What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-05 · 160 added, 134 removed, 389 unchanged (43% of the section changed)

28 unchanged sentences

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

120,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

64,770,219 and 58,915,375 shares issued and outstanding as of June 30, 2021 and December 31, 2020 , respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Product revenues, net

8 unchanged sentences

Interest and other expense

Loss on extinguishment of debt

Total interest and other expense

9 unchanged sentences

(In thousands, except share and per share amounts)

For the Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

$0.001 Par Value

1 unchanged sentence

Stockholders'

Balance as of December 31, 2020

Exercise of stock options

Balance as of March 31, 2021

At the market offering, net of sales agent commission of $ 170

Issuance under employee stock purchase plan

Exercise of stock options

Issuance of vested restricted stock units

Stock-based compensation expense

Change in fair value of investments

Balance as of March 31, 2021

For the Three Months Ended March 31, 2020

Balance as of June 30, 2021

Three Months Ended June 30, 2020

$0.001 Par Value

1 unchanged sentence

Stockholders'

Balance as of March 31, 2020

Exercise of stock options

Common stock offering, net of offering costs of $ 464

Stock-based compensation expense

Warrant exercises

Change in fair value of investments

Balance as of June 30, 2020

See accompanying notes to these unaudited condensed consolidated financial statements.

Six Months Ended June 30, 2021

$0.001 Par Value

Other Comprehensive

Stockholders'

Balance as of December 31, 2020

At the market offering, net of offering costs $ 1,161

Exercise of stock options

Issuance of vested restricted stock units

Issuance of common stock under employee stock purchase plan

Stock-based compensation expense

Change in fair value of investments

Balance as of June 30, 2021

Six Months Ended June 30, 2020

$0.001 Par Value

Other Comprehensive

Stockholders'

Balance as of December 31, 2019

At the market offering, net of sales agent commission of $ 388

Exercise of stock options

Common stock offering, net of offering costs of $ 8,011

Issuance under employee stock purchase plan

Common stock offering, net of issuance cost and underwriting fees of $ 8,475

Issuance of common stock under employee stock purchase plan

Stock-based compensation expense

Balance as of March 31, 2020

Warrant exercises

Change in fair value of investments

Balance as of June 30, 2020

See accompanying notes to these unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

2 unchanged sentences

Non-cash operating lease cost

Loss on extinguishment of debt

Amortization of debt discount and other non-cash interest

10 unchanged sentences

Purchases of property and equipment and other assets

Purchases of short-term investments

Proceeds from sales or maturities of short-term investments

1 unchanged sentence

Cash flows from financing activities:

Proceeds from issuance of debt, net of debt issuance costs of $ 2,218

Payment of principal, prepayment premium and exit fee on debt

Proceeds from common stock offerings, net of offering costs

7 unchanged sentences

Cash, cash equivalents, and restricted cash at end of period

Less restricted cash (Notes 8 and 9)

Less restricted cash (Note 8)

Cash and cash equivalents at end of period

Non-cash investing and financing activities:

Purchases of property and equipment in accounts payable

Purchases of property and equipment in accrued expenses

Supplemental disclosure:

21 unchanged sentences

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.

As of June 30, 2021, the Company had an accumulated deficit of $ 466,693 .

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 (“ATM 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.

1 unchanged sentence

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.

The Company expects that its cash, cash equivalents and short-term investments as of June 30, 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.

3 unchanged sentences

(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.

COVID-19 – In order to safeguard the health of its employees from the ongoing novel coronavirus pandemic, or COVID-19, 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.

As a result, all office-based personnel are permitted 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.

In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which had 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, the timing and extent of any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines, and the impact of the foregoing on our 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.

10 unchanged sentences

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.

The Company reported a net loss attributable to common stockholders for each of the three and six months ended June 30, 2021 and 2020.

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(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.

As of June 30, 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 10,043,748 and 8,573,573 shares of the Company’s common stock, respectively, an aggregate of 1,282,830 and 957,097 unvested RSUs and PSUs, respectively, and an aggregate of 215,172 and 248,505 unexercised warrants, 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”).

9 unchanged sentences

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.

There have been no material changes to the significant accounting policies during the three months ended June 30, 2021.

Recent Accounting Pronouncements

18 unchanged sentences

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

The following tables set forth the fair value of the Company’s financial assets by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020:

June 30, 2021

Cash equivalents

3 unchanged sentences

Short-term investments

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.

Investments by security type consisted of the following as of March 31, 2021 and December 31, 2020:

March 31, 2021

treasury securities

During the three and six months ended June 30, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2, and Level 3.

Investments by security type consisted of the following as of June 30, 2021 and December 31, 2020:

June 30, 2021

government agencies securities

5 unchanged sentences

government agencies securities

As of March 31, 2021 and December 31, 2020, all of the Company’s investments had a contractual maturity within one year.

As of June 30, 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.

14 unchanged sentences

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 amount of inventory held on a consignment basis as of June 30, 2021 and December 31, 2020 was immaterial.

The goods promised in the Company’s product sales contracts represent a single performance obligation.

37 unchanged sentences

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.

Co-pay Assistance Programs

The Company offers co-pay assistance programs (the “co-pay programs”), which are intended to provide financial assistance to patients who may or may not be covered by commercial insurance or, with respect to INVELTYS, who opt out of Medicare Part D programs.

The calculation of accruals for the co-pay programs 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:

The following tables summarize activity in each of the Company’s product revenue provision and allowance categories for the three and six months ended June 30, 2021 and 2020:

Trade Discounts,

8 unchanged sentences

Balance as of March 31, 2021

Provision related to current period sales

Changes in estimate related to prior period sales

Credit/payments made

Balance as of June 30, 2021

Trade Discounts,

8 unchanged sentences

Balance as of March 31, 2020

Provision related to current period sales

Changes in estimate related to prior period sales

Credit/payments made

Balance as of June 30, 2020

(1) Trade discounts, allowances and chargebacks include fees for distribution service fees, prompt pay and other discounts, and chargebacks.

2 unchanged sentences

(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

Estimated provisions for rebates and discounts are deducted from gross revenues at the

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(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.

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 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.

The Company recorded no allowance for doubtful accounts as of June 30, 2021 or December 31, 2020.

The Company recorded an allowance of $ 1,411 and $ 1,157 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 June 30, 2021 and December 31, 2020, respectively.

Inventory consists of the following:

3 unchanged sentences

Total inventory

As of March 31, 2021, the Company had $ 8,241 of current inventory and $ 6,200 of long-term inventory.

As of June 30, 2021, the Company had $ 8,046 of current inventory and $ 9,157 of long-term inventory.

As of December 31, 2020, the Company had $ 5,229 of current inventory and $ 6,219 of long-term inventory.

1 unchanged sentence

Accrued expenses consist of the following:

Compensation and benefits

Accrued revenue reserves (1)

Compensation and benefits

Commercial costs

Professional services

Contract manufacturing

Professional services

Development costs

Accrued expenses

(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.

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.

(1) There were additional revenue reserves included in accounts payable of $ 693 and $ 280 , as of June 30, 2021 and December 31, 2020, respectively.

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(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.

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 .

For the three and six months ended June 30, 2021, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes, was $ 334 and $ 697 , respectively.

For the three and six months ended June 30, 2020, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes, was $ 611 and $ 1,068 , respectively.

The remaining lease term was 10.3 years as of June 30, 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.

During the six months ended June 30, 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.

1 unchanged sentence

Three Months Ended

Six Months Ended

Operating lease cost

5 unchanged sentences

Weighted average discount rate

KALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Athyrium Credit Facility

2 unchanged sentences

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

The maturity date of the Athyrium Credit Facility was October 1, 2024, the six-year anniversary of the close.

As of December 31, 2020, the unpaid principal balance under the Athyrium Credit Facility was $ 75,000 and the unamortized debt discount was $ 3,088 .

On May 4, 2021, the Company repaid all 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 .

The transaction resulted in a loss on extinguishment of debt of $ 5,395 , consisting of the prepayment premium, the unamortized debt discount and issuance costs and the unaccreted exit fee.

Loan and Security Agreement

On May 4, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan 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 Company utilized substantially all of the proceeds from the tranche A term loan to repay the Athyrium Credit Facility (as more fully described above).

The term loans bear interest at a floating rate equal to the greater of (i) 30-day LIBOR and (ii) 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.

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(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.

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.

The Loan Agreement includes features requiring (i) additional interest rate upon an event of default accrued at an additional 5 % , and (ii) 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 Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of June 30, 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.

In addition, in connection with the Loan Agreement, the Company paid certain fees to the Lender and other third-party service providers.

The fees paid to the Lender were recorded as a debt discount while the fees paid to other third-party service providers were recorded as debt issuance cost.

These costs were amortized using the effective interest method over the term of the Loan Agreement.

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 .

As of June 30, 2021, the effective interest rate was 10.41 %, 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 June 30, 2021 and June 30, 2020, the Company recognized interest expense of $ 1,860 and $ 2,095 , respectively, for the Loan Agreement and Athyrium Credit Facility .

This consisted of amortization of debt discount of $ 150 and $ 223 for the periods ended June 30, 2021 and June 30, 2020, respectively, and the contractual coupon interest expense of $ 1,710 and $ 1,872 for the periods ended June 30, 2021 and June 30, 2020, respectively.

During the six months ended June 30, 2021 and June 30, 2020, the Company recognized interest expense of $ 3,952 and $ 4,183 , respectively.

This consisted of amortization of debt discount of $ 390 and $ 439 for the periods ended June 30, 2021 and June 30, 2020, respectively, and the contractual coupon interest expense of $ 3,562 and $ 3,744 for the periods ended June 30, 2021 and June 30, 2020, respectively.

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(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:

The components of the carrying value of the debt as of June 30, 2021 and December 31, 2020 are detailed below:

Principal loan balance

2 unchanged sentences

Long-term debt, net

The annual principal payments due under the Athyrium Credit Facility as of March 31, 2021 were as follows:

The annual principal payments due under the Loan Agreement as of June 30, 2021 were as follows:

Years Ending December 31,

2021 (remaining nine months)

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”.

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:

2021 (remaining six months)

The following table summarizes the common stock warrants outstanding as of June 30, 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

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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.

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

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(In thousands, except share and per share amounts)

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.

2 unchanged sentences

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.

There was $ 18,334 of securities available to be issued under the 2018 Shelf Registration as of June 30, 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”).

2 unchanged sentences

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.

During the three and six months ended June 30, 2021, the Company issued and sold an additional 837,257 and 5,583,329 shares of its common stock under its ATM Offering, respectively, resulting in net proceeds of $ 6,021 and $ 40,730 , respectively.

As of June 30, 2021, there was $ 11,859 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.

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.

During the six months ended June 30, 2021, the Company granted options for the purchase of 1,604,964 shares of common stock including 148,700 non-statutory stock options granted to new employees and 556,333 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

In July 2021, employees of the Company purchased an aggregate of 200,877 shares under the ESPP.

The assumptions used in determining fair value of the stock options granted during the six months ended June 30, 2021 are as follows:

Six Months Ended June 30, 2021

Expected volatility

2 unchanged sentences

Expected term (in years)

During the three months ended March 31, 2021 the weighted average grant-date fair value of options granted was $ 4.42 .

During the six months ended June 30, 2021 the weighted average grant-date fair value of options granted was $ 4.37 .

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 not all of the awards have vested as of June 30, 2021.

As of June 30, 2021, a total of 1,370,830 RSUs and PSUs were outstanding, consisting of 1,282,830 unvested shares and 88,000 vested and deferred shares.

KALA PHARMACEUTICALS, INC.

1 unchanged sentence

(In thousands, except share and per share amounts)

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:

Stock-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Cost of product revenues

1 unchanged sentence

Selling, general and administrative

The Company did not record a provision or benefit for income taxes during the three months ended March 31, 2021 and 2020.

The Company did not record a provision or benefit for income taxes during the three and six months ended June 30, 2021 and 2020.

The Company continues to maintain a full valuation allowance for its U.S.

10 unchanged sentences

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.

As of June 30, 2021 and December 31, 2020, the Company had no uncertain tax positions.

KALA PHARMACEUTICALS, INC.

8 unchanged sentences

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.

During the three months ended June 30, 2021 and 2020, the Company paid JHU $ 33 and $ 11 , respectively, in royalty payments associated with the sales of EYSUVIS and INVELTYS.

During the six months ended June 30, 2021 and 2020, the Company paid JHU $ 55 and $ 23 , respectively, in royalty payments associated with the sales of EYSUVIS and INVELTYS.

The Company paid JHU a $ 150 milestone payment during the six months ended June 30, 2021, which was triggered by the first commercial sale of EYSUVIS in the United States in December 2020.

The Company recorded other expenses related to the JHU agreement of $ 21 and $ 31 for the three months ended June 30, 2021 and 2020, respectively.

The Company recorded a credit for other expenses related to the JHU agreement of $ 30 and other expenses of $ 76 for the six months ended June 30, 2021 and 2020, respectively.

Litigation —The Company is not currently subject to any material legal proceedings.

1 unchanged sentence

(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:

The Company has the following minimum purchase obligations for EYSUVIS and INVELTYS as of June 30, 2021:

Years Ending December 31,

2021 (remaining nine months)

2021 (remaining six months)

Total minimum purchase commitments

KALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 ;

The term loans bear interest at a floating rate equal to the greater of 30-day LIBOR and 0.11 %, plus 7.89 %.

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 Loan Agreement also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default.

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 .

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

What changed 10-Q

Item 1. Financial Statements