Months Ended

The following table summarizes the research and development expenses incurred during the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

(in thousands)

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Total research and development

Research and development expenses were $11.5 million for the six months ended June 30, 2020 compared to $14.1 million for the six months ended June 30, 2019, a $2.6 million decrease.

The decrease was primarily the result of a $3.3 million decrease in external spend on the Stride 3, our clinical trial for EYSUVIS for which we announced topline data in March 2020.

Offsetting the decrease was a $0.4 million increase in EYSUVIS related manufacturing activities and a $0.4 million increase in employee-related costs as a result of manufacturing employees allocating more time to research and development for EYSUVIS related activities.

Also contributing to the overall decrease was a $0.1 million reduction in other research and development costs.

Research and development expenses were $15.0 million for the nine months ended September 30, 2020 compared to $21.1 million for the nine months ended September 30, 2019, a $6.1 million decrease.

The decrease was primarily the result of a $5.0 million decrease in EYSUVIS development costs related to a decrease in external spend on STRIDE 3, our Phase 3 clinical trial of EYSUVIS, a $0.7 million decrease in employee-related costs largely due to reduced travel due to COVID-19 and the capitalization of manufacturing employees’ time dedicated to EYSUVIS production to inventory in the third quarter of 2020 and a $0.4 million decrease in other research and development costs, which include other facility related costs, preclinical studies, certain medical affairs and associated regulatory costs.

We expect research and development costs to increase if and as we conduct any necessary preclinical studies and clinical trials and other development activities for our product candidates.

Interest income

Interest income decreased by $1.0 million to $0.4 million for the six months ended June 30, 2020 compared to $1.4 million for the six months ended June 30, 2019.

Interest income decreased by $1.5 million to $0.5 million for the nine months ended September 30, 2020 compared to $2.0 million for the nine months ended September 30, 2019.

Interest income consists of interest earned on our cash balance held in an interest-bearing deposit account.

The decrease was attributable to a lower interest rate during the six months ended June 30, 2020.

The decrease was attributable to a lower interest rate during the nine months ended September 30, 2020 as well as having less cash in interest bearing deposit accounts during the third quarter of 2020 compared to the third quarter of 2019 as a result of purchases of short-term investments in 2020.

Interest expense

We incurred interest expense of $4.3 million for the six months ended June 30, 2020, compared to $4.2 million for the six months ended June 30, 2019.

Interest expense is comprised of the contractual coupon interest expense and the amortization of the debt discount associated with our Athyrium Credit Facility during the three months ended June 30,

2020 and 2019.

During the six months ended June 30, 2019, $75.0 million under the Athyrium Credit Facility was outstanding, and remained outstanding during the six months ended June 30, 2020.

We incurred interest expense of $6.4 million for the nine months ended September 30, 2020, compared to $6.3 million for the nine months ended September 30, 2019.

Interest expense was comprised of the contractual coupon interest expense and the amortization of the debt discount associated with our Athyrium Credit Facility during the nine months ended September 30, 2020 and 2019.

During the nine months ended September 30, 2019, $75.0 million of indebtedness was outstanding under the Athyrium Credit Facility and remained outstanding during the nine months ended September 30, 2020.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

As we commercially launched our first product, INVELTYS, in January 2019, we have had limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, public common stock offerings and sales of our common stock under our ATM Offering, private placements of preferred stock, convertible debt financings, borrowings under credit facilities, and warrants.

As we commercially launched our first product, INVELTYS, in January 2019, we have had limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, public common stock offerings and sales of our common stock under our ATM Offering, private placements of preferred stock, borrowings under credit facilities, convertible promissory notes and warrants.

In July 2017, we completed an IPO pursuant to which we issued and sold 6,900,000 shares of our common stock, which included 900,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price of $15.00 per share.

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We initially designated $50.0 million of our 2018 Shelf Registration to be offered under our ATM Offering.

There was $18.3 million of securities available to be issued under the 2018 Shelf Registration as of June 30, 2020.

There was $18.3 million of securities available to be issued under the 2018 Shelf Registration as of September 30, 2020.

On October 1, 2018, we entered into the Athyrium Credit Facility with Athyrium for up to $110.0 million.

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In connection with the filing of the 2018 Shelf Registration, we entered into a sales agreement with Jefferies, pursuant to which we could issue and sell, from time to time, up to an aggregate of $50.0 million of our common stock in an ATM Offering, through Jefferies, as sales agent.

As of December 31, 2019, we had issued an aggregate of

2,592,934 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $13.1 million.

During the first quarter of 2020, we issued an aggregate of 2,352,671 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $12.5 million.

As of December 31, 2019, we had issued an aggregate of 2,592,934 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $13.1 million.

During the first quarter of 2020, we issued an aggregate of 2,352,671 shares of our common stock under the ATM Offering,

resulting in net proceeds to us of $12.5 million.

On March 10, 2020 , we suspended and terminated the prospectus related to the ATM Offering .

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In connection with the filing of the 2020 Shelf Registration, we entered into an amended and restated sales agreement with Jefferies, pursuant to which we may issue and sell, from time to time, up to an aggregate of $75.0 million of our common stock under our ATM Offering.

As of June 30, 2020, we had $128.0 million in cash on hand and $75.0 million in indebtedness.

The following table summarizes our sources and uses of cash for the six months ended June 30, 2020 and 2019:

Six Months Ended

As of September 30, 2020, we had $159.1 million in cash, cash equivalents and short-term investments and $75.0 million in indebtedness.

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

(in thousands)

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Net cash provided by financing activities

Increase / (decrease) in cash and restricted cash

Decrease in cash and restricted cash

Net Cash Used in Operating Activities

During the six months ended June 30, 2019, our cash used in operating activities was primarily due to our net loss of $49.2 million primarily consisting of $35.2 million of selling, general and administrative costs and $14.0 million of research and development costs, partially offset by non-cash charges of $6.8 million, consisting primarily of $5.1 million in stock-based compensation.

Net cash used by changes in our operating assets and liabilities primarily consisted of a $5.6 million increase in accounts receivable driven by sales of INVELTYS and a $4.0 million increase in inventory due to increase in manufacturing activity for INVELTYS, which were offset by a $0.4 million decrease in other prepaid and accounts payable balances.

During the six months ended June 30, 2020, our cash used in operating activities was primarily due to our net loss of $45.3 million primarily consisting of $30.7 million of selling, general and administrative costs and $11.5 million of research and development costs, partially offset by non-cash charges of $7.2 million, consisting primarily of $5.3 million in stock-based compensation.

Net cash used by changes in our operating assets and liabilities primarily consisted of a $7.3 million decrease in accounts receivable driven by a decrease in sales of INVELTYS when compared to the six months ended June 30, 2019, offset by a $7.8 million decrease in accounts payable and accrued expenses, mainly driven by a decrease in accrued revenue reserves, and accrued compensation, as a result of bonus payments during the six months ended June 30, 2020.

Net cash used in operating activities for the nine months ended September 30, 2020 was $64.8 million compared to $74.5 million for the nine months ended September 30, 2019, a decrease of $9.7 million, primarily due to the timing of working capital fluctuations which accounted for $8.7 million of the decrease and a $1.0 million increase in the net loss adjusted for non-cash charges.

Notable working capital fluctuations include a decrease to accounts receivable in the nine months ended September 30, 2020 by $4.1 million driven by a decrease in sales of INVELTYS as a result of COVID-19, whereas accounts receivable had increased by $7.2 million in the nine months ended September 30, 2019 driven by the launch of INVELTYS.

Inventory increased by a greater amount during the nine months ended September 30, 2019 due to an increase in manufacturing activity for INVELTYS.

Offsetting these increases was a decrease in accrued expenses and other current liabilities during the nine months ended September 30, 2020 by $4.9 million mainly driven by a decrease in accrued revenue reserves and a decrease in external spend on STRIDE 3, our clinical trial for EYSUVIS, as compared to an increase in accrued expenses and other current liabilities in the nine months ended September 30, 2019 of $3.5 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $0.9 million for the six months ended June 30, 2019, consisting primarily of purchases of furniture and fixtures.

Net cash used in investing activities was $57.4 million for the six months ended June 30, 2020, consisting primarily of $56.5 million of purchases of short-term investments and $0.9 million of purchases of laboratory and manufacturing equipment.

Net cash used in investing activities for the nine months ended September 30, 2020 was $115.0 million compared to $1.1 million for the same period in 2019, an increase of $113.9 million, largely due to purchases of short-term investments in 2020 of $113.6 million.

Additionally, we used an additional $0.3 million in cash for capital expenditures in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $19,000 for the six months ended June 30, 2019, consisting of $39,000 of proceeds from the exercise of stock options, offset by $20,000 of principal payments on our finance lease obligation.

Net cash provided by financing activities was $139.2 million for the six months ended June 30, 2020, consisting of $125.4 million of net proceeds from the sale of shares of our common stock in an underwritten offering under the 2018 Shelf Registration, $12.6 million of net proceeds from the sale of shares of our common stock under the ATM Offering, and $1.2 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $139.9 million, an increase of $137.2 million compared to $2.7 million in the nine months ended September 30, 2019, due to $125.4 million of net proceeds from the sale of shares of our common stock in an underwritten offering under the 2018 Shelf

Registration, $12.5 million of net proceeds from the sale of shares of our common stock under the ATM Offering, and $2.0 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan in 2020.

Net cash provided by financing activities for the nine-months ended September 30, 2019 consisted of $2.1 million of net proceeds from the sale of shares of our common stock under the ATM Offering and $0.6 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

Funding Requirements

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and engage in activities to prepare for commercialization of our lead product candidate, EYSUVIS, for the short-term treatment of the signs and symptoms of dry eye disease, as a result of increased headcount, including our plan to increase, pending the status of the COVID-19 pandemic, our sales force from 56 sales representatives to a total of approximately 100 to 125 sales representatives if EYSUVIS is approved by the FDA, as well as management personnel to support our clinical, manufacturing and commercialization activities, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and engage in activities to prepare for the launch and commercialization of our lead product, EYSUVIS, which was approved by the FDA on October 26, 2020, as a result of increased headcount, including management personnel to support our clinical, manufacturing and commercialization activities, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

The anticipated increase in expenses from an increase in headcount includes our plan to increase, pending the status of the COVID-19 pandemic, our sales force from 56 sales representatives to approximately 90 sales representatives and from seven regional sales leaders to 14 regional sales leaders during the fourth quarter of 2020 and then to approximately 125 sales representatives in 2021.

Our expenses will also increase if and as we:

● continue to grow our sales, marketing and distribution capabilities in connection with the commercialization of INVELTYS and any product candidates, including EYSUVIS, for which our NDA is under review by the FDA with a goal date under PDUFA set for October 30, 2020 for the completion of its review of our NDA;

● conduct any necessary clinical trials and other development activities and/or seek marketing approvals for EYSUVIS and any other product candidates;

● continue to grow our sales, marketing and distribution capabilities in connection with the commercialization of EYSUVIS, INVELTYS and any product candidates;

● conduct any necessary clinical trials and other development activities and/or seek marketing approvals for any product candidates;

● in-license or acquire the rights to other products, product candidates or technologies;

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● seek regulatory approval for EYSUVIS, INVELTYS or any other product candidate outside of the United States;

● continue to scale up our manufacturing processes and capabilities to support commercialization of INVELTYS, and any of our product candidates, including EYSUVIS, for which we seek and/or obtain marketing approval ;

● continue to scale up our manufacturing processes and capabilities to support commercialization of EYSUVIS, INVELTYS, and any of our product candidates for which we seek and/or obtain marketing approval ;

● leverage our proprietary AMPPLIFY technology to advance additional potential high-value therapeutics into preclinical and clinical development ;

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● expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company ;

● increase our product liability insurance coverage as we expand our commercialization efforts, including increased coverage for EYSUVIS, if approved.

● increase our product liability insurance coverage as we expand our commercialization efforts for EYSUVIS and INVELTYS.

We expect to continue to incur significant expenses and operating losses.

Net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

We expect that our existing cash, cash equivalents, and short-term investments as of June 30, 2020, will enable us to fund our operations, lease and debt service obligations, and capital expenditure requirements into at least the second quarter of 2022.

We anticipate that our existing cash, cash equivalents, and short-term investments as of September 30, 2020, along with anticipated revenue from INVELTYS, will enable us to fund our operations, lease and debt service obligations, and capital expenditure requirements into at least the third quarter of 2022.

We expect revenue anticipated to be generated from sales of EYSUVIS to provide additional cash runway.

We have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us.

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Our ability to become and remain profitable depends on our ability to generate revenue.

While we began to generate revenue from the sales of INVELTYS in January 2019, there can be no assurance as to the amount or timing of any such revenue, and we may not achieve profitability.

While we began to generate revenue from the sales of INVELTYS in January 2019 and expect to begin shipping EYSUVIS to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021, there can be no assurance as to the amount or timing of any such revenue from INVELTYS and EYSUVIS, and we may not achieve profitability.

Achieving and maintaining profitability will require us to be successful in a range of challenging activities, including:

● successfully growing INVELTYS revenues ;

● obtaining marketing approval of EYSUVIS or any other product candidates;

● achieving an adequate level of market acceptance and obtaining and maintaining coverage and adequate reimbursement from third-party payors for INVELTYS and EYSUVIS, if approved, and any other products we commercialize ;

● manufacturing at commercial scale, marketing, selling and distributing INVELTYS or any product candidates for which we obtain marketing approval, including EYSUVIS;

● maintaining regulatory and marketing approvals for INVELTYS and for any other product candidates for which we obtain approval, including EYSUVIS;

● hiring and building a full commercial organization required for marketing, selling and distributing those products for which we obtain marketing approval, including EYSUVIS;

● successfully launching EYSUVIS;

● obtaining marketing approval for any product candidates;

● achieving an adequate level of market acceptance and obtaining and maintaining coverage and adequate reimbursement from third-party payors for EYSUVIS, INVELTYS and any other products we commercialize ;

● manufacturing at commercial scale, marketing, selling and distributing EYSUVIS and INVELTYS or any product candidates for which we obtain marketing approval;

● maintaining regulatory and marketing approvals for EYSUVIS and INVELTYS and for any product candidates for which we obtain marketing approval;

● hiring and building a full commercial organization required for marketing, selling and distributing those products for which we obtain marketing approval;

● obtaining, maintaining and protecting our intellectual property rights;

● adapting our business in response to the current pandemic health event resulting from COVID-19 and its collateral consequences .

INVELTYS is our only product that has been approved for sale and it has only been approved in the United States.

Our ability to generate revenue from operations will depend, in part, on the success of commercial sales of INVELTYS, which we commercially launched in the United States in January 2019.

However, the successful commercialization of INVELTYS in the United States is subject to many risks.

We are currently undertaking our first commercial launch with INVELTYS, and we may not be able to do so successfully.

EYSUVIS and INVELTYS are our only products that have been approved for sale, and they have only been approved in the United States.

Our ability to generate revenue from operations will depend, in part, on the success of commercial sales of INVELTYS, which we commercially launched in the United States in January 2019, and the success of commercial sales of EYSUVIS, which we expect to begin shipping to wholesalers in the U.S.

by the end of 2020 and for the full promotional launch to begin in January of 2021.

However, the successful commercialization of EYSUVIS and INVELTYS in the United States is subject to many risks.

As a company, we have limited experience commercializing products, and we may not be able to do so successfully.

There are numerous examples of unsuccessful product launches and failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us.

We do not anticipate our revenue from sales of INVELTYS alone will be sufficient for us to become profitable for several years, if at all.

We do not anticipate our revenue from sales of EYSUVIS and INVELTYS alone will be sufficient for us to become profitable in the near future, if at all.

In addition, our recent commercialization efforts have been hampered by the operational restrictions on our sales force from quarantines, travel restrictions and bans and other governmental restrictions related to COVID-19.

As a result of these restrictions, we previously suspended our sales force from substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually, and we may be forced to suspend all or some in-person interactions again in the future.

To the extent we restrict in-person interactions with physicians and customers, we will again be limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS and could adversely affect our ability to launch and market EYSUVIS, if and when approved.

The extent of the impact of COVID-19 on our commercialization efforts will depend on the length and severity of this pandemic, which is uncertain and cannot be predicted.

The extent of the impact of COVID-19 on our commercialization efforts will depend on the length and severity of this pandemic and the impact on our customers, employees, vendors, and government agencies, which is uncertain and cannot be predicted.

We may never succeed in these activities and may never generate revenue that is sufficient to achieve profitability.

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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-Q

Item 2. Management’s Discussion and Analysis