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Item 7. Management’s Discussion and Analysis

2022-03-29 compared with 2021-02-25 · 244 added, 142 removed, 227 unchanged (63% of the section changed)

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

We have worldwide rights to a portfolio of innovative products and product candidates that include two marketed therapies utilizing our proprietary mucus penetrating particle, or MPP, drug delivery technology, which we refer to as our AMPPLIFY ® Technology, to address medical needs for the front of the eye, and a pipeline of proprietary new chemical entities, or NCEs, targeted to address front and back of the eye diseases.

We have worldwide rights to a portfolio of innovative products and product candidates that include two marketed products utilizing our proprietary mucus penetrating particle drug delivery technology, which we refer to as our AMPPLIFY® technology, to address medical needs for the front of the eye.

Our product candidates and programs include a proprietary regenerative biotherapy for severe ocular diseases and a pipeline of preclinical new chemical entities, or NCEs, targeted to address front and back of the eye diseases.

Our two marketed products are EYSUVIS® (loteprednol etabonate ophthalmic suspension) 0.25%, for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease, and INVELTYS® (loteprednol etabonate ophthalmic suspension) 1%, a topical twice-a-day ocular steroid for the treatment of post-operative inflammation and pain following ocular surgery.

Both products apply our AMPPLIFY technology to loteprednol etabonate, or LE, a corticosteroid designed for ocular applications.

Both products apply our AMPPLIFY technology to loteprednol etabonate, a corticosteroid designed for ocular applications.

The AMPPLIFY technology uses selectively-sized nanoparticles that each have a proprietary coating.

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

We have retained worldwide commercial rights for EYSUVIS, INVELTYS and our preclinical development programs.

Starting with FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which now includes 91 territory sales managers, or TSMs, 14 regional sales leaders, two area sales leaders and three directors of national accounts.

In 2021, we plan to increase our sales force from 91 TSMs to approximately 125 TSMs, pending the status of the COVID-19 pandemic.

EYSUVIS is the first and only FDA-approved prescription product with an indication for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease.

Food and Drug Administration, or FDA, approved EYSUVIS in October 2020, and we commenced a full promotional launch of EYSUVIS in January 2021.

We believe that EYSUVIS’ broad mechanism of action, rapid onset of relief of both signs and symptoms, favorable tolerability profile and potential to be complementary to existing therapies offer a favorable profile for the management of dry eye flares and other dry eye associated conditions that would benefit from short-term treatment of dry eye signs and symptoms.

We further believe that these features of EYSUVIS are attractive to prescribing clinicians and EYSUVIS could become the preferred first-line prescription therapy for the short-term treatment of the signs and symptoms of dry eye disease, including the treatment of dry eye flares that affect the vast majority of dry eye patients.

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

The FDA approved INVELTYS in August 2018, and we commercially launched the product in January 2019.

INVELTYS has the highest concentration (1%) of LE on the market in the United States and is formulated with our AMPPLIFY technology, which enables INVELTYS to deliver 3.75x more drug to the target ocular tissue compared to an active comparator.

We believe INVELTYS offers advantages over existing post-surgical treatment options.

Upon the consummation of our acquisition of Combangio, Inc., or Combangio, on November 15, 2021, we acquired Combangio’s product candidate, CMB-012, which we now refer to as KPI-012.

KPI-012 is our lead product candidate and is currently in clinical development for the treatment of persistent corneal epithelial defects, or PCED, a rare disease of impaired corneal healing.

We believe the multifactorial mechanism of action of KPI-012 also makes it a platform technology, and we are evaluating KPI-012 for potential expansion to indications for rare front of the eye diseases, such as limbal stem cell deficiency, chemical burns and Sjogren’s Syndrome, as well as select rare back of the eye diseases, such as retinitis pigmentosa and optic neuritis.

For a further description of our acquisition of Combangio, see “Acquisition of Combangio, Inc.” below and for a further description of KPI-012 and PCED, see Item 1, Business.

We are also progressing our pipeline of proprietary NCE preclinical development programs targeted to address both front and back of the eye diseases.

These preclinical development programs include KPI-287, our receptor Tyrosine Kinase Inhibitor and our selective glucocorticoid receptor modulators, or SEGRMs.

KPI-287 is designed to inhibit the vascular endothelial growth factor and platelet derived growth factor pathways, and is administered by suprachoroidal injection for the treatment of retinal diseases, including wet age-related macular degeneration diabetic macular edema and retinal vein occlusion.

SEGRMs are a novel class of therapies designed to modify the downstream activity of the glucocorticoid receptors to exhibit the anti-inflammatory and immunomodulatory properties of the corticosteroid class of therapies while markedly reducing their associated side effects, which we are developing for the treatment of inflammatory diseases.

We have retained worldwide commercial rights for EYSUVIS, INVELTYS, KPI-012 and our preclinical development programs.

Starting with FDA approval of INVELTYS, we have built a commercial infrastructure with our own focused, specialty sales force which now includes approximately 100 field-based commercial sales personnel.

Our sales representatives promote both EYSUVIS and INVELTYS.

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

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

Since the initial public offering of our common stock, or IPO, we have financed our operations primarily through common stock offerings pursuant to a shelf registration statement on Form S-3 that was declared effective by the SEC on August 27, 2018, or the 2018 Shelf Registration, and sales of our common stock pursuant to a sales agreement, or the 2018 Sales Agreement, with Jefferies, LLC, or Jefferies, under which we were able to issue and sell, from time to time, common stock in at-the-market offerings, or the ATM Offering, through Jefferies, as a sales agent.

On March 10, 2020 , we notified Jefferies that we were suspending and terminating the prospectus related to the 2018 Sales Agreement.

Under the 2018 Shelf Registration, we have issued an aggregate of 30,549,976 shares of common stock, including under the ATM Offering , resulting in aggregate gross proceeds to us of $231.7 million.

On May 7, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020, or the 2020 Shelf Registration.

Under the 2020 Shelf Registration, we may offer and sell up to $350.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities or units during the three-year period that commenced upon the 2020 Shelf Registration becoming effective.

In connection with the filing of the 2020 Shelf Registration, we entered into an amended and restated sales agreement with Jefferies pursuant to which we may issue and sell, from time to time, up to an aggregate of $75.0 million of our common stock under our ATM Offering through Jefferies, as a sales agent.

During the fourth quarter of 2020, we issued an

aggregate of 2,821,059 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $20.6 million.

In January 2021, we issued and sold an additional 2,552,457 shares of our common stock under our ATM Offering, resulting in net proceeds to us of $18.2 million.

As of the date of this Annual Report on Form 10-K, there was $35.0 million of shares of common stock remaining under the ATM Offering that we may issue and sell in the future and, excluding the funds designated to be offered under our ATM Offering, there was $275.0 million of securities available to be issued under the 2020 Shelf Registration.

We also have an aggregate principal amount of $75.0 million of indebtedness outstanding under our credit facility, or the Athyrium Credit Facility, with Athyrium Opportunities III Acquisition LP, or Athyrium.

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

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

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

As we commenced a full promotional launch of EYSUVIS in early January 2021 and commercially launched our first product, INVELTYS, in January 2019, we have had only limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, follow-on public common stock offerings and sales of our common stock under our ATM Offerings, 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 commercialize EYSUVIS and INVELTYS.

As we commenced a full promotional launch of EYSUVIS in early January 2021 and commercially launched our first product, INVELTYS, in January 2019, we have had only limited revenues to date from product sales and have financed our operations primarily through proceeds from our initial public offering, or IPO, follow-on public common stock offerings and sales of our common stock under our sales agreement with Jefferies, LLC, or Jefferies, in at-the-market offerings, or ATM Offerings, private placements of preferred stock, borrowings under credit facilities and our Loan and Security Agreement, or Loan Agreement, with Oxford Finance LLC, or Oxford Finance, convertible promissory notes and warrants.

As a 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.

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

Acquisition of Combangio, Inc.

On November 15, 2021, pursuant to the terms and conditions of an Agreement and Plan of Merger, or the Merger Agreement, we acquired Combangio, a clinical-stage biotechnology company focused on developing regenerative biotherapeutics for severe ocular diseases based on mesenchymal stem cell, or MSCs, secretomes, including, its lead product candidate, CMB-012 for the treatment of PCED, or the Acquisition.

Following the Acquisition, Combangio became our wholly-owned subsidiary and we refer to CMB-012 as KPI-012.

In connection with the closing of the Acquisition on November 15, 2021, or the Closing, we made an upfront payment of an aggregate of $5.0 million in cash to former Combangio stockholders and other equityholders, or the Combangio Equityholders, subject to customary adjustments, and agreed to issue an aggregate of 7,788,637 shares, or the Deferred Purchase Consideration, of our common stock to the Combangio Equityholders with an aggregate value of approximately $16.1 million, consisting of (i) an aggregate of 6,815,072 shares of common stock which were issued on January 3, 2022 and (ii) an aggregate of 973,565 shares of common stock that have been held back by us and will be issuable subject to the terms of the Merger Agreement to the Combangio Equityholders on the Escrow Release Date (as defined below), or the Initial Holdback Shares.

The aggregate value of the Deferred Purchase Consideration was

calculated using the closing price of our common stock on the Nasdaq Global Select Market on November 12, 2021, the last trading day prior to the Closing.

In addition, pursuant to the Merger Agreement, the Combangio Equityholders, in the aggregate and subject to the terms and conditions of the Merger Agreement, will also be entitled to receive from us the following contingent consideration, or the Contingent Consideration:

● up to $105.0 million in contingent milestone consideration, of which (i) $2.3 million would become payable in cash and $2.7 million would be payable in shares of our common stock upon the first patient dosed with any product candidate whose active ingredient comprises one or more biological factors secreted by MSCs or their progenitors, including KPI-012, or the Product Candidate, in a Phase 2 clinical trial, or the Dosing Milestone, (ii) $2.3 million would become payable in cash and $2.7 million would be payable in shares of our common stock upon the first patient dosed with a Product Candidate in a pivotal clinical trial, (iii) $12.5 million would become payable (with up to $6.25 million payable, at our option, in shares of our common stock and the remainder in cash) upon regulatory approval by the FDA of marketing and sale of a Product Candidate in the United States, subject to certain specified reductions;

(iv) $17.5 million would become payable (with up to $8.75 million payable, at our option, in shares of our common stock and the remainder in cash) upon the first commercial sale of a Product Candidate in the United States, subject to certain specified reductions, and (v) an aggregate of up to $65.0 million would become payable in cash upon the achievement of specified sales milestones, or the Net Sales Milestone Payments;

● tiered cash royalties at percentage rates in the mid-to-high single digits payable on annual net sales of all Product Candidates;

● a cash payment at a percentage rate in the high single digits of all income, including earnout payments, received by us or any of our affiliates from a product license granted by us to a third party to sell or otherwise commercialize the Product Candidate in countries where neither we nor our affiliates conduct sales of such Product Candidate, subject to certain exceptions set forth in the Merger Agreement.

The portion of any payment of Contingent Consideration payable in shares of our common stock is referred to herein as “Contingent Stock Consideration” and the portion of any payment of Contingent Consideration payable in cash is referred to herein as “Contingent Cash Consideration”.

If the issuance of the Deferred Purchase Consideration or any Contingent Stock Consideration would result in the aggregate number of shares of our common stock issued under the Merger Agreement equaling or exceeding 19.9% of the total number of shares of our common stock issued and outstanding immediately prior to the Closing, or the Share Cap, then we will be required to pay the portion of the Deferred Purchase Consideration or any Contingent Stock Consideration in excess of the Share Cap in cash.

If the aggregate amount of Contingent Cash Consideration payable in any calendar year (after giving effect to the Share Cap) exceeds $2,500,000, or the Excess Cash Cap, such excess portion, or the Carry Forward Contingent Cash Consideration, will be carried forward and, subject to application of the Excess Cash Cap in the following calendar year, become payable on the first business day of the following calendar year.

Any Carry Forward Contingent Cash Consideration outstanding on June 1, 2026 is payable in full on June 1, 2026.

Former Combangio Equityholders who are non-accredited investors will receive cash in lieu of any of our common stock that otherwise would be issuable to them pursuant to the Merger Agreement.

In connection with the Closing, we placed $625,000 of the cash purchase price in an escrow account, or the Escrow Account, to be disbursed in accordance with an escrow agreement with Computershare Corporate Trust Company, N.A., or the Escrow Agreement, as escrow agent, and subject to the terms of the Merger Agreement, we will place 12.5% of any Contingent Cash Consideration that becomes payable prior to the date that is fifteen months after the Closing, or the Escrow Release Date, into such Escrow Account to be disbursed in accordance with the Escrow Agreement.

Subject to the terms of the Merger Agreement, 12.5% of any Contingent Stock Consideration that becomes payable in common stock prior to the Escrow Release Date will be held back by us, or the Contingent Holdback Shares, and, together with the Initial Holdback Shares, which we collectively referred to herein as the Holdback Shares, will serve as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders and, subject to reduction in respect of these obligations, the Holdback Shares will be issued to the Combangio Equityholders on the Escrow Release Date.

Business Impact of COVID-19 Pandemic

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

In order to safeguard the health of our employees, we follow, and will continue to follow, recommendations from the U.S.

In order to safeguard the health of our employees from the ongoing COVID-19 pandemic, we are following, and will continue to follow, recommendations from the U.S.

Centers for Disease Control and Prevention, as well as federal, state, and local governments, regarding working-from-home practices for non-essential employees.

As a result, all office-based personnel have been instructed to work from home, and our laboratory facilities, that support our early-stage research activities, are being utilized as necessary.

In addition, 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 in the future, we are limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS.

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

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

The extent of the impact of COVID-19 on our commercialization efforts of EYSUVIS and INVELTYS and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic and the impact on our customers, employees, vendors, and government agencies, all of which are uncertain and cannot be predicted.

Management is actively monitoring the COVID-19 pandemic and its possible effects on our financial condition, liquidity, operations, customers, sales force, contractors, and workforce.

For additional information on risks posed by the COVID-19 pandemic, please see Part I, Item 1A – “Risk Factors” of this Annual Report on Form 10-K, including the risk factor entitled “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.”

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 if we suspend all or some in-person interactions with physicians in the future, or to the extent physicians limit in-person interactions, we may be limited to conducting educational and promotional activities virtually, which may continue to hamper our ability to market and commercialize 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 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 candidate we develop.

The extent of the impact of the COVID-19 pandemic on our commercialization efforts of EYSUVIS and INVELTYS, our clinical development efforts for KPI-012 and our preclinical developments programs, and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic, the timing and extent of any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines, and the full extent of the impact on our customers, employees, vendors and government agencies, all of which are uncertain and cannot be predicted.

Management is actively monitoring the COVID-19 pandemic and its effects on our financial condition, liquidity, operations, customers, sales force, contractors, and workforce.

For additional information on risks posed by the COVID-19 pandemic, please see Part I, Item 1A – “Risk Factors” of this Annual Report on Form 10-K, including the risk factor entitled “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 ongoing 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.”

Financial Operations Overview

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We commenced generating product revenues from sales of INVELTYS in January 2019, and commenced generating revenue from EYSUVIS upon the shipment to wholesalers in the United States in late December 2020.

We commenced the full promotional launch of EYSUVIS in early January 2021.

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

Full promotional launch of EYSUVIS began in early January 2021.

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

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Beginning in March 2020 and continuing through most of the second quarter of 2020, prescriptions of INVELTYS and revenue had been adversely affected by the ongoing COVID-19 pandemic as federal, state and local governments implemented restrictions on elective procedures, which included most ocular surgeries.

While many deferred ocular surgeries have been rescheduled as individual states have released restrictions on elective procedures, and INVELTYS prescriptions have returned to quarterly growth, we are unable to project the specific timing or potential impact on future revenues given the continued uncertainty around the impact and duration of the restrictions related to COVID-19.

We also cannot project the potential impact that COVID-19 may have on the full promotional launch and commercialization of EYSUVIS.

While many deferred ocular surgeries have been rescheduled as individual states have released restrictions on elective procedures, prescriptions of INVELTYS and related revenue are still being adversely affected by the ongoing COVID-19 pandemic and we are unable to project the specific timing or potential impact on future revenues given the continued uncertainty around the impact and duration of the restrictions related to the COVID-19 pandemic.

We also cannot project the full extent of the impact that the COVID-19 pandemic may have on the commercialization of EYSUVIS.

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.

Cost of Product Revenues

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

We expensed cost of product revenues related to INVELTYS as research and development expenses prior to U.S.

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With respect to the ongoing COVID-19 pandemic, we expect that the cost of product revenues will be impacted consistent with the negative impact to product revenues, net.

However, we are unable to predict the specific timing or specific impact on cost of product revenues given the continued uncertainty around the impact and duration of the restrictions related to COVID-19.

Selling, General and Administrative Expenses

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

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

We anticipate that our selling, general and administrative expenses will increase in the future as we continue to build our commercial infrastructure to support the full promotional launch and commercialization of EYSUVIS and the commercialization of INVELTYS or of any product candidates for which we obtain marketing approval.

We also anticipate that our selling, general and administrative expenses will increase if and as we increase our administrative headcount to support our continued research activities and development of our product candidates.

With respect to the ongoing COVID-19 pandemic, certain selling, general and administrative expenses were favorably impacted during the year ended December 31, 2020 by the restrictions including those on the activities of our sales force, which had previously suspended substantially all in-person interactions with physicians and customers.

Our sales force has resumed substantially all in-person interactions in the field.

If we are forced to suspend all or some in-person sales force interactions again in the future as a result of the COVID-19 pandemic, selling, general and administrative expenses could again be favorably impacted by a reduction in certain expenses associated with the restriction in activities for our sales

force and other employees.

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

Selling, general and administrative expenses also include external selling and marketing costs, costs to manufacture sample units and professional fees for auditing, tax, information technology, consultants, legal services and allocated facility-related costs not otherwise included in research and development expenses.

We expect that our selling, general and administrative expenses will decrease in 2022 as compared to the year ended December 31, 2021 as we have completed the buildout of our commercial infrastructure to support the commercialization of INVELTYS and EYSUVIS, have incurred launch-related expenses during 2021 that we do not expect to incur again in the future related to EYSUVIS or INVELTYS and have terminated the lease for our corporate headquarters, effective January 11, 2022.

Until we pursue the commercialization of KPI-012 or any other product candidate, if approved, we anticipate that our selling, general and administrative expenses will remain largely consistent beyond 2022 and for the foreseeable future as we continue to commercialize EYSUVIS and INVELTYS and as we support our continued research and development activities and seek marketing approval for our product candidates, including KPI-012.

We expect that our selling, general and administrative expenses will increase substantially if and when we pursue the commercialization of KPI-012, if approved, and support commercialization of any other product candidate.

Our sales force has resumed substantially all in-person interactions in the field with physicians, which were previously suspended due to the restrictions with respect to the ongoing COVID-19 pandemic.

If we are forced to suspend all or some in-person sales force interactions again in the future as a result of the COVID-19 pandemic, selling, general and administrative expenses could be favorably impacted by a reduction in certain expenses associated with the restriction in activities for our sales force and other employees.

We are unable to predict the specific amount of this impact if we are forced to resume such restrictions.

Research and Development Expenses

Research and development expenses consist of costs associated with our research activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses and other outside expenses.

Our research and development expenses include:

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

● expenses incurred for the preclinical and clinical development of our product candidates and under agreements with contract research organizations, or CROs, including costs of manufacturing product candidates prior to the determination that FDA approval of a drug candidate is probable and before the future economic benefit of the drug is expected to be realized;

● expenses incurred for the preclinical and clinical development of our product candidates and under agreements with contract research organizations, including costs of manufacturing product candidates prior to the determination that FDA approval of a drug candidate is probable and before the future economic benefit of the drug is expected to be realized;

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

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

We expect that our total research and development costs will decrease in 2021 as compared to the year ended December 31, 2020 as a result of the completion of our Phase 3 clinical trial of EYSUVIS, or STRIDE 3, and as a result of the capitalization of EYSUVIS manufacturing costs as inventory beginning in the third quarter of 2020.

We expect that research and development costs will increase if and as we continue to advance our preclinical development programs, identify product candidates and conduct preclinical studies and clinical trials.

We expect that our research and development costs will increase in 2022 as compared to the year ended December 31, 2021 as we continue to advance our development programs and conduct any necessary preclinical studies and clinical trials and other development activities for product candidates, including KPI-012 , KPI-287 and our SEGRM program .

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

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

With respect to the ongoing COVID-19 pandemic, we may incur reduced research and development costs resulting from any limitations that may be placed on our laboratory facilities that support our early-stage research.

With respect to the ongoing COVID-19 pandemic, we may incur reduced research and development costs resulting from any limitations that may be placed on the laboratory facilities that support our early-stage research.

However, we are unable to predict the specific amount of this impact, nor are we able to predict the additional costs, if any, associated with personnel safely resuming their full activities.

Our research and development programs are at the early stage of development.

KPI-012 is in the early stages of clinical development and all of our other research and development programs are in preclinical development.

Successful development and completion of preclinical studies and clinical trials is uncertain and may not result in approved products.

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

Acquired In-Process Research and Development Expenses

We include costs to acquire or in-license product candidates in acquired in-process research and development, or IPR&D, expenses.

When we acquire the right to develop and commercialize a new product candidate, any upfront payments or any future milestone payments that are recorded at fair value that relate to the acquisition or licensing of such a right are immediately expensed as acquired IPR&D in the period in which they are incurred.

These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a “business” as defined under U.S.

generally accepted accounting principles, or U.S.

GAAP, or provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use.

Gain on Fair Value Remeasurement of Deferred Purchase Consideration

Consideration payable for our acquisitions may include future issuances of our common stock.

We record an obligation for such Deferred Purchase Consideration at fair value on the acquisition date.

We then revalue our Deferred Purchase Consideration obligations each reporting period.

Changes in the fair value of our Deferred Purchase Consideration obligations, other than changes due to issuance, are recognized as a (gain) loss on fair value remeasurement of Deferred Purchase Consideration in our consolidated statements of operations and comprehensive loss .

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term investments.

Interest income consists of interest earned on our cash, cash equivalents and short-term investments, if any.

Interest Expense

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

Interest expense primarily consists of contractual coupon interest, amortization of debt discounts and debt issuance costs and accretion of the final payment fee recognized on our debt arrangements.

Loss on Extinguishment of Debt

Loss on extinguishment of debt primarily consists of unamortized debt discount and issuance costs, a prepayment premium and unaccreted exit fees on the credit agreement, or the Athyrium Credit Facility, with Athyrium Opportunities III Acquisition LP, or Athyrium .

Gain on Lease Modification

Gain on lease modification represents the gain recognized in connection with the lease termination agreement we entered into in November 2021 with the landlord for our office and laboratory space at our former corporate headquarters in Watertown, Massachusetts, which was amended on December 22, 2021.

In connection with the modification of this lease, we remeasured the operating right-of-use asset and liability balances and recognized a gain of $1.3 million.

Critical Accounting Policies and Significant Judgments and Estimates

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

generally accepted accounting principles.

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

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

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

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

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

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

We consider all relevant information when estimating variable consideration such as assessment of our current and

anticipated sales and demand forecasts, actual payment history, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that are reasonably available.

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

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

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

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

Reserves for chargebacks consist of credits we expect to issue for units that remain in the

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

Product Returns

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Our estimates for product returns are based upon available industry data and our own sales information, including our visibility into the inventory remaining in the distribution channel as well as historical returns, which develop over time.

Our allowance for product returns has increased in the year ended December 31, 2021 as a result of an increase in the actual returns received.

Commercial Payor and Medicare Part D Rebates

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In doing so, we consider a number of factors in order to determine the amount of inventory to be capitalized, including the historical experience of achieving regulatory approvals for our similar products, the amount of inventory that is likely to be used in commercial production, receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications and the compilation of the regulatory application.

We also monitor the status of the product within the regulatory review and approval process, including all relevant communication with regulatory authorities.

We also monitor the status of the product within the regulatory review and approval process, including all

relevant communication with regulatory authorities.

For inventories capitalized in preparation for product launch, anticipated future sales, expected shelf life and expected approval date are taken into account when evaluating realizability.

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Long-term inventory includes raw materials, work-in-progress and/or finished goods inventory with an anticipated consumption or sale beyond one year from the balance sheet date based on our forecasted expectations.

Stock-based Compensation

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

For performance awards whose vesting is contingent upon a specified event, we recognize stock-based compensation expense over the derived service period, based on the probability of achievement of the specified event.

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

Acquisition Accounting

We are required to make significant judgments and estimates to determine whether an acquisition constitutes an acquisition of a business or assets.

For asset acquisitions, this includes whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

We are also required to make several significant judgments and estimates in order to determine the total consideration transferred for the asset acquisition and then allocate it to the assets that we have acquired and the liabilities that we have assumed on a relative fair value basis.

If the asset related to acquired IPR&D has no alternative future use, it is expensed immediately upon the completion of the transaction.

In addition to upfront consideration, our asset acquisitions may also include contingent consideration payments to be made for future milestone events or royalties on net sales of future products.

We assess whether such contingent consideration is required to be recorded at fair value on the date of the acquisition and subsequently remeasured to fair value at each reporting date.

Contingent consideration payments in an asset acquisition not required to be recorded at fair value are recognized when the contingency is resolved, and the consideration is paid or becomes payable.

Changes in the fair value of the contingent milestone payments can result from changes to one or more inputs, including adjustments to the probability of achievement, timing of the contingent milestone payments and changes to the applicable discount rates.

Significant judgment is used in determining these assumptions during each reporting period.

Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liability.

Any changes in the fair value of these contingent consideration liabilities are included in loss from operations in the consolidated statements of operations and comprehensive loss.

For information related to the unobservable inputs related to the contingent consideration, see Note 4 of our consolidated financial statements.

Emerging Growth Company Status

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

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

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

Results of Operations

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Research and development

Total costs and expenses

Acquired in-process research and development

Gain on fair value remeasurement of deferred purchase consideration

Total operating expenses

Loss from operations

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Interest expense

Loss on extinguishment of debt

Gain on lease modification

Product revenues, net

Product revenues, net was $6.4 million for the year ended December 31, 2020 compared to $6.1 million for the year ended December 31, 2019.

The increase in product revenues, net of $0.3 million is primarily the result of the first sales of EYSUVIS, which we began shipping to wholesalers in the United States in late December 2020, as well as a higher per unit gross selling price of INVELTYS.

These increases were partially offset by higher estimated reserves per unit related to the year ended December 31, 2020 as compared to those estimated during the year ended December 31, 2019 and a decrease in the total units of INVELTYS sold in the year ended December 31, 2020 as compared to those sold during the year ended December 31, 2019, which we attribute to the reductions in elective surgeries as a result of the restrictions related to COVID-19.

Product revenues, net was $11.2 million for the year ended December 31, 2021 , consisting of $6.3 million from EYSUVIS sales and $4.9 million from INVELTYS sales, compared to $6.4 million for the year ended December 31, 2020, which consisted of $0.3 million from EYSUVIS sales and $6.1 million from INVELTYS sales .

The increase in product revenues, net of $4.8 million is primarily the result of sales of EYSUVIS, which we began shipping to wholesalers in the United States in late December 2020 and for which we commenced a full commercial launch in January 2021, an increase in the total units of INVELTYS sold in the year ended December 31, 2021 as well as a higher per unit gross selling price of INVELTYS as compared to those sold during the year ended December 31, 2020.

These increases in INVELTYS sales were offset by higher estimated allowances per unit during the year ended December 31, 2021 as compared to those allowances per unit during the year ended December 31, 2020.

We expect product revenues to increase if and as we increase our market share and obtain and maintain coverage and adequate reimbursement for EYSUVIS and INVELTYS from third-party payors;

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Cost of product revenues

Cost of product revenues was $3.2 million for the year ended December 31, 2020, a $1.2 million increase compared to $2.0 million for the year ended December 31, 2019.

The primary drivers of this increase were a reserve for excess INVELTYS inventory of $1.0 million during the year ended December 31, 2020 due to COVID-19 and the cost of product revenues attributable to EYSUVIS of $0.3 million which included $0.1 million related to the write-off of certain units that did not pass quality inspection.

The cost per unit for INVELTYS increased as a result of the units sold during the year ended December 31, 2019 being further manufactured prior to FDA approval and previously expensed as research and development expenses as compared to those units sold during the year ended December 31, 2020, but the increase was more than offset by a decrease in total INVELTYS units sold compared to the year ended December 31, 2019, for a net decrease of $0.1 million.

We expect cost of product revenues to increase as we continue to commercialize INVELTYS and as a result of the launch of EYSUVIS, which we began shipping to wholesalers in the United States in late December 2020 and for which we commenced a full promotional launch in early January 2021.

Cost of product revenues was $4.1 million for the year ended December 31, 2021, compared to $3.2 million for the year ended December 31, 2020.

Cost of product revenues increased $0.9 million due to an increase in total INVELTYS units sold during the year ended December 31, 2021, compared to the year ended December 31, 2020 as well as a higher INVELTYS cost per unit as a result of the units sold during the year ended December 31, 2020 being partially manufactured prior to its FDA approval and for which costs were expensed as research and development prior to such FDA approval as compared to those units sold during the year ended December 31, 2021.

Partially offsetting these increases was an additional reserve for excess or obsolete inventory of $0.5 million recorded during the year ended December 31, 2020, as compared to the year ended December 31, 2021.

The cost of product revenues attributable to EYSUVIS was $0.8 million for the year ended December 31, 2021, compared to $0.3 million in the year ended December 31, 2020.

We expect the aggregate cost of product revenues to increase as we continue to commercialize EYSUVIS and INVELTYS.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $81.1 million for the year ended December 31, 2020 compared to $65.0 million for the year ended December 31, 2019, an increase of $16.1 million.

Selling, general and administrative expenses for the year ended December 31, 2020 include a $7.5 million increase in external sales and marketing costs related to preparation for the launch of EYSUVIS.

External sales and marketing costs incurred during the year ended December 31, 2019 primarily related to the commercial launch of INVELTYS.

Also contributing to the increase in selling, general and administrative expenses for the year ended December 31, 2020 was a $3.4 million increase in costs for administrative and professional service fees, a $3.3 million increase in stock-based compensation costs, of which $2.9 million was a result of the issuance of restricted stock units and performance-based restricted stock units in June 2020, a $1.1 million increase in employee-related expenses primarily due to increased incentive compensation and increased recruiting costs related to hiring efforts as we prepared for the launch of EYSUVIS, partially offset by reduced travel due to COVID-19, and a $0.8 million increase in other selling, general and administrative costs, which includes facility related costs and certain medical affairs costs.

We anticipate that our selling, general and administrative expenses will increase in the future as we continue to commercialize EYSUVIS and INVELTYS and if and as we increase our administrative headcount to support our continued research and development activities and seek marketing approval for our product candidates.

Selling, general and administrative expenses were $105.1 million for the year ended December 31, 2021, compared to $81.1 million for the year ended December 31, 2020, which was an increase of $24.0 million.

Selling, general and administrative expenses for the year ended December 31, 2021 included a $6.9 million increase in external sales and marketing costs as compared to the year ended December 31, 2020, primarily as a result of the launch of EYSUVIS.

External sales and marketing costs incurred during the year ended December 31, 2020 primarily related to commercial activities for INVELTYS.

Also contributing to the increase in selling, general and administrative expenses for the year ended December 31, 2021 was a $14.6 million increase in employee-related expenses primarily due to an increase in employee headcount related to the launch of EYSUVIS and merit-based pay, a $2.4 million increase in stock-based compensation costs and a $1.7 million increase in other selling, general and administrative expenses, which included facility related costs and certain medical affairs costs attributable to our commercial products.

These increases were partially offset by a $1.6 million decrease in costs for administrative and professional service fees.

We expect our selling, general and administrative expenses to decrease in 2022 as compared to the year ended December 31, 2021 as we have completed the buildout of our commercial infrastructure to support the commercialization of EYSUVIS and INVELTYS, have incurred launch-related expenses in 2021 that we do not expect to incur again in the future related to EYSUVIS or INVELTYS and have terminated the lease for our former corporate headquarters, effective January 11, 2022.

We 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.

Research and Development Expenses

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Research and development expenses were $11.5 million for the year ended December 31, 2021 compared to $18.4 million for the year ended December 31, 2020, a decrease of $6.8 million.

The decrease was primarily the result of a $7.6 million decrease in EYSUVIS development costs related to a decrease in external spend on STRIDE 3, our Phase 3 clinical trial of EYSUVIS, a $0.7 million decrease in employee-related costs largely due to reduced travel due to COVID-19 and the decrease in the allocation of employee time dedicated to research and development and a $0.6 million decrease in other research and development costs, which include other facility related costs, preclinical studies, certain medical affairs and associated regulatory costs.

We expect research and development costs to increase if and as we advance our development programs and conduct any necessary preclinical studies and clinical trials and other development activities for product candidates.

The decrease was primarily the result of a $4.3 million decrease in EYSUVIS development costs related to a decrease in external spend on STRIDE 3, our Phase 3 clinical trial of EYSUVIS, a $3.2 million decrease in employee-related costs largely due to the decrease in the allocation of employee time dedicated to research and development, partially offset by a $0.7 million increase in other research and development costs, which included preclinical studies and other facility related costs.

We expect research and development costs to increase as we advance our development programs and conduct any necessary preclinical studies and clinical trials and other development activities for product candidates, including KPI-012.

Acquired In-Process Research and Development Expenses

Acquired IPR&D expenses for the year ended December 31, 2021 were $26.6 million.

Acquired IPR&D for the year ended December 31, 2021 includes costs associated with the acquisition of acquired in-process research and development from the Acquisition.

There were no acquired IPR&D expenses for the year ended December 31, 2020.

Gain on fair value remeasurement of deferred purchase consideration

Gain on fair value remeasurement of deferred purchase consideration for the year ended December 31, 2021 was $5.8 million and was primarily due to a change in the fair value of our underlying stock price.

There was no gain or loss on fair value remeasurement of deferred purchase consideration for the year ended December 31, 2020.

Interest Income

Interest income was $0.1 million for the year ended December 31, 2021, compared to $0.5 million for the year ended December 31, 2020, a decrease of $0.4 million.

Interest income consists of interest earned on our cash, cash equivalents and short-term investments.

The decrease was attributable to lower interest rates during the year ended December 31, 2020.

Interest income consists of interest earned on our cash, cash equivalents and short-term investments, if any.

The decrease was attributable to lower interest rates and lower cash, cash equivalents and short-term investments balances during the year ended December 31, 2021.

Interest Expense

Interest expense was $8.6 million for the year ended December 31, 2020, compared to $8.5 million for the year ended December 31, 2019, an increase of $0.1 million.

Interest expense was comprised of the contractual coupon interest expense and the amortization of the debt discount associated with our Athyrium Credit Facility during the year ended December 31, 2020 and 2019.

During the years ended December 31, 2020 and 2019, $75.0 million of indebtedness was outstanding under the Athyrium Credit Facility.

Interest expense was $8.4 million for the year ended December 31, 2021, compared to $8.6 million for the year ended December 31, 2020, a decrease of $0.2 million.

Interest expense for the year ended December 31, 2021 was comprised of the contractual coupon interest expense, the amortization of the debt discount and the accretion of the final payment fee associated with our Loan Agreement with Oxford Finance LLC and our Athyrium Credit Facility.

Interest expense for the year ended December 31, 2020 was comprised of the contractual coupon interest expense, the amortization of the debt discount and the accretion of the final payment fee associated with our Athyrium Credit Facility.

During the year ended December 31, 2021, $75.0 million of indebtedness was outstanding under the Athyrium Credit Facility until we repaid such indebtedness in full on May 4, 2021.

During the year ended December 31, 2021, $80.0 million of indebtedness was outstanding under our Loan Agreement after we drew down the tranche A term loan on May 4, 2021.

During the year ended December 31, 2020, $75.0 million of indebtedness was outstanding under the Athyrium Credit Facility.

Loss on extinguishment of debt

The loss of extinguishment of debt was $5.4 million for the year ended December 31, 2021.

Upon the repayment in full of all amounts owed under the Athyrium Credit Facility, the unamortized debt discount and issuance costs, prepayment premium and unaccreted exit fee were recorded as loss on extinguishment of debt for the year ended December 31, 2021.

There was no loss on extinguishment of debt for the year ended December 31, 2020.

Gain on lease modification

The gain on lease modification was $1.3 million for the year ended December 31, 2021 and represents the gain recognized in connection with the lease termination agreement entered into in November 2021 with the landlord for our office and laboratory space at our former corporate headquarters in Watertown, Massachusetts, which was amended on December 22, 2021.

There was no gain on lease modification for the year ended December 31, 2020.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

As we commercially launched our first product, INVELTYS, in January 2019, and commenced a full promotional launch of our second product, EYSUVIS, in early January 2021, we have had limited revenues to date from product sales and have financed our operations primarily through proceeds from our IPO, follow-on public common stock offerings and sales of our common stock under our ATM Offerings, private placements of preferred stock, borrowings under credit facilities, convertible promissory notes and warrants.

In July 2017, we completed an IPO pursuant to which we issued and sold 6,900,000 shares of our common stock, which included 900,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price of $15.00 per share.

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

On August 9, 2018, we filed our 2018 Shelf Registration under which we could initially offer and sell up to $250.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the 2018 Shelf Registration becoming effective.

Under the 2018 Shelf Registration, we may periodically offer one or more types of securities in amounts, at prices and on terms announced, if and when the securities are ever offered.

On August 9, 2018, we filed our shelf registration statement on Form S-3 that was declared effective by the SEC on August 27, 2018, or the 2018 Shelf Registration, under which we could initially offer and sell up to $250.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the 2018 Shelf Registration becoming effective.

The 2018 Shelf Registration is now expired.

On October 1, 2018, we entered into the Athyrium Credit Facility with Athyrium for up to $110.0 million.

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

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

We did not satisfy the conditions to draw down any of the Athyrium Term Loan B funds, and as a result, the Term Loan B funds are no longer available.

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

The Term Loan A bears interest at a rate of 9.875% per annum, with quarterly, interest-only payments until the fourth anniversary of the Term Loan A.

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

The Athyrium Credit Facility provided for a Term Loan A in the aggregate principal amount of $75.0 million, and a Term Loan B in the aggregate principal amount of $35.0 million which we did not draw down.

On May 4, 2021, concurrently with the closing of the Loan Agreement with Oxford Finance LLC and the borrowing of the tranche A loan, we utilized substantially all of the proceeds from the tranche A term loan to repay in full all outstanding amounts owed under the Athyrium Credit Facility, under which we had an aggregate principal amount of $75.0 million of indebtedness outstanding.

We terminated all commitments by Athyrium to extend further credit under the Athyrium Credit Facility and all guarantees and security interests granted by us thereunder.

In connection with the termination of the Athyrium Credit Facility, we paid to the lenders a prepayment premium of $2.25 million and an exit fee of $0.8 million.

The transaction resulted in a loss on extinguishment of debt of $5.4 million, consisting of the prepayment premium, the unamortized debt discount and the unaccreted exit fee.

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

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In connection with the filing of the 2018 Shelf Registration, we entered into a sales agreement with Jefferies, pursuant to which we could issue and sell, from time to time, up to an aggregate of $50.0 million of our common stock in an ATM Offering, through Jefferies, as sales agent.

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

During the first quarter of 2020, we issued an aggregate of 2,352,671 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $12.5 million.

Through the first quarter of 2020, we issued an aggregate of 4,945,605 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $25.6 million.

On March 10, 2020, we suspended and terminated the prospectus related to the ATM Offering.

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On April 3, 2020, the underwriters exercised their option and purchased an additional 979,371 shares of common stock at $7.89 per share, resulting in net proceeds to us of $7.2 million, after underwriting discounts, commissions, and offering expenses.

The total number of shares sold by us in the offering was 16,979,371, resulting in total net proceeds to us, after underwriting discounts and offering expenses, of $125.4 million.

Under the 2018 Shelf Registration, we have issued an aggregate of 30,549,976 shares of common stock, including under the ATM Offering , resulting in aggregate gross proceeds to us of $231.7 million.

There was $18.3 million of securities available to be issued under the 2018 Shelf Registration as of December 31, 2020.

On May 7, 2020, we filed our 2020 Shelf Registration, under which we may offer and sell up to $350.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities or units during the three-year period that commenced upon the 2020 Shelf Registration becoming effective.

The total number of shares sold by us in the offering was 16,979,371, resulting in total net proceeds to us, after underwriting discounts, commissions and offering expenses, of $125.4 million.

Under the 2018 Shelf Registration, which has now expired, we issued an aggregate of 30,549,976 shares of common stock, including under the ATM Offering , resulting in aggregate gross proceeds to us of $231.7 million.

On May 7, 2020, we filed our shelf registration statement on Form S-3 that was declared effective by the SEC on May 7, 2020, or the 2020 Shelf Registration, under which we may offer and sell up to $350.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities or units during the three-year period that commenced upon the 2020 Shelf Registration becoming effective.

In connection with the filing of the 2020 Shelf Registration, we entered into an amended and restated sales agreement with Jefferies, pursuant to which we may issue and sell, from time to time, up to an aggregate of $75.0 million of our common stock under our ATM Offering.

During the fourth quarter of 2020, we issued an aggregate of 2,821,059 shares of our common stock under the ATM Offering, resulting in net proceeds to us of $20.6 million.

In January 2021, we issued and sold an additional 2,552,457 shares of our common stock under our ATM Offering, resulting in net proceeds to us of $18.2 million.

offered under our ATM Offering, there was approximately $275.0 million of securities available to be issued under the 2020 Shelf Registration.

As of December 31, 2020 and 2019, we had $153.5 million and $85.4 million, respectively, in cash, cash equivalents and short-term investments and $75.0 million in indebtedness.

The indebtedness in 2020 and 2019 represented the aggregate principal amount that was outstanding under the Athyrium Credit Facility.

In the year ended December 31, 2021, we issued and sold an additional 5,760,198 shares of our common stock under our ATM Offering, resulting in net proceeds to us of $41.2 million.

As of December 31, 2021, there was $11.3 million of shares of common stock remaining under the ATM Offering that we may issue and sell in the future and, excluding the shares of common stock that may be offered under our ATM Offering, there was $275.0 million of securities available to be issued under the 2020 Shelf Registration.

On May 4, 2021, we entered into the Loan Agreement with Oxford Finance, in its capacity as lender, or the Lender, and in its capacity as collateral agent, pursuant to which a term loan of up to an aggregate principal amount of $125.0 million is available to us, consisting of (i) a tranche A term loan that was disbursed on the closing date of the Loan Agreement in the aggregate principal amount of $80.0 million;

(ii) a contingent tranche B term loan in the aggregate principal amount of $20.0 million available to us through June 30, 2023 and within 90 days of our achieving trailing 6-month product revenue equal to or greater than $75.0 million, subject to certain other terms and conditions;

and (iii) a contingent tranche C term loan in the aggregate principal amount of $25.0 million available to us through December 31, 2023 and within 90 days of our achieving trailing 6-month product revenue equal to or greater than $100 million, subject to certain other terms and conditions.

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

Certain of the customary negative covenants limit our and certain of our subsidiaries’ ability, among other things, to incur future debt, grant liens, make investments, make acquisitions, distribute dividends, make certain restricted payments and sell assets, subject in each case to certain exceptions.

The Loan Agreement 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.

The aggregate outstanding principal balance of the term loans are required to be repaid in monthly installments starting on the Amortization Date based on a repayment schedule equal to (i) 18 months if neither the tranche B term loan nor the tranche C term loan is made and (ii) 12 months if either the tranche B term loan or the tranche C term loan is made.

All unpaid principal and accrued and unpaid interest with respect to each term loan is due and payable in full on May 1, 2026, or the Maturity Date.

We paid a facility fee of $400,000 on the closing date of the Loan Agreement and have agreed to pay a facility fee of $100,000 upon closing of the tranche B term loan and a $125,000 facility fee upon the closing of the tranche C term loan.

We will be required to make a final payment fee of 7.00% of the original principal amount of any funded term loan payable on the earlier of (i) the prepayment of the term loan in full or (ii) the Maturity Date.

At our option, we may elect to prepay all, but not less than all, of the outstanding loans, subject to a prepayment fee equal to the following percentage of the principal amount being prepaid:

3.00% if an advance is prepaid during the first 12 months following the applicable advance date, 2.00% if an advance is prepaid after 12 months but prior to 24 months following the applicable advance date, and 1.00% if an advance is prepaid any time after 24 months following the applicable advance date but prior to the Maturity Date.

For further information about the Loan Agreement, see Note 11 of our consolidated financial statements.

As a result of the Acquisition, we may be required to pay additional contingent consideration to the former Combangio Equityholders.

Pursuant to the Merger Agreement, former Combangio Equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, Contingent Cash Consideration and Contingent Stock Consideration, which would become payable upon our achievement of various development, regulatory and sales milestones and as a result of certain cash royalty payment obligations.

At our option, we may satisfy a portion of certain of the milestone payments through either the payment of cash or the issuance of additional shares of our common stock up to the Share Cap.

For a full description of the consideration payable as a result of the Acquisition of Combangio, see “Acquisition of Combangio, Inc.” above.

Our other material cash requirements from known contractual and other obligations as of December 31, 2021 primarily related to lease obligations and licensing and commercial supply agreements.

For information related to our future commitments for our lease related obligations, see Note 10 of our consolidated financial statements.

For information related to our future commitments relating to our licensing and commercial supply agreements, see Note 17 of our consolidated financial statements.

As of December 31, 2021, we had $92.1 million in cash and cash equivalents and as of December 31, 2020, we had $153.5 million in cash, cash equivalents and short-term investments.

As of December 31, 2021, we had $80.0 million in indebtedness, which represented the aggregate principal amount that was outstanding under the Loan Agreement with Oxford Finance LLC.

As of December 31, 2020, we had $75.0 million in indebtedness, which represented the aggregate principal amount that was outstanding under the Athyrium Credit Facility.

On November 12, 2021, we entered into a lease termination agreement with the landlord for our office and laboratory space at our former corporate headquarters in Watertown, Massachusetts, which was amended on December 22, 2021, modifying the lease to accelerate the lease termination date to January 11, 2022, or the Lease Termination

Under the terms of the lease termination agreement, we received a payment of $2.0 million from the landlord in January 2022 and released $2.0 million of restricted cash on the Lease Termination Date that was pledged as collateral under a letter of credit with cash on deposit required by the terminated lease.

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

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Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Decrease in cash and restricted cash

Increase (decrease) in cash and restricted cash

Operating Activities

Net cash used in operating activities for the year ended December 31, 2020 was $90.7 million compared to $92.7 million for the year ended December 31, 2019, a decrease of $2.0 million, primarily due to the timing of working capital fluctuations which accounted for $8.3 million of the decrease and partially offset by a $6.3 million increase in the net loss adjusted for non-cash charges.

Notable working capital fluctuations include a decrease to accounts receivable in the year ended December 31, 2020 by $2.0 million driven by improved days sales outstanding in the year ended December 31, 2020, whereas accounts receivable had increased by $11.6 million in the year ended December 31, 2019 driven by the launch of INVELTYS.

Inventory increased by a greater amount during the year ended December 31, 2019 due to an increase in manufacturing activity for INVELTYS.

Offsetting these increases was a decrease in accrued expenses and other current liabilities during the year ended December 31, 2020 by $1.8 million, as compared to an increase in accrued expenses and other current liabilities in the year ended December 31, 2019 of $9.6 million.

Net cash used in operating activities for the year ended December 31, 2021 was $108.2 million compared to $90.7 million for the year ended December 31, 2020, an increase of $17.5 million, primarily due to a $10.5 million increase in the net loss adjusted for non-cash charges and the timing of working capital fluctuations which accounted for $7.0 million of the increase.

Notable working capital fluctuations include an increase to accounts receivable in the year ended December 31, 2021 of $5.8 million driven by an increase in sales largely due to the launch of EYSUVIS, whereas accounts receivable had decreased by $2.0 million in the year ended December 31, 2020 driven by improved days outstanding in the year ended December 31, 2020.

Inventory increased by a greater amount during the year ended December 31, 2021 due to an increase in manufacturing activity for EYSUVIS and INVELTYS.

Partially offsetting these increases was an increase in accounts payable, accrued expenses and other current liabilities during the year ended December 31, 2021 of $4.9 million, as compared to a decrease in accounts payable, accrued expenses and other current liabilities in the year ended December 31, 2020 of $2.7 million.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 was $78.2 million compared to $1.3 million for the year ended December 31, 2019, an increase of $76.9 million, largely due to purchases of short-term investments in 2020 of $113.6 million and partially offset by $37.3 million of sales or maturities of short-term investments, respectively.

Additionally, we used an additional $0.6 million in cash for capital expenditures and other assets in the year ended December 31 , 2020 compared to the year ended December 31 , 2019.

Net cash provided by investing activities for the year ended December 31, 2021 was $70.8 million compared to net cash used of $78.2 million for the year ended December 31, 2020, an increase of $149.0 million.

N et cash provided by investing activities for the year ended December 31, 2021 was due to the sales or maturities of short-term investments of $76.3 million and proceeds from sales of property and equipment of $0.1 million, partially offset by cash paid for the acquisition of IPR&D, net of cash acquired, of $4.7 million and purchases of property and equipment and other assets of $0.9 million.

Net cash used in investing activities for the year ended December 31, 2020 consisted of the purchases of short-term investments of $113.6 million and purchases of property and equipment and other assets of $1.9 million, partially offset by proceeds from sales or maturities of short-term investments of $37.3 million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 was $160.6 million, an increase of $151.6 million compared to $9.0 million in the year ended December 31, 2019.

This increase is due to $125.4 million of net proceeds from the sale of shares of our common stock in an underwritten offering under the 2018 Shelf Registration, $33.1 million of net proceeds from the sale of shares of our common stock under the ATM Offering, and $2.1 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan in 2020.

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

Net cash provided by financing activities for the year ended December 31, 2021 was $42.6 million, a decrease of $118.0 million compared to $160.6 million in the year ended December 31, 2020.

Net cash provided by financing activities for the year ended December 31, 2021 included $77.8 million of net proceeds from the tranche A term loan under our Loan Agreement, $41.2 million of net proceeds from the sale of shares of our common stock under the ATM Offering and $1.6 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan, partially offset by the repayment of indebtedness under our Athyrium Credit Facility of $78.0 million.

Net cash provided by financing activities for the year ended December 31, 2020 consisted of $125.4 million of net proceeds from the sale of shares of our common stock in an underwritten offering pursuant to the 2018 Shelf Registration, $33.1 million of net proceeds from the sale of shares of our common stock under the ATM Offering and $2.1 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

Funding Requirements

We anticipate that our expenses will increase substantially as compared to prior periods as we continue to commercialize INVELTYS in the United States and execute our commercial launch plans 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 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, pending the status of the COVID-19 pandemic, in 2021.

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

We anticipate that our cash, cash equivalents and short-term investments 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 anticipate that our cash and cash equivalents 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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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.

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.

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

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

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

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

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

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

Additionally, 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.

Additionally, 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.

The COVID-19 pandemic has also impacted, and may continue to impact, the volatility of our stock price and trading in our stock.

Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.

Even after the COVID-19 pandemic has subsided, we may continue to

experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.

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

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

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

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

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

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

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

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

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 7. Management’s Discussion and Analysis