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Item 5. Market for Registrant’s Common Equity

2021-02-25 compared with 2020-02-12 · 14 added, 394 removed, 40 unchanged (91% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities

Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “KALA”

since July 20, 2017 in connection with our initial public offering, or IPO.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities

Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “KALA” since July 20, 2017 in connection with our initial public offering, or IPO.

Prior to that time, there was no public market for our common stock.

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Set forth below is information regarding shares of our common stock issued and stock options granted by us for the twelve months ended December 31, 2020 that were not registered under the Securities Act of 1933, as amended, or the Securities Act and that have not otherwise been described in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

On October 15, 2019, we granted stock options to two new employees to purchase an aggregate of 8,000 shares of our common stock at an exercise price of $3.49 per share.

On November 15, 2019, we granted stock options to three new employees to purchase an aggregate of 16,000 shares of our common stock at an exercise price of $3.69 per share.

On December 13, 2019, we granted stock options to two new employees to purchase an aggregate of 8,000 shares of our common stock at an exercise price of $4.81 per share.

On October 15, 2020, we granted stock options to four new employees to purchase an aggregate of 42,000 shares of our common stock at an exercise price of $8.20 per share.

On November 13, 2020, we granted stock options to four new employees to purchase an aggregate of 34,500 shares of our common stock at an exercise price of $7.42 per share.

On December 15, 2020, we granted stock options to 46 new employees to purchase an aggregate of 233,500 shares of our common stock at an exercise price of $7.63 per share.

These options were inducement grants made outside of our 2017 Equity Incentive Plan in accordance with Nasdaq Listing Rules 5635(c)(4) and Section 4(a)(2) of the Securities Act of 1933, as amended.

The options have a ten-year term and vest over four years, with 25% of the shares underlying each option award vesting on the one-year anniversary of the applicable employee’s new hire date and the remaining 75% of the shares underlying each award vesting monthly thereafter for three years.

Vesting of each option is subject to the option holders continued service with our company through the applicable vesting dates.

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Selected Financial Data

You should read the following selected consolidated financial data together with our consolidated financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

section of this Annual Report on Form 10-K.

We have derived the selected consolidated statement of operations data for the years ended December 31, 2019 and 2018, and the selected consolidated balance sheet data as of December 31, 2019 and 2018 from our audited consolidated financial statements at the end of this Annual Report on Form 10-K.

We have derived the selected consolidated statement of operations data for the years ended December 31, 2020 and 2019, and the selected consolidated balance sheet data as of December 31, 2020 and 2019 from our audited consolidated financial statements appearing at the end of this Annual Report on Form 10-K.

The selected consolidated statement of operations data for the years ended December 31, 2018, 2017 and 2016 and balance sheet data as of December 31, 2018, 2017 and 2 016 set forth below have been derived from the audited financial statements for such years not included in this Annual Report on Form 10-K.

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Net loss attributable to common stockholders

Net loss per share attributable to common stockholders—basic and diluted

Weighted average shares outstanding—basic and diluted

Net loss per share attributable to common stockholders—basic and diluted

Weighted average shares outstanding—basic and diluted

As of December 31,

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Balance Sheet Data:

Cash, cash equivalents and short-term investments

Working capital(1)

Long‑term debt—less current portion

Other long‑term liabilities

Total stockholders’

equity (deficit)

Long‑term debt—less current portion

Other long‑term liabilities

Total stockholders’ equity (deficit)

We define working capital as current assets less current liabilities.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto appearing at the end of this Annual Report on Form 10‑K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward‑looking statements that involve risks and uncertainties.

See “Special Note Regarding Forward‑Looking Statements and Industry Data.”

Because of many factors, including those factors set forth in the “Risk Factors”

section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward‑looking statements contained in the following discussion and analysis.

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

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

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

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

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

Food and Drug Administration, or the FDA, and the development of our lead product candidate, KPI‑121 0.25%, which if approved we plan to commercialize under the brand name EYSUVIS (loteprednol etabonate ophthalmic suspension) 0.25%, for the temporary relief of the signs and symptoms of dry eye disease.

We commercially launched INVELTYS in January 2019.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In clinical trials, INVELTYS showed statistical significance in the

primary efficacy endpoints of complete resolution of inflammation at day eight maintained through day 15 with no need for rescue medication compared to placebo and complete resolution of pain at day eight maintained through day 15 with no need for rescue medications compared to placebo.

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

We also are evaluating compounds in our receptor Tyrosine Kinase Inhibitor program, or rTKI program, that inhibit the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of retinal diseases and novel next-generation anti-inflammatories designed to exhibit steroid-like anti-inflammatory action with the goal of eliminating the risk of IOP increase and cataract formation.

INVELTYS received FDA approval under Section 505(b)(2) of the FDCA, which is the pathway we plan to rely on for the approval of EYSUVIS as well.

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

Since the FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which includes 57 territory sales managers, or TSMs, 7 regional sales leaders, or RSLs, and 3 directors of national accounts, or DNAs.

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

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

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

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 million for the year ended December 31, 2018.

As of December 31, 2019, we had an accumulated deficit of $295.5 million.

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

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

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

Financial Operations Overview

Product Revenues, Net

As a result of the commercial launch of INVELTYS in the United States in early January 2019, we commenced generating product revenues from sales of INVELTYS.

Our product revenues are recorded net of provisions relating to estimates for (i) trade discounts and allowances, such as discounts for prompt payment and distributor fees, (ii) estimated rebates, chargebacks and co-pay assistance program, and (iii) reserves for expected product returns.

These estimates reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer buying and payment patterns.

Actual amounts may ultimately differ from these estimates.

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

Cost of Product Revenues

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

We expense cost of product revenues related to product candidates as research

and development expenses prior to regulatory approval in the respective territory.

We received U.S.

regulatory approval for INVELTYS on August 22, 2018.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, benefits, commissions, stock‑based compensation and travel expenses related to our commercial infrastructure and our executive, finance, human resources, legal, information technology and business development functions.

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

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

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

Research and Development Expenses

Research and development expenses consist of costs associated with our research activities, including compensation and benefits for full‑time research and development employees, an allocation of facilities expenses, overhead expenses, payments to universities under our license agreements and other outside expenses.

Our research and development expenses include:

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

expenses incurred for the preclinical and clinical development of our product candidates and under agreements with contract research organizations, or CROs, including costs of manufacturing product candidates prior to receipt of regulatory approval;

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

payments made under our third‑party licensing agreements, including development royalty and reimbursable expenses for defense of agreed upon patents under a license agreement with JHU.

We expense research and development costs as they are incurred.

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

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

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

We expect that our research and development costs will decrease in 2020 as compared to the year ended December 31, 2019 as a result of the completion of STRIDE 3.

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

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

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

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

Interest Income

Interest income consists of interest earned on our cash balance held in a deposit account.

Interest Expense

Interest expense primarily consists of contractual coupon interest, amortization of debt discounts and debt issuance costs recognized on our debt facility.

Loss on Extinguishment of Debt

Loss on extinguishment of debt in 2018 primarily consisted of unamortized debt issuance cost and a prepayment penalty on our venture debt facility entered into in 2014 which was repaid in full with proceeds from the Athyrium Credit Facility on October 1, 2018.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S.

generally accepted accounting principles.

We believe that several accounting policies are important to understanding our historical and future performance.

We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used.

On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below.

We base our estimates on historical experience and other market‑specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .

Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services.

We perform the following five steps to recognize revenue under ASC Topic 606:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only recognize revenue when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be transferred to the customer.

Product revenues, net

We sell INVELTYS to wholesalers and/or specialty distributors in the United States, or Customers.

These Customers subsequently resell our products to specialty and other retail pharmacies.

In addition to agreements with Customers, we enter into arrangements with payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of our products.

The goods promised in our product sales contracts represent a single performance obligation.

We recognize revenue from product sales at the point the Customer obtains control of the product, which occurs upon delivery.

The transaction price (“net sales price”) that is recognized as revenue for product sales includes the selling price to the

Customer and an estimate of variable consideration.

Components of variable consideration include prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers where a distinct good or service is not received.

Variable consideration is recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer.

We consider all relevant information when estimating variable consideration such as assessment of our current and anticipated sales and demand forecasts, actual payment history, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that are reasonably available.

We include estimated amounts for such variable consideration in the net sales price to the extent it is determined probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Payment terms with Customers do not exceed one year and, therefore, we do not account for a significant financing component in our arrangements.

We expense the incremental cost of obtaining a contract with a Customer when incurred as the period of benefit is less than one year.

Reserves for Variable Consideration :

Trade Discounts and Allowances

We provide our Customers with certain trade discounts and allowances including discounts for prompt payments and fees paid for distribution, data and administrative services.

These discounts and fees are based on contractually-determined percentages and are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized.

Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us.

Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers.

These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.

Reserves for chargebacks consist of credits we expect to issue for units that remain in the distribution channel at the end of each reporting period and that we expect will be sold to qualified healthcare providers, as well as chargebacks that Customers have claimed, but for which we have not yet issued a credit.

Product Returns

Consistent with industry practice, we have a product returns policy that provides Customers right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date.

We estimate the amount of products that may be returned and present this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability.

Our estimate for product returns are based upon available industry data and our own sales information, including our visibility into the inventory remaining in the distribution channel.

Commercial Payor and Medicare Part D Rebates

We contract with certain third-party payors, primarily pharmacy benefit managers, or PBM’s, and health plans, or Plans, for the payment of rebates with respect to utilization of our product.

These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the PBMs or the Plans with which it contracts.

We estimate rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for INVELTYS as well as future rebates that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period.

We also estimate the

number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.

Such estimates are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Government Rebates

We are subject to discount obligations under Medicaid and other government programs.

For Medicaid, reserves are based on actual payment history, and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Centers for Medicaid and Medicare Services.

Our liability for these rebates consists of estimates of claims for the current period and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period.

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Co-pay Assistance Program

We offer a co-pay assistance program (the “co-pay program”), which is intended to provide financial assistance to patients who may or may not be covered by commercial insurance or who opt out of Medicare Part D programs.

The calculation of accruals for the co-pay program is based on actual claims processed during the period as well as an estimate of the number and cost per claim that we expect to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period.

Allowances for estimated co-pay claims are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Accounts Receivable, Net

Accounts receivable, net relates to amounts due from customers, net of applicable revenue reserves.

Accounts receivable are typically due within approximately 65 days.

We analyze accounts that are past due for collectability and provide an allowance for receivables when collection becomes doubtful.

Given the nature and limited history of collectability of our accounts receivable, an allowance for doubtful accounts is not deemed necessary at December 31, 2019.

We capitalize inventories manufactured in preparation for initiating sales of a product candidate when the related product candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales of the inventories.

In determining whether or not to capitalize such inventories, we evaluate, among other factors, information regarding the product candidate’s safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales, including the existence of current or anticipated competitive drugs and the availability of reimbursement.

In addition, we evaluate risks associated with manufacturing the product candidate, including the ability of our third-party suppliers to complete the validation batches, and the remaining shelf life of the inventories.

Costs associated with manufacturing product candidates prior to satisfying the inventory capitalization criteria are charged to research and development expense as incurred.

We value our inventories at the lower of cost or estimated net realizable value.

We determine the cost of our inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis.

We perform an assessment of the recoverability of capitalized inventory during each reporting period, including quality control and assurance reserves for defective inventories, and we also write-down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified.

Such impairment charges, should they occur, are recorded within cost of product revenues, unless associated with our samples inventory, in which case the charges are recorded to selling, general and administrative expense.

The determination of whether inventory costs will be realizable requires estimates by management.

If actual market conditions are less favorable than projected by

management, additional write-downs of inventory may be required which would be recorded as a cost of product revenues in the consolidated statements of operations.

Shipping and handling costs for product shipments are recorded as incurred in costs of revenues along with costs associated with manufacturing the product, and any inventory write-downs.

We elected to early adopt Accounting Standards Update, or ASU, 2016-02, Leases or ASC 842, effective January 1, 2018.

Under this new lease standard, most leases are required to be recognized on the balance sheet as right-of-use assets and corresponding lease liabilities.

We identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liability.

Expected lease term - The expected lease term includes both contractual lease periods and, as applicable, cancelable option periods where failure to exercise such options would result in an economic penalty.

Incremental borrowing rate - As our lease does not provide an implicit rate, we estimated the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our recent Athyrium Credit Facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease.

The standard was implemented using the required modified retrospective approach and we also elected to utilize the available practical expedients.

In using the modified retrospective approach, we were required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented.

The adoption of this standard did not have a material impact on our consolidated statements of operations.

On February 28, 2018 we entered into a lease for our new corporate headquarters located in Watertown, Massachusetts, which consists of 66,052 rentable square feet with an initial term of eight years and a five year renewal option.

Stock‑based Compensation and Common Stock Valuation

Stock‑based Compensation

We measure stock options and other stock‑based awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize the corresponding compensation expense of those awards using the straight-line method, over the requisite service period, which is generally the vesting period of the respective award, and account for the effect of forfeitures as they occur.

We estimate the fair value of each stock option grant using the Black‑Scholes option‑pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk‑free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Common Stock Valuation

Prior to our IPO in 2017, there was no public market for our common stock.

For awards granted prior to our IPO, the estimated fair value of our common stock was determined by our Board of Directors as of the date of each option grant, with input from management, considering our most recently available third‑party valuations of common stock and our board of directors’

assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

These third‑party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’

Accounting and Valuation Guide, Valuation of Privately‑Held‑Company Equity Securities Issued as Compensation.

Our common stock valuations were prepared using either a hybrid method, which used market approaches to estimate our enterprise value, or a probability‑weighted expected return method, or PWERM, which used a combination of market approaches and a cost approach to estimate our enterprise value.

The hybrid method is a

PWERM where the equity value in one or more of the scenarios is calculated using an option‑pricing method, or OPM.

Under the PWERM methodology, the fair value of common stock was estimated based upon an analysis of future values for our company, assuming various outcomes.

The common stock value was based on the probability‑weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock.

The future value of the common stock under each outcome was discounted back to the valuation date at an appropriate risk‑adjusted discount rate and probability weighted to arrive at an indication of value for the common stock.

In addition to considering the results of these third‑party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may have been as of a date later than the most recent third‑party valuation date, including the prices at which we sold shares of preferred stock and the superior rights and preferences of securities senior to our common stock at the time of each grant, the progress of our research and development programs, external market conditions affecting and trends within the biotechnology industry and the likelihood of achieving a liquidity event.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management judgment.

As of December 31, 2019, and 2018, we had $19.2 million and $21.1 million of total unrecognized compensation expense, which is expected to be recognized over a weighted average remaining vesting period of approximately 2.31 years and 2.84 years, respectively.

We expect the impact of our stock‑based compensation expense for stock options to employees and non‑employee consultants to grow in future periods due to the potential increases in the value of our common stock and headcount.

Emerging Growth Company Status

In April 2012, the Jumpstart Our Business Startup Act, or JOBS Act, was enacted by the federal government.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Results of Operations

Comparison of the Years ended December 31, 2019 and 2018

The followi ng table summarizes the results of our operations for the years ended December 31, 2019 and 2018:

(in thousands)

Product revenues, net

Costs and expenses:

Cost of product revenues

Selling, general and administrative

Research and development

Total costs and expenses

Loss from operations

Other income (expense)

Interest income

Interest expense

Loss on extinguishment of debt

Total other expense

Product revenues, net

Product revenues, net was $6.1 million for the year ended December 31, 2019 and related to sales of INVELTYS, which we launched in the United States in January 2019.

INVELTYS is our first product to receive regulatory approval.

We did not generate any revenues from product sales prior to 2019.

We expect product revenues to increase if and as we obtain and maintain coverage and adequate reimbursement for INVELTYS from third-party payors.

Cost of product revenues

Cost of product revenues was $2.0 million for the year ended December 31, 2019.

We began capitalizing inventory costs for INVELTYS after receipt of FDA approval of INVELTYS on August 22, 2018.

Prior to receiving FDA approval, such costs were expensed as research and development expenses.

Included in the cost of product revenues for the year ended December 31, 2019, is $0.2 million related to the write-off of certain INVELTYS units that did not pass quality inspection.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $65.0 million for the year ended December 31, 2019 compared to $35.4 million for the year ended December 31, 2018, an increase of $29.6 million.

The increase was driven by a $18.4 million increase in employee-related costs during year ended December 31, 2019 comprised of a $17.5 million increase in expenses from an increase in employee headcount and merit-based pay, primarily driven by the hiring of our sales force and a $0.9 million increase in stock-based compensation expenses primarily related to stock options issued to our sales force.

In addition, we incurred a $5.1 million increase in costs for sales and marketing and other activities primarily related to our executive, finance, human resource, legal, information technology, business development and support functions for the commercial launch of INVELTYS, a $2.6 million increase in sample costs, a $0.1 million increase in costs associated with legal, accounting and finance, a $2.6 million increase in facilities costs related to our Watertown Lease, which commenced in November 2018, along with a larger allocation of our overall facility costs related to this lease, $0.3 million of expense related to the milestone that was payable to JHU upon first commercial sale of INVELTYS and $0.4 million for the annual product fee for INVELTYS under the PDUFA program.

We anticipate that our selling, general and administrative expenses will increase in the future if and as we increase our administrative headcount to support our continued research activities and seek marketing approval for our lead product candidate, EYSUVIS and expand our salesforce if EYSUVIS receives regulatory approval.

Research and Development Expenses

The followi ng table summarizes the research and development expenses incurred during the years ended December 31, 2019 and 2018:

(in thousands)

KPI-121 development costs

Employee‑related costs

Other research and development costs

Total research and development

Research and development expenses were $27.3 million for the year ended December 31, 2019 compared to $29.3 million for the year ended December 31, 2018, a decrease of $2.0 million.

This decrease in research and development expenses was primarily due to a $2.4 million decrease in KPI-121 development costs driven by a decrease in the manufacturing cost of INVELTYS, which was recognized as research and development cost prior to FDA approval, and subsequently recognized as cost of product revenues, and a decrease related to our external cost for our Phase 3 clinical trial of INVELTYS for the treatment of inflammation and pain following ocular surgery.

The KPI-121 development cost expense decreases were primarily offset by an increase in development costs related to STRIDE 3, which began in the third quarter of 2018.

Also contributing to the decrease in research and development expenses was a $1.4 million decrease in costs related to employees that were engaged in product manufacturing activities and were classified under research and development prior to regulatory approval of INVELTYS and are now classified as manufacturing employees and, are accordingly being recorded in inventory and cost of product revenues.

Partially offsetting these decreases in research and development expense was an increase in other research and development costs of $1.7 million, primarily related to our new Watertown location in 2019.

We expect that our research and development costs will decrease in 2020 as compared to the year ended December 31, 2019 as a result of the completion of STRIDE 3.

However, we expect that such costs will increase if and as we continue to advance our product candidates, including EYSUVIS, and conduct additional clinical trials.

Interest Income

Interest income was $2.4 million for the year ended December 31, 2019, compared to $1.7 million for the year ended December 31, 2018, an increase of $0.7 million.

The increase was attributable to a higher interest rate and higher average cash balance during the year ended December 31, 2019 from the sale of shares of our common stock in an underwritten offering in October 2018 and proceeds from our Athyrium Credit Facility in October 2018, and to a lesser extent, the receipt of $8.4 million of net proceeds from the sale of our common stock from our ATM Offering during the third and fourth quarters of 2019.

Interest Expense

Interest expense was $8.5 million for the year ended December 31, 2019, compared to $3.3 million for the year ended December 31, 2018, an increase of $5.2 million.

The increase was primarily due to the October 2018 draw down of $75.0 million under the Athyrium Credit Facility, which resulted in a higher outstanding debt balance for the year ended December 31, 2019.

Loss on extinguishment of debt

The loss of extinguishment of debt was $0.4 million for the year ended December 31, 2018.

There was no loss on extinguishment of debt for the year ended December 31, 2019.

Upon the repayment in full of the principal balance and related outstanding interest under the 2014 Debt Facility, the unamortized debt discount and prepayment penalty was recorded as loss on extinguishment of debt for the year ended December 31, 2018.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

We have been in the process of commercializing our first FDA-approved product, INVELTYS, and we did not generate revenue from sales of any product before 2019.

We have funded our operations to date with public offerings of common stock, private placements of preferred stock, convertible debt financings, borrowings under credit facilities, warrants, and sales of our common stock under our ATM Offering .

In July 2017, we completed our IPO pursuant to which we issued and sold 6,900,000 shares of our common stock, which included 900,000 shares sold pursuant to the exercise of the underwriters’

option to purchase additional shares, at a price of $15.00 per share.

We received net proceeds of $94.0 million after deducting underwriting discounts and commission of $7.3 million and offering costs incurred in 2017 of $2.2 million.

In November 2014, we entered into our 2014 Debt Facility, which was subsequently amended in October 2016, November 2017 and March 2018.

The 2014 Debt Facility, as amended, increased the initial commitment under the debt facility to a total of $20.0 million of funding and extended the interest-only end date for 12 months following the execution of the March 2018 amendment.

On October 1, 2018, we repaid the outstanding principal balance under the 2014 Debt Facility of $20.0 million.

In connection with the repayment of the 2014 Debt Facility, we paid a prepayment fee of $0.2 million.

On August 9, 2018, we filed a Shelf Registration with the SEC, which was declared effective on August 27, 2018.

Under the Shelf Registration, we may offer and sell up to $250.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the Shelf Registration becoming effective.

Under the Shelf Registration, we may periodically offer one or more types of securities in amounts, at prices and on terms announced, if and when the securities are ever offered.

On October 5, 2018, we sold 7,500,000 shares of our common stock in an underwritten offering pursuant to the Shelf Registration at a public offering price of $8.25 per share, before underwriting discounts and commissions.

In addition, the underwriters were granted an overallotment option to purchase an additional 1,125,000 shares of the common stock at the same public offering price, less underwriting discounts and commissions.

On October 11, 2018, the underwriters exercised in full their option to purchase the overallotment shares.

The total number of shares sold in the offering was 8,625,000, resulting in our receipt of $66.1 million in net proceeds, after underwriting discounts and offering expenses.

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

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

In the period beginning January 1, 2020 through the date of this Annual Report on Form 10-K, we issued and sold an additional 583,411 shares of our common stock under our ATM Offering, resulting in our receipt of $2.2 million in net proceeds.

As of December 31, 2019, there was approximately $36.4 million of shares of common stock remaining under the ATM Offering that we may issue and sell in the future and, excluding the funds designated to be offered under our ATM Offering, there was approximately $128.8 million of securities available to be issued under the Shelf Registration.

On October 1, 2018, we entered into a $110 million Athyrium Credit Facility.

The Athyrium Credit Facility provides for a Term Loan A in the aggregate principal amount of $75.0 million, and an Athyrium Term Loan B in the aggregate principal amount of $35.0 million.

On October 1, 2018, we borrowed the entire principal amount of the Term Loan A.

We may draw down the Athyrium Term Loan B upon either (i) FDA approval of EYSUVIS for a dry eye disease indication or (ii) reaching certain net product revenues for INVELTYS, in each case on or prior to June 30, 2020;

however, we do not expect to satisfy either such condition on or prior to June 30, 2020 and, as a result, do not currently expect we will be eligible to draw down any of the Athyrium Term Loan B funds.

The maturity date of the Athyrium Credit Facility is October 1, 2024.

The Term Loan A bears interest at a rate of 9.875% per annum, with quarterly, interest-only payments until October 1, 2022.

The unpaid principal amount of the Term Loan A is due and payable in quarterly installments starting at the end of the fourth anniversary of the loan.

As of December 31, 2019 and 2018, we had $85.4 million and $170.9 million in cash on hand, respectively, and $75.0 million in indebtedness.

The indebtedness in 2018 and 2019 represented the aggregate principal amount that was outstanding under the Athyrium Credit Facility.

The following table summarizes our sources and uses of cash for each of the periods presented:

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Decrease in cash and restricted cash

Operating Activities

During the year ended December 31, 2019, our cash used in operating activities was primarily due to our net loss of $94.3 million, as we incurred selling, general and administrative costs associated with the commercialization of INVELTYS, which we launched in January 2019, and external research and development costs associated with our clinical trials for our lead product candidate, EYSUVIS.

These costs were partially offset by non‑cash charges of $13.6 million, consisting primarily of $10.0 million in stock‑based compensation, $3.6 million related to leases, debt discount and depreciation, and net cash used by changes in our operating assets and liabilities of $11.9 million.

The changes in our operating assets and liabilities of $11.9 million were primarily due to an increase of $11.6 million in accounts receivable and a $4.3 million increase in inventory from the commencement of INVELTYS sales in 2019, and a $1.2 million decrease in lease liabilities and other long-term liabilities primarily related to cash lease payments.

Partially offsetting these decreases in operating cash flows from operating assets and liabilities was a $6.9 million increase in accrued expenses and accounts payable.

The increase in accrued expenses was primarily the result of accrued revenue reserves established for sales incentives, discounts and chargebacks related to INVELTYS sales in 2019.

The decrease in accounts payable was primarily a result of a decrease in volume of expenses related to our contract manufacturer, and a decrease in expenses incurred on behalf of our landlord for construction of our Watertown facility, partially offset by increases for sales incentives, discounts and chargebacks related to INVELTYS sales in 2019, and the timing of vendor invoices and payments.

During the year ended December 31, 2018, our cash used in operating activities was primarily due to our net loss of $66.7 million as we incurred external research and development costs associated with our clinical trials and selling, general and administrative costs partially offset by non‑cash charges of $10.2 million, consisting primarily of a $1.2 million related to amortization of the right-of-use assets, debt discount and depreciation, $8.6 million in stock‑based compensation, $0.4 million in loss for extinguishment of the 2014 Debt Facility and net cash provided by changes in our operating assets and liabilities of $2.4 million.

The changes in our operating assets and liabilities of $2.4 million primarily due to an increase of $8.1 million in accrued expenses and accounts payable partially offset by a decrease of

$0.4 million in lease liabilities and other long-term liabilities primarily due to principal lease payments, and an increase of $5.3 million primarily driven by inventory related to INVELTYS and receivable related to the construction of our Watertown facility.

The increase in accrued expenses was primarily a result of an increase in amounts accrued for compensation and benefits related expenses, contract manufacturing expense, payable related to the construction of our Watertown facility and professional services offset by lower accruals for clinical and regulatory consulting expenses for our clinical trials, and the increase in accounts payable was primarily a result of increase in volume of expenses related to our contract manufacturer, expenses incurred on behalf of our landlord for construction of our Watertown facility, and the timing of vendor invoices and payments.

Investing Activities

Net cash used in investing activities for all periods presented consists of purchases of property and equipment, primarily laboratory and manufacturing equipment.

Purchases of property and equipment were $1.3 million and $1.6 million for the years ended December 31, 2019 and 2018, respectively.

Financing Activities

Net cash provided by financing activities was $9.0 million for the year ended December 31, 2019, consisting of $8.4 million of net proceeds from the sale of shares of our common stock under the ATM Offering, and $0.6 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

Net cash provided by financing activities was $124.1 million for the year ended December 31, 2018, consisting of $70.8 million from our underwritten offerings of common stock net of underwriting discounts, commissions and offering costs, $2.7 million from our 2014 Debt Facility, $72.0 million from our Athyrium Credit Facility net of debt discounts and debt issuance costs, and $0.5 million from the exercise of stock options, offset by repayment of our 2014 Debt Facility of $21.8 million.

Funding Requirements

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and engage in activities to prepare for commercialization of our lead product candidate, EYSUVIS, for the temporary relief of signs and symptoms of dry eye disease, as a result of increased headcount, including management personnel to support our 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 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.

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 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 ;

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

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.

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

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.

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.

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.

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;

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.

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;

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.

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.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements.

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 Athyrium Credit Facility are currently entitled to exercise warrants for up to 184,660 shares of common stock.

Although we do not expect to be able to do so, 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 without the lenders’

We will need to raise additional capital in the future to advance our business.

Additional private or public financings may not be available to us on acceptable terms, or at all.

Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

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.

Off‑Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

From time to time the Financial Accounting Standards Board, or FASB, or other standard‑setting bodies, issue new accounting pronouncements.

Where applicable, we adopt these new standards according to the specified effective dates.

Unless otherwise disclosed in Note 2 to the financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the impact of any recently issued standard(s) that are not yet effective will not have a material impact on our financial position or results of operation upon adoption.

Quantitative and Qualitative Disclosures About Market Risk.

We did not hold any investments as of December 31, 2019.

As of December 31, 2019, the aggregate principal outstanding under the Athyrium Credit Facility was $75.0 million, which bears interest at a fixed rate of 9.875% per annum.

Financial Statements and Supplementary Data

Our financial statements, together with the report of our independent registered public accounting firm, appear on pages F-1 through F-27 of this Annual Report on Form 10-K.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity