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Item 1A. Risk Factors

2022-03-29 compared with 2021-02-25 · 548 added, 311 removed, 778 unchanged (52% of the section changed)

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

Risks Related to Our Recent Acquisition of Combangio

We may fail to realize the anticipated benefits of our acquisition of Combangio, those benefits may take longer to realize than expected, and we may encounter significant integration difficulties.

On November 15, 2021, we completed our acquisition, or the Acquisition, of Combangio, Inc., or Combangio, a clinical-stage biotechnology company focused on developing regenerative biotherapeutics based on mesenchymal stem cell secretomes, pursuant to an Agreement and Plan of Merger, or the Merger Agreement, dated November 15, 2021.

Our ability to realize the anticipated benefits of the Acquisition will depend, to a large extent, on our ability to integrate Combangio and KPI-012 (previously known as CMB-012), a product candidate in clinical development for the treatment of persistent corneal epithelial defects, or PCED, into our business and business strategy and realize anticipated growth opportunities and synergies.

We expect that the integration process will be complex, costly and time-consuming.

As a result, we are devoting, and will be required to continue to devote, significant management attention and resources to integrating Combangio into our business and KPI-012 into our business strategy.

The integration process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time frame, or at all.

The failure to meet the challenges involved and to realize the anticipated benefits of the Acquisition could cause an interruption of, or a loss of momentum in, our commercialization efforts for EYSUVIS and INVELTYS and could adversely affect our business, financial condition and results of operations.

Our ability to realize the anticipated benefits of the Acquisition is expected to entail numerous additional material potential difficulties, risks and uncertainties, including, among others:

● any delay in or failure in filing an investigational new drug, or IND, application for KPI-012 with the U.S.

Food and Drug Administration, or FDA;

● if filed, the FDA may not clear our IND submission for KPI-012 and may not permit us to commence clinical trials in the United States of KPI-012 on the timeline we expect or at all;

● any clinical trials of KPI-012 that we commence in the future may fail to provide sufficient evidence that KPI-012 is both safe and effective for use;

● any delay or failure in obtaining marketing approvals for KPI-012, or any delay or failure to commercialize KPI-012 in the United States or other jurisdictions thereafter;

● increased scrutiny from third parties, including regulators, legislative bodies and enforcement agencies, including with respect to product pricing and commercialization matters;

● changes in laws or regulations that adversely impact the anticipated benefits of the Acquisition;

● challenges related to the perception by patients, the medical community and third-party payors of KPI-012 for the treatment of persistent corneal epithelial defects, or PCED;

● challenges related to the complex manufacturing process for KPI-012 and the reliance on manufacturing arrangements with third-party manufacturers;

● difficulties in managing the expanded operations of a more complex company following the Acquisition;

● the diversion of management attention to integration matters;

● difficulties in achieving the anticipated business opportunities and growth prospects from the Acquisition;

● the size of the treatable patient population for PCED may be smaller than we believe it is;

● difficulties in assimilating Combangio employees in our business, in maintaining employee morale and in attracting and retaining key personnel;

● potential unknown liabilities, adverse consequences, unforeseen increased expenses or other unanticipated problems associated with the Acquisition.

Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues and further diversion of management time and energy, which could materially adversely impact our business, financial condition and results of operations.

Also, we now possess certain liabilities and obligations, including contractual liabilities and obligations, that were assumed by us upon closing of the Acquisition.

Further, it is possible that undisclosed, contingent, or other liabilities, problems or obligations may arise in the future of which we were previously unaware.

These disclosed and undisclosed liabilities could have an adverse effect on our business, financial condition and results of operations.

In addition, we expect to incur expenses related to the continued development, regulatory approval process and commercialization with respect to KPI-012.

As a company, we have no prior experience developing biological product candidates.

Because we have limited financial resources, by investing in the Acquisition and focusing on the development of KPI-012, we may forgo or delay pursuit of other opportunities that may have proven to have greater commercial potential.

Any or all of these factors could decrease or delay the expected accretive effect of the Acquisition and negatively impact our stock price.

As a result, it cannot be assured that we will be successful in the integration of Combangio with our business or that we will realize the benefits anticipated from the Acquisition or in the anticipated time frames or at all.

Our existing stockholders will experience dilution upon any future issuance of shares of our common stock to former equityholders of Combangio pursuant to the terms of the Merger Agreement.

In connection with the Acquisition, on January 3, 2022 we issued an aggregate of 6,815,072 shares of our common stock to the former Combangio equityholders.

Such shares, together with 973,565 shares of our common stock that are held back by us, or the Holdback Shares, and will be issuable subject to the terms of the Merger Agreement to the Combangio equityholders on the escrow release date, constituted approximately 11.9% of our common stock as of immediately prior to the closing of the Acquisition.

In addition, former Combangio equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, contingent consideration of up to $5.4 million payable in shares of our common stock upon our achievement of various development and regulatory milestones, and, we may elect, subject to the Nasdaq rules, to satisfy a portion of certain milestone payments that are payable to Combangio equityholders in cash through the issuance of up to $15 million of our common stock.

Our existing stockholders will experience dilution upon any future issuance of shares of our common stock to former Combangio equityholders pursuant to the Merger Agreement.

Risks Related to Our Financial Position and Need For Additional Capital

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

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

Our net losses were $142.6 million for the year ended December 31, 2021 and $104.3 million for the year ended

December 31, 2020.

As of December 31, 2021, we had an accumulated deficit of $542.4 million.

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

On October 26, 2020, the U.S.

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

On October 26, 2020, the FDA approved our second product, 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.

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

We have had limited revenues to date from product sales.

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

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

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

As of result of the acquisition of Combangio, we expect to devote substantial financial resources to the research and development and potential commercialization of KPI-012.

Although we expect 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 we expect to continue to incur significant expenses and operating losses for at least the next several years, including in connection with our continued development, regulatory approval efforts and commercialization, if any, of KPI-012.

We may never achieve or maintain profitability.

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

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

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

We anticipate that our research and development expenses will increase substantially in the future as compared to prior periods as we advance the clinical development of KPI-012.

Our research and development expenses will also increase substantially in the future as we advance our preclinical development programs, including KPI-287, our Tyrosine Kinase Inhibitor product candidate, and our novel selective glucocorticoid receptor modulators, or SEGRM, program and conduct any necessary preclinical studies and clinical trials and other development activities for our product candidates.

We continue to commercialize EYSUVIS and INVELTYS in the United States and expect that our selling, general and administrative expenses will increase substantially when we pursue the commercialization of KPI-012, if approved, and support commercialization of any other product candidate.

Our expenses will also increase if and as we:

● submit an IND for, and continue the clinical development of, KPI-012 for PCED;

● initiate and continue the research and development of KPI-012 for additional indications, including initiating and conducting clinical trials;

● scale up our manufacturing processes and capabilities to manufacture the clinical supply of KPI-012;

● seek regulatory approval for KPI-012 for PCED in the United States and other jurisdictions;

● seek regulatory approval for KPI-012 for additional indications;

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

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

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

● progress our current and any future preclinical development programs;

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

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

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

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

● maintain, expand and protect our intellectual property portfolio;

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

● integrate employees of Combangio;

● hire additional clinical, quality control, scientific, manufacturing, commercial and management personnel, including to support our operations ;

● expand our operational, financial and management systems;

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

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

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

Our lead product candidate, KPI-012, is in the early stages of clinical development and all of our other research and development programs are in preclinical development and, accordingly, we do not expect to generate revenue from KPI-012 or any other product candidate for several years, if at all.

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

● successfully launching EYSUVIS and growing EYSUVIS revenues;

● successfully growing INVELTYS revenues;

● successfully commercializing and growing EYSUVIS and INVELTYS revenues;

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

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

● successfully integrating Combangio into our business;

● timely filing of an IND for, and completing the clinical development of, KPI-012 for PCED and any other indications we determine to pursue;

● subject to obtaining favorable results from our planned clinical trials of KPI-012, applying for and obtaining marketing approval of KPI-012;

● successfully commercializing KPI-012, if approved;

● manufacturing at commercial scale, marketing, selling and distributing EYSUVIS, INVELTYS and, if approved, KPI-012;

● maintaining regulatory and marketing approvals for EYSUVIS and INVELTYS;

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

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

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

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

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

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

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

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

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

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

Moreover, KPI-012 is in the early stages of clinical development and all of our other research and development programs are in preclinical development and, accordingly, we do not expect to generate revenue from KPI-012 or any other product candidate for several years, if at all.

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

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

Commencing in the fourth quarter of 2020, our sales force resumed substantially all in-person interactions in the field, but to the extent we restrict, or are restricted from, in-person interactions with physicians, we may be limited to conducting educational and promotional activities virtually, which may continue to hamper our ability to market EYSUVIS and INVELTYS.

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.

In addition, the COVID-19 pandemic has generally had an adverse impact on the launch of pharmaceutical products, and we believe the pandemic has impacted, and may continue to impact, the launch of EYSUVIS.

We also do not know the extent to which the COVID-19 pandemic will impact our development of KPI-012 or any other product candidates that we may develop.

The extent of the impact of COVID-19 on our development and commercialization efforts will depend on the length and severity of this pandemic, including the extent there is 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, vendors and government agencies, which is uncertain and cannot be predicted.

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

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A decline in the value of our company could also cause you to lose all or part of your investment.

Our limited operating history as a commercial company may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Our limited operating history as a commercial company and in developing biologics may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are an early-stage commercial company.

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We may not be successful in such a transition.

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

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

impacted by COVID-19 and its collateral consequences.

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

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

We only launched

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

In addition, our commercial operations and INVELTYS sales have been and continue to be negatively impacted by COVID-19 and its collateral consequences.

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

Moreover, we plan to develop KPI-012 for the treatment of PCED and any other indications we determine to pursue.

As a company, we have no prior experience developing biological product candidates.

We may also encounter delays or difficulties in our efforts to, or fail to, successfully integrate the operations of Combangio into our business and KPI-012 into our business strategy.

Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had prior experience developing biological product candidates, integrating acquired businesses into our existing business or a longer operating and commercialization history.

We expect our financial condition and operating results to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control.

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

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

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

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we commercialize EYSUVIS and INVELTYS and integrate the operations of Combangio into our business.

We also expect to incur significant additional expenses if and as we conduct further research and development activities, and initiate clinical trials of, and seek regulatory approval for, KPI-012 and any other product candidate that we identify and advance, including KPI-287, and from our SEGRM program.

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

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

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

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

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

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

● the progress, costs and results of integrating Combangio operations into our business and our planned clinical trials of KPI-012;

● the costs and timing of process development and manufacturing scale-up activities associated with KPI-012 for PCED and any other indications we determine to pursue;

● the costs, timing and outcome of regulatory review of KPI-012;

● the timing and amount of future milestone payments under the Merger Agreement;

● the costs and timing of commercialization activities for EYSUVIS, INVELTYS and, if approved, KPI-012, including establishing additional product sales, marketing, medical affairs, distribution and outsourced manufacturing capabilities;

● our ability to successfully commercialize and sell EYSUVIS, INVELTYS and, if approved, KPI-012 in the United States and the amount of revenue received from commercial sales;

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

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

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

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

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

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

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

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

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

We expect that our cash and cash equivalents of $92.1 million as of December 31, 2021, along with anticipated revenue from EYSUVIS and INVELTYS, will enable us to fund our operations, lease and debt service obligations, and capital expenditure requirements into the second quarter of 2023.

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

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

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

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

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

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

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

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

We may never generate the necessary data or results required to obtain marketing approval and achieve product sales from KPI-012 or any other product candidate.

Also, even if we successfully develop KPI-012 or any other product candidate and one or more of those are approved, we may not achieve commercial success with them.

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

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

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

If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain approval.

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

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

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

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

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

Our pledge of our assets as collateral to secure our obligations under our Loan Agreement may limit our ability to obtain additional debt financing.

Under the Loan Agreement, we are also restricted from paying dividends on our common stock, granting liens, making investments, making acquisitions, making certain restricted payments, selling assets and making certain other uses of our cash without the lenders’ consent, subject in each case to certain exceptions.

In connection with the Acquisition, on January 3, 2022 we issued an aggregate of 6,815,072 shares of our common stock to the former Combangio equityholders.

Such shares, together with 973,565 Holdback Shares that will be issuable subject to the terms of the Merger Agreement to the Combangio equityholders on the escrow release date, constituted approximately 11.9% of our common stock as of immediately prior to the closing of the Acquisition.

In addition, former Combangio equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, contingent consideration of up to $5.4 million payable in shares of our common stock upon our achievement of various development and regulatory milestones, and we may elect, subject to the Nasdaq rules, to satisfy a portion of certain milestone payments that are payable to Combangio equityholders in cash through the issuance of up to $15 million of our common stock.

Our existing stockholders will experience dilution upon any future issuance of shares of our common stock to former Combangio equityholders pursuant to the Merger Agreement.

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

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

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We have a substantial amount of indebtedness.

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

Amounts outstanding under the Athyrium Credit Facility bear interest at a rate of 9.875% per annum.

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

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

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

We could in the future incur additional indebtedness beyond our borrowings under our Athyrium Credit Facility.

As of December 31, 2021, we had $80.0 million of outstanding borrowings under the tranche A term loan under the Loan Agreement, bearing 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, or the Amortization Date.

Beginning on the Amortization Date, we are required to repay the outstanding principal in monthly installments over a period of (i) 18 months if neither the tranche B term loan nor the tranche C term loan is made or (ii) 12 months if either the tranche B term loan or the tranche C term loan is made.

All unpaid principal and interest is due in full on May 1, 2026, the date of maturity.

Our obligations under the Loan Agreement are secured by substantially all of our assets.

We could in the future incur additional indebtedness beyond our borrowings under our Loan Agreement.

Our debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:

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● increasing our vulnerability to adverse changes in general economic, industry and market conditions;

● subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

● subjecting us to restrictive covenants that may reduce our ability to acquire other businesses for cash, take certain other corporate actions or obtain further debt or equity financing;

● limiting our flexibility in planning for, or reacting to, changes in our business and our industry;

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

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

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

In addition, a failure to comply with the covenants under our Athyrium Credit Facility could result in an event of default and acceleration of amounts due.

If an event of default occurs and the lender accelerates the amounts due under our Athyrium Credit Facility, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness.

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

In addition, a failure to comply with the covenants under our Loan Agreement could result in an event of default and acceleration of amounts due.

If an event of default occurs and the lender accelerates the amounts due under our Loan Agreement, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness.

Fluctuations in interest rates could materially affect the interest expense on our Loan Agreement.

Because our debt under the Loan Agreement bears interest at floating interest rates, increases in interest rates could materially increase our interest expense.

Further, our Loan Agreement uses LIBOR as a reference rate.

The United Kingdom’s Financial Conduct Authority, or the FCA, which regulates LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

(1) immediately after December 31, 2021, in the case of the one week and two month LIBOR tenors;

and (2) immediately after June 30, 2023, in the case of the remaining LIBOR tenors.

The United States Federal Reserve has advised that no new contracts using U.S.

dollar LIBOR should be entered into after December 31, 2021.

In June 2017, the Alternative Reference Rates Committee selected the Secured Overnight Financing Rate, or SOFR, a new index calculated by reference to short-term repurchase agreements backed by Treasury securities, as its preferred replacement for U.S.

dollar LIBOR.

Whether SOFR or any other alternative reference rates attains market acceptance as a LIBOR replacement tool remains is uncertain.

As such, the future of LIBOR and the potential alternatives at this time is uncertain.

When LIBOR is no longer available or if lenders have increased costs due to the phase-out of LIBOR or changes in law, we may suffer from potential increases in interest rate costs on our floating debt rate.

It is not possible to predict the effect these developments may have on our Loan Agreement.

Further, we may need to renegotiate our Loan Agreement and the floating loans thereunder to replace the interest rate calculated by reference to LIBOR with an interest rate calculated by reference to a new standard that is established.

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

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

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

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

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

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

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

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

Their calculations of changes in prescription levels

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

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

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

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

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

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

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

The ongoing novel coronavirus pandemic and the efforts to prevent its spread have adversely impacted our operations and the market for INVELTYS, is believed to have impacted the commercialization of EYSUVIS and could impact the development of KPI-012 or any other product candidate we develop and may continue to adversely affect our business, results of operations and financial condition.

The outbreak of the COVID-19 pandemic and government measures taken in response to it, including from time to time quarantines, strict travel restrictions and bans, heightened border scrutiny and other measures, have had a significant impact, both direct and indirect, on businesses and commerce;

supply chains have been disrupted;

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

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

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

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

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

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

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

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

In light of shelter-in-place orders and other mandated local travel and social interaction prohibitions, we previously suspended substantially all in-person interactions with physicians and were limited to conducting educational and promotional activities virtually.

We and any of our contract manufacturing organizations and contract research organizations may face disruptions that may affect our ability to initiate and complete preclinical studies and clinical trials for our product candidates, including disruptions in procuring supplies that are essential for our research and development activities, manufacturing disruptions, disruptions in our ability to obtain necessary trial site approvals, as well as delays in or difficulties with enrollment and other delays at clinical trial sites.

We may face impediments to regulatory meetings and clearance and approvals due to measures intended to limit in-person interactions.

We do not know the extent to which the COVID-19 pandemic will impact our development of KPI-012 or any other product candidates that we develop.

We plan to submit an IND application to the FDA for KPI-012 and, subject to regulatory clearance, commence a Phase 2/3 clinical trial of KPI-012 for PCED in the United States in the fourth quarter of 2022.

The COVID-19 pandemic may delay our planned IND submission and/or the initiation and conduct of our planned clinical trial.

Additionally, while we currently are not experiencing interruptions in our manufacturing of EYSUVIS, INVELTYS or KPI-012, any reinstatement of quarantines, travel restrictions and other measures may significantly impact the ability of employees of our third-party suppliers to get to their places of work to manufacture and deliver future supplies if and when needed.

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

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

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

We cannot be certain what the overall impact of the

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

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

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

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

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

The full extent of the impact of COVID-19 on our development and commercialization efforts will depend on 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, vendors and government agencies, which is uncertain and cannot be predicted.

We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to significantly and adversely affect our business, financial condition, results of operations and prospects.

EYSUVIS, INVELTYS, KPI-012 or any other product candidate that receives marketing approval may fail to achieve market acceptance by clinicians and patients, or adequate formulary coverage, pricing or reimbursement by third-party payors and others in the medical community, and the market opportunity for these products may be smaller than we estimate.

EYSUVIS, INVELTYS, KPI-012 or any other product candidate that we develop that receives marketing approval may fail to gain sufficient market acceptance by clinicians, patients, third-party payors and others in the medical community.

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

Generic versions of Restasis have been available in the United States since February 2022.

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

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

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

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

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

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

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

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

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

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

In addition, there are also non-topical formulations of ocular steroids that have been recently approved and/or marketed.

In addition, there are also non-topical formulations of ocular steroids that are available to patients.

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

In addition, we are developing KPI-012 for PCED, which is a rare disease.

Our understanding of both the number of people who have a PCED, as well as the subset of people with PCED diseases who have the potential to benefit from treatment with KPI-012, are based on estimates.

These estimates may prove to be incorrect.

The number of patients with PCED may turn out to be lower than expected, may not be otherwise amenable to treatment with KPI-012 or may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results of operations and prospects.

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

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

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

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

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

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

In light of shelter-in-place orders and other mandated local travel prohibitions, we previously suspended substantially all in-person interactions with physicians and were limited to conducting educational and promotional activities virtually.

Our assessment of the potential market opportunity for EYSUVIS, INVELTYS, KPI-012 and our other product candidates is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, some of which we commissioned.

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

While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

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

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

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

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

Our estimates of the potential market opportunities for our product candidates, such as KPI-012, include several key assumptions based on our industry knowledge, industry publications,

third-party research and other surveys, which may be based on a small sample size and fail to accurately reflect market opportunities.

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

If any of our

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

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

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

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

If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for EYSUVIS, INVELTYS, KPI-012 or any of our other product candidates may be smaller than we expect, and as a result our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval do not achieve adequate levels of acceptance by physicians and patients, formulary coverage, pricing or reimbursement, we may not generate significant product revenues and we may not become profitable.

The degree of market acceptance of EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval, will depend on a number of factors, including:

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

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

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

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

Even if we are able to successfully commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate that we may develop, the products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

Our ability to successfully commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate that we may develop successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans and other organizations.

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

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

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

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

Obtaining and maintaining adequate reimbursement for our

products may be difficult.

Coverage and reimbursement may not be available for EYSUVIS, INVELTYS, KPI-012 or any other product candidate that we commercialize and, even if they are available, the level of reimbursement may be limited or not satisfactory.

Inadequate reimbursement may adversely affect the demand for, or the price of, EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval.

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

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

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

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval.

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

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

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

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

There can be no assurance that EYSUVIS, INVELTYS, KPI-012 or our other product candidates, even if such product candidates are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, or that coverage and an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability to sell EYSUVIS, INVELTYS, KPI-012 or our other product candidates profitably.

If we are unable to maintain our sales, marketing and distribution capabilities, establish additional capabilities if and when necessary, or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing EYSUVIS, INVELTYS, KPI-012 or any other product candidate that we may develop if and when they are approved.

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

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

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

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

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

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

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

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

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

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

In 2019, we completed the initial buildout of our specialty sales, marketing and distribution infrastructure in the United States to commercialize INVELTYS.

During late 2020 and 2021, we expanded our commercial organization,

which now includes approximately 100 field-based commercial sales personnel.

Our sales representatives promote both EYSUVIS and INVELTYS.

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

For example, recruiting and training a sales force is expensive and time-consuming, may divert our management and business development resources and could delay any future product launch.

Maintaining our sales force requires us to continue to implement and improve our managerial, operational and financial systems, which we may not do effectively.

Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Further, we may overestimate or underestimate the size of the sales force required for a successful product launch, including with respect to the ongoing launch of EYSUVIS.

In addition, we have not yet established our own commercial organization or distribution capabilities specific to KPI-012.

While we believe that we will be able to commercialize KPI-012, if approved, for the treatment of PCED with a small, targeted, internal sales force in the United States and potentially other major markets, our assumptions may prove inaccurate.

In the future, we may need to expand our sales force and at a higher cost than previously anticipated.

If the commercial launch of KPI-012, if approved, any other product candidate for which we establish additional commercial infrastructure is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.

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

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

Factors that may inhibit our efforts to commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we receive marketing approval on our own include:

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

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

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

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

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

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

While we cannot be certain when, if ever, we will seek and/or receive marketing approval to commercialize any of our product candidates outside the United States, we may seek marketing approval and explore commercialization of EYSUVIS and KPI-012 in certain markets outside the United States utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

We may also consider seeking marketing approval outside the United States for other product candidates in the future.

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

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

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

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

In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute EYSUVIS, INVELTYS, KPI-012 or any other product candidate or we may be unable to do so on terms that are favorable to us.

We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market effectively EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval.

If we do not maintain our sales, marketing and distribution capabilities successfully, or do not establish additional capabilities if and when needed successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing EYSUVIS, INVELTYS, KPI-012 or any other product candidate for which we obtain marketing approval.

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

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

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

EYSUVIS, INVELTYS, KPI-012 and our product candidates will also compete with existing branded, generic and off-label products.

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

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

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

We face competition with respect to EYSUVIS, INVELTYS, KPI-012 and any other product candidate that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

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

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

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

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

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

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

Generic versions of Restasis have been available in the United States since February 2022.

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

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

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

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

Any product that is developed for the treatment of the signs and/or symptoms of dry eye disease could directly compete with EYSUVIS, including Tyrvaya, which was commercially launched in November 2021.

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

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

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

These product candidates are being developed by pharmaceutical, biotechnology, specialty pharmaceutical and generic drug companies of various sizes, such as Aldeyra Therapeutics’ reproxalap ophthalmic solution, Novaliq’s CyclAsol and NOV03, which have been licensed to Bausch Health Companies Inc., and others.

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

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

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

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

In addition, the first generic formulations of loteprednol suspension 0.5% (Lotemax suspension) and loteprednol ophthalmic gel 0.5% (Lotemax Gel) were launched in May 2019 and February 2021, respectively, and the first generic version of Durezol was launched in September 2021.

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

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

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

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

There are also a number of companies in

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

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

If approved, we expect KPI-012 to compete with Oxervate, which is the only approved prescription pharmaceutical product in the PCED space.

Oxervate (cenegermin-bkbj), was approved in August 2018 for the treatment of neurotrophic keratitis, or NK, a degenerative disease characterized by decreased corneal sensitivity and poor corneal healing, which we believe to represent approximately one-third of all PCED cases.

Oxervate is a topical eye drop that is administered six times per day at two-hour intervals for eight weeks.

Each administration of Oxervate requires the use of a vial containing the drug product, a vial adapter, a single-use pipette and disinfectant wipes.

In addition, to our knowledge, there is currently only one product candidate in active clinical development for the treatment of a broad PCED population.

ST266, an eye drop, is currently being studied in a Phase 2b clinical trial in patients with PCED and is being developed by Noveome Biotherapeutics Inc.

ST266 is a secretome produced from amnion-derived epithelial cells from donated full-term placentas.

A number of companies are pursuing development of product candidates for the treatment of NK.

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

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

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

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

Specifically, we rely on the following:

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

Altasciences company, or Altasciences, for manufacturing bulk intermediates;

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

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

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

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

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

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

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

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

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

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

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

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

We face an inherent risk of product liability exposure related to the use of our product candidates that we develop in human clinical trials, including KPI-012.

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

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

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

We may need to increase our insurance coverage when and if we begin commercialization of KPI-012 or any other product candidate for which we obtain marketing approval.

Insurance coverage is increasingly expensive.

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Risks Related to Product Development

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If we are unable to successfully complete the clinical development of, and obtain marketing approval for, KPI-012 or any other product candidate, or experience significant delays in doing so, or if, after obtaining marketing approvals, we fail to commercialize our products and product candidates , our business will be materially harmed.

As a result of the acquisition of Combangio, we expect to devote a significant portion of our research and development resources and business efforts to the development of KPI-012, a clinical-stage product candidate for the treatment of PCED and any other indications we determine to pursue.

The success of KPI-012 and any other product candidates we develop will depend on many factors, including the following:

● timely submission and clearance of our planned IND submission for KPI-012 and for any other product candidates we develop;

● completing and obtaining favorable results from our planned clinical trials of KPI-012 and any other product candidate we develop;

● applying for and receiving marketing approvals from the FDA and any other regulatory authorities for KPI-012 and any other product candidate we develop;

● receiving regulatory approval of our manufacturing processes and our third-party manufacturers' facilities from applicable regulatory authorities for KPI-012 and any other product candidate we develop;

● if approved, successful launch and commercialization of KPI-012 or any other product candidate we develop in the United States, including establishing and maintaining sales, marketing, manufacturing and distribution capabilities for KPI-012 or any other product candidate we develop or leveraging our existing sales, marketing, manufacturing and distribution capabilities if and when appropriate ;

● acceptance of KPI-012 and any other product candidate we develop by patients, the medical community and third-party payors;

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

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

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

● effectively competing with other therapies;

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

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

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

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

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

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

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

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize KPI-012 or any other product candidate, which would materially harm our business.

In addition, KPI-012 is still in the early stages of clinical development, and all of our other development efforts are in the early stages of preclinical development, including KPI-287 and our SEGRMs program.

We may never generate the necessary data or results required to obtain regulatory approval of KPI-012 or any other product candidate we develop.

Therefore, our ability to generate product revenue will depend heavily on the successful commercialization of EYSUVIS and INVELTYS, as the development and eventual commercialization of KPI-012 or any other product candidate may never occur.

If clinical trials of KPI-012 or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

The risk of failure in developing product candidates is high.

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

For example, the results of Combangio’s Phase 1b clinical trials of KPI-012 in 12 patients with PCED may not be indicative of future results in later stage clinical trials, including in our planned Phase 2/3 clinical trial.

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

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

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

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

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

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

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

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

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

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

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

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

consuming and could delay or permanently halt our ability to commercialize the applicable product candidates in the applicable jurisdictions.

If we are required to conduct additional clinical trials or other testing of KPI-012 or any other product candidate we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

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

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

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

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize KPI-012 or any other product candidate that we may develop, including:

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

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

Significant preclinical or clinical trial delays also could shorten any periods

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

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

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

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

We may not be able to initiate or continue clinical trials for KPI-012 or any other product candidate we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States.

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

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

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

In addition, we are developing KPI-012 for PCED, which is a rare condition with an estimated incidence in the United States of 100,000 cases per year, and, as such, we may have difficulty identifying and enrolling a sufficient number of patients in our planned clinical trials of KPI-012 given the limited number of patients with PCED.

Our inability to locate and enroll a sufficient number of patients for our clinical trials could result in significant delays, could require us to

abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals.

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

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

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

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

If EYSUVIS, INVELTYS, KPI-012 or any other product candidate we develop are associated with serious adverse events or undesirable side effects in clinical trials or following approval and/or commercialization, or if our products or product candidates have characteristics that are unexpected, we may need to abandon their development or limit development or marketing to narrower uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

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

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

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

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

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

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

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

In addition, while KPI-012 was generally well-tolerated in Combangio’s Phase 1b clinical trials, it was only administered in 12 subjects.

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

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

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

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

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

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

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

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

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

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

We may never realize the anticipated benefits of the acquisition of Combangio and by investing our limited resources in the Acquisition and the development of KPI-012, we may be required to forego or delay other opportunities.

In addition, our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

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

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

KPI-012 has only been evaluated in a clinical trial outside of the United States.

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

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

Combangio has in the past chosen, and we may in the future choose, to conduct one or more of our clinical trials outside the United States.

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

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

population and U.S.

medical practice in ways that the FDA deems clinically meaningful.

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

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

laws and regulations.

In 2020 and 2021, Combangio conducted Phase 1b clinical trials of KPI-012 for PCED in 12 patients in Mexico.

KPI-012 has only been evaluated in clinical trials outside of the United States.

Based on the results of the Phase 1b clinical trials conducted in Mexico, we plan to submit an IND application to the FDA for KPI-012 and, subject to regulatory clearance, commence a Phase 2/3 clinical trial of KPI-012 for PCED in the United States in the fourth quarter of 2022.

However, if the FDA does not accept the data from Combangio’s Phase 1b clinical trials of KPI-012 or any trial that we conduct in the future outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt our development of the applicable product candidates.

Risks Related to Our Dependence on Third Parties

We contract with third parties for the manufacture of EYSUVIS and INVELTYS and plan to contract with third parties for clinical and commercial supply of any future product candidates.

We contract with third parties for the manufacture of EYSUVIS, INVELTYS and KPI-012 and plan to contract with third parties for preclinical, clinical and commercial supply of any other product candidates we develop.

This reliance on third parties increases the risk that we will not have sufficient quantities of our products and product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not own or operate manufacturing facilities for the production of commercial quantities of EYSUVIS, INVELTYS or any product candidates.

We rely on Catalent to manufacture and supply to us a minimum amount of EYSUVIS and INVELTYS bottles.

We also rely on Altasciences for manufacturing bulk intermediates, and Chemo Iberica to manufacture and supply to us a bulk supply of LE.

We expect to rely on third-party manufacturers to manufacture commercial supplies of all of our products and clinical supplies of any other product candidates if and when approved for marketing by applicable regulatory authorities.

Our current and anticipated future dependence upon others for the manufacture of EYSUVIS, INVELTYS and any other product or product candidate that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

In addition, certain of our third-party manufacturers have in the past, and may in the future, experience performance issues that result in lower than expected yields.

Any performance failure on the part of our existing or future manufacturers could delay clinical development, marketing approval or the supply and sale of any product of ours that has been approved for commercial use.

To date, we have obtained materials for our clinical trials and the commercialization of EYSUVIS and INVELTYS from third-party manufacturers, including Catalent and Altasciences.

We have supply agreements in place with these contract manufacturers to provide commercial supply.

We obtain the API for EYSUVIS and INVELTYS from Chemo Iberica, a third-party API manufacturer.

While we have long-term commercial supply agreements with these third-party manufacturers, if these suppliers do not perform as we expect, we may be required to replace one or more suppliers.

Although we believe that there are a number of potential long-term replacements to our suppliers, we may incur added costs and delays in identifying and qualifying any such replacements.

The FDA maintains strict requirements governing the manufacturing process.

When a manufacturer seeks to modify or make even seemingly minor changes to that process, the FDA may require the applicant to conduct a comparability study that evaluates the potential differences in the product resulting from the change in the manufacturing process.

The FDA has issued several rounds of guidance on this point.

We rely on Woodstock Sterile Solutions Inc.

(formerly known as Catalent Pharma Solutions, LLC), or Woodstock, to manufacture and supply to us a minimum amount of EYSUVIS and INVELTYS bottles.

We also rely on Altasciences company, or Altasciences, for manufacturing bulk intermediates, and Chemo Iberica SA, or Chemo Iberica, to manufacture and supply to us a bulk supply of loteprednol etabonate, or LE.

We expect to rely on third-party manufacturers to manufacture clinical supplies of KPI-012 and any other product candidates we develop and commercial supplies of all of our products if and when approved for marketing by applicable regulatory authorities, as well as for packaging, serialization, storage, distribution and other production logistics.

We do not currently have arrangements in place for redundant supply for bulk drug substances.

Certain of our third-party manufacturers have in the past, and may in the future, experience performance issues that result in lower than expected yields.

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

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

While we have long-term commercial supply agreements for EYSUVIS and INVELTYS with third-party manufacturers, if these suppliers do not perform as we expect, we may be required to replace one or more of them.

These manufacturers, and suppliers to these manufacturers, may also be affected by natural disasters, such as floods or fire, epidemics or pandemics, such as COVID-19, or such manufacturers could face manufacturing issues, such as contamination or regulatory concerns following a regulatory inspection of such facility, requiring us to seek replacement suppliers.

Although we believe that there are a number of potential long-term replacements to our suppliers, we may incur added costs and delays in identifying and qualifying any such replacements, including as a result of additional required FDA approvals.

Replacements may not be readily available on acceptable terms, or at all.

In addition, we do not own or operate, and currently have no plans to establish, any manufacturing facilities for KPI-012.

We rely, and expect to continue to rely, on third parties for the manufacture of both drug substance and finished drug product for KPI-012 for preclinical and clinical testing, as well as for commercial manufacture of KPI-012 if it receives marketing approval.

We also rely, and expect to continue to rely, on third parties for packaging, labeling, sterilization, storage, distribution and other production logistics.

We have only limited supply agreements in place with respect to KPI-012, and these arrangements do not extend to commercial supply.

We obtain supplies of drug substance and finished drug product for KPI-012 on a purchase order basis and do not have long term committed supply arrangements with respect to KPI-012.

We may be unable to maintain our current arrangements for KPI-012 or conclude agreements for commercial supply of KPI-012 on acceptable terms or at all.

We are subject to additional risks related to our reliance on third-party manufacturers for the manufacture of the drug substance and drug product of KPI-012, a biological product candidate.

Manufacturing biologics is complex, especially in large quantities.

Biologic products must be made consistently and in compliance with a clearly defined manufacturing process.

KPI-012 is a bone-marrow derived mesenchymal stem cell secretome therapeutic composed of biologically active components, including protease inhibitors and growth factors, and is produced from a proprietary cell bank.

The manufacturing process for KPI-012 is comprised of three stages:

(1) cultivation of mesenchymal stem cells from a working cell bank and production of unprocessed conditioned media (cell-free secretome), (2) production of drug substance as a chemically defined solution and (3) formulation and filling of drug product.

While the drug product for Combangio’s early research and Phase 1b clinical trials was cultivated using a planar culture model, we plan to implement a bioreactor cultivation model for our planned clinical trials and for commercial supply of KPI-012.

We are continuing the process of scaling up our manufacturing processes and capabilities with our third-party manufacturers to support longer term clinical development.

We do not currently have arrangements in place for redundant supply or a second source for bulk drug substance.

In addition, KPI-012 drug product is manufactured from a vial of a working cell bank, which in turn was produced from a vial of master cell bank.

KPI-012 master cell bank and working cell bank is stored in two separate locations.

It is possible that we could lose the cell bank in both locations and have our manufacturing severely impacted by the need to replace the cell bank.

The FDA maintains strict requirements governing the manufacturing process and our third-party manufacturers are subject to inspection and approval by the FDA before we can commence the manufacture and sale of any of our products or product candidates, and thereafter subject to FDA inspection from time to time.

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

When a manufacturer seeks to modify or make even seemingly minor changes to the manufacturing process, the FDA may require the applicant to conduct a comparability study that evaluates the potential differences in the product resulting from the change in the manufacturing process.

In connection with any application for approval to market product candidates in the United States, we may be required to conduct a comparability study if the product we intend to market is supplied by a manufacturer different from the one who supplied the product evaluated in our clinical studies.

Delays in designing and completing this study to the satisfaction of the FDA could delay or preclude our development and commercialization plans and thereby limit our revenues and growth.

Reliance on third-party manufacturers entails additional risks, including:

● EYSUVIS, INVELTYS and any other product that we develop may compete with other product candidates and products for access to a limited number of suitable manufacturing facilities that operate under current good manufacturing practices, or cGMP, regulations;

● reliance on the third-party for regulatory compliance and quality assurance;

● the possible breach of the manufacturing agreement by the third-party;

● the possible misappropriation of our proprietary information, including our trade secrets and know-how;

● the possible termination or nonrenewal of the agreement by the third-party at a time that is costly or inconvenient for us.

Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States.

Reliance on third-party manufacturers entails additional risks, including reliance on the third-party for regulatory compliance and quality assurance, the possible breach of the manufacturing agreement by the third-party, the possible misappropriation of our proprietary information, including our trade secrets and know-how, and the possible termination or nonrenewal of the agreement by the third-party at a time that is costly or inconvenient for us.

Third-party manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements outside the United States.

Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and harm our business and results of operations.

Any products that we may develop may compete with other product candidates and products for access to manufacturing facilities.

There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

We were previously required to change our third-party manufacturer when the manufacturer was purchased by a third-party and exited the contract manufacturing business.

EYSUVIS, INVELTYS, KPI-012 and any other product candidate that we may develop may compete with other product candidates and products for access to a limited number of suitable manufacturing facilities that operate under cGMP regulations.

For example, we were previously required to change our third-party manufacturer when the manufacturer was purchased by a third-party and exited the contract manufacturing business.

The process of changing manufacturers can cause substantial time delays, and if we are required to change our manufacturer again in the future, it may delay our planned clinical trials or development timeline.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

We do not currently have arrangements in place for redundant supply for bulk drug substances.

If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer.

Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

Additionally, while we currently are not experiencing interruptions in our manufacturing of EYSUVIS or INVELTYS, quarantines, travel restrictions and bans and other governmental restrictions related to COVID-19 may significantly impact the ability of employees of our third-party suppliers to get to their places of work to manufacture and deliver future supply if and when needed.

Our current and anticipated future dependence upon others for the manufacture of EYSUVIS, INVELTYS or our product candidates may adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing approval on a timely and competitive basis.

Our current and anticipated future dependence upon others for the manufacture of EYSUVIS, INVELTYS, KPI-012 or any other product candidate we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Our commitment to purchase from Woodstock a minimum amount of EYSUVIS and INVELTYS for commercial use may result in us paying for product in excess of our needs if we are not able to successfully commercialize our products and/or successfully estimate our supply needs.

Under our long-term supply agreement with Woodstock, we have agreed to purchase an annual combined minimum amount of EYSUVIS and INVELTYS for commercial use through the expiration of the initial term of the agreement in 2030.

We cannot be certain that at any given point our future supply needs will meet or exceed such minimum purchase commitments.

If demand for our products falls short of such minimum purchase requirements, our business, results of operation and financial condition may be adversely affected.

The manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production.

If any of our third-party manufacturers encounter such difficulties, our ability to provide supply of product candidates for clinical trials or products for patients, if approved, could be delayed or prevented.

Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells.

Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency.

Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary.

Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage.

When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

If microbial, viral or other contaminations are discovered at the facilities of our manufacturers, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business.

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency and timely availability of raw materials.

Even if we obtain regulatory approval for KPI-012 or any future product candidates, there is no assurance that our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other comparable foreign regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential commercial launch of the product or to meet potential future demand.

If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

We may enter into collaborations with third parties for the development or commercialization of our products and product candidates.

If our collaborations are not successful, we may not be able to capitalize on the market potential of these products and product candidates.

We expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to develop and commercialize EYSUVIS, INVELTYS or any of our product candidates for which we seek or obtain marketing approval in markets outside the United States.

We expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to develop and commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate we develop and for which we seek or obtain marketing approval in markets outside the United States.

We also may enter into arrangements with third parties to perform these services in the United States to enhance our own sales, marketing and distribution capabilities in the United States or if we determine that such third-party arrangements are otherwise beneficial.

We also may seek third-party collaborators for development and commercialization of our product candidates.

For example, we may consider potential collaborative partnership opportunities prior to initiating IND-enabling studies on KPI-285, KPI-286, KPI-333 or any other product candidates we develop, including our SEGRMs.

For example, we may consider potential collaborative partnership opportunities prior to initiating IND-enabling studies on KPI-287 or any other product candidates we develop, including our SEGRMs.

Our likely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.

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Collaboration agreements may not lead to development or commercialization of products or product candidates in the most efficient manner, or at all.

If any collaborations that we enter into do not result in the successful development

and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration.

If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed, and we may need additional resources to develop our product candidates.

If any collaborations that we enter into do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration.

If we do not receive the funding

we expect under these agreements, our development of our product candidates could be delayed, and we may need additional resources to develop our product candidates.

All of the risks relating to product development, regulatory approval and commercialization described herein also apply to the activities of our collaborators.

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We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

We rely on third parties, such as clinical research organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, in conducting our clinical trials and expect to continue to rely on such parties to conduct clinical trials of any product candidate that we develop.

We rely on third parties, such as clinical research organizations, clinical data management organizations, medical institutions and clinical investigators, in conducting our clinical trials and expect to continue to rely on such parties to conduct clinical trials of any product candidate that we develop.

We or these third parties may terminate their engagements with us at any time for a variety of reasons, including a failure to perform by the third parties.

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Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the

one with us for our product or product candidate.

We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators.

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We may be unable to obtain and maintain patent protection for our technology, products and product candidates, or the scope of the patent protection obtained may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology, products and product candidates similar or identical to ours, and our ability to successfully commercialize our technology, products and product candidates may be impaired.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology, products and product candidates.

We have sought to protect our proprietary position by filing in the United States and in certain foreign jurisdictions patent applications related to our novel technologies, products and product candidates.

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We may not be able to generate sufficient additional data on a timely basis, or at all.

changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection for our proprietary technology, products and product candidates, prevent competitors from competing with us, or otherwise provide us with any competitive advantage.

Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies, products or product candidates in a non-infringing manner.

Our competitors may be

able to circumvent our owned or licensed patents by developing similar or alternative technologies, products or product candidates in a non-infringing manner.

In particular, a competitor may develop an approach to deliver drugs through the mucus layer to the underlying target tissue that uses a different approach than our AMPPLIFY technology, and therefore may not infringe on our patent rights.

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Even if we submit a patent for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing.

If one of our product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, with respect to the patent, a manufacturer of generic drugs would not have to provide advance notice to us of any Abbreviated New Drug Application filed with the FDA to obtain permission to sell a generic version of such product candidate.

If one of our product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, with respect to the patent, a manufacturer of

generic drugs would not have to provide advance notice to us of any Abbreviated New Drug Application filed with the FDA to obtain permission to sell a generic version of such product candidate.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

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Moreover, we may become party to future adversarial proceedings or litigation regarding our patent portfolio or the patents of third parties.

Such proceedings could also include contested

post-grant proceedings such as oppositions, inter partes review, reexamination, interference, or derivation proceedings before the U.S.

Such proceedings could also include contested post-grant proceedings such as oppositions, inter partes review, reexamination, interference, or derivation proceedings before the U.S.

Patent and Trademark Office or foreign patent offices.

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Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.

We may not be aware of all such intellectual property rights potentially relating to our products or product candidates and their uses.

We may not be aware of all such intellectual property

rights potentially relating to our products or product candidates and their uses.

Thus, we do not know with certainty that EYSUVIS, INVELTYS or any of our product candidates or our development and commercialization thereof, do not and will not infringe or otherwise violate any third-party’s intellectual property.

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If we or our licensors fail to maintain the patents and patent applications covering our product candidates, it would have a material adverse effect on our business.

EYSUVIS, INVELTYS and certain aspects of our AMPPLIFY technology are protected by patents exclusively licensed from other companies or institutions.

EYSUVIS, INVELTYS, KPI-012 and certain aspects of our AMPPLIFY technology are protected by patents exclusively licensed from other companies or institutions.

If these third parties terminate their agreements with us or fail to maintain or enforce the underlying patents, or we otherwise lose our rights to these patents, our competitive position and our market share in the markets for any of our approved products will be harmed.

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In particular, we hold exclusive licenses for patent families relating to EYSUVIS, INVELTYS and our product candidates and some aspects of our AMPPLIFY technology.

While we control patent prosecution of the licensed patent families

relating to EYSUVIS and INVELTYS, for the remainder of the patent families subject to our exclusive license agreement with The Johns Hopkins University, or JHU, that relate to our AMPPLIFY technology, JHU retains control of patent prosecution.

Our rights with respect to in-licensed patents and patent applications may be lost if the applicable license agreement expires or is terminated.

While we control patent prosecution of the licensed patent families relating to EYSUVIS and INVELTYS, for the remainder of the patent families subject to our exclusive license agreement with The Johns Hopkins University, or JHU, or the JHU License Agreement, that relate to our AMPPLIFY technology, JHU retains control of patent prosecution.

In addition, we rely on a license from Stanford University for certain patent rights related to KPI-012.

The license agreement between Combangio and Stanford University, or Stanford University License Agreement, imposes specified diligence, milestone payment, royalty and other obligations on us and requires that we meet development timelines, or to exercise diligent or commercially reasonable efforts to develop and commercialize licensed products, in order to maintain the license.

Our rights with respect to in-licensed patents and patent applications may be lost if the applicable license agreement expires or is terminated or if we fail to satisfy the obligations under the JHU License Agreement and Stanford University License Agreement.

We are likely to enter into additional license agreements to in-license patents and patent applications as part of the development of our business in the future, under which we may not retain control of the preparation, filing, prosecution, maintenance, enforcement and defense of such patents.

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Some of the intellectual property rights we own or have licensed have been generated through the use of United States government funding and may therefore be subject to certain federal regulations.

For example, certain aspects of our AMPPLIFY technology as well as certain aspects of our patents that use LE as an active ingredient were developed using United States government funds.

For example, certain aspects of KPI-012, our AMPPLIFY technology as well as certain aspects of our patents that use LE as an active ingredient were developed using United States government funds.

As a result, the United States government may have certain rights to intellectual property embodied in our current or future products and product candidates based on our AMPPLIFY technology or that use LE as an active ingredient pursuant to the Bayh-Dole Act of 1980.

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(ii) government action is necessary to meet public health or safety needs;

or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).

or (iii) government action is

necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).

The United States government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits.

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product manufacturers for products covered by such intellectual property.

exercise by the government of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations and prospects.

Any exercise by the government of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations and prospects.

If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

Our license agreement with JHU, under which we license certain of our patent rights and a significant portion of the technology for EYSUVIS, INVELTYS and our product candidates imposes royalty and other financial obligations on us and other substantial performance obligations.

Our JHU License Agreement, under which we license certain of our patent rights and a significant portion of the technology for EYSUVIS, INVELTYS and certain of our product candidates imposes royalty and other financial obligations on us and other substantial performance obligations.

We are subject to similar obligations under the Stanford University License Agreement, pursuant to which we license certain patent rights related to KPI-012.

We also may enter into additional licensing and funding arrangements with third parties that may impose diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us.

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Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

In addition, it is possible that JHU may conclude that we have materially breached the JHU licensing agreement and might therefore terminate the agreement, thereby removing our ability to market products covered by our license agreement with JHU.

If the JHU licensing agreement is terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products similar or identical to ours.

Moreover, if our license agreement with JHU is terminated, JHU and/or its assignors may be able to prevent us from utilizing the technology covered by the licensed or assigned patents and patent applications.

In addition, it is possible that JHU may conclude that we have materially breached the JHU License Agreement and might therefore terminate the agreement, thereby removing our ability to market products covered by our license agreement with JHU.

If the JHU License Agreement is terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products similar or identical to ours.

Moreover, if our JHU License Agreement is terminated, JHU and/or its assignors may be able to prevent us from utilizing the technology covered by the licensed or assigned patents and patent applications.

If we breach the agreement (including by failing to meet our payment obligations) and do not adequately cure such breach, the rights in the technology licensed to us under the JHU license agreement will revert to JHU at no cost to JHU.

This could have a material adverse effect on our competitive business position, our financial condition, our results of operations and our business prospects.

Similar risks apply to the Stanford University License Agreement, pursuant to which we license intellectual property rights related to KPI-012.

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.

biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally.

The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally.

Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us.

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We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.

Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and may also have an advantage in such proceedings due to their

more mature and developed intellectual property portfolios.

Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.

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In addition, disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business.

For example, over the last several years, the U.S.

The ability of the FDA to review and approve new drugs can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes and other events that may otherwise affect the FDA’s ability to perform routine functions.

Average review times at the FDA have fluctuated in recent years.

Over the last several years, the U.S.

government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.

If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

The Trump Administration also took several executive actions that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities.

In addition, the COVID-19 pandemic has led to disruptions at the FDA and has prolonged the time necessary for certain new drugs to be reviewed and/or approved.

The FDA has been working to resume routine surveillance, bioresearch monitoring and pre-approval inspections on a prioritized basis, but certain FDA activities remain constrained by the COVID-19 pandemic.

There can be no assurance that the FDA timely reviews applications.

Regulatory authorities outside the U.S.

may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities.

If we experience delays in obtaining approval or if we fail to obtain approval of any product candidate that we develop, the commercial prospects for such product candidate may be harmed and our ability to generate revenues will be materially impaired.

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We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market, which could significantly and materially harm our business.

Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit.

Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom withdrew from the European Union, effective December 31, 2020.

On December 24, 2020, the United Kingdom and European Union entered into a trade and cooperation agreement.

The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction.

Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, may force us to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for EYSUVIS, INVELTYS or our product candidates, which could significantly and materially harm our business.

The terms of approvals, ongoing regulations and post-marketing restrictions for our products may limit how we manufacture and market our products, which could materially impair our ability to generate revenue.

Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation.

We, and any potential collaborators we may have in the future, must therefore comply with requirements concerning advertising and promotion for EYSUVIS, INVELTYS or for any of our products for which we obtain marketing approval.

We, and any potential collaborators we may have in the future, must

therefore comply with requirements concerning advertising and promotion for EYSUVIS, INVELTYS or for any of our products for which we obtain marketing approval.

Promotional communications with respect to drug products and medical devices are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling.

Thus, we are limited to promoting EYSUVIS and INVELTYS in accordance with

their approved labels and the accompanying label may limit the approved use of any other product for which we obtain marketing approval, which could limit sales of such product.

Thus, we are limited to promoting EYSUVIS and INVELTYS in accordance with their approved labels and the accompanying label may limit the approved use of any other product for which we obtain marketing approval, which could limit sales of such product.

The FDA may also impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, including the adoption and implementation of risk evaluation and mitigation strategies.

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The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing.

Violations of the FDCA relating to the promotion of prescription drugs or the promotion or manufacturing of drug products or medical devices may lead to investigations by the FDA, Department of Justice and state Attorneys General alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.

Violations of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations and/or enforcement actions by the FDA, Department of Justice and state Attorneys General alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.

In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have various consequences, including:

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Similarly, failure to comply with the European Union’s or other countries’ requirements regarding the protection of personal information can lead to significant penalties and sanctions.

applicable to drug manufacturers or quality assurance standards applicable to medical device manufacturers, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements.

Further, the marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are

strictly regulated in the European Union notably under Directive 2001/83EC, as amended, and are also subject to EU Member State laws.

Direct-to-consumer advertising of prescription medicines is prohibited across the European Union.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs applicable to drug manufacturers or quality assurance standards applicable to medical device manufacturers, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements.

We, our contract manufacturers, any contract manufacturers we may engage in the future, our future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to clinicians, recordkeeping, and costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.

Accordingly, we continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control for our approved products.

We may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

We may not be able to obtain orphan drug exclusivity for one or more of our product candidates, and even if we do, that exclusivity may not prevent the FDA or the EMA from approving other competing products.

Additionally, if another company with a competing product candidate were to obtain orphan drug exclusivity for its competing product candidate before we do, we may be barred from marketing our product candidate for the same indication as the competing product candidate during the exclusivity period.

Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition.

A similar regulatory scheme governs approval of orphan products by the European Medicines Agency, or EMA, in the European Union.

KPI-012 has received orphan drug designation from the FDA for the treatment of PCED.

Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same product for the same therapeutic indication for that time period.

The applicable period is seven years in the United States and ten years in the European Union.

The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation, in particular if the product is sufficiently profitable so that market exclusivity is no longer justified.

If a competing product candidate with an orphan designation for PCED were to obtain regulatory approval before we are able to obtain approval of KPI-012 for PCED, we could be barred from marketing KPI-012 for PCED in the United States during the seven-year orphan exclusivity period, which would have a severe adverse effect on our business.

In order for the FDA to grant orphan drug exclusivity to one of our products, the FDA must find that the product is indicated for the treatment of a condition or disease with a patient population of fewer than 200,000 individuals annually in the United States.

The FDA may conclude that the condition or disease for which orphan drug exclusivity is sought does not meet this standard.

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition.

In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

Orphan drug exclusivity may also be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of the patients with the rare disease or condition.

The FDA Reauthorization Act of 2017, or FDARA, requires that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity.

FDARA reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical superiority.

may further reevaluate the Orphan Drug Act and its regulations and policies.

This may be particularly true in light of a decision from the Court of Appeals for the 11 th Circuit in September 2021 finding that, for the purpose of determining the scope of exclusivity, the term “same disease or condition” means the designated “rare disease or condition” and could not be interpreted by the FDA to mean the “indication or use.” Thus, the Court of Appeals concluded that orphan drug exclusivity applies to the entire designated disease or condition rather than the “indication or use.” We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business.

Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

We may seek certain designations for our product candidates, including Breakthrough Therapy, Fast Track and Priority Review designations in the United States, and PRIME Designation in the European Union, but we might not receive such designations, and even if we do, such designations may not lead to a faster development or regulatory review or approval process.

We may seek certain designations for one or more of our product candidates that could expedite review and approval by the FDA.

A Breakthrough Therapy product is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

For products that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens.

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

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

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

We may also seek a priority review designation for one or more of our product candidates.

If the FDA determines that a product candidate offers major advances in treatment or provides a treatment where no adequate therapy exists, the FDA may designate the product candidate for priority review.

A priority review designation means that the goal is for the FDA to review a new drug application in six months, rather than the standard review period of ten months.

These designations are within the discretion of the FDA.

Accordingly, even if we believe that one of our product candidates meets the criteria for these designations, the FDA may disagree and instead determine not to make such designation.

Further, even if we receive a designation, the receipt of such designation for a product candidate may not result in a faster development or regulatory review or approval process compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA.

In addition, even if one or more of our product candidates qualifies for these designations, the FDA may later decide that the product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

In the European Union, we may seek PRIME designation for some of our product candidates in the future.

The PRIME program focuses on product candidates that target conditions for which there exists no satisfactory method of treatment in the European Union, or even if such a method exists, the product candidate may offer a major therapeutic advantage over existing treatments.

To be accepted for PRIME designation, a product candidate must meet the eligibility criteria in respect of its major public health interest and therapeutic innovation based on information that is capable of substantiating the claims.

The benefits of a PRIME designation include the appointment of a rapporteur of the Committee for Medicinal Products for Human Use to provide continued support and help to build knowledge ahead of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review, meaning reduction in the review time for an opinion on approvability to be issued earlier in the application process.

PRIME designation enables an applicant to request parallel EMA scientific advice and health technology assessment advice to facilitate timely market access.

Even if we receive

PRIME designation for any of our product candidates, the designation may not result in a materially faster development process, review or approval compared to conventional EMA procedures.

Further, obtaining PRIME designation does not assure or increase the likelihood of EMA’s grant of a marketing authorization.

If approved, our products regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biologic products that are biosimilar to or interchangeable with an FDA-licensed reference biologic product.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA.

In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed.

During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of the other company’s product.

The law is complex and is still being interpreted and implemented by the FDA.

As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.

To date, we have not had a product candidate approved as a biologic product.

We believe that any of our product candidates that may be approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity.

However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our products to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated.

Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation.

Moreover, the extent to which a biosimilar, once licensed, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

If competitors are able to obtain regulatory approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.

Our relationships with customers and third-party payors may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

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● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which imposes obligations, including mandatory contractual terms, on covered healthcare providers, health plans and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

restrict payments that may be made to healthcare providers, state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to clinicians and other healthcare providers or marketing expenditures, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

● the federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or transfers of value made to physicians, other healthcare providers and teaching hospitals, as well as information regarding ownership and investment interests held by physicians, other healthcare providers and their immediate family members;

● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers, state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to clinicians and other healthcare providers or marketing expenditures, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, individual imprisonment, integrity obligations, and the curtailment or restructuring of our operations.

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If any of the clinicians or other healthcare providers or entities with whom we do or expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.

Recently enacted and future legislation may affect our ability to commercialize and the prices we obtain for any products that are approved in the United States or foreign jurisdictions.

Existing and future legislation may increase the difficulty and cost for us to obtain reimbursement for our products and product candidates.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could affect our ability to profitably sell or commercialize EYSUVIS, INVELTYS or any product candidate for which we obtain marketing approval.

The pharmaceutical industry has been a particular focus of these efforts and have been significantly affected by legislative initiatives.

Current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any FDA approved product.

Current laws, as well as other healthcare reform measures that may be adopted in the future, may result in

more rigorous coverage criteria and in additional downward pressure on the price that we receive for any FDA approved product.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products.

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Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA.

The Budget Control Act of 2011, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2029 unless

additional congressional action is taken.

In March 2010, President Obama signed into law the ACA.

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

For example, in August 2021, the Budget Control Act of 2011, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and, due to subsequent legislative amendments, will stay in effect through 2031.

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was enacted on March 27, 2020, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030.

The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for EYSUVIS, INVELTYS and for any of our product candidates for which we may obtain regulatory approval or the frequency with which EYSUVIS, INVELTYS or any product candidate is prescribed or used.

Pursuant to subsequent legislation, the reductions were suspended through the end of March 2022 and reduced to 1% from April 2022 through June 2022.

In addition, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for EYSUVIS, INVELTYS and for any of our product candidates for which we may obtain regulatory approval or the frequency with which EYSUVIS, INVELTYS or any product candidate is prescribed or used.

We expect that additional healthcare reforms may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for EYSUVIS, INVELTYS or any other approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market.

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Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

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

Since enactment of the ACA, there have been and continue to be numerous legal challenges and Congressional actions to repeal and replace provisions of the law and litigation and legislation over the ACA is likely to continue with unpredictable and uncertain results.

For example, with enactment of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which required most Americans to carry a minimal level of health insurance, became effective in 2019.

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

The Trump Administration also took executive actions to undermine or delay implementation of the ACA, but those were rescinded by the Biden Administration.

In addition, the Centers for Medicare & Medicaid Services has proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and members of Congress and the Biden Administration have stated that they will address such costs through new legislative and administrative measures.

President Biden issued an executive order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access.

Under this executive order, federal agencies are directed to re-examine:

policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19;

demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements;

policies that undermine the Health Insurance Marketplace or other markets for health insurance;

policies that make it more difficult to enroll in Medicaid and the ACA;

and policies that reduce affordability of coverage or financial assistance, including for dependents.

The costs of prescription pharmaceuticals has also been the subject of considerable discussion in the United States, and members of Congress and the Biden Administration have stated that they will address such costs through new legislative and administrative measures.

To date, there have been several recent U.S.

congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for products.

For example, on July 9, 2021,

President Biden signed an executive order, which focuses on, among other things, the price of pharmaceuticals.

The executive order directs the Department of Health and Human Services, or HHS, to create a plan to combat “excessive pricing of prescription pharmaceuticals and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government for such pharmaceuticals, and to address the recurrent problem of price gouging.” On September 9, 2021, HHS released its plan to reduce pharmaceutical prices.

The key features of that plan are to:

(1) make pharmaceutical prices more affordable and equitable for all consumers and throughout the health care system by supporting pharmaceutical price negotiations with manufacturers;

(2) improve and promote competition throughout the prescription pharmaceutical industry by supporting market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase transparency;

and (3) foster scientific innovation to promote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States.

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We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Reporting and payment obligations under the Medicaid Drug Rebate Program and other governmental drug pricing programs are complex and may involve subjective decisions.

Any failure to comply with those obligations could subject us to penalties and sanctions.

As a condition of reimbursement by various federal and state health insurance programs, pharmaceutical companies are required to calculate and report certain pricing information to federal and state agencies.

The regulations governing the calculations, price reporting and payment obligations are complex and subject to interpretation by various government and regulatory agencies, as well as the courts.

Reasonable assumptions have been made where there is lack of regulations or clear guidance and such assumptions involve subjective decisions and estimates.

Pharmaceutical companies are required to report any revisions to their calculation, price reporting and payment obligations previously reported or paid.

Such revisions could affect liability to federal and state payers and also adversely impact reported financial results of operations in the period of such restatement.

Uncertainty exists as new laws, regulations, judicial decisions, or new interpretations of existing laws, or regulations related to our calculations, price reporting or payments obligations increases the chances of a legal challenge, restatement or investigation.

If a company becomes subject to investigations, restatements, or other inquiries concerning compliance with price reporting laws and regulations, it could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on the business, financial condition and results of operations.

In addition, it is possible that future healthcare reform measures could be adopted, which could result in increased pressure on pricing and reimbursement of products and thus have an adverse impact on financial position or business operations.

Further, state Medicaid programs may be slow to invoice pharmaceutical companies for calculated rebates resulting in a lag between the time a sale is recorded and the time the rebate is paid.

This results in a company having to carry a liability on its consolidated balance sheets for the estimate of rebate claims expected for Medicaid patients.

actual claims are higher than current estimates, the company’s financial position and results of operations could be adversely affected.

In addition to retroactive rebates and the potential for 340B Program refunds, if a pharmaceutical firm is found to have knowingly submitted any false price information related to the Medicaid Drug Rebate Program to the CMS, it may be liable for civil monetary penalties.

Such failure could also be grounds for CMS to terminate the Medicaid drug rebate agreement, pursuant to which companies participate in the Medicaid program.

In the event that CMS terminates a rebate agreement, federal payments may not be available under government programs, including Medicaid or Medicare Part B, for covered outpatient drugs.

Additionally, if a pharmaceutical company overcharges the government in connection with the FSS program or Tricare Retail Pharmacy Program, whether due to a misstated Federal Ceiling Price or otherwise, it is required to refund the difference to the government.

Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against a company under the FCA and other laws and regulations.

Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

If we or any third-party manufacturers we engage fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.

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Although we maintain general liability insurance as well as workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.

We hold $3.0 million of environmental liability insurance for claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

These limits, both in the aggregate and per incident, may not be adequate to cover all liabilities that we may incur.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations.

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Compliance with the FCPA, in particular, is expensive and difficult, particularly in countries in which corruption is a recognized problem.

In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials.

addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials.

Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

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or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies, contractual obligations and failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.

We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information, including comprehensive regulatory systems in the U.S., EU and U.K.

The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business.

Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

There are numerous U.S.

federal and state laws and regulations related to the privacy and security of personal information.

In particular, regulations promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information.

Determining whether protected health information has been handled in compliance with applicable privacy standards

and our contractual obligations can be complex and may be subject to changing interpretation.

These obligations may be applicable to some or all of our business activities now or in the future.

If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts.

Further, if we fail to comply with applicable privacy laws, including applicable HIPAA privacy and security standards, we could face civil and criminal penalties.

HHS enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.

In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents.

We cannot be sure how these regulations will be interpreted, enforced or applied to our operations.

In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.

Similar to the laws in the United States, there are significant privacy and data security laws that apply in Europe and other countries.

The collection, use, disclosure, transfer, or other processing of personal data, including personal health data, regarding individuals who are located in the European Economic Area, or EEA, and the processing of personal data that takes place in the EEA, is regulated by the General Data Protection Regulation, or GDPR, which went into effect in May 2018 and which imposes obligations on companies that operate in our industry with respect to the processing of personal data and the cross-border transfer of such data.

The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies.

If our or or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.

While we continue to address the implications of the recent changes to data privacy regulations, data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our efforts to comply with the evolving data protection rules may be unsuccessful.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices.

We must devote significant resources to understanding and complying with this changing landscape.

Failure to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the EEA and elsewhere and carries with it the potential for significant penalties if we are found to be non-compliant.

Similarly, failure to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws.

Any such failure to comply with data protection and privacy laws could result in government-imposed fines or orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business.

Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects.

We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.

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In general, under Sections 382 and 383 of the Code, the amount of benefits from our NOL and research and development tax credit carryforwards, respectively, may be impaired or limited if we incur an “ownership change,” generally defined as a greater than 50% change (by value) in our equity ownership by certain stockholders, over a three-year period.

We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which are outside our control.

As a result, our use of federal NOL and research and development tax credit carryforwards could be limited.

State NOL and research and development tax credit carryforwards may be similarly limited.

We previously completed an analysis and determined that an ownership change has materially limited our net operating loss carryforwards and research and development tax credits available to offset future tax liabilities, which

limitation is reflected in the numbers presented above.

We may be further limited by any changes that may have occurred or may occur subsequent to December 31, 2021.

Any such limitations may result in greater tax liabilities than we would incur in the absence of such limitations and increased liabilities could adversely affect our business, results of operations, financial position and cash flows.

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Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the research and development, clinical, business development and commercialization expertise of Mark Iwicki, our President and Chief Executive Officer, Todd Bazemore, our Chief Operating Officer, Mary Reumuth, our Chief Financial Officer, Kim Brazzell, Ph.D., our Chief Medical Officer, Hongming Chen, Sc.D., our Chief Scientific Officer, and Eric Trachtenberg, our General Counsel, Chief Compliance Officer and Corporate Secretary, as well as the other principal members of our management, scientific, clinical and commercial teams.

We are highly dependent on the research and development, clinical, business development and commercialization expertise of Mark Iwicki, our Chief Executive Officer, Todd Bazemore, our President and Chief Operating Officer, Mary Reumuth, our Chief Financial Officer, Kim Brazzell, Ph.D., our Head of Research and Development and Chief Medical Officer, Darius Kharabi, our Chief Business Officer, and Eric Trachtenberg, our General Counsel, Chief Compliance Officer and Corporate Secretary, as well as the other principal members of our management, scientific, clinical and commercial teams.

Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time.

We do not maintain “key person” insurance for any of our executives or other employees.

In addition, we are highly dependent on the employees who joined us in connection with the Acquisition and their expertise developing biologics.

Recruiting and retaining qualified scientific, clinical, manufacturing, accounting, legal and sales and marketing personnel will also be critical to our success.

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We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy.

In addition, we rely on consultants and advisors, including scientific, clinical and regulatory advisors, to assist us in formulating our research and development and commercialization strategy.

Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We have expanded and may continue to expand our development, regulatory, commercial and manufacturing capabilities and are continuing to implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We have experienced and expect to continue experiencing significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, clinical, regulatory affairs, manufacturing, sales, marketing and distribution.

For example, in the fourth quarter of 2020, we increased our sales force from 56 TSMs to 91 TSMs, from seven RSLs to 14 RSLs and added two new area sales leaders.

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

To manage our recent, planned and potential future growth, we must continue to implement and improve our managerial, operational and financial systems, and may further expand our facilities and continue to recruit and train additional qualified personnel.

Due to our limited financial resources and our limited experience in managing such growth, we may not be able to effectively manage our recently expanded operations, planned sales force expansion or any future expansion of our operations or recruit and train additional qualified personnel.

We have expanded our development, regulatory, commercial and manufacturing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We have experienced significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, clinical, regulatory affairs, manufacturing, sales, marketing and distribution.

To manage growth, we must continue to implement and improve our managerial, operational and financial systems and continue to recruit and train additional qualified personnel.

In addition, the change in our business in connection with the Acquisition, including the addition of a biological product candidate and employees who joined us in connection with the Acquisition, has imposed added responsibilities on members of our management, including the

need to recruit, hire, retain, motivate and integrate additional employees and business operations, including employees with experience developing biologics should KPI-012 advance through the various stages of development.

Due to our limited financial resources and our limited experience in managing such growth, we may not be able to effectively integrate Combangio into our business and KPI-012 into our business strategy, manage our recently expanded operations, or any future expansion of our operations or recruit and train additional qualified personnel.

The expansion of our operations may lead to significant costs and may divert our management and business development resources.

Furthermore, operational and other restrictions related to COVID-19 may further hamper our ability to grow as needed, including our planned sales force expansion, and/or to manage our growth.

Furthermore, operational and other restrictions related to COVID-19 may further hamper our ability to grow as needed and/or to manage our growth.

Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Our internal computer systems, or those of our vendors, contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs and commercialization of our products.

computer viruses, worms and other destructive or disruptive software, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.

Despite the implementation of security measures, our internal computer systems and those of our current and any future vendors, contractors or consultants, including any collaborator, are vulnerable to damage from cyber-attacks, computer viruses, worms and other destructive or disruptive software, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.

Cyber incidents or attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, unauthorized access to or deletion of files, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information.

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Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.

A partially or fully remote workplace could negatively impact our business.

We terminated our lease for office and laboratory space at our former corporate headquarters in Watertown, Massachusetts, effective January 11, 2022.

While we have retained a nominal amount of office space on a short-term

basis to conduct in-person meetings from time-to-time in Arlington, Massachusetts and acquired a sublease for a nominal amount of office and laboratory space in Menlo Park, California in connection with our acquisition of Combangio, the vast majority of our employees no longer have individual offices or access to dedicated laboratory space.

We plan to outsource all laboratory activities, other than certain activities related to KPI-012, until such time, if ever, that we maintain our own dedicated laboratory space.

As a result, our management team and the vast majority of our employees will work remotely and without dedicated office space, until such time as we determine to obtain a new operating lease.

By migrating to a remote workforce, our employees are accessing our servers remotely through home or other networks to perform their job responsibilities, which may be less secure.

The risk of cyber incidents or other privacy or data security incidents may be heightened as a result of our remote work environment.

Remote working arrangements could also impact employee productivity and morale, impede employee training, strain our technology resources and introduce operational risks, all of which could negatively impact our business.

Furthermore, our transition to a largely remote workplace will increase our reliance on third parties to conduct a significant portion of our research and development activities.

We have limited ability to control the amount or timing of resources that any such third party will devote to our research and development activities, and such third parties may terminate their engagements with us at any time.

We also expect to have to negotiate budgets and contracts with such third parties, and we may not be able to do so on favorable terms, which may result in delays to our development timelines and increased costs.

Risks Related to Our Common Stock

Our executive officers and directors and their affiliates, if they choose to act together, will continue to have the ability to significantly influence all matters submitted to stockholders for approval.

As of December 31, 2020, our executive officers and directors and their affiliates in the aggregate, owned shares representing approximately 28.27% of our capital stock, based on the most recent institutional stockholder ownership filings with the SEC.

As of March 28, 2022, our executive officers and directors and their affiliates in the aggregate, owned shares representing approximately 15.99% of our capital stock, based on the most recent institutional stockholder ownership filings with the SEC.

As a result, if these stockholders were to choose to act together, they may be able to significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs.

For example, these persons, if they choose to act together, could significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

This concentration of voting power may:

● delay, defer or prevent a change in control;

● entrench our management and our board of directors;

● delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire.

This concentration of voting power may delay, defer or prevent a change in control, entrench our management and our board of directors, or delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

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The market price for our common stock may be influenced by many factors, including:

● our ability to achieve the anticipated benefits of the Acquisition and to successfully implement our proposed business strategy;

● our success in commercializing EYSUVIS, INVELTYS and other product candidates;

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● the recruitment or departure of key scientific, commercial or management personnel;

● the level of expenses related to the commercialization of EYSUVIS, INVELTYS and clinical development programs for any of our product candidates;

● the level of expenses related to the commercialization of EYSUVIS, INVELTYS and development of KPI-012 and any other product candidate we develop;

● the results of our efforts to discover, develop, acquire or in-license additional products, product candidates or technologies for the treatment of diseases or conditions, the costs of commercializing any such products and the costs of development of any such product candidates or technologies;

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In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company.

We also may face securities class-action litigation if we fail to successfully commercialize EYSUVIS, INVELTYS or our product candidates.

We also may face securities class-action litigation if we fail to successfully commercialize EYSUVIS, INVELTYS, KPI-012 or any other product candidate we develop.

Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources.

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Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

As of February 24, 2021, we had outstanding 61,552,352 shares of common stock.

As of March 28, 2022, we had outstanding 72,594,005 shares of common stock.

Shares of our common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act, or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates of ours.

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These shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates.

In connection with the Acquisition, on January 3, 2022 we issued an aggregate of 6,815,072 shares of our common stock to the former Combangio equityholders, and we held back 973,565 Holdback Shares that will be issuable subject to the terms of the Merger Agreement to the Combangio equityholders on the escrow release date.

In addition, former Combangio equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, contingent consideration of up to $5.4 million payable in shares of our common stock upon our achievement of various development and regulatory milestones, and we may elect, subject to the Nasdaq rules, to satisfy a portion of certain milestone payments that are payable to Combangio equityholders in cash through the issuance of up to $15 million of our common stock.

While the shares of common stock issued to former Combangio equityholders will be restricted as a result of securities laws, following expiration of applicable holding periods, these shares will be able to be

freely sold in the public market, subject to any requirements and restrictions, including any applicable volume limitations, imposed by Rule 144 under the Securities Act.

In addition, the Merger Agreement obligates us to file a registration statement with respect to public resale of our shares of common stock that may become issuable upon the achievement of certain of the milestones.

The sale or resale of these shares in the public market, or the market’s expectation of such sales, may result in an immediate and substantial decline in our stock price.

Such a decline will adversely affect our investors and also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

If we fail to comply with the continued listing requirements of Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price of $1.00 per share, or risk delisting, which would have a material adverse effect on our business.

A delisting of our common stock from Nasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock.

In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.

Any potential delisting of our common stock from Nasdaq would also make it more difficult for our stockholders to sell their shares in the public market.

On March 2, 2022, we received a deficiency letter from Nasdaq notifying us that, for the last 30 consecutive business days, the bid price of our common stock had closed below the $1.00 per share minimum bid price requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule 5450(a)(1), or the Bid Price Requirement.

We were provided a period of 180 calendar days, or until August 29, 2022, to regain compliance with the Bid Price Requirement.

On March 22, 2022, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying us that we had regained compliance with the Bid Price Requirement as we had a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days from March 8, 2022 through March 21, 2022.

Although the matter is now closed, there can be no assurance that we will be able to continue to comply with the Nasdaq continued listing requirements.

We are an “emerging growth company” and a “smaller reporting company”, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

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We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business.

In addition, the terms of our Athyrium Credit Facility preclude us from paying dividends without the lenders’ consent, and any future debt agreements that we

may enter into may preclude us from paying dividends without the lenders’ consent or at all.

In addition, the terms of our Loan Agreement preclude us from paying dividends without the lenders’ consent, and any future debt agreements that we may enter into may preclude us from paying dividends without the lenders’ consent or at all.

As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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On December 22, 2017, President Trump signed into law the 2017 Tax Act, which significantly revised the Internal Revenue Code of 1986, as amended, or the Code.

The 2017 Tax Act, among other things, contained significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), the limitation of the deduction for net operating losses arising in taxable years ending after December 31, 2017 to 80% of current year taxable income and elimination of net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), the imposition of a one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, the elimination of U.S.

tax on foreign earnings (subject to certain important exceptions), the allowance of immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits.

As part of Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, the CARES Act was enacted on March 27, 2020 and COVID relief provisions were included in the Consolidated Appropriations Act, 2021, or CAA, which was enacted on December 27, 2020.

The 2017 Tax Act, among other things, contained significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the deduction for NOLs to 80% of current year taxable income and elimination of NOL carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such NOLs may be carried forward indefinitely).

As part of Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, the CARES Act was enacted on March 27, 2020, COVID relief provisions were included in the Consolidated Appropriations Act, 2021, or CAA, which was enacted on December 27, 2020, and the American Rescue Plan Act of 2021, or ARPA, was enacted on March 11, 2021.

All contain numerous tax provisions.

In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the 2017 Tax Act.

It also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30% to 50% of adjusted taxable income.

Regulatory guidance under the 2017 Tax Act, the FFCR Act, the CARES Act and the CAA is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial

It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which could have an impact on our company.

In addition, it is uncertain if and to what extent various states will conform to the 2017 Tax Act, the FFCR Act, the CARES Act or the CAA.

In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of NOLs, which was enacted as part of the 2017 Tax Act.

It also provides that NOLs arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

Regulatory guidance under the 2017 Tax Act, the FFCR Act, the CARES Act, the CAA and the ARPA is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition.

It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic or otherwise.

Any such legislation could have an impact on our company.

In addition, it is uncertain if and to what extent various states will conform to the 2017 Tax Act, the FFCR Act, the CARES Act , the CAA or the ARPA.

Patent reform legislation under Leahy-Smith America Invents Act could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

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

What changed 10-K

Item 1A. Risk Factors