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Item 1. Business

2021-02-25 compared with 2020-02-12 · 456 added, 563 removed, 704 unchanged (59% of the section changed)

We are a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies for diseases of the eye.

Our innovative mucus-penetrating particle, or MPP, drug delivery technology, which we refer to as our AMPPLIFY ®

technology, uses selectively‑sized nanoparticles that each have a proprietary coating.

We have worldwide rights to a portfolio of innovative products and product candidates that include two marketed therapies utilizing our proprietary mucus penetrating particle, or MPP, drug delivery technology, which we refer to as our AMPPLIFY ® technology, to address medical needs for the front of the eye, and a pipeline of proprietary new chemical entities, or NCEs, targeted to address front and back of the eye diseases.

Our two marketed products are EYSUVIS™ (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 INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1%, a topical twice-a-day ocular steroid for the treatment of post-operative inflammation and pain following ocular surgery.

Both products apply our AMPPLIFY technology to loteprednol etabonate, or LE, a corticosteroid designed for ocular applications.

The AMPPLIFY technology uses selectively-sized nanoparticles that each have a proprietary coating.

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 temporary relief 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.

In October 2018, we submitted a New Drug Application, or NDA, to the FDA for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

In August 2019, we announced that we received a complete response letter, or CRL, from the FDA regarding this NDA.

The FDA indicated that efficacy data from an additional clinical trial will be needed to support a resubmission of the NDA.

Based upon the previous recommendation of the FDA, we initiated an additional Phase 3 clinical trial, STRIDE 3, in the third quarter of 2018, which we expect will serve as the basis of our response to the CRL.

We have identified key factors that contributed to the differences observed in the results from STRIDE 2 compared to those of STRIDE 1 and the Phase 2 trial, and we believe that the changes made to the inclusion/exclusion criteria of STRIDE 3 based on these analyses will improve the probability of success of this trial.

We are targeting topline data for STRIDE 3 in the first quarter of 2020 and resubmission of the NDA in the second quarter of 2020.

If approved, we believe EYSUVIS could become the preferred first-line prescription therapy for treating dry eye flares, which 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.

Other approved topical ocular corticosteroid products for this indication are dosed three or four times a day.

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.

Food and Drug Administration, or FDA, approved EYSUVIS in October 2020 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 that EYSUVIS’ broad mechanism of action, rapid onset of relief of both signs and symptoms, favorable tolerability profile and potential to be complementary to existing therapies, will result in a favorable profile for the management of dry eye flares and other dry eye associated conditions that would benefit from short-term treatment of dry eye signs and symptoms.

We further believe that these features of EYSUVIS may be attractive to prescribing clinicians and EYSUVIS could become the preferred first-line prescription therapy for the short-term 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.

We commenced full promotional launch of EYSUVIS in January 2021.

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 following ocular surgery.

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 evaluating opportunities for MPP nanosuspensions of LE with less frequent daily dosing regimens for the temporary relief of signs and symptoms of dry eye disease and for potential chronic treatment of dry eye disease.

We also are evaluating 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 U.S.

Federal Food, Drug and Cosmetic Act, or the FDCA, which is the pathway we plan to rely on 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 57 territory sales managers, or TSMs, 7 regional sales leaders, or RSLs, and 3 directors of national accounts, or DNAs.

If EYSUVIS is approved by the FDA, we plan to increase our sales force from 57 sales representatives to a total of approximately 75 to 100 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.

The FDA approved INVELTYS in August 2018, and we commercially launched the product in January 2019.

We are also progressing our pipeline of proprietary preclinical development programs targeted to address front and back of the eye diseases.

These preclinical development programs, all of which are NCEs, include our receptor Tyrosine Kinase Inhibitor program, or rTKI, that is designed to inhibit the vascular endothelial growth factor pathway, for the treatment of retinal diseases, including wet age-related macular degeneration, or Wet AMD;

our selective glucocorticoid receptor modulators, or SEGRMs, which are a novel class of therapies designed to modify the downstream activity of the receptors to exhibit the anti-inflammatory and immunomodulatory properties of the corticosteroid class of therapies without their associated side effects ;

and our novel surface targeting steroid, or STS, designed to target the ocular surface and thus have the potential to have fewer side effects compared to traditional topical steroids.

We own all intellectual property and worldwide rights to these pipeline preclinical development programs.

We have retained worldwide commercial rights for EYSUVIS, INVELTYS and our preclinical development programs.

Starting with FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which now includes 91 territory sales managers, or TSMs, 14 regional sales leaders, or RSLs, two area sales leaders, or ASLs, and three directors of national accounts, or DNAs.

In 2021, we plan to increase our sales force from 91 TSMs to approximately 125 TSMs, pending the status of the COVID-19 pandemic.

Our sales representatives 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.

We own and/or exclusively license patents relating to INVELTYS, EYSUVIS, our other product candidates and our AMPPLIFY technology, including U.S.

and foreign issued patents and pending patent applications covering KPI‑121, our rTKI program, other product candidates under development, our AMPPLIFY technology, and its ophthalmic applications.

We own and/or exclusively license patents relating to EYSUVIS, INVELTYS, our preclinical development programs and our AMPPLIFY technology, including U.S.

and foreign issued patents and pending patent applications.

The expiration dates of issued U.S.

patents covering INVELTYS and EYSUVIS are in 2033.

patents covering EYSUVIS and INVELTYS are in 2033.

The expiration dates of issued U.S.

patents relating to our AMPPLIFY technology are in 2025 through 2036.

The following table describes the stage of each of our current programs:

INVELTYS for Post‑Operative Inflammation and Pain

Ocular inflammation and pain are common complications following ocular surgery.

According to Marketscope, a third‑party provider of market data, in 2019 there were approximately 8.6 million ocular surgeries in the United States.

Tissue damage caused by ocular surgery leads to the production of prostaglandins, lipids that aid in recovery at the site of an injury, and an increase in blood flow to the affected area, which contribute to inflammation.

The standard of care

for post‑operative inflammation and pain includes anti‑inflammatory drugs such as corticosteroids, which improve patient comfort and accelerate recovery through disruption of the inflammatory cascade.

INVELTYS received FDA approval in August 2018 for the treatment of post-surgical inflammation and pain following all ocular surgery, and was commercially launched in the United States in January 2019.

INVELTYS is the first and only post-operative ocular steroid shown effective and FDA approved for twice-a-day, or BID, dosing, has the highest concentration (1%) of LE on the market in the United States and is formulated with our AMPPLIFY technology, which enables INVELTYS to deliver 3.75x more drug to the ocular tissue compared to an active comparator.

Based on a market survey we commissioned of 100 ophthalmologists, we believe INVELTYS offers advantages over other existing post‑surgical treatment options due to its twice‑daily dosing, two‑week course of treatment and safety data, including low incidence of reported IOP spikes, and efficacy data from our clinical trials.

In each of the two Phase 3 clinical trials of INVELTYS in patients who had undergone cataract surgery, administration of INVELTYS two times a day for 14 days achieved statistical significance for both primary efficacy endpoints of complete resolution of inflammation at day eight maintained through day 15 with no need for rescue medication and complete resolution of pain at day eight maintained through day 15 with no need for rescue medication.

In each of these trials, INVELTYS was well tolerated with similar increases in IOP, a common side effect of steroids, compared to placebo and with no treatment‑related significant adverse events observed during the course of either trial.

Our Product Candidates

EYSUVIS (KPI‑121 0.25%) for Dry Eye Disease

The following table describes our marketed products and the stage of each of our current preclinical development programs:

EYSUVIS for Dry Eye Disease

Dry eye disease is a chronic, episodic, multifactorial disease affecting the tears and ocular surface that can result in tear film instability, inflammation, discomfort, visual disturbance and ocular surface damage.

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Epidemiology and market research commissioned by us indicate that there are an estimated 17.2 million patients with a diagnosis of dry eye disease in the United States.

We commissioned two surveys of 503 and 297 dry eye disease patients, which we refer to as the patient surveys.

We also commissioned three surveys of 503, 297 and 500 dry eye disease patients, which we refer to as our patient surveys, in 2017, 2018 and 2020, respectively.

The patient surveys included a representative set of dry eye patients based on demographics and disease characteristics, such as age, sex and therapeutic history.

The patients represented a broad range of dry eye disease severity.

Based upon our review of the patient survey, we believe dry eye disease is a burdensome disease that has a significant impact on the quality of life of patients with dry eye disease.

The most commonly used treatments for dry eye disease in the United States are over‑the‑counter eye drops, often referred to as “artificial tears,”

and three prescription pharmaceutical products, Restasis ®

, Cequa TM and Xiidra ®

Based upon our review of the patient surveys as well as a 2020 independent study of 774 dry eye sufferers, we believe dry eye disease is a burdensome disease that has a significant impact on the quality of life of patients with dry eye disease.

The most commonly used treatments for dry eye disease in the United States are over-the-counter eye drops, often referred to as “artificial tears,” and three prescription pharmaceutical products, Restasis ® , Cequa TM and Xiidra ® .

Artificial tears are intended to be palliative in nature to supplement insufficient tear production or improve tear film instability, but do not treat the underlying inflammation in dry eye disease.

Restasis and Cequa increase tear production

and Xiidra treats the signs and symptoms of dry eye disease, however, Restasis, Cequa and Xiidra are typically used chronically for dry eye patients who have continuous symptoms.

Restasis and Cequa increase tear production and Xiidra treats the signs and symptoms of dry eye disease, however, Restasis, Cequa and Xiidra are typically used chronically for dry eye patients who have continuous symptoms.

As each of Restasis, Cequa and Xiidra have a relatively long onset of action, they are not generally used for the short-term treatment of episodic dry eye flares.

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For these patients, we believe an FDA-approved, acute, short-term therapy can address a significant unmet need.

Our review of the patient surveys indicates that approximately 90% of surveyed patients reported experiencing short-term flares, with flares lasting on average approximately 4 days and occurring approximately 6 times per year.

The patients surveyed also indicated that the most common reason for discontinuing the two leading branded dry eye treatments were insufficient efficacy and side effects.

In addition, the results of a multi-sponsored Gallup Poll survey were consistent with our patient surveys, indicating on average 5-6 flares per year lasting on average 4 days.

We are developing EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease, utilizing a two‑week course of therapy administered four times a day.

We believe that EYSUVIS’

broad mechanism of action, rapid onset of relief of both signs and symptoms, favorable tolerability profile and potential to be complementary to existing therapies, will result in a favorable profile for the management of dry eye flares and other dry eye associated conditions that would benefit from temporary relief of dry eye signs and symptoms.

We believe these features of EYSUVIS may be attractive to prescribing clinicians and could be a preferred first-line prescription therapy choice for a vast majority of their dry eye patients.

Based upon our review of the patient surveys, we also believe patients with dry eye disease will be attracted to EYSUVIS’

novelty, rapid efficacy in the relief of signs and symptoms and ability to be used on an as‑needed basis to treat the short-term flares.

In June 2016, we initiated two Phase 3 clinical trials, STRIDE 1 and STRIDE 2 each with enrollment of over 900 dry eye patients, comparing EYSUVIS to placebo, both administered four times a day for 14 days.

We announced topline results from both trials in January 2018.

Statistical significance was achieved for the primary sign and both pre-specified primary symptom endpoints in STRIDE 1.

Statistical significance was achieved for the primary sign endpoint in STRIDE 2 with a trend towards a treatment effect for the primary symptom endpoint.

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 the trial.

In October 2018, we submitted an NDA to the FDA for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

The NDA included data from three clinical trials studying approximately 2,000 patients, including one Phase 2 trial and two Phase 3 efficacy and safety trials (STRIDE 1 and STRIDE 2).

In August 2019, we announced that we received a CRL from the FDA regarding this NDA.

The FDA indicated that efficacy data from an additional clinical trial will be needed to support a resubmission of the NDA.

We are targeting topline data for STRIDE 3 in the first quarter of 2020 and resubmission of the NDA in the second quarter of 2020.

If approved, we believe EYSUVIS could become the preferred first-line prescription therapy for treating dry eye flares, which affect the vast majority of dry eye patients.

rTKI Program for Retinal Diseases

Commonly used therapies for retinal diseases must be injected directly into the patient’s eye, often at monthly intervals.

We believe that our AMPPLIFY technology has the potential to facilitate the delivery of therapeutics into tissues in the back of the eye, which has the potential to improve dosing regimen and offers a competitive advantage over current therapies.

After synthesizing and testing a number of new chemical entities, or NCEs, from our rTKI program, we are further evaluating compounds in our rTKI program that inhibit the VEGF pathway for the potential treatment of a number of retinal diseases, including wet age‑related macular degeneration, or Wet AMD, Diabetic Retinopathy, or DR, Diabetic Macular Edema, or DME, and Retinal Vein Occlusion, or RVO, each of which involves either the leakage of existing blood vessels or the proliferation of poorly formed and leaky blood vessels at the back of the eye.

For example, our patient surveys and the independent study of 774 dry eye suffers indicate that approximately 75% to 90% of surveyed patients experience dry eye flares, with flares lasting on average approximately four days and occurring approximately six times per year.

These results are also consistent with a multi-sponsored Gallup Poll survey indicating that dry eye patients suffer on average five to six flares per year lasting on average four days.

In addition, according to our patient surveys, the most common reason given by patients for discontinuing the two leading branded dry eye treatments were insufficient efficacy, side effects and product price.

We developed EYSUVIS for the short-term treatment of the signs and symptoms of dry eye disease, utilizing a two-week course of therapy administered four times a day.

We believe that EYSUVIS’ broad mechanism of action, rapid onset of relief of both signs and symptoms, favorable tolerability profile and potential to be complementary to existing therapies, offers a favorable profile for the management of dry eye flares and other dry eye associated conditions that would benefit from temporary relief of dry eye signs and symptoms.

We further believe that these features of EYSUVIS may be attractive to prescribing clinicians and that EYSUVIS could become the preferred first-line prescription therapy for the short-term 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.

In our 2020 survey of 201 eye care professionals, or ECPs, nearly all, 99%, reported that their dry eye disease patients experience flares, but many underestimated the actual number of patients with flares.

This survey also revealed that interest in prescribing a product with the EYSUVIS profile was high among the surveyed ECPs.

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 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 interocular pressure, or IOP, increases comparable to that observed with vehicle.

INVELTYS for Post-Operative Inflammation and Pain

Ocular inflammation and pain are common complications following ocular surgery.

According to Marketscope, a third-party provider of market data, in 2019 there were approximately 8.6 million ocular surgeries in the United States.

The standard of care for post-operative inflammation and pain includes anti-inflammatory drugs such as corticosteroids, which improve patient comfort and accelerate recovery through disruption of the inflammatory cascade.

We believe INVELTYS offers advantages over existing post-surgical treatment options due to its AMPPLIFY technology and being the first and only topical twice daily dosing, two-week course of treatment and safety data, including low incidence of reported IOP spikes, and efficacy data from our clinical trials.

In each of these trials, INVELTYS was well tolerated with similar increases in IOP, a common side effect of steroids, compared to placebo and with no treatment-related significant adverse events observed during the course of either trial.

Our Preclinical Development Programs

We are progressing a pipeline of proprietary NCE development programs targeted to address front and back of the eye diseases, including our rTKI program, SEGRM program and STS program.

rTKI Program for Retinal Diseases (KPI-285/KPI-286)

The vascular endothelial growth factor, or VEGF, pathway plays a critical role in the formation of new blood vessels and increased permeability, two pathological processes that contribute to the vision loss associated with certain retinal diseases.

These retinal diseases include Wet AMD, which involves either the leakage of existing blood vessels or the proliferation of poorly formed and leaky blood vessels at the back of the eye.

These eye diseases can significantly reduce vision and eventually lead to blindness.

VEGF is a protein that plays a critical role in

the formation of new blood vessels and increased permeability, two pathological processes that contribute to the vision loss associated with certain retinal diseases.

In our rTKI program, we are initially targeting Wet AMD with our lead rTKI compound, KPI‑285.

KPI‑285 inhibits the VEGF pathway.

We have developed several novel, potent, selective rTKIs, including K0066, which can inhibit the VEGF pathway.

We are assessing K0066 in two formulations, topical (KPI-285) and injectable depot (KPI-286) for the treatment of various retinal diseases.

In preclinical rabbit studies, topical administration of KPI-285 achieved concentrations in tissues in the back of the eye well above the concentrations required for in vitro inhibition of 50% of the VEGF receptor kinase activity.

Prior to initiating IND‑enabling studies, we may consider potential collaborative partnership opportunities to advance product candidates we develop through our rTKI program, including KPI‑285.

Novel next-generation anti-inflammatories

Corticosteroid therapy is considered the standard of care for treating inflammatory conditions.

In ophthalmology, corticosteroid use has been associated with IOP increase and cataract formation.

We are developing new chemical entities for ophthalmic indications that exhibit steroid-like anti-inflammatory action with the goal of eliminating the risk of IOP increase and cataract formation .

Other Potential Applications of our AMPPLIFY Technology

While our current focus is on the application of our AMPPLIFY technology in ophthalmology, we have conducted preclinical studies demonstrating the potential of our AMPPLIFY technology in other therapeutic areas.

Mucus limits delivery of conventionally formulated drugs to the lung, cervical/vaginal tract, gastrointestinal tract and other mucus‑protected tissues.

In preclinical studies, we have demonstrated that our AMPPLIFY technology can be used to increase the mucus penetration of over fifteen classes of drugs, including anti‑infective and anti‑inflammatory drugs.

We are exploring a depot formulation (KPI-286) that could provide extended release of the kinase inhibitor to the back of the eye, which would potentially reduce the need for frequent IVT injections.

SEGRM Program

Activation of the glucocorticoid receptor, or GR, can result in regulation of gene expression along both the transactivation, or TA, and transrepression, or TR, pathways.

There is considerable third-party scientific evidence that the TR pathway alone is likely sufficient for anti-inflammatory and immunomodulatory activity.

Furthermore, we believe the TA pathway is likely responsible for the adverse effects associated with ocular and systemic administration of corticosteroids, including elevated IOP, hypertension, and osteoporosis.

SEGRMs are a novel class of compounds designed to selectively regulate gene expression through the TR pathway while avoiding the TA pathway.

As a result, we believe our SEGRM program has the potential for anti-inflammatory and immunomodulatory activity comparable to corticosteroids without their associated side effects.

Our SEGRM program is currently in the lead optimization stage, and we are aiming to identify a development candidate for the program by the end of 2021.

Surface Targeted Steroid Program (KPI-333)

Although corticosteroids are potent inhibitors of ocular surface inflammation, long-term use is limited due to potential significant adverse effects, including elevated IOP and cataract formation.

These adverse events are mediated by steroid exposure to the aqueous humor, trabecular meshwork and lens.

A topical steroid that targets the ocular surface only could overcome the safety issues associated with long-term use of steroids.

We are developing KPI-333, an NCE, as a topical steroid that targets the ocular surface.

In our preclinical animal studies, KPI-333 shows excellent efficacy without raising IOP.

Based on this data, we believe KPI-333 may have the potential to address the significant unmet need for an effective chronic treatment of ocular surface inflammation associated with diseases such as dry eye.

Our goal is to become a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies primarily for diseases of the front and back of the eye.

Key elements of our strategy include:

● Successfully launch, and maximize the commercial potential of, EYSUVIS for the short-term treatment of dry eye disease.

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.

EYSUVIS was approved in October 2020, and we commenced a full promotional launch in January 2021.

We estimate that approximately 17.2 million people in the United States have been diagnosed with dry eye disease.

We believe that EYSUVIS’ broad mechanism of action, rapid onset of relief of both signs and symptoms, favorable tolerability profile and potential to be complementary to existing therapies, offers a favorable profile for the management dry eye associated conditions that would benefit from short-term treatment.

We further believe that EYSUVIS could become the preferred first-line prescription therapy for treating dry eye flares, which affect the vast majority of dry eye patients.

We plan to commercialize EYSUVIS with our specialty sales force which includes 91 TSMs, 14 RSLs, two ASLs and three DNAs.

In 2021, we plan to increase our sales force from 91 TSMs to approximately 125 TSMs, pending the status of the COVID-19 pandemic.

● Maximize the commercial potential of INVELTYS for post-operative inflammation and pain .

In January 2019, we began to commercialize INVELTYS in the United States with our own focused, specialty sales force of 57 TSMs, 7 RSLs and 3 DNAs, targeting both ophthalmologists and optometrists.

Seek and obtain regulatory approval for, and maximize the commercial potential of, EYSUVIS for the treatment of dry eye disease.

In October 2018, we submitted an NDA to the FDA for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

In August 2019, we announced that we received a CRL from the FDA regarding this NDA.

The FDA indicated that efficacy data from an additional clinical trial will be needed to support a resubmission of the NDA.

We are targeting topline data for STRIDE 3 in the first quarter of 2020 and resubmission of the NDA in the second quarter of 2020.

We estimate that dry eye disease affects approximately 33 million people in the United States.

If approved, we believe EYSUVIS could become the preferred first-line prescription therapy for treating dry eye flares, which affect the vast majority of dry eye patients.

We intend to commercialize EYSUVIS in the United States with our specialty sales force, which we plan to increase from 57 sales representatives to a total of approximately 75 to 100 sales representatives, who will promote both EYSUVIS and INVELTYS.

Advance early stage pipeline development programs, and further leverage our proprietary AMPPLIFY technology.

We also are evaluating our current lead rTKI program compound, KPI‑285, a small molecule for the potential treatment of a number of retinal diseases, and our 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 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 following ocular surgery.

Other approved topical ocular corticosteroid products for this indication are dosed three or four times a day.

In January 2019, we began to commercialize INVELTYS in the United States with our own focused, specialty sales force, which promotes both EYSUVIS and INVELTYS.

● Advance our pipeline of preclinical development programs.

We are also progressing our pipeline of proprietary preclinical development programs targeting front and back of the eye diseases.

These programs, all of which contain NCEs, include our rTKI compounds that inhibit the VEGF pathway, for the treatment of retinal diseases, including Wet AMD, our SEGRMs, which are a novel class of therapies designed to modify the downstream activity of the receptors to exhibit the anti-inflammatory and immunomodulatory properties without side effects associated with corticosteroids , and our novel surface targeting steroid designed to target the ocular surface and thus have the potential to have fewer side effects compared to traditional topical steroids.

We own all intellectual property and worldwide rights to these preclinical development programs.

Prior to initiating IND-enabling studies, we may consider potential collaborative partnership opportunities to advance product candidates we develop, including through these programs.

In addition, we also are evaluating additional product opportunities with significant unmet medical needs that we believe can be addressed by our proprietary AMPPLIFY technology.

We may also evaluate additional opportunities to address significant unmet medical needs by leveraging our proprietary AMPPLIFY technology .

● Business development through selective acquisitions and licensing .

We plan to pursue value-driven business development opportunities as they arise in order to enhance our business and product pipeline through strategically acquiring clinical or commercial-ready product candidates or approved revenue-generating products with growth potential, particularly in the ophthalmic area.

We will also continue to assess the addition of other specialty therapeutic areas through both product/portfolio acquisitions or other M&A activity with a similar focus on opportunities that we anticipate are or will become revenue generating and accretive.

Our MPP Technology

Opportunities in Drug Delivery across Mucosal Barriers

We will also continue to assess the addition of other specialty therapeutic areas through both product/portfolio acquisitions or other business development activity with a similar focus on opportunities that we anticipate are or will become revenue generating and accretive.

Our AMPPLIFY Technology

Opportunities in Drug Delivery across Eye and other Mucosal Barriers

The body is surrounded by boundary tissues that play the important physiological role of preventing foreign bodies from penetrating into the body.

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We believe that our proprietary MPP technology, which we refer to as our AMPPLIFY technology, has the potential to address this clear unmet medical need for more efficient delivery of drugs.

Our AMPPLIFY technology may have applications to other areas of the body that are protected by mucus, such as the lung, cervical/vaginal tract and gastrointestinal tract.

We have demonstrated in preclinical studies that AMPPLIFY technology can be used to increase mucus penetration of over 15 classes of drugs.

MPP Technology

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This graphic is included for illustrative purposes only and is not intended to provide a complete representation of the way in which our MPP drug nanoparticles interact with the ocular surface.

Our initial focus is to leverage our MPP technology, to enhance delivery of drugs into the eye.

Our primary focus is to leverage our MPP technology, to enhance delivery of drugs into the eye.

In preclinical studies, KPI-121 demonstrated favorable pharmacokinetic characteristics and increased drug penetration into ocular tissues as compared to a branded form of LE.

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LE in Aqueous Humor

We administered KPI‑121 0.5%, branded LE 0.5%, or 0.5% of an LE non‑MPP nanoparticle, to the eyes of three groups of rabbits and measured the amount of LE that was delivered to the cornea.

We administered KPI-121 0.5%, LE suspension 0.5%, or 0.5% of an LE non-MPP nanoparticle, to the eyes of three groups of rabbits and measured the amount of LE that was delivered to the cornea.

The non-MPP nanoparticle was similar in size to our MPP nanoparticles but lacked the proprietary surface coating used in our MPP nanoparticles.

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In addition, the rabbit eyes treated with the non-MPP nanoparticles had concentrations of LE similar to that in the rabbit eyes treated with branded LE and did not display the improved drug bioavailability properties observed with KPI-121.

We believe these results highlight the importance of our proprietary MPP technology and show that KPI‑121’s improved pharmacokinetic profile has the potential to reduce the dosing strength and/or frequency of administration of LE with KPI‑121 as compared to branded LE.

We believe these results highlight the importance of our proprietary MPP technology and show that KPI-121’s improved pharmacokinetic profile has the potential to reduce the dosing strength and/or frequency of administration of LE with KPI-121 as compared to LE suspension 0.5%.

We also have demonstrated the potential of our MPP nanoparticles to increase the mucus penetration of over fifteen classes of drugs.

While our current focus is in ophthalmology, in preclinical studies, our MPP technology has been effective in delivering drugs to the lungs, cervical/vaginal tract, gastrointestinal tract and other mucus‑protected tissues.

While our primary focus is in ophthalmology, in preclinical studies, our MPP technology has been effective in delivering drugs to the lungs, cervical/vaginal tract, gastrointestinal tract and other mucus-protected tissues.

We have the ability to vary the rate of drug release as appropriate for the targeted disease state and tissue.

As a result, drugs can be delivered either in rapid release formulations or as sustained release formulations that slowly release drug over a time period that ranges from hours to days.

The human eye is often segmented into two sections—the front and back of the eye.

The front of the eye consists of tissues and structures responsible for the protection and maintenance of the eye (including the cornea, conjunctiva and tear film), for providing nutrition to the various tissues of the eye (aqueous humor) and for facilitating the optimal transfer and focusing of light to the retina (including the cornea, iris and lens).

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The back of the eye contains the retina, which is the light sensing layer of tissue, the choroid, which is a key vascular layer of the eye, the vitreous humor, which is a transparent gel that fills the vitreous chamber between the lens and the retina, and the optic nerve, which transmits visual information from the retina to the brain.

Common retinal diseases include AMD, DR, DME and RVO.

Common retinal diseases include AMD, Diabetic Retinopathy, or DR, Diabetic Macular Edema, or DME, and Retinal Vein Occlusion, or RVO.

These diseases frequently result in damage to the vasculature of the eye, leading to poor function and/or leaking of existing vessels and often leading to proliferation of new, abnormal and leaky blood vessels in the back of the eye.

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An effective therapeutic to treat retinal diseases with improved dosing regimen would bring significant benefits to patients.

Our Product and Product Candidates

KPI‑121 Program

Both INVELTYS and our lead product candidate, EYSUVIS, consist of MPP nanosuspensions of LE designed to enhance penetration through the mucus layer of the tear film to enable LE to reach the underlying ocular tissue.

We believe that INVELTYS and EYSUVIS, have a favorable profile for the treatment of front‑of‑the‑eye inflammatory conditions due to their broad mechanism of action, rapid onset of relief and favorable tolerability profile.

LE is a corticosteroid developed specifically for the treatment of ophthalmic conditions and is designed to limit side effects, such as increases in IOP and cataract formation, that are associated with other ocular steroids.

The first LE containing product was approved by the FDA in 1998.

INVELTYS and EYSUVIS are eye drops that are topically administered as an aqueous suspension of LE.

In preclinical studies, MPP nanosuspensions of LE demonstrated superior pharmacokinetic characteristics and bioavailability as compared to branded LE, with increased penetration of LE into ocular tissues.

Our KPI-121 program includes the following:

FDA-approved INVELTYS, administered two times a day, for the treatment of post‑operative inflammation and pain following ocular surgery;

EYSUVIS, administered four times a day, which we are developing for the temporary relief of the signs and symptoms of dry eye disease.

INVELTYS received FDA approval in August 2018 under Section 505(b)(2) of the FDCA.

The Section 505(b)(2) pathway provides an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations, or new uses of previously approved products, by enabling an applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support of the NDA.

An NDA filed under Section 505(b)(2) allows us to reference the FDA’s prior findings of safety and efficacy for LE to supplement the safety and efficacy data generated in our clinical trials.

We are seeking FDA approval of EYSUVIS through the Section 505(b)(2) regulatory pathway as well.

EYSUVIS (KPI‑121 0.25%) for Dry Eye Disease

EYSUVIS for Dry Eye Disease

Dry Eye Disease Overview

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A significant number of dry eye disease patients experience acute, episodic exacerbations of their symptoms, which we refer to as flares, at various times throughout the year that can cause significant discomfort and disability.

A dry eye flare is defined as a rapid onset, inflammation-driven response to a variety of triggers that typically cannot be adequately managed with the patient’s ongoing therapy.

As illustrated in the graphic below, these flares can be triggered by numerous factors, such as environmental stimuli related to exposure to allergens, pollution, wind and low humidity.

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The vast majority of dry eye patients experience acute exacerbations of their symptoms, which are commonly referred to as flares, at various times throughout the year.

The most commonly used treatments for dry eye disease in the United States are over‑the‑counter eye drops, often referred to as “artificial tears,”

and three prescription pharmaceutical products, Restasis, Xiidra and Cequa.

Artificial tears are palliative in nature and intended to supplement insufficient tear production or improve tear film instability, but do not treat the underlying inflammation in dry eye disease.

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have a relatively long onset of action, they are not generally used for the short-term treatment of episodic dry eye flares.

We believe there is a larger proportion of dry eye patients whose symptoms are primarily episodic as opposed to chronic, and for whom a chronic therapy is not necessary and an FDA‑approved, acute, short‑term therapy can address a significant unmet need.

We believe there is a larger proportion of dry eye patients whose symptoms are primarily episodic as opposed to chronic, and for whom a chronic therapy is not necessary and EYSUVIS, an FDA-approved therapy for short-term use, can address a significant unmet need.

Limitations of Existing Treatments for Dry Eye Disease

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Due to each of Restasis, Cequa and Xiidra having a relatively long onset of action, they are not generally used for the short-term treatment of dry eye flares.

Topically applied steroids have been shown to provide some clinical benefit to patients with dry eye disease.

However, no topical steroid products, including INVELTYS, are approved in the United States for the acute or chronic treatment of dry eye disease, and there is no widely established treatment paradigm for the safe use of steroids in treating dry eye disease.

As a result, treatment of dry eye disease represents a very small percentage of total ophthalmic steroid use in the United States.

EYSUVIS (KPI‑121 0.25%) Opportunity in Dry Eye Disease

EYSUVIS Opportunity in Dry Eye Disease

We believe that EYSUVIS has a favorable profile for the management of dry eye disease flares, including the following attributes:

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The metabolism of LE to inactive metabolites reduces exposure of the trabecular meshwork, an area of tissue located in the anterior chamber that is responsible for draining the aqueous humor from the eye, to active steroid, thus reducing the risk of an increase in IOP relative to other steroids.

In both STRIDE 1 and STRIDE 2, EYSUVIS had comparable rates of IOP to placebo.

No serious adverse events were associated with EYSUVIS in either trial.

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

● Specifically targeting relief of episodic dry eye flares.

The mechanism of action and rapid onset of relief of EYSUVIS in dry eye disease is distinct from that of artificial tears and chronic therapies like Restasis, Cequa and Xiidra.

Therefore, we expect it to be used as a stand‑alone short course therapy to provide rapid

relief of dry eye flares by improving ocular discomfort (a dry eye symptom) and reducing ocular redness (a dry eye sign).

Therefore, we expect it to be used as a stand-alone short course therapy to provide rapid relief of dry eye flares by improving ocular discomfort (a dry eye symptom) and reducing ocular redness (a dry eye sign ).

● Potentially complementary to existing therapies.

We believe that patients on chronic therapies also experience dry eye flares and could potentially benefit from using EYSUVIS in addition to their maintenance therapy.

If we receive FDA approval of an NDA for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease, we believe that we could have the first FDA‑approved product for this indication with demonstrated safety and efficacy and a two‑week course dosing regimen.

We believe that these attributes will make EYSUVIS attractive to prescribing clinicians for treating patients that suffer from dry eye flares.

EYSUVIS (KPI‑121 0.25%) Clinical Development Program

In 2014, we conducted a Phase 2 double‑masked, randomized, controlled clinical trial of EYSUVIS in 150 patients with dry eye disease at nine clinical sites.

Patients were enrolled in the trial based on their magnitude of conjunctival hyperemia and ocular discomfort prior to treatment.

Patients had a two week run‑in with placebo administered four times a day and were required to maintain a similar magnitude of conjunctival hyperemia and ocular discomfort following this run‑in period to be included in the randomization portion of the trial.

Upon achieving the trial entry criteria after this run‑in period, patients were randomized to receive either EYSUVIS or a placebo four times a day for 28 days.

Safety and efficacy assessments were made over the four week dosing period.

For our Phase 2 clinical trial, the primary sign endpoint was conjunctival hyperemia at day 29, as measured via a 0 to 4 scale ranging from no hyperemia (score=0) to severe hyperemia (score=4), and the primary symptom endpoint was ocular discomfort severity at day 29, as reported by the patient on a visual analog scale ranging from 0 to 100 mm (0 mm=very mild;

100 mm=very severe).

EYSUVIS achieved statistical significance for the primary clinical sign endpoint of conjunctival hyperemia at day 29.

A positive treatment effect for hyperemia was also achieved for conjunctival hyperemia at day 15 (p=0.0090).

In addition, a higher proportion of patients treated with EYSUVIS demonstrated a reduction of one unit or greater in conjunctival hyperemia as compared to patients treated with placebo.

Patients treated with EYSUVIS also showed reductions in the symptom endpoint of ocular discomfort severity at days 29 and 15 but did not reach statistical significance for this endpoint based on the analysis that was pre-defined in the statistical analysis plan.

Following completion of our Phase 3 trials, we conducted additional analysis on a post-hoc basis of our Phase 2 data using the same statistical analysis plan as used to test the primary symptom endpoints in the Phase 3 trials.

Using this analysis we observe a treatment effect for ocular discomfort at day 15 of a similar magnitude as was observed in STRIDE 1 (-5.27 mm difference in Phase 2 compared to -5.44 mm in STRIDE 1) and a p-value of 0.0489.

Although post-hoc analyses may be given less weight by regulatory authorities than pre-specified analyses, we believe these analyses provide important information regarding EYSUVIS’

clinical effect.

EYSUVIS was generally well tolerated in the Phase 2 clinical trial, with no treatment‑related significant adverse events observed during the course of the trial.

The only treatment‑emergent adverse event reported in greater than 3% of patients was instillation site pain, which was reported in 6.9% of patients treated with EYSUVIS compared to 3.8% of patients treated with placebo.

Patients in the EYSUVIS and placebo treatment arms had a similar profile with respect to mean IOP, and the number of patients with an IOP increase of greater than 5 mm Hg was similar in the two treatment groups.

In June 2016, we initiated two Phase 3 clinical trials, STRIDE 1 and STRIDE 2, comparing EYSUVIS to placebo, both administered four times a day for 14 days.

These clinical trials were each multicenter, randomized, double-masked, placebo controlled, parallel-arm studies comparing EYSUVIS to placebo each dosed QID for 14 days.

Patients who met initial screening and inclusion/exclusion criteria underwent a two week run-in period with placebo dosed in each eye QID for 14 days.

Patients who continued to meet inclusion and exclusion criteria after the run-in were randomized to either EYSUVIS or placebo.

A total of 918 patients were randomized in STRIDE 1 and 909 patients were

randomized in STRIDE 2.

Conjunctival hyperemia was measured using a 0 to 4 scale ranging from no hyperemia (score=0) to severe hyperemia (score=4).

Ocular discomfort severity was graded daily by the patient over the entire course of the trial using a visual analog grading scale ranging from 0 to 100 mm (0 mm=very mild;

100 mm=very severe) recorded in a patient diary.

In STRIDE 1, statistical significance was achieved for the primary sign endpoint of conjunctival hyperemia change from baseline to day 15 in the ITT population (p<0.0001) and the primary symptom endpoint of ocular discomfort severity change from baseline to day 15 in the ITT population (p<0.0001).

Statistical significance was also achieved 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 (p=0.0008).

Statistical significance was not achieved for a second pre-specified primary sign endpoint, inferior corneal staining change from baseline to day 15 (p=0.1128).

A positive treatment effect for ocular discomfort was also observed in the ITT population at day eight (p=0.0011), a key secondary endpoint.

In STRIDE 2, statistical significance was achieved for the primary sign endpoint of conjunctival hyperemia change from baseline to day 15 in the ITT population (p<0.0001).

Statistical significance was not achieved for the primary symptom endpoint of ocular discomfort severity change from baseline to day 15 in the ITT population (p=0.1298), although a positive treatment effect was observed at day eight (p=0.0408), a key secondary endpoint.

A trend towards a positive treatment effect was observed for ocular discomfort severity change from baseline to day 15 in the patients with more severe baseline ocular discomfort (p=0.0799), which was a key secondary endpoint in this trial.

The results for ocular hyperemia, ocular discomfort in the ITT population and ocular discomfort in patients with more severe baseline discomfort are shown below.

We have conducted additional analyses on a post-hoc basis of STRIDE 1, STRIDE 2 and our Phase 2 data to better understand our clinical results, inform our developmental plans and potentially support an NDA submission.

One key analysis was evaluation of the Phase 2 ocular discomfort data using the same statistical analysis plan as used to test the primary symptom endpoints in the Phase 3 trials.

Using this analysis we observe a treatment effect for ocular discomfort at day 15 of similar magnitude as was observed in STRIDE 1 (-5.27 mm difference in Phase 2 compared to -5.44 mm in STRIDE 1) and a p-value of 0.0489.

In addition, we performed an analysis of the pooled data from the ITT populations from STRIDE 1 and STRIDE 2, which resulted in an observed positive treatment effect for ocular discomfort at day 15 (p< 0.0001).

The pooled results in 2 exploratory analyses in subgroups defined by geographical regions of east and west achieved p-values of 0.0071 and 0.0021 respectively and north and south achieved p-values of 0.0002 and 0.0176, respectively.

Further, when we analyzed the ocular discomfort data at days 9 through 14 in STRIDE 1 and STRIDE 2 using the same statistical method as day 8 and 15, we observed a positive treatment effect with p-values less than 0.002 at all-time points between days 8 and 15 in STRIDE 1 and p-values less than 0.05 at 6 of 8 time points in STRIDE 2.

Although post-hoc analyses may be given less weight by regulatory authorities than pre-specified analyses, we believe these analyses may provide important information regarding EYSUVIS and may be helpful in reviewing our NDA submission.

EYSUVIS was well tolerated in both trials.

The most common adverse event observed in STRIDE 1 was instillation site pain, which was observed in 6.1% of patients in both the EYSUVIS treatment group and the placebo group.

The only other adverse event reported by greater than 1% of patients in STRIDE 1 was eye irritation, which was reported in 1.1% of patients on EYSUVIS vs.

1.5% of patients on placebo.

Elevations in IOP, a known side effect with topical corticosteroid administration, were similar in both the treatment group and the placebo group in STRIDE 1 with

0.4% in the EYSUVIS group experiencing an increase in IOP of 5 mm of mercury (mmHg) or greater resulting in an IOP of 21 mmHg or greater compared to 0.4% in the placebo group.

The most common adverse event observed in STRIDE 2 was instillation pain which was reported by 5.7% of patients in the EYSUVIS treatment group vs.

4.4% in the placebo group.

The only other adverse event reported by greater than 1% of patients was blurred vision, which was reported in 0.2% of patients on EYSUVIS vs.

1.3% of patients on placebo.

Elevations in IOP were similar in both the treatment group and the placebo group with 1.1% in the EYSUVIS group experiencing an increase in IOP of 5 mmHg or greater resulting in an IOP of 21 mmHg or greater compared to none in the placebo group.

In October 2018, we submitted an NDA to the FDA for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

In August 2019, we announced that we received a CRL from the FDA regarding this NDA.

The FDA indicated that efficacy data from an additional clinical trial will be needed to support a resubmission of the NDA.

The STRIDE 3 trial is a multicenter, randomized, double-masked, placebo controlled, parallel-arm study comparing EYSUVIS to placebo, each dosed four times a day, or QID, for 14 days, in approximately 900 patients with dry eye disease.

Subjects who meet initial screening and inclusion/exclusion criteria undergo a 2-week run-in period with placebo.

Subjects who continue to meet inclusion/exclusion criteria after the run-in are randomized to either EYSUVIS or placebo.

The primary endpoint, Day 15 ocular discomfort severity, is based upon a patient diary in which ocular discomfort is recorded daily over the entire course of the trial using a visual analog grading scale.

We are targeting topline data for STRIDE 3 in the first quarter of 2020 and resubmission of the NDA in the second quarter of 2020.

We believe that these attributes make EYSUVIS attractive to prescribing clinicians for treating patients that suffer from dry eye flares.

EYSUVIS Clinical Development Program

EYSUVIS was evaluated in four clinical trials.

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.

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 regarding this NDA.

The FDA indicated that 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, we had initiated an additional Phase 3 clinical trial, STRIDE 3, in the third quarter of 2018.

In March 2020, we announced top line results from STRIDE 3, achieving statistical significance the pre-specified primary endpoints of change from baseline to day 15 in ocular discomfort severity in the overall ITT population and in a pre-defined subgroup of patients with more severe baseline ocular discomfort.

In addition, statistical significance was achieved for conjunctival hyperemia at day 15.

Consistent with prior clinical experience, EYSUVIS was well-tolerated in STRIDE 3, with adverse events and intraocular pressure increases comparable to vehicle.

The positive results from STRIDE 3 for both signs and symptoms of dry eye disease, along with the positive data from the previous clinical trials of EYSUVIS, served as the basis for our NDA resubmission in April 2020.

EYSUVIS received FDA approval for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease in October 2020 utilizing a two-week course of therapy administered four times a day.

We commenced our full promotional launch of EYSUVIS in January 2021.

EYSUVIS Customer Concentration

Three customers comprised 10% or more of our revenue attributable to EYSUVIS during the year ended December 31, 2020.

These customers comprised 35%, 32% and 29% of our revenue attributable to EYSUVIS, respectively.

There were no sales of EYSUVIS during the year ended December 31, 2019.

INVELTYS for Post-Operative Inflammation and Pain

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Commonly used topical ocular corticosteroid products for the treatment of post‑operative inflammation and pain are approved for dosing four times a day.

Commonly used topical ocular corticosteroid products for the treatment of post-operative inflammation and pain are

approved for dosing four times a day.

This dosing regimen can be burdensome for patients as they are taking multiple eye drops following surgery, and three or four-times-a-day dosing is believed to reduce patient compliance.

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LE is a unique steroid that was designed to limit side effects, such as increases in IOP and cataract formation, that are associated with other ocular steroids.

The first LE containing product, Lotemax ®

, was approved by the FDA in 1998.

The first LE containing product, Lotemax ® , was approved by the FDA in 1998.

Subsequent gel and ointment formulations of Lotemax were approved by the FDA for the treatment of post-operative inflammation and pain following ocular surgery.

Durezol ®

is a topical steroid approved by the FDA for the treatment of inflammation and pain associated with ocular surgery.

Durezol ® is a topical steroid approved by the FDA for the treatment of inflammation and pain associated with ocular surgery.

Durezol eye drops are dosed four times a day for two weeks followed by dose tapering based on patient response.

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INVELTYS Opportunity in Post-Operative Inflammation and Pain

We believe that INVELTYS has a favorable profile for the treatment of inflammation and pain following ocular surgery, including the following attributes:

We believe that INVELTYS has a favorable profile for the treatment of post-operative inflammation and pain following ocular surgery, including the following attributes:

● Twice daily dosing.

INVELTYS is the first and only twice-daily ocular corticosteroid indicated for the treatment of post-operative inflammation and pain following ocular surgery.

All other ocular corticosteroid products for the treatment of post‑operative inflammation and pain are approved for dosing four times a day.

Given the generally accepted view that less frequent dosing leads to higher patient compliance, we believe the ability to achieve a significant reduction in inflammation and pain following surgery with a twice‑a‑day product will be a key differentiating attribute of INVELTYS.

All other ocular corticosteroid products for the treatment of post-operative inflammation and pain are approved for dosing three or four times a day.

Given the generally accepted view that less frequent dosing leads to higher patient compliance, we believe the ability to achieve a significant reduction in inflammation and pain following surgery with a twice-a-day product is a key differentiating attribute of INVELTYS.

● Favorable safety and tolerability profile.

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Our current estimates of potential future revenue from sales of INVELTYS are based, in part, on current prescription trends, anticipated changes in payer coverage, market growth assumptions and physician market research data we have commissioned that examines intent to prescribe.

These estimates may be impacted by the current COVID-19 pandemic.

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.

INVELTYS Customer Concentration

Three customers comprised 10% or more of our revenue during the year ended December 31, 2019.

These customers comprised 39%, 33% and 26% of our revenue, respectively.

There were no sales of INVELTYS during the year ended December 31, 2018.

Other Preclinical Opportunities for Dry Eye Disease

Building on the results of our clinical trials for our INVELTYS and EYSUVIS product candidates, we are evaluating opportunities for MPP nanosuspensions of LE with less frequent daily dosing regimens for the temporary relief of the signs and symptoms of dry eye disease and for potential chronic treatment of dry eye disease.

Three customers comprised 10% or more of our revenue attributable to INVELTYS during the years ended December 31, 2020 and 2019.

These customers comprised 40%, 28% and 28% of our revenue, respectively, during the year ended December 31, 2020 and 39%, 33% and 26% of revenue, respectively, during the year ended December 31, 2019.

Preclinical Development Programs

Retinal Disease

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There are two categories of AMD:

“Dry”

AMD, which involves slow deterioration of the retina with submacular drusen, atrophy, loss of macular function and central vision impairment;

and “Wet”

AMD, which involves growth of abnormal blood vessels under the retina and macula, resulting in edema, tissue damage and rapid loss of central vision.

If untreated, neovascularization in Wet AMD patients typically results in significant vision loss and the formation of a scar under the

macular region of the retina.

“Dry” AMD, which involves slow deterioration of the retina with submacular drusen, atrophy, loss of macular function and central vision impairment;

and “Wet” AMD, which involves growth of abnormal blood vessels under the retina and macula, resulting in edema, tissue damage and rapid loss of central vision.

If untreated, neovascularization in Wet AMD patients typically results in significant vision loss and the formation of a scar under the macular region of the retina.

Most cases begin as Dry AMD, which can progress to Wet AMD.

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Unfortunately, clinicians must inject these biologic agents directly into the eye via frequent IVTs to maintain vision.

Sales of the two leading IVT biologic agents used to treat eye diseases associated with abnormal blood vessel proliferation, Genentech’s Lucentis ®

and Regeneron’s Eylea ®

, were $1.7 billion and $4.1 billion, respectively, in the in the United States in 2018.

A new biologic form of Novartis’

was approved in October 2019.

Sales of the two leading IVT biologic agents used to treat eye diseases associated with abnormal blood vessel proliferation, Genentech’s Lucentis ® and Regeneron’s Eylea ® , were $1.7 billion and $4.1 billion, respectively, in the United States in 2018.

A new biologic form of Novartis’

Beovu ® was approved in October 2019.

An effective therapeutic to treat retinal diseases with improved dosing regimen would bring significant benefits to patients.

rTKI Program for the Potential Treatment of Wet AMD, DR, DME and RVO

Through our rTKI program we generate small molecule NCEs that are designed to be potent VEGF receptor kinase inhibitors.

KPI‑285 is our current rTKI lead compound.

In preclinical rabbit studies, KPI‑285 demonstrated a potency of less than one nanomolar against the VEGF receptor‑2 kinase and good selectivity against particular growth factor receptor kinases, cell cycle kinases and other detrimental receptors.

Also in preclinical rabbit studies, topical administration of KPI‑285 achieved concentrations in tissues in the back of the eye well above the concentrations required for in vitro inhibition of 50% of the VEGF receptor kinase activity.

In addition, in a rabbit model of VEGF induced vascular leakage, topically applied KPI‑285 MPP reduced leakage to an extent similar to that achieved with an IVT injection of Genentech’s Avastin ®

, a recombinant human monoclonal antibody that binds to VEGF.

In this model, vascular leakage of fluorescein was induced by IVT injections

Through our rTKI program we have developed several novel, potent, selective rTKIs, including K0066, which can inhibit the VEGF pathway.

In vitro assays show that K0066 has a sub-nanomolar potency against the VEGF receptor-2 kinase and good selectivity against other growth factor receptor kinases, cell cycle kinases and other off-target receptors.

We are assessing K0066 in two formulations, topical (KPI-285) and injectable depot (KPI-286) for the treatment of various retinal diseases.

In addition, in a rabbit model of VEGF induced vascular leakage, topically applied KPI-285 reduced leakage to an extent similar to that achieved with an IVT injection of Genentech’s Avastin ® , a recombinant human monoclonal antibody that binds to VEGF.

In this model, vascular leakage of fluorescein was induced by IVT injections of VEGF.

The extent of fluorescein leakage observed in various treatment groups was scored in a blinded fashion on a scale from 0 to 4, with 0 being no leakage and 4 being heavy leakage.

As shown in the photographs below, the magnitude of the effect achieved with topical administration of KPI-285 5.0% was similar to that observed with IVT injection of Avastin.

We believe that an effective therapy with an improved dosing regimen for patients with retinal diseases such as AMD, DR, DME and RVO will be a significant advancement in the treatment of these diseases and could increase patient compliance and reduce treatment burden in patients suffering from these sight threatening diseases.

Prior to initiating IND‑enabling studies, we may consider potential collaborative partnership opportunities to advance our product candidates we develop through our rTKI program, including KPI‑285.

Novel next-generation anti-inflammatories

Corticosteroid therapy is considered the standard of care for treating inflammatory conditions.

In ophthalmology, corticosteroid use has been associated with IOP increase and cataract formation.

We are developing new chemical entities for ophthalmic indications that exhibit steroid-like anti-inflammatory action with the goal of eliminating the risk of IOP increase and cataract formation .

Potential Applications in Other Diseases

We believe that an effective therapy with an improved delivery for patients with retinal diseases such as AMD, DR, DME and RVO will be a significant advancement in the treatment of these diseases and could increase patient compliance and reduce treatment burden in patients suffering from these sight threatening diseases.

SEGRM Program

Activation of the glucocorticoid receptor can result in regulation of gene expression along both the transactivation, or TA, and transrepression, or TR, pathways.

There is considerable third-party scientific evidence that the TR pathway alone may be sufficient for anti-inflammatory and immunomodulatory activity.

SEGRMs are a novel class of compounds designed to selectively regulate gene expression through the TR pathway while avoiding the TA pathway.

As a result, we believe our SEGRM program has the potential for anti-inflammatory activity comparable to corticosteroids without their associated side effects.

Our SEGRM program is currently in the lead optimization stage, and we are aiming to identify a development candidate for the program by the end of 2021.

Surface Targeted Steroid Program (KPI-333)

Although corticosteroids are potent inhibitors of ocular surface inflammation, long-term use is limited due to potential significant adverse effects, including elevated IOP and cataract formation.

These adverse events are mediated by steroid exposure to the aqueous humor, trabecular meshwork and lens.

A topical steroid that targets the ocular surface only could overcome the safety issues associated with long-term use of steroids.

We are developing KPI-333, an NCE, as a topical steroid that targets the ocular surface.

In our preclinical animal studies, KPI-333 shows excellent efficacy without raising IOP.

Potential Applications of AMPPLIFY Technology in Other Diseases

Mucus limits delivery of conventionally formulated drugs to mucosal tissues such as the lung, cervical/vaginal and gastrointestinal tract.

While our current focus is in ophthalmology, our AMPPLIFY technology has been effective in preclinical studies in enhancing drug delivery to these other tissues.

While our primary focus is in ophthalmology, our AMPPLIFY technology has been effective in preclinical studies in enhancing drug delivery to these other tissues.

We also have demonstrated in preclinical studies that AMPPLIFY technology can be used to increase mucus penetration of over fifteen classes of drugs.

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While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions.

Any product candidates that we successfully

develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Our products compete, and any product candidates that we successfully develop and commercialize will compete, with existing therapies and new therapies that may become available in the future.

Our competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceutical and generic drug companies.

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Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of INVELTYS, our first product, and EYSUVIS and other product candidates, if approved, are likely to be the product or product candidate’s efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of insurance coverage and reimbursement from government and other third‑party payors.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop.

The key competitive factors affecting the success of EYSUVIS, INVELTYS and any product candidates that we develop are the product or product candidate’s efficacy, safety, method of administration, convenience, price, the

level of generic competition and the availability of insurance coverage and reimbursement from government and other third-party payors.

Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

In addition, our ability to compete may be affected because in many cases insurers or other third-party payors seek to encourage the use of generic products.

Competition in Inflammation and Pain Following Ocular Surgery

Following ocular surgery, topical steroids are commonly prescribed to manage and prevent complications from post‑operative inflammation.

Topical steroid drops are the main competition to INVELTYS for the treatment of inflammation and pain following ocular surgery.

The current branded market leaders for topical steroids in the United States based on revenue are Lotemax products and Durezol.

Generic topical steroid formulations consist mainly of products containing prednisolone, fluorometholone or dexamethasone.

In addition, the first generic formulation of loteprednol suspension 0.05% (Lotemax suspenson) was launched in May 2019 and Durezol lost its patent exclusivity in late 2019, which could result in a potential generic launch of this product.

There are also non-topical formulations of ocular steroids that have been recently approved and/or marketed.

EyePoint Pharmaceuticals, or EyePoint, launched Dexycu TM , an intraocular suspension of dexamethasone for the treatment of post-operative inflammation, in July 2019.

Also in July 2019, Ocular Therapeutix, or Ocular, launched Dextenza ®

, an intracanalicular insert of dexamethasone for the treatment of ocular pain following ophthalmic surgery.

There are also a number of companies in the United States developing products and therapies in preclinical research and clinical development for the treatment of inflammation and pain following ocular surgery.

In addition, there are various formulations of steroids that are produced by compounding pharmacies and that are in drop form or are injected into the eye following ocular surgery.

Competition in Dry Eye Disease

We are developing EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease, which may include the management of dry eye disease flares.

The current disease management approaches for dry eye disease in the United States includes non-pharmaceutical therapies and pharmaceutical therapies.

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devices, such as punctal plugs that are inserted into the tear ducts to inhibit tear drainage, resulting in more moisture on the surface of the eye.

and TrueTear ®

Intranasal Tear Neurostimulator, a neurostimulator that received marketing approval from the FDA in April 2017, which provides electrical pulses within the nasal cavity to stimulate tear production.

Pharmaceutical therapies for dry eye disease include on label prescription drugs, including Restasis, Xiidra, and Cequa, which are the only prescription pharmaceutical products that are approved in the United States for use in patients with dry eye disease;

off‑label prescription drugs, including topical steroid drops and/or other similar products, which are prescribed on occasion for treatment of dry eye disease;

Pharmaceutical therapies for dry eye disease include on label prescription drugs, including Restasis ® , Xiidra ® , and Cequa TM , which are the only prescription pharmaceutical products other than EYSUVIS that are approved in the United States for use in patients with dry eye disease;

off label prescription drugs, including topical steroid drops and/or other similar products, which are sometimes prescribed for treatment of dry eye disease;

and various drugs that are produced by compounding pharmacies.

Generic versions of Restasis are expected to become available in the U.S.

Generic versions of Restasis are expected to become available in the United States in the near future.

Restasis and Cequa are both topical cyclosporine formulations that are approved for increasing tear production in patients whose tear production is presumed to be suppressed due to ocular keratoconjunctivitis sicca.

Xiidra is a topical anti-inflammatory therapy approved for treatment of the signs and symptoms of dry eye disease.

EYSUVIS is indicated for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease, which includes dry eye flares.

Any product that is developed for the treatment of the signs and/or symptoms of dry eye disease could directly compete with EYSUVIS.

There are several product candidates in preclinical and clinical development in the United States for the treatment of dry eye disease.

These product candidates are being developed by pharmaceutical companies, biotechnology companies, and specialty pharmaceutical and generic drug companies of various sizes, such as Oyster Point Pharma’s OC‑01 and OC‑02, Aldeyra Therapeutics’

reproxalap ophthalmic solution, ReGenTree’s RGN-259, Aurinia Pharmaceuticals’

voclosporin ophthalmic solution, Novaliq’s Cyclasol and NOV03 candidates, Silk Technologies’

SDP-4 ophthalmic solution, and others.

These product candidates are being developed by pharmaceutical, biotechnology, specialty pharmaceutical and generic drug companies of various sizes, such as Oyster Point Pharma’s OC-01 nasal spray, for which an NDA was submitted in December 2020 and, if approved, could be launched as early as late 2021, Aldeyra Therapeutics’ reproxalap ophthalmic solution, Novaliq’s CyclAsol and NOV03, which has been licensed to Bausch Health Companies Inc.

Based on publicly available information, we have identified various other product candidates in clinical development for the chronic treatment of dry eye disease in the United States.

If any of these product candidates is approved and such product candidate either effectively treats the signs and symptoms of dry eye disease or reduces the frequency of flares in dry eye patients, it could reduce the overall market opportunity for EYSUVIS.

Competition in Inflammation and Pain Following Ocular Surgery

Following ocular surgery, topical steroids are commonly prescribed to manage and prevent complications from post-operative inflammation.

Topical steroid drops are the main competition to INVELTYS for the treatment of inflammation and pain following ocular surgery.

The current branded market leaders for topical steroids in the United States, based on revenue, are Lotemax ® products and Durezol ® .

Generic topical steroid formulations consist mainly of products containing prednisolone, fluorometholone or dexamethasone.

In addition, the first generic formulation of loteprednol suspension 0.5% (Lotemax suspension) was launched in May 2019 and Durezol lost its patent exclusivity in 2019, which could result in a potential generic launch of this product in the near future.

There are also non-topical formulations of ocular steroids that have been approved and/or marketed.

Eyepoint Pharmaceutical launched Dexycu ® , an intraocular suspension of dexamethasone for the treatment of post-operative inflammation, in July 2019.

Also in July 2019, Ocular Therapeutix launched Dextenza ® , an intracanalicular insert of dexamethasone, for the treatment of ocular pain and inflammation following ophthalmic surgery.

There are also a

number of companies in the United States developing products and therapies in preclinical research and clinical development for the treatment of inflammation and pain following ocular surgery.

In addition, there are various formulations of steroids that are produced by compounding pharmacies and that are in drop form or are injected into the eye following ocular surgery.

Competition in Retinal Disease

Several therapies have been developed to block the effects of VEGF by binding to and sequestering the protein.

These include Regeneron Pharmaceuticals, Inc.’s Eylea, Genentech, Inc.’s Lucentis and Avastin, and Novatis’

These include Regeneron Pharmaceuticals, Inc.’s Eylea, Genentech, Inc.’s Lucentis and Avastin, and Novatis’ Beovu.

Avastin is approved as an anti-cancer agent, but is widely used off-label in ophthalmic diseases.

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In addition to the anti-VEGF therapies, there also are marketed drug delivery systems, or DDS, that are used to treat retinal diseases, notably:

Ozurdex ®

, which releases dexamethasone, a corticosteroid, and is marketed by Allergan;

Iluvien ®

, which releases fluocinolone acetonide, a corticosteroid, and is marketed by Alimera Sciences;

Ozurdex ® , which releases dexamethasone, a corticosteroid, and is marketed by Allergan;

Iluvien ® , which releases fluocinolone acetonide, a corticosteroid, and is marketed by Alimera Sciences;

and Yutiq TM , which releases fluocinolone acetonide, a corticosteroid, and is marketed by Eyepoint.

There are a number of preclinical research and clinical development programs being conducted by third parties to develop treatments for retinal diseases.

There are several wet-AMD product candidates in clinical development, including those being developed by F.

Hoffmann-La Roche AG, Kodiak Sciences, GrayBug, and Ocular Therapeutix.

There are also a number of preclinical research and clinical development programs being conducted by third parties to develop treatments for retinal diseases.

We expect that product candidates currently in clinical development, or that could enter clinical development in the near future, may represent significant competition if approved.

These product candidates may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies.

Competition in Ocular Surface Disease

Ocular surface conditions, which include dry eye disease, are currently treated with a variety of therapies, including branded and generic corticosteroids and non-steroidal anti-inflammatory drugs.

We are developing KPI-333 as alternative to such therapies for the chronic treatment of ocular surface conditions.

Corticosteroids are frequently used for the treatment of anterior segment conditions, including dry eye disease and for the treatment of post-surgical inflammation.

Corticosteroids are also frequently used for the treatment of wet-AMD and diabetic eye disease as second line to the anti-VEGF therapies.

We are developing our SEGRM program to be an alternative to topical and injected corticosteroids for the treatment of a variety of ocular conditions.

Sales and Marketing

In January 2019, we began commercializing INVELTYS in the United States with our own focused, specialty sales force of 57 TSMs, 7 RSLs and 3 DNAs.

We believe our sales team is one of the most experienced in our specialty with our RSLs having an average of 10.3 years ophthalmic experience and 4.6 years sales leadership experience and our 57 TSMs having an average of 8.3 years ophthalmic experience and 13.7 years pharmaceutical sales experience.

If EYSUVIS is approved for the temporary treatment of dry eye disease, we plan to increase from 57 sales representatives to a total of approximately 75 to 100 sales representatives, who will promote both EYSUVIS and INVELTYS .

In January 2019, we began commercializing INVELTYS in the United States with our own focused, specialty sales force of 57 TSMs, seven RSLs, and three DNAs.

During the fourth quarter of 2020, we expanded our sales force to include 91 TSMs, 14 RSLs, and two ASLs.

In 2021, we plan to further increase our sales force from 91 TSMs to approximately 125 TSMs, pending the status of the COVID-19 pandemic.

Our sales force promotes EYSUVIS and INVELTYS.

We believe our sales team is one of the most experienced in our specialty with our RSLs having an average of 9.1 years ophthalmic experience and 5.4 years sales leadership experience and our 91 TSMs having an average of 7.9 years ophthalmic experience and 14.2 years pharmaceutical sales experience as of December 31, 2020.

We expect to explore commercialization of EYSUVIS and potentially other product candidates in certain markets outside the United States, including the EU, utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

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We utilize our substantial in-house expertise and know-how to develop and scale up our manufacturing processes before these processes are transferred to third-party contract manufacturers, and to understand and establish controls of critical process parameters.

We also have personnel with deep product development experience who actively manage the third‑party contract manufacturers producing KPI‑121 and other products that we may develop in the future.

Our KPI‑121 drug product, including commercial lots of INVELTYS, is currently manufactured at qualified contract manufacturing facilities in compliance with current good manufacturing practice, or cGMP, regulations.

We expect that the same facilities we use to manufacture commercial lots of INVELTYS will be used to manufacture commercial lots of EYSUVIS.

Preparation of the concentrated milled suspension is performed by a third party using a manufacturing process developed by us.

The milled suspension is sterilized by gamma radiation at a separate third‑party facility.

The sterilized milled suspension is then diluted to the final drug product concentrations and filled into multi‑dose ophthalmic dropper bottles at a third‑party manufacturer.

We also have personnel with deep product development experience who actively

manage the third-party contract manufacturers producing EYSUVIS and INVELTYS and plan to use such personnel to manage third-party contract manufacturers for any products that we may develop in the future.

EYSUVIS and INVELTYS are currently manufactured at qualified contract manufacturing facilities in compliance with current good manufacturing practice, or cGMP, regulations.

Our third-party manufacturers are subject to FDA inspections from time to time.

We have supply agreements in place with these contract manufacturers to support KPI‑121 commercial, clinical and registration manufacturing, release testing, registration stability, and labeling and packaging.

We also have entered into long term commercial supply agreements with these contract manufacturers to supply KPI‑121.

We have supply agreements in place with these contract manufacturers to support commercial, clinical and registration manufacturing, release testing, registration stability, and labeling and packaging.

We also have entered into long term commercial supply agreements with these contract manufacturers to supply drug substance for EYSUVIS and INVELTYS.

Catalent Commercial Supply Agreement.

In June 2016, we entered into a Commercial Supply Agreement, or the Catalent Agreement, which we amended in February 2018, with Catalent Pharma Solutions, LLC, or Catalent, pursuant to which Catalent has agreed to manufacture and supply to us, and we have agreed to purchase from Catalent, a minimum amount of INVELTYS and EYSUVIS for commercial use.

The Catalent Agreement has an initial term of eight years from August 22, 2018, which is the date INVELTYS was approved for commercial sale in the United States, and which is subject to three‑year automatic renewal periods after the initial term, absent termination by either party in accordance with the terms of the Catalent Agreement.

The Catalent Agreement provides for pricing for INVELTYS and EYSUVIS structured on a tiered basis, with the price reduced as the volume of each product ordered increases.

We also have annual minimum purchase requirements for each of INVELTYS and EYSUVIS.

We may also pay certain fees in connection with validation and stability test services and commercialization ramp‑up following regulatory approval.

In June 2016, we entered into a Commercial Supply Agreement, or the Catalent Agreement, which we amended in February 2018, March 2020 and December 2020, with Catalent Pharma Solutions, LLC, or Catalent, pursuant to which Catalent has agreed to manufacture and supply to us, and we have agreed to purchase from Catalent, a combined minimum amount of EYSUVIS and INVELTYS for commercial use.

The Catalent Agreement had an initial term of eight years from August 22, 2018, which is the date INVELTYS was approved for commercial sale in the United States.

Pursuant to the March 2020 amendment, the initial term was extended through June 30, 2030.

The Catalent Agreement is subject to three-year automatic renewal periods after the initial term, absent termination by either party in accordance with the terms of the Catalent Agreement.

The Catalent Agreement provides for pricing structured on a tiered basis, with the price reduced as the volume of products ordered increases.

Prior to the March 2020 amendment, we had annual minimum purchase requirements for each of EYSUVIS and INVELTYS.

However, pursuant to the March 2020 amendment, the annual minimum purchase requirements are now determined on an aggregate basis for the two products.

We may cancel any purchase order under the Catalent Agreement, subject to our minimum purchase obligations.

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The Catalent Agreement contains provisions relating to compliance by Catalent with cGMP, indemnification, confidentiality, dispute resolution and other customary matters for an agreement of this kind.

Alliance Commercial Supply Agreement.

In October 2017, we entered into an Amended and Restated Master Services Agreement, or the Alliance Agreement, with Alliance Contract Pharma, LLC, or Alliance, pursuant to which Alliance has agreed to provide to us, and we have agreed to purchase from Alliance, bulk KPI‑121 concentrates.

The Alliance Agreement provides for pricing for KPI‑121 concentrates structured on a tiered basis, with the price reduced as the volume of product ordered increases.

Under the Alliance Agreement, we will provide a forecast of orders for the quantities of bulk KPI‑121 concentrates we believe we will require, and forecasted quantities will become binding at a certain point before the firm delivery date set forth in the forecast.

Unless earlier terminated pursuant to its terms, the Alliance Agreement has an initial term of ten years, after which it continues until terminated.

Each party has the right to terminate the Alliance Agreement for customary reasons such as material breach and bankruptcy.

In addition, we have the right to terminate the Alliance Agreement at any time for any or no reason upon sufficient advance notice, in which case we would owe payment to Alliance for any firm orders and certain raw materials.

The Alliance Agreement contains provisions relating to compliance by Alliance with cGMP, indemnification, confidentiality, dispute resolution and other customary matters for an agreement of this kind.

Altasciences Commercial Supply Agreement.

In October 2017, we entered into an Amended and Restated Master Services Agreement, or the Altasciences Agreement, with Alliance Contract Pharma, LLC, which was assigned to Altasciences company, or Altasciences, pursuant to which Altasciences has agreed to provide to us, and we have agreed to purchase from Altasciences, bulk intermediates.

The Altasciences Agreement provides for pricing structured on a tiered basis, with the price reduced as the volume of product ordered increases.

Under the Altasciences Agreement, we will provide a forecast of orders for the quantities we believe we will require, and forecasted quantities will become binding at a certain point before the firm delivery date set forth in the forecast.

Unless earlier terminated pursuant to its terms, the Altasciences Agreement has an initial term of ten years, after which it continues until terminated.

Each party has the right to terminate the Altasciences Agreement for customary reasons such as material breach and bankruptcy.

In addition, we have the right to terminate the Altasciences Agreement at any time for any or no reason upon sufficient advance notice, in which case we would owe payment to Altasciences for any firm orders and certain raw materials.

The Altasciences Agreement contains provisions relating to compliance by Altasciences with cGMP, indemnification, confidentiality, dispute resolution and other customary matters for an agreement of this kind.

Chemo Iberica Manufacturing and Supply Agreement.

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Under the Chemo Agreement, we will provide a forecast of orders for the quantities of loteprednol we believe we will require, and we commit to purchasing 75% of the forecasted quantities.

portions of a forecast at any time, except that, without Chemo’s consent, we cannot alter a portion of the forecast less than ninety days before the period to which such portion pertains.

We can alter portions of a forecast at any time, except that, without Chemo’s consent, we cannot alter a portion of the forecast less than ninety days before the period to which such portion pertains.

Unless earlier terminated pursuant to its terms, the Chemo Agreement has an initial term of seven years, after which it renews in two year increments unless either party gives notice of non-renewal at least one year in advance.

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patents and six U.S.

patent application, relating to our MPP technology, which we refer to as our AMPPLIFY technology, including those related to INVELTYS and EYSUVIS, in‑licensed from The Johns Hopkins University, or JHU, two related foreign patents jointly owned by us and JHU, six related foreign patent applications jointly owned by us and JHU, eight related foreign patents owned by us and 24 related foreign patent applications owned by us, which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

patent application relating to our AMPPLIFY technology, and two related foreign patents and six related foreign patent applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

patent applications, relating to our MPP technology, which we refer to as our AMPPLIFY technology, including those related to EYSUVIS and INVELTYS, in-licensed from The Johns Hopkins University, or JHU, four related foreign patents jointly owned by us and JHU, seven related foreign patent applications jointly owned by us and JHU, 13 related foreign patents owned by us and 28 related foreign patent applications owned by us, which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

patent and one U.S.

patent application relating to our AMPPLIFY technology, and four related foreign patents and seven related foreign patent applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

patents and 10 U.S.

patent applications, relating to rTKI compounds, including KPI‑285, and their uses, and 16 related foreign patents, and 51 foreign related patent applications, including pending PCT applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, which are expected to expire beginning in 2034 through 2038;

patent applications, relating to rTKI compounds, including K0066, and their uses, and 24 related foreign patents, and 53 foreign related patent applications, including pending PCT applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, which are expected to expire beginning in 2034 through 2038;

patents and one U.S.

patent application, relating to antibiotic compounds and their uses, and two related foreign patents and four related foreign patent applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2034;

patents and four U.S.

patent application, relating to antibiotic compounds and their uses, and three related foreign patents and two related foreign patent applications, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2034;

patents and five U.S.

patent applications, relating to methods for treating an eye disease or disorder by injecting or instilling a drug delivery system, and 15 related foreign patents, and 22 related foreign patent applications, which are exclusively sub-licensed from GrayBug Vision, Inc., and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire beginning in 2031 through 2035;

patents and seven U.S.

patent applications, related to our AMPPLIFY technology, and 23 related foreign patents and 10 related foreign patent applications, which are exclusively in‑licensed from JHU, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire beginning in 2025 through 2036.

patents and five U.S.

patent applications, related to our AMPPLIFY technology, and 27 related foreign patents and five related foreign patent applications, which are exclusively in-licensed from JHU, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire beginning in 2025 through 2036.

The term of individual patents depends upon the legal term for patents in the countries in which they are granted.

In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country.

In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S.

In the United States, a patent’s term may, in

certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S.

Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.

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The Johns Hopkins University

In November 2009, we entered into an exclusive license agreement with JHU, which was amended in November 2012, May 2014, August 2014, and June 2018 and amended in part by the JHU settlement agreement described below.

In November 2009, we entered into an exclusive license agreement with JHU, which was amended in November 2012, May 2014, August 2014, June 2018 and July 2020 and amended in part in October 2014 by the JHU settlement agreement described below.

We refer to the amended license agreement with JHU as the JHU license agreement.

Pursuant to the JHU license agreement, JHU granted us an exclusive, worldwide, sublicensable license under specified patent rights covering various aspects of MPP technology, to research, develop, make, use and sell products and provide services in any field.

JHU also granted us a non‑exclusive license to use specified know‑how with limits on JHU’s right to license the know‑how to other commercial entities.

JHU also granted us a non-exclusive license to use specified know-how with limits on JHU’s right to license the know-how to other commercial entities.

Financial Terms

In connection with the JHU license agreement, we paid JHU an upfront license fee in the low tens of thousands of dollars and issued to JHU a low single digit percentage of our common stock.

We also reimbursed JHU for the prosecution and maintenance costs incurred by JHU for the licensed patent rights prior to our entering into the JHU license agreement, and we are responsible for all of the ongoing costs relating to the prosecution and maintenance of the

JHU patent rights licensed to us.

We paid JHU fees in the low tens of thousands of dollars upon entering into certain of the amendments to the JHU license agreement.

In connection with the JHU license agreement and the JHU settlement agreement described below, we are obligated to make certain future payments to JHU.

In the first quarter of 2019, we paid JHU a development milestone fee of $300,000 in connection with the first commercial sale of INVELTYS.

We also paid JHU an additional $112,500 in minimum annual royalty and running fees in the aggregate in 2019.

We paid JHU $112,500 in minimum annual royalty and running fees in the aggregate in 2020.

We are obligated to pay JHU annual minimum royalties that will not exceed approximately $112,500 per year in the future.

In addition, we must pay JHU a tiered royalty rate in the low single‑digits on annual net sales by us or our affiliates of products or services covered by a valid issued claim, or certain pending claims, of a licensed JHU patent right in the country of sale, from which we may, under specified circumstances, offset portions of amounts we must pay as royalties on other patent rights in order to commercialize a licensed product or licensed service up to a maximum reduction of a mid‑double digit percentage.

In addition, we must pay JHU a tiered royalty rate in the low single-digits on annual net sales by us or our affiliates of products or services covered by a valid issued claim, or certain pending claims, of a

licensed JHU patent right in the country of sale, from which we may, under specified circumstances, offset portions of amounts we must pay as royalties on other patent rights in order to commercialize a licensed product or licensed service up to a maximum reduction of a mid-double digit percentage.

We must also pay a percentage, in the high single digits, of certain consideration we or our affiliates receive from sublicensing rights under the licensed JHU intellectual property, subject to specified offsets and deductions.

We may offset against each minimum annual payment the royalties and sublicense income that we pay to JHU in the preceding twelve-month period.

We also are obligated to pay to JHU certain remaining milestone payments, which will not exceed approximately $0.9 million in the aggregate, if certain development and commercial events are achieved.

We are obligated to pay JHU milestone fees not to exceed $750,000 in connection with the commercial sales of EYSUVIS in the U.S., and certain ex-US countries in the aggregate, if certain development and commercial events are achieved.

We also are obligated to pay to JHU certain remaining milestone payments for the development of a third and fourth product under the JHU license agreement, which will not exceed approximately $1.7 million in the aggregate, if certain development and commercial events are achieved.

The JHU patent rights sublicensed to us by GrayBug under the JHU settlement agreement described below are considered in the same way as the JHU patent rights directly licensed to us by JHU for purposes of determining these payments.

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The JHU license agreement will expire on a country-by-country basis upon the expiration of the last to expire licensed patent in such country or, if no licensed patent issues in such country, then in November 2029.

Either we or JHU may terminate the JHU license agreement for the other party’s breach that is not cured within specified time periods or if the other party is subject to certain bankruptcy protections.

In addition, we may terminate the JHU license agreement, for any reason, upon 90 days’

prior written notice to JHU.

In addition, we may terminate the JHU license agreement, for any reason, upon 90 days’ prior written notice to JHU.

Assignment and Exclusive License

In April of 2017 we assigned to JHU certain Kala‑owned patent applications and our interest in certain patents and patent applications formerly co‑owned by JHU and Kala, unifying ownership of the assigned patent rights in JHU’s name.

In April 2017 we assigned to JHU certain Kala-owned patent applications and our interest in certain patents and patent applications formerly co-owned by JHU and Kala, unifying ownership of the assigned patent rights in JHU’s name.

As part of the assignment of these patent rights to JHU, Kala was granted an exclusive, non-royalty bearing, sub-licensable license from JHU under all of the patent rights Kala assigned in this transaction, which will expire upon the expiration of the last to expire licensed patent under the new license.

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In October 2014, we, GrayBug, and JHU resolved this matter by entering into a Settlement and License Agreement, which was amended in January 2015, which we refer to as the JHU settlement agreement.

with specified characteristics for delivery of a biologically active material through mucus, mucin, or a mucosal barrier where such delivery does not involve administration via injection to the eye, which we refer to as the Kala sublicense field.

Under the JHU settlement agreement, GrayBug granted us, under specified patent rights that are exclusively licensed to GrayBug by JHU in all fields, an exclusive, worldwide royalty-free sublicense in the field of use of a particle with specified characteristics for delivery of a biologically active material through mucus, mucin, or a mucosal barrier where such delivery does not involve administration via injection to the eye, which we refer to as the Kala sublicense field.

In December 2017 and April 2019, GrayBug terminated its exclusive license from JHU as to two patent families among these patent rights.

Pursuant to the JHU settlement agreement, these patent rights were to be automatically directly licensed to us under the terms of the JHU license agreement unless we specifically declined to accept such automatic direct license.

While we did not accept the automatic direct license to one of the patent families as it does not directly relate to INVELTYS, EYSUVIS or any other potential drug candidates, we accepted the automatic direct license to the other patent family and are now responsible for all future patent prosecution costs for these patent rights.

While we did not accept the automatic direct license to one of the patent families as it does not

directly relate to EYSUVIS, INVELTYS or any other potential drug candidates, we accepted the automatic direct license to the other patent family and are now responsible for all future patent prosecution costs for these patent rights.

In turn, pursuant to the JHU settlement agreement we granted GrayBug, under specified patent rights that are exclusively licensed to us by JHU in all fields, an exclusive, worldwide royalty-free sublicense in the field of use of a particle with specified characteristics for delivery of a biologically active material to the eye via injection, excluding any particle comprising or consisting of loteprednol etabonate, which we refer to as the GrayBug sublicense field.

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Each party to the JHU settlement agreement may sublicense the rights granted to it pursuant to the JHU settlement agreement, subject to notice requirements and the requirement that any such sublicense must involve some aspect of collaboration, joint research, development, manufacture, partnership or the like.

In any event, sublicenses beyond a specified number of tiers are not permitted without the original licensing party’s written consent.

We, GrayBug and JHU each released the others, and certain persons affiliated with them, from any claims and losses known to the releasing party as of the effective date of the JHU settlement agreement in connection with the dispute that led to the JHU settlement agreement.

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The JHU settlement agreement will expire upon the expiration of all the patent rights that are the subject of the JHU settlement agreement.

We may terminate one or more of the licenses or sublicenses granted to us in the JHU settlement agreement on a country‑by‑country basis for convenience upon 30 days’

prior written notice to GrayBug.

We or GrayBug may terminate one or more the sublicenses granted to the other party under the JHU patent rights if the other

party, or its employees, officers, directors, agents or representatives, takes certain steps to oppose, attempt to invalidate or prevent the issuance of any of the patent rights directly licensed to the terminating party by JHU.

We may terminate one or more of the licenses or sublicenses granted to us in the JHU settlement agreement on a country-by-country basis for convenience upon 30 days’ prior written notice to GrayBug.

We or GrayBug may terminate one or more the sublicenses granted to the other party under the JHU patent rights if the other party, or its employees, officers, directors, agents or representatives, takes certain steps to oppose, attempt to invalidate or prevent the issuance of any of the patent rights directly licensed to the terminating party by JHU.

Government Regulation and Product Approvals

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Approval and Regulation of Drugs in the United States

In the United States, drug products are regulated under the FDCA and applicable implementing regulations and guidance.

In the United States, drug products are regulated under the U.S.

Federal Food, Drug and Cosmetics Act, or the FDCA, and applicable implementing regulations and guidance.

The failure of an applicant to comply with the applicable regulatory requirements at any time during the product development process, including non-clinical testing, clinical testing, the approval process or post-approval process, may result in delays to the conduct of a study, regulatory review and approval and/or administrative or judicial sanctions.

These sanctions may include, but are not limited to, the FDA’s refusal to allow an applicant to proceed with clinical trials, refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines and civil or criminal investigations and penalties brought by the FDA or Department of Justice, or DOJ, or other government entities, including state agencies.

An applicant seeking approval to market and distribute a new drug in the United States generally must satisfactorily complete each of the following steps before the product candidate will be approved by the FDA:

preclinical testing including laboratory tests, animal studies and formulation studies, which must be performed in accordance with the FDA’s good laboratory practice, or GLP, regulations and standards;

● preclinical testing including laboratory tests, animal studies and formulation studies, which must be performed in accordance with the FDA’s good laboratory practice, or GLP, regulations and standards;

● submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;

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● review of the product candidate by an FDA advisory committee, where appropriate or if applicable;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

● satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

● satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP and the integrity of clinical data in support of the NDA;

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The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards.

The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND.

Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and long-term toxicity studies, may continue after the IND is submitted.

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When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval.

Specifically, on April 28, 2008, the FDA amended its regulations governing the acceptance of foreign clinical studies not conducted under an investigational new drug application as support for an IND or a new drug application.

The final rule provides that such studies must be conducted in accordance with good clinical practice, or GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects.

The GCP requirements in the

final rule encompass both ethical and data integrity standards for clinical studies.

The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the resulting data.

They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.

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An IRB must operate in compliance with FDA regulations.

An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB.

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Expanded Access to an Investigational Drug for Treatment Use

Expanded access, sometimes called “compassionate use,”

is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options.

Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options.

The rules and regulations related to expanded access are intended to improve access to investigational drugs for patients who may benefit from investigational therapies.

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and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.

On December 13, 2016, the 21st Century Cures Act established (and the 2017 Food and Drug Administration Reauthorization Act later amended) a requirement that sponsors of one or more investigational drugs for the treatment of a serious disease(s) or condition(s) make publicly available their policy for evaluating and responding to requests for expanded access for individual patients.

Although these requirements were rolled out over time, they have now come into full effect.

This provision requires drug and biologic companies to make publicly available their policies for expanded access for individual patient access to products intended for serious diseases.

Sponsors are required to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study;

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In addition, on May 30, 2018, the Right to Try Act, was signed into law.

The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase

I clinical trial and that are undergoing investigation for FDA approval.

The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval.

Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program.

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Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse effects, dose tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics in healthy humans or in patients.

During Phase 1 clinical trials, information about the investigational drug product’s pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical trials.

Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage.

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A well-controlled, statistically robust Phase 3 clinical trial may be designed to deliver the data that regulatory authorities will use to decide whether or not to approve, and, if approved, how to appropriately label a drug:

such Phase 3 studies are referred to as “pivotal.”

In some cases, the FDA may approve an NDA for a product candidate but require the sponsor to conduct additional clinical trials to further assess the product candidate’s safety and effectiveness after approval.

such Phase 3 studies are referred to as “pivotal.”

Such post-approval trials are typically referred to as Phase 4 clinical trials.

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Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or completed at all.

Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.

Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it

represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients.

The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

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Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

Pediatric Studies

Under the Pediatric Research Equity Act of 2003, an application or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

Sponsors must also submit pediatric study plans prior to the assessment data.

Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation.

The applicant, the FDA, and the FDA’s

internal review committee must then review the information submitted, consult with each other and agree upon a final plan.

The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in the Food and Drug Administration Safety and Innovation Act, or FDASIA.

The FDA maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the pediatric population.

Congress amended the FDA Reauthorization Act of 2017, or FDARA.

Previously, drugs that had been granted orphan drug designation were exempt from the requirements of the Pediatric Research Equity Act.

Under the amended section 505B, beginning on August 18, 2020, the submission of a pediatric assessment, waiver or deferral will be required for certain molecularly targeted cancer indications with the submission of an application or supplement to an application.

Review and Approval of an NDA

In order to obtain approval to market a drug product in the United States, a marketing application must be submitted to the FDA that provides sufficient data establishing the safety, purity and potency of the proposed drug product for its intended indication.

The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things.

Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators.

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Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.

Following submission of an NDA, the FDA conducts a preliminary review of the application generally within 60 calendar days of its receipt and strives to inform the sponsor by the 74 th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review.

The FDA may request additional information rather than accept the application for filing.

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The FDA has agreed to specified performance goals in the review process of NDAs.

Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which the FDA accepts the application for filing, and 90% of applications for NMEs that have been designated for “priority review”

are meant to be reviewed within six months of the filing date.

For applications seeking approval of products that are not NMEs, the ten-month and six-month review periods run from the date that the FDA receives the application.

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Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to

inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.

Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS.

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Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition.

For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete.

This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective.

The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees.

However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the application is submitted.

In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

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Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation.

A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

With passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies.

A product is eligible

for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for such disease or condition.

A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for such disease or condition.

The benefits of a regenerative advanced therapy designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.

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Thus, the benefit of accelerated approval derives from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval timeline, as is the case with priority review.

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post‑approval confirmatory studies to verify and describe the product’s clinical benefit.

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the product’s clinical benefit.

As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.

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All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.

The FDA’s Decision on an NDA

On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter.

The FDA’s Decision on an NDA

An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.

A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application.

If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.

A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application.

If and when those deficiencies have been

addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.

The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

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A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution.

If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA.

The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution.

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This regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet and social media.

Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved.

After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information.

In the United States, health care professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off-label uses, because the FDA does not regulate the practice of medicine.

However, FDA regulations impose rigorous restrictions on manufacturers’

communications, prohibiting the promotion of off-label uses.

Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved.

After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information.

However, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off-label uses.

It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label information, such as distributing scientific or medical journal information.

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The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA.

This type of application allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature.

Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”

This type of application allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature.

Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant.

NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products.

If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product.

The FDA may also require companies to perform additional studies or measurements to support the change from the approved product.

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In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs.

To obtain approval of a generic

drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.

To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.

An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures.

ANDAs are “abbreviated”

because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness.

ANDAs are “abbreviated” because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness.

Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug.

At the same time, the FDA must also determine that the generic drug is “bioequivalent”

to the innovator drug.

Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent”

to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,”

also referred to as the “Orange Book.”

Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD.

In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug.

Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.” Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired.

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The FDA typically makes decisions about awards of data exclusivity shortly before a product is approved.

The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug application within eight (8) months for a drug that has three (3) or fewer approved drugs listed in the Orange Book and is no longer protected by any patent or regulatory exclusivities, or is on the FDA’s drug shortage list.

The new legislation also authorizes FDA to expedite review of ‘‘competitor generic therapies’’

or drugs with inadequate generic competition, including holding meetings with or providing advice to the drug sponsor prior to submission of the application.

The new legislation also authorizes FDA to expedite review of ‘‘competitor generic therapies’’ or drugs with inadequate generic competition, including holding meetings with or providing advice to the drug sponsor prior to submission of the application.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product.

Each of the patents listed by the NDA sponsor is published in the Orange Book.

When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.

To the extent that the

Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

Specifically, the applicant must certify with respect to each patent that:

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● the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification.

If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the applicant is not seeking approval).

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As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

Sponsors must also submit pediatric study plans prior to the assessment data.

The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan.

The FDA or the applicant may request an amendment to the plan at any time.

For drugs intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments.

In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.

Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in the Food and Drug Administration Safety and Innovation Act, or FDASIA.

Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications.

Any company that submits an NDA three years after the date of enactment of that statute must submit pediatric assessments with the NDA if the drug is intended for the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric cancer.

The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing, safety and preliminary efficacy to inform pediatric labeling for the product.

Pediatric Exclusivity

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity.

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The data do not need to show the product to be effective in the pediatric population studied;

rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted.

If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months.

rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted.

If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or

patent protection cover the product are extended by six months.

This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

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Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug”

if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a product available in the United States for treatment of the disease or condition will be recovered from sales of the product.

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a product available in the United States for treatment of the disease or condition will be recovered from sales of the product.

A company must seek orphan drug designation before submitting an NDA for the candidate product.

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If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity.

Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same drug for the same condition for seven years, except in certain limited circumstances.

Orphan exclusivity does not block the approval of a different product for the same rare disease or condition, nor does it block the approval of the same product for different conditions.

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The restoration period granted on a patent covering a product is typically one-half the time between the effective date of a clinical investigation involving human beings is begun and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date.

Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date.

Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question.

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In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics.

According to the guidance, for novel drugs, a companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling.

If the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved or cleared for that indication.

Approval or clearance of the companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population.

The review of in vitro companion diagnostics in conjunction with the review of our therapeutic treatments for cancer will, therefore, likely involve coordination of review by the FDA’s Center for Drug Evaluation and Research and the FDA’s Center for Devices and Radiological Health Office of In Vitro Diagnostics Device Evaluation and Safety.

The guidance also explains that a companion diagnostic device used to make treatment decisions in clinical trials of a biologic product candidate generally will be considered an investigational device, unless it is employed for an intended use for which the device is already approved or cleared.

If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device under the FDA’s Investigational Device Exemption, or IDE, regulations.

Thus, the sponsor of the diagnostic device will be required to comply with the IDE regulations.

According to the guidance, if a diagnostic device and a product are to be studied together to support their respective approvals, both products can be studied in the same investigational study, if the study meets both the requirements of the IDE regulations and the IND regulations.

The guidance provides that depending on the details of the study plan and subjects, a sponsor may seek to submit an IND alone, or both an IND and an IDE.

In July 2016, the FDA issued a draft guidance document intended to further assist sponsors of therapeutic products and sponsors of in vitro companion diagnostic devices on issues related to co-development of these products.

Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices.

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The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer.

It involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling.

PMA applications are subject to an application fee, which exceeds $250,000 for most PMAs.

PMA applications are subject to an application fee.

For federal fiscal year 2021, the standard fee is $365,657 and the small business fee is $91,414.

In addition, PMAs for certain devices must generally include the results from extensive preclinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought.

In particular, for a diagnostic, a PMA application typically requires data regarding analytical and clinical validation studies.

As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation, or QSR, which imposes elaborate testing, control, documentation and other quality assurance requirements.

PMA approval is not guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that can substantially delay approval.

If the FDA’s evaluation of

the PMA application is favorable, the FDA typically issues an approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA.

If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter.

If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA.

If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter.

A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable.

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The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution.

Once granted, PMA approval may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.

Once granted, PMA approval may be withdrawn by the FDA if

compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.

After a device is placed on the market, it remains subject to significant regulatory requirements.

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Device manufacturers must also establish registration and device listings with the FDA.

A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices.

Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA.

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● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing ·or covering up a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services;

● the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing ·or covering up a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services;

● the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, or offering or promising to make improper payments to non-U.S.

officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment;

the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

● the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical

supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to health care items or services that are reimbursed by non-government third-party payors, including private insurers.

Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

Additionally, some state and local laws require the registration of pharmaceutical sales representatives in the jurisdiction.

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A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition.

Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved.

Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.

Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved.

The containment of health care costs also has become a priority of federal, state and foreign governments and the prices of products have been a focus in this effort.

Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.

Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products.

Coverage policies and third-party reimbursement rates may change at any time.

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There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other changes to the health care system in the United States.

In March 2010, the United States Congress enacted the Affordable Care Act, or ACA, which, among other things, includes changes to the coverage and payment for drug products under government health care programs.

Among the provisions of the ACA of importance to our potential product candidates are:

an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

expanded manufacturers’

rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,”

or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices;

addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

expanded the types of entities eligible for the 340B drug discount program;

established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% (and 70% starting January 1, 2019) point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’

outpatient drugs to be covered under Medicare Part D;

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted.

In March 2010,

President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted.

In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.

This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments, will remain in effect through 2027 unless additional Congressional action is taken.

In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law.

For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President on December 22, 2017, Congress repealed the “individual mandate.”

The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019.

According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.

Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac”

tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.

Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”.

The Congress will likely consider other legislation to replace elements of the ACA during the next Congressional session.

In addition, on December 14, 2018, a U.S.

District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well.

The Trump administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the same judge issued an order staying the judgment pending appeal.

The Trump Administration recently represented to the Court of Appeals considering this judgment that it does not oppose the lower court’s ruling.

On July 10, 2019, the Court of Appeals for the Fifth Circuit heard oral argument in this case.

On December 18, 2019, that court affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional and it remanded the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the ACA.

These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2030 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.

The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law.

For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019.

Further, on December 14, 2018, a U.S.

District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well.

On December 18, 2019, the Court of Appeals for the Fifth Circuit court affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional and it remanded the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the ACA.

Thereafter, the U.S.

Supreme Court agreed to hear this case.

Oral argument in the case took place on November 10, 2020.

On February 10, 2021, the Biden Administration withdrew DOJ’s support for this lawsuit.

A ruling by the Court is expected sometime this year.

Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.

The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA.

Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA.

One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.

The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA.

Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017.

In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.

Further, on June 14, 2018, U.S.

Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them.

The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.

Further, there have been several recent U.S.

congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

At the federal level, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

For example, on May 11, 2018, the Administration issued a plan to lower drug prices.

Under this blueprint for action, the Administration indicated that the Department of Health and Human Services will:

take steps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies;

advance biosimilars and generics to boost price competition;

evaluate the inclusion of prices in drug makers’

ads to enhance price competition;

speed access to and lower the cost of new drugs by clarifying policies for sharing information between insurers and drug makers;

avoid excessive pricing by relying more on value-based pricing by expanding outcome-based payments in Medicare and Medicaid;

work to give Part D plan sponsors more negotiation power with drug makers;

examine which Medicare Part B drugs could be negotiated for a lower price by Part D plans, and improving the design of the Part B Competitive Acquisition Program;

Medicare’s drug-pricing dashboard to increase transparency;

prohibit Part D contracts that include “gag rules”

that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance;

and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases.

In addition, on December 23, 2019, the Trump Administration published a proposed rulemaking that, if finalized, would allow states or certain other non-federal government entities to submit importation program proposals to FDA for review and approval.

Applicants would be required to demonstrate their importation plans pose no additional risk to public health and safety and will result in significant cost savings for consumers.

At the same time, FDA issued draft guidance that would allow manufacturers to import their own FDA-approved drugs that are authorized for sale in other countries (multi-market approved products).

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

The Trump Administration also took executive actions to undermine or delay implementation of the ACA, including directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.

On January 28, 2021, however, President Biden rescinded those orders and issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access.

Under this Order, federal agencies are directed to re-examine:

policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19;

demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements;

policies that undermine the Health Insurance Marketplace or other markets for health insurance;

policies that make it more difficult to enroll in Medicaid and the ACA;

and policies that reduce affordability of coverage or financial assistance, including for dependents.

The costs of prescription pharmaceuticals have also been the subject of considerable discussion in the United States.

To date, there have been several recent U.S.

congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

To those ends, President Trump issued five executive orders intended to lower the costs of prescription drug products but it is unclear whether, and to what extent, these orders will remain in force under the Biden Administration.

Further, on September 24, 2020, the Trump Administration finalized a rulemaking allowing states or certain other non-federal government entities to submit importation program proposals to the FDA for review and approval.

Applicants are required to demonstrate that their importation plans pose no additional risk to public health and safety and will result in significant cost savings for consumers.

The FDA has issued draft guidance that would allow manufacturers to import their own FDA-approved drugs that are authorized for sale in other countries (multi-market approved products).

At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs.

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regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions.

Specifically, the process governing approval of medicinal products in the European Union (“EU”) generally follows the same lines as in the United States.

It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication.

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The clinical trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU Member States and further detailed in applicable guidance documents.

In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted.

The Regulation was published on June 16, 2014 but is not expected to apply until 2020.

The Clinical Trials Regulation will be directly applicable in all the EU Member States, repealing the current Clinical Trials Directive 2001/20/EC and replacing any national legislation that was put in place to implement the Directive.

Conduct of all clinical trials performed in the EU will continue to be bound by currently applicable provisions until the new Clinical Trials

Regulation becomes applicable.

The extent to which on-going clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial.

If a clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.

The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU.

The main characteristics of the regulation include:

a streamlined application procedure via a single entry point, the “EU Portal and Database”;

a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors;

and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts.

Part I is assessed by the appointed reporting Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Concerned Member States).

Part II is assessed separately by each Concerned Member State.

Strict deadlines have been established for the assessment of clinical trial applications.

The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the Concerned Member State.

However, overall related timelines will be defined by the Clinical Trials Regulation.

In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC.

The new Clinical Trials Regulation will become directly applicable to and binding in all 28 EU Member States without the need for any national implementing legislation.

It will overhaul the current system of approvals for clinical trials in the EU.

Specifically, the new legislation aims at simplifying and streamlining the approval of clinical trials in the EU.

Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial will be required to submit a single application for approval of a clinical trial to a reporting EU Member State (RMS) through an EU Portal.

The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU Member State or in more than one EU Member State.

The Regulation was published on June 16, 2014 but has not yet become effective.

As of January 1, 2020, the website of the European Commission reported that the implementation of the Clinical Trials Regulation was dependent on the development of a fully functional clinical trials portal and database, which would be confirmed by an independent audit, and that the new legislation would come into effect six months after the European Commission publishes a notice of this confirmation.

The website indicated that the audit was expected to commence in December 2020.

In late 2020, the EMA indicated that it plans to focus on the findings of a system audit;

improving the usability, quality and stability of the clinical trial information system;

and knowledge transfer to prepare users and their organizations for the new clinical trial system.

The EMA has indicated that the system will go live in December 2021.

As in the US, parties conducting certain clinical trials must post clinical trial information in the European Union at the EudraCT website:

https://eudract.ema.europa.eu.

PRIME Designation in the EU

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Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted.

Importantly, a dedicated Agency contact and rapporteur from the Committee for Human Medicinal Products (CHMP) or Committee for Advanced Therapies (CAT) are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level.

A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.

Pediatric Studies

Companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s pediatric committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies (e.g., because the relevant disease or condition occurs only in adults).

The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is being sought.

The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at a later date.

Marketing Authorization

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Under the centralized procedure, the CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization.

Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP.

questions of the CHMP.

Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation.

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The Standing Committee is composed of representatives of the EU Member States and chaired by a non-voting European Commission representative.

The European Parliament also has a related “droit de regard”.

The European Parliament's role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.

The European Commission may grant a so-called “marketing authorization under exceptional circumstances”.

Such authorization is intended for products for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge, comprehensive information cannot be provided, or it would be contrary to generally accepted principles of medical ethics to collect such information.

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Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially result in the marketing authorization being suspended or revoked.

The renewal of a marketing authorization of a medicinal product under exceptional circumstances, however, follows the same rules as a “normal”

marketing authorization.

The renewal of a marketing authorization of a medicinal product under exceptional circumstances, however, follows the same rules as a “normal” marketing authorization.

Thus, a marketing authorization under exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decides that safety grounds merit one additional five-year renewal.

The European Commission may also grant a so-called “conditional marketing authorization”

prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization.

The European Commission may also grant a so-called “conditional marketing authorization” prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization.

Such conditional marketing authorizations may be granted for product candidates (including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (iii) the product fulfills an unmet medical need and (iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required.

A conditional marketing authorization may contain specific

obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data.

A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data.

Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations.

The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

The timelines for the

centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

The EU medicines rules expressly permit the EU Member States to adopt national legislation prohibiting or restricting the sale, supply or use of any medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells.

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Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure.

Data exclusivity prevents applicants for authorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period of eight years.

During an additional two-year period of market exclusivity, a generic marketing authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the EU market until the expiration of the market exclusivity.

The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

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The marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU Member State.

To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all

variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid.

To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid.

The European Commission or the competent authorities of the EU Member States may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year period of marketing authorization.

Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period.

Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited

Any authorization which is not followed by the actual placing of the medicinal product on the EU n market (in case of centralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-called sunset clause).

Pediatric Studies and Exclusivity

Prior to obtaining a marketing authorization in the European Union, applicants must demonstrate compliance with all measures included in an EMA‑approved PIP covering all subsets of the pediatric population, unless the EMA has granted a product‑specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP.

The respective requirements for all marketing authorization procedures are laid down in Regulation (EC) No 1901/2006, the so‑called Pediatric Regulation.

This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.

The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine for children until there is enough information to demonstrate its effectiveness and safety in adults.

The PDCO may also grant waivers when development of a medicine for children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

Before an MAA can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.

If an applicant obtains a marketing authorization in all EU Member States, or a marketing authorization granted in the Centralized Procedure by the European Commission, and the study results for the pediatric population are included in the product information, even when negative, the medicine is then eligible for an additional six month period of qualifying patent protection through extension of the term of the Supplementary Protection Certificate, or SPC.

Pediatric Exclusivity

Products that are granted a marketing authorization with the results of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under a supplementary protection certificate (if any is in effect at the time of approval) even where the trial results are negative.

In the case of orphan medicinal products, a two year extension of the orphan market exclusivity may be available.

This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.

Orphan Drug Designation and Exclusivity

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These include:

Compliance with the EU’s stringent pharmacovigilance or safety reporting rules must be ensured.

● Compliance with the EU’s stringent pharmacovigilance or safety reporting rules must be ensured.

These rules can impose post-authorization studies and additional monitoring obligations.

The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice.

● The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice.

These requirements include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients into the EU.

The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and EU Member State laws.

● The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly

regulated in the EU notably under Directive 2001/83EC, as amended, and EU Member State laws.

Direct-to-consumer advertising of prescription medicines is prohibited across the EU.

Brexit and the Regulatory Framework in the United Kingdom

On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU (which is commonly referred to as “Brexit”).

Following protracted negotiations, the United Kingdom left the European Union on January 31, 2020.

Under the withdrawal agreement, there is a transitional period until December 31, 2020 (extendable up to two years).

Discussions between the United Kingdom and the EU have so far mainly focused on finalizing withdrawal issues and transition agreements but have been extremely difficult.

To date, only an outline of a trade agreement has been reached.

Much remains open but the UK Prime Minister has indicated that the United Kingdom will not seek to extend the transitional period beyond the end of 2020.

If no trade agreement has been reached before the end of the transitional period, there may be significant market and economic disruption.

The UK Prime Minister has also indicated that the UK will not accept high regulatory alignment with the EU.

Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of product candidates in the United Kingdom.

Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, may force us to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for INVELTYS or our product candidates, including EYSUVIS, which could significantly and materially harm our business.

On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU, commonly referred to as Brexit.

Following protracted negotiations, the United Kingdom left the EU on January 31, 2020.

Under the withdrawal agreement, there is a transitional period until December 31, 2020 (extendable by up to two years).

On December 24, 2020, the United Kingdom and the European Union entered into a Trade and Cooperation Agreement.

The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction.

Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the UK, as the UK legislation now has the potential to diverge from EU legislation.

It remains to be seen how Brexit will impact regulatory requirements for product candidates and products in the UK in the long-term.

The MHRA has recently published detailed guidance for industry and organizations to follow from January 1, 2021 now the transition period is over, which will be updated as the UK’s regulatory position on medicinal products evolves over time.

Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European Union’s General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the European Economic Area, or EEA, to the United Kingdom will remain lawful under GDPR.

The Trade and Cooperation Agreement provides for a transitional period during which the United Kingdom will be treated like an European Union member state in relation to processing and transfers of personal data for four months from January 1, 2021.

This may be extended by two further months.

After such period, the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom.

The United Kingdom has already determined that it considers all of the EU 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the EU/EEA remain unaffected.

Pricing Decisions for Approved Products

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Recently, many countries in the EU have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU.

The downward pressure on health care costs in general,

particularly prescription products, has become intense.

The downward pressure on health care costs in general, particularly prescription products, has become intense.

As a result, increasingly high barriers are being erected to the entry of new products.

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The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.

The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater.

The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.

Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.

Human Capital

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled workforce.

As of December 31, 2020, we had a total of 188 full time employees.

During 2020, we added 65 new employees, largely as a result of the increase in our sales force due to the recent FDA approval of EYSUVIS.

We expect to continue to add additional employees, with a focus on expanding our sales force, pending the status of the COVID-19 pandemic.

We continually evaluate our business needs and opportunities and balance in house expertise and capacity with outsourced expertise and capacity.

Recruiting, motivating and retaining qualified employees is critical to our success.

We monitor our compensation programs and aim to provide our employees a competitive mix of cash compensation and medical insurance benefits, as well as the opportunity to participate in our equity programs.

We believe that our philosophy of providing competitive compensation, along with opportunities for career growth and development, encourage a high level of corporate employee tenure and low level of voluntary turnover.

A large majority of our employees have obtained advanced degrees in their professions.

Our employees are supported with training and development opportunities to pursue their careers and to ensure compliance with our policies.

None of our employees are represented by labor unions or covered by collective bargaining agreements.

We consider our relationship with our employees to be good.

We value the health, safety and wellbeing of our employees and their families.

In response to the COVID-19 pandemic, we have implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This includes allowing our corporate employees to work remotely, as appropriate, while implementing significant safety measures designed to protect the health of all those entering our office.

Our Corporate Information

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Our website address is www.kalarx.com.

The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K.

Our website address is included in this Annual Report on Form 10-K as an inactive technical reference only.

Available Information

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We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission, or the SEC.

You can review our electronically filed reports and other information that we file with the SEC on the SEC’s web site at http://www.sec.gov.

You can review our electronically filed reports and other information

that we file with the SEC on the SEC’s web site at http://www.sec.gov.

We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons.

In addition, we regularly use our website to post information regarding our business, product development programs and governance, and we encourage investors to use our website, particularly the information in the section entitled “Investors & Media,”

as a source of information about us.

The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K.

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

What changed 10-K

Item 1. Business