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Item 7. Management’s Discussion and Analysis

2024-03-29 compared with 2023-03-03 · 176 added, 194 removed, 260 unchanged (59% of the section changed)

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See “Special Note Regarding Forward-Looking Statements and Industry Data.” Because of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless otherwise indicated, all information in this Annual Report on Form 10-K gives effect to a 1-for-50 reverse stock split of our common stock that became effective on October 20, 2022, and all references to historical share and per share amounts give effect to the reverse stock split.

We are a clinical-stage biopharmaceutical company dedicated to the research, development and commercialization of innovative therapies for rare and severe diseases of the eye.

We are a clinical-stage biopharmaceutical company dedicated to the research, development and commercialization of innovative therapies for rare and severe diseases of the front and back of the eye.

Our product candidate, KPI-012, which we acquired from Combangio, Inc., or Combangio, on November 15, 2021, is a mesenchymal stem cell secretome, or MSC-S, and is currently in clinical development for the treatment of persistent corneal epithelial defects, or PCED, a rare disease of impaired corneal healing.

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Food and Drug Administration, or FDA, which was accepted in December 2022.

In February 2023, we dosed our first patient in our CHASE ( C orneal H ealing A fter SE cretome therapy) Phase 2b clinical trial of KPI-012 for PCED in the United States, and we are targeting reporting top-line safety and efficacy data from this trial in the first quarter of 2024.

If the results of the CHASE Phase 2b clinical trial are positive, and subject to discussion with regulatory authorities, we believe this trial could serve as the first of two pivotal trials required to support the submission of a Biologics License Application, or BLA, to the FDA.

We believe the multifactorial mechanism of action of KPI-012 also makes MSC-S a platform technology.

We are evaluating the potential development of KPI-012 for additional rare front-of-the-eye diseases, such as for the treatment of Limbal Stem Cell Deficiency and ocular manifestations of moderate-to-severe Sjögren’s.

In February 2023, we dosed our first patient in our CHASE ( C orneal H ealing A fter SE cretome therapy) Phase 2b clinical trial of KPI-012 for PCED in the United States, or the CHASE trial.

The CHASE trial is comprised of two patient cohorts.

On March 27, 2023, we announced positive safety data from the first cohort of the CHASE trial, which is an open-label study to evaluate the safety of the high dose of KPI-012 ophthalmic solution (3 U/mL) dosed topically four times per day, or QID, in two patients.

Both patients in the first cohort successfully completed at least one week of dosing with no safety issues observed.

We have initiated the second and final patient cohort of the CHASE trial in the United States, which is a multicenter, randomized, double-masked, vehicle-controlled, parallel-group trial to evaluate the safety and tolerability of two doses of KPI-012 ophthalmic solution (3 U/mL and 1 U/mL) versus vehicle dosed topically QID for 56 days in approximately 90 patients.

We plan to add trial sites in Latin America, subject to regulatory approval.

The primary endpoint of the trial is the complete healing of the PCED as measured by corneal fluorescein staining.

We are targeting reporting topline safety and efficacy data from the CHASE trial by the end of 2024.

If the results are positive, and subject to discussion with regulatory authorities, we believe this trial could serve as the first of two pivotal trials required to support the submission of a Biologics License Application, or BLA, for KPI-012 to the FDA.

KPI-012 has received Orphan Drug and Fast Track designations from the FDA for the treatment of PCED.

We believe the multifactorial mechanism of action of KPI-012 also makes our MSC-S a platform technology.

We are evaluating the potential development of KPI-012 for additional rare front-of-the-eye diseases, such as for the treatment of Limbal Stem Cell Deficiency, or LSCD, and other rare corneal diseases that threaten vision.

In addition, we have initiated preclinical studies under our KPI-014 program to evaluate the utility of our MSC-S platform for inherited retinal degenerative diseases, such as Retinitis Pigmentosa and Stargardt Disease.

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For a further description of our acquisition of Combangio, or Combangio Acquisition, see Item 1, “Business,” “Liquidity and Capital Resources” below and Note 3, “Acquisitions and Divestitures” of our consolidated financial statements.

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

treatment of post-operative inflammation and pain following ocular surgery.

Both products applied a proprietary mucus-penetrating particle drug delivery technology, which we referred to as the AMPPLIFY ® Drug Delivery Technology.

On July 8, 2022, we closed the transaction, or the Alcon Transaction, contemplated by the asset purchase agreement, dated as of May 21, 2022, or the Asset Purchase Agreement, by and between us, Alcon Pharmaceuticals Ltd.

and Alcon Vision, LLC, which we refer to collectively as Alcon, pursuant to which Alcon purchased the rights to manufacture, sell, distribute, market and commercialize EYSUVIS and INVELTYS and to develop, manufacture, market and otherwise exploit the AMPPLIFY Drug Delivery Technology, which we collectively refer to as the Commercial Business.

Alcon also assumed certain liabilities with respect to the Commercial Business at the closing of the Alcon

On July 8, 2022, Alcon Pharmaceuticals Ltd.

and Alcon Vision, LLC, which we refer to collectively as Alcon, purchased from us the rights to manufacture, sell, distribute, market and commercialize EYSUVIS and INVELTYS and to develop, manufacture, market and otherwise exploit the AMPPLIFY Drug Delivery Technology, which we collectively refer to as the Commercial Business.

We refer to this transaction as the Alcon Transaction.

Alcon also assumed certain liabilities with respect to the Commercial Business at the closing of the Alcon Transaction.

For a further description of the Alcon Transaction, see Item 1, “Business,” “Liquidity and Capital Resources” below and Note 3, “Acquisitions and Divestitures” of our consolidated financial statements.

On July 8, 2022, we announced that we had 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.

During 2022, we terminated our entire commercial sales force and certain employees in our commercial, scientific, manufacturing, finance and administrative functions.

The determination to proceed with the workforce reduction was made in the context of the closing of the Alcon Transaction and the changes to the scope of our research and development activities of KPI-012 as more fully described above.

We completed the workforce reduction by the end of 2022.

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

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As of December 31, 2023, we had an accumulated deficit of $629.4 million.

As we commenced a full promotional launch of EYSUVIS in early January 2021 and commercially launched our first product, INVELTYS, in January 2019, we had generated only limited revenues from product sales prior to the sale of the Commercial Business to Alcon in July 2022.

We have financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon in July 2022, our initial public offering, or IPO, follow-on public common stock offerings and sales of our common stock under our sales agreement with Jefferies, LLC, or Jefferies, in at-the-market offerings, or ATM Offerings, private placements of common stock and preferred stock (including our private placement of common stock and preferred stock for gross proceeds of approximately $31.0 million in December 2022, or our Private Placement), borrowings under credit facilities and our Loan Agreement with Oxford Finance, convertible promissory notes and warrants.

We generated only limited revenues from product sales of EYSUVIS and INVELTYS prior to the sale of the Commercial Business to Alcon in July 2022.

We have financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon, our initial public offering, or IPO, follow-on public common stock offerings and sales of our common stock under our sales agreement with Jefferies, LLC, or Jefferies, in at-the-market offerings, private placements of common stock and/or preferred stock (including our private placement of preferred stock for gross proceeds of approximately $2.0 million in December 2023, or our 2023 Private Placement, and $8.6 million in March 2024, or our 2024 Private Placement), borrowings under credit facilities and our Loan Agreement with Oxford Finance, or the Loan Agreement, a grant from California Institute for Regenerative Medicine, or CIRM, 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 a result of our acquisition of Combangio 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.

As a result of our acquisition of Combangio and the sale of our Commercial Business to Alcon, we are devoting substantial financial resources to the research and development and potential commercialization of KPI-012 for PCED and any other indications we determine to pursue, including Limbal Stem Cell Deficiency.

We have no revenue-generating commercial products 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, which are more fully described in the “Liquidity and Capital Resources” section.

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 when we may receive such milestone payments or of the amount of milestone payments we may receive, if any.

We cannot be certain that we will achieve the milestones within the timeframe required by the CIRM award, or at all, and as such we may never receive the remaining $9.1 million under the award.

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.

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

Business Impact of COVID-19 Pandemic

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

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

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

In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which had significantly reduced the demand 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 the 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, it 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.

Any impact of the COVID-19 pandemic on our development of KPI-012 and any other product candidate we may develop in the future, Alcon’s commercialization efforts of EYSUVIS and INVELTYS, and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic, 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 full extent of the impact on employees, vendors and government agencies, all of which are uncertain and cannot be predicted.

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

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

Financial Operations Overview

Product Revenues, Net

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

Full promotional launch of EYSUVIS began in early January 2021.

On July 8, 2022, we sold our Commercial Business, including EYSUVIS and INVELTYS, to Alcon and ceased recording gross revenue on sales of EYSUVIS and INVELTYS.

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

Actual amounts may ultimately differ from these estimates.

Actual amounts

may ultimately differ from these estimates.

If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

We currently have no commercial products in our portfolio.

Moreover, we only recently commenced the CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States and, accordingly, 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.

See the section titled “Business Impact of COVID-19 Pandemic” above for information about the impact of COVID-19 on sales and commercialization of EYSUVIS and INVELTYS.

Moreover, we only recently commenced the CHASE trial of KPI-012 for PCED in the United States and, accordingly, 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 .

Cost of Product Revenues

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

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

regulatory approval, which we received on August 22, 2018.

We expensed cost of product revenues related to EYSUVIS as research and development expenses prior to the determination that FDA approval was probable and before the future economic benefit was expected to be realized.

The determination of whether inventory costs will be realizable requires estimates by management.

Prior to the sale of our Commercial Business in July 2022, write-downs of inventory were recorded as a cost of product revenues in the consolidated statements of operations and comprehensive loss.

Following the sale of our Commercial Business, any adjustments to the remaining EYSUVIS and INVELTYS inventory, or Remaining Inventory, are recorded within other expense in the consolidated statements of operations and comprehensive loss.

Following the sale of the Commercial Business, the only customer for our current inventory is Alcon.

If Alcon does not purchase any additional inventory, the Remaining Inventory balance, net of the deferred gain on sale of the Commercial Business, will be recorded to other expense in the consolidated statements of operations and comprehensive loss.

As a result of the sale of our Commercial Business to Alcon, which occurred on July 8, 2022, we do not expect to generate cost of product revenues until such time as we commercialize another product candidate.

Following the sale of our Commercial Business, any adjustments to the remaining EYSUVIS and INVELTYS inventory, or the Remaining Inventory, were recorded within other expense in the consolidated statements of operations and comprehensive loss.

Following the sale of the Commercial Business, the only customer for our Remaining Inventory was Alcon.

The Remaining Inventory balance, net of the deferred gain on sale of Commercial Business, was written off during the year ended December 31, 2023, and is recorded in other (expense) income, net in the consolidated statements of operations and comprehensive loss.

As a result of the sale of our Commercial Business to Alcon, we do not expect to generate cost of product revenues unless we commercialize another product candidate .

Selling, General and Administrative Expenses

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

We expect that our selling, general and administrative expenses will decrease in 2023 as compared to such expenses for the year ended December 31, 2022 as a result of the workforce reduction announced on July 8, 2022 and the sale of our Commercial Business to Alcon in July 2022.

We anticipate that our selling, general and administrative expenses will remain largely consistent with the expenses anticipated for 2023 for the foreseeable future as we continue to support our development efforts for KPI-012 and seek marketing approval for KPI-012 and any other product candidate we may develop in the future.

We expect that our selling, general and administrative expenses for 2024 will be comparable to such expenses for the year ended December 31, 2023.

We anticipate that our selling, general and administrative expenses will stabilize at 2023 expense levels for the next several years.

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 .

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We expense research and development costs as they are incurred.

We expense costs relating to the production of inventory for our product candidates, as research and development expenses within our consolidated statements of operations and comprehensive loss in the period incurred, unless we believe regulatory approval and subsequent commercialization of the product candidate is probable and we expect the future economic benefit from sales of the drug to be realized.

commercialization of the product candidate is probable and we expect the future economic benefit from sales of the drug to be realized.

Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred.

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

We expect that our research and development costs will increase in 2023 as compared to such expenses for the year ended December 31, 2022 as we advance the clinical development of KPI-012 and as we conduct any necessary preclinical studies and clinical trials and other development activities for any other product candidate we may develop in the future, including our ongoing and planned preclinical studies under our KPI-014 program .

We expect that our research and development costs will increase in 2024 as compared to such expenses for the year ended December 31, 2023 as we advance the clinical development of KPI-012 and as we conduct any necessary preclinical studies and clinical trials and other development activities for any other product candidate we may develop in the future, including our planned preclinical studies under our KPI-014 program .

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

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

With respect to the ongoing COVID-19 pandemic, we are unable to predict the impact it may have on our research and development activities.

KPI-012 is in Phase 2b clinical development and all of our other research and development programs are in preclinical development.

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

Acquired In-Process Research and Development Expenses

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

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

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

generally accepted accounting principles, or U.S.

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

Loss (Gain) on Fair Value Remeasurement of Deferred Purchase Consideration

In connection with the closing of the Combangio Acquisition on November 15, 2021, we agreed to issue an aggregate of 155,664 shares, or the Deferred Purchase Consideration, of our common stock to former Combangio stockholders and other equityholders, or the Combangio Equityholders, consisting of (i) an aggregate of 136,314 shares of common stock which were issued on January 3, 2022 and (ii) an aggregate of 19,350 shares of common stock that were held back by us and will be issued on the escrow release date in March 2023.

(Gain) Loss on Fair Value Remeasurement of Deferred Purchase Consideration

In connection with the closing of the Combangio Acquisition on November 15, 2021, we agreed to issue an aggregate of 155,664 shares, or the Deferred Purchase Consideration, of our common stock to former Combangio stockholders and other equityholders, or the Combangio Equityholders, consisting of (i) an aggregate of 136,314 shares of common stock which were issued on January 3, 2022 and (ii) an aggregate of 19,350 shares of common stock that were held back by us as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders which were issued on March 10, 2023.

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

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

Gain on Fair Value Remeasurement of Contingent Consideration

In addition to the Deferred Purchase Consideration, consideration payable to the Combangio Equityholders includes potential payments of up to $105.0 million, of which $4.9 million will be paid in March 2023, payable in cash and shares of our common stock that are contingent upon the achievement of specified development, regulatory and commercialization milestones which potential payments and milestones are more fully described in Item 1, “Business” and in “Liquidity and Capital Resources” below and Note 3, “Acquisitions and Divestitures” of our consolidated financial statements.

Loss (Gain) on Fair Value Remeasurement of Contingent Consideration

In addition to the Deferred Purchase Consideration, consideration payable to the Combangio Equityholders includes potential payments of up to $105.0 million that are contingent upon the achievement of specified development, regulatory and commercialization milestones.

As of December 31, 2023, of the up to $105.0 million in contingent milestone payments, we paid to the Combangio Equityholders an aggregate of $2.5 million in cash and $2.4 million in shares of common stock (representing an aggregate of 105,038 shares of our common stock) as a result of our dosing the first patient in our CHASE trial in February 2023, or the First Dosing Milestone.

The remaining amount of $0.1 million due in connection with the First Dosing Milestone was paid in January 2024.

All potential milestone payments to the Combangio Equityholders are payable in cash going forward.

We recorded an obligation for such contingent consideration at fair value on the acquisition date.

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Changes in the fair value of our contingent consideration obligations, other than changes due to issuance, are recognized as a gain or loss on fair value remeasurement of contingent consideration in our consolidated statements of operations and comprehensive loss .

The potential payments and milestones are more fully described in Item 1, “Business” and in “Liquidity and Capital Resources” below and Note 3, “Acquisitions and Divestitures” of our consolidated financial statements.

Interest Income

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

On April 28, 2023, CIRM awarded Combangio a $15.0 million grant, or the CIRM Award, subject to entering into a final award agreement, to support Combangio’s ongoing KPI-012 program for the treatment of PCED as well as product and process characterization and analytical development for the program.

On August 2, 2023, Combangio entered into the CIRM Award and became entitled to receive an initial $5.9 million disbursement from CIRM.

The CIRM Award is subject to a co-funding requirement under which Combangio is obligated to spend a specified minimum amount on the development of KPI-012 to obtain the full award amount.

The remaining $9.1 million available under the award is payable to Combangio only upon the achievement of specified milestones that are primarily related to Combangio’s progress in conducting the CHASE clinical trial.

CIRM may permanently cease disbursements if the milestones are not met within four months of the scheduled completion dates.

Additionally, if CIRM determines, in its sole discretion, that Combangio has not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements.

Under the terms of the CIRM Award, Combangio is obligated to pay a royalty on net sales of any product, service or approved drug resulting in whole or in part from the CIRM Award in the amount of 0.1% per $1.0 million of funds utilized by us until the earlier of ten years from the date of first commercial sale of such product, service or approved drug and such time as nine times the amount of funds awarded by CIRM has been paid in royalties, or the Base Royalty.

In addition, following the satisfaction of the Base Royalty, Combangio is obligated to pay a 1.0% royalty on net sales of any CIRM-funded invention in excess of $500 million per year until the last to expire patent covering such invention expires.

The CIRM Award is not in the scope of the contracts with customers accounting guidance as the government entity is not a customer under the agreement.

Rather, the CIRM Award is accounted for as a contract to perform research and development activities.

As a result, grant income is recognized as the related research and development expenses are incurred.

Loss on Extinguishment of Debt

Loss on extinguishment of debt primarily consists of unamortized debt discount and issuance costs, a prepayment premium and unaccreted final payment fees paid upon extinguishment of a debt agreement.

There was no loss on extinguishment of debt for the year ended December 31, 2023.

For the year ended December 31, 2022, the loss on extinguishment of debt related to the partial extinguishment of debt under the Loan Agreement with Oxford Finance on July 8, 2022 in connection with the closing of the Alcon Transaction.

For the year ended December 31, 2021, the loss on extinguishment of debt related to the extinguishment of the credit agreement, or the Athyrium Credit Facility, with Athyrium Opportunities III Acquisition LP, or Athyrium .

Gain on Sale of Commercial Business

Gain on sale of Commercial Business represents the gain recognized as a result of the sale of our Commercial Business to Alcon on July 8, 2022.

Gain on Lease Modification

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

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

Other (Expense) Income, Net

Other (expense) income, net consists of expenses recorded to assets held for sale for the write-off of the remaining inventory balance and the write-off of the deferred gain related to the Alcon Transaction, as well as an

adjustment for the returns reserve associated with our former commercial products, partially offset by reimbursable transition-related services we provided to Alcon following the sale of the Commercial Business.

Critical Accounting Policies and Significant Judgments and Estimates

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

We account for grants received to perform research and development activities in accordance with Accounting Standards Codification Topic 730-20, Research and Development Arrangements , which requires an assessment, at the inception of the grant, of whether the grant is a liability or a contract to perform research and development activities.

If we are obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then we are required to estimate and recognize that liability.

Alternatively, if we are not required to repay, or if we were required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development activities, in which case, grant income is recognized as the related research and development expenses are incurred.

Costs of grant income are recorded as a component of research and development expenses in our statements of operations and comprehensive loss.

Following the sale of our Commercial Business to Alcon in July 2022, we no longer have any commercial products in our portfolio.

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We recognized revenue from product sales at the point the Customer obtained control of the product, which occurred upon delivery.

The transaction price (“net sales price”) that was recognized as revenue for product sales included the selling price to the Customer and an estimate of variable consideration.

The transaction price (“net sales price”) that was recognized as revenue for product sales included the selling price to the

Customer and an estimate of variable consideration.

Components of variable consideration included prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers and other third-party payors where a distinct good or service was not received.

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Customers charged us for the difference between what they paid for the product and the ultimate selling price to the qualified healthcare providers.

These components of variable consideration were established in the same period that the related revenue was recognized, resulting in a reduction of product revenue

and accounts receivable.

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

Reserves for chargebacks consisted of credits we expected to issue for units that remained in the distribution channel at the end of each reporting period and that we expected would be sold to qualified healthcare providers, as well as chargebacks that Customers had claimed, but for which we had not yet issued a credit.

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Commercial Payor and Medicare Part D Rebates

We contracted with certain third-party payors, primarily pharmacy benefit managers, or PBM’s, and health plans, or Plans, for the payment of rebates with respect to utilization of our product.

We contracted with certain third-party payors, primarily pharmacy benefit managers, or PBMs, and health plans, or Plans, for the payment of rebates with respect to utilization of our product.

These rebates were based on contractual percentages applied to the amount of product prescribed to patients who were covered by the PBMs or the Plans with which it contracted.

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We also estimated the number of patients in the prescription drug coverage gap for whom we would owe an additional liability under the Medicare Part D program.

Such estimates were recorded in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Such estimates were recorded in the same period

the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Government Rebates

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Allowances for estimated co-pay claims are recorded in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out method.

Costs include amounts related to third party manufacturing, transportation, internal labor and overhead.

We capitalize pre-launch inventory when we believe regulatory approval and subsequent commercialization of the product candidate is probable and expect the future economic benefit of the drug to be realized.

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

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

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

The shelf life of a product is determined as part of the regulatory approval process;

however, in assessing whether to capitalize pre-launch inventory, we consider the product stability data of all of the pre-launch inventory procured or produced to date to determine whether there is adequate shelf life.

If management is aware of any specific material risks or contingencies other than the normal regulatory review and approval process, or if the criteria for capitalizing inventory produced prior to regulatory approval are otherwise not met, we would not capitalize such inventory costs, choosing instead to recognize such costs as a research and development expense in the period incurred.

For INVELTYS, capitalization of costs as inventory began upon U.S.

regulatory approval.

For EYSUVIS, capitalization of costs as inventory began in the third quarter of 2020 when we believed regulatory approval and subsequent commercialization of the product candidate was probable and expected the future economic benefit of the drug to be realized.

We perform an assessment of the recoverability of capitalized inventory during each reporting period, including quality control and assurance reserves for defective inventories, and we also write-down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified.

The determination of whether inventory costs will be realizable requires estimates by management.

Prior to the sale of our Commercial Business in July 2022, such impairment charges were recorded within cost of product revenues, unless associated with our samples inventory, in which case the charges were recorded to selling, general and administrative expense.

Following the sale of our Commercial Business, any adjustments to the Remaining Inventory are recorded within other expense in the consolidated statements of operations and comprehensive loss.

Following the sale of the Commercial Business, the only customer for our current inventory is Alcon.

Shipping and handling costs for product shipments are recorded as incurred in costs of revenues along with costs associated with manufacturing the product, and any inventory write-downs.

Inventory produced that will be used in a promotional sample program is expensed to selling, general and administrative expense when it is designated as a sample.

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

Acquisition Accounting

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

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

If the asset related to acquired in-process research and development expenses has no alternative future use, it is expensed immediately upon the completion of the transaction.

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

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Research and development

Acquired in-process research and development

Loss (gain) on fair value remeasurement of Deferred Purchase Consideration

Gain on fair value remeasurement of contingent consideration

(Gain) loss on fair value remeasurement of Deferred Purchase Consideration

Loss (gain) on fair value remeasurement of contingent consideration

Total operating expenses

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Gain on sale of Commercial Business

Gain on lease modification

Other income (expense), net

Other (expense) income, net

Product revenues, net

Product revenues, net was $3.9 million for the year ended December 31, 2022 , consisting of $2.3 million from EYSUVIS sales and $1.6 million from INVELTYS sales, compared to $11.2 million for the year ended December 31, 2021, which consisted of $6.3 million from EYSUVIS sales and $4.9 million from INVELTYS sales .

The decrease in product revenues, net of $7.3 million was largely due to the sale of our Commercial Business to Alcon in July 2022 resulting in a decrease in the total units sold of both products in the year ended December 31, 2022 as well as higher estimated allowances per unit sold on both products during the year ended December 31, 2022 as compared to those allowances per unit sold during the year ended December 31, 2021, partially offset by a higher per unit gross selling price of both products during the year ended December 31, 2022 as compared to the per unit gross selling price of both products sold during the year ended December 31, 2021.

We did not have any product revenues during the year ended December 31, 2023 due to the sale of our Commercial Business to Alcon in July 2022.

Product revenues, net was $3.9 million for the year ended December 31, 2022 , consisting of $2.3 million from EYSUVIS sales and $1.6 million from INVELTYS sales.

As a result of the sale of our Commercial Business, we no longer have any commercial products in our portfolio.

Cost of product revenues

Cost of product revenues was $2.6 million for the year ended December 31, 2022, compared to $4.1 million for the year ended December 31, 2021 , a decrease of $1.5 million due to the sale of our Commercial Business to Alcon in July 2022 .

We did not have any cost of product revenues during the year ended December 31, 2023 due to the sale of our Commercial Business to Alcon in July 2022.

Cost of product revenues was $2.6 million for the year ended December 31, 2022.

Selling, general and administrative expenses

Selling, general and administrative expenses were $20.6 million for the year ended December 31, 2023, compared to $65.0 million for the year ended December 31, 2022, which was a decrease of $44.5 million.

The decrease in selling, general and administrative expenses for the year ended December 31, 2022 was primarily due to the sale of our Commercial Business to Alcon and our related workforce reduction and includes a $20.8 million decrease in employee-related expenses, a $9.7 million decrease in external sales and marketing costs, a $6.8 million decrease in stock-based compensation costs and a decrease in certain medical affairs costs attributable to our former commercial

Also contributing to the decrease as compared to the year ended December 31, 2021, was a $6.2 million decrease in facility related costs.

These decreases, as compared to the year ended December 31, 2021, were partially offset by $1.6 million recorded to selling, general and administrative expenses related to the workforce reduction, a $1.0 million increase in administrative and professional service fees and $0.8 million of transaction costs related to the Alcon Transaction which were not incurred in the year ended December 31 , 2021 .

The decrease in selling, general and administrative expenses for the year ended December 31, 2023 was primarily due to the sale of our Commercial Business to Alcon and our related workforce reduction completed during the second half of 2022 and includes a $22.5 million decrease in employee-related expenses and a $17.9 million decrease in external sales and marketing costs.

Also contributing to the decrease as compared to the year ended December 31, 2022, was a $3.3 million decrease in administrative and professional service fees and $0.8 million of transaction costs related to the Alcon Transaction which were not incurred in the year ended December 31, 2023.

Research and development expenses

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Research and development expenses were $18.6 million for the year ended December 31, 2023 compared to $17.7 million for the year ended December 31, 2022, an increase of $0.9 million.

The increase was primarily the result of $5.8 million in KPI-012 development costs and a $1.9 million increase in employee-related costs, partially offset by a $1.5 million decrease in other research and development costs, which primarily included preclinical studies related to our former pipeline programs and other facility related costs.

Acquired in-process research and development expenses

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

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

There were no acquired IPR&D expenses for the year ended December 31, 2022.

Loss (gain) on fair value remeasurement of Deferred Purchase Consideration

The loss on fair value remeasurement of Deferred Purchase Consideration for the year ended December 31, 2022 was $0.6 million and the gain on fair value remeasurement of Deferred Purchase Consideration for the year ended December 31, 2021 was $5.8 million.

The amounts were primarily due to a change in the fair value of our underlying stock price.

Gain on fair value remeasurement of contingent consideration

The increase was primarily related to a $2.3 million increase in employee-related costs and KPI-012 development costs, as we advance the clinical development of KPI-012, partially offset by a decrease of $1.4 million of other research and development costs, which primarily included preclinical studies related to our former pipeline programs.

(Gain) loss on fair value remeasurement of Deferred Purchase Consideration

The gain on fair value remeasurement of Deferred Purchase Consideration for the year ended December 31, 2023 was $0.2 million and the loss on fair value remeasurement of Deferred Purchase Consideration for the year ended December 31, 2022 was $0.6 million.

The amounts were primarily due to a change in the fair value of our stock price.

Loss (gain) on fair value remeasurement of contingent consideration

Loss on fair value remeasurement of contingent consideration for the year ended December 31, 2023 was $0.7 million, primarily due to changes in discount rates, partially offset by changes in the expected timing and probability of payment.

Gain on fair value remeasurement of contingent consideration for the year ended December 31, 2022 was $0.3 million and was primarily due to changes in discount rates, partially offset by the passage of time.

The change in fair value remeasurement of contingent consideration for the year ended December 31, 2021 was de minimis .

Interest income

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

The increase was attributable to higher interest rates, partially offset by lower cash, cash equivalents and short-term investments balances during the year ended December 31, 2022.

The increase was attributable to higher interest rates during the year ended December 31, 2023 as well as the mix and quantity of investments during the year ended December 31, 2023.

Interest expense

Interest expense was $5.8 million for the year ended December 31, 2023, compared to $7.3 million for the year ended December 31, 2022, a decrease of $1.5 million.

I nterest expense for the year ended December 31, 2022 was

comprised of the contractual coupon interest expense, the amortization of the debt discount and the accretion of the final payment fee associated with our Loan Agreement with Oxford Finance.

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

I nterest expense for the years ended December 31, 2023 and 2022 was comprised of the contractual coupon interest expense, the amortization of the debt discount and the accretion of the final payment fee associated with our Loan Agreement with Oxford Finance.

During the year ended December 31, 2023, $43.3 million of indebtedness was outstanding under our Loan Agreement until $9.3 million was repaid on January 25, 2023 resulting in an outstanding indebtedness of $34.0 million as of December 31, 2023.

During the year ended December 31, 2022, $80.0 million of indebtedness was outstanding under our Loan Agreement until $36.7 million was repaid on July 8, 2022 resulting in an outstanding indebtedness of $43.3 million as of December 31, 2022.

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

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

While interest expense decreased during the year ended December 31, 2023 due to the lower outstanding principal balance, this decrease was partially offset by the variable rate on the debt and the rising interest rates.

Grant income for the year ended December 31, 2023 was $4.8 million related to the CIRM Award.

There was no grant income recognized during the year ended December 31, 2022.

Loss on extinguishment of debt

The loss on extinguishment of debt was $2.6 million for the year ended December 31, 2022, compared to $5.4 million for the year ended December 31, 2021.

The was no loss on extinguishment of debt for the year ended December 31, 2023.

The loss on extinguishment of debt was $2.6 million for the year ended December 31, 2022.

Upon the partial repayment of $36.7 million of indebtedness under our Loan Agreement in July 2022, the prepayment premium, unaccreted amount of the final payment fee due and a pro-rata portion of the debt discount were recorded as loss on extinguishment of debt for the year ended December 31, 2022.

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

Gain on sale of Commercial Business

The gain on sale of Commercial Business was $47.0 million for the year ended December 31, 2022, which was comprised of the $65.0 million in cash consideration received from Alcon at the closing less $4.2 million of deferred gain on sale of Commercial Business, $11.7 million net book value of assets transferred and $2.1 million of transaction costs.

There was no gain on sale of Commercial Business for the year ended December 31, 2023.

Gain on lease modification

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

There was no gain on lease modification for the year ended December 31, 2022.

Other income (expense), net

Other income and expense was a net expense of $0.9 million for the year ended December 31, 2022.

There was no other income and expense for the year ended December 31, 2021.

The other income and expense during the year ended December 31, 2022 primarily represents a $4.2 million expense recorded to assets held for sale for expiring inventory, partially offset by $3.6 million of reimbursable transition related services we provided to Alcon following the sale of the Commercial Business.

Other income and expense was a net expense of $4.3 million for the year ended December 31, 2023 consisting of a $7.6 million expense recorded to assets held for sale to write-off the remaining inventory balance and $1.1 million related to an adjustment for the returns reserve associated with our former commercial products, partially offset by the $4.2 million write-off related to the deferred gain recorded on the sale of the Commercial Business and $0.2 million of reimbursable transition related services we provided to Alcon following the sale of the Commercial Business.

Other income and expense was a net expense of $0.9 million for the year ended December 31, 2022, which primarily represents a $4.2 million expense recorded to assets held for sale for expiring inventory, partially offset by $3.6 million of reimbursable transition related services we provided to Alcon following the sale of the Commercial Business.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

As we commercially launched our first product, INVELTYS, in January 2019, and commenced a full promotional launch of our second product, EYSUVIS, in early January 2021, we only generated limited revenues from product sales prior to the sale of our Commercial Business to Alcon in July 2022.

We have financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon in July 2022, our IPO, follow-on public common stock offerings and sales of our common stock under our ATM Offerings, private placements of common stock and preferred stock (including our Private Placement), borrowings under credit facilities and our Loan and Security Agreement, or the Loan Agreement, with Oxford Finance LLC, or Oxford Finance, convertible promissory notes and warrants.

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

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

Loan B in the aggregate principal amount of $35.0 million which we did not draw down.

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

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

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

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

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

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

Through December 31, 2021, we issued and sold an aggregate of 171,626 shares of our common stock under the ATM Offering pursuant to the terms of the Amended and Restated Sales Agreement, resulting in net proceeds of $61.8 million.

In the year ended December 31, 2022, under the Amended and Restated Sales Agreement, we issued and sold an aggregate of 148,461 shares of our common stock, resulting in net proceeds of $1.0 million.

As of December 31, 2022, there was $10.3 million of shares of common stock remaining and available for sale under the Amended and Restated Sales Agreement and, excluding the shares of common stock that may be offered under the Amended and Restated Sales Agreement, there was $275.0 million of securities available to be issued under the 2020 Shelf Registration.

From January 1, 2023 through January 10, 2023, we issued and sold an additional 245,887 shares of our common stock under the Amended and Restated Sales Agreement, resulting in net proceeds of $10.0 million.

On January 10, 2023, the Amended and Restated Sales Agreement terminated in accordance with its terms when we completed the sale of $75.0 million of our shares of common stock thereunder.

As of the date of termination of the Amended and Restated Sales Agreement, we had sold an aggregate of 565,974 shares of our common stock under such agreement for aggregate gross proceeds of $75.0 million.

On January 19, 2023, we entered into a new sales agreement with Jefferies, or the Open Market Sale Agreement, pursuant to which we may issue and sell, from time to time, shares of our common stock through Jefferies under our ATM Offering.

We filed a prospectus supplement relating to the Open Market Sale Agreement under our 2020 Shelf Registration, pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $40.0 million under the Open Market Sale Agreement.

Through the date of filing of this Annual Report on Form 10-K, we sold 69,974 shares of our common stock under the Open Market Sale Agreement resulting in net proceeds of $1.4 million.

In the aggregate, subsequent to December 31, 2022 through the date of filing of this Annual Report on Form 10-K, we sold 315,861 shares of our common stock pursuant to our Amended and Restated Sales Agreement and our Open Market Sale Agreement for total net proceeds of $11.4 million.

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

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

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

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

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

In connection with our entry into the Asset Purchase Agreement, on May 21, 2022, we entered into an amendment to the Loan Agreement, or the Second Loan Amendment.

Pursuant to the Second Loan Amendment, the Lender and Agent consented to the entry by us into the Asset Purchase Agreement and the sale of the Commercial Business to Alcon and agreed to release its liens on the Commercial Business in consideration for the payment by us at the closing of the Alcon Transaction of an aggregate amount of $40.0 million, or the Second Amendment Prepayment, to the Lender and Agent.

The Second Amendment Prepayment, which represented a partial prepayment of principal in the amount of $36.7 million of the $80.0 million principal amount outstanding under the term loan advanced by the Lender under the Loan Agreement, plus a prepayment fee of $0.7 million and a final payment fee of $2.6 million, was paid on July 8, 2022 in connection with the closing of the Alcon Transaction.

We only generated limited revenues from product sales of EYSUVIS and INVELTYS prior to the sale of our Commercial Business to Alcon in July 2022.

We have financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon in July 2022, our IPO, follow-on public common stock offerings and sales of our common stock under our at-the-market equity offerings, private placements of common stock and/or preferred stock, borrowings under credit facilities and our Loan and Security Agreement, or the Loan Agreement, with Oxford Finance LLC, or Oxford Finance, a grant from CIRM, convertible promissory notes and warrants.

Sale of Commercial Business

In July 2022, we sold our Commercial Business to Alcon.

In addition to the upfront cash payment of $60.0 million we received from Alcon pursuant to the Asset Purchase Agreement, we are also eligible to receive from Alcon up to four commercial-based sales milestone payments as follows:

In addition to the upfront cash payment of $60.0 million we received from Alcon, we are also eligible to receive from Alcon 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.

Each milestone payment will only become payable once, if at all, upon the first time such milestone is achieved, and only one milestone payment will be paid with respect to a calendar year.

In the event that more than one milestone is achieved in a calendar year, the higher milestone payment will become payable and the lower milestone payment will become payable only if the corresponding milestone is achieved again in a subsequent calendar year.

To date, we have not received any milestone payments pursuant to the Asset Purchase Agreement.

In the event that more than one milestone is achieved in a calendar year, the higher milestone payment will become payable and the lower milestone payment will become payable

only if the corresponding milestone is achieved again in a subsequent calendar year.

To date, we have not received any such milestone payments.

We now have no revenue-generating commercial products, and although we are eligible to receive up to $325.0 million in milestone-based payments from Alcon, there can be no assurance as to when we may receive such milestone payments or the amount of milestone payments we may receive, if any .

On December 27, 2022, we entered into an amendment to the Loan Agreement with Combangio and Oxford Finance, or the Third Loan Amendment.

Pursuant to the Third Loan Amendment, 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.

Offerings under Registration Statements

In connection with the filing of a registration statement on Form S-3 with the SEC, or the 2020 Shelf Registration, we entered into an amended and restated sales agreement with Jefferies, or the Amended and Restated Sales Agreement, pursuant to which we could issue and sell, from time to time, up to an aggregate of $75.0 million of our common stock under our at-the-market offering.

During the year ended December 31, 2022, we sold an aggregate of 148,461 shares of our common stock under the Amended and Restated Sales Agreement, resulting in net proceeds of $1.0 million.

From January 1, 2023 to January 10, 2023, we sold 245,887 shares of our common stock under the Amended and Restated Sales Agreement, resulting in net proceeds of $10.0 million.

On January 10, 2023, the Amended and Restated Sales Agreement terminated in accordance with its terms when we completed the sale of $75.0 million of our shares of common stock thereunder.

We filed a prospectus supplement relating to the Open Market Sale Agreement under our 2020 Shelf Registration, or the 2020 Shelf ATM Prospectus Supplement, pursuant to which we could offer and sell shares of common stock having an aggregate offering price of up to $40.0 million under the Open Market Sale Agreement.

From January 19, 2023 to May 11, 2023, we sold 229,378 shares of our common stock under our at-the-market offering pursuant to the Open Market Sale Agreement under the 2020 Shelf Registration, resulting in net proceeds of $4.9 million.

On March 3, 2023, we filed a shelf registration statement on Form S-3 with the SEC, or the 2023 Shelf Registration, which was declared effective on May 11, 2023.

Under the 2023 Shelf Registration we may offer and sell up to $350.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, subscription rights or units.

In accordance with the terms of the Open Market Sale Agreement, we may issue and sell, from time to time, up to an aggregate of $40.0 million of our common stock in an at-the-market equity offering through Jefferies.

Upon effectiveness of the 2023 Shelf Registration, we ceased any further offers or sales of our common stock pursuant to the 2020 Shelf ATM Prospectus Supplement and the 2020 Shelf Registration.

During the year ended December 31, 2023, we sold 256,256 shares of our common stock under our at-the-market offering pursuant to the 2023 Shelf Registration for total net proceeds of $3.6 million.

During the year ended December 31, 2023, we sold an aggregate of 731,521 shares of our common stock pursuant to (1) our Amended and Restated Sales Agreement and our Open Market Sale Agreement under the 2020 Shelf Registration and (2) the Open Market Sale Agreement under the 2023 Shelf Registration, for total net proceeds of $18.5 million.

Loan Agreement

On May 4, 2021, we entered into the Loan Agreement with Oxford Finance, in its capacity as lender, or the Lender, and in its capacity as collateral agent, or Agent, pursuant to which a term loan of up to an aggregate principal amount of $125.0 million became available to us, consisting of a tranche A term loan that was disbursed on the closing date of the Loan Agreement in the aggregate principal amount of $80.0 million and additional tranches that are no longer available to us.

Through June 30, 2023, the term loan bore interest at a floating rate equal to the greater of 30-day LIBOR and 0.11%, plus 7.89%.

Effective July 1, 2023, the term loan bears interest at a floating rate equal to the greater of (a) 8.00% and (b) the sum of (i) the 1-Month CME Term Secured Overnight Financing Rate, or SOFR, (ii) 0.10% and (iii) 7.89%.

In connection with our entry into the purchase agreement for the sale of our Commercial Business to Alcon, on May 21, 2022, we entered into an amendment

to the Loan Agreement, or the Second Loan Amendment, pursuant to which the Lender and Agent consented to the entry by us into the asset purchase agreement and the sale of the Commercial Business to Alcon and agreed to release its liens on the Commercial Business in consideration for the payment by us at the closing of the Alcon Transaction of an aggregate amount of $40.0 million, or the Second Amendment Prepayment, to the Lender and Agent.

On December 27, 2022, we entered into an amendment to the Loan Agreement with Combangio and Oxford Finance, or the Third Loan Amendment, pursuant to which Oxford Finance 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.

Pursuant to the Third Loan Amendment, we agreed (A) to make partial prepayments of the principal amount of the term loan outstanding under the Loan Agreement as follows, or the Third Amendment Prepayments:

(1) a payment of $5.0 million on or before June 30, 2023, representing a partial prepayment of principal in the amount of $4.7 million, plus a final payment fee of $0.3 million and (2) a payment of $5.0 million on or before January 31, 2024, representing a partial prepayment of principal in the amount of $4.7 million, plus a final payment fee of $0.3 million and (B) the start date for us to make amortization payments under the Loan Agreement was changed from January 1, 2026 to January 1, 2025, or the Amortization Date.

On January 25, 2023, we paid the Third Amendment Prepayments and the principal loan balance under the Loan Agreement following such prepayments was $34.0 million .

Pursuant to the Third Loan Amendment, in addition to the Third Amendment Prepayments, if we make an additional prepayment under the Loan Agreement equal to $5.0 million (inclusive of the final payment fee) on or prior to December 31, 2024, or the First Extension Prepayment, the Amortization Date will be automatically changed to July 1, 2025, and the maturity date of the Loan Agreement will be automatically changed from May 1, 2026 to November 1, 2026.

If, in addition to the Third Amendment Prepayments and the First Extension Prepayment, we make an additional prepayment under the Loan Agreement equal to $2.5 million (inclusive of the final payment fee) on or prior to June 30, 2025, or the Second Extension Prepayment, the Amortization Date will be automatically changed to January 1, 2026, and the maturity date of the Loan Agreement will be automatically changed to May 1, 2027 .

Under the Third Loan Amendment, the Lender and Agent also agreed to waive the prepayment fees for the Third Amendment Prepayments, the First Extension Prepayment, the Second Extension Prepayment and any other prepayments under the Loan Agreement.

Under the Third Loan Amendment, the Oxford Finance also agreed to waive the prepayment fees for the Third Amendment Prepayments, the First Extension Prepayment, the Second Extension Prepayment and any other prepayments under the Loan Agreement.

Pursuant to the Loan Agreement, we also will be required to pay all accrued and unpaid interest on the principal amounts of the term loan being repaid at the time of repayment.

On January 25, 2023, we paid the Third Amendment Prepayments and the principal loan balance under the Loan Agreement following the Prepayments was $34.0 million.

We paid a facility fee of $0.4 million on the closing date of the Loan Agreement.

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

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

On November 28, 2022, in connection with the Private Placement, we entered into a Securities Purchase Agreement, or the Securities Purchase Agreement, with certain institutional investors names therein, or the Purchasers, pursuant to which we agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, shares of our common stock and shares of our Series E Convertible Non-Redeemable Preferred Stock, or the Series E Preferred Stock, in two tranches for aggregate gross proceeds of up to $31.0 million, which we refer collectively as the Private Placement.

Pursuant to the Securities Purchase Agreement, at the first closing of the Private Placement on December 1, 2022, we issued and sold to the Purchasers (i) 76,813 shares of common stock, at a price per share equal to $5.75 and (ii) 9,666 shares of Series E Preferred Stock, at a price per share equal to $575.00, for aggregate gross proceeds of approximately $6.0 million.

On December 27, 2022, following the certification by our Chief Executive Officer that the FDA accepted our IND application for KPI-012, we issued and sold to the Purchasers at a second closing of the Private Placement a total of 43,478 shares of Series E Preferred Stock, at a price per share equal to $575.00, for aggregate gross proceeds of approximately $25.0 million.

F or further information about the Private Placement and the Securities Purchase Agreement, see Item 1, “Business.”

On August 1, 2023, we entered into a fourth amendment to the Loan Agreement pursuant to which certain provisions of the Loan Agreement were amended in connection with the change in our corporate name and the cessation of the U.S.

Dollar LIBOR rate.

On August 2, 2023, we entered into a fifth amendment to the Loan Agreement pursuant to which Oxford Finance consented to our entry into the CIRM Award and certain provisions of the Loan Agreement were amended in connection therewith.

Private Placements

On November 28, 2022, we entered into a Securities Purchase Agreement with certain institutional investors named therein, or the Series E Purchasers, pursuant to which we agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, shares of our common stock and shares of our Series E Convertible Non-Redeemable Preferred Stock, or the Series E Preferred Stock, in two tranches for aggregate gross proceeds of up to $31.0 million, which we refer collectively as the 2022 Private Placement.

At the first closing of the 2022 Private Placement on December 1, 2022, we issued and sold to the Series E Purchasers (i) 76,813 shares of common stock, at a price per share equal to $5.75 and (ii) 9,666 shares of Series E Preferred Stock, at a price per share of Series E Preferred Stock equal to

$575.00, for aggregate gross proceeds of approximately $6.0 million.

On December 27, 2022, following the certification by our Chief Executive Officer that the FDA accepted our IND application for KPI-012, we issued and sold to the Series E Purchasers at a second closing of the 2022 Private Placement a total of 43,478 shares of Series E Preferred Stock, at a price per share of Series E Preferred Stock equal to $575.00, for aggregate gross proceeds of approximately $25.0 million.

On December 21, 2023, we entered into a securities purchase agreement with certain institutional investors named therein pursuant to which we agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, 2,928 shares of our Series F Convertible Non-Redeemable Preferred Stock, or the Series F Preferred Stock, at a price per share of $683.00, for aggregate gross proceeds of approximately $2.0 million.

On March 25, 2024, we entered into a securities purchase agreement with certain institutional investors named therein pursuant to which we agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, 10,901 shares of our Series G Convertible Non-Redeemable Preferred Stock, or the Series G Preferred Stock, at a price per share of $788.90, for aggregate gross proceeds of approximately $8.6 million.

On April 28, 2023, CIRM awarded Combangio a $15 million grant, subject to entering into a final award agreement, to support its ongoing KPI-012 program for the treatment of PCED as well as product and process characterization and analytical development for the program.

On August 2, 2023, Combangio entered into the CIRM Award and became entitled to receive $5.9 million.

For a further description of the CIRM Award and the potential milestone payments we may receive, see “Financial Operations Overview – Grant Income” above.

Combangio Acquisition

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

Pursuant to the Merger Agreement, former Combangio Equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, contingent consideration, which would become payable upon our achievement of various development, regulatory and sales milestones and as a result of certain cash royalty payment obligations which are in the mid-to-high single digits.

Former Combangio Equityholders are entitled to receive from us, subject to the terms and conditions of the Merger Agreement, contingent consideration, which would become payable upon our achievement of various development, regulatory and sales milestones and as a result of certain cash royalty payment obligations which are in the mid-to-high single digits.

The total potential maximum payout for the milestone payments which are contingent upon the achievement of specified development, regulatory and commercialization milestones is $40.0 million and the total potential maximum payout for future sales-based milestone payments is an additional $65.0 million.

To date, of the $40.0 million of contingent consideration payable upon achievement of specified development, regulatory and commercialization milestones, we are obligated to pay to the former Combangio Equityholders an aggregate of $2.5 million in cash and $2.4 million in shares of our common stock (representing an aggregate of 105,039 shares of our common stock) upon dosing of the first patient in our Phase 2b clinical trial of KPI-012 for PCED in the United States in February 2023.

We anticipate making this payment and issuing these shares of our common stock in March 2023.

The remaining amount of $0.1 million for this milestone will be paid in January 2024.

For a full description of the consideration payable as a result of the Combangio Acquisition, see Note 3 of our consolidated financial statements.

Our other material cash requirements from known contractual and other obligations as of December 31, 2022 primarily related to our licensing agreement with Stanford University.

For information related to our future commitments relating to our licensing agreement, see Note 17, “Commitments and Contingences” of our consolidated financial statements.

To date, of the $40.0 million of contingent consideration payable upon achievement of specified development, regulatory and commercialization milestones, in March 2023 we paid to the former Combangio Equityholders an aggregate of $2.5 million in cash and $2.4 million in shares of our common stock (representing an aggregate of 105,038 shares of our common stock) following dosing of the first patient in our CHASE trial in February 2023.

The remaining amount of $0.1 million for this milestone was paid in cash in January 2024.

For a full description of the consideration payable as a result of the Combangio Acquisition , see Note 3, “Acquisitions and Divestitures” of our consolidated financial statements.

Other Contractual Obligations

Our other material cash requirements from known contractual and other obligations as of December 31, 2023 primarily related to our licensing agreement with Stanford University and our operating lease.

For information related to our future commitments relating to our licensing agreement, see Note 17, “Commitments and Contingencies” of our consolidated financial statements.

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

As of December 31, 2023 and 2022, we had $50.9 million and $70.5 million in cash and cash equivalents, respectively.

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Net cash used in operating activities

Net cash provided by investing activities

Net cash (used in) provided by financing activities

(Decrease) increase in cash and restricted cash

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Decrease in cash and restricted cash

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $78.9 million compared to $108.2 million for the year ended December 31, 2021, a decrease of $29.3 million, primarily due to a $18.2 million

decrease in the net loss adjusted for non-cash charges and the timing of working capital fluctuations which accounted for $11.1 million of the decrease.

Notable working capital fluctuations include a decrease to accounts receivable in the year ended December 31, 2022 of $15.1 million as a result of the sale of our Commercial Business on July 8, 2022, whereas accounts receivable had increased by $5.8 million in the year ended December 31, 2021 driven by an increase in sales largely due to the launch of EYSUVIS.

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

Partially offsetting these increases was an increase in accounts payable, accrued expenses and other current liabilities during the year ended December 31, 2021 of $4.9 million, as compared to a decrease in accounts payable, accrued expenses and other current liabilities in the year ended December 31, 2020 of $14.0 million.

Net cash used in operating activities for the year ended December 31, 2023 was $27.9 million compared to $78.9 million for the year ended December 31, 2022, a decrease of $51.0 million, primarily due to a $42.6 million decrease in the net loss adjusted for non-cash charges and an $8.4 million decrease due to the timing of working capital fluctuations.

Notable working capital fluctuations included a decrease in accounts payable, accrued expenses and other current liabilities during the year ended December 31, 2023 of $4.3 million, as compared to a decrease in accounts payable, accrued expenses and other current liabilities in the year ended December 31, 2022 of $14.0 million.

Prepaid expenses and other current assets decreased by $5.7 million during the year ended December 31, 2023, as compared to an increase of $2.0 million during the year ended December 31, 2022, as a result of the collection of receivables due from Alcon and third parties in connection with transition related services.

Inventory and assets held for sale decreased by $7.5 million during the year ended December 31, 2023, as a result of the expense recorded to assets held for sale to write-off the remaining inventory balance, as compared to a decrease of $1.7 million during the year ended December 31, 2022.

These changes in working capital from the year ended December 31, 2022 to the year ended December 31, 2023 were partially offset by a $0.1 million decrease in accounts receivable in the year ended December 31, 2023 as compared to a $15.1 million decrease in the year ended December 31, 2022 as a result of the sale of our Commercial Business in 2022.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2022 was $62.7 million compared to net cash provided of $70.8 million for the year ended December 31, 2021, a decrease of $8.1 million.

Net cash used in investing activities for the year ended December 31, 2023 was $0.4 million compared to net cash provided of $62.7 million for the year ended December 31, 2022, a decrease of $63.1 million.

N et cash used in investing activities for the year ended December 31, 2023 related to purchases of short-term investments of $9.9 million and purchases of property and equipment and other assets of $0.6 million, partially offset by proceeds from the sale or maturities of short-term investments of $10.0 million.

N et cash provided by investing activities for the year ended December 31, 2022 related to proceeds from the disposition of the Commercial Business, net of transaction costs, of $62.9 million, proceeds from the sales or maturities of short-term investments of $5.0 million and proceeds from the sale of property and equipment of $0.1 million, partially offset by the purchases of short-term investments of $5.0 million and purchases of property and equipment and other assets of $0.3 million.

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

Financing Activities

Net cash used in financing activities for the year ended December 31, 2022 was $7.9 million, a decrease of $50.5 million compared to net cash provided by financing activities of $42.6 million in the year ended December 31, 2021.

Net cash used in financing activities for the year ended December 31, 2022 largely consisted of $40.0 million of repayment of principal, prepayment premium and final payment fee on our Loan Agreement, partially offset by net proceeds of $30.8 million from the issuance of common stock and Series E Preferred Stock in our Private Placement, $1.0 million of net proceeds from the sale of shares of our common stock under the Amended and Restated Sales Agreement, and $0.3 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

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

Net cash provided by financing activities for the year ended December 31, 2023 was $8.5 million, a change of $16.4 million compared to net cash used in financing activities of $7.9 million in the year ended December 31, 2022.

Net cash provided by financing activities for the year ended December 31, 2023 largely consisted of $18.5 million of net proceeds from the sale of shares of our common stock through Jefferies under our at-the market offering, and $2.0 million of proceeds from the sale of Series F Preferred Stock in our 2023 Private Placement, partially offset by $10.0

million of repayment of principal and final payment fee on our Loan Agreement and a $2.0 million payment for the First Dosing Milestone reflected in financing activities.

Net cash used in financing activities for the year ended December 31, 2022 largely consisted of $40.0 million of repayment of principal, prepayment premium and final payment fee on our Loan Agreement, partially offset by net proceeds of $30.8 million from the sale of common stock and Series E Preferred Stock in our 2022 Private Placement, $1.0 million of net proceeds from the sale of shares of our common stock through Jefferies under our at-the-market offering, and $0.3 million of proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

Funding Requirements

We anticipate that our 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 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.

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 planned preclinical studies under our KPI-014 program.

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● 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;

● initiate and continue the research and development of KPI-012 for additional indications, such as Limbal Stem Cell Deficiency, including initiating and conducting preclinical studies and clinical trials;

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

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

We anticipate that our cash and cash equivalents 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 anticipate that our cash and cash equivalents as of December 31, 2023, together with the $8.6 million of gross proceeds we received from the sale of shares of our preferred stock in a private placement in March 2024 and the $9.1 million of remaining funding anticipated under the CIRM Award, will enable us to fund our operations, lease and debt service obligations, and capital expenditure requirements into the third 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 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 for 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.

For example, we may not receive all of the funds awarded under the CIRM Award.

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

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

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

● completing the clinical development of KPI-012 for PCED and any other indications we determine to pursue, including Limbal Stem Cell Deficiency;

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

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● obtaining, maintaining and protecting our intellectual property rights.

● 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.

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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.

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.

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

In addition, under the Securities Purchase Agreement, we also agreed that we will not, without the prior approval of the requisite Purchasers, (i) issue or authorize the issuance of any equity security that is senior or pari passu to the Series E Preferred Stock with respect to liquidation preference, (ii) incur any additional indebtedness for borrowed money in excess of $1.0 million, in the aggregate, outside the ordinary course of business, subject to specified exceptions, including the refinancing of our existing indebtedness or (iii) pay or declare any dividend or make any distribution on, any shares of our capital stock, subject to specified exceptions.

In addition, under the securities purchase agreements for our 2022, 2023 and 2024 Private Placements, we also agreed that we will not, without the prior approval of the requisite purchasers, (i) issue or authorize the issuance of any equity security that is senior or pari passu to the Series E Preferred Stock, the Series F Preferred Stock or the Series G Preferred Stock with respect to liquidation preference, (ii) incur any additional indebtedness for borrowed money in excess of $1.0 million, in the aggregate, outside the ordinary course of business, subject to specified exceptions, including the refinancing of our existing indebtedness or (iii) pay or declare any dividend or make any distribution on, any shares of our capital stock, subject to specified exceptions.

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

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

Additionally, the COVID-19 pandemic has already caused significant disruptions in the financial markets, and may again cause such disruptions, which could impact our ability to raise additional funds.

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis