KALA BIO, Inc. 10-Q

Item 1. Financial Statements . KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2021 2020 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 127,970 ​ $ 77,264 Short-term investments ​ ​ 28,015 ​ ​ 76,276 Accounts receivable, net ​ ​ 12,206 ​ ​ 9,604 Inventory ​ ​ 8,241 ​ ​ 5,229 Prepaid expenses and other current assets ​ ​ 2,633 ​ ​ 3,006 Total current assets ​ ​ 179,065 ​ ​ 171,379 Non-current assets: ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ 3,042 ​ ​ 3,166 Long-term inventory ​ ​ 6,200 ​ ​ 6,219 Right-of-use assets ​ ​ 28,542 ​ ​ 27,853 Restricted cash and other long-term assets ​ ​ 12,978 ​ ​ 12,989 Total assets ​ $ 229,827 ​ $ 221,606 Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 2,855 ​ $ 1,724 Accrued expenses and other current liabilities ​ ​ 15,149 ​ ​ 18,971 Current portion of lease liabilities ​ ​ 1,985 ​ ​ 1,530 Total current liabilities ​ ​ 19,989 ​ ​ 22,225 Long-term liabilities: ​ ​ ​ ​ ​ ​ Long-term lease liabilities ​ ​ 27,525 ​ ​ 27,143 Long-term debt ​ ​ 72,521 ​ ​ 72,243 Total long-term liabilities ​ ​ 100,046 ​ ​ 99,386 Total liabilities ​ ​ 120,035 ​ ​ 121,611 Commitments and Contingencies (Note 14) ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value; 120,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 63,805,108 and 58,915,375 shares issued and outstanding as of March 31, 2021 and December 31, 2020 , respectively ​ ​ 64 ​ ​ 59 Additional paid-in capital ​ ​ 539,920 ​ ​ 499,715 Accumulated other comprehensive income ​ ​ 3 ​ ​ 4 Accumulated deficit ​ ​ ( 430,195 ) ​ ​ ( 399,783 ) Total stockholders' equity ​ ​ 109,792 ​ ​ 99,995 Total liabilities and stockholders' equity ​ $ 229,827 ​ $ 221,606 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 3 Table of Contents KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2021 2020 ​ ​ ​ Product revenues, net ​ $ 3,266 ​ $ 1,071 Costs and expenses: ​ ​ ​ ​ ​ ​ Cost of product revenues ​ ​ 755 ​ ​ 354 Selling, general and administrative ​ ​ 27,699 ​ ​ 15,408 Research and development ​ ​ 3,126 ​ ​ 5,434 Total costs and expenses ​ ​ 31,580 ​ ​ 21,196 Loss from operations ​ ​ ( 28,314 ) ​ ​ ( 20,125 ) Other income (expense): ​ ​ ​ ​ ​ ​ Interest and other income ​ ​ 43 ​ ​ 298 Interest and other expense ​ ​ ( 2,141 ) ​ ​ ( 2,128 ) Total interest and other expense ​ ​ ( 2,098 ) ​ ​ ( 1,830 ) Net loss ​ $ ( 30,412 ) ​ $ ( 21,955 ) Net loss per share—basic and diluted ​ $ ( 0.49 ) ​ $ ( 0.54 ) Weighted average shares outstanding—basic and diluted ​ ​ 61,655,867 ​ ​ 40,761,984 ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 30,412 ) ​ $ ( 21,955 ) Other comprehensive loss: ​ ​ ​ ​ ​ ​ Change in unrealized gains on investments ​ ​ ( 1 ) ​ ​ — Total other comprehensive loss ​ ​ ( 1 ) ​ ​ — Total comprehensive loss ​ $ ( 30,413 ) ​ $ ( 21,955 ) ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 4 Table of Contents ​ KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ $0.001 Par Value ​ Paid-In ​ Comprehensive ​ Accumulated ​ Stockholders' ​ ​ Shares Amount Capital Income Deficit Equity Balance as of December 31, 2020 ​ 58,915,375 ​ $ 59 ​ $ 499,715 ​ $ 4 ​ $ ( 399,783 ) ​ $ 99,995 Exercise of stock options ​ 68,814 ​ ​ — ​ ​ 184 ​ ​ — ​ ​ — ​ ​ 184 At the market offering, net of sales agent commission of $ 991 ​ 4,746,072 ​ ​ 5 ​ ​ 34,704 ​ ​ — ​ ​ — ​ ​ 34,709 Issuance under employee stock purchase plan ​ 74,847 ​ ​ — ​ ​ 431 ​ ​ — ​ ​ — ​ ​ 431 Stock-based compensation expense ​ — ​ ​ — ​ ​ 4,886 ​ ​ — ​ ​ — ​ ​ 4,886 Change in fair value of investments ​ — ​ ​ — ​ ​ — ​ ​ ( 1 ) ​ ​ — ​ ​ ( 1 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 30,412 ) ​ ​ ( 30,412 ) Balance as of March 31, 2021 ​ 63,805,108 ​ $ 64 ​ $ 539,920 ​ $ 3 ​ $ ( 430,195 ) ​ $ 109,792 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended March 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ $0.001 Par Value ​ Paid-In ​ Comprehensive ​ Accumulated ​ Stockholders' ​ Shares Amount Capital Income Deficit Equity Balance as of December 31, 2019 ​ 36,086,254 ​ $ 36 ​ $ 325,112 ​ $ — ​ $ ( 295,456 ) ​ $ 29,692 At the market offering, net of sales agent commission of $ 388 ​ 2,352,671 ​ ​ 3 ​ ​ 12,543 ​ ​ — ​ ​ — ​ ​ 12,546 Exercise of stock options ​ 61,158 ​ ​ — ​ ​ 167 ​ ​ — ​ ​ — ​ ​ 167 Common stock offering, net of offering costs of $ 8,011 ​ 16,000,000 ​ ​ 16 ​ ​ 118,191 ​ ​ — ​ ​ — ​ ​ 118,207 Issuance under employee stock purchase plan ​ 85,553 ​ ​ — ​ ​ 269 ​ ​ — ​ ​ — ​ ​ 269 Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,584 ​ ​ — ​ ​ — ​ ​ 2,584 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 21,955 ) ​ ​ ( 21,955 ) Balance as of March 31, 2020 ​ 54,585,636 ​ $ 55 ​ $ 458,866 ​ $ — ​ $ ( 317,411 ) ​ $ 141,510 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 5 Table of Contents KALA PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 30,412 ) ​ $ ( 21,955 ) Adjustments to reconcile net loss to cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 248 ​ ​ 230 Non-cash operating lease cost ​ ​ 529 ​ ​ 473 Amortization of debt discount and other non-cash interest ​ ​ 278 ​ ​ 253 Stock-based compensation ​ ​ 4,702 ​ ​ 2,497 Amortization of discount on available-for-sale securities ​ ​ 10 ​ ​ — Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ ( 2,602 ) ​ ​ 6,769 Prepaid expenses and other current assets ​ ​ 373 ​ ​ 99 Inventory ​ ​ ( 2,809 ) ​ ​ ( 579 ) Accounts payable ​ ​ 1,237 ​ ​ ( 1,332 ) Accrued expenses and other current liabilities ​ ​ ( 3,822 ) ​ ​ ( 6,023 ) Lease liabilities and other long-term liabilities ​ ​ ( 372 ) ​ ​ ( 312 ) Net cash used in operating activities ​ ​ ( 32,640 ) ​ ​ ( 19,880 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment and other assets ​ ​ ( 219 ) ​ ​ ( 292 ) Proceeds from sales or maturities of short-term investments ​ ​ 48,250 ​ ​ — Net cash provided by (used in) investing activities ​ ​ 48,031 ​ ​ ( 292 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Proceeds from common stock offerings, net of offering costs ​ ​ 34,709 ​ ​ 130,754 Payment of principal on finance lease ​ ​ ( 9 ) ​ ​ ( 8 ) Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan ​ ​ 615 ​ ​ 435 Net cash provided by financing activities ​ ​ 35,315 ​ ​ 131,181 Net increase in cash, cash equivalents and restricted cash: ​ ​ 50,706 ​ ​ 111,009 Cash, cash equivalents and restricted cash at beginning of period ​ ​ 89,756 ​ ​ 98,031 Cash, cash equivalents and restricted cash at end of period ​ $ 140,462 ​ $ 209,040 Reconciliation of cash, cash equivalents and restricted cash: ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at end of period ​ $ 140,462 ​ $ 209,040 Less restricted cash (Notes 8 and 9) ​ ​ ( 12,492 ) ​ ​ ( 12,584 ) Cash and cash equivalents at end of period ​ $ 127,970 ​ $ 196,456 ​ ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment in accounts payable ​ $ 24 ​ $ — ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 1,851 ​ $ 1,875 Right-of-use assets obtained in exchange of operating lease obligations ​ ​ 1,218 ​ ​ — ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 6 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Nature of Business — Kala Pharmaceuticals, Inc. (the “Company”) was incorporated on July 7, 2009, and is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies for diseases of the eye. The Company has applied its AMPPLIFY ® mucus-penetrating particle (“MPP”) Drug Delivery Technology to loteprednol etabonate (“LE”), a corticosteroid designed for ocular applications, resulting in the U.S. Food and Drug Administration’s (the “FDA”) approval of EYSUVIS ® (loteprednol etabonate ophthalmic suspension) 0.25%, for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease, and INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1% as the first and only topical twice-daily ocular corticosteroid for treatment of post-operative inflammation and pain following ocular surgery. In January 2019, the Company launched its first commercial product, INVELTYS, in the United States and began shipping its second commercial product, EYSUVIS, to wholesalers in the United States in late December 2020 with the full promotional launch commencing in early January 2021. The Company is engaged in the commercialization of EYSUVIS and INVELTYS, research and development activities, raising capital and recruiting skilled personnel. The Company is subject to a number of risks similar to those of other companies conducting high-risk, research and development of pharmaceutical product candidates and launching products for the first time. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies and the technical risks associated with the successful research, development and marketing of its product candidates. The Company’s success is dependent upon its ability to successfully commercialize its products, the success of its research and development efforts, its ability to obtain regulatory approval of its product candidates, its ability to raise additional capital when needed and, ultimately, attain profitable operations. The Company is also progressing its pipeline of proprietary preclinical development programs targeted to address front and back of the eye diseases. These preclinical development programs, all of which are new chemical entities, include its receptor Tyrosine Kinase Inhibitor program, that is designed to inhibit the vascular endothelial growth factor pathway, for the treatment of retinal diseases, including wet age-related macular degeneration; its selective glucocorticoid receptor modulators, which are a novel class of therapies designed to modify the downstream activity of the receptors to exhibit the anti-inflammatory and immunomodulatory properties of the corticosteroid class of therapies without their associated side effects; and its novel surface targeting steroid designed to target the ocular surface and thus have the potential to have fewer side effects compared to traditional topical steroids. The Company owns all intellectual property and worldwide rights to these pipeline preclinical development programs. Liquidity — Since inception, the Company has incurred significant losses from operations and negative cash flows from operations. As of March 31, 2021, the Company had an accumulated deficit of $ 430,195 . As the Company commenced a full promotional launch of EYSUVIS in early January 2021 and commercially launched its first product, INVELTYS, in January 2019, it has had only limited revenues to date from product sales and has financed operations primarily through proceeds from its initial public offering of common stock (“IPO”), follow-on public common stock offerings and sales of its common stock under its at-the-market offering facility, private placements of preferred stock, borrowings under credit facilities, convertible promissory notes and warrants. The Company has devoted substantially all of its financial resources and efforts to research and development, including preclinical studies and clinical trials, and engaging in activities to commercialize EYSUVIS and INVELTYS. Although the Company expects to continue to generate revenue from sales of EYSUVIS and INVELTYS, there can be no assurance as to the amount or timing of any such revenue, and it expects to continue to incur significant expenses and operating losses. Net losses may fluctuate significantly from quarter-to-quarter and year-to-year. The Company expects that its cash, cash equivalents and short-term investments as of March 31, 2021, together with anticipated net revenue from sales of EYSUVIS and INVELTYS, will enable it to fund its operating expenses, debt service obligations and capital expenditure requirements for at least twelve months from the date these condensed consolidated financial statements were issued. This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the condensed consolidated financial statements are issued. As a result, the Company could deplete its available capital resources sooner than it currently expects. 7 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ COVID-19 – The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which began in December 2019 and was declared a global pandemic by the World Health Organization on March 11, 2020, has spread worldwide, causing federal, state and local governments to implement measures to slow the spread of the pandemic through quarantines, strict travel restrictions and bans, heightened border scrutiny and other measures. In order to safeguard the health of its employees, the Company is following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention, as well as federal, state and local governments, regarding working-from-home practices for non-essential employees. As a result, all office-based personnel have been instructed to work from home, and the Company’s laboratory facilities that support its early-stage research activities are being utilized as necessary. In addition, the Company previously suspended its sales force from substantially all in-person interactions with physicians and was limited to conducting educational and promotional activities virtually. The Company’s sales force has since resumed substantially all in-person interactions in the field, but if the Company suspends all or some in-person interactions with physicians in the future, or to the extent physicians limit in-person interactions, the Company may be limited to conducting educational and promotional activities virtually, which may continue to hamper its ability to market INVELTYS. The effects of the COVID-19 pandemic may also disrupt the full promotional launch and commercialization of EYSUVIS. In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which has significantly reduced, and may in the future continue to significantly reduce, the demand for INVELTYS, which is indicated for the treatment of post-operative inflammation and pain following ocular surgery. The extent of the impact of the COVID-19 pandemic on the Company’s commercialization efforts of EYSUVIS and INVELTYS and its operational and financial performance will depend on certain developments, including the length and severity of this pandemic and the impact on the Company’s customers, employees and vendors and government agencies, all of which are uncertain and cannot be predicted. The Company cannot reasonably estimate the extent to which the disruption may materially impact its condensed consolidated results of operations or financial position. Use of Estimates —The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense, and related disclosures. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and assumptions relied upon in preparing these condensed consolidated financial statements relate to, but are not limited to, revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock-based compensation, accrued expenses and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Actual results may differ from these estimates under different assumptions or conditions. Net Loss per Share —Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants and the issuance of unvested restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). The weighted average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, warrants and unvested RSUs and PSUs. Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for each of the three months ended March 31, 2021 and 2020. 8 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ As of March 31, 2021 and 2020, potentially dilutive securities excluded from the calculation of diluted net loss per share because including such securities would have an anti-dilutive effect consisted of outstanding options to purchase 10,120,453 and 8,817,943 shares of the Company’s common stock, respectively, an aggregate of 1,365,592 unvested RSUs and PSUs as of March 31, 2021 and an aggregate of 248,505 and 297,988 unexercised warrants as of March 31, 2021 and 2020, respectively. Unaudited Interim Financial Information —The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. The accompanying condensed consolidated financial statements reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations, statement of stockholders’ equity and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”). The unaudited condensed consolidated financial statements include the accounts of Kala Pharmaceuticals, Inc. and its wholly owned subsidiary, Kala Pharmaceuticals Security Corporation. All intercompany transactions and balances have been eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in the Annual Report. There have been no material changes to the significant accounting policies during the three months ended March 31, 2021. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”) , which is effective for Smaller Reporting Companies (“SRCs”) as defined by the SEC for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Upon adoption, beginning January 1, 2023, the Company does not expect ASU 2019-10 to have a material effect on its condensed consolidated financial statements. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has short-term investments which are considered financial instruments that are measured on a recurring basis. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and its own assumptions (unobservable inputs). The hierarchy consists of three levels: ● Level 1—Quoted prices in active markets for identical assets or liabilities. ● Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. 9 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ ● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The Company’s financial instruments consist primarily of cash equivalents and short-term investments in money market funds and short-term securities. Cash equivalents and short-term investments are reported at their respective fair values on the Company’s condensed consolidated balance sheets. See Note 4, “Investments” for additional information. The following tables sets forth the fair value of the Company’s financial assets by level within the fair value hierarchy as of March 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ ​ Fair Value ​ Level 1 ​ Level 2 ​ Level 3 Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 112,071 ​ $ 112,071 ​ $ — ​ $ — Short-term investments ​ ​ 28,015 ​ ​ 28,015 ​ ​ — ​ ​ — Total Assets ​ $ 140,086 ​ $ 140,086 ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Fair Value ​ Level 1 ​ Level 2 ​ Level 3 Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 63,811 ​ $ 63,811 ​ $ — ​ $ — Short-term investments ​ ​ 76,276 ​ ​ 76,276 ​ ​ — ​ ​ — Total Assets ​ $ 140,087 ​ $ 140,087 ​ $ — ​ $ — ​ During the three months ended March 31, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2, and Level 3. 4. INVESTMENTS Investments by security type consisted of the following as of March 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ ​ ​ Gross ​ Gross ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost ​ Gains ​ Losses ​ Value U.S. treasury securities $ 9,700 ​ $ 1 ​ $ — ​ $ 9,701 U.S. government agencies securities ​ 18,312 ​ ​ 2 ​ ​ — ​ ​ 18,314 Total $ 28,012 ​ $ 3 ​ $ — ​ $ 28,015 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ ​ December 31, 2020 ​ ​ ​ Gross ​ Gross ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost ​ Gains ​ Losses ​ Value U.S. treasury securities $ 26,744 ​ $ 2 ​ $ — ​ $ 26,746 U.S. government agencies securities ​ 49,528 ​ ​ 2 ​ ​ — ​ ​ 49,530 Total $ 76,272 ​ $ 4 ​ $ — ​ $ 76,276 ​ As of March 31, 2021 and December 31, 2020, all of the Company’s investments had a contractual maturity within one year. The fair value of all of the Company’s investments are classified as short-term on its condensed consolidated balance sheets. 5. REVENUE & ACCOUNTS RECEIVABLE, NET The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services. The Company performs the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer. Product revenues, net The Company sells EYSUVIS and INVELTYS primarily to wholesalers in the United States (collectively, “Customers”). These Customers subsequently resell the Company’s products to specialty and other retail pharmacies. In addition to agreements with Customers, the Company enters into arrangements with third-party payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of the Company’s products. The Company also holds inventory at a third-party pharmacy on a consignment basis and records revenue when control of the product transfers to the customer upon sale to the end user. The amount of inventory held on a consignment basis as of March 31, 2021 and December 31, 2020 was immaterial. The goods promised in the Company’s product sales contracts represent a single performance obligation. The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which occurs upon delivery. The transaction price (“net sales price”) that is recognized as revenue for product sales includes the selling price to the Customer and an estimate of variable consideration. Components of variable consideration include prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers and other third-party payors where a distinct good or service is not received. Variable consideration is recorded on the condensed consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer. The Company considers all relevant information when estimating variable consideration such as assessment of its current and anticipated sales and demand forecasts, 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. The Company includes estimated amounts for 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. 11 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a significant financing component in its arrangements. The Company expenses incremental cost of obtaining a contract with a Customer when incurred as the period of benefit is generally less than one year. Reserves for Variable Consideration : Trade Discounts and Allowances The Company provides its Customers with certain trade discounts and allowances including discounts for prompt payments and other discounts and fees paid for distribution, data and administrative services. These discounts and fees are based on contractually-determined percentages and are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized. Chargebacks Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Reserves for chargebacks consist of credits the Company expects to issue for units that remain in the distribution channel at the end of each reporting period and that the Company expects will be sold to qualified healthcare providers, as well as chargebacks that Customers have claimed, but for which the Company has not yet issued a credit. Product Returns Consistent with industry practice, the Company has a product returns policy that provides Customers right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its products that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel as well as historical returns, which develop over time. Commercial Payor and Medicare Part D Rebates The Company contracts with certain third-party payors, primarily pharmacy benefit managers (“PBMs”) and health plans (“Plans”), for the payment of rebates with respect to utilization of its product. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the PBMs or the Plans with which it contracts. The Company estimates the rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for EYSUVIS and INVELTYS as well as future rebates that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. The Company also estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. Such estimates are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Government Rebates The Company is subject to discount obligations under Medicaid and other government programs. For Medicaid, reserves are based on 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. The Company’s liability for these rebates consists of estimates of claims for the current period and estimated future claims that will be made for 12 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ 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 The Company offers a co-pay assistance program (the “co-pay program”), which is intended to provide financial assistance to patients who may or may not be covered by commercial insurance or who opt out of Medicare Part D programs. The calculation of accruals for the co-pay program is based on actual claims processed during the period as well as an estimate of the number and cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. Allowances for estimated co-pay claims are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The following tables summarize activity in each of the Company’s product revenue provision and allowance categories for the three months ended March 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trade Discounts, ​ ​ ​ ​ ​ ​ ​ ​ Allowances and ​ ​ ​ ​ Rebates and ​ ​ Chargebacks (1) Product Returns (2) Incentives (3) Balance as of December 31, 2020 ​ $ 1,157 ​ $ 600 ​ $ 4,904 Provision related to current period sales ​ ​ 2,201 ​ ​ 245 ​ ​ 10,216 Changes in estimate related to prior period sales ​ ​ 3 ​ ​ 30 ​ ​ ( 26 ) Credit/payments made ​ ​ ( 1,823 ) ​ ​ ( 419 ) ​ ​ ( 7,880 ) Balance as of March 31, 2021 ​ $ 1,538 ​ $ 456 ​ $ 7,214 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trade Discounts, ​ ​ ​ ​ ​ ​ ​ ​ Allowances and ​ ​ ​ ​ Rebates and ​ ​ Chargebacks (1) Product Returns (2) Incentives (3) Balance as of December 31, 2019 ​ $ 1,783 ​ $ 180 ​ $ 10,044 Provision related to current period sales ​ ​ 725 ​ ​ — ​ ​ 4,576 Changes in estimate related to prior period sales ​ ​ 2 ​ ​ ( 66 ) ​ ​ 93 Credit/payments made ​ ​ ( 1,114 ) ​ ​ — ​ ​ ( 8,090 ) Balance as of March 31, 2020 ​ $ 1,396 ​ $ 114 ​ $ 6,623 (1) Trade discounts, allowances and chargebacks include fees for distribution service fees, prompt pay and other discounts, and chargebacks. Estimated trade discounts, allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable on the Company’s condensed consolidated balance sheets. (2) Estimated provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. (3) Rebates and incentives include managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances. Estimated provisions for rebates and discounts are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. ​ Accounts Receivable, net Accounts receivable are reported on the condensed consolidated balance sheets at outstanding amounts due from Customers for product sales. The Company deducts sales discounts for prompt payments and other discounts, contractual fees for service arrangements and chargebacks from accounts receivable. The Company evaluates the 13 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ collectability of accounts receivable on a regular basis, by reviewing the financial condition and payment history of Customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible. The Company recorded no allowance for doubtful accounts as of March 31, 2021 or March 31, 2020. The Company recorded an allowance of $ 1,538 and $ 1,396 for expected sales discounts, related to prompt pay discounts and other discounts, contractual fee for service arrangements and chargebacks, to wholesalers and distributors as of March 31, 2021 and March 31, 2020, respectively. 6. INVENTORY Inventory consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2021 2020 ​ ​ ​ ​ ​ ​ ​ Raw materials ​ $ 995 ​ $ 801 Work in progress ​ ​ 9,303 ​ ​ 6,437 Finished goods ​ ​ 4,143 ​ ​ 4,210 Total inventory ​ $ 14,441 ​ $ 11,448 ​ As of March 31, 2021, the Company had $ 8,241 of current inventory and $ 6,200 of long-term inventory. As of December 31, 2020, the Company had $ 5,229 of current inventory and $ 6,219 of long-term inventory. 7. ACCRUED EXPENSES Accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2021 2020 ​ ​ ​ ​ ​ ​ ​ Compensation and benefits ​ $ 5,550 ​ $ 9,676 Accrued revenue reserves (1) ​ ​ 6,345 ​ ​ 5,224 Commercial costs ​ ​ 949 ​ ​ 2,103 Professional services ​ ​ 750 ​ ​ 926 Contract manufacturing ​ ​ 826 ​ ​ 336 Development costs ​ ​ 206 ​ ​ 154 Other ​ ​ 523 ​ ​ 552 Accrued expenses ​ $ 15,149 ​ $ 18,971 (1) There were additional revenue reserves included in accounts payable of $ 1,325 and $ 280 , as of March 31, 2021 and December 31, 2020, respectively. ​ ​ 8. LEASES Operating leases In connection with the lease of the Company’s corporate headquarters (the “Watertown Lease”), the Company issued a letter of credit to the landlord for $ 2,042 . The Company secured the letter of credit for the full amount of the letter with cash on deposit, which is reported as restricted cash on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. 14 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ For the three months ended March 31, 2021and 2020, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes, was $ 363 and $ 348 respectively. The remaining lease term was 10.6 years as of March 31, 2021. Vehicle Fleet lease During the year ended December 31, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it leased 65 vehicles. In connection with the Vehicle Fleet Lease, the Company issued a letter of credit for $ 450 , which was reported as restricted cash on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. The lease has an expected term of three years , which commenced upon the delivery of the vehicles in March 2019. ​ During the three months ended March 31, 2021, the Company modified the Vehicle Fleet Lease to add 54 additional vehicles to the fleet. The new component of the lease has an expected term of approximately three years , which commenced upon the delivery of the additional vehicles in March 2021. ​ The components of lease expense and related cash flows were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2021 2020 Lease cost ​ ​ Operating lease cost ​ $ 1,216 ​ $ 1,185 Variable lease cost ​ ​ 509 ​ ​ 410 Total lease cost ​ $ 1,725 ​ $ 1,595 ​ ​ ​ ​ ​ ​ ​ Operating cash outflows from operating leases ​ $ 1,584 ​ $ 1,444 ​ The weighted average remaining lease term and weighted average discount rate of operating leases are as follows: ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2021 2020 Weighted average remaining lease term 10.1 years ​ 10.3 years Weighted average discount rate 9.6 % ​ 9.8 % ​ ​ ​ ​ 9. DEBT Athyrium Credit Facility On October 1, 2018, the Company entered into a credit agreement (the “Athyrium Credit Facility”) with Athyrium Opportunities III Acquisition LP (“Athyrium”) for up to $ 110,000 . The Athyrium Credit Facility provided for a Term Loan A in the aggregate principal amount of $ 75,000 (the “Term Loan A”), and a Term Loan B in the aggregate principal amount of $ 35,000 (the “Term Loan B”). On October 1, 2018, the Company borrowed the entire principal amount of the Term Loan A. The maturity date of the Athyrium Credit Facility is October 1, 2024, the six-year anniversary of the close. The Term Loan A bears interest at a rate of 9.875 % per annum, with quarterly, interest-only payments until the fourth anniversary of the Term Loan A. The unpaid principal amount of the Term Loan A is due and payable in quarterly installments starting on October 1, 2022. The Company may make voluntary prepayments, in whole or in part, and subject to certain exceptions, is required to make mandatory prepayments upon the occurrence of certain events of default as defined in the agreement, including but not limited to, the occurrence of a change of control. In addition, upon payment or repayment of any outstanding balance under the Athyrium Credit Facility, the Company will have to pay a 15 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ 1 % exit fee of the total principal payments (whether mandatory, voluntary, or at maturity) made throughout the term. The exit fee of $ 750 based on the $ 75,000 principal amount outstanding, will be accreted to the carrying amount of the debt using the effective interest method over the term of the loan. All mandatory and voluntary prepayments of the Athyrium Credit Facility are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the second anniversary of the applicable date of issuance, an amount equal to the amount by which (a) the present value of 105 % of the principal prepaid plus all interest that would have accrued on such principal through such second anniversary exceeds (b) the amount of principal prepaid, (ii) if prepayment occurs on or after the second anniversary of the applicable date of issuance but prior to the third anniversary of such issuance, an amount equal to 3 % of the principal prepaid, and (iii) if prepayment occurs on or after the third anniversary of the applicable date of issuance but prior to the fourth anniversary of such issuance, an amount equal to 2 % of the principal prepaid. No prepayment premium is due on any principal prepaid after the fourth anniversary of the applicable date of issuance. The Athyrium Credit Facility includes features requiring (1) additional interest rate upon an event of default accrued at an additional 3 % , or a total interest rate of 12.875 % , and (2) the lender’s right to declare all outstanding principal and interest immediately payable upon an event of default. These two features were analyzed and determined to be embedded derivatives to be valued as separate financial instruments. These embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging transactions. The Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of March 31, 2021. The derivative liability will be remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Athyrium Credit Facility is secured by a pledge of substantially all of the Company’s assets and contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability to, among other things, incur and prepay additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, change in the nature of business, enter into sale and leaseback transactions, make distributions, and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Athyrium Credit Facility also contains a financial covenant requiring the Company to maintain at least $ 10,000 of cash and cash equivalents. As a result of this financial covenant, the Company has recorded $ 10,000 as restricted cash on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. In connection with the Athyrium Credit Facility, the Company issued a warrant (“Warrant”), to purchase up to 270,835 shares of the Company’s common stock, at an exercise price per share of $ 12.18456 . The Warrant is immediately exercisable as to 184,660 shares. The remaining 86,175 shares under the Warrant were exercisable only upon the Company’s draw of the Term Loan B and, as a result, the remaining 86,175 shares under the Warrant are no longer exercisable. The Warrant is exercisable through October 1, 2025 and is classified as an equity instrument. The Company allocated the proceeds from the Term Loan A to the Warrant using the relative fair value method. The fair value of the Warrant of $ 1,900 was recognized as equity with a corresponding debt discount of $ 1,980 . In addition, the Company paid certain fees to Athyrium and other third-party service providers. These fees paid to Athyrium were recorded as a debt discount while the fees paid to other third-party service providers were recorded as debt issuance cost. These costs, along with the fair value of the Warrant of $ 1,900 are being amortized using the effective interest method over the term of the Athyrium Credit Facility. The amortization of debt discount and debt issuance cost is included in interest expense within the condensed consolidated statements of operations and comprehensive loss. As of March 31, 2021 and March 31, 2020, the effective interest rate was 11.63 %, which takes into consideration the non-cash accretion of the exit fee and the amortization of the debt discount and issuance costs. During the three months ended March 31, 2021, the Company recognized interest expense of $ 2,092 , which consisted of amortization of the debt discount of $ 241 , and the contractual coupon interest expense of $ 1,851 . During the three months ended March 31, 2020, the Company recognized interest expense of $ 2,089 , which consisted of amortization of the debt discount of $ 217 , and the contractual coupon interest expense of $ 1,872 . 16 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ The components of the carrying value of the debt as of March 31, 2021 and December 31, 2020 are detailed below: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2021 2020 Principal loan balance ​ $ 75,000 ​ $ 75,000 Unamortized debt discount and issuance cost ​ ​ ( 2,848 ) ​ ​ ( 3,088 ) Cumulative accretion of exit fee ​ ​ 369 ​ ​ 331 Long-term debt, net ​ $ 72,521 ​ $ 72,243 ​ The annual principal payments due under the Athyrium Credit Facility as of March 31, 2021 were as follows: ​ ​ ​ ​ Years Ending December 31, ​ ​ 2021 (remaining nine months) ​ $ — 2022 ​ ​ 16,665 2023 ​ ​ 33,330 2024 ​ ​ 25,005 Total ​ $ 75,000 ​ For a description of Loan and Security Agreement (the “Loan Agreement”) that the Company entered into with Oxford Finance LLC, in its capacity as lender and in its capacity as collateral agent on May 4, 2021 and the concurrent repayment and termination of the Athyrium Credit Facility, see Note 15, “Subsequent Events”. ​ ​ ​ 10. WARRANTS The following table summarizes the common stock warrants outstanding as of March 31, 2021 and December 31, 2020, each exercisable into the number of shares of common stock set forth below as of the specified dates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Exercisable at ​ ​ Exercise Expiration Exercisable March 31, December 31, Issued Price ​ Date ​ From ​ 2021 ​ 2020 2013 ​ $ 7.50 ​ April 2021 ​ July 2017 ​ 33,333 ​ 33,333 2014 ​ $ 7.50 November 2024 July 2017 ​ 16,000 ​ 16,000 2016 ​ $ 8.27 October 2026 September 2017 ​ 14,512 ​ 14,512 2018 ​ $ 12.18 ​ October 2025 ​ October 2018 ​ 184,660 ​ 184,660 ​ ​ ​ ​ ​ ​ ​ ​ ​ 248,505 ​ 248,505 ​ ​ ​ 11. EQUITY FINANCINGS On August 9, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on August 27, 2018 (the “2018 Shelf Registration”). Under the 2018 Shelf Registration, the Company could initially offer and sell up to $ 250,000 of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the 2018 Shelf Registration becoming effective. In connection with the filing of the 2018 Shelf Registration, the Company entered into a sales agreement (the “2018 Sales Agreement”) with Jefferies, LLC (“Jefferies”) pursuant to which the Company may issue and sell, from time to time, up to an aggregate of $ 50,000 of its common stock in an at-the-market equity offering (“ATM Offering”) through Jefferies, as sales agent. Through the first quarter of 2020, the Company issued an aggregate of 4,945,605 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of $ 25,605 . On March 10, 2020 , the Company notified Jefferies that it was suspending and terminating the prospectus related to the 2018 Sales Agreement. 17 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ On March 11, 2020, the Company sold 16,000,000 shares of its common stock (the “2020 Offering Shares”) in an underwritten offering (the “2020 Offering”), pursuant to the 2018 Shelf Registration, at a public offering price of $ 7.89 per share, resulting in net proceeds of $ 118,207 , after underwriting discounts, commissions, and offering expenses. In addition, the underwriters of the 2020 Offering were granted the option for a period of 30 days to purchase up to an additional 2,400,000 shares of common stock offered in the public offering at the public offering price, less underwriting discounts, commissions and offering expenses. On April 3, 2020, the underwriters exercised their option and purchased an additional 979,371 shares of common stock at $ 7.89 per share, resulting in net proceeds to the Company of $ 7,216 , after underwriting discounts, commissions, and offering expenses. The total number of shares sold by the Company in the 2020 Offering was 16,979,371 , resulting in total net proceeds to the Company, after underwriting discounts, commissions, and offering expenses, of $ 125,423 . Under the 2018 Shelf Registration, the Company has issued an aggregate of 30,549,976 shares of common stock, including under the ATM Offering, resulting in aggregate gross proceeds of $ 231,666 . There was $ 18,334 of securities available to be issued under the 2018 Shelf Registration as of March 31, 2021. On May 7, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020 (the “2020 Shelf Registration”). Under the 2020 Shelf Registration, the Company may offer and sell up to $ 350,000 of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities or units during the three-year period that commenced upon the 2020 Shelf Registration becoming effective. In connection with the filing of the 2020 Shelf Registration, the Company entered into an amended and restated sales agreement with Jefferies pursuant to which it may issue and sell, from time to time, up to an aggregate of $ 75,000 of its common stock under its ATM Offering through Jefferies, as a sales agent. During the fourth quarter of 2020, the Company issued an aggregate of 2,821,059 shares of its common stock under the ATM Offering, resulting in net proceeds of $ 20,612 . During the three months ended March 31, 2021, the Company issued and sold an additional 4,746,072 shares of its common stock under its ATM Offering, resulting in net proceeds of $ 34,709 . As of March 31, 2021, there was $ 18,051 of shares of common stock remaining under the ATM Offering and, excluding the shares of common stock that may be offered under the ATM Offering, there was approximately $ 275,000 of securities available to be issued under the 2020 Shelf Registration. In the period beginning April 1, 2021 through the date of this Quarterly Report on Form 10-Q, we issued and sold an additional 837,257 shares of our common stock under our ATM Offering, resulting in our receipt of $ 6,022 in net proceeds. 12. STOCK‑BASED COMPENSATION During the three months ended March 31, 2021, the Company granted options for the purchase of 1,512,964 shares of common stock including 56,700 non-statutory stock options granted to new employees and 431,333 restricted stock units. In January 2021, employees of the Company purchased an aggregate of 74,847 shares under the ESPP. The assumptions used in determining fair value of the stock options granted during the three months ended March 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2021 Expected volatility 73.0 % – 73.7 % Risk-free interest rate 0.50 % – 1.07 % Expected dividend yield ​ 0 % ​ Expected term (in years) 6.03 – 6.08 ​ During the three months ended March 31, 2021 the weighted average grant-date fair value of options granted was $ 4.42 . 18 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ In June 2020, the Company issued 693,537 PSUs to certain executives and other employees tied to certain performance criteria, which will vest, if at all, as to 50 % on the first anniversary of satisfying the performance criteria and the remaining 50 % vesting upon the second anniversary of satisfying the performance criteria. The Company has determined that the performance criteria for these awards has been achieved but the awards have not vested as of March 31, 2021. As of March 31, 2021, a total of 1,365,592 RSUs and PSUs were unvested and outstanding. Stock-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows for the three months ended March 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2021 2020 Cost of product revenues ​ $ 34 ​ $ 20 Research and development ​ ​ 966 ​ ​ 723 Selling, general and administrative ​ ​ 3,702 ​ ​ 1,754 Total ​ $ 4,702 ​ $ 2,497 ​ ​ 13. INCOME TAXES The Company did not record a provision or benefit for income taxes during the three months ended March 31, 2021 and 2020. The Company continues to maintain a full valuation allowance for its U.S. federal and state deferred tax assets. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its generation of limited revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income. The Company previously completed an analysis and determined that an ownership change has materially limited the net operating loss carryforwards and research and development tax credits available to offset future tax liabilities. The Company may be further limited by any changes that may have occurred or may occur subsequent to December 31, 2020. The Company files its corporate income tax returns in the United States and various states. All tax years since the date of incorporation remain open to examination by the major taxing jurisdictions (state and federal) to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or other authorities if they have or will be used in a future period. The Company is not currently under examination by the IRS or any other jurisdictions for any tax year. As of March 31, 2021and 2020, the Company had no uncertain tax positions. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the three months ended March 31, 2021 and 2020. 19 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ 14. COMMITMENTS AND CONTINGENCIES License Agreement —In 2009, the Company entered into an exclusive license agreement with The Johns Hopkins University (“JHU”), as amended in November 2012, May 2014, August 2014, October 2014, June 2018 and July 2020, which licensed to the Company a portfolio of specified patent rights and remains in full force and effect. Pursuant to the terms of the agreement, as amended, the Company agreed to pay an initial license fee, minimum annual payments beginning in 2017, certain development and commercial milestone payments, royalties on product sales and reimburse all or a portion of the costs associated with the preparation, filing, prosecution and maintenance of the agreed-upon patents and patent applications to JHU. After 2016 and until the first commercial sale of product, which occurred in January 2019, the minimum annual payment was $ 38 . Upon the first commercial sale of INVELTYS, the annual minimum payment increased to $ 113 . The Company is obligated to pay JHU low single-digit running royalties based upon a percentage of net sales of the licensed products, which is applied to the annual minimum payment. The Company also has an obligation to pay JHU certain one-time development and commercial milestone payments. During the three months ended March 31, 2021 and 2020, the Company paid JHU $ 22 and $ 12 , respectively, in royalty payments associated with the sales of EYSUVIS and INVELTYS. The Company paid JHU a $ 150 milestone payment during the three months ended March 31, 2021, which was triggered by the first commercial sale of EYSUVIS in the United States in December 2020. The Company recorded a credit for other expenses related to the JHU agreement of $ 51 during the three months ended March 31, 2021 and other expenses of $ 46 for the three months ended March 31, 2020. Litigation —The Company is not currently subject to any material legal proceedings. Other Commitments — The Company entered into a commercial supply agreement with Woodstock Sterile Solutions, Inc. (formerly known as Catalent Pharma Solutions, LLC) to manufacture commercial supplies of EYSUVIS and INVELTYS. The Company has the following minimum purchase obligations for EYSUVIS and INVELTYS as of March 31, 2021: ​ ​ ​ ​ ​ Years Ending December 31, ​ ​ 2021 (remaining nine months) ​ $ 2,295 2022 ​ ​ 5,390 2023 ​ ​ 6,285 2024 ​ ​ 7,875 2025 ​ ​ 8,199 Thereafter ​ ​ 17,925 Total minimum purchase commitments ​ $ 47,969 ​ ​ ​ 20 Table of Contents KALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share and per share amounts) ​ 15. SUBSEQUENT EVENTS ​ Entry into Loan and Security Agreement ​ On May 4, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement with Oxford Finance LLC, in its capacity as lender (in such capacity, the “Lender”), and in its capacity as collateral agent (in such capacity, the “Agent”), pursuant to which a term loan of up to an aggregate principal amount of $ 125,000 is available to the Company, consisting of (i) a tranche A term loan that was disbursed on the Closing Date in the aggregate principal amount of $ 80,000 ; (ii) a contingent tranche B term loan in the aggregate principal amount of $ 20,000 available to the Company through June 30, 2023 and within 90 days of the Company achieving trailing 6-month product revenue equal to or greater than $ 75,000 , subject to certain other terms and conditions; and (iii) a contingent tranche C term loan in the aggregate principal amount of $ 25,000 available to the Company through December 31, 2023 and within 90 days of the Company achieving trailing 6-month product revenue equal to or greater than $ 100,000 , subject to certain other terms and conditions. ​ The term loans bear interest at a floating rate equal to the greater of 30-day LIBOR and 0.11 %, plus 7.89 %. The Loan Agreement provides for interest-only payments until December 1, 2024 if neither the tranche B term loan nor the tranche C term loan are made, and until June 1, 2025 if either the tranche B term loan or the tranche C term loan is made (the “Amortization Date”). The aggregate outstanding principal balance of the term loans are required to be repaid in monthly installments starting on the Amortization Date based on a repayment schedule equal to (i) 18 months if neither the tranche B term loan nor the tranche C term loan is made and (ii) 12 months if either the tranche B term loan or the tranche C term loan is made. All unpaid principal and accrued and unpaid interest with respect to each term loan is due and payable in full on May 1, 2026 (the “Maturity Date”). ​ The Company paid a facility fee of $ 400 on the Closing Date and has agreed to pay a facility fee of $ 100 upon closing of the tranche B term loan and a $ 125 facility fee upon the closing of the tranche C term loan. The Company will be required to make a final payment fee of 7.00 % of the original principal amount of any funded term loan payable on the earlier of (i) the prepayment of the term loan in full or (ii) the Maturity Date. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding loans, subject to a prepayment fee equal to the following percentage of the principal amount being prepaid: 3.00 % if an advance is prepaid during the first 12 months following the applicable advance date, 2.00 % if an advance is prepaid after 12 months but prior to 24 months following the applicable advance date, and 1.00 % if an advance is prepaid any time after 24 months following the applicable advance date but prior to the Maturity Date. ​ In connection with its entry into the Loan Agreement, the Company granted the Agent a security interest in substantially all of the Company’s personal property owned or later acquired, including intellectual property. The Loan Agreement also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default. Certain of the customary negative covenants limit the ability of the Company and certain of its subsidiaries, among other things, to incur future debt, grant liens, make investments, make acquisitions, distribute dividends, make certain restricted payments and sell assets, subject in each case to certain exceptions. ​ Termination of Athyrium Credit Facility ​ On May 4, 2021, concurrently with the closing of the Loan Agreement and the initial borrowing of the tranche A loan, the Company utilized substantially all of the proceeds from the tranche A loan to repay in full all outstanding amounts owed under the Athyrium Credit Facility, and terminated all commitments by Athyrium to extend further credit thereunder and all guarantees and security interests granted by the Company to the lenders thereunder. In connection with the termination of the Athyrium Credit Facility, the Company paid to the lenders a prepayment premium of $ 2,250 and an exit fee of $ 750 . ​ ​ ​ ​ ​ 21 Table of Contents ​