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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-12 · 512 added, 622 removed, 577 unchanged (66% of the section changed)

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You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Annual Report on Form 10-K, including our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K, before deciding to invest in our common stock.

If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially.

These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, prospects, operating results and financial condition.

In such event, the trading price of our common stock could decline and you might lose all or part of your investment.

The risks and uncertainties described below are not the only ones we face.

Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business, prospects, operating results and financial condition.

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant losses from operations and negative cash flows from operations since our inception.

We expect to incur losses over the next several years and may never achieve or maintain profitability.

We expect to incur additional losses and may never achieve or maintain profitability.

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

Our net losses were $94.3 million for the year ended December 31, 2019 and $66.7 for the year ended December 31, 2018.

Our net losses were $104.3 million for the year ended December 31, 2020 and $94.3 million for the year ended December 31, 2019.

As of December 31, 2020, we had an accumulated deficit of $399.8 million.

In January 2019, we launched our first product, INVELTYS ®

(loteprednol etabonate ophthalmic suspension) 1% for the treatment of post-operative inflammation and pain following ocular surgery, and have had limited revenues to date from product sales.

We have financed our operations primarily through proceeds from public offerings of common stock, private placements of preferred stock, convertible debt financings, borrowings under credit facilities, warrants, and sales under our at-the-market offering facility, or the ATM Offering.

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

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

In January 2019, we launched our first product, INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1% for the treatment of post-operative inflammation and pain following ocular surgery.

On October 26, 2020, the U.S.

Food and Drug Administration, or FDA, approved our second product, EYSUVIS TM (loteprednol etabonate ophthalmic suspension) 0.25% for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease.

We began shipping EYSUVIS to wholesalers in the United States in late December 2020 and commenced a full promotional launch in early January 2021.

We have had limited revenues to date from product sales.

We have financed our operations primarily through proceeds from our initial public offering, or IPO, follow-on public offerings of common stock and sales under our at-the-market offering facility, or the ATM Offering, private placements of preferred stock, borrowings under credit facilities, convertible promissory notes and warrants.

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

Although we expect to continue to generate revenue from sales of INVELTYS and began to generate revenue from sales of EYSUVIS in late December 2020, there can be no assurance as to the amount or timing of any such revenue, and we expect to continue to incur significant expenses and operating losses.

We may never achieve or maintain profitability.

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

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and engage in activities to prepare for commercialization of our lead product candidate, 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 signs and symptoms of dry eye disease, as a result of increased headcount, including management personnel to support our clinical, manufacturing and commercialization activities, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

Our license agreement with The Johns Hopkins University, or JHU, under which we license certain of our patent rights and a significant portion of the technology for INVELTYS and EYSUVIS, imposes royalty and other financial obligations on us, and we may enter into additional licensing and funding arrangements with third parties that may impose milestone payment, royalty, insurance and other obligations on us.

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and execute our commercial launch plan for EYSUVIS, as a result of increased headcount, including management personnel to support our clinical, manufacturing and commercialization activities, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

The anticipated increase in expenses from an increase in headcount includes the expansion of our sales force from 56 territory sales managers, or TSMs, to 91 TSMs, which occurred in the fourth quarter of 2020, and our plan to further increase our sales force from 91 TSMs to approximately 125 TSMs in 2021, pending the status of the COVID-19 pandemic.

Our expenses will also increase if and as we:

continue to grow our sales, marketing and distribution capabilities in connection with the commercialization of INVELTYS and any product candidates , including EYSUVIS, for which we may submit for and obtain marketing approval;

conduct any necessary clinical trials, including conducting our ongoing Phase 3 clinical trial, and other development activities and/or seek marketing approvals for EYSUVIS and any other product candidates;

pursue the clinical development of KPI‑121 for the treatment of other additional indications or for use in other patient populations or, if approved, seek to broaden the label of KPI‑121;

pursue the preclinical and clinical development of product candidates, including our receptor Tyrosine Kinase Inhibitor program, or rTKI program, for use in the treatment 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;

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

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

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

● continue to grow our sales, marketing and distribution capabilities in connection with the commercialization of EYSUVIS, INVELTYS and any product candidates, for which we may submit for and obtain marketing approval;

● continue to scale up our manufacturing processes and capabilities to support commercialization of EYSUVIS and INVELTYS;

● seek regulatory approval for EYSUVIS and INVELTYS outside of the United States;

● progress our current and any future preclinical development programs;

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

● conduct clinical trials and other development activities and/or seek marketing approval for future product candidates;

● leverage our proprietary AMPPLIFY technology to seek to advance additional therapeutics into preclinical and clinical development;

● maintain, expand and protect our intellectual property portfolio;

● hire additional clinical, quality control, scientific, manufacturing, commercial and management personnel;

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

increase our product liability insurance coverage as we expand our commercialization efforts.

● expand our operational, financial and management systems;

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

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.

Our expenses will increase from what we anticipate if:

we elect to or are required by the FDA or non‑U.S.

● we elect or are required by the FDA or non-U.S.

regulatory agencies to perform clinical trials or studies in addition to those expected;

● there are any delays in enrollment of patients in or completing our clinical trials or the development of our product candidates;

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

● there are any third-party challenges to our intellectual property portfolio, or the need arises to defend against intellectual property-related claims or enforce our intellectual property rights.

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

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

While we began to generate revenue from the sales of EYSUVIS and INVELTYS in late December 2020 and January 2019, respectively, there can be no assurance as to the amount or timing of any future revenue from EYSUVIS and INVELTYS, and we may not achieve profitability.

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

successfully growing INVELTYS revenues, including by further developing our sales force, marketing and distribution capabilities;

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

obtaining and maintaining marketing approval for EYSUVIS or any other product candidates;

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

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

● successfully launching EYSUVIS and growing EYSUVIS revenues;

● successfully growing INVELTYS revenues;

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

● manufacturing at commercial scale, marketing, selling and distributing EYSUVIS and INVELTYS;

● maintaining regulatory and marketing approvals for EYSUVIS and INVELTYS;

● discovering, developing and successfully seeking marketing approval and commercialization of additional product candidates;

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

● obtaining, maintaining and protecting our intellectual property rights;

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

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

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

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

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

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

We plan to seek approval in other jurisdictions, but may not do so successfully, or at all.

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

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

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

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

Our revenue from sales of EYSUVIS and INVELTYS alone may not be sufficient for us to become profitable in the near future, if at all.

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

As a result of these restrictions, we previously suspended our sales force from substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually.

However, our sales force has resumed substantially all in-person interactions in the field.

To the extent we restrict, or are restricted from, in-person interactions with physicians and customers, we are limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS and could adversely affect our ability to launch and market EYSUVIS.

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

The extent of the impact of COVID-19 on our commercialization efforts will depend on the length and severity of this pandemic, including the extent any resurgence of the COVID-19 virus and any variant strains of the virus, the availability and effectiveness of vaccines, and the impact of the foregoing on our customers, employees, vendors and government agencies, which is uncertain and cannot be predicted.

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

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We are an early-stage commercial company.

Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing INVELTYS and our product candidates, including EYSUVIS, and preparing for and commercially launching INVELTYS .

We are in the early stages of the process of transitioning from a company solely with a research and development focus to a company engaging in commercial activities.

Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing EYSUVIS and INVELTYS and conducting other research and development activities, and commercially launching EYSUVIS and INVELTYS.

We are in the process of transitioning from a company solely with a research and development focus to a company engaging in commercial activities.

We may not be successful in such a transition.

We only launched INVELTYS in January 2019 and are still in the process of executing our commercial launch plan, have no history of commercializing products, and, to date, have generated limited revenue from the sale of INVELTYS.

We only launched INVELTYS in January 2019 and are still in the process of executing our commercial launch plan for EYSUVIS, have no prior history of commercializing products, and, to date, have generated limited revenue from the sale of EYSUVIS and INVELTYS.

In addition, our commercial operations and INVELTYS sales have been and continue to be negatively

impacted by COVID-19 and its collateral consequences.

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

Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating and commercialization history.

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If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we commercialize INVELTYS, seek marketing approval for EYSUVIS, and continue the development of and potentially seek marketing approval for other product candidates.

Our expenses may increase substantially in connection with our ongoing activities, particularly as we commercialize INVELTYS, EYSUVIS, if and when approved, and as we advance our preclinical activities and clinical trials for our product candidates.

In addition, our expenses will further increase if we elect to or are required to conduct any further trials for EYSUVIS.

We also expect to devote additional financial resources to conducting research and development, and potentially initiating clinical trials of, and seeking regulatory approval for, other potential product candidates, including product candidates that we may develop using our rTKI program 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.

Our expenses have increased relative to prior periods in connection with our launch and commercialization of INVELTYS, including costs associated with the addition of our specialty sales force and increased marketing, distribution and manufacturing capabilities.

If we obtain marketing approval for any product candidate that we develop, we may incur significant additional commercialization expenses for such product candidate.

For example, if EYSUVIS is approved, 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.

Furthermore, we will incur additional costs associated with operating as a public company, hiring additional personnel and expanding our facilities.

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we commercialize EYSUVIS and INVELTYS, and as we advance our preclinical activities for our product candidates.

We also expect to incur significant additional expenses if and as we conduct further research and development activities, and potentially initiate clinical trials of, and seek regulatory approval for, any product candidates that we identify and advance, including product candidates from our rTKI program, our STS program and the novel SEGRM program.

Our expenses have increased relative to prior periods in connection with our launch and commercialization of EYSUVIS and INVELTYS, including costs associated with the addition and subsequent expansion of our specialty sales force and increased marketing, distribution and manufacturing capabilities.

For example, with the approval of EYSUVIS, we increased our sales force from 56 TSMs to 91 TSMs and from seven RSLs to 14 RSLs during the fourth quarter of 2020, and plan to further increase our sales force to approximately 125 TSMs in 2021, pending the status of the COVID-19 pandemic.

Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations.

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Our future capital requirements will depend on many factors, including:

our ability to successfully commercialize and sell INVELTYS in the United States;

the cost, and our ability to expand and maintain the commercial infrastructure and manufacturing capabilities required to support the commercialization of INVELTYS, and any other products for which we receive marketing approval, including product sales, medical affairs, marketing, manufacturing and distribution;

the results of our ongoing Phase 3 trial for EYSUVIS, STRIDE 3 (STRIDE—Short Term Relief In Dry Eye);

the costs, timing and outcome of regulatory review of EYSUVIS, including whether any additional clinical trials or other activities are required for approval or label expansion;

the progress, costs and results of any clinical activities for regulatory review of INVELTYS and EYSUVIS outside of the United States;

the costs and timing of process development and manufacturing scale‑up activities associated with INVELTYS;

the costs and timing of commercialization activities for EYSUVIS if we receive marketing approval, including the costs and timing of expanding our sales force and establishing additional product sales, marketing, distribution and outsourced manufacturing capabilities;

the amount of revenue received from commercial sales of INVELTYS and, if approved, EYSUVIS or any other product candidates;

● the costs and timing of commercialization activities for EYSUVIS and INVELTYS, including the costs and timing of expanding our sales force and establishing additional product sales, marketing, medical affairs, distribution and outsourced manufacturing capabilities;

● our ability to successfully commercialize and sell EYSUVIS and INVELTYS in the United States and the amount of revenue received from commercial sales;

● the progress, costs and results of any clinical activities for regulatory review of, and our success seeking approval and/or commercializing, EYSUVIS and INVELTYS outside of the United States;

● our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;

the scope, progress, results and costs of any product candidates that we may derive from any other product candidates that we may develop;

the extent to which we in‑license or acquire rights to other products, product candidates or technologies;

● the scope, progress, results and costs of any product candidates that we may develop;

● the extent to which we successfully advance and/or in-license or acquire rights to other products, product candidates or technologies;

● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims.

We expect to continue to incur significant expenses and operating losses for the next several years.

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

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

We expect that our existing cash on hand as of

December 31, 2019, together with anticipated net revenue from sales of INVELTYS, will enable us to fund our planned operations, lease and debt service obligations, and capital expenditure requirements into the second quarter of 2021.

This evaluation is based on our operating plan which includes projected net revenue from sales of INVELTYS.

If we do not achieve our projected net revenue, we believe we have the ability to manage spending under this operating plan in order to fund operations into the second quarter of 2021.

This evaluation is based on relevant conditions and events that are currently known or reasonably knowable.

We expect that our cash, cash equivalents, and short-term investments of $153.5 million as of December 31, 2020, along with anticipated revenue from INVELTYS and the $18.2 million net proceeds raised under the ATM Offering program in January 2021, will enable us to fund our operations, lease and debt

service obligations, and capital expenditure requirements into at least the fourth quarter of 2022.

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

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

As a result, we could deplete our available capital resources sooner than we currently expect.

We have based these estimates on assumptions that may prove to be wrong, and our operating projections, including our projected net revenue, may change as a result of many factors currently unknown to us.

Conducting preclinical testing and clinical trials, seeking market approvals and commercializing products are time‑consuming, expensive and uncertain processes that take years to complete.

Although we commercially launched INVELTYS in early 2019, we do not anticipate that our revenue from product sales of INVELTYS will be sufficient for us to become profitable for several years, if at all.

Additionally, in August 2019, we announced that we received a complete response letter, or CRL , from the FDA regarding our new drug application, or NDA , for EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

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.

However, we may not generate the data necessary or otherwise obtain regulatory approval to commercialize EYSUVIS.

Further, we may also determine to conduct additional Phase 3 trials for EYSUVIS or to potentially expand the label of EYSUVIS if we receive marketing approval for a narrower indication than we are targeting.

We will need to obtain substantial additional financing to achieve our business objectives.

In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

Commercializing products is a time-consuming, expensive and uncertain process.

Although we commercially launched INVELTYS in early 2019, began shipping EYSUVIS to wholesalers in the United States in late December 2020 and commenced a full promotional launch of EYSUVIS in early January 2021, our revenue from product sales of EYSUVIS and INVELTYS may not be sufficient for us to become profitable in the near future, if at all.

In addition, other than our approved products, EYSUVIS and INVELTYS, all of our other development efforts are in the early stages of preclinical development.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete.

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

We may never generate the necessary data or results required to obtain marketing approval and achieve product sales from our preclinical development programs.

Also, even if we successfully identify and develop product candidates from our preclinical development programs and those are approved, we may not achieve commercial success with them.

Accordingly, we will need to rely on the commercial success of EYSUVIS and INVELTYS to generate product revenue for the foreseeable future.

We may require additional financing to achieve our business objectives.

In addition, we may opportunistically raise additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

Adequate additional financing may not be available to us on acceptable terms, or at all.

If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize INVELTYS or any other product candidates for which we obtain approval.

If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize EYSUVIS and INVELTYS, or any product candidates for which we obtain approval.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

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To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

The lenders under our credit facility with Athyrium Opportunities III Acquisition LP, or our Athyrium Credit Facility, are currently entitled to exercise warrants for up to 184,660 shares of common stock.

If we draw down on the remaining $35.0 million of potentially available borrowings under our Athyrium Credit Facility, the lenders thereunder will be entitled to exercise warrants for up to an additional 86,175 shares of our common stock.

Your ownership interest will be diluted to the extent any such warrants are exercised.

Debt financing and preferred equity financing, if available, may involve agreements that include pledging of assets as collateral, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Our pledge of our assets as collateral to secure our obligations under our Athyrium Credit Facility may limit our ability to obtain additional debt financing.

Under our Athyrium Credit Facility, we are also restricted from paying dividends on our common stock and limited with respect to certain other uses of our cash without the lenders’

Our pledge of our assets as collateral to secure our obligations under our credit facility with Athyrium Opportunities III Acquisition LP, or Athyrium Credit Facility, may limit our ability to obtain additional debt financing.

Under the Athyrium Credit Facility, we are also restricted from paying dividends on our common stock and limited with respect to certain other uses of our cash without the lenders’ consent.

If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to

delay, limit, reduce or terminate our product development or current or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or current or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.

We have a significant amount of indebtedness.

We have a substantial amount of indebtedness.

As of December 31, 2020, we had $75.0 million of outstanding borrowings under the Athyrium Credit Facility.

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The Athyrium Credit Facility provides for quarterly interest-only payments for 48 months.

Beginning on September 30, 2022, we will be required to make principal and interest payments through October 1, 2024.

Beginning on September 30, 2022, we will be required to make principal and interest payments through October 1, 2024, the date of maturity.

Our obligations under the Athyrium Credit Facility are secured by substantially all of our assets.

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● placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

We intend to satisfy our current and future debt service obligations with our existing cash and anticipated product revenue from INVELTYS.

We intend to satisfy our current and future debt service obligations with our existing cash and anticipated product revenue.

Nonetheless, we may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt and funds from external sources may not be available on acceptable terms, if at all.

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If our estimates or judgments relating to our critical accounting policies, or any of our projections, prove to be inaccurate or financial reporting standards or interpretations change, our results of operations could be adversely affected.

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

GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses.

Such estimates and judgments include revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock compensation, accrued expenses and the recoverability of our net deferred tax assets and related valuation allowance.

Such estimates and judgments include revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock-based compensation, accrued expenses and the recoverability of our net deferred tax assets and related valuation allowance.

We base our estimates and judgments on historical experience, expected future experience and on various other assumptions that we believe to be reasonable under the circumstances.

In addition, from time to time, we may rely on projections regarding our expected future performance that represent our management’s then-current estimates.

However, any of these estimates, judgments or projections, or the assumptions underlying them, may change over time or may otherwise prove to be inaccurate.

Our results of operations may be adversely affected if our estimates, assumptions or projections change or if actual

circumstances differ from those in our estimates or assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

Our results of operations may be adversely affected if our estimates, assumptions or projections change or if actual circumstances differ from those in our estimates or assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

For example, we rely on third-party data providers to collect and report estimates of prescription information and pipeline inventory levels as components of our estimations for revenue recognition.

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Their estimates are based on a combination of data received from pharmacies and other distributors, and historical data when actual data is unavailable.

Their calculations of changes in prescription levels between periods can be significantly affected by lags in data reporting from various sources or by changes in pharmacies and other distributors providing data.

Their calculations of changes in prescription levels

between periods can be significantly affected by lags in data reporting from various sources or by changes in pharmacies and other distributors providing data.

Such methods can from time to time result in significant inaccuracies in information when ultimately compared with actual results.

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Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position, and profit.

Risks Related to Product Development

We are dependent on the success of INVELTYS and our lead product candidate, EYSUVIS.

If we are unable to successfully commercialize INVELTYS or obtain marketing approval for EYSUVIS, or if we experience significant delays in doing so, or if, after obtaining marketing approval for EYSUVIS, we fail to successfully commercialize EYSUVIS, our business will be materially harmed.

We have devoted a significant portion of our financial resources and business efforts to the development of INVELTYS for the post‑operative treatment of inflammation and pain following ocular surgery and EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease.

There is a significant risk that we will fail to successfully commercialize INVELTYS and to successfully obtain marketing approval for and commercialize EYSUVIS.

In January 2018, we announced that we had completed two Phase 3 clinical trials evaluating EYSUVIS, STRIDE 1 and STRIDE 2, evaluating the safety and efficacy of EYSUVIS versus placebo in patients with dry eye disease.

In STRIDE 1, statistical significance was achieved for both primary endpoints.

However, in STRIDE 2 we did not achieve statistical significance for the primary symptom endpoint of ocular discomfort severity.

In October 2018, we submitted an NDA to the FDA for EYSUVIS.

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.

However , we may not generate the data necessary to or otherwise obtain regulatory approval to commercialize EYSUVIS.

We may also determine to conduct additional Phase 3 trials for EYSUVIS or to potentially expand the label of EYSUVIS if we receive marketing approval for a narrower indication than we are targeting.

We cannot accurately predict when or if EYSUVIS will receive marketing approval.

Our ability to generate meaningful product revenues will depend on our successful commercialization of INVELTYS and our obtaining marketing approval for, and successfully commercializing, EYSUVIS.

The success of our product INVELTYS and any other product candidates for which we receive marketing approval , including our lead product candidate, EYSUVIS, will depend on many factors, including the following:

successful commercialization of INVELTYS in the United States, including maintaining sales, marketing and distribution capabilities for INVELTYS;

acceptance of INVELTYS and, if and when approved, EYSUVIS and our other product candidates, by patients, the medical community and third‑party payors;

obtaining and maintaining coverage, adequate pricing, and adequate reimbursement from third‑party payors, including government payors, for INVELTYS and our product candidates, including EYSUVIS;

successfully developing and applying for and receiving marketing approvals from applicable regulatory authorities for EYSUVIS and other product candidates;

receiving regulatory approval of our manufacturing processes and our third‑party manufacturers’

facilities from applicable regulatory authorities;

maintaining a workforce of experienced scientists and others with experience in AMPPLIFY technology and eye diseases to continue to develop our product candidates;

leveraging our sales, marketing and distribution capabilities for EYSUVIS and expanding upon these capabilities if and when appropriate;

establishing additional sales, marketing and distribution capabilities for, and successfully launching commercial sales of, any other product candidates for which we obtain marketing approval, whether alone or in collaboration with others;

effectively competing with other therapies;

maintaining an acceptable safety profile of our products following approval;

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

protecting our rights in our intellectual property portfolio;

not infringing on others’

intellectual property rights.

Successful development of KPI‑121 for additional indications, if any, or for use in broader patient populations will depend on similar factors.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize INVELTYS or our product candidates, including EYSUVIS, which would materially harm our business.

If clinical trials of EYSUVIS or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.

A failure of one or more clinical trials can occur at any stage of testing.

The outcome of preclinical testing and early clinical trials may not be predictive of the success of later stage clinical trials, and interim results of a clinical trial do not necessarily predict final results.

Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing

approval of their product candidates.

Furthermore, the failure of any product candidates to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of our other product candidates and/or cause the FDA or other regulatory authorities to require additional testing before approving any of our product candidates.

For example, we previously conducted a Phase 2 clinical trial of EYSUVIS for the treatment of meibomian gland dysfunction which did not achieve its primary endpoint.

The failure of this trial may have an adverse impact on the perceived safety or efficacy of EYSUVIS in treating dry eye disease or other indications or of INVELTYS.

In STRIDE 1, statistical significance was achieved for both primary endpoints.

However, in STRIDE 2 we did not achieve statistical significance for the primary symptom endpoint of ocular discomfort severity.

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.

However , we may not generate the data necessary to or otherwise obtain regulatory approval to commercialize EYSUVIS.

We may also determine to conduct additional Phase 3 trials for EYSUVIS or to potentially expand the label of EYSUVIS if we receive marketing approval for a narrower indication than we are targeting.

If the FDA determines that we have not sufficiently demonstrated efficacy for both signs and symptoms of dry eye, we may need to conduct additional clinical trials to support approval of EYSUVIS for temporary relief of signs and symptoms of dry eye disease.

If we conduct additional clinical trials of EYSUVIS, our expenses will significantly increase and could delay or halt our ability to obtain marketing approval.

Our Phase 3 clinical trials of EYSUVIS may not be sufficient to support an application for marketing approval outside the United States.

Further, if regulatory authorities outside the United States do not accept the data from any trial we conduct in the United States, in particular if the European Union does not allow us to utilize the results from our Phase 3 clinical trials of EYSUVIS pursuant to the Article 10(3) submission pathway or otherwise, we will likely need to conduct additional trials to obtain marketing approval in such jurisdiction, which would be costly and time‑consuming and could delay or permanently halt our ability to commercialize the applicable product candidates in the applicable jurisdictions.

We performed additional analyses on a post‑hoc basis on the results of our completed Phase 2 clinical trial for EYSUVIS for the purpose of designing our STRIDE 1 and STRIDE 2 clinical trials for EYSUVIS.

Following completion of these Phase 3 trials we conducted additional analyses on a post‑hoc basis of the data from both these Phase 3 trials and the Phase 2 clinical trial to support our NDA submission and to inform the design of our STRIDE 3 clinical trial and our development plan.

We may also conduct additional post‑hoc analyses on the results of clinical trials in the future, including STRIDE 3.

Post‑hoc analyses performed after unmasking trial results can result in the introduction of bias, may not be predictive of success in any future clinical trials and are given less weight by regulatory authorities than pre‑specified analyses.

If we are required to conduct additional clinical trials or other testing of EYSUVIS or any other product candidate that we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

be delayed in obtaining marketing approval for our product candidates;

not obtain marketing approval at all;

obtain approval for indications or patient populations that are not as broad as intended or desired;

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

be subject to additional post‑marketing testing requirements;

have the product removed from the market after obtaining marketing approval.

If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates could be delayed or prevented, and our competitors could bring products to market before we do.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize EYSUVIS or any other product candidates that we may develop, including:

clinical trials of our product candidates, including STRIDE 3, may produce negative or inconclusive results, and we may decide, or regulators may recommend or require us, to conduct additional clinical trials or abandon product development programs;

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;

our third‑party contractors may fail to comply with regulatory requirements or meet their obligations to us in a timely manner, or at all;

regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

we may be subject to additional post‑marketing testing requirements to maintain regulatory approval;

regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;

the cost of clinical trials of our product candidates may be greater than we anticipate;

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or may be delayed;

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate trials;

regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy.

Our product development costs will also increase if we experience delays in testing or marketing approvals.

We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.

Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors, such as those developing treatments for dry eye disease, to bring products to market before we do and impair our ability to successfully commercialize our product candidates.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for product candidates we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States.

Patient enrollment is affected by a variety of factors, including:

the prevalence and severity of the disease or condition under investigation;

the patient eligibility criteria for the trial in question;

the perceived risks and benefits of the product candidate under study;

the existence of existing treatments for the indications for which we are conducting clinical trials;

the efforts to facilitate timely enrollment in clinical trials;

the patient referral practices of clinicians;

the ability to monitor patients adequately during and after treatment;

the proximity and availability of clinical trial sites for prospective patients;

the conducting of clinical trials by competitors for product candidates that treat the same indications as our product candidates;

the lack of adequate compensation for prospective patients.

For example, we experienced a delay in patient enrollment for our Phase 3 clinical trial, STRIDE 3, evaluating EYSUVIS for the temporary relief of the signs and symptoms of dry eye disease, which has now completed the last patient visit.

There were a number of factors that may have impacted the delay, including increased competition for eligible patients from competitors that are developing product candidates to treat similar indications and the limited number of patients who fit the eligibility criteria for STRIDE 3.

As a result of the delay, we are targeting topline data for STRIDE 3 in the first quarter of 2020, and we were previously targeting to announce topline data by the end of 2019.

Our inability to locate and enroll a sufficient number of patients for our clinical trials would result in further significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals.

Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse or unacceptable side effects are identified during the development or commercialization of our product or product candidates, we may need to abandon or limit our development of such product or product candidates.

If INVELTYS or any of our product candidates, including EYSUVIS, are associated with serious adverse events or undesirable side effects in clinical trials or following approval and/or commercialization, or if our product or product candidates have characteristics that are unexpected, we may need to abandon their development or limit development or marketing to narrower uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk‑benefit perspective.

The most common adverse effects to date in trials evaluating the safety and efficacy of INVELTYS and EYSUVIS have been eye pain, instillation site pain, blurred vision and photophobia, which is discomfort or pain due to exposure to light.

There have been no serious adverse events related to the administration of KPI‑121 reported in any of our clinical trials to date.

Increases in IOP and cataract formation are additional adverse effects associated with the use of corticosteroids.

We have no clinical safety data on or patient exposure to either KPI‑121 concentration for longer than 28 days.

Our understanding of the relationship between our products and these adverse effects may change as we gather more information, and additional unexpected adverse effects may occur.

Compounds that initially show promise in clinical or earlier stage testing for treating ophthalmic disease or other diseases may later be found to cause side effects that prevent further development and commercialization of the compound.

In addition, adverse events which had initially been considered unrelated to the study treatment may later, even following approval and/or commercialization, be found to be caused by the study treatment.

Moreover, incorrect or improper use of our product or our product candidates (including use of INVELTYS or EYSUVIS, if approved, more frequently than is prescribed) by patients could cause increases in IOP and may result in additional unexpected side effects or adverse events.

There can be no assurance that our product or our product candidates will be used correctly, and if used incorrectly, such misuse could hamper commercial adoption or market acceptance of our product or product candidates, if approved, at the rate we currently expect.

We may not be successful in our efforts to develop product candidates based on our AMPPLIFY technology or expand the use of our AMPPLIFY technology for treating additional diseases and conditions.

We are currently directing a portion of our development efforts towards applying our AMPPLIFY technology to develop product candidates that are designed to diffuse through the mucus layer and enable the active drug substance to reach cells in the underlying target tissue.

We have product candidates at various stages of development for treatment of eye diseases and may explore the potential use of our AMPPLIFY technology in other diseases.

Our existing product candidates and any other potential product candidates that we identify may not be suitable for continued preclinical or clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance.

If we do not successfully develop and commercialize our product candidates that we develop based upon our AMPPLIFY technology, we will not be able to obtain substantial product revenues in future periods.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications.

As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential.

Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products.

If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We may in the future conduct clinical trials for product candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations.

We may in the future choose to conduct one or more of our clinical trials outside the United States.

Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to conditions imposed by the FDA.

For example, the clinical trial must be well designed and conducted and be performed by qualified investigators in accordance with ethical principles.

The trial population must also adequately represent the U.S.

population, and the data must be applicable to the U.S.

population and U.S.

medical practice in ways that the FDA deems clinically meaningful.

In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will depend on its determination that the trials also complied with all applicable U.S.

laws and regulations.

If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time‑consuming and could delay or permanently halt our development of the applicable product candidates.

Risks Related to the Commercialization of INVELTYS and our Product Candidates

INVELTYS or any of our product candidates that receives marketing approval, including EYSUVIS, may fail to achieve market acceptance by clinicians and patients, or adequate formulary coverage, pricing or reimbursement by third‑party payors and others in the medical community, and the market opportunity for these products may be smaller than we estimate.

INVELTYS or any product candidate that we develop that receives marketing approval, including EYSUVIS, may fail to gain sufficient market acceptance by clinicians, patients, third‑party payors and others in the medical community.

Risks Related to the Commercialization of EYSUVIS, INVELTYS and our Product Candidates

The ongoing novel coronavirus pandemic and the efforts to prevent its spread have adversely impacted our operations and the market for INVELTYS, could impact the launch and commercialization of EYSUVIS and may continue to adversely affect our business, results of operations and financial condition.

The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which began in December 2019, has spread worldwide, causing federal, state and local governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restrictions and bans, heightened border scrutiny and other measures.

The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce;

supply chains have been disrupted;

facilities and production have been suspended;

and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen significantly.

In particular, from time to time moratoria have been put in place on routine medical appointments and elective surgeries in many jurisdictions, including ocular surgeries, which have adversely affected, and may adversely affect in the future, the market for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery, resulting in a significant reduction in the demand for INVELTYS.

The COVID-19 pandemic has negatively impacted revenues from INVELTYS and we expect it to continue to do so until surgeries return to and remain at historical levels.

Shelter-in-place orders and other mandated local travel and social interaction prohibitions have also restricted the activities of our sales force.

We previously suspended substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually.

However, our sales force has resumed substantially all in-person interactions in the field.

To the extent we restrict, or are restricted from, in-person interactions with eye care professionals and customers, we are limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS and could adversely affect our ability to launch and market EYSUVIS.

Furthermore, while the majority of our day-to-day operations are continuing as our employees are working remotely, our laboratory facilities that support our early-stage research activities were partially limited, and may be limited again in the future, as a result of COVID-19.

Additionally, while we currently are not experiencing interruptions in our manufacturing of EYSUVIS or INVELTYS, quarantines, travel restrictions and other measures may significantly impact the ability of employees of our third-party suppliers to get to their places of work to manufacture and deliver future supplies if and when needed.

The COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock.

Moreover, the significant ongoing impact of the pandemic on economies worldwide could result in more extensive adverse effects on our business and operations.

The extent of the impact of COVID-19 on our commercialization efforts will depend on the length and severity of this pandemic, the timing and extent of any resurgence of the COVID-19 virus and any variant strains of the virus, the availability and effectiveness of vaccines, and the impact of the foregoing on our customers, employees, vendors and government agencies, which is uncertain and cannot be predicted.

We cannot be certain what the overall impact of the

COVID-19 pandemic will be on our business and it has the potential to significantly and adversely affect our business, financial condition, results of operations and prospects.

EYSUVIS, INVELTYS or any of our product candidates that receive marketing approval may fail to achieve market acceptance by clinicians and patients, or adequate formulary coverage, pricing or reimbursement by third-party payors and others in the medical community, and the market opportunity for these products may be smaller than we estimate.

EYSUVIS, INVELTYS or any product candidate that we develop that receives marketing approval may fail to gain sufficient market acceptance by clinicians, patients, third-party payors and others in the medical community.

While there are no drugs other than EYSUVIS currently approved in the United States for the short-term treatment of the signs and symptoms of dry eye disease, current treatments that are used in the United States for dry eye disease include over-the-counter artificial tears, Restasis ® , Xiidra ® , Cequa TM , off-label use of corticosteroids and various drugs that are produced by compounding pharmacies.

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

Our current expectations regarding market potential for EYSUVIS are based, in part, on market research data we have commissioned which indicated that interest in prescribing EYSUVIS is high among surveyed eye care professionals, or ECPs.

However, it is possible that ECPs may continue to rely on other existing treatments rather than EYSUVIS.

In addition, generic versions of any products that compete with any of our product candidates would likely be offered at a substantially lower price than we expect to offer for our product candidates, if approved.

As a result, clinicians, patients and third-party payors may choose to rely on such products rather than our product candidates.

Common treatments in the United States for inflammation and pain following ocular surgery include corticosteroids.

Our current estimates of potential future revenue from sales of INVELTYS are based, in part, on market research data we have commissioned.

For example, based on a market survey we commissioned in 2018 of 100 ophthalmologists, 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 this market survey, a majority of surveyed ophthalmologists indicated they were likely to prescribe INVELTYS.

We also conducted an Attitudes, Trial and Usage Study (ATU) in August 2019 with approximately 200 eye care professionals, or ECPs, which indicated that many current INVELTYS prescribers intend to increase their usage of INVELTYS.

Our current estimates of potential future revenue from sales of INVELTYS are based, in part, on market research data we have commissioned which indicated that a majority of surveyed ophthalmologists were likely to prescribe INVELTYS.

However, doctors may continue to rely on ocular steroids other than INVELTYS and other treatments rather than INVELTYS.

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It is also possible that other therapeutics will be approved for treatment of inflammation and pain following ocular surgery with twice a day or less frequent dosing.

While there are no drugs currently approved in the United States for the temporary relief of the signs and symptoms of dry eye disease, current treatments that are used in the United States for dry eye disease include over‑the‑counter artificial tears, Restasis ®

, Xiidra ®

, Cequa TM , off‑label use of corticosteroids and various drugs that are produced by compounding pharmacies.

Generic versions of Restasis are also expected to become available in the United States in 2020.

Our current expectations regarding market potential for EYSUVIS are based, in part, on market research data we have commissioned.

For example, based on two surveys we commissioned of 503 and 297 dry eye disease patients in 2017 and 2018, respectively, which we refer to as our patient surveys, 90% of surveyed patients reported experiencing dry eye flares, with the majority experiencing on average four days of flares six times per year, and the most common reason given by patients for discontinuing the two leading branded dry eye treatments were insufficient efficacy and side effects.

However, it is possible that doctors may continue to rely on other existing treatments rather than EYSUVIS, if and when it is approved for marketing by the FDA.

In addition, if generic versions of any products that compete with any of our product candidates are approved for marketing by the FDA, they would likely be offered at a substantially lower price than we expect to offer for our product candidates, if approved.

As a result, clinicians, patients and third‑party payors may choose to rely on such products rather than our product candidates.

Our assessment of the potential market opportunity for INVELTYS and our product candidates, including EYSUVIS, is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, some of which we commissioned.

The market opportunity for EYSUVIS and INVELTYS may be further impacted by extraordinary events such as the current pandemic health event resulting from COVID-19 and its collateral consequences.

For example, from time to time moratoria have been put in place on routine medical appointments and elective surgeries in many jurisdictions, including ocular surgeries such as cataract and refractive, which have adversely affected, and may adversely affect in the future, the market for INVELTYS, which is indicated for the treatment of post-operative inflammation and pain following ocular surgery, resulting in a significant reduction in the demand for INVELTYS.

Shelter-in-place orders and other mandated local travel prohibitions have also restricted the activities of our sales force.

We previously suspended substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually.

However, our sales force has resumed substantially all in-person interactions in the field.

Our assessment of the potential market opportunity for EYSUVIS, INVELTYS and our product candidates is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, some of which we commissioned.

Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

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The potential market opportunity for the treatment of dry eye disease in particular is difficult to precisely estimate.

The results from our patient surveys may be less reflective of the dry eye disease population as a whole than a survey conducted with a larger sample size.

The results from our physician and patient surveys may be less reflective of the dry eye disease population as a whole than a survey conducted with a larger sample size.

Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and fail to accurately reflect market opportunities.

While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for INVELTYS or any of our product candidates, including EYSUVIS, may be smaller than we expect, and as a result our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If INVELTYS or any of our product candidates for which we obtain marketing approval, including EYSUVIS, do not achieve adequate levels of acceptance, formulary coverage, pricing or reimbursement, we may not generate significant product revenues and we may not become profitable.

The degree of market acceptance of INVELTYS or any product candidates for which we obtain marketing approval, will depend on a number of factors, including:

If any of our

assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for EYSUVIS, INVELTYS or any of our product candidates may be smaller than we expect, and as a result our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

The uncertainty with respect to the future progression of the COVID-19 pandemic and its long-term effects may adversely impact the accuracy of such estimates and our potential market opportunity for EYSUVIS and INVELTYS.

If EYSUVIS, INVELTYS or any of our product candidates for which we obtain marketing approval do not achieve adequate levels of acceptance, formulary coverage, pricing or reimbursement, we may not generate significant product revenues and we may not become profitable.

The degree of market acceptance of EYSUVIS, INVELTYS or any product candidates for which we obtain marketing approval, will depend on a number of factors, including:

● the efficacy and potential advantages of our product or our product candidates compared to alternative treatments, including the existing standard of care;

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● any restrictions on the use of our products together with other medications.

Even if we are able to successfully commercialize INVELTYS or any product candidate that we may develop, including EYSUVIS, the products may become subject to unfavorable pricing regulations, third‑party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

Our ability to successfully commercialize INVELTYS or any of our product candidates, including EYSUVIS, that we may develop successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans and other organizations.

Even if we are able to successfully commercialize EYSUVIS, INVELTYS or any product candidate that we may develop, the products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

Our ability to successfully commercialize EYSUVIS, INVELTYS or any of our product candidates that we may develop successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans and other organizations.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.

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Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products.

Coverage and reimbursement may not be available for INVELTYS or any product candidate that we commercialize and, even if they are available, the level of reimbursement may be limited or not satisfactory.

Inadequate reimbursement may adversely affect the demand for, or the price of, INVELTYS or any product candidate for which we obtain marketing approval.

Obtaining and maintaining adequate reimbursement for our products may be difficult.

Coverage and reimbursement may not be available for EYSUVIS, INVELTYS or any product candidate that we commercialize and, even if they are available, the level of reimbursement may be limited or not satisfactory.

Inadequate reimbursement may adversely affect the demand for, or the price of, EYSUVIS, INVELTYS or any product candidate for which we obtain marketing approval.

Obtaining and maintaining adequate reimbursement for our

products may be difficult.

We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies.

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize INVELTYS or any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory authorities outside the United States.

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize EYSUVIS, INVELTYS or any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, such as EYSUVIS, and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory authorities outside the United States.

Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses.

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Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

There can be no assurance that INVELTYS or our product candidates, including EYSUVIS, even if such product candidates are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication or cost‑effective by third‑party payors, or that coverage and an adequate level of reimbursement will be available or that third‑party payors’

reimbursement policies will not adversely affect our ability to sell INVELTYS or our product candidates profitably.

If we are unable to maintain our sales, marketing and distribution capabilities, establish additional capabilities if and when necessary, or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing INVELTYS or any of our product candidates that we may develop if and when they are approved.

We have only recently established our sales and marketing infrastructure for our commercial launch of INVELTYS, our first product, and have no prior experience in the sales, marketing or distribution of therapeutic products.

There can be no assurance that EYSUVIS, INVELTYS or our product candidates, even if such product candidates are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, or that coverage and an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability to sell EYSUVIS, INVELTYS or our product candidates profitably.

If we are unable to maintain our sales, marketing and distribution capabilities, establish additional capabilities if and when necessary, or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing EYSUVIS, INVELTYS or any of our product candidates that we may develop if and when they are approved.

We established our sales and marketing infrastructure for the commercial launch of INVELTYS, our first product, and EYSUVIS, and, as a company, we have limited experience in the sales, marketing and distribution of therapeutic products.

To achieve commercial success for any product for which we obtained marketing approval, we may need to establish additional sales, marketing and distribution capabilities, either ourselves or through collaborations or other arrangements with third parties.

In 2019, we completed the buildout of our specialty sales, marketing and distribution infrastructure in the United States to commercialize INVELTYS and may need to expand that infrastructure to market any of our product candidates that we develop in the United States, if and when such product candidates are approved.

In 2019, we completed the initial buildout of our specialty sales, marketing and distribution infrastructure in the United States to commercialize INVELTYS, which included a sales force of 57 TSMs, seven RSLs, and three directors of national accounts.

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

In 2021, we plan to increase, pending the status of the COVID-19 pandemic, our sales force

from 91 TSMs to approximately 125 TSMs, who will promote both EYSUVIS and INVELTYS.

There are risks involved with establishing, maintaining and expanding our own sales, marketing and distribution capabilities.

For example, recruiting and training a sales force is expensive and time-consuming and could delay any future product launch.

Further, we may underestimate the size of the sales force required for a successful product launch and may need to expand our sales force earlier and at a higher cost than we anticipated.

If the commercial launch of any of our product candidates for which we establish

additional commercial infrastructure is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.

Further, we may underestimate the size of the sales force required for a successful product launch, including with respect to the launch of EYSUVIS, and may need to expand our sales force earlier and at a higher cost than we anticipated.

If the commercial launch of any of our product candidates for which we establish additional commercial infrastructure is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.

This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize INVELTYS or any product candidates for which we receive marketing approval, including EYSUVIS, on our own include:

Factors that may inhibit our efforts to commercialize EYSUVIS, INVELTYS or any product candidates for which we receive marketing approval on our own include:

● our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

our ability to obtain and maintain coverage, adequate pricing, and adequate reimbursement from third‑party payors, including government payors, for INVELTYS and our product candidates;

the inability of sales personnel to obtain access to clinicians or persuade adequate numbers of clinicians to prescribe our products;

● our inability to obtain and maintain coverage, adequate pricing, and adequate reimbursement from third-party payors, including government payors;

● the inability of sales personnel to obtain access to clinicians, including as a result of limitation on office visits as a result of COVID-19 or other health concerns, or persuade adequate numbers of clinicians to prescribe our products;

● the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;

● unforeseen costs and expenses associated with maintaining and expanding an independent sales, marketing and distribution organization.

While we cannot be certain when, if ever, we will seek and/or receive marketing approval to commercialize any of our product candidates outside the United States, we plan to seek marketing approval and explore commercialization of EYSUVIS in certain markets outside the United States, including the European Union, utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

While we cannot be certain when, if ever, we will seek and/or receive marketing approval to commercialize any of our product candidates outside the United States, we may seek marketing approval and explore commercialization of EYSUVIS in certain markets outside the United States, including the European Union, utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

Our product revenues and our profitability, if any, under any such third-party collaboration, distribution or other marketing arrangements are likely to be lower than if we were to market, sell and distribute EYSUVIS ourselves.

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If we decide to seek regulatory approval for any of our product candidates outside the United States, we may need to seek additional patent approvals, seek licenses to patents held by third parties and/or face claims of infringing third-party patent rights.

In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute INVELTYS or any of our product candidates, including EYSUVIS, or we may be unable to do so on terms that are favorable to us.

We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market INVELTYS or any of our product candidates for which we obtain marketing approval, including EYSUVIS, effectively.

If we do not maintain our sales, marketing and distribution capabilities successfully, or do not establish additional capabilities if and when needed successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing INVELTYS, or any of our product candidates for which we obtain marketing approval, including EYSUVIS.

In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute EYSUVIS, INVELTYS or any of our product candidates or we may be unable to do so on terms that are favorable to us.

We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market effectively EYSUVIS, INVELTYS or any of our product candidates for which we obtain marketing approval.

If we do not maintain our sales, marketing and distribution capabilities successfully, or do not establish additional capabilities if and when needed successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing EYSUVIS, INVELTYS or any of our product candidates for which we obtain marketing approval.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

Our competitors include major pharmaceutical companies with significantly greater financial resources.

INVELTYS, and our product candidates, including EYSUVIS, if approved, will also compete with existing branded, generic and off‑label products.

EYSUVIS, INVELTYS and our product candidates will also compete with existing branded, generic and off-label products.

The development and commercialization of new drug products is highly competitive.

We face competition with respect to INVELTYS and our product candidates, including EYSUVIS, and will face competition with respect to any other product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

We face competition with respect to EYSUVIS, INVELTYS and will face competition with respect to any product candidates that we may seek to

develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Our product and our product candidates will target markets that are already served by a variety of competing products.

Our products and product candidates target markets that are already served by a variety of competing products.

Many of these existing products have achieved widespread acceptance among clinicians, patients and payors.

In addition, many of these products are available on a generic basis, and our product or our product candidates may not demonstrate sufficient additional clinical benefits to clinicians, patients or payors to justify a higher price compared to generic products.

In addition, many of these products are available on a generic basis, and our products or our product candidates may not demonstrate sufficient additional clinical benefits to clinicians, patients or payors to justify a higher price compared to generic products.

In many cases, insurers or other third-party payors, particularly Medicare, seek to encourage the use of generic products.

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 suspension) 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 Pharmaceutical, 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 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.

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

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hot compresses for the eye and lid hygiene management;

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;

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

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

and 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.

Pharmaceutical therapies for dry eye disease include on label prescription drugs, including Restasis, Xiidra, and Cequa, 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;

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

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.

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.

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

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.

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

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.

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 our products.

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

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 have been licensed to Bausch Health Companies Inc., and others.

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 at any time.

There are also non-topical formulations of ocular steroids that have been recently 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 following ophthalmic 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.

Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

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These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Given that INVELTYS and EYSUVIS utilize a known FDA‑approved corticosteroid, these products and any similar product candidates, if approved, may face competition from generic and branded versions of existing drugs based on corticosteroids that are administered in a different manner.

If our contracted manufacturing facilities experience production issues for any reason, we may be unable to manufacture commercial quantities of our product or our product candidates for a substantial amount of time, which could have a material adverse effect on our business.

We rely on third‑party contract manufacturers to manufacture commercial supplies of INVELTYS and EYSUVIS.

Given that EYSUVIS and INVELTYS utilize a known FDA-approved corticosteroid, these products and any similar product candidates, if approved, may face competition from generic and branded versions of existing drugs based on corticosteroids that are administered in a different manner.

If our contracted manufacturing facilities experience production issues for any reason, we may be unable to manufacture commercial quantities of our products or product candidates for a substantial amount of time, which could have a material adverse effect on our business.

We rely on third-party contract manufacturers to manufacture commercial supplies of EYSUVIS and INVELTYS.

Specifically, we rely on the following:

Catalent Pharma Solutions, LLC, or Catalent, to manufacture and supply to us a minimum amount of INVELTYS and EYSUVIS for commercial use;

Alliance Contract Pharma, LLC, or Alliance, for manufacturing bulk KPI‑121 concentrates;

Catalent Pharma Solutions, LLC, or Catalent, to manufacture and supply to us a minimum amount of EYSUVIS and INVELTYS bottles for commercial use;

Altasciences company, or Altasciences, for manufacturing bulk intermediates;

and Chemo Iberica SA, or Chemo Iberica, to manufacture and supply to us a bulk supply of loteprednol etabonate, or LE.

We expect to rely on third parties to manufacture clinical supplies of any other product candidates and commercial supplies of any other products, if and when approved for marketing by applicable regulatory authorities, as well as for packaging, serialization, storage, distribution and other production logistics.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product or our product candidates in accordance with regulatory requirements, if there are disagreements between us and such parties, or if such parties are unable to expand capacities to support commercialization of our product or any of our product candidates for which we obtain marketing approval, we may not be able to compete, or may be delayed in producing sufficient product or product candidates to meet our supply requirements.

These facilities may also be affected by natural disasters, such as floods or fire, or such facilities could face manufacturing issues, such as contamination or regulatory concerns following a regulatory inspection of such facility.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or manufacture our products or our product candidates in accordance with regulatory requirements, if there are disagreements between us and such parties, or if such parties are unable to expand capacities to support commercialization of our products or any of our product candidates for which we obtain marketing approval, we may not be able to compete, or may be delayed in producing sufficient product or product candidates to meet our supply requirements.

These facilities may also be affected by natural disasters, such as floods or fire, epidemics or pandemics, such as COVID-19, or such facilities could face manufacturing issues, such as contamination or regulatory concerns following a regulatory inspection of such facility.

In such instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, or at all, which would cause additional delay and increased expense, including as a result of additional required FDA approvals, and may have a material adverse effect on our business.

Our third-party manufacturers are subject to inspection and approval by the FDA before we can commence the manufacture and sale of any of our products or product candidates, and thereafter subject to FDA inspection from time to time.

Failure by our third‑party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product or product candidates may result in regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses.

Failure by our third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our products or product candidates may result in regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses.

Depending on the severity of any potential regulatory action, our clinical or commercial supply could be interrupted or limited, which could have a material adverse effect on our business.

We or our third‑party manufacturers may also encounter shortages in the raw materials or active pharmaceutical ingredient necessary to produce our product candidates in the quantities needed for our clinical trials or, our product or our product candidates if approved, in sufficient quantities for commercialization or to meet an increase in demand, as a

result of capacity constraints or delays or disruptions in the market for the raw materials or active pharmaceutical ingredient, including shortages caused by the purchase of such raw materials or active pharmaceutical ingredient by our competitors or others.

The failure of us or our third‑party manufacturers to obtain the raw materials or active pharmaceutical ingredient necessary to manufacture sufficient quantities of our product candidates, may have a material adverse effect on our business.

Product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and to limit commercialization of INVELTYS and any other products that we may develop.

We or our third-party manufacturers may also encounter shortages in the raw materials or active pharmaceutical ingredient, or API, necessary to produce our product candidates in the quantities needed for our clinical trials or, our products or our product candidates if approved, in sufficient quantities for commercialization or to meet an increase in demand, as a result of capacity constraints or delays or disruptions in the market for the raw materials or API, including shortages caused by the purchase of such raw materials or API by our competitors or others and shortages related to epidemics or pandemics, such as the COVID-19 pandemic.

The failure of us or our third-party manufacturers to obtain the raw materials or API necessary to manufacture sufficient quantities of our products or product candidates, may have a material adverse effect on our business.

Product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and limit commercialization of EYSUVIS, INVELTYS and any other products that we may develop.

We face an inherent risk of product liability exposure related to the use of our product candidates that we develop in human clinical trials.

We face an even greater risk as we commercialize INVELTYS or any other products that we may develop.

We face an even greater risk as we commercialize EYSUVIS, INVELTYS or any other products that we may develop.

If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities.

Regardless of merit or eventual outcome, liability claims may result in:

decreased demand for INVELTYS and any other products that we may develop;

● decreased demand for EYSUVIS, INVELTYS and any other products that we may develop;

● injury to our reputation and significant negative media attention;

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● reduced time and attention of our management to pursue our business strategy;

the inability to successfully commercialize INVELTYS and any other products that we may develop.

● the inability to successfully commercialize EYSUVIS, INVELTYS and any other products that we may develop.

We currently hold $15 million in product liability insurance coverage in the aggregate, with a per incident limit of $15 million, which may not be adequate to cover all liabilities that we may incur.

We may need to increase our insurance coverage if and as we commence commercialization of EYSUVIS or any other product candidates for which we obtain marketing approval.

We may need to increase our insurance coverage if and as we commence commercialization of EYSUVIS or any product candidates for which we obtain marketing approval.

Insurance coverage is increasingly expensive.

We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Product Development

We are dependent on the success of EYSUVIS, INVELTYS and any product candidates for which we receive marketing approval.

If we are unable to successfully commercialize our products and product candidates, our business will be materially harmed.

We have devoted a significant portion of our financial resources and business efforts to the development of INVELTYS for the post-operative treatment of inflammation and pain following ocular surgery and EYSUVIS for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease.

There is a significant risk that we will fail to successfully commercialize EYSUVIS and INVELTYS.

Our ability to generate meaningful product revenues will depend on our successful commercialization of EYSUVIS and INVELTYS.

The success of our products EYSUVIS and INVELTYS and any product candidates for which we receive marketing approval will depend on many factors, including the following:

● successful commercialization of EYSUVIS and INVELTYS in the United States, including maintaining sales, marketing, manufacturing and distribution capabilities for EYSUVIS and INVELTYS;

● acceptance of EYSUVIS and INVELTYS and any product candidates we develop by patients, the medical community and third-party payors;

● obtaining and maintaining coverage, adequate pricing, and adequate reimbursement from third-party payors, including government payors;

● successfully developing and applying for and receiving marketing approvals from applicable regulatory authorities for any product candidates;

● maintaining regulatory approval of our manufacturing processes and our third-party manufacturers’ facilities from applicable regulatory authorities and maintaining adequate supply of our products;

● maintaining a workforce of experienced scientists and others with experience in AMPPLIFY technology and eye diseases to continue to develop our product candidates;

● leveraging our sales, marketing and distribution capabilities for our current products and expanding upon these capabilities if and when appropriate;

● establishing additional sales, marketing and distribution capabilities for, and successfully launching commercial sales of any other product candidates for which we obtain marketing approval, whether alone or in collaboration with others;

● effectively competing with other therapies;

● maintaining an acceptable safety profile of our products following approval;

● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

● protecting our rights in our intellectual property portfolio;

● not infringing, misappropriating or otherwise violating others’ intellectual property rights.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize EYSUVIS, INVELTYS or our product candidates, which would materially harm our business.

In addition, other than our approved products, EYSUVIS and INVELTYS, all of our other development efforts are in the early stages of preclinical development.

We may never identify any product candidates or advance any product candidates to clinical-stage development from these preclinical development programs.

Therefore, our ability to generate product revenue will depend heavily on the successful commercialization of EYSUVIS and INVELTYS, as the development and eventual commercialization of product candidates from our preclinical development programs may never occur.

If clinical trials of any product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

All of our current development efforts are in the early stages of preclinical development.

The risk of failure in developing product candidates is high.

It is impossible to predict when or if any product candidate would prove effective or safe in humans or will receive regulatory approval.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.

A failure of one or more clinical trials can occur at any stage of testing.

For example, we previously conducted a Phase 2 clinical trial of EYSUVIS for the treatment of meibomian gland dysfunction which did not achieve its primary endpoint.

The failure of this trial may have an adverse impact on the perceived safety or efficacy of EYSUVIS in treating dry eye disease or other indications or of INVELTYS.

In STRIDE 1, statistical significance was achieved for both primary endpoints.

However, in STRIDE 2 we did not achieve statistical significance for the primary symptom endpoint of ocular discomfort severity.

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

On March 9, 2020, we announced that our Phase 3 clinical trial of EYSUVIS, which we refer to as STRIDE 3, met both of its primary symptom endpoints and its key secondary sign endpoint, and on April 30, 2020, we resubmitted our NDA with the positive data from STRIDE 3.

On October 26, 2020, we received approval from the FDA to market EYSUVIS in the United States.

Our Phase 3 clinical trials of EYSUVIS may not be sufficient to support an application for marketing approval outside the United States.

Further, if regulatory authorities outside the United States do not accept the data from any trial we conduct in the United States, in particular if the European Union does not allow us to utilize the results from our Phase 3 clinical trials of EYSUVIS pursuant to the Article 10(3) submission pathway or otherwise, we will likely need to conduct additional trials to obtain marketing approval in such jurisdiction, which would be costly and time-consuming and could delay or permanently halt our ability to commercialize the applicable product candidates in the applicable jurisdictions.

If we are required to conduct additional clinical trials or other testing beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

● be delayed in obtaining marketing approval for our product candidates;

● not obtain marketing approval at all;

● obtain approval for indications or patient populations that are not as broad as intended or desired;

● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

● be subject to additional post-marketing testing requirements;

● have the product removed from the market after obtaining marketing approval.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates that we may develop, including:

● clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may recommend or require us, to conduct additional clinical trials or abandon product development programs;

● the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;

● our third-party contractors may fail to comply with regulatory requirements or meet their obligations to us in a timely manner, or at all;

● regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

● we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

● we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

● we may be subject to additional post-marketing testing requirements to maintain regulatory approval;

● regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;

● the cost of clinical trials of our product candidates may be greater than we anticipate;

● the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or may be delayed;

● our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate trials;

● ongoing or future restrictions resulting from the COVID-19 pandemic and its collateral consequences may result in internal and external operational delays and limitations;

● regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy.

Our product development costs will also increase if we experience delays in testing or marketing approvals.

We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.

Significant preclinical or clinical trial delays also could shorten any periods

during which we may have the exclusive right to commercialize our product candidates or allow our competitors, such as those developing treatments for dry eye disease, to bring products to market before we do and impair our ability to successfully commercialize our product candidates.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

Patient enrollment is affected by a variety of factors, including:

● the prevalence and severity of the disease or condition under investigation;

● the patient eligibility criteria for the trial in question;

● the perceived risks and benefits of the product candidate under study;

● the existence of existing treatments for the indications for which we are conducting clinical trials;

● the efforts to facilitate timely enrollment in clinical trials;

● the patient referral practices of clinicians;

● the ability to monitor patients adequately during and after treatment;

● the proximity and availability of clinical trial sites for prospective patients;

● the conducting of clinical trials by competitors for product candidates that treat the same indications as our product candidates;

● the impact of public health epidemics, such as the ongoing COVID-19 pandemic;

● the lack of adequate compensation for prospective patients.

For example, we experienced a delay in patient enrollment for STRIDE 3, which evaluated EYSUVIS for the short-term treatment of the signs and symptoms of dry eye disease.

There were a number of factors that may have impacted the delay, including increased competition for eligible patients from competitors that were developing product candidates to treat similar indications and the limited number of patients who fit the eligibility criteria for STRIDE 3.

Our inability to locate and enroll a sufficient number of patients for our clinical trials could result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals.

If serious adverse or unacceptable side effects are identified during the development or commercialization of our products or product candidates, we may need to abandon or limit our commercialization efforts for our products or development of such product candidates.

If EYSUVIS, INVELTYS or any of our product candidates are associated with serious adverse events or undesirable side effects in clinical trials or following approval and/or commercialization, or if our products or product candidates have characteristics that are unexpected, we may need to abandon their development or limit development or marketing to narrower uses or subpopulations in which the serious adverse events, undesirable side effects or other

characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

The most common adverse effects to date in trials evaluating the safety and efficacy of EYSUVIS and INVELTYS have been eye pain, instillation site pain, blurred vision and photophobia, which is discomfort or pain due to exposure to light.

There have been no serious adverse events related to the administration of EYSUVIS and INVELTYS reported in any of our clinical trials to date.

Increases in IOP and cataract formation are additional adverse effects associated with the use of corticosteroids in general.

We have no clinical safety data on or patient exposure to either EYSUVIS or INVELTYS for longer than 28 days.

Our understanding of the relationship between our products and these adverse effects may change as we gather more information, and additional unexpected adverse effects may occur.

Moreover, incorrect or improper use of our products or our product candidates (including use of EYSUVIS or INVELTYS more frequently than is prescribed) by patients could cause increases in IOP and may result in additional unexpected side effects or adverse events.

There can be no assurance that our products or our product candidates will be used correctly, and if used incorrectly, such misuse could hamper commercial adoption or market acceptance of our products or product candidates, if approved, at the rate we currently expect.

We may not be successful in our efforts to develop new product candidates based on our AMPPLIFY technology or expand the use of our AMPPLIFY technology for treating additional diseases and conditions.

We are currently directing a portion of our development efforts towards applying our AMPPLIFY technology to develop new product candidates that are designed to diffuse through the mucus layer and enable the active drug substance to reach cells in the underlying target tissue.