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Item 9A. Controls and Procedures

2024-03-29 compared with 2023-03-03 · 425 added, 1348 removed, 860 unchanged (67% of the section changed)

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures

of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

17 unchanged sentences

Other Information

(b) None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the three months ended December 31, 2023.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

1 unchanged sentence

Directors, Executive Officers and Corporate Governance

Executive Officers and Directors

Set forth below are the names of, and certain information for, each executive officer and member of our board of directors as of March 1, 2023.

There are no family relationships among any of our directors or executive officers.

Executive Officers

Chief Executive Officer and Chairman of the Board

Todd Bazemore

President and Chief Operating Officer

Kim Brazzell, Ph.D.

Head of Research and Development and Chief Medical Officer

Darius Kharabi

Chief Business Officer

Mary Reumuth, C.P.A.

Chief Financial Officer and Treasurer

General Counsel, Chief Compliance Officer and Corporate Secretary

Non-Employee Directors

Blumenkranz, M.D.(2)

Marjan Farid, M.D.(3)

Daniel Myers(2)(3)

Robert Paull(1)(3)

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Nominating and Corporate Governance Committee.

Executive Officers

Mark Iwicki has served as our Chief Executive Officer and Chairman of our board of directors since September 2015.

Iwicki previously served as our President from August 2017 to December 2021 and as Executive Chairman of our board of directors from April 2015 to September 2015.

Prior to joining us, Mr.

Iwicki served as President and Chief Executive Officer of Civitas Therapeutics, Inc., or Civitas, a biopharmaceutical company, from January 2014 to November 2014.

Prior to Civitas, Mr.

Iwicki served as President and Chief Executive Officer at Blend Therapeutics, Inc., or Blend, a biopharmaceutical company, from December 2012 to January 2014.

Prior to Blend, Mr.

Iwicki was President and Chief Executive Officer of Sunovion Pharmaceuticals Inc.

(formerly Sepracor Inc.), or Sunovion, a pharmaceutical company.

Iwicki was at Sepracor/Sunovion from October 2007 to June 2012.

Prior to joining Sepracor Inc., Mr.

Iwicki was Vice President and Business Unit Head at Novartis Pharmaceuticals Corporation, a biopharmaceutical company.

He was at Novartis from March 1998 to October 2007.

Prior to that, Mr.

Iwicki held management positions at Astra Merck Inc.

and Merck & Co., Inc.

In addition to serving on our board of directors, Mr.

Iwicki also currently serves on the boards of Aerovate Therapeutics, Inc., Merus N.V., Akero Therapeutics, Inc.

and Third Harmonic Bio, Inc.

and formerly served on the board of Aimmune Therapeutics, Inc.

and Pulmatrix Inc., all

publicly-traded companies.

Iwicki holds a B.S.

in Business Administration from Ball State University and an M.B.A.

from Loyola University.

Todd Bazemore has served as our President since December 2021 and as our Chief Operating Officer since November 2017.

Previously, he served as Executive Vice President and Chief Operating Officer of Santhera Pharmaceuticals (USA) Inc., or Santhera, a pharmaceutical company and subsidiary of Santhera Pharmaceuticals Holdings AG, from September 2016 until November 2017.

Prior to joining Santhera, Mr.

Bazemore served as Executive Vice President and Chief Commercial Officer of Dyax Corp., or Dyax, a biopharmaceutical company focused on orphan diseases, between April 2014 and January 2016, when Dyax was acquired by Shire plc.

Bazemore oversaw all aspects of Dyax’s commercial department including sales, marketing, commercial analytics, market access and patient services.

Between April 2012 and September 2013, he served as Vice President, Managed Markets at Sunovion Pharmaceuticals, Inc., or Sunovion (a subsidiary of Dainippon Sumitomo Pharma Co.

Ltd.), a global biopharmaceutical company focused on serious medical conditions.

Prior to that, Mr.

Bazemore held several roles of increasing responsibility at Sunovion, including Vice President of Sales and Vice President of Respiratory Business Unit.

Since October 2020, Mr.

Bazemore has served on the board of directors of Pulmatrix Inc., a clinical stage publicly traded biopharmaceutical company.

He received his Bachelor of Science from the University of Massachusetts, Lowell.

Kim Brazzell, Ph.D.

has served as our Chief Medical Officer since February 2013 and as our Head of Research and Development since December 2021.

Brazzell served as Chief Medical Officer of Mimetogen Pharmaceuticals, Inc., a clinical stage biotechnology company, from January 2012 until December 2015.

Brazzell also held several executive positions at Inspire Pharmaceuticals, Inc., or Inspire, a specialty pharmaceutical company focusing on ophthalmic and respiratory products, including Executive Vice President of Medical and Scientific Affairs from 2010 to 2011, Executive Vice President and Head of Ophthalmology Business from 2009 to 2010, and Senior Vice President of Ophthalmic Research and Development from 2004 to 2008.

Prior to joining Inspire, Dr.

Brazzell served as Global Head of Clinical R&D and Senior Vice President, U.S.

R&D, of Novartis Ophthalmics AG from 2000 to 2004.

Brazzell also served as Vice President, R&D at Ciba Vision Ophthalmics, Inc.

and as Associate Director, R&D, at Alcon Laboratories, Inc.

Brazzell received a B.S.

in Pharmacy and a Ph.D.

in Pharmaceutical Sciences from the University of Kentucky.

Darius Kharabi has served as our Chief Business Officer since November 2021.

From August 2018 to November 2021, Mr.

Kharabi was co-founder and CEO of Combangio Inc., a clinical stage ophthalmology mesenchymal stem cell secretome company acquired by Kala Pharmaceuticals in November 2021.

He is the co-founder of Lagunita Biosciences LLC, an early-stage medical investment company, and from October 2015 to August 2018 he helped create and manage multiple Lagunita portfolio life-science companies, including xCella Biosciences, acquired by Ligand, Kedalion Therapeutics, acquired by Novartis AG, and Combangio.

From October 2015 through August 2019 he served as the Chief Operating Officer of xCella Biosciences and from October 2015 through November 2017 he served as the President of Kedalion.

Prior to Lagunita, he served as Vice President, Corporate Development and International Sales at OrthAlign, a commercial stage orthopedic surgery navigation company, where his responsibilities included the launch of the KneeAlign ® total knee arthroplasty navigation product line in the US and global markets.

Kharabi started his career as a biotechnology licensing attorney at Wilson, Sonsini, Goodrich & Rosati, PC.

He received his B.S.

in Biochemistry from Georgetown University and his J.D.

degrees from Stanford University.

Mary Reumuth, C.P.A.

has served as our Chief Financial Officer since July 2017, Senior Vice President, Finance from February 2017 to July 2017, our Vice President, Finance from December 2014 to February 2017, our Senior Director, Finance from February 2014 to December 2014, our Corporate Controller from February 2014 to July 2017 and as our Treasurer since February 2014.

Prior to joining us, Ms.

Reumuth acted as an independent financial consultant from November 2012 to January 2014 and, prior to that, served as Corporate Controller for Enobia Pharma Corp., or Enobia, a global biopharmaceutical company acquired by Alexion Pharmaceuticals, Inc., from May 2011 to June 2012.

Prior to Enobia, Ms.

Reumuth served as Director of Finance at Verenium Corporation, or Verenium, a biotechnology company, from December 2007 to March 2011.

From 2001 to 2007, Ms.

Reumuth held a variety of finance and accounting positions at Genzyme Corporation, or Genzyme, (now a Sanofi Company), and ILEX Oncology, Inc., or ILEX (acquired by Genzyme).

Prior to ILEX, Ms.

Reumuth was an auditor at Ernst & Young LLP.

Since April 2022, Ms.

Reumuth has served on the board of directors of Olink Holding AB, a publicly traded company.

Reumuth earned her Bachelor’s degree in Business Administration from Texas A&M University-Corpus Christi, and is a Certified Public Accountant.

Trachtenberg has served as our General Counsel and Corporate Secretary since April 2018 and as our Chief Compliance Officer since June 2018.

Previously, he served as General Counsel, Chief Compliance Officer and Corporate Secretary of Aralez Pharmaceuticals Inc., or Aralez, a pharmaceutical company, from February 2016 to March 2018.

Prior to that, he served in similar capacities for Pozen Inc., Aralez’s predecessor, from June 2015 to February 2016.

Trachtenberg also formerly served as Deputy General Counsel at Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, from May 2012 through its acquisition by Endo Pharmaceuticals in February 2015.

Prior to Auxilium, he was Vice President, General Counsel and Corporate Secretary of Enobia Pharma, Inc.

from April 2011 through its acquisition by Alexion Pharmaceuticals in April 2012.

Prior to that, Mr.

Trachtenberg served as Vice President and Associate General Counsel of Sepracor Inc.

(now known as Sunovion Pharmaceuticals Inc.) commencing in May 2007 and remained in that position following the acquisition of Sepracor Inc.

by Dainippon Sumiztomo Pharma through April 2011.

Trachtenberg also held a Senior Counsel position at Kos Pharmaceuticals, Inc.

from July 2005 to April 2007 before its acquisition by Abbott.

Trachtenberg began his career at Blank Rome LLP.

He holds a Juris Doctorate and Master of Business Administration from Temple University and a Bachelor of Science in Management from Tulane University.

Non- Employee Directors

Blumenkranz, M.D., MMS , has served as a member of our board of directors since November 2021.

Blumenkranz has served as the HJ Smead Professor Emeritus in the Department of Ophthalmology at Stanford University since March 2019, the Co-Director of its Ophthalmic Innovation Program since 2016, and he previously served as Department Chair from 1997 until 2015.

Blumenkranz played a leading role in the planning, fundraising and construction of the Byers Eye Institute at Stanford University and served as its Director from its opening in September 2010 through June 2015.

Blumenkranz previously served on the board of directors of Oculex Pharmaceuticals, Inc., which was acquired by Allergan, Inc.

in 2003, Macusight, an ophthalmic pharmaceutical company, acquired by Santen in 2010, Peak Surgical, Inc., an innovator in pulsed plasma mediated electro-surgery that was acquired by Medtronic, Inc.

in 2011, and OptiMedica Corp.

which was acquired by Abbott Medical Optics in 2013.

In 2006, he co-founded Adverum Biotechnologies, Inc., and served as chairman of its board of directors through 2016.

In 2011, he co-founded Oculeve, Inc., and served on its board directors through its acquisition by Allergan in August 2015.

He was a founder and served on the board of directors of Verana Health, Inc., a digital medicine and health analytics company, from 2009 until 2020.

He was the founding Chairman of Kedalion Therapeutics, an ophthalmic drug delivery company and served as its chief executive officer from September 2019 until June 2022, when it was acquired by Novartis AG.

He also served on the board of directors of One Medical from 2019 until its acquisition by Amazon in February 2023.

He currently serves as director at BVI Visitec, a global ophthalmic surgical company, and Iveric Bio, Inc., a publicly traded ophthalmic biopharmaceutical company.

Since October 2015, Dr.

Blumenkranz has served as Managing Partner of Lagunita Biosciences LLC, an early-stage medical investment company, that is our current 5% beneficial stockholder.

Since May 2015, Mr.

Blumenkranz has also served as the Managing Partner of Garland Investments, Inc.

Blumenkranz holds an A.B.

in Biology, Master’s Degree in Biochemical Pharmacology, and M.D.

from Brown University.

He completed his internship and ophthalmic residency at Stanford and subsequently the Executive Program at Stanford’s Graduate School of Business.

We believe that Dr.

Blumenkranz’s experience in the ophthalmology field qualifies him to serve as a member of our board of directors.

Marjan Farid, M.D.

has served as a member of our board of directors since October 2022.

Since 2007, Dr.

Farid has served as Professor of Clinical Ophthalmology, Director of Cornea, Refractive & Cataract Surgery, and Vice Chair of Ophthalmic Faculty at the Gavin Herbert Eye Institute, University of California Irvine.

Her clinical practice is divided between patient care, teaching, and research.

Farid’s research interests focus on corneal surgery, specifically the use of the femtosecond laser for corneal transplantation.

Farid is also the founder of the Severe Ocular Surface Disease Center at the University of California Irvine, where she performs limbal stem cell transplants, as well as artificial corneal transplantation, for the treatment of patients with severe ocular surface disease.

Farid also serves as the Chair of the Corneal Clinic Committee of the American Society of Cataract and Refractive Surgery.

Farid received a B.S.

in Biology from the University of California - Los Angeles and M.D.

from the University of California - San Diego.

We believe that Dr.

Farid’s experience in the ophthalmology field qualifies her to serve as a member of our board of directors.

Koven has served as a member of our board of directors since September 2017 and as our Lead Independent Director since December 2018.

Koven was, until his retirement in January 2019, the President and Chief Business Officer of Aralez Pharmaceuticals Inc., or Aralez, a public specialty pharmaceutical company, and served in that role with the company’s predecessor, Pozen Inc., or Pozen, commencing in June 2015.

Prior to joining

Koven served as Executive Vice President, Chief Administrative Officer and General Counsel of Auxilium Pharmaceuticals Inc., a public specialty biopharmaceutical company, from February 2012 until January 2015, when it was acquired by Endo International plc.

Koven served as President and Chief Administrative Officer and a member of the board of directors of Neurologix, Inc., a company focused on the development of multiple innovative gene therapy development programs, from September 2011 to November 2011.

Before Neurologix, Mr.

Koven served as Executive Vice President and Chief Administrative and Legal Officer of Inspire Pharmaceuticals, Inc., a public specialty pharmaceutical company, from July 2010 until May 2011 when it was acquired by Merck & Co., Inc.

Previously, Mr.

Koven served as Executive Vice President, General Counsel and Corporate Secretary of Sepracor Inc.

(now Sunovion), a public specialty pharmaceutical company, from March 2007 until February 2010 when it was acquired by Dainippon Sumitomo Pharma Co., Ltd.

Prior to joining Sepracor, Mr.

Koven served as Executive Vice President, General Counsel and Corporate Secretary of Kos Pharmaceuticals, Inc., a public specialty pharmaceutical company, from August 2003 until its acquisition by Abbott Laboratories (now AbbVie) in December 2006.

Koven began his career in the pharmaceutical industry first as an Assistant General Counsel and then as Associate General Counsel at Warner-Lambert Company from 1993 to 2000, followed by his role as Senior Vice President and General Counsel at Lavipharm Corporation from 2000 to 2003.

Koven also currently serves on the board of NeuroBo Pharmaceuticals, Inc., a publicly-traded company, and has served as its chairperson since January 2022.

From 1986 to 1992 he was a corporate associate at Cahill, Gordon & Reindel in New York.

From 1992 to 1993 he served as Counsel, Corporate and Investment Division, at The Equitable Life Assurance Society of the U.S.

Koven holds a Master of Laws (LL.M.) Degree from Columbia University School of Law and a Bachelor of Laws (LL.B.) Degree and Bachelor of Arts Degree in Political Science from Dalhousie University.

We believe that Mr.

Koven’s extensive experience in the pharmaceutical industry qualifies him to serve as a member of our board of directors.

Daniel Myers has served as a member of our board of directors since October 2021.

Myers served as the Chief Executive Officer of MediPrint Ophthalmics, Inc.

(formerly Leo Lens Pharma), a private eye-care company, from April 2020 to April 2022.

Previously, Mr.

Myers co-founded Alimera Sciences, Inc., or Alimera, a publicly traded pharmaceutical company, and served as its Chief Executive Officer from 2003 until January 2019.

Before co-founding Alimera, Mr.

Myers was an initial employee of Novartis Ophthalmics (formerly CIBA Vision Ophthalmics), a pharmaceutical company, and served as its Vice President of sales and marketing from 1991 to 1997 and as President from 1997 to 2003.

Myers has served as a director of Alimera since 2003 and has served as chairman of its board of directors since January 2019.

In addition, Mr.

Myers served on the board of directors of Ocular Therapeutix, Inc., a publicly traded biopharmaceutical company, from 2009 to 2012.

Myers holds a B.S.

in Industrial Management from the Georgia Institute of Technology.

We believe that Mr.

Myers’ experience in the biopharmaceutical industry, including his specific experience with ophthalmology pharmaceutical companies, qualifies him to serve as a member of our board of directors.

Robert Paull has served as a member of our board of directors since July 2009.

Paull was a co-founder of, and since 2014 has been a Venture Partner at, Lux Capital Management, or Lux Capital, where he focuses on healthcare ventures.

Paull has served as an Advisor to Zelda Ventures, an investment advisor firm, since January 2023, to Broken String Biosciences, a biosciences company, since April 2022 and to Outsized Ventures, an early-stage venture capital fund, since December 2021.

In addition, Mr.

Paull served as our founding Chief Executive Officer, President and Treasurer from July 2009 to June 2012.

Paull also served as founding Chief Executive Officer of Genocea Biosciences Inc., a vaccine discovery and development company, from August 2006 to February 2009, and was the co-founder of Lux Research, Inc., an emerging technology market research and consulting firm, which was founded in January 2004.

From January 2018 to December 2020, Mr.

Paull was the founding Chief Executive Officer of Mahana Therapeutics, Inc., a digital therapeutics company.

Paull holds a B.S.

in Architecture from the University of Virginia.

We believe that Mr.

Paull’s extensive experience guiding and investing in healthcare ventures qualifies him to serve as a member of our board of directors.

Perry has served as a member of our board of directors since February 2018.

Perry served as Chief Financial Officer for Finch Therapeutics Group, Inc., a public therapeutics company focused on the microbiome, from June 2018 to April 30, 2022.

Previously, he served as Chief Financial and Administrative Officer of Novelion Therapeutics Inc., or Novelion, a public biopharmaceutical company, from November 2016 to December 2017.

Prior to this, Mr.

Perry was Chief Financial Officer of Aegerion Pharmaceuticals, Inc., a public biopharmaceutical company, from July 2015 until its merger with Novelion in November 2016.

Prior to that, he served as Chief Financial and Business Officer of Eleven Biotherapeutics, Inc., a public company, from January 2014 to June 2015.

Before joining Eleven Biotherapeutics, Mr.

Perry served as the Interim Chief Financial Officer of InVivo Therapeutics, a public biotechnology company, from September 2013 to December 2013, and prior to that he served as the Senior Vice

President and Chief Financial Officer of ImmunoGen, Inc., a public biotechnology company, from 2009 until he was promoted in 2011 to Executive Vice President and Chief Financial Officer, a role he held until 2013.

Before that, he was the Chief Financial Officer of Elixir Pharmaceuticals.

Perry previously was Senior Vice President and Chief Financial Officer of Transkaryotic Therapies.

He has also held various financial leadership roles within PerkinElmer Inc., Domantis Ltd., Honeywell and General Electric.

Since May 2016, Mr.

Perry has served on the board of directors of Merus N.V., a public clinical-stage immuno-oncology company, including as Chair of its Audit Committee.

From December 2011 to February 2016, Mr.

Perry served on the board of directors of Ocata Therapeutics, a public biotechnology company, including as Chair of its Audit Committee and a member of its Compensation Committee, until it was acquired by Astellas Pharma Inc.

Perry received a B.A.

in Economics and Political Science from Amherst College.

We believe that Mr.

Perry’s experience in the biopharmaceutical industry, including his specific experience in financial leadership roles in biopharmaceutical companies, qualifies him to serve as a member of our board of directors.

Rosen has served as a member of our board of directors since January 2014.

Since 2008, Mr.

Rosen has served as a consultant to several companies in the biotechnology industry.

He has served at Stanford University as an adjunct professor in Chemical Engineering since 2021 and as a lecturer in Management since 2011, and he previously served as a lecturer in Chemical Engineering from 2009 until 2021.

Rosen served as Chief Executive Officer of AcelRx Pharmaceuticals, Inc., or AcelRx, a public specialty pharmaceutical company developing products for pain relief, from April 2016 to March 2017, and Interim Chief Executive Officer from April 2015 to March 2016.

Rosen also served as Interim President and Chief Executive Officer of Pearl Therapeutics, Inc.

from June 2010 to March 2011.

From 2004 to 2008, Mr.

Rosen was Vice President of Commercial Strategy at Gilead Sciences, Inc., a biopharmaceutical company.

From 2003 until 2004, Mr.

Rosen was President of ALZA Corporation, a pharmaceutical and medical systems company that merged in 2001 with Johnson & Johnson, a global healthcare company.

Prior to that, from 1994 until 2003, Mr.

Rosen held various positions at ALZA Corporation.

Rosen is a member of the board of directors of AcelRx and also served on the board of directors of Alcobra, Ltd., a public pharmaceutical company, until November 2017.

Rosen is also currently a member of the board of directors of private companies, including Firecycte Therapeutics, Inc., Hammerton, Inc., Hopewell Therapeutics, Inc.

and Entrega, Inc., and was a member of the board of directors of Metera Pharmaceuticals, Inc.

from 2018 to 2020 and Aria Pharmaceuticals, Inc.

from 2020 to 2023.

Rosen holds a B.S.

in Chemical Engineering from Stanford University, an M.S.

in Chemical Engineering from the Massachusetts Institute of Technology and an M.B.A.

from the Stanford Graduate School of Business where he was an Arjay Miller Scholar and a Henry Ford II Scholar.

We believe that Mr.

Rosen’s experience in the biopharmaceutical industry, including his specific experience with the development and commercialization of pharmaceutical products, qualifies him to serve as a member of our board of directors.

From February 2016 to March 2018, Eric L.

Trachtenberg, our General Counsel and Chief Compliance Officer, served as General Counsel, Chief Compliance Officer and Corporate Secretary of Aralez.

Prior to that, Mr.

Trachtenberg served in similar capacities for Pozen, Aralez’s predecessor, from June 2015 to February 2016.

In addition, Mr.

Koven was, until his retirement on January 30, 2019, the President and Chief Business Officer of Aralez and served in that role with the company’s predecessor, Pozen, commencing on June 1, 2015.

On August 10, 2018, Aralez and its affiliates each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

Composition of the Board of Directors

Our board of directors is authorized to have, and currently consists of, eight members divided into three classes, with members of each class holding office for staggered three-year terms.

There are currently three Class I directors (Marjan Farid, M.D., Andrew I.

Koven and Gregory D.

Perry), whose terms expire at the 2024 annual meeting of stockholders;

two Class II directors (Mark Iwicki and Mark S.

Blumenkranz, M.D.), whose terms expire at the 2025 annual meeting of stockholders;

and three Class III directors (Robert Paull, C.

Daniel Myers and Howard B.

Rosen) whose terms expire at the 2023 annual meeting of stockholders (in all cases subject to the election and qualification of their successors or to their earlier death, resignation or removal).

Audit Committee and Audit Committee Financial Expert

The members of our audit committee are Howard B.

Rosen, Robert Paull and Gregory D.

Perry is the chair of the audit committee.

Our board of directors has determined that Mr.

Perry is an “audit committee financial expert” as defined in applicable SEC rules.

Our board of directors has determined that Mr.

Perry is an “independent

director” as defined under applicable Nasdaq rules and satisfies the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934.

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer.

A copy of the code is available on the “Investors—Corporate Governance” section of our website, which is located at www.kalarx.com.

Our board of directors is responsible for overseeing the code of business conduct and ethics and must approve any waivers of the code for directors, officers and employees.

If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report or in any other report or document we file with the SEC, and any reference to our website address is intended to be an inactive textual reference only.

Executive Compensation

Executive and Director Compensation Processes

Our executive compensation program is administered by the compensation committee of our board of directors, subject to the oversight and approval of our board of directors.

Our compensation committee reviews our executive compensation practices on an annual basis and based on this review approves, or, as appropriate, makes recommendations to our board of directors for approval of our executive compensation program.

In designing our executive compensation program, our compensation committee considers publicly available compensation data for national and regional companies in the biotechnology/pharmaceutical industry to help guide its executive compensation decisions at the time of hiring and for subsequent adjustments in compensation.

Our director compensation program is administered by our board of directors with the assistance of the compensation committee.

The compensation committee conducts an annual review of director compensation and makes recommendations to the board of directors with respect thereto.

Since 2018, our compensation committee has retained Aon’s Human Capital Solutions practice, a division of Aon plc (formerly Radford), as its independent compensation consultant, to provide comparative data on executive compensation practices in our industry and to advise on our executive and director compensation programs generally.

In January 2023, our compensation committee retained Pearl Meyer, as an additional independent compensation consultant, to advise on a proposed option exchange program.

Although our compensation committee considers the advice and guidelines of Aon as to our executive and director compensation programs, and considered the advice of Pearl Meyer as to the proposed option exchange program, our compensation committee ultimately makes its own decisions about these matters and recommendations to our board about these matters.

During the fiscal year ended December 31, 2022, the compensation committee directly engaged Aon to develop recommendations covering equity compensation for executives and an equity compensation strategy for non-officer employees;

and review and make recommendations with respect to our director compensation program.

Aon ultimately developed recommendations that were reviewed by the compensation committee.

In the future, we expect that our compensation committee will continue to engage independent compensation consultants to provide additional guidance on our executive compensation programs, our director compensation programs and to conduct further competitive industry benchmarking against a peer group of publicly traded companies.

The compensation committee reviewed information regarding the independence and potential conflicts of interest of Aon and Pearl Meyer, taking into account, among other things, the factors set forth in the Nasdaq listing standards.

Based on such review, the compensation committee concluded that the engagements of Aon and Pearl Meyer did not raise any conflict of interest.

Under its charter, the compensation committee may form, and delegate authority to, subcommittees, consisting of independent directors, as it deems appropriate.

During fiscal year 2022, the compensation committee did not form or delegate authority to such subcommittees.

In addition, under its charter, the compensation committee may delegate to

one or more executive officers the power to grant options, restricted stock units or other stock awards pursuant to its 2017 Equity Incentive Plan, as amended, to employees who are not directors or executive officers of the Company.

During fiscal year 2022, the compensation committee delegated authority to our Chief Executive Officer to grant certain stock options and restricted stock units to non-executive employees with respect to annual equity awards.

The information required by this Item 10 is incorporated by reference from the information that will be contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates pursuant to General Instruction G(3) of Form 10-K.

Executive Compensation

The following discussion relates to the compensation of our Chief Executive Officer, Mark Iwicki, our President and Chief Operating Officer, Todd Bazemore, and our Head of Research and Development and Chief Medical Officer, Kim Brazzell, Ph.D.

for the periods presented.

These three individuals are collectively referred to in this Annual Report on Form 10-K as our named executive officers.

Each year, our compensation committee and board of directors review and determine the compensation of our named executive officers.

Summary Compensation Table

The following table sets forth information regarding compensation awarded to, earned by or paid to each of our named executive officers for the periods presented.

Name and Principal Position

Chief Executive Officer

Todd Bazemore

President and Chief Operating Officer

Kim Brazzell, Ph.D.

Head of Research and Development and Chief Medical Officer

(1) The amounts reported in the “Bonus” column reflect discretionary annual cash bonuses earned by our named executive officers for their performance in the years ended December 31, 2022 and 2021.

(2) The amounts reported in the “Stock Awards” column reflect the aggregate grant date fair value of restricted stock unit awards granted during 2021 computed in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718.

For the assumptions underlying the valuation of such restricted stock unit awards, see Note 2 to our financial statements appearing in this Annual Report on Form 10-K.

(3) The amounts reported in the “Option Awards” column reflect the aggregate grant date fair value of stock options (which for 2022, have time- and/or performance-based vesting conditions) awarded during the periods presented, computed in accordance with the provisions of FASB ASC Topic 718 using a Black-Scholes option pricing model.

For performance-based stock options included in the “Option Awards” column for the year ended December 31, 2022, the amounts in the table reflect the grant date fair value of such awards based on the probable outcome of the performance conditions at the end of the year which represent $82,138, $31,291 and $31,291 for Mr.

Bazemore and Dr.

Brazzell, respectively.

Assuming that the highest level of performance conditions were achieved, the value of the performance-based options at grant date for Mr.

Bazemore and Dr.

Brazzell would have been $246,414, $93,872 and $93,872, respectively.

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation expense.

For the assumptions underlying the valuation of the stock option grants, see Note 14 to our financial statements appearing in this Annual Report on Form 10-K.

(4) Amount represents compensation of $6,120 from premiums we paid on behalf of Mr.

Iwicki for life and disability insurance.

(5) Amount represents compensation of $6,100 from matching contributions made by us to Mr.

Bazemore’s tax-qualified 401(k) Savings Plan account and $4,440 from premiums we paid on behalf of Mr.

Bazemore for life and disability insurance.

(6) Amount represents compensation of $5,800 from matching contributions made by us to Mr.

Bazemore’s tax-qualified 401(k) Savings Plan account and $4,440 from premiums we paid on behalf of Mr.

Bazemore for life and disability insurance.

(7) Amount represents compensation of $6,100 from matching contributions made by us to Dr.

Brazzell’s tax-qualified 401(k) Savings Plan account and $19,812 from premiums we paid on behalf of Dr.

Brazzell for life and disability insurance.

(8) Amount represents compensation of $5,800 from matching contributions made by us to Dr.

Brazzell’s tax-qualified 401(k) Savings Plan account and $13,176 from premiums we paid on behalf of Dr.

Brazzell for life and disability insurance.

Narrative Disclosure to Summary Compensation Table

Base Salary .

We use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers.

None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary.

Iwicki’s, Mr.

Bazemore’s and Dr.

Brazzell’s annual base salaries were $682,110, $515,000 and $500,000, respectively, for 2022.

In December 2022, our compensation committee increased Mr.

Iwicki’s, Mr.

Bazemore’s and Dr.

Brazzell’s annual base salaries to $709,394, $535,600 and $520,000, respectively, effective January 1, 2023.

Annual Bonus .

Performance-based bonuses, which are calculated as a percentage of base salary, are designed to motivate our employees to achieve annual goals based on our strategic, financial and operating performance objectives.

Historically, our board of directors or our compensation committee has approved discretionary annual cash bonuses to our named executive officers with respect to their prior year performance.

With respect to 2022 performance, our compensation committee awarded bonuses of $409,266, $257,500 and $225,000 to Mr.

Bazemore and Dr.

Brazzell, respectively, which represented payments at 100% of each individual’s target bonus opportunity (which target bonus opportunities, expressed as a percentage of 2022 annual base salary, were 60%, 50% and 45%, respectively).

Iwicki’s individual performance-based target bonus amount for 2023, expressed as a percentage of his 2023 base salary, is 60%.

Bazemore’s individual performance-based target bonus amount for 2023, expressed as a percentage of his 2023 base salary, is 50%.

Brazzell’s individual performance-based target bonus amount for 2023, expressed as a percentage of his 2023 base salary, is 45%.

Equity Incentives .

Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders.

In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature incentivizes our executive officers to remain in our employment during the vesting period.

Accordingly, our compensation committee annually reviews the equity incentive compensation of our named executive officers and from time to time may grant equity incentive awards to them in the form of stock options and/or restricted stock units with time-based and/or performance-based vesting conditions.

In January 2022, we granted to Mr.

Iwicki options to purchase 15,499 shares of our common stock and to each of Mr.

Bazemore and Dr.

Brazzell options to purchase 4,759 shares of our common stock.

Such options vest monthly as to 1/48th of the shares underlying the option.

In January 2022, we also granted performance-based stock options to Mr.

Bazemore, and Dr.

Specified portions of the options will vest based on the level of achievement of specified performance metrics relating to financial, operational and scientific matters.

The level of achievement of the performance metrics will be determined by the compensation committee based on pre-specified criteria.

The target number of options eligible to vest

under the performance-based options is set forth in the table below.

A higher or lower number of options than the target (or no portion) may vest based on the level of achievement of each of the performance metrics, except that in no event will more than 150% of the target number of options vest.

Number of Shares Based on Level of Achievement

Threshold (1)

Todd Bazemore

(1) Assumes all of the specified performance metrics are achieved at a threshold level of performance (50% of target).

(2) Assumes all of the specified performance metrics are achieved at a target level of performance (100% of target).

(3) Assumes all of the specified performance metrics are achieved at a maximum level of performance (150% of target).

Prior to our IPO, our executives were eligible to participate in our 2009 Plan.

Following the closing of our IPO, our employees and executives are eligible to receive stock options and other stock-based awards pursuant to the 2017 Equity Incentive Plan and no further grants are made under the 2009 Plan.

For a description of our 2009 Plan and our 2017 Equity Incentive Plan, as amended, see “-Stock Option and Other Compensation Plans”.

Historically, we have used stock options to compensate our executive officers in the form of initial grants in connection with the commencement of employment and also at various times, often but not necessarily annually.

The award of stock options to our executive officers, including our Chief Executive Officer, generally have been and going forward are expected to be made by our board of directors.

We have granted stock options to our executive officers with both time-based and performance-based vesting conditions.

Since our IPO and going forward, annual and other option grants made to existing executive officers and employees typically vest monthly as to 1/48th of the shares underlying the option.

Vesting and exercise rights cease shortly after termination of employment except in the case of death or disability and, in certain circumstances, including, upon a change in control.

Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including no voting rights and no right to receive dividends or dividend equivalents.

In addition, prior to our IPO, we have granted stock options with exercise prices equal to the fair market value of our common stock on the date of grant as determined by our board of directors or compensation committee, based on a number of objective and subjective factors.

The exercise price of all stock options granted after our IPO has been and will be equal to the fair market value of shares of our common stock on the date of grant, which will be determined by reference to the closing market price of our common stock on The Nasdaq Capital Market on the date of grant.

At times, we have also used restricted stock units to compensate our executive officers.

The awards of restricted stock units to our executive officers, including our Chief Executive Officer, were made by our board of directors in 2021 and 2020.

We have granted restricted stock units to our executive officers with time-based and/or performance-based vesting conditions.

Time-based restricted stock unit awards vest over two or three years, as applicable.

Restricted stock units with performance-based vesting conditions were all fully vested as of December 31, 2022.

Prior to settlement of the restricted stock units, the holder has no rights as a stockholder with respect to the shares subject to such restricted stock unit, including no voting rights and no right to receive dividends or dividend equivalents.

None of our executive officers is currently party to an employment agreement that provides for guaranteed equity awards.

Outstanding Equity Awards at December 31, 2022

The following table sets forth information regarding all outstanding equity awards held by each of our named executive officers as of December 31, 2022.

Option Awards

Shares, Units

Unexercisable

Todd Bazemore

Kim Brazzell, Ph.D

(1) Amounts shown are based on a price of $38.15 per share, which was the closing price of our common stock as reported on The Nasdaq Global Select Market on December 30, 2022, the last trading day of the year.

(2) The option vests over four years, with 2.0833% of the shares underlying the option vested on February 2, 2019 and 2.0833% of the shares vesting monthly thereafter.

(3) The option vests over four years, with 2.0833% of the shares underlying the option vested on February 2, 2020 and 2.0833% of the shares vesting monthly thereafter.

(4) The option vests over four years, with 2.0833% of the shares underlying the option vested on February 4, 2021 and 2.0833% of the shares vesting monthly thereafter.

(5) The option vests over four years, with 2.0833% of the shares underlying the option vested on February 3, 2022 and 2.0833% of the shares vesting monthly thereafter.

(6) The option vests based on the level of achievement of specified performance metrics, as more fully described above under “-Narrative Disclosure to Summary Compensation Table”.

Options are included in this table based on achieving a threshold level of performance.

As of December 31, 2022, none of the performance metrics had been certified by the compensation committee as having been achieved.

(7) The option vests over four years, with 2.0833% of the shares underlying the option vested on November 15, 2019 and 2.0833% of the shares vesting monthly thereafter.

(8) The restricted stock units vest as to 1/2 of the shares on each of January 4, 2023 and 2024.

Employment Agreements with Named Executive Officers

Letter Agreement with Mr.

Iwicki was appointed as our Chief Executive Officer and Chairman of our board of directors pursuant to a letter agreement with us dated September 10, 2015, which amended and restated a prior letter agreement.

Iwicki is an at-will employee, and his employment with us can be terminated by him or us at any time and for any reason.

Iwicki’s base salary is subject to annual review and adjustment by our compensation committee.

Iwicki’s annual base salary was $709,394, effective January 1, 2023.

In addition, Mr.

Iwicki is eligible to receive a discretionary bonus in a target amount of 60% of his annual base salary, as determined by our board of directors in its sole discretion.

On March 11, 2019, Mr.

Iwicki’s employment letter agreement was amended to revise the severance benefits he is entitled to receive upon termination in connection with the following events.

Subject to his execution and nonrevocation of a release of claims in our favor, in the event of the termination of Mr.

Iwicki’s employment by us without cause or by him for good reason, each as defined in his employment letter agreement, and such termination is not within the twenty-four month period following a change of control, as defined in his employment letter agreement, Mr.

Iwicki will be entitled to a lump sum payment in an amount equal to (i) twenty-four months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) an amount equal to 200% of his target bonus attributable to the year of termination and (iv) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives.

In addition, Mr.

Iwicki will be entitled to twenty-four months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for the twenty-four month period.

Further, in the event of the termination of Mr.

Iwicki’s employment by us without cause or by him for good reason within the twenty-four month period following a change of control, Mr.

Iwicki will be entitled to a lump sum payment in an amount equal to (i) thirty months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives and (iv) 250% of the greater of (A) the average bonus Mr.

Iwicki received during the two years prior to termination or resignation, or (B) the target bonus for the year of termination or resignation.

In addition, Mr.

Iwicki will be entitled thirty months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for thirty months.

In addition, in the event we terminate his employment or other service relationship with us without cause, he terminates his employment or other service relationship with us for good reason, or his employment or other service relationship with us terminates by reason of his death or disability, Mr.

Iwicki is entitled to the automatic vesting and exercisability of any unvested options that would have vested if Mr.

Iwicki’s employment or other service relationship with us had continued for twenty-four months following such termination.

In addition, provided Mr.

Iwicki is an employee, member of our board of directors or is otherwise providing services to us at the time of a change of control, as defined in the letter agreement, or in the event of the termination of Mr.

Iwicki’s employment by us without cause or by him for good reason in contemplation of a change of control, as defined in the letter agreement, Mr.

Iwicki’s time-based equity awards will vest in full upon consummation of such change in control.

Options granted to Mr.

Iwicki will be exercisable for up to eighteen months following the termination of his employment or other relationship with us other than a termination for cause.

Iwicki also is entitled to piggyback registration rights with respect to options granted pursuant to his employment letter agreement.

In addition, in the event we terminate his employment without cause or he terminates his employment for good reason within the twenty-four month period following a change of control, Mr.

Iwicki is entitled to the automatic vesting

and exercisability of any options and other equity awards granted to him following a change of control that vest solely based on his continued employment and have not vested.

Letter Agreement with Mr.

Bazemore was appointed as our Chief Operating Officer pursuant to a letter agreement with us dated November 6, 2017 and was appointed as our President commencing December 16, 2021.

Bazemore is an at-will employee, and his employment with us can be terminated by him or us at any time and for any reason.

Bazemore’s base salary is subject to annual review and adjustment by our compensation committee.

Bazemore’s annual base salary was $535,600, effective January 1, 2023.

In addition, Mr.

Bazemore is eligible to receive a discretionary bonus in a target amount of 50% of his annual base salary, as determined by our board of directors in its sole discretion.

On March 11, 2019, Mr.

Bazemore’s employment letter agreement was amended to revise the severance benefits he is entitled to receive upon termination in connection with the following events.

Subject to his execution and nonrevocation of a release of claims in our favor, in the event of the termination of Mr.

Bazemore’s employment by us without cause or by him for good reason, each as defined in his employment letter agreement, and such termination is not within the twenty-four month period following a change of control, as defined in his employment letter agreement, Mr.

Bazemore will be entitled to a lump sum payment in an amount equal to (i) twelve months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives and (iv) an amount equal to 100% of his target bonus for the year of termination.

In addition, Mr.

Bazemore is entitled to twelve months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for the twelve-month period.

Further, in the event of the termination of Mr.

Bazemore’s employment by us without cause or by him for good reason within the twenty-four month period following a change of control, Mr.

Bazemore will be entitled to a lump sum payment in an amount equal to (i) eighteen months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives and (iv) 150% of the greater of (A) the average bonus Mr.

Bazemore received during the two years prior to termination or resignation, or (B) the target bonus for the year of termination or resignation.

In addition, Mr.

Bazemore is entitled to eighteen months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for the eighteen-month period.

In addition, in the event we terminate his employment without cause or he terminates his employment for good reason, Mr.

Bazemore is entitled to the automatic vesting and exercisability of any options and other equity awards granted to him that vest solely based on his continued employment that would have vested if his employment had continued for twelve months following such termination, and any performance-based grants with the performance period ending within one year after the termination shall be treated as having satisfied any service requirement with respect thereto and shall vest subject to, and only to the extent of, the satisfaction of the applicable performance goals at the end of the applicable performance period.

In the event we terminate his employment without cause or he terminates his employment for good reason in contemplation of a change of control, as defined in the letter agreement, or within the twenty-four-month period following a change of control, Mr.

Bazemore is entitled to the automatic vesting and exercisability of 100% of any options and other equity awards granted to him that vest solely based on his continued employment, and any

performance based grants with a performance period ending within one year after the termination will be treated as having satisfied any service requirement with respect such grant, and will vest subject to, and only to the extent of, the satisfaction of the applicable performance goals at the end of the applicable performance period.

Letter Agreement with Dr.

Brazzell was appointed to serve on a full-time basis as our Chief Medical Officer pursuant to a letter agreement with us dated May 10, 2016, which amended and restated a prior letter agreement.

Brazzell is an at-will employee, and his employment with us can be terminated by him or us at any time and for any reason.

Brazzell’s base salary is subject to annual review and adjustment by our compensation committee.

In December 2022, Dr.

Brazzell’s annual base salary was increased to $520,000, effective January 1, 2023.

In addition, Dr.

Brazzell is eligible to receive a discretionary bonus in a target amount of 45% of his annual base salary, as determined by our compensation committee in its sole discretion.

On March 11, 2019, Dr.

Brazzell’s employment letter agreement was amended to revise the severance benefits he is entitled to receive upon termination in connection with the following events.

Subject to his execution and nonrevocation of a release of claims in our favor, in the event of the termination of Dr.

Brazzell’s employment by us without cause or by him for good reason, each as defined in his employment letter agreement, and such termination is not within the twenty-four month period following a change of control, as defined in his employment letter agreement, Dr.

Brazzell will be entitled to a lump sum payment in an amount equal to (i) twelve months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives and (iv) an amount equal to 100% of his target bonus for the year of termination.

In addition, Dr.

Brazzell is entitled to twelve months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for the twelve-month period.

Further, in the event of the termination of Dr.

Brazzell’s employment by us without cause or by him for good reason within the twenty-four month period following a change of control, Dr.

Brazzell will be entitled to a lump sum payment in an amount equal to (i) eighteen months of his then-current annual base salary, (ii) any bonus earned for the year prior to the year of termination that has not yet been paid, (iii) a pro-rated portion of any bonus attributable to the year of termination based upon performance against company but not individual objectives and (iv) 150% of the greater of (A) the average bonus Dr.

Brazzell received during the two years prior to termination or resignation, or (B) the target bonus for the year of termination or resignation.

In addition, Dr.

Brazzell is entitled to eighteen months of COBRA premiums for continued health benefit coverage on the same terms as were applicable to him prior to his termination and outplacement services for the eighteen-month period.

In addition, in the event we terminate his employment without cause or he terminates his employment for good reason, Dr.

Brazzell is entitled to the automatic vesting and exercisability of any options and shares granted to him that vest solely based on his continued employment that would have vested if his employment had continued for twelve months following such termination.

In the event of a change of control, as defined in his employment letter agreement, during his employment, Dr.

Brazzell is entitled to the automatic vesting and exercisability of 100% of any options and restricted shares granted to him that vest solely based on his continued employment, and certain options are exercisable for a period of up to six months following his termination date.

In addition, in the event we terminate his employment without cause or he terminates his employment for good reason within the twenty-four-month period following a change of control, Dr.

Brazzell is entitled to the automatic vesting and exercisability of any options and shares granted to him following a change of control that vest solely based on his continued employment and have not vested.

Employee Non-Competition, Non-Solicitation, Confidentiality, and Assignment of Inventions Agreements

Each of our named executive officers has entered into a standard form agreement with respect to non-competition, non-solicitation, confidential information and assignment of inventions.

Under this agreement, each

executive officer has agreed not to compete with us during his or her employment and for a period of one year after the termination of his or her employment and to protect our confidential and proprietary information indefinitely.

Under this agreement, each of Mr.

Iwicki and Dr.

Brazzell has agreed not to solicit our employees or consultants during his employment and for a period of twelve months after the termination of his employment, and Mr.

Bazemore has agreed not to solicit our employees or consultants during his employment and for a period of eighteen months after the termination of his employment, and each executive officer has agreed to protect our confidential and proprietary information indefinitely.

In addition, under this agreement, each executive officer has agreed that we own all inventions, as defined in the agreement, that are developed during such executive officer’s employment and for a period of one year after the termination of his or her employment, to the extent such invention is our field of interest, as defined in the agreement.

Each executive officer also agreed to assign to us any inventions which were not prepared or originated in the performance of employment but that were provided to us or incorporated into any of our products or systems.

Stock Option and Other Compensation Plans

In this section we describe our 2009 Plan, our 2017 Plan, and our Amended and Restated 2017 Employee Stock Purchase Plan, or 2017 ESPP.

Prior to our initial public offering of common stock, or IPO, which closed on July 25, 2017, we granted awards to eligible participants under the 2009 Plan.

Following the closing of our IPO, we ceased granting awards under the 2009 Plan and started granting awards to eligible participants under the 2017 Plan.

Our 2009 Plan was adopted by our board of directors and approved by our stockholders on December 11, 2009 and subsequently amended by our board in 2012, 2013, 2014 and 2015.

The 2009 Plan provided for the grant of incentive stock options, non-qualified options, shares, restricted or otherwise, of our common stock, and other stock-based awards.

We refer to awards granted under our 2009 Plan as stock rights.

Our employees, directors and consultants were eligible to receive stock rights under our 2009 Plan;

however incentive stock options could only be granted to our employees who are deemed to be residents of the United States.

The type of stock right granted under our 2009 Plan and the terms of such stock right are set forth in the applicable stock right award agreement.

Our board of directors (or a committee to which our board delegates its authority) administers the 2009 Plan.

Subject to the provisions of the 2009 Plan, our board of directors is authorized to:

● interpret the provisions of the 2009 Plan and all stock rights and make all rules and determinations that it deems necessary or advisable for the administration of the 2009 Plan;

● amend any term or condition of an outstanding stock right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting or extend the expiration date, provided that no such change will impair a participant’s rights under any prior grant unless we obtain the participant’s consent;

● purchase and/or cancel a stock right previously granted and grant other stock rights in substitution, which may cover the same or a different number of shares and which may have a lower or higher exercise or purchase price per share, based on such terms and conditions as the board of directors establishes and the participant accepts;

● adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate to facilitate the 2009 Plan or to comply with or take advantage of any tax or other laws applicable to us, any of our affiliates, or to participants, which sub-plans may include additional restrictions or conditions applicable to stock rights or shares issuable pursuant to a stock right.

Effect of certain changes in capitalization

If our shares of common stock are subdivided or combined into a greater or smaller number of shares, if we issue shares of common stock as a stock dividend, or if we make any distribution of additional, new or different shares or securities of ours or any distribution of non-cash assets with respect to our shares of common stock, then, subject to the terms of the 2009 Plan, our board of directors shall proportionately and appropriately adjust:

● the number of shares of our common stock deliverable upon the exercise of an option or acceptance of a stock grant;

● the exercise or purchase price per share;

● any other term or condition of a stock right.

Effect of certain corporate transactions

In the event that we are consolidated with or acquired by another entity in a merger, consolidation, or sale of all or substantially all of our assets (other than a transaction to merely change the state of incorporation), which we refer to as corporate transactions, our board of directors, or the board of directors of any entity assuming our obligations under the 2009 Plan, must take one of the following actions pursuant to the 2009 Plan as to outstanding options, subject to the terms of the 2009 Plan:

● provide for the continuation of the outstanding options by equitably substituting for the shares of our common stock then underlying such options either with securities of any successor or acquiring entity or the consideration payable with respect to the outstanding shares of our common stock in connection with the corporate transaction;

● provide by written notice to the participants that the outstanding options will terminate unless exercised (to the extent then exercisable or made partially or fully exercisable by our board of directors for purposes of the corporate transaction) within a specified period following the date of the notice;

● terminate each outstanding option in exchange for a payment equal to the consideration payable upon consummation of the corporate transaction to a holder of the number of shares of our common stock into which such option would have been exercisable (to the extent then exercisable or made partially or fully exercisable by our board of directors for purposes of the corporate transaction), minus the aggregate exercise price of such option.

If there is a corporate transaction, our board of directors, or the board of directors of any entity assuming our obligations under the 2009 Plan, must take one of the following actions pursuant to the 2009 Plan as to outstanding stock grants, restricted or otherwise, subject to the terms of the 2009 plan:

● provide for the continuation of the outstanding stock grants on the same terms and conditions by equitably substituting for the shares of our common stock then subject to such stock grants either with securities of any successor or acquiring entity or the consideration payable with respect to the outstanding shares of our common stock in connection with the corporate transaction;

● provide that each outstanding stock grant will terminate in exchange for a payment equal to the consideration payable upon consummation of the corporate transaction to a holder of the number of shares of our common stock comprising such stock grant (to the extent such stock grant is no longer subject to any forfeiture or repurchase rights or our board of directors waives all forfeiture and repurchase rights upon the corporate transaction).

In taking any of the above actions with respect to stock rights, our board of directors will not be obligated to treat all stock rights, all stock rights held by a participant, or all stock rights of the same type, identically.

As of February 21, 2023, options to purchase 31,681 shares of common stock were outstanding under the 2009 Plan at a weighted average exercise price of $188.32 per share.

We no longer grant awards under our 2009 Plan;

however, awards outstanding under our 2009 Plan continue to be governed by their existing terms.

2017 Equity Incentive Plan

Our 2017 Plan, which became effective on July 19, 2017, was adopted by our board of directors and approved by our stockholders in July 2017.

An amendment to our 2017 Plan was adopted by our board of directors on April 2020 and approved by our stockholders at the 2020 annual meeting of stockholders.

The 2017 Plan provides for the grant of incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.

The number of shares of our common stock reserved for issuance under the 2017 Plan is the sum of:

plus (2) 4,830 shares available for issuance under the 2009 Plan at the time of our IPO and the number of shares of our common stock subject to outstanding awards under the 2009 Plan that expire, terminate or are

otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right;

plus (3) an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the lowest of 71,475 shares of our common stock, 4% of the number of shares of our common stock outstanding on the first day of such fiscal year and an amount determined by our board of directors.

The number of shares authorized for issuance under the 2017 Plan has further increased each year, pursuant to the terms of the 2017 Plan, on the first of January beginning in 2018 by an amount equal to 4% of our then-outstanding common stock.

Our employees, officers, directors, consultants and advisors are eligible to receive awards under the 2017 Plan.

Incentive stock options, however, may only be granted to our employees.

Pursuant to the terms of the 2017 Plan, our board of directors (or a committee delegated by our board of directors or, subject to certain limitations, officers delegated by our board of directors) administers the plan and, subject to any limitations in the plan, selects the recipients of awards and determines:

● the number of shares of our common stock covered by options and the dates upon which the options become exercisable;

● the type of options to be granted;

● the duration of options, which may not be in excess of ten years;

● the exercise price of options, which must be at least equal to the fair market value of our common stock on the date of grant;

● the number of shares of our common stock subject to and the terms of any stock appreciation rights, restricted stock awards, restricted stock units or other stock-based awards and the terms and conditions of such awards, including conditions for repurchase, issue price and repurchase price (though the measurement price of stock appreciation rights must be at least equal to the fair market value of our common stock on the date of grant and the duration of such awards may not be in excess of ten years).

If our board of directors delegates authority to an executive officer to grant awards under the 2017 Plan, the executive officer will have the power to make awards to all of our employees, except executive officers.

Our board of directors will fix the terms of the awards to be granted by such executive officer, including the exercise price of such awards (which may include a formula by which the exercise price will be determined), and the maximum number of shares subject to awards that such executive officer may make.

Effect of certain changes in capitalization

Upon the occurrence of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or

distribution to holders of our common stock other than an ordinary cash dividend, our board of directors shall equitably adjust:

● the number and class of securities available under the 2017 Plan;

● the share counting rules under the 2017 Plan;

● the number and class of securities and exercise price per share of each outstanding option;

● the share and per-share provisions and the measurement price of each outstanding stock appreciation right;

● the number of shares subject to, and the repurchase price per share subject to, each outstanding restricted stock award;

● the share and per-share related provisions and the purchase price, if any, of each other stock-based award.

Effect of certain corporate transactions

Upon a merger or other reorganization event (as defined in our 2017 Plan), our board of directors may, on such terms as our board determines (except to the extent specifically provided otherwise in an applicable award agreement or other agreement between the participant and us), take any one or more of, or a combination of, the following actions pursuant to the 2017 Plan as to some or all outstanding awards, other than restricted stock awards:

● provide that all outstanding awards shall be assumed, or substantially equivalent awards shall be substituted, by the acquiring or successor corporation (or an affiliate thereof);

● upon written notice to a participant, provide that all of the participant’s unvested awards will be forfeited, and/or vested but unexercised awards will terminate, immediately prior to the consummation of such reorganization event unless exercised by the participant (to the extent then exercisable) within a specified period following the date of the notice;

● provide that outstanding awards shall become exercisable, realizable or deliverable, or restrictions applicable to an award shall lapse, in whole or in part, prior to or upon such reorganization event;

● in the event of a reorganization event pursuant to which holders of shares of our common stock will receive a cash payment for each share surrendered in the reorganization event, make or provide for a cash payment to participants with respect to each award held by a participant equal to (1) the number of shares of our common stock subject to the vested portion of the award (after giving effect to any acceleration of vesting that occurs upon or immediately prior to such reorganization event) multiplied by (2) the excess, if any, of the cash payment for each share surrendered in the reorganization event over the exercise, measurement or purchase price of such award and any applicable tax withholdings, in exchange for the termination of such award;

● provide that, in connection with a liquidation or dissolution, awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise, measurement or purchase price thereof and any applicable tax withholdings).

Our board of directors does not need to take the same action with respect to all awards, all awards held by a participant or all awards of the same type.

In the case of certain restricted stock units, no assumption or substitution is permitted, and the restricted stock units will instead be settled in accordance with the terms of the applicable restricted stock unit agreement.

Upon the occurrence of a reorganization event other than a liquidation or dissolution, the repurchase and other rights with respect to outstanding restricted stock awards will continue for the benefit of the successor company and will, unless our board of directors may otherwise determine, apply to the cash, securities or other property into which shares of our common stock are converted or exchanged pursuant to the reorganization event.

Upon the occurrence of a reorganization event involving a liquidation or dissolution, all restrictions and conditions on each outstanding restricted stock award will automatically be deemed terminated or satisfied, unless otherwise provided in the agreement evidencing the restricted stock award or any other agreement between the participant and us.

At any time, our board of directors may, in its sole discretion, provide that any award under the 2017 Plan will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in whole or in part as the case may be.

No award may be granted under the 2017 Plan on or after July 19, 2027.

Our board of directors may amend, suspend or terminate the 2017 Plan at any time, except that stockholder approval may be required to comply with applicable law or stock market requirements.

As of February 21, 2023, options to purchase 157,512 shares of common stock were outstanding under the 2017 Plan at a weighted average exercise price of $259.54 per share, and 1,521 options to purchase shares of our common

stock had been exercised.

As of February 21, 2023, restricted stock units with respect to 148,870 shares of common stock were outstanding under the 2017 Plan.

As of February 21, 2023, 8,876 shares of common stock were available for future issuance under our 2017 Plan.

Amended and Restated 2017 Employee Stock Purchase Plan

Our 2017 ESPP, which became effective on July 19, 2017, was adopted by our board of directors and approved by our stockholders in July 2017 and amended and restated by our board of directors in December 2018.

The 2017 ESPP is administered by our board of directors or by a committee appointed by our board of directors.

The 2017 ESPP initially provides participating employees with the opportunity to purchase an aggregate of 4,466 shares of our common stock.

The number of shares of our common stock reserved for issuance under the 2017 ESPP will automatically increase on the first day of each fiscal year, beginning on January 1, 2019 and ending on December 31, 2029, in an amount equal to the lowest of:

(1) 17,868 shares of our common stock;

(2) 1% of the total number of shares of our common stock outstanding on the first day of the applicable fiscal year;

and (3) an amount determined by our board of directors.

The number of shares authorized for issuance under the 2017 ESPP has increased each year, pursuant to the terms of the 2017 ESPP, on the first of January beginning in 2019 by an amount equal to 1% of our then-outstanding common stock.

All of our employees and employees of any of our designated subsidiaries, as defined in the 2017 ESPP, are eligible to participate in the 2017 ESPP, provided that:

● such person is customarily employed by us or a designated subsidiary for more than 20 hours a week and for more than five months in a calendar year;

● such person was our employee or an employee of a designated subsidiary on the first day of the applicable offering period under the 2017 ESPP.

We retain the discretion to determine which eligible employees may participate in an offering under applicable Treasury regulations.

We may make one or more offerings to our eligible employees to purchase stock under the 2017 ESPP beginning at such time and on such dates as our board of directors may determine, or the first business day thereafter.

Each offering will consist of a six-month offering period during which payroll deductions will be made and held for the purchase of our common stock at the end of the offering period.

Our board of directors or a committee appointed by our board, may, at its discretion, choose a different period of not more than 12 months for offerings.

Offering periods under our 2017 ESPP commenced on each January 1 and July beginning with January 1, 2019.

On each offering commencement date, each participant will be granted the right to purchase, on the last business day of the offering period, up to 500 shares of our common stock.

No employee may be granted an option under the 2017 ESPP that permits the employee’s rights to purchase shares under the 2017 ESPP and any other employee stock purchase plan of ours or of any of our subsidiaries to accrue at a rate that exceeds $25,000 of the fair market value of our common stock (determined as of the first day of each offering period) for each calendar year in which the option is outstanding.

In addition, no employee may purchase shares of our common stock under the 2017 ESPP that would result in the employee owning 5% or more of the total combined voting power or value of our stock or the stock of any of our subsidiaries.

On the commencement date of each offering period, each eligible employee may authorize up to a maximum of 15% of his or her compensation to be deducted by us during the offering period.

Each employee who continues to be a participant in the 2017 ESPP on the last business day of the offering period will be deemed to have exercised an option to purchase from us the number of whole shares of our common stock that his or her accumulated payroll deductions on such date will buy, not in excess of the maximum numbers set forth above.

Under the terms of the 2017 ESPP, the purchase price shall be determined by our board of directors for each offering period and will be at least 85% of the applicable closing price of our common stock.

If our board of directors does not make a determination of the purchase price, the purchase price will be 85% of the lesser of the closing price of our common stock on the first business day of the offering period or on the last business day of the offering period.

An employee may at any time prior to the close of business on the fifteenth business day prior to the end of an offering period, and for any reason, permanently withdraw from participation in an offering prior to the end of an offering period and permanently withdraw the balance accumulated in the employee’s account.

Any balance remaining in an employee’s payroll deduction account at the end of an offering period will be automatically refunded to the employee.

If a participating employee’s employment ends before the last business day of an offering period, no additional payroll deductions will be taken and the balance in the employee’s account will be paid to the employee.

We are required to make equitable adjustments to the extent determined by our board of directors or a committee of our board of directors to the number and class of securities available under the 2017 ESPP, the share limitations under the 2017 ESPP and the purchase price for an offering period under the 2017 ESPP to reflect stock splits, reverse stock splits, stock dividends, recapitalizations, combinations of shares, reclassifications of shares, spin-offs and other similar changes in capitalization or events or any dividends or distributions to holders of our common stock other than ordinary cash dividends.

In connection with a merger or other reorganization event (as defined in the 2017 ESPP), our board of directors or a committee of our board of directors may take any one or more of the following actions as to outstanding options to purchase shares of our common stock under the 2017 ESPP on such terms as our board of directors or committee determines:

● provide that options shall be assumed, or substantially equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof);

● upon written notice to employees, provide that all outstanding options will be terminated immediately prior to the consummation of such reorganization event and that all such outstanding options will become exercisable to the extent of accumulated payroll deductions as of a date specified by our board of directors or committee in such notice, which date shall not be less than ten days preceding the effective date of the reorganization event;

● upon written notice to employees, provide that all outstanding options will be cancelled as of a date prior to the effective date of the reorganization event and that all accumulated payroll deductions will be returned to participating employees on such date;

● in the event of a reorganization event under the terms of which holders of our common stock will receive upon consummation thereof a cash payment for each share surrendered in the reorganization event, change the last day of the offering period to be the date of the consummation of the reorganization event and make or provide for a cash payment to each employee equal to (1) the cash payment for each share surrendered in the reorganization event times the number of shares of our common stock that the employee’s accumulated payroll deductions as of immediately prior to the reorganization event could purchase at the applicable purchase price, where the cash payment for each share surrendered in the reorganization event is treated as the fair market value of our common stock on the last day of the applicable offering period for purposes of determining the purchase price and where the number of shares that could be purchased is subject to the applicable limitations under the 2017 ESPP minus (2) the result of multiplying such number of shares by the purchase price;

● provide that, in connection with our liquidation or dissolution, options shall convert into the right to receive liquidation proceeds (net of the purchase price thereof).

Our board of directors may at any time, and from time to time, amend or suspend the 2017 ESPP, or any portion of the 2017 ESPP.

We will obtain stockholder approval for any amendment if such approval is required by Section 423 of the Internal Revenue Code of 1986, as amended, or the Code.

Further, our board of directors may not make any amendment that would cause the 2017 ESPP to fail to comply with Section 423 of the Code.

The 2017 ESPP may be terminated at any time by our board of directors.

Upon termination, we will refund all amounts in the accounts of participating employees.

We maintain a defined contribution employee retirement plan for our employees.

Our 401(k) plan is intended to qualify as a tax-qualified plan under Section 401 of the Code so that contributions to our 401(k) plan, and income earned

on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan.

Our 401(k) plan provides that each participant may contribute up to 90% of his or her pre-tax compensation, up to a statutory limit, which was $20,500 for 2022.

Participants who are at least 50 years old can also make “catch-up” contributions, which in 2022 was up to an additional $6,500 above the statutory limit.

We also make discretionary matching contributions to our 401(k) plan equal to 50% of the employee contributions up to 4% of the employee’s salary, subject to the statutorily prescribed limit, which was equal to $20,500 in 2022.

The discretionary matching contributions were capped at $6,100 in 2022.

Under our 401(k) plan, each employee is fully vested in his or her deferred salary contributions and our discretionary match.

Employee contributions are held and invested by the plan’s trustee, subject to participants’ ability to give investment directions by following certain procedures.

Rule 10b5-1 Sales Plans

Our directors and executive officers have adopted and may in the future adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis.

Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from the director or officer.

It also is possible that the director or officer could amend or terminate the plan when not in possession of material, nonpublic information.

In addition, our directors and executive officers may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

Anti-Hedging Policies

Our insider trading policy expressly prohibits all of our employees, including our executive officers, and our directors from engaging in any purchases of financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of our securities.

Director Compensation

The table below shows all compensation to our non-employee directors during 2022.

($) (1)(2)(3)

Marjan Farid (5)

Gregory Grunberg (6)

(1) The aggregate amount of outstanding options and RSUs held by each non-employee director as of December 31, 2022 were as follows:

Gregory Grunberg

(2) The amounts reported in the “Option Awards” column reflects the aggregate grant date fair value of options awarded during the year computed in accordance with the provisions of FASB ASC Topic 718.

For the assumptions underlying the valuation of the stock option grants, see Note 14 to our financial statements appearing in this Annual Report on Form 10-K.

(3) The number of shares of common stock underlying stock options granted to the following non-employee directors in 2022 were as follows:

Stock Options

Granted in 2022

Gregory Grunberg

(4) Does not include consideration received by Dr.

Blumenkranz from us in his capacity as an equityholder of Combangio in connection with the acquisition of Combangio.

For a further description of such consideration, see Item 13, “Certain Relationships and Related Transactions, and Director Independence”.

Farid was appointed to our board of directors in October 2022.

Grunberg’s term as a member of the board expired, and he ceased being a director on June 16, 2022.

Iwicki, one of our directors who also serves as our Chief Executive Officer, does not receive any additional compensation for his service as a director.

The compensation that we pay to our Chief Executive Officer is discussed under “-Summary Compensation Table” and “-Narrative Disclosure to Summary Compensation Table.”

During the year ended December 31, 2022, our non-employee directors were entitled to compensation for their services on our board of directors as follows:

Each member of our board of directors also is entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of our board of directors and any committee of our board of directors on which he or she serves.

This director compensation policy is currently in effect for directors serving during the year ending December 31, 2023.

● each non-employee director was entitled to receive an option to purchase 1,600 shares of our common stock, upon his or her initial election or appointment to our board of directors, which option vests with respect to one third of the shares on the first anniversary of the grant and with respect to an additional 1/36th of the shares on each monthly anniversary thereafter and vest automatically as to 100% of the unvested portion of such option upon specified change in control events;

● each non-employee director who has then served on our board of directors for at least six months was entitled to receive, on the date of the first board meeting held after each annual meeting of stockholders, an option to purchase 800 shares of our common stock, and if then serving as the lead independent director, an option to purchase 1,000 shares of our common stock, which options will vest (A) on the earlier of (i) the first anniversary date of the previous year’s annual meeting or (ii) the date of the first annual meeting following the grant date, and (B) automatically as to 100% of the unvested portion of such options upon specified change in control events;

● each non-employee director was entitled to receive an annual fee of $50,000;

● the lead independent director was entitled to receive an additional annual fee of $18,750;

● each non-employee director who served as member of a committee of our board of directors was entitled to receive additional compensation as follows:

o audit committee-an annual non-chair retainer of $10,000;

chair annual retainer of $20,000;

o compensation committee-an annual non-chair retainer of $7,500;

chair annual retainer of $15,000;

o nominating and corporate governance committee-an annual non-chair retainer of $5,000;

chair annual retainer of $10,000.

This director compensation policy is currently in effect for directors serving during the year ending December 31, 2023.

The information required by this Item 11 is incorporated by reference from the information that will be contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates pursuant to General Instruction G(3) of Form 10-K.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management

Unless otherwise provided below, the following table sets forth information regarding beneficial ownership of our common stock as of February 21, 2023 by:

● each person, or group of affiliated persons, known to us to be the beneficial owner of 5% or more of the outstanding shares of our common stock;

● each of our current directors;

● our principal executive officer and two other most highly compensated executive officers who served during the year ended December 31, 2022, whom, collectively, we refer to as our named executive officers;

● all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock.

Percentage of beneficial ownership is based on 2,025,495 shares of our common stock outstanding as of February 21, 2023, plus an aggregate of 19,350 shares of common stock that were initially held back as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio equityholders and that will be issued in March 2023, or the Holdback Shares, for a total of 2,044,845 shares of our common stock utilized in the percentage of beneficial ownership calculations below.

In addition, shares of common stock subject to options or other rights currently exercisable, or exercisable within 60 days of February 21, 2023, are deemed outstanding and beneficially owned for the purpose of computing the percentage beneficially owned by (i) the individual holding such options, warrants or other rights (but not any other individual) and (ii) the directors and executive officers as a group.

Except as otherwise noted, the persons and entities in this table have sole voting and investing power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable.

Except as otherwise set forth below, the address of the beneficial owner is c/o Kala Pharmaceuticals, Inc., 1167 Massachusetts Avenue, Arlington, Massachusetts 02476.

Name and Address of Beneficial Owner

Percentage of

5% Stockholders:

Entities affiliated with Baker Bros.

Advisors LP (1)

Entities affiliated with Longitude Venture Partners (2)

Integrated Core Strategies (US) LLC (3)

Entities affiliated with Lagunita (4)

Directors and Named Executive Officers:

Mark Iwicki (5)

Todd Bazemore (6)

Kim Brazzell, Ph.D.

Blumenkranz, M.D.

Marjan Farid, M.D.

Daniel Myers (10)

Robert Paull (11)

All current executive officers and directors as a group (13 persons) (14)

* Less than one percent

(1) Based, in part, on a Schedule 13G filed with the SEC on February 14, 2023.

Includes 141,614 shares of common stock issuable upon conversion of Series E Preferred Stock directly held by the Funds (as defined below).

The Funds hold 53,144 shares of Series E Preferred Stock, each of which is convertible into 100 shares of common stock (subject to adjustment as provided in the Company’s Certificate of Designations) at any time at the option of the holder, provided that the holder will be prohibited, subject to certain exceptions, from converting its Series E Preferred Stock for shares of common stock to the extent that immediately prior to or following such conversion, the holder, together with its affiliates and other attribution parties, would own in excess of 9.99% of the total number of shares of common stock then issued and outstanding after giving effect to such conversion, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 19.99% upon 61 days’ notice to us (collectively, the “Beneficial Ownership Limitation”).

Percentage of common stock held based on 2,044,845 shares of common stock outstanding as of February 21, 2023 inclusive of the Holdback Shares to be issued in March 2023, plus 141,614 shares of common stock issuable upon the conversion of the Series E Preferred Stock that are subject to the Beneficial Ownership Limitation.

The Schedule 13G was filed jointly by Baker Bros.

Advisors LP, Baker Bros.

Advisors (GP) LLC, Felix J.

Baker and Julian C.

Consists of shares of common stock held by Baker Brother Life Sciences, L.P.

(“Life Sciences”) and 667, L.P.

(“667”, and together with Life Sciences, the “Funds”) which may be deemed to be indirectly beneficially owned by the reporting persons, as well as shares

of common stock that may be acquired upon conversion of Series E Preferred Stock.

The address for each of the reporting persons is 860 Washington Street, 3rd Floor, New York, NY 10014.

(2) Based solely on a Schedule 13D/A filed with the SEC on February 14, 2023.

Consists of (a) 57,541 shares of common stock held by Longitude Venture Partners II, L.P.

(“LVPII”) and (b) 50,698 shares of common stock held by Longitude Venture Partners IV, L.P.

Longitude Capital Partners II, LLC (“LCPII”) is the sole general partner of LVPII and may be deemed to share voting and investment power over the shares held by LVPII.

Longitude Capital Partners IV, LLC (“LCPIV”) is the general partner of LVPIV and may be deemed to share voting and investment power with respect to the shares held by LVPIV.

Enright and Juliet Tammenoms Bakker are managing members of LCPII and LCPIV and may be deemed to share voting and investment power over the shares held by LVPII and LVPIV.

Each of LCPII, LCPIV, Mr.

Enright and Ms.

Tammenoms Bakker disclaims beneficial ownership of such shares, except to the extent of its, his or her pecuniary interest therein.

The address for LVPII and LVPIV is 2740 Sand Hill Road, 2nd Floor, Menlo Park, CA 94025.

(3) Based solely on a Schedule 13G filed with the SEC on January 17, 2023.

The Schedule 13G was jointly filed by Integrated Core Strategies (US) LLC (“Integrated Core Strategies”), which reported shared voting and dispositive power with regard to 107,200 shares of common stock, and Millennium Management LLC (“Millennium Management”), Millennium Group Management LLC (“Millennium Group Management”) and Israel A.

Englander (“Mr.

Englander”), which each reported shared voting and dispositive power with regard to 133,703 shares of common stock, including the 107,200 shares of common stock held by Integrated Core Strategies.

The shares of common stock disclosed as potentially beneficially owned by Millennium Management, Millennium Group Management and Mr.

Englander are held by entities subject to voting control and investment discretion by Millennium Management and/or other investment managers that may be controlled by Millennium Group Management (the managing member of Millennium Management) and Mr.

Englander (the sole voting trustee of the managing member of Millennium Group Management).

The address for each of the reporting persons is 399 Park Avenue, New York, NY 10022.

(4) Based, in part, on a Schedule 13D filed with the SEC on November 26, 2021.

Consists of (a) 90,721 shares of common stock held by Lagunita Biosciences, LLC (“Lagunita Biosciences”) and 12,099 Holdback Shares issuable to Lagunita Biosciences in March 2023 and (b) 688 shares of common stock held by Garland Investments, L.P.

(“Garland”) and 91 Holdback Shares issuable to Garland in March 2023.

Lagunita, LLC (“Lagunita”) is the manager of Lagunita Biosciences and Lagunita may be deemed to share voting and dispositive power over the shares held by Lagunita Biosciences.

Blumenkranz, a member of our board, is managing partner of Lagunita and Garland and may be deemed to share voting and dispositive power over the shares held by Lagunita Biosciences and Garland.

Blumenkranz disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

The address for Lagunita, Lagunita Biosciences, Garland and Dr.

Blumenkranz is 1440 O’Brien Drive, Suite D, Menlo Park, CA 94028.

(5) Consists of (i) 3,759 shares of common stock beneficially owned by Mr.

Iwicki and (ii) 54,760 shares of common stock underlying options held by Mr.

Iwicki that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(6) Consists of (i) 1,852 shares of common stock beneficially owned by Mr.

Bazemore and (ii) 15,167 shares of common stock underlying options held by Mr.

Bazemore that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(7) Consists of (i) 5,552 shares of common stock beneficially owned by Dr.

Brazzell and (ii) 12,359 shares of common stock underlying options held by Dr.

Brazzell that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(8) Consists of (i) the shares described in note 4 above, (ii) 2,783 shares of common stock held by Dr.

Blumenkranz, (iii) 371 Holdback Shares issuable to Dr.

Blumenkranz in March 2023 and (iv) 396 shares of common stock underlying options held by Dr.

Blumenkranz that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(9) Consists of shares of common stock underlying options held by Mr.

Koven that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(10) Consists of shares of common stock underlying options held by Mr.

Myers that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(11) Consists of (i) 48 shares of common stock owned by Mr.

Paull and (ii) 679 shares of common stock underlying options held by Mr.

Paull that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(12) Consists of shares of common stock underlying options held by Mr.

Perry that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(13) Consists of (i) 97 shares of common stock owned by Mr.

Rosen, (ii) 165 shares of common stock owned by the Rosen/Doherty Revocable Trust Dated June 11, 2001, of which Mr.

Rosen is a co-trustee, and (iii) 1,702 shares of common stock underlying options held by Mr.

Rosen that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date.

(14) Includes (i) 110,433 shares of common stock underlying options that are exercisable as of February 21, 2023 or will become exercisable within 60 days after such date and (ii) 1,656 Holdback Shares issuable in March 2023.

Securities Authorized for Issuance under Equity Compensation Plans

The following table contains information about our equity compensation plans as of December 31, 2022.

As of December 31, 2022, we had three equity compensation plans, our 2009 Plan, our 2017 Plan and our 2017 ESPP, each of which was approved by our stockholders.

We have also made inducement awards to certain new hires, which awards were not approved by our stockholders.

Equity Compensation Plan Information

securities to be

Weighted-Average

exercise price

of outstanding

available for

future issuance

plans (excluding

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

(1) Includes shares of our common stock issuable upon exercise of options to purchase common stock awarded under our 2009 Plan and 2017 Plan and shares of our common subject to outstanding restricted stock units awarded under our 2017 Plan.

The number in the table assumes maximum performance for all outstanding unvested performance-based stock options.

(2) The calculation does not take into account the 8,347 shares of common stock subject to outstanding restricted stock units.

Such shares will be issued at the time such awards vest (or upon the earlier of the director’s

cessation of service or certain “change in control events”, if a non-employee director elects to defer the receipt of such restricted stock units), without any cash consideration payable for those shares.

The number of shares available for issuance under the 2017 Plan, as reflected in this table, assumes maximum performance of outstanding performance-based stock options.

(3) Includes 77,375 shares of our common stock available for issuance under our 2017 Plan and 15,548 shares of common stock available for issuance under our 2017 ESPP.

(4) The number of shares of common stock reserved for issuance under the 2017 Plan will be increased on the first day of each fiscal year through January 1, 2027, in amount equal to the lowest of:

(i) 71,475 shares of common stock, (ii) 4% of the total number of shares of our common stock outstanding on the first day of the applicable fiscal year or (iii) an amount determined by our board of directors.

On January 1, 2023, the shares under the 2017 Plan were increased by 68,278 shares pursuant to the annual increase described above.

(5) The number of shares of our common stock reserved for issuance under the 2017 ESPP will be increased on the first day of each fiscal year through January 1, 2029, in an amount equal to the lowest of:

(1) 17,868 shares of common stock, (2) 1% of the total number of shares of our common stock outstanding on the first day of the applicable fiscal year or (3) an amount determined by our board of directors.

On January 1, 2023, the shares under the 2017 ESPP were increased by 17,069 shares pursuant to the annual increase described above.

(6) Represents inducement option awards granted to employees in accordance with Nasdaq Listing Rule 5635(c)(4) each with an exercise price equal to closing price of our common stock on the date of grant and vesting over four years with 25% of the shares underlying each option vesting on the first anniversary of the applicable employee’s new hire date and 2.0833% vesting monthly thereafter.

Includes inducement option awards to purchase 2,000 shares of our common stock granted on November 15, 2021 to Darius Kharabi.

The information required by this Item 12 is incorporated by reference from the information that will be contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates pursuant to General Instruction G(3) of Form 10-K.

Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

Policies and Procedures for Related Person Transactions

Our board of directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which our company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest.

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our general counsel or, if none, to our chief financial officer, or individual performing a similar function.

The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee.

Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction.

If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction.

The policy also permits the chairman of the audit committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting.

Any related person transactions that are ongoing in nature will be reviewed annually.

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the audit committee after full disclosure of the related person’s interest in the transaction.

As appropriate for the circumstances, the audit committee will review and consider:

● the related person’s interest in the related person transaction;

● the approximate dollar value of the amount involved in the related person transaction;

● the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;

● whether the transaction was undertaken in the ordinary course of our business;

● whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party;

● the purpose of, and the potential benefits to us of, the transaction;

● any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.

Our audit committee may approve or ratify the transaction only if it determines that, under all of the circumstances, the transaction is in our best interests.

Our audit committee may impose any conditions on the related person transaction that it deems appropriate.

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

● interests arising solely from the related person’s position as an executive officer of another entity, whether or not the person is also a director of the entity, that is a participant in the transaction where the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction;

● a transaction that is specifically contemplated by provisions of our certificate of incorporation or by-laws.

The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by our compensation committee in the manner specified in the compensation committee’s charter.

With respect to related person transactions, it is the practice of our board of directors to consider the nature of and business reasons for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests.

Related Person Transactions

In addition to the compensation arrangements with directors and executive officers described elsewhere in this Annual Report on Form 10-K, since January 1, 2021, we have engaged in the following transactions with our directors, executive officers and holders of more than 5% of our voting securities, and affiliates of our directors, executive officers and holders of more than 5% of our voting securities.

These transactions were approved in accordance with our Related Person Transaction Policy to the extent required, and we believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties.

Private Placement

On November 28, 2022, we entered into a Securities Purchase Agreement, or the Securities Purchase Agreement, with 667, L.P.

and Bakers Brothers Life Sciences, L.P.

, 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 Series E Preferred Stock, in two tranches for aggregate

gross proceeds of up to $31.0 million, which we refer to collectively as the Private Placement.

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 U.S.

Food and Drug Administration accepted our investigational new drug 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.

The Purchasers have certain participation rights.

If at any time during the four-year period following the date of the first tranche closing, or the Participation Period, we propose to offer and sell new equity securities in an offering that is conducted pursuant to an exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, or in an offering that is registered under the Securities Act that is not conducted as a firm-commitment underwritten offering, then, subject to compliance with securities laws and regulations, we have agreed to offer each Purchaser the right to purchase its pro rata share of the total amount of the new equity securities, subject to certain conditions and limitations.

In addition, if during the Participation Period, we propose to offer and sell new equity securities in a firm-commitment underwritten offering registered under the Securities Act, then subject to compliance with securities laws and regulations, we have agreed to use our commercially reasonable efforts to cause the managing underwriters of such offering to contact the Purchasers about potentially participating in such offering and to provide to each Purchaser the opportunity to purchase its pro rata share of such new equity securities, subject to certain conditions and limitations.

The participation rights will terminate if the Purchasers are offered the opportunity to participate in an offering pursuant to the participation rights and do not purchase at least 50% of their aggregate pro rata share of the new equity securities offered for sale in such offering.

The Purchasers also have the right to have up to two non-voting observers attend and participate in all Board and committee meetings and, subject to the Purchasers owning directly specified minimum amounts of our common stock, the right to have the Board nominate and recommend for election by the stockholders up to three Purchaser designees to the Board (one designee at 9.9%, two designees at 15.0% and three designees at 25.0%) designated by the Purchasers, provided that at such time as the Purchasers have designated three Board designees, at least one such designee must qualify as an “independent” director under Nasdaq rules and be acceptable to the members of the Board who are not Purchaser designees.

The Purchasers’ participation rights, observer rights and Board designation rights also will terminate at such time as the Purchasers and their affiliates cease to own, in the aggregate, specified minimum amounts of the shares purchased in the Private Placement.

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 $1,000,000, 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.

Combangio Acquisition

On November 15, 2021, we and our newly formed, direct wholly owned subsidiary, Ceres Merger Sub, Inc., or the Merger Subsidiary, entered into an Agreement and Plan of Merger, or the Merger Agreement, with Combangio and Fortis Advisors LLC, solely in its capacity as Combangio Equityholder Representative in connection with the Merger Agreement, pursuant to which on November 15, 2021, the Merger Subsidiary merged with and into Combangio with Combangio surviving such merger and becoming a direct wholly owned subsidiary of ours, or the Combangio Acquisition.

In connection with the Closing of the Combangio Acquisition, we made an upfront payment of an aggregate of $5.0 million in cash to former Combangio equityholders, subject to customary adjustments, and agreed to issue an aggregate of 155,664 shares of our common stock to the Combangio equityholders with an aggregate value of approximately $16.1 million, consisting of (i) an aggregate of 136,314 shares of common stock which were issued on January 3, 2022, or the Initial Shares, and (ii) an aggregate of 19,350 shares of common stock that were held back as partial security for the satisfaction of indemnification obligations and other payment obligations of the former Combangio equityholders and that will be issued in March 2023, or the Holdback Shares.

The Combangio equityholders

Blumenkranz, Mr.

Kharabi, Lagunita Biosciences, LLC, of which Dr.

Blumenkranz is a managing member, and Garland Investments, L.P., of which Dr.

Blumenkranz is a managing member.

In connection with the closing of the Combangio Acquisition , we appointed Dr.

Blumenkranz, a then-member of the board of directors of Combangio, to our board of directors, and we appointed Mr.

Kharabi, the then-President and Chief Executive Officer of Combangio, as our Chief Business Officer.

The following table sets forth the consideration paid and payable by us to Dr.

Blumenkranz, Mr.

Kharabi, Lagunita Biosciences, LLC and Garland Investments, L.P.

pursuant to the Merger Agreement.

Consideration

Initial Shares Issued

Holdback Shares

on January 3, 2022

Issuable in March 2023

Darius Kharabi

Lagunita Biosciences, LLC (3)

Garland Investments, L.P.

(1) In exchange for 2,618,875 shares of Combangio's common stock.

(2) In exchange for 323,415 shares of Combangio's common stock and for an option to purchase 8,754,216 shares of Combangio's common stock.

(3) Upon the issuance of the Initial Shares, Lagunita Biosciences, LLC became a holder of more than 5% of our outstanding voting securities.

(4) In exchange for 85,395,439 shares of Combangio's common stock.

(5) In exchange for 646,830 shares of Combangio's common stock.

In addition to the foregoing consideration, former equityholders of Combangio are entitled to receive from us contingent consideration in the form of cash and additional shares of our common stock upon the achievement of various milestones.

As a result of the dosing of the first patient in our CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States in February 2023, or the Dosing Milestone, we will pay to the former Combangio equityholders in March 2023 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).

The remaining amount of $0.1 million in cash will be paid to the former Combangio equityholders in January 2024.

The following table sets forth the consideration as result of the achievement of the Dosing Milestone payable by us to Dr.

Blumenkranz, Mr.

Kharabi, Lagunita Biosciences, LLC and Garland Investments, L.P.

pursuant to the Merger Agreement.

Consideration

in March 2023

Darius Kharabi

Lagunita Biosciences, LLC

Garland Investments, L.P.

Following payment of the Dosing Milestone, any contingent consideration payable under the Merger Agreement in the future will be paid only in cash.

Registration Rights

We are a party to a registration rights agreement, as amended, with Mr.

This registration rights agreement, as amended, provides Mr.

Iwicki the right, subject to certain conditions, beginning after January 16, 2018, to request that his shares be covered by a registration statement that we are otherwise filing.

We are a party to a registration rights agreement with the Purchasers in our Private Placement, who are beneficial owners of more than 5% of our common stock.

This registration rights agreement provides the Purchasers with certain resale registration rights with respect to the 76,813 shares of common stock issued in the Private Placement, the 5,314,400 shares of common stock issuable upon conversion of the Series E Preferred Stock issued in the Private Placement and any other shares of our common stock held by the Purchasers.

Indemnification Agreements

Our certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law.

In addition, we have entered into indemnification agreements with all of our directors and officers.

Board Determination of Independence

Applicable Nasdaq rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing.

In addition, the Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934 and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Securities Exchange Act of 1934.

Under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.

In order to be considered independent for purposes of Rule 10C-1, the board must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

(1) the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director;

and (2) whether the director is affiliated with the company or any of its subsidiaries or affiliates.

In April 2022, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each then-sitting director, including Gregory Grunberg, who served as a director during 2022 until his term expired at our 2022 annual meeting of stockholders.

In October 2022, our board of directors undertook a similar review of the independence of Marjan Farid, who joined our board of directors in October 2022.

Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors determined that each of our directors, with the exception of Mark Iwicki, is an “independent director” as defined under applicable Nasdaq rules.

In making such determinations, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining his or her independence, including the beneficial ownership of our capital stock by each non-employee director.

Iwicki is not an independent director under these rules because he is our Chief Executive Officer.

The information required by this Item 13 is incorporated by reference from the information that will be contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates pursuant to General Instruction G(3) of Form 10-K.

Principal Accountant Fees and Services

Audit Fees and Services

Deloitte was our independent registered public accounting firm for the years ended December 31, 2022 and December 31, 2021.

The following table summarizes the fees Deloitte billed to us for the last two fiscal years.

All such services and fees were pre-approved by our audit committee in accordance with the “Pre-Approval Policies and Procedures” described below.

Years Ended December 31,

Audit Fees(1)

Audit-Related Fees

All Other Fees(3)

(1) Audit fees consist of fees billed for professional services rendered by Deloitte & Touche LLP for the audits of our annual consolidated financial statements, the reviews of our interim consolidated financial statements, and related services that are normally provided in connection with statutory and regulatory filings or engagements, including, our registration statements.

(2) Tax fees consist of fees for professional services with respect to tax compliance, tax advice and tax planning.

(3) All other fees include fees and expenses for services which do not fall within the categories described above.

All other fees consisted of a subscription to Deloitte & Touche LLP’s Accounting and Research Tool.

Pre-approval Policies and Procedures

The audit committee of our board of directors has adopted policies and procedures for the pre-approval of audit and non-audit services for the purpose of maintaining the independence of our independent auditor.

We may not engage our independent auditor to render any audit or non-audit service unless either the service is approved in advance by the audit committee, or the engagement to render the service is entered into pursuant to the audit committee’s pre-approval policies and procedures.

In 2020, the audit committee delegated to its chair the authority to pre-approve any audit or non-audit services to be provided to us by our independent registered public accounting firm.

By the terms of this delegated authority, the chair must be report on any such approval of services pursuant to such authority at the first regularly scheduled meeting of the audit committee following such approval.

The audit committee does not delegate its responsibility to approve services performed by the independent auditor to any member of management.

The standard applied by the audit committee, or the chair of the audit committee, in determining whether to grant approval of any type of non-audit service, or of any specific engagement to perform a non-audit service, is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent registered public accounting firm’s independence under guidelines of the SEC and applicable professional standards.

Relevant considerations include whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of our financial statements, whether the independent registered public accounting firm would be functioning in the role of management or in an advocacy role, whether the independent registered public accounting firm’s performance of the service would enhance our ability to manage or control risk or improve audit quality, whether such performance would increase efficiency because of the independent registered public accounting firm’s familiarity with our business, personnel, culture, systems, risk profile and other factors, and whether the amount of fees involved, or the non-audit services portion of the total fees payable to the independent registered public accounting firm in the period would tend to reduce the independent registered public accounting firm’s ability to exercise independent judgment in performing the audit.

The information required by this Item 14 is incorporated by reference from the information that will be contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates pursuant to General Instruction G(3) of Form 10-K.

Exhibits and Financial Statement Schedules

1 unchanged sentence

The following documents are included beginning on page F-1 attached hereto and are filed as part of this Annual Report on Form 10-K.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

17 unchanged sentences

001-38150) filed on May 23, 2022)

Amended and Restated By laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on November 8, 2022

Specimen Stock Certificate evidencing the shares of common stock

Restated Certificate of Incorporation of the Registrant, as amended as of November 28, 2022, including Certificate of Designation of the Series D Preferred Stock of Registrant, Certificate of Elimination of Number of Shares of Preferred Stock Designated as Series D Preferred Stock of Registrant, Certificate of Designations, Preferences and Rights of Series E Convertible Non-Redeemable Preferred Stock of Registrant, Certificate of Designations, Preferences and Rights of Series F Convertible Non-Redeemable Preferred Stock of Registrant and Certificate of Designations, Preferences and Rights of Series G Convertible Non-Redeemable Preferred Stock of Registrant

Third Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on August 2, 2023 )

Specimen Stock Certificate evidencing the shares of common stock (incorporated by reference to Exhibit 4.1 to the Registrant’s annual report on Form 10-K (File No.

001-38150) filed on March 3, 2023)

Third Amended and Restated Registration Rights Agreement of the Registrant dated April 6, 2016, as amended by Amendment No.

2 unchanged sentences

Description of the Registrant’s Securities Registered under Section 12 of the Exchange Act

Description of Exhibit

Form of Series E Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on November 28, 2022)

Description of Exhibit

Registration Rights Agreement, dated March 2, 2023, by and among the Registrant and the persons party thereto

Form of Series F Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on December 22, 2023)

Form of Series G Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on March 26, 2024)

Registration Rights Agreement, dated March 2, 2023, by and among the Registrant and the persons party thereto (incorporated by reference to Exhibit 4.5 to the Registrant’s annual report on Form 10-K (File No.

001-38150) filed on March 3, 2023)

2009 Employee, Director and Consultant Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s registration statement on Form S-1 (File No.

6 unchanged sentences

001-38150) filed on June 26, 2020)

Amended and Restated 2017 Equity Incentive Plan of the Registrant (incorporated by reference to Exhibit 99.1 to the Registrant’s registration statement on Form S-8 (File No.

333-272834) filed on June 22, 2023)

Form of Incentive Stock Option Agreement under 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s registration statement on Form S-1/A (File No.

8 unchanged sentences

001-38150) filed on August 6, 2020)

Form of Incentive Stock Option Agreement under Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Forms of Non-Qualified Option Agreement under Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Form of Non-Employee Director Restricted Stock Unit Award under Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Form of Non-Employee Director Deferred Restricted Stock Unit Award under Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Form of Employee Restricted Stock Unit Award under Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Form of Inducement Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on November 8, 2018)

Form of Inducement Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s quarterly report on Form 10-Q (File No.

333-218936) filed on August 4, 2023)

Description of Exhibit

Exclusive License Agreement, dated October 11, 2019, by and between Combangio, Inc.

1 unchanged sentence

001-38150) filed on March 29, 2022)

Inducement Stock Option Agreement by and between the Registrant and Eric L.

Trachtenberg (incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 9, 2018)

Letter Agreement, dated March 25, 2018, by and between the Registrant and Eric L.

13 unchanged sentences

001-38150) filed on October 2, 2018)

Description of Exhibit

Loan and Security Agreement, dated May 4, 2021, by and among the Registrant and Oxford Finance LLC, as collateral agent and lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

9 unchanged sentences

001-38150) filed on December 27, 2022)

Fourth Amendment to Loan and Security Agreement, dated August 1, 2023, by and among the Registrant, Combangio, Inc.

and Oxford Finance LLC, as collateral agent and lender (incorporated by reference to Exhibit 10.8 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Fifth Amendment to Loan and Security Agreement, dated August 2, 2023, by and among the Registrant, Combangio, Inc.

and Oxford Finance LLC, as collateral agent and lender (incorporated by reference to Exhibit 10.9 to the Registrant’s quarterly report on Form 10-Q (File No.

001-38150) filed on August 4, 2023)

Securities Purchase Agreement, dated November 28, 2022, by and among the Registrant and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

001-38150) filed on November 28, 2022)

Securities Purchase Agreement, dated December 21, 2023, by and among the Registrant and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on December 22, 2023)

Securities Purchase Agreement, dated March 25, 2024, by and among the Registrant and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K (File No.

001-38150) filed on March 26, 2024)

Description of Exhibit

Open Market Sale Agreement SM , dated as of January 19, 2023, by and between Registrant and Jefferies LLC (incorporated by reference to Exhibit 1.1 to the Registrant’s current report on Form 8-K (File No.

6 unchanged sentences

Certification of Principal Financial Officer pursuant to 18 U.S.C.

Unaudited Pro Forma Financial Statements and accompanying notes for the year ended December 31, 2022

Dodd-Frank Compensation Recovery Policy

Inline XBRL Instance Document

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

March 29, 2024

17 unchanged sentences

March 29, 2024

/s/ Robert Paull

March 3, 2023

/s/ Gregory Perry

4 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Kala Pharmaceuticals, Inc.

To the stockholders and the Board of Directors of KALA BIO, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kala Pharmaceuticals, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, mezzanine equity and stockholders' equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of KALA BIO, Inc.

and subsidiaries (formerly Kala Pharmaceuticals, Inc.) (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in mezzanine equity and stockholders' equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

15 unchanged sentences

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Sale of Commercial Business to Alcon - Refer to Note 1 and Note 3 to the financial statements

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Grant Income - Refer to Notes 2 and 6 to the financial statements

Critical Audit Matter Description

On July 8, 2022, the Company sold the rights to manufacture, sell, distribute, market and commercialize EYSUVIS and INVELTYS and to develop, manufacture, market and otherwise exploit the Company’s AMPPLIFY Drug Delivery Technology (collectively, the “Commercial Business”) to Alcon Pharmaceuticals Ltd.

and Alcon Vision, LLC (together referred to as “Alcon”), (the “Alcon Transaction”).

The Company received an upfront cash payment of $60 million and is eligible to receive from Alcon up to four commercial-based sales milestone payments totaling up to $325 million.

Company has determined that the disposition of the Commercial Business does not qualify for reporting as a discontinued operation as it was not considered a component of an entity that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.

In connection with the Alcon Transaction, Alcon may purchase any remaining inventory owned by the Company (“Remaining Inventory”) at an agreed upon discounted price.

The Company deferred a portion of the upfront consideration related to the discounted pricing on the Remaining Inventory.

Determining the recoverability of the Remaining Inventory requires management to make significant assumptions and estimates on future purchases of inventory by Alcon.

We identified the Company’s accounting for the Alcon Transaction that included:

(1) the overall accounting presentation as continuing operations (2) the recognition of a gain and (3) the recoverability of the Remaining Inventory as our critical audit matter given the extent of effort and high degree of auditor judgement, including the involvement of specialists.

On August 2, 2023, Combangio, a wholly owned subsidiary of the Company, entered into an award agreement with the California Institute for Regenerative Medicine (“CIRM”) for a $15 million grant (the “CIRM Award”) to support Combangio’s KPI-012 program for the treatment of persistent corneal epithelial defects (“PCED”).

The award includes funding for the Company’s CHASE Phase 2b clinical trial of KPI-012 for PCED, as well as product and process characterization and analytical development for the program.

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.

Upon entry into the CIRM Award, Combangio received an initial disbursement from CIRM, and the balance of the award is payable to Combangio upon the achievement of specified milestones that are primarily related to Combangio’s progress in conducting the CHASE Phase 2b clinical trial.

We have identified the Company’s accounting for the CIRM Award, including the conclusion as to the appropriate accounting standards under which to record the funding received, as our critical audit matter given the increased extent of effort and high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the Alcon Transaction and the recoverability of the Remaining Inventory included the following, among others:

● We obtained and reviewed the Alcon Transaction agreements to evaluate the reasonableness of the methodology management used to record the transaction, including the recognition of a gain.

● With the assistance of professionals with specialized skill and knowledge, we evaluated management’s assessment of the discontinued operations criteria, including the quantitative and qualitative factors surrounding the qualification for discontinued operations treatment.

● We evaluated the reasonableness of management’s methodology, significant assumptions and estimates used to determine the estimate of future purchases of the Remaining Inventory by Alcon and tested the accuracy of the data utilized in the estimates for INVELTYS and EYSUVIS, including expiration dates, industry data and activity subsequent to December 31, 2022.

● We made inquiries of management and tested the mathematical accuracy of management's significant assumptions and estimates.

● We evaluated the accuracy and completeness of management’s disclosure for the Alcon Transaction.

Our audit procedures related to the accounting for the CIRM Award, including the recording of grant income, included the following, among others:

● We obtained and read the CIRM Award agreement, along with the Company’s accounting position paper, to evaluate the reasonableness of the accounting conclusions and methodology management used to record the transaction.

● We evaluated the reasonableness of management’s conclusion as to the appropriateness of the accounting standards followed.

● We tested the expenses recorded by the Company relating to work performed under the CIRM Award, which included corroboration of the work performed under the CIRM Award with those outside of finance.

● We tested the mathematical accuracy of management's calculations and the related recording of grant income.

● We evaluated the accuracy and completeness of management’s disclosure for the CIRM Award.

/s/ Deloitte & Touche LLP

2 unchanged sentences

We have served as the Company's auditor since 2013.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents

Short-term restricted cash

Accounts receivable, net

Prepaid expenses and other current assets (Note 7)

3 unchanged sentences

Property and equipment, net

Long-term inventory

Right-of-use assets

5 unchanged sentences

Deferred gain on sale of commercial business

Deferred grant income

Current portion of lease liabilities

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Long-term contingent consideration

Long-term deferred purchase consideration

Total long-term liabilities

3 unchanged sentences

Preferred stock, $ 0.001 par value;

5,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

53,144 and 0 shares of Series E Convertible Non-Redeemable Preferred Stock issued and outstanding as of December 31, 2022 and December 31, 2021 , respectively

5,000,000 shares authorized as of December 31, 2023 and 2022;

51,246 and 53,144 shares of Series E Convertible Non-Redeemable Preferred Stock issued and outstanding as of December 31, 2023 and 2022 , respectively, and 2,928 and 0 shares of Series F Convertible Non-Redeemable Preferred Stock issued and outstanding as of December 31, 2023 and 2022, respectively

Common stock, $ 0.001 par value;

120,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

1,706,971 and 1,322,464 shares issued and outstanding as of December 31, 2022 and December 31, 2021 , respectively

120,000,000 shares authorized as of December 31, 2023 and 2022;

2,759,372 and 1,706,971 shares issued and outstanding as of December 31, 2023 and 2022 , respectively

Additional paid-in capital

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The accompanying notes are an integral part of these consolidated financial statements.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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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 costs and expenses

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Gain on sale of commercial business

Gain on lease modification

Other income (expense), net

Total interest and other income (expense)

Other (expense) income, net

Total other (expense) income

Net loss per share attributable to common stockholders—basic and diluted

Weighted average shares outstanding—basic and diluted

Other comprehensive loss:

Change in unrealized gains on investments

Total other comprehensive loss

Other comprehensive income:

Change in unrealized gain on investments

Total other comprehensive income

Total comprehensive loss

The accompanying notes are an integral part of these consolidated financial statements.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

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Series E Preferred Stock

Series F Preferred Stock

$0.001 Par Value

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$0.001 Par Value

Comprehensive

1 unchanged sentence

Balance as of December 31, 2021

At the market offering, net of offering costs of $ 1,176

Exercise of stock options

Issuance of common stock for vested restricted stock units

Issuance of common stock under employee stock purchase plan

Stock-based compensation expense

Change in fair value of investments

Balance as of December 31, 2021

At the market offering, net of offering costs $ 29

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Balance as of December 31, 2022

At the market offering, net of offering costs of $ 458

Issuance of common stock for vested restricted stock units

Issuance of common stock under employee stock purchase plan

Issuance of common stock to satisfy deferred purchase consideration

Issuance of common stock to satisfy contingent consideration

Issuance of common stock upon conversion of Series E Preferred Stock

Issuance of convertible Series F preferred stock, net of issuance cost of $ 35

Stock-based compensation expense

Balance as of December 31, 2023

The accompanying notes are an integral part of these consolidated financial statements.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Loss on extinguishment of debt

Gain on lease modification

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

Amortization of debt discount and other non-cash interest

Stock-based compensation

Other non-cash losses, net

Other non-cash (gains) losses, net

Change in operating assets and liabilities:

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Prepaid expenses and other current assets

Inventory and assets held for sale

Other long-term assets

Accounts payable

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Cash flows from investing activities:

Cash paid for acquisition of in-process research and development, net of cash acquired

Proceeds from sale of commercial business, net of transaction costs

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Proceeds from sales or maturities of short-term investments

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

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

Payment of principal, prepayment premium and final payment fee on debt

Proceeds from issuance of common stock and Series E preferred stock, net of transaction costs of $ 240

Proceeds from issuance of common stock and Series E preferred stock, net of issuance costs of $ 240

Proceeds from issuance of Series F preferred stock, net of issuance costs of $ 35

Proceeds from common stock offerings, net of offering costs

Contingent consideration related to Combangio acquisition

Payment of principal on finance lease

Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan

Net cash (used in) provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash:

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash:

Cash, cash equivalents and restricted cash at beginning of period

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

Less restricted cash (Notes 10 and 11)

Less restricted cash

Cash and cash equivalents at end of period

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Purchases of property and equipment in accounts payable and accrued expenses

Issuance of common stock to satisfy deferred purchase consideration in additional paid-in capital

Issuance of common stock to satisfy contingent consideration in additional paid-in capital

Supplemental disclosure:

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The accompanying notes are an integral part of these consolidated financial statements.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Nature of Business

Nature of Business — Kala Pharmaceuticals, Inc.

(the “Company”) was incorporated on July 7, 2009, and is a clinical-stage biopharmaceutical company dedicated to the research, development and commercialization of innovative therapies for rare and severe diseases of the eye.

Nature of Business — KALA BIO, Inc.

On August 2, 2023, the Company changed its name from Kala Pharmaceuticals, Inc.

to Kala Bio , Inc.

On November 15, 2021, the Company and its newly formed, direct wholly owned subsidiary, Ceres Merger Sub, Inc.

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(“Combangio”) and Fortis Advisors LLC, solely in its capacity as Combangio Equityholder Representative in connection with the Merger Agreement, pursuant to which on November 15, 2021, the Merger Subsidiary merged with and into Combangio with Combangio surviving such merger and becoming a direct wholly owned subsidiary of the Company (the “Combangio Acquisition”).

In connection with the Combangio Acquisition, the Company acquired Combangio’s mesenchymal stem cell secretomes (“MSC-S”) platform, including its lead product candidate for the treatment of persistent corneal epithelial defects (“PCED”), which the Company now refers to as KPI-012.

PCED is a rare disease of impaired corneal healing.

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

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

The Company expects to commercialize in the United States any of its product candidates that receive marketing approval.

In connection with the determination to focus its research and development efforts on KPI-012, in 2022, the Company ceased the development of its preclinical pipeline programs that are unrelated to its MSC-S platform, including the development of KPI-287, its receptor tyrosine kinase inhibitor, and its selective glucocorticoid receptor modulators.

The Company 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.

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

See Note 3, “Acquisitions and Divestitures”, for additional information about the Alcon Transaction.

See Note 3, “Acquisitions and Divestitures” for additional information about the Alcon Transaction and the Combangio Acquisition.

The Company’s success is dependent upon its ability to develop, obtain regulatory approval for and commercialize KPI-012 and any other product candidate it may develop in the future, the success of its research and development efforts, whether it receives any commercial-based sales milestone payments from Alcon, its ability to raise additional capital when needed and, ultimately, attain profitable operations.

Refer to Note 3, “Acquisitions and Divestitures”, for further discussion of the Combangio Acquisition.

Reverse Stock Split— On October 20, 2022, the Company effected a 1 -for-50 reverse stock split of the Company’s shares of common stock either issued and outstanding or held by the Company as treasury stock (the “Reverse Stock Split”).

As a result of the Reverse Stock Split, every 50 shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

value per share.

No fractional shares were issued as a result of the Reverse Stock Split.

Any fractional shares that would otherwise have resulted from the Reverse Stock Split were rounded up to the next whole number.

The number of authorized shares of common stock under the Company’s Restated Certificate of Incorporation, as amended, remained unchanged at 120,000,000 shares.

The number of authorized shares of common stock under the Company’s Restated Certificate of Incorporation, as amended, remained

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

unchanged at 120,000,000 shares.

All historical share and per share amounts reflected throughout these financial statements have been adjusted to reflect the Reverse Stock Split.

Proportionate adjustments were made to the per share exercise price and the number of shares of common stock that may be purchased upon exercise of outstanding stock options and warrants, and the number of shares of common stock reserved for future issuance under the Company’s 2017 Equity Incentive Plan and Employee Stock Purchase Plan.

Recent Financings —On May 7, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020 (the “2020 Shelf Registration”).

Recent Equity Financings — On May 7, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 19, 2020 (the “2020 Shelf Registration”).

Under the 2020 Shelf Registration, the Company may offer and sell up to $ 350,000 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, the Company entered into an amended and restated sales agreement (the “Amended and Restated Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could issue and sell, from time to time, up to an aggregate of $ 75,000 of its common stock in an at-the-market equity offering (the “ATM Offering”) through Jefferies, as a sales agent.

During the year ended December 31, 2021, the Company issued and sold 115,205 shares of its common stock under its ATM Offering pursuant to the terms of the Amended and Restated Sales Agreement, resulting in net proceeds of $ 41,232 .

During the year ended December 31, 2022, the Company issued and sold an additional 148,461 shares of its common stock under its ATM Offering pursuant to the terms of the Amended and Restated Sales Agreement, resulting in net proceeds of $ 1,036 .

As of December 31, 2022, there were $ 10,278 of shares of common stock remaining under the ATM Offering, and excluding these shares of common stock, there was approximately $ 275,000 of securities available to be issued under the 2020 Shelf Registration.

From January 1, 2023 through January 10, 2023, the Company issued and sold an additional 245,887 shares of its common stock under its ATM Offering resulting in net proceeds of $ 9,995 .

During the year ended December 31, 2022, the Company issued and sold an additional 148,461 shares of its common stock under its at-the-market offering pursuant to the terms of the Amended and Restated Sales Agreement, resulting in net proceeds of $ 1,036 .

From January 1, 2023 to January 10, 2023, the Company sold 245,887 shares of its common stock pursuant to the terms of the Amended and Restated Sales Agreement, resulting in net proceeds of $ 9,994 .

On January 10, 2023, the Amended and Restated Sales Agreement terminated in accordance with its terms when the Company completed the sale of $ 75,000 of its shares of common stock thereunder.

As of the date of termination of the Amended and Restated Sales Agreement, the Company had sold an aggregate of 565,974 shares of its common stock under such agreement for aggregate gross proceeds of $ 75,000 .

On January 19, 2023, the Company entered into an Open Market Sale Agreement with Jefferies (the “Open Market Sale Agreement”), pursuant to which the Company may issue and sell, from time to time, shares its common stock under an ATM Offering.

The Company filed a prospectus supplement relating to the Open Market Sale Agreement under its 2020 Shelf Registration, pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $ 40,000 under the Open Market Sale Agreement.

Through the date of filing of this Annual Report on Form 10-K, the Company sold 69,974 shares of its common stock under its ATM Offering pursuant to the Open Market Sale Agreement, resulting in net proceeds of $ 1,386 .

In the aggregate, subsequent to December 31, 2022 through the date of filing of this Annual Report on Form 10-K, the Company sold 315,861 shares of its common stock in ATM Offerings pursuant to the Amended and Restated Sales Agreement and the Open Market Sale Agreement for total net proceeds of $ 11,381 .

On November 28, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, shares of common stock of the Company and shares of Series E Convertible Non-Redeemable Preferred Stock, par value $ 0.001 per share, of the Company (the “Series E Preferred Stock”), in two tranches for aggregate gross proceeds of up to $ 31,000 (collectively, the “Private Placement”).

Pursuant to the Securities Purchase Agreement, on December 1, 2022 the Company issued and sold to the Purchasers at the first closing of the Private Placement, (i) 76,813 shares of common stock, at a price per common share equal to $ 5.75 and (ii) 9,666 shares of Preferred Stock, at a price per share equal to $ 575.00 , for aggregate gross proceeds of approximately $ 6,000 .

On December 27, 2022, following the certification by the Chief

KALA PHARMACEUTICALS, INC.

The Company filed a prospectus supplement relating to the Open Market Sale Agreement under its 2020 Shelf Registration (the “2020 Shelf ATM Prospectus Supplement”), pursuant to which the Company could offer and sell shares of common stock having an aggregate offering price of up to $ 40,000 under the Open Market Sale Agreement.

From January 19, 2023 to May 11, 2023, the Company sold 229,378 shares of its common stock under its at-the-market offering pursuant to the Open Market Sale Agreement under the 2020 Shelf ATM Prospectus Supplement, resulting in net proceeds of $ 4,899 .

On March 3, 2023, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on May 11, 2023 (the “2023 Shelf Registration”).

Under the 2023 Shelf Registration, the Company may offer and sell up to $ 350,000 of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, subscription rights or units after such time as the shelf registration statement is declared effective by the SEC.

In accordance with the terms of the Open Market Sale Agreement, the Company may issue and sell, from time to time, up to $ 40,000 of its common stock in an at-the-market equity offering through Jefferies, as sales agent.

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

During the year ended December 31, 2023, the Company sold 256,256 shares of its common stock under its at-the-market offering pursuant to the 2023 Shelf Registration for total net proceeds of $ 3,642 .

During the year ended December 31, 2023, the Company sold an aggregate of 731,521 shares of its common stock pursuant to (1) the Amended and Restated Sales Agreement and the 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 $ 18,536 .

On November 28, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Securities Purchase Agreement”) with certain institutional investors named therein, pursuant to which the Company agreed to issue

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Executive Officer of the Company that the FDA accepted the Company’s IND for KPI-012, the Company issued and sold to the Purchasers at a second closing of the Private Placement a total of 43,478 Preferred Shares, at a price per share equal to $ 575.00 , for aggregate gross proceeds of approximately $ 25,000 .

Costs incurred in connection with the Private Placement were $ 240 , which have been recorded as a reduction to additional paid-in capital.

and sell, in a private placement priced at-the-market under Nasdaq rules, shares of common stock and shares of Series E Convertible Non-Redeemable Preferred Stock, par value $ 0.001 per share, of the Company (the “Series E Preferred Stock”), in two tranches for aggregate gross proceeds of up to $ 31,000 (collectively, the “2022 Private Placement”).

Pursuant to the 2022 Securities Purchase Agreement, on December 1, 2022, the Company issued and sold to the purchasers at the first closing of the 2022 Private Placement, (i) 76,813 shares of common stock, at a price per common 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 $ 6,000 .

On December 27, 2022, following the certification by the Chief Executive Officer of the Company that the FDA accepted the Company’s IND for KPI-012, the Company issued and sold to the 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 equal to $ 575.00 , for aggregate gross proceeds of approximately $ 25,000 .

Costs incurred in connection with the 2022 Private Placement were $ 240 , which were recorded as a reduction to additional paid-in capital.

On December 21, 2023, the Company entered into a Securities Purchase Agreement (the “2023 Securities Purchase Agreement”) with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, shares of Series F Convertible Non-Redeemable Preferred Stock, par value $ 0.001 per share, of the Company (the “Series F Preferred Stock”), for aggregate gross proceeds of approximately $ 2,000 (the “2023 Private Placement”).

Pursuant to the 2023 Securities Purchase Agreement, the Company issued and sold to the purchasers at the closing of the 2023 Private Placement, 2,928 shares of Series F Preferred Stock, at a price per preferred share equal to $ 683.00 .

Costs incurred in connection with the 2023 Private Placement were $ 35 , which were recorded as a reduction to additional paid-in capital.

On March 25, 2024, the Company entered into a Securities Purchase Agreement (the “2024 Securities Purchase Agreement”) with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell, in a private placement priced at-the-market under Nasdaq rules, shares of Series G Convertible Non-Redeemable Preferred Stock, par value $ 0.001 per share, of the Company (the “Series G Preferred Stock”), for aggregate gross proceeds of approximately $ 8,600 (the “2024 Private Placement”).

Pursuant to the 2024 Securities Purchase Agreement, the Company issued and sold to the purchasers at the closing of the 2024 Private Placement, 10,901 shares of Series G Preferred Stock, at a price per preferred share equal to $ 788.90 .

Refer to Note 11, “Debt” for a discussion of debt financing activity.

COVID-19 – In order to safeguard the health of its employees from COVID-19 the Company is following, and will continue to follow, recommendations from the U.S.

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

The Company does not know the extent to which the COVID-19 pandemic will impact its development of KPI-012 or any other product candidate it develops.

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 post-operative inflammation and pain following ocular surgery.

The COVID-19 pandemic had negatively impacted the Company’s revenues from INVELTYS.

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

The Company 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 the Company may receive milestone payments from Alcon, which milestone payments the Company may receive and if the Company will receive any milestone payments at all.

Any impact of COVID-19 on Alcon’s commercialization efforts of EYSUVIS and INVELTYS, the Company’s development of KPI-012 and any other product candidate it may develop in the future and the Company’s operational and financial performance will depend on certain developments, including the length and severity of the pandemic , the timing and extent of any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines and treatments, and the impact of the foregoing on employees, vendors and government agencies, all of which are uncertain and cannot be predicted.

The Company cannot reasonably estimate the extent to which the disruption may materially impact its consolidated results of operations or financial position .

Summary of Significant Accounting Policies

Principles of Consolidation— The accompanying consolidated financial statements include the accounts of Kala Pharmaceuticals, Inc.

Principles of Consolidation— The accompanying consolidated financial statements include the accounts of KALA BIO, Inc.

and its wholly owned subsidiaries, Kala Pharmaceuticals Security Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities, and Combangio, Inc .

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The Company generated only limited revenues from product sales prior to the sale of the Commercial Business to Alcon in July 2022 and has incurred recurring losses and negative cash flows from operations, including a net loss of $ 42,199 and $ 44,822 , for the years ended December 31, 2023 and 2022, respectively, and used cash in operations of $ 27,927 and $ 78,908 , in the years ended December 31, 2023 and 2022, respectively.

The Company has financed its operations to date primarily through proceeds from its initial public offering of common stock (“IPO”), follow-on public offerings of common stock and sales of its common stock under its ATM Offering facility, private placements of common stock and preferred stock, borrowings under credit facilities and the Loan and Security Agreement with Oxford Finance LLC (the “Loan Agreement”), convertible promissory notes and warrants.

The Company has devoted substantially all of its financial resources and efforts to research and development, including preclinical studies and clinical trials and , prior to the sale of its Commercial Business to Alcon in July 2022, engaging in activities to launch and commercialize EYSUVIS and INVELTYS.

The Company expects to continue to incur significant expenses and operating losses.

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

KALA PHARMACEUTICALS, INC.

The Company has financed its operations to date primarily through proceeds from the sale of the Commercial Business to Alcon, its initial public offering of common stock, follow-on public offerings of common stock and sales of its common stock under its at-the-market offering facility, private placements of common stock and preferred stock (including the Company’s 2022 Private Placement, 2023 Private Placement and 2024 Private Placement), borrowings under credit facilities and the Loan and Security Agreement with Oxford Finance LLC (the “Loan Agreement”), convertible promissory notes and warrants.

In August 2023, following entry into the award agreement with the California Institute for Regenerative Medicine

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company expects that its cash and cash equivalents as of December 31, 2022 will enable it to fund its operating expenses, debt service obligations and capital expenditure requirements for at least 12 months from the date these consolidated financial statements were issued.

(“CIRM”), Combangio received an initial $ 5,900 disbursement from CIRM, and the balance of the total $ 15,000 award is payable to Combangio upon the achievement of specified milestones (see Note 6, “Grant Income” for further information about the CIRM Award (as defined below)).

The Company has devoted substantially all of its financial resources and efforts to research and development, including preclinical studies and clinical trials, and, prior to the sale of the Commercial Business to Alcon in July 2022, engaging in activities to launch and commercialize EYSUVIS and INVELTYS.

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

The Company has no revenue-generating commercial products and, as a result of the Combangio Acquisition, may be required to pay certain milestones and royalty payments to former equityholders of Combangio.

Although the Company is eligible to receive up to $ 325,000 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 the Company may receive such milestone payments or of the amount of milestone payments the Company may receive, if any.

The Company cannot be certain that it will achieve the milestones within the timeframe required by the CIRM Award, or at all, and as such the Company may never receive the remaining $ 9,100 under the award.

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

The Company may never achieve or maintain profitability.

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

The Company expects that its cash and cash equivalents as of December 31, 2023, together with the $ 8,600 of gross proceeds received from the sale of shares of Series G Preferred Stock in March 2024, will enable it to fund its operating expenses, lease and debt service obligations and capital expenditure requirements for at least 12 months from the date these consolidated financial statements were issued.

This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued.

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The Company evaluates its estimates and assumptions on an ongoing basis.

Estimates and assumptions relied upon in preparing these consolidated financial statements relate to, but are not limited to, revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, contingent consideration and acquired in-process research and development (“IPR&D”), stock-based compensation, accrued expenses, deferred purchase consideration, contingent consideration, assets held for sale and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Estimates and assumptions relied upon in preparing these consolidated financial statements relate to, but are not limited to, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock-based compensation, accrued expenses, contingent consideration, grant income and deferred grant income, the valuation of embedded derivatives and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

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

Grant Income — Grant income consists of amounts earned from incurring costs to support the CHASE Phase 2b clinical trial of KPI-012 for PCED, as well as product process characterization and analytical development from the program due to the receipt of the CIRM Award.

The grant between the Company and CIRM is subject to a co-funding requirement and generally provides for the Company to meet certain milestones in order for funds to be provided.

The Company accounts for grants received to perform research and development activities in accordance with Accounting Standards Codification (“ASC”) 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 the Company is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then the Company is required to estimate and recognize that liability.

Alternatively, if the Company is not required to repay, or if it is required to repay the grant funds to the grantor 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

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

expenses are incurred.

Costs of grant income are recorded as a component of research and development expenses in the Company’s consolidated statements of operations and comprehensive loss as opposed to grant revenue.

Grant funds received in advance are recorded as deferred grant income on the consolidated balance sheets.

Management has determined that the Company is the principal participant under the Company’s CIRM Award, and accordingly, the Company records amounts earned under this arrangement as grant income on the consolidated statements of operations and comprehensive loss.

Product Revenues, Net — Following the sale of its Commercial Business to Alcon in July 2022, the Company no longer has any commercial products in its portfolio.

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In addition to agreements with Customers, the Company entered into arrangements with third-party payors that provided for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of its products.

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

The Company accounted for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers .

Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services.

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Payment was typically received 70 to 90 days after satisfaction of the Company’s performance obligations.

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Transaction Price and Variable Consideration

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If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2023 and 2022:

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Balance as of December 31, 2022

Provision related to current period sales

Changes in estimate related to prior period sales

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Estimated trade discounts, allowances and chargebacks were deducted from gross revenue at the time revenues were recognized and were recorded as a reduction to accounts receivable on the Company’s consolidated balance sheets.

(2) Estimated provisions for product returns were deducted from gross revenues at the time revenues were recognized and were included in accrued expenses and other current liabilities on the Company’s consolidated balance sheets.

(2) Estimated provisions for product returns were generally deducted from gross revenues at the time revenues were recognized and are included in accrued expenses and other current liabilities on the Company’s consolidated balance sheets.

(3) Rebates and incentives included managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances.

Estimated provisions for rebates and discounts were deducted from gross revenues at the time revenues were recognized and were included in accrued expenses and other current liabilities on the Company’s consolidated balance sheets.

Estimated provisions for rebates and discounts were deducted from gross revenues at the time revenues were recognized and are included in accrued expenses and other current liabilities on the Company’s consolidated balance sheets.

As of December 31, 2023 and 2022, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Accounts Receivable, net —Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from customers for product sales.

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An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible.

The Company recorded no allowance for doubtful accounts as of December 31, 2022 or December 31, 2021.

The Company recorded an allowance of $ 11 and $ 2,672 for expected sales discounts, related to prompt pay discounts and other discounts, contractual fee for service arrangements and chargebacks, to wholesalers and distributors as of December 31, 2022 and December 31, 2021, respectively.

Acquired IPR&D— A key provision within ASC 805 , Business Combinations, is the single or similar asset threshold.

When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquired set is not a business.

In evaluating the Combangio Acquisition, the Company concluded that s ubstantially all of the fair value of the gross assets acquired was concentrated in a single asset, KPI-012, and the Company accounted for the transaction as an asset acquisition.

Acquired IPR&D expense consists of the initial up-front payments and any future milestone payments that are recorded at fair value incurred in connection with the acquisition or licensing of product candidates that do not meet the definition of a business.

Acquired IPR&D is expensed immediately in the period in which it is incurred.

For the year ended December 31, 2021, the Company recorded an expense for the IPR&D acquired in the Combangio Acquisition of $ 26,617 as there was no alternative future use.

The Company recorded no allowance for doubtful accounts as of December 31, 2023 and 2022.

The Company recorded an allowance of $ 11 for expected sales discounts, related to prompt pay discounts and other discounts, contractual fee for service arrangements and chargebacks, to wholesalers and distributors as of December 31, 2022 and did not record any allowance for expected sales discounts as of December 31, 2023.

Contingent Consideration— In addition to upfront consideration and Deferred Purchase Consideration (as defined below) (see Note 3) , the Company’s asset acquisitions may also include contingent consideration payments to be made for future milestone events.

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

Changes to contingent consideration obligations can result from changes to discount rates, accretion of the liability due to the passage of time, changes in the Company’s estimates of the likelihood or timing of achieving certain milestones.

Changes to contingent consideration obligations can result from changes to discount rates, accretion of the liability due to the passage of time,

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

changes in the Company’s estimates of the likelihood or timing of achieving certain milestones.

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

Derivative Instruments— ASC 815, Derivatives and Hedging , (“ASC 815”) requires companies to bifurcate certain conversion options and redemption features from their host instruments and account for them as free-standing derivative financial instruments should certain criteria be met.

The Company evaluates its financial instruments, including its debt arrangements, to determine whether such instruments are derivatives or contain features that qualify as embedded derivatives.

Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met.

The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives.

Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statement of operations and comprehensive income each period.

Bifurcated embedded derivatives are classified with the related host contract in the Company’s consolidated balance sheet.

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

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Periodically, the Company maintains cash, cash equivalents, short-term investments in accredited financial institutions in excess of federally insured limits.

The Company deposits its cash, cash equivalents, short-term investments, if any, in financial institutions that it believes have high credit quality and has not experienced any losses

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company’s accounts receivable balance as of December 31, 2022 was de minimis .

Three Customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2021.

These Customers comprised 44 %, 31 % and 24 % of the accounts receivable balance, respectively, as of December 31, 2021.

To date, losses with respect to the collection of the Company’s accounts receivable have been de minimis and the Company believes that its entire accounts receivable balances is collectible as of December 31, 2022.

The same three Customers comprised 10% or more of the Company’s revenue during the years ended December 31, 2022 and 2021.

These Customers comprised 47 %, 28 % and 21 % of revenue, respectively, during the year ended December 31, 2022 and 48 %, 29 % and 22 % of revenue, respectively, during the year ended December 31, 2021.

The Company deposits its cash, cash equivalents, short-term investments, if any, in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company’s accounts receivable balance as of December 31, 2023 and 2022 were de minimis .

The Company had no revenue during the year ended December 31, 2023.

Three customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2022.

These Customers comprised 47 %, 28 % and 21 % of revenue, respectively.

The Company has no financial instruments with off-balance sheet risk of loss.

Cash Equivalents —The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Restricted Cash —As of December 31, 2022, the Company had long-term restricted cash of $ 250 .

As of December 31, 2021, the Company had short-term restricted cash of $ 2,042 , which represented cash held to serve as collateral for its former facility lease in Watertown, Massachusetts (see Note 10) and long-term restricted cash of $ 700 which primarily represented cash held to serve as collateral for its vehicle fleet lease (see Note 10).

Restricted Cash — As of December 31, 2023, the Company had no long-term restricted cash.

As of December 31, 2022, the Company had long-term restricted cash of $ 250 .

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Investments— The Company determines the appropriate classification of its investments at the time of purchase.

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The Company did not record any such impairments during the years ended December 31, 2023 or 2022.

Inventory —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.

The Company capitalizes pre-launch inventory when it believes regulatory approval and subsequent commercialization of the product candidate is probable and expects the future economic benefit of the drug to be realized.

In doing so, management must 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 the Company’s similar products, the amount of inventory that is likely to be used in commercial production, receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications and the compilation of the regulatory application.

The Company also monitors 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

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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, the Company considers 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, the Company 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 when the Company believed regulatory approval and subsequent commercialization of the product candidate was probable and expected the future economic benefit of the drug to be realized, which was concluded to be upon U.S.

regulatory approval.

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

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, including quality control and assurance reserves for defective inventories, and also writes-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 the Commercial Business in July 2022, such impairment charges were recorded within cost of product revenues, unless associated with samples inventory, in which case the charges were recorded to selling, general and administrative expense.

Following the sale of the 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 the Company’s 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.

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 based on the Company’s forecasted expectations.

Assets Held for Sale — The Company classifies its long-lived assets to be sold as held for sale, as specified by ASC 360, Property, Plant, and Equipment , in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

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The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

As of December 31, 2022, certain assets, including EYSUVIS and INVELTYIS inventory, met the criteria to be classified as held for sale.

There were no assets held for sale as of December 31, 2023.

As of December 31, 2022, certain assets, including EYSUVIS and INVELTYS inventory, met the criteria to be classified as held for sale.

Fair value was determined based on the estimated proceeds from the sale of the assets.

1 unchanged sentence

See Note 4, “Assets Held for Sale”, for additional information.

There were $ 211 of property and equipment, net that met the criteria for classification as held for sale as of December 31, 2021, which were classified in prepaid expenses and other current assets.

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Leases —At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease.

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lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.).

Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components.

Then the fixed and in-substance fixed contract consideration (including any related to

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

non-components) must be allocated based on fair values to the lease components and non-lease components.

Although separation of lease and non-lease components is required, certain practical expedients are available to entities.

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Advertising Costs —Advertising costs are expensed as incurred.

For the years ended December 31, 2022 and 2021, advertising expenses were $ 11,249 and $ 11,692 , respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.

The Company incurred no advertising costs for the year ended December 31, 2023 and incurred $ 11,249 of advertising costs for the year ended December 31, 2022, which were included in selling, general and administrative expenses in the accompanying consolidated statement of operations and comprehensive loss.

Impairment of Long-Lived Assets —Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

1 unchanged sentence

If the undiscounted cash flows are insufficient to recover the carrying value, the assets are recorded at the lesser of the carrying value or fair value.

For the years ended December 31, 2022 and 2021, impairment charges recorded were de minimis .

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company recorded no impairment charges for the year ended December 31, 2023 and impairment charges recorded for the year ended December 31, 2022 were de minimis .

Segment Information —Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance.

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To date, all of the Company’s revenue has been generated in the United States.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Research and Development Costs —Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses and other outside expenses.

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Stock-based compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided, or capitalized with inventory until related expense is recognized.

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates.

The Company lacks sufficient company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies in addition to its own historical volatility and will continue to do so until it has adequate historical data regarding the volatility of its own traded stock price.

The Company previously lacked sufficient company-specific historical and implied volatility information.

Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies in addition to its own historical volatility.

Beginning in the second half of 2023, the Company determined it had adequate historical data regarding the volatility of its own traded stock price and began exclusively using its own historical volatility.

The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

3 unchanged sentences

The fair value of restricted stock units (“RSUs”) and performance stock units (“PSUs”) are equal to the closing sale price of the Company’s common stock on the date of grant.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Income Taxes —Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements and tax returns.

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Common stock equivalent shares are excluded from the computation of diluted net loss per share attributable to common stockholders if their effect is antidilutive.

In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

shares are not assumed to have been issued if their effect is anti-dilutive.

The Company reported a net loss attributable to common stockholders for the years ended December 31, 2023 and 2022.

3 unchanged sentences

The Company’s management believes that these recent pronouncements will not have a material effect on our company’s consolidated financial statements.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Acquisitions and Divestitures

6 unchanged sentences

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.

Pursuant to the Asset Purchase Agreement, on July 8, 2022, the Company entered into supply and commercial agreements under which the Company agreed to supply EYSUVIS and INVELTYS to Alcon and distribute EYSUVIS and INVELTYS to third-party customers of the Commercial Business on behalf of Alcon for a period of six months following the closing of the Alcon Transaction, subject to early termination.

In addition, the Company entered into a transition services agreement under which the Company agreed to provide certain transition services to Alcon on a cost-plus pricing arrangement for up to six months following the closing of the Alcon Transaction.

In addition, the Company entered into a transition services agreement under which the Company provided certain transition services to Alcon on a cost-plus pricing arrangement for six months following the closing of the Alcon Transaction.

Pursuant to the supply agreement, Alcon purchased from the Company, at the closing of the Alcon Transaction, $ 5,027 of EYSUVIS and INVELTYS inventory on-hand at the Company.

Together, the supply, commercial and transition services agreements are referred to herein as the “Transition Agreement.”

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company has determined that the disposition of these assets does not qualify for reporting as a discontinued operation as it was not considered a component of an entity that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.

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Net gain on sale of Commercial Business

Alcon may purchase any remaining inventory owned by the Company (“Remaining Inventory”) at an agreed upon discounted price.

As the overall components of the Alcon Transaction should be reflected at fair value, the Company has deferred a portion of the gross consideration related to the discounted pricing on the Remaining Inventory.

The deferred gain on the sale of the Commercial Business of $ 4,189 was recorded on the consolidated balance sheet as of the transaction date as deferred gain on sale of Commercial Business and will be reduced at the time of recoverability of the Remaining Inventory.

The Company collected on behalf of Alcon for revenue generated by sales of EYSUVIS and INVELTYS from July 8, 2022 through the transition period and the Company transferred all cash generated by such sales to Alcon as of December 31, 2022.

As of December 31, 2022, the receivables due from Alcon for reimbursement for services performed under the Transition Agreement and invoices processed on Alcon’s behalf were $ 1,418 and $ 3,618 , respectively.

The Company also has receivables due from Alcon for Remaining Inventory sold and other amounts due as of December 31, 2022 of $ 358 for a total receivable due from Alcon of $ 5,394 included in prepaid and other current assets on the consolidated balance sheet as of December 31, 2022.

The Company also has $ 26 of receivables due from third parties in connection with the Transition Agreement.

The Company recorded income from the Transition Agreement of $ 3,611 which is presented in other income on the consolidated statement of operations for the year ended December 31, 2022 and which offsets $ 3,533 of operating expenses related to the Transition Agreement captured within loss from operations.

The Company’s consolidated balance sheet as of December 31, 2022 reflected an additional $ 3,981 in payables to third parties of which $ 1,737 was included within accounts payable and $ 2,244 was included within accrued expenses and other current liabilities related to invoices the Company is obligated to pay on Alcon’s behalf.

As of December 31, 2022, the Company has a net receivable due from Alcon and third parties in connection with the Transition Agreement of $ 1,439 .

Acquisition of Combangio, Inc.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Equityholders with an aggregate value of approximately $ 16,123 , consisting of (i) an aggregate of 136,314 shares of common stock which were issued on January 3, 2022 (the “Upfront Shares”) and (ii) an aggregate of 19,350 shares of common stock that were initially held back as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders (the “Holdback Shares”) and that will be issued in March 2023 upon escrow release (the “Escrow Release Date).

The Company deferred a portion of the gross consideration related to the discounted pricing on any remaining inventory owned by the Company (the “Remaining Inventory”) that Alcon could have purchased.

The deferred gain on the sale of the Commercial Business of $ 4,189 was recorded on the consolidated balance sheet as of the transaction date as deferred gain on sale of Commercial Business.

The Remaining Inventory and deferred gain on the sale of the Commercial Business were written off during the year ended December 31, 2023, and the net impact of $ 3,355 is recorded in the other (expense) income, net line item in the consolidated statements of operations and comprehensive loss.

The Company collected cash on behalf of Alcon for revenue generated by sales of EYSUVIS and INVELTYS from July 8, 2022 through the transition period and the Company transferred all cash generated by such sales to Alcon as of December 31, 2022.

The Company recorded income from the Transition Agreement of $ 157 , which is presented in other income (expense), net on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023 and which offset operating expenses related to the Transition Agreement captured within loss from operations.

Other than noted above, there was no other income from the Transition Agreement recorded in the year ended December 31, 2023.

There were no payables due to third parties related to amounts the Company is obligated to pay on Alcon’s behalf included on the Company’s consolidated balance sheet as of December 31, 2023 and there were no receivables due from Alcon or third parties in connection with the Transition Agreement.

As of December 31, 2022, the Company had total receivables due from Alcon and third parties of $ 5,394 and $ 26 , respectively, and total payables to third parties related to the Transition Agreement of $ 3,981 of which $ 1,737 was included in accounts payable and $ 2,244 within accrued expenses and other current liabilities related to invoices the Company was obligated to pay on Alcon’s behalf.

As of December 31, 2022, the Company had a net receivable due from Alcon and third parties in connection with the Transition Agreement of $ 1,439 .

Acquisition of Combangio, Inc.

In connection with the closing of the Combangio Acquisition on November 15, 2021 (the “Closing”), the Company made an upfront payment of an aggregate of $ 5,000 in cash to former Combangio stockholders and other equityholders (the “Combangio Equityholders”), subject to customary adjustments, and agreed to issue an aggregate of 155,664 shares (the “Deferred Purchase Consideration”) of the Company’s common stock to the Combangio Equityholders with an aggregate value of approximately $ 16,123 , consisting of (i) an aggregate of 136,314 shares of common stock which were issued on January 3, 2022 (the “Upfront Shares”) and (ii) an aggregate of 19,350 shares of common stock that were initially held back as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders (the “Holdback Shares”) and that were issued in March 2023 upon escrow release.

The aggregate value of the Deferred Purchase Consideration was calculated using the closing price of the Company’s common stock on The Nasdaq Global Select Market on November 12, 2021, the last trading day prior to the Closing.

2 unchanged sentences

The portion of any payment of Contingent Consideration payable in cash is referred to as “Contingent Cash Consideration”.

Upon dosing of the first patient in the CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States in February 2023 (the “Dosing Milestone”), the Company became obligated to pay to the former Combangio Equityholders an aggregate of $ 2,500 in cash and $ 2,354 in shares of our common stock (representing an aggregate of 105,039 shares of the Company’s common stock) which will be made in March 2023 and will pay the remaining amount due for the Dosing Milestone of $ 146 in January 2024.

Upon payment of the Dosing Milestone, the Company reached the Share Cap and any Contingent Consideration payable under the Merger Agreement in the future will be paid only in cash.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Upon dosing of the first patient in the CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States in February 2023 (the “First Dosing Milestone”), in March 2023, the Company paid the former Combangio Equityholders an aggregate of $ 2,500 in cash and $ 2,354 in shares of our common stock (representing an aggregate of 105,038 shares of the Company’s common stock).

The remaining amount due for the First Dosing Milestone of $ 146 was paid in cash in January 2024.

Upon payment of the First Dosing Milestone, the Company reached the Share Cap and any Contingent Consideration payable under the Merger Agreement in the future will be paid only in cash.

Subject to the terms and conditions of the Merger Agreement, the former Combangio Equityholders, are entitled to receive from the Company the following remaining Contingent Consideration in cash:

● (i) $ 5,000 would become payable upon the first patient dosed with any product candidate whose active ingredient comprises one or more biological factors secreted by MSCs or their progenitors, including KPI-012 (the “Product Candidate”) in a pivotal clinical trial, (ii) $ 12,500 payable upon regulatory approval by the FDA of marketing and sale of a Product Candidate in the United States, subject to certain specified reductions;

● (i) $ 5,000 payable upon the first patient dosed with any product candidate whose active ingredient comprises one or more biological factors secreted by MSCs or their progenitors, including KPI-012 (the “Product Candidate”) in a pivotal clinical trial, (ii) $ 12,500 payable upon regulatory approval by the FDA of marketing and sale of a Product Candidate in the United States, subject to certain specified reductions;

(iii) $ 17,500 payable upon the first commercial sale of a Product Candidate in the United States, subject to certain specified reductions, and (iv) an aggregate of up to $ 65,000 payable upon the achievement of specified sales milestones;

3 unchanged sentences

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

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

For accounting purposes, the transaction was accounted for as an asset acquisition , as substantially all of the fair value of the gross assets acquired was concentrated in a single asset, KPI-012.

Pursuant to the Merger Agreement, following the Combangio Acquisition, the Company owns 100 % of the outstanding common stock of Combangio.

The cost of the Combangio Acquisition, which represents the total consideration transferred to Combangio stockholders in the Combangio Acquisition consists of the following:

Transaction expenses

Deferred Purchase Consideration (1)

Contingent consideration (2)

Total consideration

(1) Deferred Purchase Consideration consists of 136,314 Upfront Shares issued on January 3, 2022 and 19,350 Holdback Shares which will be issued on the Escrow Release Date in March 2023.

Contingent consideration consists of the fair value of certain milestone payments.

The total potential maximum payout for the milestone payments, which are recorded at fair value, is $ 40,000 and such milestone payments are contingent upon the achievement of specified development, regulatory and commercial milestones.

Upon achievement of the Dosing Milestone in February 2023, the Company became obligated to pay to the former Combangio Equityholders an aggregate of $ 2,500 in cash and $ 2,354 in shares of the Company’s common stock (representing an aggregate of 105,039 shares of the Company’s common stock) which will be made in March 2023 and will pay the remaining amount of $ 146 in cash in January 2024.

Additionally, pursuant to the Merger Agreement, the Company could trigger potential future sales-based milestone payments of up to $ 65,000 .

Because the achievement of these sales-based milestones related to KPI-012 was not considered probable as of December 31, 2022 or 2021, such contingencies have not been recorded in the Company’s consolidated financial statements.

The following is the allocation of the purchase consideration based on the fair value of assets acquired and the liabilities assumed by the Company in the Combangio Acquisition:

Cash and cash equivalents

Prepaid expense and other current assets

Property and equipment

Acquired in-process research and development

Total consideration

Assets Held for Sale

No assets held for sale remained on the consolidated balance sheet as of December 31, 2023.

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

As of December 31, 2022, the Company presented assets to be disposed of that met the criteria as held for sale as a single asset in its consolidated financial statements.

The EYSUVIS and INVELTYS product inventory classified as held for sale represents the net realizable value of the Remaining Inventory which Alcon, and solely Alcon, has the right to purchase.

As noted in Note 3, “Acquisitions and Divestitures” above, the Company deferred a portion of the gain on the sale of the Commercial Business related to the discounted pricing on the Remaining Inventory of $ 4,189 .

KALA PHARMACEUTICALS, INC.

The EYSUVIS and INVELTYS product inventory classified as held for sale represented the net realizable value of the Remaining Inventory which Alcon, and solely Alcon, had the right to purchase.

The Company deferred a portion of the gain on the sale of the Commercial Business related to the discounted pricing on the Remaining Inventory of $ 4,189 .

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following is a summary of the major categories of assets that have been reclassified to held for sale on the consolidated balance sheet as of December 31, 2022:

The following is a summary of the major categories of assets that were reclassified to held for sale on the consolidated balance sheet as of December 31, 2022:

Property and equipment, net

Total assets held for sale

Since the closing of the Alcon Transaction, the Company has made adjustments to the held for sale inventory balance of $ 4,560 for expiring Remaining Inventory, which are recorded in other income (expense), net on the consolidated statement of operations and comprehensive loss.

The balance in the table above reflects these adjustments.

See Note 2, “Summary of Significant Accounting Policies”, and Note 3, “Acquisitions and Divestitures”, for further information on the sale of the Commercial Business.

Current assets held for sale

See Note 3, “Acquisitions and Divestitures”, for further information on the sale of the Commercial Business.

Fair Value of Financial Instruments

6 unchanged sentences

Cash equivalents and contingent consideration are reported at their respective fair values on the Company’s consolidated balance sheets.

As discussed in Note 3, “Acquisitions and Divestitures”, the Company acquired Combangio in November 2021 and in connection with the closing of the Combangio Acquisition, the Company agreed to issue Deferred Purchase Consideration for which the Company has established liabilities for these considerations.

The Deferred Purchase Consideration related to the Combangio Acquisition is measured at fair value each reporting period using Level 3 unobservable inputs.

The Deferred Purchase Consideration related to the Combangio Acquisition was measured at fair value each reporting period using Level 3 unobservable inputs.

The fair value of the Deferred Purchase Consideration was based on the fair value of the underlying stock and a discount for lack of marketability.

Changes in these estimates and assumptions could have a significant impact on the fair value of the Deferred Purchase Consideration.

Any change in the fair value of the Deferred Purchase Consideration is included in loss from operations in the consolidated statements of operations and comprehensive loss.

During the years ended December 31, 2022 and 2021, the change in the fair value of the Deferred Purchase Consideration was a loss of $ 638 and a gain of $ 5,805 , respectively, primarily due to the change in the fair value of the underlying stock price and was recognized as the loss (gain) on fair value remeasurement of deferred purchase consideration in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021.

KALA PHARMACEUTICALS, INC.

Any change in the fair value of the Deferred Purchase Consideration was included in loss from operations in the consolidated statements of operations and comprehensive loss.

During the year ended December 31, 2022, the Company settled $ 7,935 of the liability upon issuance of the Upfront Shares and during the year ended December 31, 2023, the Company settled the remaining liability of $ 365 upon the issuance of the Holdback Shares.

During the years ended December 31, 2023 and 2022, the change in the fair value of the Deferred Purchase Consideration was a gain of $ 230 and a loss of $ 638 , respectively, primarily due to the change in the fair value of the underlying stock price and was recognized as the (gain) loss on fair value remeasurement of deferred purchase consideration in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022.

Additionally, the purchase price in connection with the Combangio Acquisition included potential future payments of up to $ 105,000 that are contingent upon the achievement of specified development, regulatory and commercialization milestones and are required to be recorded at fair value.

To date, of the $ 105,000 in contingent milestone payments, the Company has paid to the Combangio Equityholders an aggregate of $ 2,500 in cash and $ 2,354 in shares of the Company’s common stock (representing an aggregate of 105,038 shares of the Company’s common stock) upon achieving the First Dosing Milestone in February 2023 and paid the remaining amount due in connection

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

To date, of the $ 105,000 in contingent milestone payments, the Company has paid to the Combangio Equityholders an aggregate of $ 2,500 in cash and $ 2,354 in shares of the Company’s common stock (representing an aggregate of 105,039 shares of the Company’s common stock) upon dosing of the first patient in the Company’s CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States in February 2023 and will pay the remaining amount due in connection with the Dosing Milestone of $ 146 in January 2024.

with the First Dosing Milestone of $ 146 in cash in January 2024, which was included within accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2023.

Contingent consideration liabilities related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs.

2 unchanged sentences

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

During the year ended December 31, 2023, the change in the fair value of the contingent consideration liabilities was a loss of $ 740 , primarily due to changes in discount rates, as well as changes in the expected timing and probability of payment, partially offset by the passage of time, and was recognized as a loss on fair value remeasurement of contingent consideration in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

During the year ended December 31, 2022, the change in the fair value of the contingent consideration liabilities was a gain of $ 288 , primarily due to changes in discount rates, partially offset by the passage of time, and was recognized as a gain on fair value remeasurement of contingent consideration in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.

During the year ended December 31, 2021, the change in the fair value of the contingent consideration liabilities was de minimis .

The following tables set forth the fair value of the Company’s financial instruments by level within the fair value hierarchy as of December 31, 2023 and 2022:

1 unchanged sentence

Cash equivalents

Deferred purchase consideration

Contingent consideration

5 unchanged sentences

Total Liabilities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5 unchanged sentences

Unobservable Input

Deferred purchase consideration

Option pricing model

Discount for lack of marketability

Contingent consideration

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Discount rate

Discount for lack of marketability

Fair Value at

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Discount for lack of marketability

15.0 % - 25.0 % ( 20.0 %)

Contingent consideration

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Balance at January 1, 2022

Fair value adjustments

Balance at January 1, 2023

Fair value adjustments

Reclassification to accrued expenses and other current liabilities

Balance at December 31, 2023

2 unchanged sentences

Management believes that the Company’s long-term debt (see Note 11) bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long-term debt, also approximates its fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Inventory consists of the following:

Raw materials

Work in progress

Finished goods

Total inventory

As of December 31, 2022, the Company had $ 7,544 of inventory classified as held for sale (s ee Note 4, “Assets Held for Sale”) .

As of December 31, 2021, the Company had $ 8,639 of current inventory and $ 9,578 of long-term inventory.

On August 2, 2023, Combangio, a wholly owned subsidiary of the Company, entered into an award agreement with CIRM for a $ 15,000 grant (the “CIRM Award”) to support Combangio’s KPI-012 program for the treatment of PCED.

The award includes funding for the CHASE Phase 2b clinical trial of KPI-012 for PCED, as well as product and process characterization and analytical development for the program.

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.

Upon entry into the CIRM Award, Combangio received an initial $ 5,900 disbursement from CIRM, and the balance of the award is payable to Combangio upon the achievement of specified milestones that are primarily related to Combangio’s progress in conducting the CHASE Phase 2b 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 $ 1,000 of funds utilized by the Company 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 (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 $ 500,000 per year until the last to expire patent covering such invention expires.

During the year ended December 31, 2023, the Company recognized $ 4,825 of grant income related to the CIRM Award on its consolidated statement of operations.

As of December 31, 2023, the Company had deferred grant income of $ 1,075 on its consolidated balance sheet.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets, consists of the following:

Prepaid research and development

Non-trade receivables

Trade receivables, net

Due from Alcon

Other non-trade receivables

Prepaid expenses and other current assets

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9 unchanged sentences

Depreciation expense for the years ended December 31, 2023 and 2022 was $ 248 and $ 421 , respectively.

In connection with the lease termination agreement entered into in November 2021 to accelerate the lease termination o f the Company’s Watertown Lease (as defined below) (see Note 10) and in connection with the Alcon Transaction , the Company disposed of and sold certain property and equipment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Accrued Expenses

Accrued expenses consist of the following:

Accrued expenses and other current liabilities consist of the following:

Compensation and benefits

Due to third parties in connection with Transition Agreement (1)

Professional services

Accrued revenue reserves (1)

Contract manufacturing

Development costs

Professional services

Commercial costs

Accrued expenses

Contract manufacturing

Due to third parties in connection with Transition Agreement (2)

Accrued expenses and other current liabilities

(1) There were additional revenue reserves included in accounts payable of $ 483 as of December 31, 2022.

There were no such amounts included in accounts payable as of December 31, 2023.

(2) There were additional amounts due to third parties in connection with the Transition Agreement included in accounts payable of $ 1,737 as of December 31, 2022.

(2) As of December 31, 2022 and 2021, $ 483 and $ 2,120 of additional revenue reserves were included in accounts payable, respectively.

There were no such amounts included in accounts payable as of December 31, 2023 .

Operating leases

Terminated Watertown Lease

On February 28, 2018, the Company entered into a lease agreement with 480 Arsenal Group LLC for the lease of a portion of the building located at 490 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”).

The initial term of the Watertown Lease was eight years with an option to extend for an additional five years , which were recognized as part of the Company’s right-of-use asset and lease liability.

The Company occupied the premises in Watertown in early 2019 as its corporate headquarters and for research and development.

The lease commencement date was November 15, 2018 and the Company concluded that it controlled the space as of the lease commencement date.

On November 12, 2021, the Company entered into a lease termination agreement (the “Lease Termination Agreement”) with the landlord of the Watertown Lease, which Lease Termination Agreement was amended on December 22, 2021, which modified the lease to accelerate the lease termination date to January 11, 2022 (the “Lease Termination Date”).

Under the terms of the Lease Termination Agreement, the Company was entitled to receive a payment of $ 2,000 due from the landlord in January 2022, which was collected during the year ended December 31, 2022.

The Company was obligated to make rent payments outlined in the lease agreement until the Lease Termination Date.

In connection with the signing of the Lease Termination Agreement, the Company remeasured the lease liability and right-of-use asset and recognized a gain of approximately $ 1,311 , which was included in gain on lease modification in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

Additionally, pursuant to the Lease Termination Agreement, $ 2,042 of restricted cash was released during the year ended December 31, 2022 that was pledged as collateral under a letter of credit with cash on deposit.

The restricted cash was included within short-term restricted cash on the consolidated balance sheet as of December 31, 2021.

KALA PHARMACEUTICALS, INC.

Menlo Park, California Office Lease

In April 2023, Combangio entered into a lease agreement with Menlo Prepi I, LLC, pursuant to which Combangio leases approximately 6,135 square feet of office, laboratory and research and development space in Menlo Park, California.

The Company entered into a guaranty of lease agreement guarantying the obligations of Combangio under the lease agreement.

The initial term of the lease is for 62 months which commenced on the lease commencement date of July 1, 2023, unless earlier terminated pursuant to the terms of the lease.

The lease provides Combangio with an

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

option to extend the lease for an additional five-year term.

Combangio was required to make a payment in the amount of $ 144 , as a security deposit pursuant to the lease during the year ended December 31, 2023, which is included in other long-term assets on the consolidated balance sheet as of December 31, 2023.

Upon the lease commencement, the Company recorded a right-of-use asset of $ 2.2 million and corresponding $ 2.1 million of lease liability.

As of December 31, 2023, the Company recognized $ 2.0 million of right-of-use asset and a corresponding $ 2.1 million of lease liability (current and non-current) by calculating the present value of lease payments, discounted at 13.1 % , the Company’s estimated incremental borrowing rate, over the expected term of the lease.

As of December 31, 2023, the remaining lease term on the lease was 4.7 years.

Variable lease expense for the lease, includes real estate taxes, common area maintenance, and management fees.

Terminated Vehicle Fleet Lease

During the year ended December 31, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it leased vehicles.

The Vehicle Fleet Lease commenced upon the delivery of the initial vehicles in March 2019 and has been subject to modifications as the number of leased vehicles has increased or decreased.

In connection with the closing of the Alcon Transaction, the Company initiated the termination of the Vehicle Fleet Lease and as of December 31, 2022 there is no remaining right-of-use asset or corresponding lease liability .

In connection with the Vehicle Fleet Lease, the Company issued a letter of credit for $ 450 , which was reported as restricted cash on the consolidated balance sheet as of December 31, 2021.

The letter of credit was released during the year ended December 31, 2022.

As of December 31, 2022, the Company had a receivable of $ 775 due from the vendor for the sale of used vehicles following the lease termination, which is included within prepaid expenses and other current assets on the consolidated balance sheet.

The Vehicle Fleet Lease commenced upon the delivery of the initial vehicles in March 2019 and had been subject to modifications as the number of leased vehicles had increased or decreased.

During the year ended December 31, 2022, in connection with the closing of the Alcon Transaction, the Company terminated the Vehicle Fleet Lease and, as of December 31, 2022, there was no remaining right-of-use asset or corresponding lease liability.

In connection with the Vehicle Fleet Lease, the Company issued a letter of credit for $ 450 which was released in September 2022.

As of December 31, 2022, the Company had a receivable of $ 775 due from the vendor for the sale of used vehicles following the lease termination, which was included within prepaid expenses and other current assets on the consolidated balance sheet.

The remaining receivable from the vendor as of December 31, 2023 is de minimis.

The components of lease expense and related cash flows were as follows:

4 unchanged sentences

Operating cash outflows from operating leases

As of December 31, 2022, the Company’s lease liabilities were de minimis .

The weighted average remaining lease term and weighted average discount rate of operating leases are as follows:

1 unchanged sentence

Weighted average discount rate

Athyrium Credit Facility

On October 1, 2018, the Company entered into a credit agreement (the “Athyrium Credit Facility”) with Athyrium Opportunities III Acquisition LP (“Athyrium”) for up to $ 110,000 .

The Athyrium Credit Facility provided for a Term Loan A in the aggregate principal amount of $ 75,000 (the “Term Loan A”), and a Term Loan B in the aggregate principal amount of $ 35,000 (the “Term Loan B”).

On October 1, 2018, the Company borrowed the entire principal amount of the Term Loan A, which bore interest at a rate of 9.875 % per annum, with quarterly, interest-only payments until the fourth anniversary of the Term Loan A.

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

On May 4, 2021, the Company repaid all amounts owed under the Athyrium Credit Facility and terminated all commitments by Athyrium to extend further credit thereunder and all guarantees and security interests granted by the Company to the lenders thereunder.

In connection with the termination of the Athyrium Credit Facility, the Company

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

paid to the lenders a prepayment premium of $ 2,250 and an exit fee of $ 750 .

The transaction resulted in a loss on extinguishment of debt of $ 5,395 for the year ended December 31, 2021, consisting of the prepayment premium, the unamortized debt discount and issuance costs and the unaccreted exit fee.

Additionally, in May 2021, the Company released $ 10,000 of restricted cash previously recorded to comply with a financial covenant required by the Athyrium Credit Facility.

As of December 31, 2023, the Company’s future minimum lease payments will become due and payable as follows:

Years Ending December 31,

Loan and Security Agreement

On May 4, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance, in its capacity as lender (in such capacity, the “Lender”), and in its capacity as collateral agent (in such capacity, the “Agent”), pursuant to which a term loan of up to an aggregate principal amount of $ 125,000 was available to the Company, consisting of (i) a tranche A term loan that was disbursed on the Closing Date in the aggregate principal amount of $ 80,000 ;

(ii) a contingent tranche B term loan in the aggregate principal amount of $ 20,000 available to the Company through June 30, 2023 and within 90 days of the Company achieving trailing 6-month product revenue equal to or greater than $ 75,000 , subject to certain other terms and conditions;

and (iii) a contingent tranche C term loan in the aggregate principal amount of $ 25,000 available to the Company through December 31, 2023 and within 90 days of the Company achieving trailing 6-month product revenue equal to or greater than $ 100,000 , subject to certain other terms and conditions.

The Company utilized substantially all of the proceeds from the tranche A term loan to repay the Athyrium Credit Facility (as more fully described above).

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

On May 4, 2021, the Company entered into the Loan Agreement with Oxford Finance, in its capacity as lender (in such capacity, the “Lender”), and in its capacity as collateral agent (in such capacity, the “Agent”), pursuant to which a term loan of up to an aggregate principal amount of $ 125,000 was available to the Company, consisting of a tranche A term loan that was disbursed on the closing date in the aggregate principal amount of $ 80,000 and additional tranches that are no longer available to the Company.

The Company utilized substantially all of the proceeds from the tranche A term loan to repay a prior credit facility.

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

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

The Loan Agreement, prior to the Second Loan Amendment and Third Loan Amendment (as defined below), provided for interest-only payments until December 1, 2024 if neither the tranche B term loan nor the tranche C term loan are made, and until June 1, 2025 if either the tranche B term loan or the tranche C term loan is made (the “Amortization Date”).

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

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

The Company paid a facility fee of $ 400 on the Closing Date and has agreed to pay a facility fee of $ 100 upon closing of the tranche B term loan and a $ 125 facility fee upon the closing of the tranche C term loan.

All unpaid principal and accrued and unpaid interest with respect to each term loan was due and payable in full on May 1, 2026 (the “Maturity Date”).

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

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

3 unchanged sentences

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

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Loan Agreement includes features requiring (i) additional interest rate upon an event of default accrued at an additional 5 % , and (ii) the Lender’s right to declare all outstanding principal and interest immediately payable upon an event of default.

1 unchanged sentence

These embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging transactions.

The Company determined

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of December 31, 2022.

The Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of December 31, 2023.

The derivative liability will be remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the consolidated statements of operations and comprehensive loss.

11 unchanged sentences

Pursuant to the Third Loan Amendment, in addition to the Third Amendment Prepayments, if the Company makes an additional prepayment under the Loan Agreement equal to $ 5,000 (inclusive of the final payment fee) on or prior to December 31, 2024 (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, the Company makes an additional prepayment under the Loan Agreement equal to $ 2,500 (inclusive of the final payment fee) on or prior to June 30, 2025 (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.

Pursuant to the Loan Agreement, the Company also will be required to pay all

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

accrued and unpaid interest on the principal amounts of the term loan being repaid at the time of repayment.

The Company paid the Third Amendment Prepayments on January 25, 2023.

fee) on or prior to June 30, 2025 (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.

Pursuant to the Loan Agreement, the Company 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.

The Company paid the Third Amendment Prepayments on January 25, 2023, following which the Company became required to repay the Loan Agreement in monthly installments from January 1, 2025 through May 1, 2026.

The principal loan balance under the Loan Agreement following the Third Amendment Prepayments was $ 33,957 .

On August 1, 2023, the Company entered into an amendment to the Loan Agreement with Combangio and Oxford Finance (the “Fourth Loan Amendment”).

Pursuant to the Fourth Loan Amendment, certain provisions of the Loan Agreement were amended in connection with the change of the Company’s name and the cessation of the U.S.

Dollar LIBOR rate.

On August 2, 2023, the Company entered into an amendment to the Loan Agreement with Combangio and Oxford Finance (the “Fifth Loan Amendment”).

Pursuant to the Fifth Loan Amendment, Oxford Finance consented to the Company’s entry into the CIRM Award and certain provisions of the Loan Agreement were amended in connection therewith.

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

5 unchanged sentences

This consisted of amortization of debt discount of $ 274 , accretion of the final payment fee of $ 979 and the contractual coupon interest expense of $ 4,561 .

During the year ended December 31, 2021, the Company recognized interest expense of $ 8,351 for the Loan Agreement and the Athyrium Credit Facility .

During the year ended December 31, 2022, the Company recognized interest expense of $ 7,280 for the Loan Agreement.

This consisted of amortization of debt discount of $ 342 , accretion of the final payment fee of $ 1,083 and the contractual coupon interest expense of $ 5,855 .

The components of the carrying value of the debt as of December 31, 2022 and December 31, 2021 are detailed below:

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The components of the carrying value of the debt as of December 31, 2023 and 2022 are detailed below:

Principal loan balance

5 unchanged sentences

Years Ending December 31,

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company has issued warrants in connection with debt transactions that were completed prior to 2017.

The Company has issued warrants in connection with debt transactions that were completed in 2018 and prior.

The following table summarizes the common stock warrants outstanding as of December 31, 2023 and 2022, each exercisable into the number of shares of common stock set forth below as of the specified dates:

3 unchanged sentences

September 2017

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Common and Preferred Stock

1 unchanged sentence

The Company was authorized to issue up to 5,000,000 shares of preferred stock as of December 31, 2023 and 2022.

As of December 31, 2022, the Company designated 54,000 shares of preferred stock as Series E Preferred Stock of which 53,144 shares were outstanding as of December 31, 2022.

There was no preferred stock outstanding as of December 31, 2021.

As of December 31, 2023, the Company designated 2,928 shares of preferred stock as Series F Preferred Stock, all of which were outstanding as of December 31, 2023.

As of December 31, 2022, the Company designated 54,000 shares of preferred stock as Series E Preferred Stock of which 51,246 and 53,144 shares were outstanding as of December 31, 2023 and 2022, respectively.

Series D Convertible Redeemable Preferred Stock

11 unchanged sentences

As a result, no shares of Series D Preferred Stock remain outstanding.

KALA PHARMACEUTICALS, INC.

On November 28, 2022, the Company filed a Certificate of Elimination of Number of Shares of Preferred Stock Designated as Series D Preferred Stock with the Secretary of State of the State of Delaware which, effective upon filing, eliminated all matters set forth in the Certificate of Designation of Series D Preferred Stock previously filed by the Company and all shares of Preferred Stock previously designated as Series D Preferred Stock resumed their status as undesignated shares of preferred stock of the Company.

Series E and Series F Convertible Non-Redeemable Preferred Stock

Pursuant to the Company’s Certificate of Designations, Preferences and Rights of Series E Convertible Non-Redeemable Preferred Stock and the Company’s Certificate of Designations, Preferences and Rights of Series F Convertible Non-Redeemable Preferred Stock, each filed with the Secretary of State of the State of Delaware, the Company designated 54,000 and 2,928 shares of its authorized and unissued preferred stock as Series E Preferred Stock and Series F Preferred Stock, respectively, and established the rights, preferences and privileges of the Series E Preferred Stock and Series F Preferred Stock.

As discussed more fully in Note 1, “Nature of Business,” on December 21, 2023, t he Company entered into the 2023 Securities Purchase Agreement pursuant to which it issued 2,928 shares of Series F

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Series E Convertible Non-Redeemable Preferred Stock

Pursuant to the Company’s Certificate of Designations, Preferences and Rights of Series E Convertible Non-Redeemable Preferred Stock (the “Certificate of Designations”), filed with the Secretary of State of the State of Delaware with respect to the Series E Preferred Stock, the Company designated 54,000 shares of its authorized and unissued preferred stock as Series E Preferred Stock, and established the rights, preferences and privileges of the Series E Preferred Stock.

As discussed more fully in Note 1, “Nature of Business,” the Company entered into a Securities Purchase Agreement pursuant to which it issued 9,666 shares of Series E Preferred Stock at a per share price of $ 575.00 on December 1, 2022 and 43,478 shares of Series E Preferred Stock at a per share price of $ 575.00 on December 27, 2022.

Each share of Series E Preferred Stock has a par value of $ 0.001 .

Each share of Series E Preferred Stock is initially convertible into 100 shares of common stock (subject to adjustment as provided in the Certificate of Designations) at any time at the option of the holder, provided that the holder will be prohibited, subject to certain exceptions, from converting its Series E Preferred Stock for shares of common stock to the extent that immediately prior to or following such conversion, the holder, together with its affiliates and other attribution parties, would own in excess of 9.99 % of the total number of shares of common stock of the Company then issued and outstanding after giving effect to such conversion, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 19.99 % upon 61 days ’ notice to the Company (collectively, the “Beneficial Ownership Limitation”).

Shares of Series E Preferred Stock will generally have no voting rights, except to the extent provided by applicable law, and except that the consent of the holders of a majority of the outstanding Series E Preferred Stock will be required to waive any provisions of the Certificate of Designations.

Shares of Series E Preferred Stock will be entitled to receive dividends equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of common stock.

Preferred Stock at a per share price of $ 683.00 .

In December 2022, the Company entered into the 2022 Securities Purchase Agreement pursuant to which it issued 53,144 shares of Series E Preferred Stock at a per share price of $ 575.00 .

Each share of Series E Preferred Stock and Series F Preferred Stock has a par value of $ 0.001 .

Series E Preferred Stock and Series F Preferred Stock

Each share of Series E Preferred Stock and Series F Preferred Stock is initially convertible into 100 shares of common stock (subject to adjustment as provided in the applicable Certificate of Designations) at any time at the option of the holder, provided that the holder will be prohibited, subject to certain exceptions, from converting its shares of Series E Preferred Stock and/or Series F Preferred Stock for shares of common stock to the extent that immediately prior to or following such conversion, the holder, together with its affiliates and other attribution parties, would own in excess of 9.99 % of the total number of shares of common stock of the Company then issued and outstanding after giving effect to such conversion, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 19.99 % upon 61 days ’ notice to the Company (collectively, the “Beneficial Ownership Limitation”).

Shares of Series E Preferred Stock and shares of Series F Preferred Stock will generally have no voting rights, except to the extent provided by applicable law, and except that (i) the consent of the holders of a majority of the outstanding Series E Preferred Stock will be required to waive any provisions of the Series E Certificate of Designations and (ii) the consent of the holders of a majority of the outstanding Series F Preferred Stock will be required to waive any provisions of the Series F Certificate of Designations.

Shares of Series E Preferred Stock and Series F Preferred Stock will be entitled to receive dividends equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of common stock.

Liquidation Rights

Upon any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary (“Dissolution”), subject to any prior or superior rights of holders of senior securities, if any, holders of Series E Preferred Stock will be entitled to receive an amount per share of Series E Preferred Stock equal to (i) $ 575.00 (as adjusted for stock splits, combinations, reorganizations and the like) plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series E Preferred Stock been converted into common stock (without regard to any restrictions on conversion, including the Beneficial Ownership Limitation) immediately prior to such Dissolution, in either case, before any distributions shall be made to holders of common stock or any series of preferred stock ranked junior to the Series E Preferred Stock.

KALA PHARMACEUTICALS, INC.

Upon any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary (“Dissolution”), subject to any superior rights of holders of senior securities, if any, holders of Series E Preferred Stock and holders of Series F Preferred Stock will be entitled to receive, on a pari passu basis, as applicable (A) an amount per share of Series E Preferred Stock equal to the greater of (i) $ 575.00 (as adjusted for stock splits, combinations, reorganizations and the like) plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series E Preferred Stock been converted into common stock (without regard to any restrictions on conversion, including the Beneficial Ownership Limitation) immediately prior to such Dissolution and (B) an amount per share of Series F Preferred Stock equal to the greater of (i) $ 683.00 (as adjusted for stock splits, combinations, reorganizations and the like) plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series F Preferred Stock been converted into common stock (without regard to any restrictions on conversion, including the Beneficial Ownership Limitation) immediately prior to such Dissolution, in each case, before any distributions shall be made to holders of common stock or any series of preferred stock ranked junior to the Series E Preferred Stock and the Series F Preferred Stock.

If, upon any such Dissolution, the assets of the Company are insufficient to pay the holders of shares of the Series E Preferred Stock and the holders of shares of Series F Preferred Stock the full amount required under the preceding sentence, the holders of shares of Series E Preferred Stock and the holders of shares of Series F Preferred Stock will share in any distribution of the assets

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares of Series E Preferred Stock and the Series F Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares of were paid in full.

The Company was authorized to issue up to 120,000,000 shares of common stock with a $ 0.001 par value per share as of December 31, 2023 and 2022.

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Holders of common stock are entitled to receive proportionately any dividends as may be declared by the Company’s Board of Directors, subject to any preferential dividend rights of any preferred stock that the Company may issue in the future.

In the event of the Company’s Dissolution, whether voluntary or involuntary, the holders of its common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of the Series E Preferred Stock and any preferred stock that the Company may issue in the future.

In the event of the Company’s Dissolution, whether voluntary or involuntary, the holders of its common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of the Series F Preferred Stock, the Series E Preferred Stock and any preferred stock that the Company may issue in the future.

Holders of the Company’s common stock have no preemptive, subscription, redemption or conversion rights.

The rights, preferences and privileges of holders of the Company’s common stock are subject to and may be adversely affected by the rights of the holders of Series E Preferred Stock and shares of any series of its preferred stock that the Company may designate and issue in the future.

The rights, preferences and privileges of holders of the Company’s common stock are subject to and may be adversely affected by the rights of the holders of Series F Preferred Stock, the Series E Preferred Stock and shares of any series of its preferred stock that the Company may designate and issue in the future.

Reserved Shares

As of December 31, 2022 and 2021, the Company has reserved shares of common stock for issuance upon exercise of rights under warrants, under the Amended and Restated 2017 Employee Stock Purchase Plan (the “ESPP”), upon the exercise of stock options, upon the vesting of RSUs and PSUs, upon the issuance of the Deferred Purchase Consideration in connection with the Combangio Acquisition (see Note 5) and upon conversion of the Series E Preferred Stock:

As of December 31, 2023 and 2022, the Company has reserved the following shares of common stock for issuance upon exercise of rights under warrants, under the Amended and Restated 2017 Employee Stock Purchase Plan (the “ESPP”), upon the exercise of stock options, upon the vesting of RSUs and PSUs, upon the issuance of the Deferred Purchase Consideration in connection with the Combangio Acquisition (see Note 5), upon conversion of the Series E Preferred Stock and upon conversion of the Series F Preferred Stock:

Warrant rights to acquire common stock

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Series E Preferred Stock (as converted to common shares)

Series F Preferred Stock (as converted to common shares)

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Second Closing Right

The Company determined that the common stock and the Series E Preferred Stock issued on December 1, 2022 and the Series E Preferred Stock issued on December 27, 2022 (the “Second Closing Right”) each represented separate freestanding financial instruments and were not within the scope of ASC 480, Distinguishing Liabilities from Equity .

The Company determined that the common stock and the Series E Preferred Stock issued on December 1, 2022 and the Series E Preferred Stock issued on December 27, 2022 (the “Second Closing Right”) pursuant to the 2022 Securities Purchase Agreement, each represented separate freestanding financial instruments and were not within the scope of ASC 480, Distinguishing Liabilities from Equity , (“ASC 480”).

The instruments did not contain any embedded derivatives required to be bifurcated from the Series E Preferred Stock and the instruments were each equity classified within permanent equity.

The Company determined that the relative fair value of the Second Closing Right was de minimis .

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Series F Preferred Stock issued on December 22, 2023 pursuant to the 2023 Securities Purchase Agreement was not within the scope of ASC 480, the instrument did not contain any embedded derivatives required to be bifurcated from the Series F Preferred Stock and the instrument was equity classified within permanent equity.

Stock-based Compensation

Stock Incentive Plans

In December 2009, the Board adopted the 2009 Employee, Director and Consultant Equity Incentive Plan (the “2009 Plan”) for the issuance of common stock and stock options to employees, officers, directors, consultants, and advisors.

Upon the closing of the Company’s IPO, no further awards will be made under the 2009 Plan.

In July 2017, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective.

The 2017 Plan was established to provide equity-based ownership opportunities for employees, officers, directors, consultants, and advisors.

On June 25, 2020, the 2017 Plan was amended to increase the number of shares of common stock authorized for issuance thereunder by 2,000,000 shares.

As of December 31, 2022, there were 77,375 shares of common stock available for grant under the 2017 Plan.

In addition, any shares of common stock subject to awards under the 2009 Plan that expire, are forfeited, or are otherwise surrendered, without having been fully exercised or resulting in any common stock being issued will become available for issuance under the 2017 Plan, up to an additional 32,642 shares, which is the number of shares issuable pursuant to outstanding awards granted under the 2009 Plan.

Also approved under the 2017 Plan is an annual increase for each of the years through December 31, 2027, equal to the least of (i) 71,475 shares of common stock, (ii) 4 % of the shares of common stock outstanding on December 31 of the prior year and (iii) an amount determined by the Board.

On June 22, 2023, the Company’s stockholders approved the Company’s Amended and Restated 2017 Equity Incentive Plan, which amended and restated the Company’s 2017 Equity Incentive Plan, as amended (the “2017 Plan”), to (i) increase the number of shares of common stock authorized for issuance thereunder by 1,250,000 shares;

(ii) limit the number of incentive stock options that can be granted under the plan to 7,738,761 shares of common stock;

(iii) add an annual limit on non-employee director compensation, including cash and the value of equity awards, of $ 750,000 for incumbent directors and $ 1,000,000 in a director’s first year of service;

and (iv) extend the term of the plan (including the duration of the evergreen) to 10 years from June 22, 2023, the date that stockholders approved the plan.

As of December 31, 2023, there were 112,597 shares of common stock available for grant under the Amended and Restated 2017 Equity Incentive Plan.

In addition, the Amended and Restated 2017 Equity Plan provides for an annual increase to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2024 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2033, equal to the lower of (i) 4 % of the sum of (I) the number of outstanding shares of common stock on such date and (II) the number of shares of common stock issuable upon conversion of any outstanding shares of convertible preferred stock of the Company on such date (without giving effect to any restrictions or limitations on conversion) and (ii) an amount determined by the Company’s board of directors.

On January 1, 2024, 327,070 shares of common stock were added and were available for grant under the Amended and Restated 2017 Equity Incentive Plan.

Under the plans, the Board determines the number of shares of common stock to be granted pursuant to the awards, as well as the exercise price and terms of such awards.

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Stock Option Awards

During the year ended December 31, 2022, the Company granted options for the purchase of 83,221 shares of common stock, including options with performance criteria as described below, options to directors and inducement grant options to purchase 2,800 shares of common stock to new employees made outside of the 2017 Plan in accordance with Nasdaq Listing Rule 5635(c)(4) and 6,910 restricted stock units.

During the year ended December 31, 2021, the Company granted options for the purchase of 44,727 shares of common stock, including inducement grant options to purchase 12,988 shares of common stock to new employees made outside of the 2017 Plan and 11,090 restricted stock units.

Vesting of each option award is subject to such employee’s continued service with the Company through the applicable vesting dates.

KALA PHARMACEUTICALS, INC.

On May 1, 2023, the Company commenced a one-time stock option exchange program (the “Option Exchange Program”), under which the Company’s eligible executive officers, other employees and non-employee directors (collectively, “Eligible Holders”) were given the opportunity to exchange outstanding options to purchase shares of the Company’s common stock held by them for an equal number of RSUs that are subject to vesting conditions.

The Option Exchange Program expired on May 30, 2023.

A total of 36 Eligible Holders participated in the Option Exchange Program.

Pursuant to the terms and conditions of the Option Exchange Program, the Company accepted for exchange

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

A summary of option activity for awards under the 2009 Plan, the 2017 Plan and inducement grants for the year ended December 31, 2022 is as follows:

options to purchase a total of 182,251 shares of the Company’s common stock.

All surrendered options were cancelled effective as of the expiration of the Option Exchange Program, and immediately thereafter, in exchange therefor, the Company granted a total of 182,251 RSUs pursuant to the terms of the Option Exchange Program and the 2017 Plan.

A de minimis number of eligible options were not surrendered for exchange and remain outstanding.

Based upon the modification guidance under ASC 718, the Company is required to record an incremental compensation expense of $ 1,210 , which will be recorded, along with the unrecognized compensation cost as of the date of the modification, over the remaining service period of the modified awards.

During the year ended December 31, 2023, the Company granted options for the purchase of 666,962 shares of common stock, including options to directors and inducement grant options to purchase 13,920 shares of common stock to new employees made outside of the 2017 Plan in accordance with Nasdaq Listing Rule 5635(c)(4) .

A summary of option activity is as follows:

(in thousands)

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The impact of forfeitures on compensation expense is recorded as they occur.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Selling, general and administrative

Stock-based compensation costs capitalized into inventory totaled $ 190 and $ 1,157 for the years ended December 31, 2022 and 2021, respectively.

There were no stock-based compensation costs capitalized into inventory in the year ended December 31, 2023.

Stock-based compensation costs capitalized into inventory totaled $ 190 for the year ended December 31, 2022.

Capitalized stock-based compensation was recognized as an expense in cost of product revenues when the related product was sold or in selling, general and administrative expense when the related product was designated as a sample.

The Company received cash proceeds from the exercise of stock options of $ 3 and $ 248 during the years ended December 31, 2022 and 2021, respectively.

The total intrinsic value of options exercised for the years ended December 31, 2022 and 2021, was $ 3 and $ 406 , respectively.

There were no stock options exercised during the year ended December 31, 2023.

Cash proceeds received from the exercise of stock options were de minimis during the year ended December 31, 2022.

The total intrinsic value of options exercised for the year ended December 31, 2022, was de minimis .

In January 2022, the Company granted stock options to purchase up to 14,850 shares of common stock to certain executives tied to certain performance criteria.

The options will vest, if at all, upon satisfying the performance criteria.

The Company has assessed the probability of achievement of the performance criteria and has recorded related stock compensation expense to the extent they are determined to be probable as of December 31 , 2022.

On March 14, 2023, the Compensation Committee of the Company’s Board determined that certain of the performance conditions were achieved at specific levels of achievement, resulting in vesting of options to purchase an aggregate of 3,960 shares of common stock.

All outstanding stock options tied to performance criteria were surrendered in the Option Exchange Program and as such, there were none outstanding as of December 31, 2023.

Restricted Stock Units and Performance-Based Restricted Stock Units —In June 2020, the Company issued 13,854 PSUs to certain executives and other employees tied to certain performance criteria, which vested as to 50 % of the PSUs in October 2021 on the first anniversary of satisfying the performance criteria and the remaining 50 % vested in October 2022 upon the second anniversary of satisfying the performance criteria.

In 2021, the Company issued 8,590 RSUs to certain executives and other employees which will vest no sooner than one -third per year over three years on the anniversary of the date of grant as well as 2,500 RSUs to members of the Board which vested upon the 2022 Annual Meeting of Stockholders.

In 2022, the Company issued 6,910 RSUs to certain executives and other employees which will vest no sooner than one -third per year over three years on the anniversary of the date of grant.

During the years ended December 31, 2023 and 2022, the Company issued 824,190 RSUs (which includes the RSUs issued in connection with the Option Exchange Program) and 6,910 RSUs, respectively, to certain executives and other employees which will vest no sooner than one-third per year over three years on the anniversary of the date of grant.

As of December 31, 2023, a total of 827,658 RSUs were outstanding, consisting of 824,998 unvested shares and 2,660 vested and deferred shares by directors.

This results in unrecognized stock-based compensation of $ 13,343 to be recognized as stock-based compensation expense over the remaining weighted-average vesting period of 2.16 years.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

A summary of activity for RSUs and PSUs for the year ended December 31, 2022 is as follows:

A summary of activity for RSUs for the year ended December 31, 2023 is as follows:

Weighted Average

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and (3) an amount determined by the Company’s board of directors.

On January 1, 2024, 27,593 shares of common stock were added and were available for grant under the ESPP.

The ESPP provides for two six-month offering periods each year:

3 unchanged sentences

The fair value of the purchase rights granted under the ESPP was estimated on the date of grant, using the Black-Scholes option-pricing model.

During the year ended December 31, 2022, employees of the Company purchased an aggregate of 13,791 shares under the ESPP.

During the year ended December 31, 2021, employees of the Company purchased an aggregate of 5,515 shares under the ESPP.

KALA PHARMACEUTICALS, INC.

During the years ended December 31, 2023 and 2022, employees of the Company purchased an aggregate of 3,690 and 13,791 shares, respectively under the ESPP.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5 unchanged sentences

Net loss per share attributable to common stockholders, basic and diluted

(1) Included in the weighted-average common shares outstanding, basic and diluted for the years ended December 31, 2022 and 2021 is an aggregate of 19,350 shares of common stock that were held back by the Company and will be issued in March 2023 upon the Escrow Release Date.

Also included in the weighted-average common shares outstanding, basic and diluted for the year ended December 31, 2021 is an aggregate of 136,314 shares of common stock issued to Combangio Equityholders on January 3, 2022.

(1) Included in the weighted-average common shares outstanding, basic and diluted for the year ended December 31, 2022 is an aggregate of 19,350 shares of common stock that were held back by the Company as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders and were issued in March 2023.

The following potential common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.

3 unchanged sentences

Unexercised warrants

Convertible preferred stock (as converted to common shares)

Convertible preferred stock (as converted to common stock)

The Company has had no income tax expense due to operating losses incurred for the years ended December 31, 2023 and 2022.

1 unchanged sentence

All of the Company’s losses before income taxes were generated in the United States.

KALA PHARMACEUTICALS, INC.

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Federal statutory income tax rate

Change in valuation allowance

State income taxes, net of federal benefit

Research and development tax credits

Stock-based compensation

Change in valuation allowance

Losses and Credits Limited by Section 382 & Section 383

Research and development tax credits

Acquired in-process research and development

Effective income tax rate

4 unchanged sentences

Stock-based compensation

Deferred gain on sale of Commercial Business

Rebates, incentives, trade discounts and allowances

Lease liabilities

Research and development tax credit carryforwards

Lease liabilities

Rebates, incentives, trade discounts and allowances

Deferred gain on sale of Commercial Business

Total deferred tax assets

7 unchanged sentences

Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2023 and 2022.

The valuation allowance decreased by $ 2,727 and increased by $ 36,568 during the years ended December 31, 2022 and 2021, respectively.

The current year decrease is primarily the result of a material reduction to the net operating loss carryforward and the research and development tax credits deferred tax assets caused by limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, thus lowering the valuation allowance required.

The prior year increase is due to additional net operating loss carryforwards and research and development tax credits, partially offset by a small increase to the Section 382 limit.

The valuation allowance increased by $ 7,325 and decreased by $ 2,727 during the years ended December 31, 2023 and 2022, respectively.

The current year increase is primarily the result of an increase in federal net operating losses and the generation of federal and state research and development tax credits.

The prior year decrease is primarily the result of a material reduction to the net operating loss carryforward and the research and development tax credits deferred tax assets caused by limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, thus lowering the valuation allowance required.

Management reevaluates the positive and negative evidence at each reporting period.

In 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law.

Amongst other provisions, the 2017 Tax Act requires taxpayers to capitalize and amortize research and experimental (“R&D”) expenditures under Section 174 for tax years beginning after December 31, 2021.

As such, the rule noted became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of certain R&D costs within its tax provision.

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company will amortize such costs for tax purposes over 5 years if the R&D was performed in the United States and over 15 years if the R&D was performed outside the United States.

As of December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of $ 369,337 and $ 349,378 , respectively, which may be available to offset future federal tax liabilities and expire at various dates beginning in 2030.

As of December 31, 2023 and 2022, the Company had state net operating loss carryforwards of $ 413,711 and $ 390,607 , respectively, which may be available to offset future state income tax liabilities and expire at various dates beginning in 2024.

As of December 31, 2022, the Company had $ 0 federal and state research and development credit carryforwards.

As of December 31, 2021, the Company had combined federal and state research and development credit carryforwards of approximately $ 3,591 , which were set to begin to expire in 2039 (federal) and 2034 (state).

As of December 31, 2023, the Company had $ 1,154 federal and state research and

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

development credit carryforwards and as of December 31, 2022, the Company had no federal and state research and development credit carryforwards.

Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.

Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income.

The Company previously completed an analysis and determined that an ownership change materially limited the net operating loss carryforwards.

During December 2022, an additional ownership change occurred as a result of the Company’s entry into the Securities Purchase Agreement.

As a result of the most recent ownership change, the utilization of the Company’s net operating loss carryforwards is subject to an annual limitation of $ 222 .

The Company completed an analysis as of December 31, 2022 and determined that an ownership change occurred during December 2022 as a result of the Company’s entry into the 2022 Securities Purchase Agreement which materially limited the net operating loss carryforwards and research and development tax credits.

As a result of this most recent ownership change, the utilization of the Company’s net operating loss carryforwards is subject to an annual limitation of $ 222 , which is reflected in the numbers presented above.

The Company has not completed an analysis as of December 31, 2023 but does not expect any change would further limit the net operating loss carryforwards.

The Company files its corporate income tax returns in the United States and various states.

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Under the Stanford Agreement, the Company is required to pay Stanford annual license maintenance fees and milestone payments upon the achievement of specified development, regulatory and sales milestones, as well as tiered royalties on net sales of licensed products that are covered by a valid claim of a licensed patent.

Amounts paid to Stanford in the year ended December 31, 2022 were de minimis .

There were no amounts paid to Stanford in the year ended December 31, 2021.

Johns Hopkins University License Agreement - In connection with the closing of the Alcon Transaction on July 8, 2022, the Company’s exclusive license agreement with John Hopkins University was assigned to Alcon, and the Company has no further obligations under the agreement.

KALA PHARMACEUTICALS, INC.

During the year ended December 31, 2023, the Company paid Stanford a $ 175 milestone payment which was triggered by the commencement of the CHASE Phase 2b clinical trial of KPI-012 for PCED in the United States .

Additional amounts paid to Stanford in the years ended December 31, 2023 and 2022 were de minimis .

KALA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Total minimum license payments

Commercial Supply Agreement — The Company entered into a commercial supply agreement with Woodstock Sterile Solutions, Inc.

(formerly known as Catalent Pharma Solutions, LLC) to manufacture commercial supplies of EYSUVIS and INVELTYS.

The commercial supply agreement contains annual minimum purchase requirements, which follow the contract year from July 1st to June 30th.

The commitments due under the commercial supply agreement for 2023 and beyond were transferred to Alcon upon the closing of the Alcon Transaction.

Contingencies related to the Merger Agreement —In connection with the Combangio A cquisition, the Company agreed to make additional payments based on the achievement of certain milestone events related to KPI-012.

Contingencies related to the Merger Agreement — In connection with the Combangio Acquisition, the Company agreed to make additional payments based on the achievement of certain milestone events related to KPI-012.

The Company recognized certain contingent consideration liabilities at fair value on the acquisition date, and revalues the remaining obligations each reporting period.

The total potential maximum payout for the milestone payments, which have been recorded as liabilities at fair value, is $ 40,000 and the milestone payments are contingent upon the achievement of specified development, regulatory and commercialization milestones.

Following the achievement of the First Dosing Milestone in February 2023, the Company paid an aggregate of $ 2,500 in cash and $ 2,354 in shares of the Company’s common stock (representing an aggregate of 105,038 shares of the Company’s common stock) to the former Combangio Equityholders in March 2023.

The Company paid the remaining amount due in connection with the First Dosing Milestone of $ 146 in cash in January 2024.

Additionally, pursuant to the Merger Agreement, the Company could trigger potential future sales-based milestone payments of up to $ 65,000 .

Because the achievement of these sales-based milestones related to KPI-012 was not considered probable as of December 31, 2023 or December 31, 2022, such contingencies have not been recorded in the Company’s consolidated financial statements.

Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory or commercial milestones.

8 unchanged sentences

Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits.

KALA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company made discretionary matching contributions of $ 396 and $ 612 to the 401(k) Plan during for the years ended December 31, 2022 and 2021, respectively.

The Company made discretionary matching contributions of $ 142 and $ 396 to the 401(k) Plan during the years ended December 31, 2023 and 2022, respectively.

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 9A. Controls and Procedures