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Item 1A. Risk Factors

2023-03-03 compared with 2022-03-29 · 546 added, 659 removed, 667 unchanged (64% of the section changed)

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

Risks Related to Our Recent Acquisition of Combangio

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

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

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

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

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

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

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

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

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

Food and Drug Administration, or FDA;

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

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

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

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

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

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

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

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

● the diversion of management attention to integration matters;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to Our Financial Position and Need for Additional Capital

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

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

December 31, 2020.

Our net losses were $44.8 million and $142.6 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $587.2 million.

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

On October 26, 2020, the FDA approved our second product, EYSUVIS (loteprednol etabonate ophthalmic suspension) 0.25% for the short-term (up to two weeks) treatment of the signs and symptoms of dry eye disease.

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

We have had limited revenues to date from product sales.

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

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

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

Although we expect to continue to generate revenue from sales of EYSUVIS and INVELTYS, there can be no assurance as to the amount or timing of any such revenue, and we expect to continue to incur significant expenses and operating losses for at least the next several years, including in connection with our continued development, regulatory approval efforts and commercialization, if any, of KPI-012.

Prior to the sale of our commercial business to Alcon Pharmaceuticals Ltd.

And Alcon Vision, LLC, or collectively Alcon, in July 2022, we generated only limited revenues from sales of EYSUVIS and INVELTYS.

We have financed our operations primarily through proceeds from the sale of our commercial business to Alcon in July 2022, our initial public offering, follow-on public offerings of common stock and sales under our at-the-market offering facilities, private placements of common stock and preferred stock, borrowings under credit facilities and the Loan and Security Agreement with Oxford Finance LLC, or the Loan Agreement, 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 prior to the sale of our commercial business to Alcon in July 2022, engaging in activities to launch and commercialize EYSUVIS and INVELTYS.

As of result of the acquisition of Combangio in November 2021, or the Combangio Acquisition, and the sale of our commercial business to Alcon, we are devoting, and intend to continue to devote, substantial financial resources to the research and development and potential commercialization of KPI-012, our product candidate in clinical development for the treatment of persistent corneal epithelial defects, or PCED, and any other indications we determine to pursue.

We have no revenue-generating commercial products, our cash flows have diminished as a result of the sale of our commercial business to Alcon and, as a result of our acquisition of Combangio, we may be required to pay certain milestones and royalty payments to former equityholders of Combangio.Although we are eligible to receive up to $325.0 million in payments from Alcon based upon the achievement of specified commercial sales-based milestones with respect to EYSUVIS and INVELTYS, there can be no assurance as to when we may receive such milestone payments or of the amount of milestone payments we may receive, if any.

We expect to continue to incur significant expenses and operating losses for the foreseeable future, including in connection with our continued development, regulatory approval efforts and commercialization, if any, of KPI-012.

We may never achieve or maintain profitability.

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

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

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

Our research and development expenses will also increase in the future as we conduct any necessary preclinical studies and clinical trials and other development activities for any other product candidates we may develop in the future, including our ongoing preclinical studies under our KPI-014 program, which is a mesenchymal secretome formulation that is in preclinical development for the treatment of inherited retinal degenerative diseases, such as Retinitis Pigmentosa and Stargardt Disease.

If we obtain marketing approval for KPI-012 or any product candidates we may develop, we expect that our selling, general and administrative expenses will increase substantially if and as we incur commercialization expenses related to product marketing, sales and distribution.

Our expenses will also increase if and as we:

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

● 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;

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● 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;

● 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;

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

● initiate and progress any preclinical development programs under our mesenchymal stem cell secretome, or MSC-S platform, including from our KPI-014 program;

● conduct clinical trials and other development activities and/or seek marketing approval for any product candidates we may develop in the future;

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

● maintain, expand and protect our intellectual property portfolio;

● integrate employees of Combangio;

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

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

● expand our operational, financial and management systems;

● increase our product liability insurance coverage as we expand our commercialization efforts for EYSUVIS and INVELTYS.

● increase our product liability insurance coverage if we initiate commercialization efforts for our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.

Our expenses will increase from what we anticipate if:

● we elect or are required by the FDA or non-U.S.

● we elect or are required by the U.S.

Food and Drug Administration, or FDA, or non-U.S.

regulatory agencies to perform clinical trials or studies in addition to those expected;

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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 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.

We do not expect to generate revenue from KPI-012 or any other product candidate we may develop for the foreseeable future, if at all.

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

● 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;

● 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;

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

● subject to obtaining favorable results from our ongoing and 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 any additional product candidates;

● discovering, developing and successfully seeking marketing approval and commercialization of any additional product candidates we may develop in the future, including under our KPI-014 program;

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

● manufacturing at commercial scale, marketing, selling and distributing those products for which we obtain marketing approval;

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

● obtaining, maintaining and protecting our intellectual property rights;

● adapting our business in response to the current pandemic health event resulting from COVID-19 and its collateral consequences.

EYSUVIS and INVELTYS are our only products that have been approved for sale, and they have only been approved in the United States.

We plan to seek approval in other jurisdictions, but may not do so successfully, or at all.

Further, the successful commercialization of EYSUVIS and INVELTYS in the United States is subject to many risks.

As a company, we have limited experience commercializing products, and we may not be able to do so successfully.

● adapting our business in response to the pandemic health event resulting from COVID-19 and its collateral consequences.

As a company, we have limited experience commercializing products, and we may not be able to commercialize a product successfully in the future.

There are numerous examples of unsuccessful product launches and failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us.

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.

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

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

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

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

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

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

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

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

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

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

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

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

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

We are an early-stage commercial company.

Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing EYSUVIS and INVELTYS and conducting other research and development activities, and commercially launching EYSUVIS and INVELTYS.

We are in the process of transitioning from a company solely with a research and development focus to a company engaging in commercial activities.

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

Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, conducting research and development activities, and prior to the sale of our commercial business to Alcon in July 2022, developing and commercially launching EYSUVIS and INVELTYS.

While we have had experience with obtaining marketing approval for and commercially launching two commercial products, we no longer have any commercial products following the sale of our commercial business to Alcon, we have only one product candidate in clinical development and we cannot be certain that we will be able to develop, obtain marketing approval for and commercialize a product in the future.

If we are successful in developing and obtaining marketing approval for KPI-012 or any product candidate we may develop in the future, we will again have to transition from a company with a research and development focus to company capable of supporting commercial activity.

We may not be successful in such a transition.

We only launched

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

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

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

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

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

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

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

In addition, prior to our acquisition of KPI-012 in November 2021, we had no prior experience developing biological product candidates.

As such, we may encounter delays or difficulties in our efforts to develop and commercialize KPI-012.

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

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

Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

We may need substantial additional funding.

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

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

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

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

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

If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any current or future commercialization efforts.

We will need substantial additional funding.

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

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct research and development activities, and initiate clinical trials of, and seek regulatory approval for, KPI-012 and any other product candidate that we develop in the future.

If we do obtain regulatory approval for KPI-012 or any other product candidate that we develop, we expect to incur commercialization expenses related to product sales, marketing, distribution and manufacturing capabilities.

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

If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

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

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

● the timing and amount of milestone payments we ultimately receive from Alcon under the asset purchase agreement;

● the timing and amount of our future milestone payments to Combangio equityholders under the merger agreement;

● the progress, costs and results of our ongoing and planned clinical trials of KPI-012;

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

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

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

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

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

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

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

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

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

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

● the scope, progress, results and costs of research and development of any other product candidates that we may develop, including under our KPI-014 program;

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

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

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

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

We expect that our cash and cash equivalents of $70.5 million as of December 31, 2022, will enable us to fund our operations, debt service obligations, and capital expenditure requirements into the first quarter of 2025.

We expect that our existing cash resources will be sufficient to enable us to obtain safety and efficacy data from our ongoing CHASE Phase 2b clinical trial of KPI-012 in PCED.

However, we do not expect that our existing cash resources will be sufficient to enable us to complete the clinical development of KPI-012 for PCED or any other indication.

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

As a result, we could deplete our available capital resources sooner than we currently expect.

Commercializing products is a time-consuming, expensive and uncertain process.

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

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

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

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

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

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

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

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

We may require additional financing to achieve our business objectives.

Accordingly, we will require additional financing to achieve our business objectives.

In addition, we may opportunistically raise additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

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

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

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

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

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

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

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 Loan Agreement may limit our ability to obtain additional debt financing.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other rights and preferences that adversely affect your rights as a common stockholder.

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

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

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

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

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

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

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

In addition, under our securities purchase agreement for our December 2022 private placement, we have agreed that we will not, without the prior approval of the requisite investors in the private placement (1) issue or authorize the issuance of any equity security that is senior or pari passu to the Series E Convertible Non-Redeemable Preferred Stock with respect to liquidation preference, (2) incur any additional indebtedness for borrowed money in excess of $1,000,000, in the aggregate, outside the ordinary course of business, subject to specified exceptions, including the refinancing of its existing indebtedness or (3) pay or declare any dividend or make any distribution on, any of our shares of capital stock, subject to specified exceptions.

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

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

Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.

Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business and a failure to comply with the covenants under our Loan Agreement, such as the requirement that our common stock continue to be listed on the Nasdaq Stock Market, could result in an event of default and acceleration of amounts due.

We have a substantial amount of indebtedness.

As of December 31, 2022, we had $43.3 million of outstanding borrowings under the tranche A term loan under the Loan Agreement, bearing interest at a floating rate equal to the greater of 30-day LIBOR and 0.11%, plus 7.89%.

The Loan Agreement provides for interest-only payments until December 1, 2024 if neither the tranche B term loan nor the tranche C term loan are made, and until June 1, 2025 if either the tranche B term loan or the tranche C term loan is made, or the Amortization Date.

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

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

On December 27, 2022, we entered into an amendment to the Loan Agreement, pursuant to which the lender and agent agreed to amend certain provisions of the Loan Agreement to permit the transfer of the listing of our common stock from The Nasdaq Global Select Market to The Nasdaq Capital Market in consideration for our agreement to prepay certain amounts outstanding under the Loan Agreement.

In January 2023, in

satisfaction of our obligations under the amendment, we paid down $9.3 million of principal under the Loan Agreement, plus final payment fees and accrued and unpaid interest thereon.

Following such prepayment, the aggregate principal amount outstanding under the Loan Agreement was $34.0 million.

In addition, under the loan amendment, the start date for amortization payments under the Loan Agreement was changed from January 1, 2026 to January 1, 2025, at which time the aggregate principal balance of the term loan then outstanding under the Loan Agreement is required to be repaid in five monthly installments.

Pursuant to the Loan Agreement, we may also make partial prepayments of the term loan to the lender, subject to specified conditions, including the payment of applicable fees and accrued and unpaid interest on the principal amount of the term loan being repaid.

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

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

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

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

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

We may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt, particularly if we are in default under our Loan Agreement and all of our indebtedness under the Loan Agreement is due, and funds from external sources may not be available on a timely basis or acceptable terms, if at all.

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

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

In particular, the delisting of our common stock from The Nasdaq Capital Market or the transfer of the listing of our common stock to another nationally recognized stock exchange having listing standards that are less restrictive than The Nasdaq Capital Market, in each case after a specified cure period, are events of default under our Loan Agreement.

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

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dollar LIBOR.

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

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

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

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

The milestone consideration we are eligible to receive in connection with the sale of our commercial business to Alcon is subject to various risks and uncertainties.

The milestone consideration we are eligible to receive for the sale of our commercial business to Alcon is subject to various risks and uncertainties.

In addition to the upfront payment of $60.0 million we received from Alcon at closing, we are eligible to receive up to four commercial-based sales milestone payments as follows:

(1) $25.0 million upon the achievement of $50.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (2) $65.0 million upon the achievement of $100.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (3) $75.0 million upon the achievement of $175.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029 and (4) $160.0 million upon the achievement of $250.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029.

We cannot predict what success, if any, Alcon and its affiliates may have with respect to sales of EYSUVIS and INVELTYS and, therefore, it is uncertain as to when we may receive the milestone payments, which milestone payments we may receive and if we will receive any milestone payments at all.

If we do not receive some or all of the milestone payments, our business will be harmed.

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

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

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

Such estimates and judgments include revenue recognition, inventory, the fair value of warrants, contingent consideration, stock-based compensation, accrued expenses and the recoverability of our net deferred tax assets and related valuation allowance.

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

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However, any of these estimates, judgments or projections, or the assumptions underlying them, may change over time or may otherwise prove to be inaccurate.

In particular, to report historical product revenue, we estimated the amount of our products that may be returned and presented this amount as a reduction of revenue in the period the related product revenue was recognized, in addition to establishing a liability.

If our product return estimates are lower than the actual amount of product returns we experience, our existing reserves will be insufficient to cover future returns.

Our results of operations may be adversely affected if our estimates, assumptions or projections change or if actual circumstances differ from those in our estimates or assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

For example, we rely on third-party data providers to collect and report estimates of prescription information and pipeline inventory levels as components of our estimations for revenue recognition.

There is a limited amount of information available to such data providers to determine the actual number of total prescriptions for prescription products during such periods.

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

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

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

Further, data for a single and limited period may not be representative of a trend or otherwise predictive of future results.

Additionally, we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us.

As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change our accounting policies, alter our operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or we may be required to restate our published financial statements.

Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position, and profit.

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

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

Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position and results of operations.

Risks Related to Product Development

We are substantially dependent on the success of our product candidate, KPI-012.

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

As a result of the sale of our commercial business to Alcon in July 2022, including our commercial products, EYSUVIS and INVELTYS, and our decision to cease the development of our preclinical pipeline programs that are unrelated to our MSC-S platform, we are substantially dependent on the success of KPI-012 and any other product candidate we may develop in the future.

As a result, we intend to devote a substantial portion of our research and development resources and business efforts to the development of KPI-012.

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

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

● clearance of any investigational new drug application, or IND, submission for any other product candidates we develop;

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

● if approved, successfully launching and commercializing KPI-012 or any other product candidate we develop in the United States, including establishing and maintaining sales, marketing, manufacturing and distribution capabilities for KPI-012 or any other product candidate we develop;

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

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

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

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

● effectively competing with other therapies;

● maintaining an acceptable potency, purity and safety profile of our products following approval;

● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

● protecting our rights in our intellectual property portfolio;

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

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

We may never generate the necessary data or results required to

obtain regulatory approval of KPI-012 or any other product candidate we develop and the commercialization of KPI-012 or any other product candidate we develop may never occur.

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

The risk of failure in developing product candidates is high.

It is impossible to predict when or if any product candidate would prove effective or safe in humans or will receive regulatory approval.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the potency, purity and safety for a biologic product in humans.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.

A failure of one or more clinical trials can occur at any stage of testing.

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

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

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

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

For example, in our STRIDE 2 Phase 3 clinical trial evaluating the safety and efficacy of EYSUVIS versus placebo in patients with dry eye disease, we did not achieve statistical significance for the primary symptom endpoint of ocular discomfort severity, and subsequently we received a complete response letter from the FDA indicating that positive efficacy data from an additional clinical trial was needed to support a new drug application for EYSUVIS.

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

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

● not obtain marketing approval at all;

● obtain approval for indications or patient populations that are not as broad as intended or desired;

● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

● be subject to additional post-marketing testing requirements;

● have the product removed from the market after obtaining marketing approval.

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

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

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

● the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

● our third-party contractors may fail to comply with regulatory requirements or meet their obligations to us in a timely manner, or at all;

● regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

● we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

● we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

● we may be subject to additional post-marketing testing requirements to maintain regulatory approval;

● regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;

● the cost of clinical trials of our product candidates may be greater than we anticipate;

● the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or may be delayed;

● our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate trials;

● ongoing or future restrictions resulting from the COVID-19 pandemic and its collateral consequences may result in internal and external operational delays and limitations;

● regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy.

Our product development costs will also increase if we experience delays in testing or marketing approvals.

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

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

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

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

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

● the prevalence and severity of the disease or condition under investigation;

● the patient eligibility criteria for the trial in question;

● the perceived risks and benefits of the product candidate under study;

● the existence of existing treatments for the indications for which we are conducting clinical trials;

● the efforts to facilitate timely enrollment in clinical trials;

● the patient referral practices of clinicians;

● the ability to monitor patients adequately during and after treatment;

● the proximity and availability of clinical trial sites for prospective patients;

● the conducting of clinical trials by competitors for product candidates that treat the same indications as our product candidates;

● the impact of public health epidemics, such as the ongoing COVID-19 pandemic;

● the lack of adequate compensation for prospective patients.

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

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

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

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

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

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

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

In addition, adverse events which had initially been considered unrelated to the study treatment may later, even following approval and/or commercialization, be found to be caused by the study treatment.

Moreover, incorrect or improper use of a product by patients could result in additional unexpected side effects or adverse events.

There can be no assurance that any product we may develop will

be used correctly, and if used incorrectly, such misuse could hamper commercial adoption or market acceptance of such products or product candidates, if approved, at the rate we currently expect.

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

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications.

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

In July 2022, we sold our commercial business, including EYSUVIS and INVELTYS, to Alcon and we made a strategic determination to cease the development of our preclinical pipeline programs that are unrelated to our MSC-S platform and to focus our research and development efforts on KPI-012.

We may never realize the anticipated benefits of these decisions and, as a result, we may be required to forego or delay other opportunities.

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

Our spending on current and future research and development programs and KPI-012 for specific indications may not yield any commercially viable products.

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

KPI-012 has been evaluated in clinical trials outside of the United States, and we may in the future conduct clinical trials for product candidates at sites outside the United States.

The FDA may not accept data from trials conducted in such locations.

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

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

For example, the clinical trial must be well designed and conducted and be performed by qualified investigators in accordance with ethical principles.

The trial population must also adequately represent the U.S.

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

population and U.S.

medical practice in ways that the FDA deems clinically meaningful.

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

laws and regulations.

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

Based on the results of the Phase 1b clinical trial conducted in Mexico, we initiated a full preclinical development program and submitted an IND application to the FDA for KPI-012 which was approved in December 2022, and in February 2023, we dosed our first patient in the CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States.

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

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

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

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and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen significantly.

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

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

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

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

We and any of our contract manufacturing organizations and contract research organizations may face disruptions that may affect our ability to initiate and complete preclinical studies and clinical trials for KPI-012 and any other product candidates we develop, including disruptions in procuring supplies that are essential for our research and development activities, manufacturing disruptions, disruptions in our ability to obtain necessary trial site approvals, as well as delays in or difficulties with enrollment and other delays at clinical trial sites.

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

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

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

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

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

know the extent to which the COVID-19 pandemic will impact our development of KPI-012, including our ongoing CHASE Phase 2b clinical trial, or any other product candidates that we develop.

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

From time-to-time moratoria have been put in place on routine medical appointments and elective surgeries in many jurisdictions, including ocular surgeries, which have adversely affected the market for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery.

The COVID-19 pandemic had negatively impacted our revenues from INVELTYS.

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

We cannot predict whether the COVID-19 pandemic will impact Alcon’s ability to commercialize EYSUVIS and INVELTYS, and as a result, we cannot be certain whether the COVID-19 pandemic might adversely affect when we may receive milestone payments from Alcon, which milestone payments we may receive and if we will receive any milestone payments at all.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to the Commercialization of our Product Candidates

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

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

We are developing KPI-012 for PCED, which is a rare disease.

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

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

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

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

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

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

Biosimilar and generic versions of any products that compete with KPI-012 or any other product candidates we may develop would likely be offered at a substantially lower price than we expect to offer for our product candidates, if approved.

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

Our assessment of the potential market opportunity for KPI-012 is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties.

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

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

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

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

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

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

The potential market opportunity for the treatment of PCED is difficult to precisely estimate.

Our estimates of the potential market opportunities for KPI-012 include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and fail to accurately reflect market opportunities.

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

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

The uncertainty with respect to the future progression of the COVID-19 pandemic and its long-term effects may adversely impact the accuracy of such estimates and our potential market opportunity for EYSUVIS, INVELTYS, KPI-012 and any other product candidates we develop.

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

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

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

If any of our assumptions or estimates, or these publications,

research, surveys or studies prove to be inaccurate, then the actual market for KPI-012 for PCED may be smaller than we expect, and as a result our future product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

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

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

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

● our ability to offer our products for sale at competitive prices, particularly in light of the lower cost of alternative treatments;

● the availability of third-party formulary coverage and adequate reimbursement, particularly by Medicare in light of the prevalence of dry eye disease and cataracts in persons over age 55;

● the clinical indications for which the product is approved;

● the availability of third-party formulary coverage and adequate reimbursement;

● the clinical indications for which the product is licensed or approved;

● the convenience and ease of administration compared to alternative treatments;

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

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

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

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

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

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

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Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.

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

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

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

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

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

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

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

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

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

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

Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses.

Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services.

Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize KPI-012 or any other product candidate if and when they are approved.

There may be significant delays in obtaining coverage and reimbursement for newly approved products and coverage may be more limited than the indications for which the product is approved by the FDA or similar regulatory authorities outside the United States.

Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses.

Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services.

Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States.

Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.

Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop would compromise our ability to generate revenues and become profitable.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new products vary widely from country to country.

Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.

Some countries require approval of the sale price of a drug before it can be marketed.

Some countries require approval of the sale price of a product before it can be marketed.

In many countries, the pricing review period begins after marketing or product licensing approval is granted.

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

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

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

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

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

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

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

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

Our sales representatives promote both EYSUVIS and INVELTYS.

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

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

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

Following the sale of our commercial business to Alcon in July 2022 and our determination to focus our research and development efforts on KPI-012, we committed to a course of action to terminate 113 employees, consisting of our entire commercial sales force and certain employees in our commercial, scientific, manufacturing, finance and administrative functions.

To achieve commercial success for any product for which we obtain marketing approval in the future, we will again need to establish sales, marketing and distribution capabilities, either ourselves or through collaborations or other arrangements with third parties.

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

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

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

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

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

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

Establishing and maintaining a sales force would require us to continue to implement and improve our managerial, operational and financial systems, which we may not do effectively.

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

Further, we may overestimate or underestimate the size of the sales force required for a successful product launch.

We have not yet established our own commercial organization or distribution capabilities specific to KPI-012.

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

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

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

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

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

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

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

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

Factors that may inhibit our efforts to commercialize on our own KPI-012 or any other product candidate we develop, if and when approved, include:

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

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

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

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

Our product revenues and our profitability, if any, under any such third-party collaboration, distribution or other marketing arrangements are likely to be lower than if we were to market, sell and distribute EYSUVIS and KPI-012 ourselves.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

KPI-012 and any other product candidate we may develop, if approved, will also compete with existing branded, generic and off-label products.

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

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

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

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

Our products and product candidates target markets that are already served by a variety of competing products.

Many of these existing products have achieved widespread acceptance among clinicians, patients and payors.

In addition, many of these products are available on a generic basis, and our products or our product candidates may not demonstrate sufficient additional clinical benefits to clinicians, patients or payors to justify a higher price compared to generic products.

In many cases, insurers or other third-party payors, particularly Medicare, seek to encourage the use of generic products.

The current disease management approaches for dry eye disease in the United States includes non-pharmaceutical therapies and pharmaceutical therapies.

Non-pharmaceutical therapies include over the counter artificial tear eye drops, which are palliative and used on an intermittent or chronic basis to provide short-term symptomatic relief of dryness and irritation;

hot compresses for the eye and lid hygiene management;

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

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

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

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

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

Xiidra is a topical anti-inflammatory therapy approved for treatment of the signs and symptoms of dry eye disease.

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

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

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

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

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

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

Topical steroid drops are the main competition to INVELTYS for the treatment of inflammation and pain following ocular surgery.

The current branded market leaders for topical steroids in the United States, based on revenue, are Lotemax ® products and Durezol ® .

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

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

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

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

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

There are also a number of companies in

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

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

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

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

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

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

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

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

In addition, to our knowledge, there are currently only two product candidates in active clinical development for the treatment of a broad PCED population.

To our knowledge, there are currently only two product candidates in active clinical development for the treatment of a broad PCED population.

KIO-201, a chemically modified form of the natural polymer hyaluronic acid administered as an eye drop, is currently being studied in a Phase 2 clinical trial in patients with PCED by Kiora Pharmaceuticals, Inc.

Nexagon, an antisense oligonucleotide that inhibits connexin43, is currently being studied in a Phase 2 clinical trial in patients with PCED resulting from severe ocular chemical and/or thermal injuries, by Amber Ophthalmics.

A number of companies are pursuing development of product candidates for the treatment of NK, including ReGenTree, LLC (Timbetasin), Recordati S.p.A.

(Udonitrectag) and Claris Biotherapeutics, Inc.

We are also aware of potential competitors for KPI-014 for limbal stem cell deficiency, or LSCD, and Sjögren’s.

Competitive products and product candidates in LSCD include two stem cell-based approaches.

ABCB5+ limbal stem cells, which are being studied in Phase 1/2 clinical trials and are being developed by RHEACELL GmbH & Co.

KG, utilize allogeneic limbal stem cells derived from human corneal rims, which are expanded ex-vivo and manufactured as an advanced-therapy medicinal product.

Holoclar utilizes autologous limbal stem cells derived from the healthy portion of the patient’s eye.

Holoclar is approved in the European Union for treatment of LSCD caused by ocular burns and is developed by Chiesi.

To our knowledge, there are no products in development focused on Partial Limbal Stem Cell Deficiency.

Competitive pharmaceutical products in moderate-to-severe Sjögren’s include cyclosporine, lifitegrast, ophthalmic cortisone and systemic immunosuppressants.

To our knowledge, there are only two topical ophthalmic product candidates in active clinical development for ocular manifestations of moderate-to-severe Sjögren’s.

Lacripep TM , a synthetic peptide fragment of lacritin being developed by Tear Solutions, recently completed a Phase 2 clinical trial in patients with primary Sjögren’s-associated ocular surface disease.

Oxervate ® (cenegermin-bkbj) is currently being evaluated in Phase 3 clinical trials in patients with severe Sjögren’s dry eye disease.

Several systemic pharmaceutical product candidates are also in clinical development for the treatment of Sjögren’s, including Dazodalibep (Horizon Therapeutics), SAR-441344 (Sanofi), Ianalumab (Novartis), Branebrutinib (Novartis), Iscalimab (Novartis) and OSE-127 (OSE Immuno Therapeutics).

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

Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

In addition, our ability to compete may be affected in many cases by insurers or other third-party payors, particularly Medicare, seeking to encourage the use of generic products.

Generic products are currently being used for certain of the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years.

Many of the companies against which we are competing or which we may compete against in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.

Our competitors may develop products that are available on a generic basis, and our product candidates may not demonstrate sufficient additional clinical benefits to clinicians, patients or payors to justify a higher price compared to generic products.

In many cases, insurers or other third-party payors, particularly Medicare, seek to encourage the use of biosimilar and generic products.

conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.

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These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

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

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

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

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

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

We face an even greater risk if we commercially sell any products that we may develop.

If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities.

Regardless of merit or eventual outcome, liability claims may result in:

● decreased demand for EYSUVIS, INVELTYS and any other products that we may develop;

● decreased demand for products that we may develop;

● injury to our reputation and significant negative media attention;

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● reduced time and attention of our management to pursue our business strategy;

● the inability to successfully commercialize EYSUVIS, INVELTYS and any other products that we may develop.

● the inability to successfully commercialize any products that we may develop.

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

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

We may need to increase our insurance coverage if we expand our ongoing and planned clinical trials for KPI-012.

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

Insurance coverage is increasingly expensive.

We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Product Development

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

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

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

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

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

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

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

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

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

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

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

● effectively competing with other therapies;

● maintaining an acceptable safety profile of our products following approval;

● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

● protecting our rights in our intellectual property portfolio;

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

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

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

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

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

The risk of failure in developing product candidates is high.

It is impossible to predict when or if any product candidate would prove effective or safe in humans or will receive regulatory approval.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.

A failure of one or more clinical trials can occur at any stage of testing.

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

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

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

In STRIDE 1, statistical significance was achieved for both primary endpoints.

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

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

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

On October 26, 2020, we received approval from the FDA to market EYSUVIS in the United States.

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

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

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

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

● not obtain marketing approval at all;

● obtain approval for indications or patient populations that are not as broad as intended or desired;

● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

● be subject to additional post-marketing testing requirements;

● have the product removed from the market after obtaining marketing approval.

● the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;