What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-11 compared with 2020-03-12 · 443 added, 548 removed, 641 unchanged (61% of the section changed)

2 unchanged sentences

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, 2020.

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible

controls and procedures.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

1 unchanged sentence

Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013) .

Based on that assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Changes in Internal Control Over Financial Reporting

16 unchanged sentences

Audit Committee Financial Expert

Our board of directors has determined that Bruce Peacock is the “audit committee financial expert”

as defined by Item 407(d)(5) of Regulation S-K of the Exchange Act and is “independent”

under the rules of the Nasdaq Global Market.

Our board of directors has determined that Bruce Peacock is the “audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-K of the Exchange Act and is “independent” under the rules of the Nasdaq Global Market.

Executive Compensation

13 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Changes in Stockholders’

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

20 unchanged sentences

2019 Inducement Stock Incentive Plan

Amendment to 2019 Inducement Stock Incentive Plan

Form of Non-statutory Stock Option Agreement under 2019 Inducement Stock Incentive Plan

10.10†

Amended and Restated License Agreement, dated January 27, 2012, between the Registrant and Incept LLC

Lease Agreement dated September 2, 2009, by and between the Registrant and RAR2-Crosby Corporate Center QRS, Inc., as amended.

Incorporated by Reference

Description of Exhibit

Lease Agreement dated September 2, 2009, by and between the Registrant and RAR2-Crosby Corporate Center QRS, Inc., as amended.

2014 Employee Stock Purchase Plan

3 unchanged sentences

Lease Agreement dated June 17, 2016 between the WS NF 15 Crosby Drive, LLC and the Registrant

10.16†

Collaboration, Option and License Agreement between the Registrant and Regeneron Pharmaceuticals, Inc.

1 unchanged sentence

Open Market Sales Agreement SM , dated as of April 5, 2019, by and between the Registrant and Jefferies LLC

Second Amended and Restated Credit and Security Agreement, dated March 7, 2017, by and among MidCap Financial Trust, the Registrant and the Lenders listed therein

Employment Agreement, by and between the Registrant and Philip Strassburger, dated August 28, 2020

Consulting Agreement by and between the Registrant and Dr.

4 unchanged sentences

Mattessich dated as of June 20, 2017

Transition, Separation and Release of Claims Agreement by and between the Registrant and Eric Ankerud, dated as of July 31, 2017

Consulting Agreement by and between the Registrant and Anchor Biotech Consulting, LLC dated as of July 31, 2017

Incorporated by Reference

Description of Exhibit

Employment Agreement, by and between the Registrant and Donald Notman, dated as of September 25, 2017

Second Amendment to Lease, by and between the Registrant and CCC Investors LLC, dated October 10, 2017

Transition, Separation and Release of Claims Agreement by and between the Registrant and James Fortune, dated as of October 13, 2017

Separation and Release of Claims Agreement by and between the Registrant and Daniel Bollag, dated December 2, 2019

Incorporated by Reference

Description of Exhibit

Employment Agreement, by and between the Registrant and Michael Goldstein, dated as of September 25, 2017

Transition, Separation and Release of Claims Agreement by and between the Registrant and Kevin Hanley, dated August 2, 2019

10.30†

Second Amended and Restated License Agreement, dated September 13, 2018, by and between the Registrant and Incept LLC

2 unchanged sentences

Second Amendment to Third Amended and Restated Credit and Security Agreement, by and among the Registrant, MidCap Financial Trust, as administrative agent, and the Lenders listed therein

Incorporated by Reference

Description of Exhibit

Subordination Agreement, dated as of February 21, 2019, by and among the Registrant, MidCap Financial Trust, as administrative agent, and the Lenders listed therein

Note Purchase Agreement (including Form of Senior Subordinated Convertible Note), dated as of February 21, 2019, by and among the Registrant and the Purchasers listed therein

Consulting Agreement by and between the Registrant and Kevin Hanley, dated as of August 2, 2019

Sublease, dated as of April 4, 2019, by and among Ocular Therapeutix, Inc.

and Holcim (US) Inc.

Employment Agreement, by and between the Registrant and Patricia Kitchen, dated as of April 21, 2019

Incorporated by Reference

Description of Exhibit

Amendment to Collaboration, Option and License Agreement, by and between the Registrant and Regeneron, dated May 8, 2020

License Agreement, by and between the Registrant and AffaMed Therapeutics Limited, dated as of October 29, 2020

Supplement to License Agreement, by and between the Registrant and AffaMed Therapeutics Limited, dated as of January 18, 2021

Subsidiaries of the Registrant

3 unchanged sentences

Certification of principal executive officer pursuant to 18 U.S.C.

§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of principal financial officer pursuant to 18 U.S.C.

§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Label Linkbase Document

XBRL Taxonomy Presentation Linkbase Document

§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document)

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Database

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL and contained in Exhibit 101

Confidential treatment has been granted as to certain portions, which portions have been omitted and separately filed with the Securities and Exchange Commission.

Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to the Annual Report on Form 10-K.

Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

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.

38 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Changes in Stockholders’

Equity(Deficit)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

2 unchanged sentences

To the Board of Directors and Stockholders of Ocular Therapeutix, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ocular Therapeutix, Inc.

and its subsidiary (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders’

equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and negative cash flows from operations since its inception that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

and its subsidiary (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, 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.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the

design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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

The communication of critical audit matters does not alter in any way our opinion on the consolidated 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.

Valuation of the Derivative Liability

As described in Note 4 to the consolidated financial statements, the Company’s derivative liability balance was $98.3 million as of December 31, 2020 and the change in fair value recorded in other income (expense), net was expense of $86.2 million.

The derivative liability was recorded at fair value upon the issuance of the 2026 convertible notes and is subsequently remeasured to fair value at each reporting period.

The derivative liability was initially valued and remeasured using a “with-and-without” method.

The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option.

The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the derivative liability.

The fair value of the 2026

convertible notes with and without the conversion option is estimated using a binomial lattice approach.

The main inputs to valuing the 2026 convertible notes with the conversion option as of December 31, 2020 include the Company’s stock price on the valuation date, the expected annual volatility of the Company’s stock and the bond yield.

The principal considerations for our determination that performing procedures relating to the valuation of the derivative liability is a critical audit matter are the significant judgment by management to determine the fair value of the derivative liability using a binomial lattice model;

this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating the audit evidence obtained related to the valuation of the derivative liability and management’s significant assumption related to the bond yield.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of fair values for the derivative liability and (ii) comparing the independent estimate to management’s fair value estimate to evaluate the reasonableness of management’s assumptions.

Developing the independent estimate involved testing the completeness and accuracy of the inputs provided by management and evaluating management’s assumptions related to bond yield based on observable market yield movements.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

March 11, 2021

We have served as the Company’s auditor since 2008.

OCULAR THERAPEUTIX, INC.

9 unchanged sentences

Operating lease assets

Liabilities and Stockholders’

Equity (Deficit)

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

2 unchanged sentences

Operating lease liabilities

Notes payable, net of discount, current

Total current liabilities

2 unchanged sentences

Derivative liability

Deferred revenue

Notes payable, net of discount

2 unchanged sentences

Commitments and contingencies (Note 15)

Stockholders’

Stockholders’ equity (deficit):

Preferred stock, $ 0.0001 par value;

4 unchanged sentences

Accumulated deficit

Total stockholders’

equity (deficit)

Total liabilities and stockholders’

equity (deficit)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

21 unchanged sentences

Weighted average common shares outstanding, basic and diluted

Comprehensive loss:

Other comprehensive loss:

Unrealized gain on marketable securities

Total other comprehensive income

Total comprehensive loss

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

OCULAR THERAPEUTIX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

Stockholders’

Comprehensive

Balances at December 31, 2016

Issuance of common stock upon exercise of stock options

Issuance of common stock in connection with employee stock purchase plan

Issuance of common stock upon public offering, net of issuance costs

Unrealized gain on marketable securities

Stock-based compensation expense

Stockholders’

Balances at December 31, 2018

20 unchanged sentences

Depreciation and amortization expense

(Gain)/loss on disposal of property and equipment

Purchase of premium on marketable securities

Amortization of premium on marketable securities

Loss on disposal of property and equipment

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable

Accrued expenses and deferred rent

Accrued expenses

Deferred revenue

Operating lease liabilities

2 unchanged sentences

Purchases of property and equipment

Proceeds from sale of property and equipment

Purchases of marketable securities

Proceeds from maturities of marketable securities

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of notes payable

Proceeds from issuance of 2026 convertible notes, net of issuance costs

1 unchanged sentence

Proceeds from issuance of common stock pursuant to employee stock purchase plan

Proceeds from issuance of common stock offering, net

Payments of insurance costs financed by a third party

Repayment of notes payable

Proceeds from the Paycheck Protection Program Loan

Repayment of the Paycheck Protection Program Loan

Proceeds from issuance of common stock upon public offering, net

Net cash provided by financing activities

15 unchanged sentences

Ocular Therapeutix, Inc.

(the “Company”) was incorporated on September 12, 2006 under the laws of the State of Delaware.

The Company is a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using its proprietary, bioresorbable hydrogel platform technology.

The Company’s product pipeline candidates provide differentiated drug delivery solutions that reduce the complexity and burden of the current standard of care (eye drops) by creating local programmed-release alternatives.

Since inception, the Company’s operations have been primarily focused on organizing and staffing the Company, acquiring rights to intellectual property, business planning, raising capital, developing its technology, identifying potential product candidates, undertaking preclinical studies and clinical trials, manufacturing initial quantities of its products and product candidates and building the initial sales and marketing infrastructure for the commercialization of the Company’s approved products and product candidates and launching its initial product.

The Company’s product pipeline candidates provide differentiated drug delivery solutions that reduce the complexity and burden of the current standard of care by creating local programmed-release alternatives.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, regulatory approval and compliance, reimbursement, uncertainty of market acceptance of products and the need to obtain additional financing.

1 unchanged sentence

Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization.

As of December 31, 2019, the Company’s lead product candidate DEXTENZA ®

(dexamethasone insert) 0.4mg, has been approved by the FDA and the Company’s other product candidates are in clinical stage development.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval and adequate reimbursement or that any approved products will be commercially viable.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

As of December 31, 2020, the Company had two FDA-approved products in commercialization in the United States:

DEXTENZA ® (dexamethasone insert) 0.4mg, an intracanalicular insert for the treatment of post-surgical ocular inflammation and pain, and ReSure ® Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions following cataract surgery.

While ReSure Sealant is commercially available in the United States, it does not receive sales support and has not in the past generated, nor is it anticipated to in the future to generate, material revenues.

The Company’s other product candidates are in clinical stage development.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

The Company operates in an environment of rapidly changing technology and substantial competition from pharmaceutical and biotechnology companies.

2 unchanged sentences

Accordingly, the Company will need to obtain additional capital to finance its operations.

Based on the Company’s current forecasted operating plan, which includes estimates related to anticipated cash inflows from DEXTENZA and ReSure Sealant product sales, and cash outflows for operating expenses, the Company believes that its existing cash and cash equivalents of $54,437, as of December 31, 2019 along with the net proceeds received from sales of common stock in 2020 under sales agreement (Note 22), will enable it to fund its planned operating expenses, debt service obligations and capital expenditure requirements into the first quarter of 2021.

The Company has a limited history of commercialization of DEXTENZA, and management does not yet have sufficient historical evidence to assert that it is probable that the Company will receive sufficient revenues from its sales of DEXTENZA to fund operations.

Therefore, management has determined that the Company’s accumulated deficit, history of losses, negative cash flows from operations and future expected losses raise substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these financial statements.

The Company has incurred losses and negative cash flows from operations since its inception, and the Company expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future.

As of December 31, 2020, the Company had an accumulated deficit of $ 539,251 .

While the Company has raised capital in the past, the ability to raise capital in future periods is not considered probable, as defined under the accounting standards and therefore, was not considered in management’s assessment of the Company’s ability to continue as a going concern.

The Company expects to seek additional funds through equity offerings, debt financings , government or other third-party funding, collaborations, strategic alliances, licensing

arrangements, royalty agreements, and marketing and distribution arrangements.

If the Company is unable to obtain other financing, the Company would be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts or to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company.

The actions necessary to reduce spending to a level that mitigates the factors described above are not considered probable, as defined in the accounting standards and therefore were not considered in management’s assessment of the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The Company believes that its existing cash and cash equivalents of $ 228,057 , as of December 31, 2020, along with its current operating plan, which includes revenues from the sale of DEXTENZA, will enable it to fund its planned operating expenses, debt service obligations and capital expenditure requirements through at least the next 12 months.

The future viability of the Company beyond that point is dependent on its ability to generate cash flows from the sale of DEXTENZA and raise additional capital to finance its operations.

The Company will need to finance its operations through public or private securities offerings, debt financings or other sources, which may include licensing, collaborations or other strategic transactions or arrangements.

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs for product candidates, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Risks and Uncertainties

The Company is monitoring the potential impact of the COVID-19 pandemic, if any, on the carrying value of certain assets.

To date, the Company has not experienced a material business disruption, nor has it incurred impairment of any assets as a result of the COVID-19 pandemic.

The extent to which these events may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

The duration and intensity of the COVID-19 pandemic and any resulting disruption to the Company’s operations is uncertain, and the Company will continue to assess the impact of the COVID-19 pandemic on its financial position.

Summary of Significant Accounting Policies

6 unchanged sentences

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

Actual results could differ from the Company’s estimates.

Cash Equivalents

2 unchanged sentences

Revenue Recognition

Product Revenue

The Company recognizes product revenue from DEXTENZA for the treatment of post-surgical ocular inflammation and pain, which it began selling to customers in June 2019, and ReSure Sealant.

2 unchanged sentences

The Company entered into a limited number of arrangements with specialty distributors in the United States to distribute DEXTENZA.

The Company recognizes revenue in accordance with Accounting Standards Codification 606 –

Revenue from Contracts with Customers (“Topic 606”).

The Company recognizes revenue in accordance with Accounting Standards Codification 606 – Revenue from Contracts with Customers (“Topic 606”).

Topic 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance arrangements and financial instruments.

3 unchanged sentences

The Company only applies the five-step model to arrangements that meet the definition of a contract with a customer under Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when

(or as) the performance obligation is satisfied.

At contract inception, once the contract is determined to be within the

scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For a complete discussion of accounting for product revenue, see Product Revenue, Net (below).

Product Revenue, Net —

The Company derives its product revenues from the sale of DEXTENZA in the United States to customers, which includes a limited number of specialty distributors, who then subsequently resell DEXTENZA to physicians, clinics and certain medical centers or hospitals.

Product Revenue, Net — The Company derives its product revenues from the sale of DEXTENZA in the United States to customers, which includes a limited number of specialty distributors, who then subsequently resell DEXTENZA to physicians, clinics and certain medical centers or hospitals.

In addition to distribution agreements with customers, the Company enters into arrangements with government payers that provide for government mandated rebates and chargebacks with respect to the purchase of DEXTENZA.

3 unchanged sentences

The Company has assessed the existence of a significant financing component in the agreements with its customers.

The trade payment terms with the Company’s customers do not exceed one year and therefore the Company has elected to apply the practical expedient and no amount of consideration has been allocated as a financing component.

Product revenues are recorded net of applicable reserves for variable consideration, including discounts and allowances.

Transaction Price, including Variable Consideration —

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.

Components of variable consideration include trade discounts and allowances, product returns, government chargebacks, discounts and rebates, and other incentives, such as voluntary patient assistance, and other fee-for-service amounts that are detailed within contracts between the Company and its customers relating to the Company’s sale of DEXTENZA.

These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

Transaction Price, including Variable Consideration — Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.

These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable or a current liability.

These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price, only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in the future vary from the Company’s original estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Trade Discounts and Allowances —The Company compensates (through trade discounts and allowances) its customers for sales order management, data, and distribution services.

However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the customer and, therefore, these payments have been recorded as a reduction of revenue within the statement of operations and comprehensive loss through December 31, 2019, as well as a reduction to accounts receivables, net on the consolidated balance sheets.

Product Returns —

Consistent with industry practice, the Company generally offers customers a limited right of return for product that has been purchased from the Company in certain circumstances as further discussed below.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

Trade Discounts and Allowances —The Company compensates (through trade discounts and allowances) its customers for sales order management, data, and distribution services.

However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the customer and, therefore, these payments have been recorded as a reduction of revenue within the statement of operations and comprehensive loss, as well as a reduction to accounts receivables, net on the consolidated balance sheets.

Product Returns — Consistent with industry practice, the Company generally offers customers a limited right of return for product that has been purchased from the Company in certain circumstances as further discussed below.

The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as within accrued expenses and other current liabilities, in the accompanying consolidated balance sheets.

1 unchanged sentence

The Company has received no returns to date and believes the returns of DEXTENZA will be minimal.

The Company’s limited right of return allows for eligible returns of DEXTENZA in the following circumstances:

Shipment errors that were the result of an error by the Company;

Quantity delivered that is greater or less than the quantity ordered;

Product distributed by the Company that is damaged in transit prior to receipt by the customer;

Product from physicians, clinics, medical centers and hospitals that was not administered to the patient that is rendered non-usable due to spoilage or mishandling;

Expired product, previously purchased directly from the Company, that is returned during the period beginning six months prior to the product’s expiration date and ending twelve months after the product’s expiration date;

Product subject to a recall;

Product that the Company, at its sole discretion, has specified to be returned.

Government Chargebacks —

Chargebacks for fees and discounts to qualified government healthcare providers represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S.

Department of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who directly purchase the product from the Company.

Government Chargebacks — Chargebacks for fees and discounts to qualified government healthcare providers represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S.

of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who directly purchase the product from the Company.

The 340B Drug Discount Program is a U.S.

1 unchanged sentence

Customers charge the Company for the difference between what they pay for the product and the statutory selling price to the qualified government entity.

These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables, net.

Chargeback amounts are generally determined at the time of resale to the qualified government healthcare provider by customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale.

Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit.

Government Rebates —

The Company is subject to discount obligations under state Medicaid programs and Medicare.

These allowances are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables, net.

Allowance for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit.

Government Rebates — The Company is subject to discount obligations under state Medicaid programs and Medicare.

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the consolidated balance sheets.

1 unchanged sentence

For Medicaid programs, the Company estimates the portion of sales attributed to Medicaid patients and records a liability for the rebates to be paid to the respective state Medicaid programs.

The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Other Incentives —

Other incentives which the Company offers include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payers.

Rebates — The Company offers rebate payments for which ambulatory surgical centers, hospital out-patient departments and other prescribers qualify by meeting quarterly purchase volumes of DEXTENZA under the Company’s rebate program.

The Company calculates rebate payment amounts due under this program quarterly, based on actual qualifying purchase and applies a contractual discount rate.

The calculation of the accrual for rebates is based on an estimate of claims that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as an accrued expenses and other current liabilities on the consolidated balance sheets.

Other Incentives — Other incentives which the Company offers include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payers.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Collaboration Revenue

To determine the appropriate amount of revenue to be recognized for arrangements the Company determines are within the scope of Topic 606, the Company performs the following steps:

(i) identify the contract(s) with its customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when or as each performance obligation is satisfied.

The Company accounts for a contract with a customer that is within the scope of Topic 606 when all of the following criteria are met:

(i) the arrangement has been approved by the parties and the parties are committed to perform their respective obligations;

(ii) each party’s rights regarding the goods and/or services to be transferred can be identified;

(iii) the payment terms for the goods and/or services to be transferred can be identified;

(iv) the arrangement has commercial substance;

and (v) collection of substantially all of the consideration to which the Company will be entitled in exchange for the goods and/or services that will be transferred to the customer is probable.

The Company also

determines the term of the contract based on the period in which the Company and its customer have present and enforceable rights and obligations for purposes of identifying the performance obligations and determining the transaction price.

The Company evaluates contracts that contain multiple promises to determine which promises are distinct.

Promises are considered to be distinct and therefore, accounted for as separate performance obligations, provided that:

(i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

In assessing whether a promise is distinct, the Company considers factors such as whether:

(i) the Company provides a significant service of integrating goods and/or services with other goods and/or services promised in the contract;

(ii) one or more of the goods and/or services significantly modifies or customizes, or are significantly modified or customized by one or more of the other goods and/or services promised in the contract;

and (iii) the goods and/or services are highly interdependent or highly interrelated.

Individual goods or services (or bundles of goods and/or services) that meet both criteria for being distinct are accounted for as separate performance obligations.

Promises that are not distinct at contract inception are combined and accounted for as a single performance obligation.

Options to acquire additional goods and/or services are evaluated to determine if such option provides a material right to the customer that it would not have received without entering into the contract.

If so, the option is accounted for as a separate performance obligation.

If not, the option is considered a marketing offer which would be accounted for as a separate contract upon the customer’s election.

The transaction price is generally comprised of an upfront payment due at contract inception and variable consideration in the form of payments for the Company’s goods and services and materials and milestone payments due upon the achievement of specified events.

Other payments the Company could be entitled to include tiered royalties earned when customers recognize net sales of licensed products.

The Company considers the existence of any significant financing component within its arrangements and have determined that a significant financing component does not exist in its arrangements as substantive business purposes exist to support the payment structure other than to provide a significant benefit of financing.

The Company measures the transaction price based on the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods and/or services to the customer.

The Company utilizes either the expected value method or the most likely amount method to estimate the amount of variable consideration, depending on which method is expected to better predict the amount of consideration to which the Company will be entitled.

Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

With respect to arrangements that include payments for a development or regulatory milestone payment, the Company evaluates whether the associated event is considered likely of achievement and estimates the amount to be included in the transaction price using the most likely amount method.

Milestone payments that are not within the Company’s control or the licensee, such as those dependent upon receipt of regulatory approval, are not considered to be likely of achievement until the triggering event occurs.

At the end of each reporting period, the Company re-evaluates the probability of achievement of each milestone and any related constraint, and if necessary, adjust its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, wherein the license is deemed to be the sole or predominant item to which the payments relate, the Company recognizes revenue upon the later of:

(i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied).

Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception.

The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered.

The Company has elected a practical expedient wherein it recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have recognized is one year or less.

To date, the Company has not incurred any incremental costs of obtaining a contract with a customer.

The Company values its inventories at the lower of cost or estimated net realizable value.

The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis.

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period

in which the impairment is first identified.

The Company performs an assessment of the recoverability of capitalized inventory during each

reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified.

Such impairment charges, should they occur, are recorded within cost of product revenue.

1 unchanged sentence

If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as a cost of product revenue in the consolidated statements of operations and comprehensive loss.

The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized.

Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research and development expense as incurred.

6 unchanged sentences

Restricted Cash

As of December 31, 2019 and 2018, the Company held restricted cash of $1,764 and $6,614, respectively, on its consolidated balance sheet.

As of December 31, 2020 and 2019, the Company held restricted cash of $ 1,764 , respectively, on its consolidated balance sheet.

The Company held restricted cash as security deposits for the lease of its manufacturing space and corporate headquarters.

As of December 31, 2018, the Company held restricted cash as security deposits for the lease of its manufacturing space and its former corporate headquarters and a financial covenant associated with the terms of its existing debt with lenders for total indebtedness of $25,000, which restricted the Company's withdrawal or usage of $5,000.

On August 2, 2019, the Company entered into a second amendment to the Credit Agreement (Note 9) in which the lenders agreed to remove the financial covenant requiring the Company to maintain a minimum of $5,000 of cash on hand .

The Company’s statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows:

3 unchanged sentences

Concentration of Credit Risk and of Significant Suppliers and Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents.

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company has all cash and cash equivalents balances at one accredited financial institution, in amounts that exceed federally insured limits.

1 unchanged sentence

The Company is dependent on a small number of third-party manufacturers to supply products for research and development activities in its preclinical and clinical programs and for sales of its products.

The Company’s development

programs as well as revenue from future sales of its product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

For the year ended December 31, 2019, two individual customers accounted for 27% and 11% of the Company’s total revenue and three customers accounted for 39%, 18% and 11% of the Company’s total accounts receivable.

The Company’s development programs as well as revenue from future sales of its product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

For the year ended December 31, 2020, three specialty distributor customers accounted for 42 %, 29 % and 12 % of the Company’s total revenue and three specialty distributor customers accounted for 45 %, 33 % and 15 % of the

Company’s total accounts receivable.

No other customer accounted for more than 10% of total revenue or accounts receivable for the year ended December 31, 2020.

For the year ended December 31, 2019, two specialty distributor customers accounted for 27 % and 11 % of the Company’s total revenue and three specialty distributor customers accounted for 39 %, 18 % and 11 % of the Company’s total accounts receivable.

No other customer accounted for more than 10% of total revenue or accounts receivable for the year ended December 31, 2019.

Fair Value Measurements

3 unchanged sentences

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents at December 31, 2019 and 2018, were carried at fair value determined according to the fair value hierarchy described above (Note 3).

The Company’s derivative liability at December 31, 2019 was carried at fair value determined according to the fair value hierarchy described above and classified as a Level 3 measurement.

● Level 1—Quoted prices in active markets for identical assets or liabilities.

● Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents at December 31, 2020 and 2019 were carried at fair value determined according to the fair value hierarchy described above (Note 3).

The Company’s derivative liability at December 31, 2020 and 2019 was carried at fair value determined according to the fair value hierarchy described above and classified as a Level 3 measurement.

The carrying value of accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities.

The carrying value of the Company’s variable interest rate notes payable (Note 9) are recorded at amortized costs, which approximates fair value due to their short-term nature.

On March 1, 2019, the Company issued $37,500 aggregate principal amount of unsecured senior subordinated convertible notes (the “2026 Convertible Notes”) (Note 5) and is carried, net of derivative liability, at its amortized cost of $24,305 at December 31, 2019.

The estimated fair value of the 2026 Convertible Notes was $36,849 at December 31, 2019.

The carrying value of the Company’s variable interest rate notes payable (Note 9) are recorded at amortized costs, which approximates fair value due to their short-term nature.

On March 1, 2019, the Company issued $ 37,500 aggregate principal amount of unsecured senior subordinated convertible notes (the “2026 Convertible Notes”) (Note 5) which is carried, net of derivative liability, at its amortized cost of $ 24,307 at December 31, 2020.

The estimated fair value of the 2026 Convertible Notes was $ 129,362 and $ 36,849 at December 31, 2020 and 2019.

The fair value of the 2026 Convertible Notes was estimated utilizing a binomial lattice model which requires the use of Level 3 unobservable inputs.

3 unchanged sentences

Derivative Liability

The 2026 Convertible Notes allow the holders to convert all or part of the outstanding principal of their 2026 Convertible Notes into shares of the Company’s common stock provided that no conversion results in a holder beneficially owning more than 19.99% of the issued and outstanding common stock of the Company.

The 2026 Convertible Notes allow the holders to convert all or part of the outstanding principal of their 2026 Convertible Notes into shares of the Company’s common stock provided that no conversion results in a holder beneficially owning more than 19.99 % of the issued and outstanding common stock of the Company.

The entire embedded conversion option is required to be separated from the 2026 Convertible Notes and accounted for as a freestanding derivative instrument subject to derivative accounting.

2 unchanged sentences

during the period of change.

The embedded conversion is recognized as a derivative liability in the Company’s consolidated balance sheet.

Property and Equipment

14 unchanged sentences

Research and development costs are expensed as incurred.

Included in research and development expenses are salaries, stock-based compensation and benefits of employees and other operational costs related to the Company’s research and development activities, including external costs of outside vendors engaged to conduct preclinical studies and clinical trials, manufacturing costs of the Company’s products prior to regulatory approval, costs related to collaboration agreements and facility-related expenses.

Research Contract Costs and Accruals

4 unchanged sentences

Judgments and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ from the Company’s estimates.

The Company’s historical accrual estimates have not been materially different from the actual costs.

Actual results could differ from the Company’s estimates.

The Company’s historical accrual estimates have not been materially different from the actual costs.

All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as general and administrative expenses as incurred, as recoverability of such expenditures is uncertain.

3 unchanged sentences

The straight-line method of expense recognition is applied to all awards with service-only conditions.

Following the Company’s adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), on January 1, 2019, for stock-based awards issued to non-employees, the Company no longer revalues non-employee awards at each reporting date and instead calculates the fair value of the awards as of the grant date using the Black-Scholes option-pricing model.

Following the Company’s adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), on January 1, 2019, for stock-based awards issued to non-employees, the Company no longer revalues non-employee awards at each reporting date and instead calculates the fair value of the awards as of the grant date using the Black-Scholes option-pricing model.

Compensation expense for these awards is recognized over the related service period.

The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

The Company recognizes compensation expense for only the portion of awards that are expected to vest.

In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards.

The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns.

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

7 unchanged sentences

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

The Company’s singular focus is on advancing its bioresorbable hydrogel product candidates for the programed-release delivery of therapeutic agents, specifically for ophthalmology.

All tangible assets are held in the United States.

1 unchanged sentence

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’

equity (deficit) that result from transactions and economic events other than those with stockholders.

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders.

For the years ended December 31, 2020 and 2019, there were no items that gave rise to other comprehensive loss and therefore, there was no difference between net loss and comprehensive loss.

For the year ended December 31, 2017, other comprehensive loss consisted of unrealized gains from marketable securities.

Net Loss Per Share

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities.

The two-class method determines net loss per share for each class of

common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based on their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including the assumed conversion of the Company’s 2026 Convertible Notes, outstanding stock options and common stock warrants, except where the result would be anti-dilutive.

Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to

reallocate undistributed earnings based on the potential impact of dilutive securities, including the assumed conversion of the Company’s 2026 Convertible Notes, outstanding stock options and common stock warrants, except where the result would be anti-dilutive.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of the conversion of the 2026 Convertible Notes, the exercise of outstanding stock options and common stock warrants.

1 unchanged sentence

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), a new standard issued to increase transparency and comparability among organizations related to their leasing activities.

This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements to meet the objective of allowing users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

The FASB subsequently issued the following amendments to ASU 2016-02 that have the same effective date and transition date:

2018-01, Leases (Topic 842):

Land Easement Practical Expedient for Transition to Topic 842, ASU No.

2018-10, Codification Improvements to Topic 842, Leases, ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements, ASU No.

2018-20, Narrow-Scope Improvement for Lessors, and ASU No.

2019-01, Leases (Topic 842):

Codification Improvements.

The Company adopted these amendments with ASU 2016-02 (collectively, the “New Leasing Standards”) effective January 1, 2019.

The Company adopted the New Leasing Standards using the modified retrospective transition approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to accumulated deficit.

Upon adoption, the Company elected the package of transition practical expedients, which allowed the Company to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases.

The Company made an accounting policy election to not recognize leases with an initial term of 12 months or less within its consolidated balance sheets and to recognize those lease payments on a straight-line basis in its consolidated statements of operations and comprehensive loss over the lease term.

Upon adoption of the New Leasing Standards the Company recognized operating lease assets of approximately $5,300 and corresponding operating lease liabilities of approximately $8,800, which are included in the Company’s consolidated balance sheet.

The adoption of the New Leasing Standards did not have an impact on the Company’s consolidated statements of operations and comprehensive loss.

The Company determines if an arrangement is a lease at contract inception.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term.

When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Given the Company’s current business structure, uncertainty of future growth, and the associated impact to real estate, the Company concluded that it is not reasonably certain that any renewal options would be exercised.

Therefore, the operating lease assets and operating lease liabilities only contemplate the initial lease

The Company uses its incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments.

The Company’s operating leases are reflected in operating lease assets, current portion of operating lease liabilities and operating lease liabilities, net of current portion and in the Company’s consolidated balance sheets.

The right of use asset was determined using the present value of the future minimum lease payments over the term of the lease, any lease payments made to the lessor at or before the commencement date, reduced by lease incentives, and initial direct costs incurred by the Company.

The liabilities are determined using the present value of the future minimum lease payments.

For additional information on the adoption of the New Leasing Standards, see Note 16 - Leases, to these consolidated financial statements.

On March 31, 2019, the FASB issued ASU No.

2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

The new standard simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions.

The Company adopted ASU 2018-07 as required on January 1, 2019, and its adoption did not have any material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—

Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the existing disclosure requirements for fair value measurements.

Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the existing disclosure requirements for fair value measurements.

The new disclosure requirements include disclosure related to changes in unrealized gains or losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of each reporting period and the explicit requirement to disclose the range and weighted average of significant unobservable inputs used for Level 3 fair value measurements.

The other provisions of ASU 2018-13 include eliminated and modified disclosure requirements.

An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No.

2018-13 and delay adoption of the additional disclosures until their effective date.

For all entities, this guidance is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

The Company is currently evaluating the impact that the adoption of ASU 2018-13 will have on its disclosures.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes will result in the earlier recognition of credit losses, if any.

In May 2019, the FASB issued ASU No.

2019-05, Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief (“ASU 2019-05”), which provides additional implementation guidance on the previously issued ASU 2016-13.

For public entities, this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company is currently evaluating the impact that the adoption of ASU 2016-13 and ASU 2019-05 will have on its consolidated financial statements

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”).

ASU 2018-18 makes targeted improvements to GAAP for collaborative arrangements, including (i) clarification that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (ii) adding unit-of-account guidance in ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 and (iii) a requirement that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is not a customer.

For public entities, this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company is currently evaluating the impact that the adoption of ASU 2018-18 will have on its consolidated financial statements.

The Company adopted this pronouncement as required effective January 1, 2020 and its adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes Topic 740, Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes.

1 unchanged sentence

The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model.

These changes may result in earlier recognition of credit losses.

In November 2018, the FASB issued ASU No.

2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13.

The FASB subsequently issued supplemental guidance within ASU No.

2019-05, Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief (‘‘ASU 2019-05’’).

ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

This standard will be effective for the Company on January 1, 2023.

The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).

This standard amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics.

The amendments in the ASU are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The FASB also specified that an entity should adopt the guidance as of the beginning of its fiscal year and is not permitted to adopt the guidance in an interim period.

The Company is assessing the potential impact of ASU 2020-06 on its consolidated financial statements.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and 2018 and indicate the level of the fair value hierarchy utilized to determine such fair value:

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicate the level of the fair value hierarchy utilized to determine such fair value:

Fair Value Measurements as of

7 unchanged sentences

Money market funds

During the year ended December 31, 2019 and 2018, there were no transfers between Level 1, Level 2 and Level 3.

Derivative liability (Note 4)

During the year ended December 31, 2020 and 2019, there were no transfers between Level 1 and 2.

Derivative Liability

The 2026 Convertible Notes (Note 5) contained an embedded conversion option that met the criteria to be bifurcated and accounted for separately from the 2026 Convertible Notes (the "Derivative Liability").

The Derivative Liability was recorded at fair value upon the issuance of the 2026 Convertible Notes and is subsequently remeasured to fair value at each reporting period.

The Derivative Liability was initially valued and remeasured using a "with-and-without" method.

The "with-and-without" methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option.

The Derivative Liability was initially valued and remeasured using a "with-and-without"

The "with-and-without"

methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option.

The fair value of the 2026 Convertible Notes with and without the conversion option is estimated using a binomial lattice approach.

The main inputs to valuing the 2026 Convertible Notes with the conversion option as of December 31, 2019 include the Company’s stock price on the valuation date ($3.95 on December 31, 2019), the expected annual volatility of the Company’s stock (86%) and the bond yield (13.0%), which was derived by making the fair value of the 2026 Convertible Notes equal to the face value on the issuance date.

The main inputs to valuing the 2026 Convertible Notes with the conversion option are as follows:

Company's stock price

Expected annual volatility

The bond yield was derived by making the fair value of the 2026 Convertible Notes equal to the face value on the issuance date.

Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs would result in a significantly higher or lower fair value.

A roll forward of the derivative liability is as follows:

December 31, 2019

Balance at December 31, 2018

2 unchanged sentences

Balance at December 31, 2019

Change in fair value

Balance at December 31, 2020

Convertible Notes

1 unchanged sentence

Each 2026 Convertible Note accrues interest at an annual rate of 6 % of its outstanding principal amount, which is payable, along with the principal amount at maturity, on March 1, 2026, unless earlier converted, repurchased or redeemed.

The Company includes the deferred interest in the balance of the 2026 Convertible Notes on its consolidated balance sheet.

The Company presents deferred interest in accrued current liabilities because the notes are currently convertible and the interest is payable in cash.

The effective annual interest rate for the 2026 Convertible Notes was 14.8 % through December 31, 2020.

The holders of the 2026 Convertible Notes may convert all or part of the outstanding principal amount of their 2026 Convertible Notes into shares of the Company’s common stock, par value $0.0001 per share, prior to maturity and provided that no conversion results in a holder beneficially owning more than 19.99% of the issued and outstanding common stock of the Company.

The conversion rate is initially 153.8462 shares of the Company’s common stock per $1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of $6.50 per share.

The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to the Company’s capitalization.

The holders of the 2026 Convertible Notes may convert all or part of the outstanding principal amount of their 2026 Convertible Notes into shares of the Company’s common stock, par value $ 0.0001 per share, prior to maturity and provided that no conversion results in a holder beneficially owning more than 19.99 % of the issued and outstanding common stock of the Company.

The conversion rate is initially 153.8462 shares of the Company’s common stock per $ 1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of $ 6.50 per share.

The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to the Company’s capitalization.

At its election, the Company may choose to make such conversion payment in cash, in shares of common stock, or a combination thereof.

3 unchanged sentences

Upon conversion by the holder, the Company has the right to select the settlement of the conversion in either shares of common stock, cash, or in a combination thereof.

In addition, the Company is obligated to make a cash payment to the holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted.

In addition, the Company is obligated to make a cash

payment to the holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted.

● If the Company elects to satisfy such conversion by shares of common stock, the Company shall deliver to the converting holder in respect of each $ 1,000 principal amount of 2026 Convertible Notes being converted a number of common shares equal to the conversion rate in effect on the conversion date;

● If the Company elects to satisfy such conversion by cash settlement, the Company shall pay to the converting holder in respect of each $ 1,000 principal amount of 2026 Convertible Notes being converted cash in an amount equal to the sum of the Daily Conversion Values (as defined below) for each of the twenty ( 20 ) consecutive trading days during a specified period.

The “Daily Conversion Values”

is defined as each of the 20 consecutive trading days during the specified period, 5.0% of the product of (a) the conversion rate on such trading day and (b) the Daily VWAP on such trading day.

The Daily VWAP is defined as each of the 20 consecutive trading days during the applicable Observation Period, the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP”

on the Bloomberg page for the Company.

The “Daily Conversion Values” is defined as each of the 20 consecutive trading days during the specified period, 5.0 % of the product of (a) the conversion rate on such trading day and (b) the Daily VWAP on such trading day.

● If the Company elects to satisfy such conversion by combination, the Company shall pay or deliver, as the case may be, in respect of each $ 1,000 principal amount of 2026 Convertible Notes being converted, a settlement amount equal to the sum of the Daily Settlement Amounts (as defined below) for each of the twenty ( 20 ) consecutive trading days during the specified period.

The “Daily Settlement Amount”

is defined as, for each of the 20 consecutive trading days during the specified period:

The “Daily Settlement Amount” is defined as, for each of the 20 consecutive trading days during the specified period:

(a) cash in an amount equal to the lesser of (i) the Daily Measurement Value (as defined below) and (ii) the Daily Conversion Value on such Trading Day;

and (b) if the Daily Conversion Value on such trading day exceeds the Daily Measurement Value, a number of Shares equal to (i) the difference between the Daily Conversion Value and the Daily Measurement Value, divided by (ii) the Daily VWAP for such Trading Day.

The “Daily Measurement Value”

is defined as the Specified Dollar Amount (as defined below), if any, divided by 20.

The “Specified Dollar

Amount”

is defined as the maximum cash amount per $1,000 principal amount of Notes to be received upon conversion as specified in the notice specifying the Company’s chosen settlement method.

The “Daily Measurement Value” is defined as the Specified Dollar Amount (as defined below) , if any, divided by 20.

The “Specified Dollar Amount” is defined as the maximum cash amount per $ 1,000 principal amount of Notes to be received upon conversion as specified in the notice specifying the Company’s chosen settlement method.

In the event of a Corporate Transaction, the noteholder shall have the right to either (a) convert all of the unpaid principal at the conversion rate and receive a cash payment equal to (i) the outstanding accrued but unpaid interest under the 2026 Convertible Note to, but excluding, the corporate transaction conversion date (to the extent such date occurs prior to March 1, 2026, the maturity date of the 2026 Convertible Notes) plus (ii) and an additional amount of consideration based on a sliding scale depending on the date of such as Corporate transaction or (b) require the Company to repurchase all or part of the outstanding principal amount of such 2026 Convertible Note at a repurchase price equal to 100 % of the outstanding principal amount of the 2026 Convertible Note to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

1 unchanged sentence

(ii) a sale, lease, transfer, of all or substantially all of the assets of the Company;

or (iii) if the Company’s common stock ceases to be listed or quoted on any of the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (the “Corporate Transaction”).

On or after March 1, 2022, if the last reported sale price of the common stock has been at least 130 % of the conversion rate then in effect for 20 of the preceding 30 trading days (including the last trading day of such period), the Company is entitled, at its option, to redeem all or part of the outstanding principal amount of the 2026 Convertible Notes, on a pro rata basis, at an optional redemption price equal to 100 % of the outstanding principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the optional redemption date.

The 2026 Convertible Notes are subject to acceleration upon the occurrence of specified events of default, including a default or breach of certain contracts material to the Company and the delisting and deregistration of the Company’s common stock.

As discussed in Note 4, the Company determined that the embedded conversion option is required to be separated from the 2026 Convertible Notes and accounted for as a freestanding derivative instrument subject to derivative accounting.

The allocation of proceeds to the conversion option results in a discount on the 2026 Convertible Notes.

The Company is amortizing the discount to interest expense over the term of the 2026 Convertible Notes using the effective interest method.

A summary of the 2026 Convertible Notes at December 31, 2019 is as follows:

Company is amortizing the discount to interest expense over the term of the 2026 Convertible Notes using the effective interest method.

A summary of the 2026 Convertible Notes at December 31, 2020 and 2019 is as follows:

2026 Convertible Notes

11 unchanged sentences

Accrued payroll and related expenses

Accrued rebates and programs

Accrued professional fees

Accrued research and development expenses

Accrued interest payable on 2026 convertible notes

Accrued other

Collaboration Agreement

On October 10, 2016, the Company entered into a Collaboration, Option and License Agreement (the “Collaboration Agreement”) with Regeneron Pharmaceuticals, Inc.

(“Regeneron”) for the development and potential commercialization of products using the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases.

Collaboration Agreements

AffaMed License Agreement

On October 29, 2020, the Company entered into license agreement (“License Agreement”) with AffaMed Therapeutic Limited (“AffaMed”) for the development and commercialization of the Company’s DEXTENZA product regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis (collectively, the “DEXTENZA Field”) and for the Company’s OTX-TIC product candidate (collectively with DEXTENZA, the “AffaMed Licensed Products”) regarding open-angle glaucoma and ocular hypertension (collectively, the “TIC Field” and, with the DEXTENZA Field, each a “Field”), in each case in mainland China, Taiwan, Hong Kong, Macau, South

Korea, and the countries of the Association of Southeast Asian Nations (collectively, the “Territories”).

The Company retains development and commercialization rights for the AffaMed Licensed Products in the rest of the world.

Under the License Agreement, the Company received a non-refundable upfront payment of $ 12,000 in December 2020.

The Company is also eligible to receive up to an additional $ 91,000 in aggregate, inclusive of a low-seven-figure clinical support payment, upon the achievement of certain regulatory, development and commercial milestones.

The Company is also entitled to receive tiered, escalating royalties on the net sales of the AffaMed Licensed Products ranging from a low-teen to low-twenties percentage.

Royalties under the License Agreement are payable on an AffaMed Licensed Product-by-AffaMed Licensed Product and jurisdiction-by-jurisdiction basis and are subject to potential reductions in specified circumstances, subject to a specified floor.

Under the License Agreement, the Company is generally responsible for expenses related to the development of the AffaMed Licensed Products in the applicable Fields in the Territories, provided that AffaMed (i) reimburse the Company a low-teen percentage of expenses incurred in connection with certain clinical trials conducted by the Company and designed to support marketing approval of the AffaMed Licensed Product by the FDA or the European Medicines Agency (“Global Studies”);

(ii) is solely responsible for expenses incurred in connection with territory-specific clinical trials that it conducts in furtherance of the development plan agreed between the parties in the applicable Fields in the Territories (“Local Studies”);

and (iii) reimburse the Company in full for expenses incurred in connection with obtaining and maintaining regulatory approvals of the AffaMed Licensed Products in the applicable Fields in the Territories.

In the event AffaMed declines to participate in a Global Study or to conduct a Local Study in any jurisdiction in which the Company determines to conduct such a study, the Company is relieved of its obligation to provide AffaMed clinical data from such study, other than safety data, unless AffaMed subsequently reimburses the Company in the amounts described above plus a prespecified premium.

The License Agreement expires upon the expiration of the last royalty term for the last AffaMed Licensed Product in any applicable Field in the Territories.

Either party may, subject to specified cure periods, terminate the License Agreement in the event of the other party’s uncured breach.

Either party may also terminate the License Agreement under specified circumstances relating to the other party’s insolvency.

AffaMed has the right to terminate the License Agreement at any time after completion of a Phase 3 clinical trial for OTX-TIC for any or no reason upon providing the Company three months’ notice.

During an established period following its change of control or its entry into a global licensing agreement that includes the Territories with a third party, the Company has the option to terminate the License Agreement, subject to a specified notice period and the repayment of any costs and expenses incurred by AffaMed in connection with the License Agreement, including upfront and milestone payments AffaMed has previously paid to the Company, at a prespecified premium.

The Company concluded that AffaMed is a customer in this arrangement, and as such, the arrangement falls within the scope of the revenue recognition guidance in ASC 606.

At the inception of the License Agreement, the Company identified the following performance obligations in the agreement:

● the license, regulatory filings and manufacturing of DEXTENZA;

● the license, regulatory filings and manufacturing for the Company’s OTX-TIC product candidate regarding open-angle glaucoma and ocular hypertension in the Territories;

● obligations to participate on various joint research, development and project committees;

● the conduct of a Phase 2 clinical trial of OTX-TIC

The Company has concluded there is a combined performance obligation for a development and commercialization license and manufacturing obligations for DEXTENZA Field and the Company’s OTX-TIC product candidate regarding open-angle glaucoma and ocular hypertension in the Territories.

Further, AffaMed cannot exploit the value of the development and commercialization license for DEXTENZA Field and the Company’s OTX-TIC product candidate regarding open-angle glaucoma and ocular hypertension in the

Territories without receipt of supply as the development and commercialization license does not convey to AffaMed the right to manufacture and therefore the Company has combined the development and commercialization license and the manufacturing obligations into one performance obligation.

The Company has concluded that the right of AffaMed to opt into the Global Studies for DEXTENZA and OTX-TIC are options that do not convey a material right to AffaMed.

Therefore, these have not been recognized as performance obligations upon the inception of the License Agreement.

With respect to the obligation of the Company to participate in joint research, development and project committees the Company has concluded that these obligations are not material.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation.

The Company developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the performance obligation, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated costs, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts.

The Company has determined that any sales-based royalties and milestones will be recognized as the Company delivers the clinical and commercial manufactured product to AffaMed.

Any changes in estimates may result in a cumulative catch-up based on the number of units of manufactured product delivered.

As of December 31, 2020, the transaction price was determined to be $ 12,000 .

All potential regulatory, development and commercial milestone payments in the amount of $ 91,000 did not meet the recognition criteria under the most likely method, because their achievement was highly dependent on factors outside the control of the Company and therefore, were excluded from the transaction price as of December 31, 2020.

Furthermore, under the expected value method the Company excluded the potential royalties from the transaction price.

We recognize revenue related to the amounts allocated to the combined performance obligations for DEXTENZA Field and the Company’s OTX-TIC product candidate based on the point in time upon which control of supply is transferred to AffaMed for each delivery of the associated supply.

The Company currently expects to recognize the revenue over a period of approximately seven to eight years commencing on the date the Company begins delivering product to AffaMed.

This estimate of this period considers the timing of development and commercial activities under the License Agreement and may be reduced or increased based on the various activities as directed by the joint committees, decisions made by AffaMed, regulatory feedback or other factors not currently known.

The Company has not recognized any revenue under the License Agreement as of December 31, 2020 as there has not been any delivery of product under the License Agreement.

The Company does not expect to recognize material revenue from the License Agreement in 2021.

The entire transaction price is recorded as deferred revenue as of December 31, 2020.

Regeneron Collaboration Agreement

On October 10, 2016, the Company entered into a Collaboration, Option and License Agreement (the “Collaboration Agreement”) with Regeneron Pharmaceuticals, Inc.

The Collaboration Agreement does not cover the development of any product candidates that deliver small molecule drugs, including TKIs for any target including VEGF, or any product candidate that delivers large molecule drugs other than those that target VEGF proteins.

Under the terms of the Collaboration Agreement, the Company and Regeneron have agreed to conduct a joint research program with the aim of developing a sustained-release formulation of aflibercept, currently marketed under the tradename Eylea, that is suitable for advancement into clinical development.

The Company has granted Regeneron an option (the “Option”) to enter into an exclusive, worldwide license to develop and commercialize products using the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds (“Licensed Products”).

Under the term of the Collaboration Agreement, Regeneron is responsible for funding an initial preclinical tolerability study.

If Regeneron decided to exercise the Option, Regeneron will conduct further preclinical development and an initial clinical trial under a collaboration plan.

If Regeneron decided to exercise the Option, Regeneron will be obligated to conduct further preclinical development and an initial clinical trial under a collaboration plan.

The Company is obligated to reimburse Regeneron for certain development costs incurred by Regeneron under the collaboration plan during the period through the completion of the initial clinical trial, subject to a cap of $ 25,000 , which cap may be increased by up to $ 5,000 under certain circumstances.

1 unchanged sentence

If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least one Licensed Product.

Such efforts shall include initiating the dosing phase of a subsequent clinical trial within

specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.

Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.

Under the terms of the Collaboration Agreement, Regeneron has agreed to pay the Company $ 10,000 upon the exercise of the Option.

3 unchanged sentences

Regeneron initiated the preclinical study in early 2018.

The Company and Regeneron have subsequently reached an understanding that the proposed formulation was not final and have ceased development of it.

The Company is currently in discussions with Regeneron, in accordance with the terms of the Collaboration Agreement, regarding the development of an alternative formulation.

The Company and Regeneron subsequently reached an understanding that the proposed formulation was not final and ceased development of it.

On May 8, 2020, the Company entered into an amendment (the “Regeneron Amendment”) to the Collaboration Agreement.

Pursuant to the Regeneron Amendment, the Company and Regeneron have adopted a new work plan to transition joint efforts under the Collaboration Agreement to the research and development of an extended-delivery formulation of aflibercept to be delivered to the suprachoroidal space.

Regeneron has agreed to pay personnel and material costs of the Company for specified preclinical development activities in connection with the revised work plan, as well as certain other costs.

In addition, the Regeneron Amendment provides for the modification of the terms of the Option previously granted to Regeneron under the Collaboration Agreement.

As amended, the Option is exclusive for twenty-four months following May 8, 2020.

Through December 31, 2020, the Option has not been exercised, and no payments have been made.

As of December 31, 2020, the Company has recorded $ 1,256 related to work performed for preclinical development activities in connection with the revised work plan which the Company has recorded as a reduction of research and development expense as this research is not an output of the Company’s ordinary business activities.

As of December 31, 2020, the Company has included the $ 1,256 in prepaid expenses and other current assets.

Notes Payable

The Company entered into a credit and security agreement in 2014 (as amended to date, the “Credit Agreement”) establishing the Company’s credit facility (the “Credit Facility”).

The Company has a total borrowing capacity of $25,000 under the Credit Facility, which has been fully drawn down as of December 31, 2019.

The Company entered into a credit and security agreement in 2014 (as amended to date, the “Credit Agreement”) establishing the Company’s credit facility (the “Credit Facility”).

The Company has a total borrowing capacity of $ 25,000 under the Credit Facility, which was fully drawn down as of December 31, 2020.

In December 2018, the Company amended the terms of the Credit Agreement to increase total indebtedness under the Credit Facility to $ 25,000 which was used primarily to pay-off outstanding balances as of the closing date.

The Company is required to make interest-only payments under the Credit Facility until December 2020.

The Company was required to make interest-only payments under the Credit Facility until December 2020.

Commencing in January 2021, the Company is required to make 36 equal monthly installments of principal in the amount of $ 694 , plus interest, through December 2023.

In the event the Company achieves certain milestones under the Credit Agreement, the Company has the right to extend the interest-only payments through December 21, 2021 and make 24 equal monthly installments of principal in the amount of $1,042, plus interest.

The Company has not assumed the achievement of these milestones for purposes of disclosures herein.

Amounts borrowed under the Credit Agreement are at LIBOR base rate, subject to 2.00 % floor, plus 7.25 % .

The interest rate on the date of the amendment was 9.76 % .

In addition, a final payment (exit fee) equal to 3.5% of amounts drawn under the Credit Facility, or $875 based on borrowings of $25,000, is due upon the maturity date of December 21, 2023.

As of December 31, 2020, the interest rate was 9.25 % .

In addition, a final payment (exit fee) equal to 3.5 % of amounts drawn under the Credit Facility, or $ 875 based on

borrowings of $ 25,000 , is due upon the maturity date of December 21, 2023.

The Company is accruing the exit fee through December 21, 2023.

2 unchanged sentences

There are no other financial covenants associated with the Credit Agreement.

However, there are negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions;

encumbering its intellectual property;

3 unchanged sentences

and engaging in certain other business transactions.

The Company is not in violation of any of the covenants.

The obligations under the Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition.

The debt is collateralized by substantially all of the Company’s assets, including its intellectual property.

In accordance with the Credit Agreement, in connection with the Company’s desire to issue and sell the 2026 Convertible Notes, the Company amended the terms of its debt with existing lenders in February 2019.

As of December 31, 2020, the Company is not in violation of any of the covenants.

The debt is collateralized by substantially all of the Company’s assets, including its intellectual property.

The amendment added to the Credit Agreement, among other provisions, a negative covenant restricting the Company from paying the holders of the 2026 Convertible Notes ahead in priority to the existing lenders, for so long as indebtedness remains outstanding under the Credit Facility, and a cross-default provision to establish that an event of default under the purchase agreement for the 2026 Convertible Notes also constitutes an event of default under the Credit Agreement.

3 unchanged sentences

Unamortized discount

As of December 31, 2019, the annual repayment requirements for the Credit Facility, inclusive of interest and the final payment of $875 due at expiration, were as follows:

current portion

Long-term notes payable

As of December 31, 2020, the annual repayment requirements for the Credit Facility, inclusive the final payment of $ 875 due at expiration, were as follows:

Year Ending December 31,

Final Payment

The Company has warrants for the purchase of 18,939 shares of common stock outstanding at December 31, 2019 at a weighted average exercise price of $7.92 per share and an expiration date of April 17, 2021.

In April 2014, the Company entered into a credit facility with Silicon Valley Bank and MidCap Financial SBIC, LP, and it issued the lenders warrants to purchase 100,000 shares of its Series D-1 redeemable convertible preferred stock with an exercise price of $ 3.00 per share.

Upon the closing of the Company’s IPO in July 2014, the preferred stock warrants became warrants to purchase an aggregate of 37,878 shares of its common stock with an exercise price of $ 7.92 per share, with Silicon Valley Bank and MidCap Financial SBIC, LP., each holding warrants of 18,939 shares of common stock.

The Company had warrants for the purchase of 18,939 shares of common stock outstanding with MidCap Financial SBIC, LP at December 31, 2020 and 2019 at a weighted average exercise price of $ 7.92 per share and an expiration date of April 17, 2021.

Preferred Stock

The Amended and Restated Certificate of Incorporation authorized 5,000,000 shares of preferred stock, $0.0001 par value, all of which is undesignated and none of which are issued or outstanding at December 31, 2019.

The Amended and Restated Certificate of Incorporation authorized 100,000,000 shares of the Company’s common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

On April 5, 2019, the Company entered into an Open Market Sales Agreement SM (the “2019 Sales Agreement”) with Jefferies, LLC (“Jefferies”), under which the Company may offer and sell its common stock having aggregate proceeds of up to $50,000 from time-to-time through Jefferies, acting as agent.

The Amended and Restated Certificate of Incorporation authorized 5,000,000 shares of preferred stock, $ 0.0001 par value, all of which is undesignated and none of which are issued or outstanding at December 31, 2020 and 2019.

The Amended and Restated Certificate of Incorporation authorized 100,000,000 shares of the Company’s common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

On December 14, 2020, the Company entered into an underwriting agreement with Jefferies LLC (“Jefferies”) and Piper Sandler & Co.

(collectively with Jefferies, “the Underwriters”) in connection with an underwritten public offering of 3,725,000 shares of the Company’s common stock.

Under the terms of this underwriting agreement, the Company also granted the Underwriters an option to purchase up to an additional 558,750 shares of common stock at the public offering price, less the underwriting discounts and commissions.

The Underwriters subsequently exercised this option to purchase such option shares in full.

The public offering price of the shares in this offering was $ 21.50 per share, and the Underwriters purchased all of the shares from the Company at a price of $ 20.21 per share.

After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds from the offering of $ 86,390 .

On October 13, 2020, the Company entered into an underwriting agreement with the Underwriters, in connection with an underwritten public offering of 7,180,000 shares of the Company’s common stock.

Under the terms of this underwriting agreement, the Company also granted the Underwriters an option to purchase up to an additional 1,077,000 shares of common stock at the public offering price, less the underwriting discounts and commissions.

The Underwriters subsequently exercised this option to purchase such option shares in full.

The public offering price of the shares in this offering was $ 9.75 per share, and the Underwriters purchased all of the shares from the Company at a price of $ 9.17 per share.

After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds from the offering of $ 75,406 .

In May 2020, the Company entered into an underwriting agreement with the Underwriters, in connection with an underwritten public offering of 8,181,819 shares of the Company’s common stock.

Under the terms of this underwriting agreement, the Company also granted the Underwriters an option to purchase up to an additional 1,227,272 shares of common stock at the public offering price, less the underwriting discounts and commissions.

The Underwriters subsequently exercised this option to purchase such option shares in full.

The public offering price of the shares in this offering was $ 5.50 per share, and the Underwriters purchased all of the shares from the Company at a price of $ 5.17 per share.

After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds from the offering of $ 48,327 .

On April 5, 2019, the Company entered into an Open Market Sales Agreement SM (the “2019 Sales Agreement”) with Jefferies, under which the Company may offer and sell its common stock having aggregate proceeds of up to $ 50,000 from time-to-time through Jefferies, acting as agent.

In the twelve months ended December 31, 2019, the Company sold 7,337,459 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $ 32,626 , respectively, after commissions and expenses.

In January 2018, the Company completed a follow-on offering of its common stock at a public offering price of $5.00 per share.

The offering consisted of 7,475,000 shares of common stock sold by the Company, including those shares sold in connection with the exercise by the underwriter of its option to purchase additional shares.

The Company received net proceeds from the follow-on offering of $34,704 after commissions and expenses.

In November 2016, the Company entered into a controlled equity offering sales agreement, (the “2016 Sales Agreement”) with Cantor Fitzgerald & Co., (“Cantor”), under which the Company may offer and sell its common stock having aggregate proceeds of up to $40,000 may be sold from time to time.

In the twelve months ended December 31, 2020, the Company sold 2,984,381 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $ 14,359 , respectively, after commissions and expenses.

From inception through March 1, 2021, the Company sold an aggregate of 10,321,840 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $ 46,985 after commissions and expenses.

The Company has $ 1,326 available for issuance as of March 1, 2021.

During the year ended December 31, 2018, the Company sold 4,121,173 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $ 26,824 after underwriting discounts, commissions and expenses.

Through December 31, 2018, the Company had sold 5,011,741 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $33,427 after underwriting discounts, commissions and expenses.

In the three months ended March 31, 2019, the Company sold 1,318,481 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds

of approximately $4,954 after underwriting discounts and commissions and expenses.

Through March 31, 2019, the Company sold 6,330,222 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $38,381 after underwriting discounts and commissions and expenses.

Through December 31, 2018, the Company had sold 5,011,741 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of

approximately $ 33,427 after underwriting discounts, commissions and expenses.

In the three months ended March 31, 2019, the Company sold 1,318,481 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $ 4,954 after underwriting discounts and commissions and expenses.

As of February 25, 2019, the Company had no amounts remaining available for future sale under the 2016 Sales Agreement.

On February 28, 2019, pursuant to the 2016 Sales Agreement, the Company delivered a termination notice to Cantor, terminating the 2016 Sales Agreement.

As of December 31, 2019, the Company had reserved 9,499,615 shares of common stock for the exercise of outstanding stock options and the number of shares remaining available for grant under the Company’s 2014 Stock Incentive Plan (the “2014 Plan”) and the 2019 Inducement Stock Incentive Plan (the “2019 Inducement Plan”), the number of shares available for issuance under the 2014 Employee Stock Purchase Plan (Note 13), and the outstanding warrants to purchase common stock (Note 10).

Through March 31, 2019, the Company sold 6,330,222 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $ 38,381 after underwriting discounts and commissions and expenses.

As of December 31, 2020, the Company had reserved 11,191,284 shares of common stock for the exercise of outstanding stock options and the number of shares remaining available for grant under the Company’s 2014 Stock Incentive Plan (the “2014 Plan”) and the 2019 Inducement Stock Incentive Plan (the “2019 Inducement Plan”), the number of shares available for issuance under the 2014 Employee Stock Purchase Plan (Note 13), and the outstanding warrants to purchase common stock (Note 10).

Stock-Based Awards

2 unchanged sentences

The number of shares initially reserved for issuance under the 2014 Plan was 1,336,907 shares of common stock, which was increased to 2,126,907 on January 1, 2015.

The number of shares reserved for issuance may be increased by the number of shares under the 2006 Stock Option Plan (the “2006 Plan”) that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company.

The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day of each fiscal year, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218 shares of the Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day of each fiscal year, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218 shares of the Company’s common stock, 4 % of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

On January 1, 2020, the number of shares available for issuance under the 2014 Plan increased by 1,659,218 .

2 unchanged sentences

Inducement Stock Option Awards

On June 20, 2017, the Company issued to Antony Mattessich, who became a director of the Company on June 20, 2017 and the Company’s President and Chief Executive Officer on July 26, 2017, a non-statutory stock option to purchase an aggregate of 590,000 shares of the Company’s common stock at an exercise price of $10.94 per share.

Subject to Mr.

Mattessich’s continued service to the Company, the stock option will vest over a four-year period, with 25% of the shares underlying the option award vesting on the one year anniversary of the grant date and the remaining 75% of the shares underlying the award vesting monthly thereafter.

The stock option was issued outside of the Company’s 2014 Plan as an inducement material to Mr.

Mattessich’s acceptance of entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

On July 9, 2019, the Company issued to the Senior Vice President, Head of Business Development, a non-statutory stock option to purchase an aggregate of 60,000 shares of our common stock at an exercise price of $5.13 per share.

Subject to Senior Vice President, Head of Business Development continued service to the Company, the stock option will vest over a four-year period, with 25% of the shares underlying the option award vesting on the one-year anniversary of the grant date and the remaining 75% of the shares underlying the award vesting monthly thereafter.

The stock option was issued outside of the Company’s 2014 Plan as an inducement material to Senior Vice President, Head of Business Development’s acceptance of entering into employment with us in accordance with Nasdaq Listing Rule 5635(c)(4).

Mattessich’s continued service to the Company, the stock option will vest over a four-year period, with 25 % of the shares underlying the option award vesting on the one year anniversary of the grant date and the remaining 75 % of the shares underlying the award vesting monthly thereafter.

The stock option was issued outside of the Company’s 2014 Plan as an inducement material to Mr.

Mattessich’s acceptance of an offer of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

On July 9, 2019, the Company issued to the Senior Vice President, Head of Business Development, a non-statutory stock option to purchase an aggregate of 60,000 shares of its common stock at an exercise price of $ 5.13 per share.

Subject to his continued service to the Company, the stock option will vest over a four-year period, with 25 % of the shares underlying the option award vesting on the one-year anniversary of the grant date and the remaining 75 % of the shares underlying the award vesting monthly thereafter.

The stock option was issued outside of the Company’s 2014 Plan as an inducement material to the individual’s acceptance of an offer of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

On October 29, 2019, the 2019 Inducement Plan was approved by the Board of Directors of the Company.

Awards under the Plan may only be granted to persons who (a) were not previously an employee or director of the Company or (b) are commencing employment with the Company following a bona fide period of non-employment, in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4).

For the avoidance of doubt, neither consultants nor

advisors shall be eligible to participate in the Plan.

Each person who is granted an Award under the 2019 Inducement Plan is deemed a “Participant.”

The Plan provides for the following types of awards, each of which is referred to as an “Award”:

The 2019 Inducement Plan provides for the following types of awards, each of which is referred to as an “Award”:

non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards.

The number of shares of common stock that may be issued under the 2019 Plan is 500,000.

Awards under the 2019 Inducement Plan may only be granted to persons who (a) were not previously an employee or

director of the Company or (b) are commencing employment with the Company following a bona fide period of non-employment, in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4).

For the avoidance of doubt, neither consultants nor advisors shall be eligible to participate in the 2019 Inducement Plan.

Each person who is granted an Award under the 2019 Inducement Plan is deemed a “Participant.”

On December 10, 2020, the Board of Directors of the Company amended the 2019 Inducement Plan to increase the aggregate number of shares issuable by 554,000 shares of common stock to 1,054,000 .

As of December 31, 2020, 650,000 shares remained available for issuance under the 2019 Inducement Plan.

2014 Employee Stock Purchase Plan

The Company’s has a 2014 Employee Stock Purchase Plan (the “ESPP”) with a total of 207,402 shares of common stock reserved for issuance under this plan which increased to 232,402 shares of common stock on January 1, 2015.

The number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of 207,402 shares of the Company’s common stock, 0.5% of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

On January 1, 2019, the number of shares available for issuance under the 2014 Plan increased by 207,402.

The number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of 207,402 shares of the Company’s common stock, 0.5 % of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

On January 1, 2020, the number of shares available for issuance under the ESPP increased by 207,402 .

As of December 31, 2020, 524,194 shares of common stock remained available for issuance.

1 unchanged sentence

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company estimates its expected volatility using a weighted average of the historical volatility of its publicly traded peer companies and the volatility of its common stock, and expect to continue to do so until such time as the Company has adequate historical data regarding the volatility of its traded stock price.

The expected term of the Company’s stock options to employees has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

The expected life of the options was calculated using the simplified method.

The simplified method defines the life as the average of the contractual term of the options and the weighted-average vesting period for all option tranches.

The Company utilized the simplified method because the Company did not have sufficient historical exercise data over the life of awards to provide a reasonable basis upon which to estimate expected term.

The expected term of stock options granted to nonemployees is equal to the contractual term of the option award.

8 unchanged sentences

Expected dividend yield

The following table summarizes the Company’s stock option activity:

Shares Issuable

4 unchanged sentences

Options exercisable as of December 31, 2020

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The aggregate intrinsic value of stock options exercised was $ 4,307 and $ 54 during the years ended December 31, 2020 and 2019, respectively.

The weighted average grant date fair value of stock options granted to employees and directors during the years ended December 31, 2019, 2018, 2017 was $2.99, $4.48 and $6.44 per share, respectively.

The weighted average grant date fair value of stock options granted to employees and directors during the years ended December 31, 2020 and 2019 was $ 5.93 and $ 2.99 per share, respectively.

Stock-based Compensation

8 unchanged sentences

Year Ended December 31,

Net loss attributable to common stockholders

Weighted average common shares outstanding, basic and diluted

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

Net loss per share basic and diluted

The Company excluded the following common stock equivalents, outstanding as of December 31, 2020 and 2019, from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2020 and 2019 because they had an anti-dilutive impact due to the net loss incurred for the periods.

The Company also excluded the shares issuable upon conversion of the 2026 Convertible notes from the computation of diluted net loss per share for the year ended December 31, 2019 because they had an anti-dilutive impact.

Company also excluded the shares issuable upon conversion of the 2026 Convertible Notes from the computation of diluted net loss per share for the year ended December 31, 2020 and 2019 because they had an anti-dilutive impact.

Options to purchase common stock

3 unchanged sentences

Intellectual Property Licenses

The Company has a license agreement with Incept, LLC (“Incept”) (Note 19) to use and develop certain patent rights (the “Incept License”).

The Company has a license agreement with Incept, LLC (“Incept”) to use and develop certain patent rights (the “Incept License”).

Under the Incept License, as amended and restated, the Company was granted a worldwide, perpetual, exclusive license to develop and commercialize products that are delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to ophthalmic diseases or conditions.

The Company is obligated to pay low single-digit royalties on net sales of commercial products developed using the licensed technology, commencing with the date of the first commercial sale of such products and until the expiration of the last to expire of the patents covered by the license.

Any of the Company’s sublicensees also will be obligated to pay Incept a royalty equal to a low single-digit percentage of net sales made by it and will be bound by the terms of the agreement to the same extent as the Company.

The Company is obligated to reimburse Incept for its share of the reasonable fees and costs incurred by Incept in connection with the prosecution of the patent applications licensed to the Company under the Incept License.

Through December 31, 2020, royalties paid under this agreement related to product sales were $ 575 and have been charged to cost of product revenue.

On September 13, 2018, (the “Effective Date) the Company entered into a second amended and restated license agreement (the “Second Amended Agreement”) with Incept.

The Second Amended Agreement amends and restates in full the Company’s prior amended and restated Incept License (the “Prior Agreement”

or “Original License”) to expand the scope of the Company’s intellectual property license and modify future intellectual property ownership and other rights thereunder.

On September 13, 2018, the Company entered into a second amended and restated license agreement (the “Second Amended Agreement”) with Incept.

The Second Amended Agreement amends and restates in full the Company’s prior amended and restated Incept License (the “Prior Agreement” or “Original License”) to expand the scope of the Company’s intellectual property license and modify future intellectual property ownership and other rights thereunder.

Indemnification Agreements

3 unchanged sentences

To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2019.

Purchase Commitments

Purchase commitments represent non-cancelable contractual commitments associated with certain clinical trial activities within the Company’s clinical research organization.

Manufacturing Commitments

Manufacturing contracts generally provide for termination on notice, and therefore are cancelable contracts but are contracts that the Company is likely to continue, regardless of the fact that they are cancelable.

As of December 31, 2020, the Company was not aware of any claims that could have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2020.

Collaboration Agreement

On October 10, 2016, the Company entered into a Collaboration Agreement with Regeneron (Note 8).

If the Option to enter into an exclusive worldwide license is exercised, Regeneron will conduct further preclinical development and an initial clinical trial under a collaboration plan.

On October 10, 2016, the Company entered into a Collaboration Agreement with Regeneron which the parties amended in May 2020 (Note 8).

If the Option to enter into an exclusive worldwide license is exercised, Regeneron will be obligated to conduct further preclinical development and an initial clinical trial under a collaboration plan.

2 unchanged sentences

If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least one Licensed Product.

Through December 31, 2019, the Option has not been exercised and no payments have been made to Regeneron.

Legal Proceedings

Securities Class Actions

On July 7, 2017, a putative class action lawsuit was filed against the Company and certain of the Company’s current and former executive officers in the United States District Court for the District of New Jersey, captioned Thomas Gallagher v.

Ocular Therapeutix, Inc, et al.

2:17-cv-05011.

The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 6, 2017.

The complaint generally alleges that the Company and certain of the Company’s current and former officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the Form 483 issued by the FDA related to DEXTENZA and the Company’s manufacturing operations for DEXTENZA.

The complaint seeks unspecified damages, attorneys’

fees, and other costs.

On July 14, 2017, an amended complaint was filed;

the amended complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 11, 2017, and otherwise includes allegations similar to those made in the original complaint.

On July 12, 2017, a second putative class action lawsuit was filed against the Company and certain of the Company’s current and former executive officers in the United States District Court for the District of New Jersey, captioned Dylan Caraker v.

Ocular Therapeutix, Inc., et al.

2:17-cv-05095.

The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 6, 2017.

The complaint includes allegations similar to those made in the Gallagher complaint, and seeks similar relief.

On August 3, 2017, a third putative class action lawsuit was filed against the Company and certain of the Company’s current and former executive officers in the United States District Court for the District of New Jersey, captioned Shawna Kim v.

Ocular Therapeutix, Inc., et al.

2:17-cv-05704.

The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between March 10, 2016 and July 11, 2017.

The complaint includes allegations similar to those made in the Gallagher complaint, and seeks similar relief.

On October 27, 2017, a magistrate judge for the United States District Court for the District of New Jersey granted the defendants’

motion to transfer the above-referenced Gallagher, Caraker, and Kim litigations to the United States District Court for the District of Massachusetts.

These matters were assigned the following docket numbers in the District of Massachusetts:

1:17-cv-12288 ( Gallagher ), 1:17-cv-12146 ( Caraker ), and 1:17-cv-12286 ( Kim ).

On March 9, 2018, the court consolidated the three actions and appointed co-lead plaintiffs and co-lead counsel for the consolidated action.

On May 7, 2018, co-lead plaintiffs filed a consolidated amended class action complaint.

The amended complaint makes allegations similar to those in the original complaints, against the same defendants, and seeks similar relief on behalf of shareholders who purchased the Company’s common stock between March 10, 2016 and July 11, 2017.

The amended complaint generally alleges that defendants violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.

On July 6, 2018, defendants filed a motion to dismiss the consolidated amended complaint.

Plaintiffs filed an opposition to the motion to dismiss on September 4, 2018, and defendants filed a reply on October 4, 2018.

The court held oral argument on the motion to dismiss on February 6, 2019.

By order dated April 30, 2019, the court granted defendants’

motion to dismiss.

On May 31, 2019, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the First Circuit regarding the District Court’s opinion and order of dismissal of the Complaint.

The plaintiffs/appellants filed their opening brief on the appeal on October 23, 2019.

Defendants/appellees filed their response brief on November 22, 2019.

Plaintiffs/appellants filed their reply brief on December 13, 2019.

The First Circuit held an oral argument on the appeal on February 4, 2020, and took the matter under advisement.

The Company denies any allegations of wrongdoing and intends to vigorously defend against these lawsuits.

Shareholder Derivative Litigation

On July 11, 2017, a purported shareholder derivative lawsuit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Massachusetts, captioned Robert Corwin v.

Sawhney et al.

1:17-cv-11270.

The complaint generally alleged that the individual defendants breached fiduciary duties owed to the Company by making allegedly false and/or misleading statements concerning the Form 483 related to DEXTENZA and our manufacturing operations for DEXTENZA.

The complaint purported to assert claims against the individual defendants for breach of fiduciary duty, and sought to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’

alleged misconduct.

The complaint also sought contribution on behalf of the Company from all individual defendants for their alleged violations of Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.

The complaint sought declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’

fees and costs.

On September 20, 2017, counsel for the plaintiff filed a notice of voluntary dismissal, stating that the plaintiff wished to coordinate his efforts and proceed in a consolidated fashion with the plaintiff in a similar derivative suit that was pending in the Superior Court of Suffolk County of the Commonwealth of Massachusetts captioned Angel Madera v.

Sawhney et al.

17-2273 (which is discussed in the paragraph immediately below) by filing an action in that court subsequent to the dismissal of this lawsuit.

The Corwin lawsuit was dismissed without prejudice on September 21, 2017.

On October 24, 2017, the plaintiff filed a new derivative complaint in Massachusetts Superior Court (Suffolk County), captioned Robert Corwin v.

Sawhney et al ., Case No.

17-3425 (BLS2).

The new Corwin complaint includes allegations similar to those made in the federal court complaint and asserts a derivative claim for breach of fiduciary duty against certain of our current and former officers and directors.

The complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.

The complaint also names the Company as a nominal defendant.

On July 19, 2017, a second purported shareholder derivative lawsuit was filed against certain of the Company’s current and former executive officers, all current board members, one former board member, and the Company as a nominal defendant, in the Superior Court of Suffolk County of the Commonwealth of Massachusetts, captioned Angel Madera v.

Sawhney et al.

The complaint included allegations similar to those made in the Corwin complaint.

The complaint purported to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, and sought to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’

alleged misconduct.

The complaint sought declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’

fees and costs.

On November 6, 2017, the court dismissed this action without prejudice due to plaintiff’s failure to complete service of process within the time permitted under applicable court rules.

On December 21, 2017, the same plaintiff filed a new derivative complaint in the same court, captioned Angel Madera v.

Sawhney et al.

17-4126 (BLS2).

The new Madera complaint is premised on substantially similar allegations as the previous complaint and purports to assert derivative claims against certain current and former executive officers and board members for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and names the Company as a nominal defendant.

Like the new Corwin complaint, the new Madera complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.

By order dated January 29, 2018, the court consolidated the state court Corwin and Madera complaints under the Corwin docket and appointed lead counsel for plaintiffs.

On February 28, 2018, plaintiffs filed a consolidated amended complaint.

The consolidated complaint names substantially the same defendants and is premised on substantially similar allegations as the previous Corwin and Madera complaints, asserting claims for breach of fiduciary duty against the individual defendants and unjust enrichment against the two SV entity defendants.

On April 17, 2018, all defendants served a motion to dismiss the consolidated amended complaint.

On June 22, 2018, plaintiffs served their opposition to

the motion to dismiss and a cross-motion to stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts.

On July 30, 2018, the parties filed a joint motion to stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts.

On August 3, 2018, the court granted the motion to stay.

On January 31, 2018, a third purported shareholder derivative suit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Massachusetts, captioned Brian Robinson v.

Sawhney et al.

1:18-cv-10199.

The complaint includes allegations similar to those made in the Corwin and Madera complaints.

The complaint does not name either SV Life Sciences Fund, IV, LP or SV Life Sciences Fund IV Strategic Partners, LP as defendants, and adds two former officers as defendants.

The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seeks to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’

alleged misconduct.

The complaint seeks declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’

fees and costs.

On April 30, 2018, all defendants filed a motion to dismiss or stay the complaint.

Plaintiff filed his opposition on June 22, 2018.

On July 26, 2018, the parties filed a joint motion to extend the deadline for defendants to file their reply brief pending the potential substitution of the named shareholder plaintiff.

On August 20, 2018, the parties filed a joint stipulation and proposed order regarding plaintiff’s unopposed request to substitute a new shareholder plaintiff and the parties’

joint request that the court stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts.

On September 4, 2018, the court entered the requested order substituting the named plaintiff and staying the matter.

On February 16, 2018, a fourth purported shareholder derivative suit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Delaware, captioned Terry Kelly v.

Sawhney et al.

1:18-cv-00277.

The complaint includes allegations similar to those made in the Corwin and Madera complaints.

The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment and waste of corporate assets, and seeks to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’

alleged misconduct.

The complaint also asserts an unjust enrichment claim against SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.

The complaint seeks declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’

fees and costs.

On June 11, 2018, the parties filed a stipulation staying the lawsuit pending final judgment in the consolidated derivative action pending in Massachusetts state court under the Corwin docket, described above.

The court entered an order staying the case on June 12, 2018.

The Company denies any allegations of wrongdoing and intend to vigorously defend against these lawsuits.

In addition, the Company received a subpoena from the SEC, dated December 15, 2017, requesting documents and information concerning DEXTENZA (dexamethasone insert) 0.4mg, including related communications with the FDA, investors and others.

The Company received a second subpoena from the SEC on August 21, 2018, requesting documents and information concerning its participation in two investor conferences in June 2017.

By letter dated May 2, 2019, the SEC notified the Company that the SEC had concluded its investigation and did not intend to recommend an enforcement action against the Company or any individuals.

The Company is unable to predict the outcome of these lawsuits or proceedings at this time.

Moreover, any conclusion of these matters in a manner adverse to the Company and for which it incurs substantial costs or damages not covered by our directors’

and officers’

liability insurance would have a material adverse effect on the Company’s financial condition and business.

In addition, the proceedings could adversely impact the Company’s reputation and divert management’s attention and resources from other priorities, including the execution of business plans and strategies that are important to the Company’s ability to grow the Company’s business, any of which could have a material adverse effect on the Company’s business.

Such efforts shall include initiating the dosing phase of a subsequent

clinical trial within specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.

The Company leases real estate, including laboratory, manufacturing and office space.

The Company’s leases have remaining lease terms ranging from less than 1 year to 8 years.

Certain leases include one or more options to renew, exercised at the Company’s sole discretion, with renewal terms that can extend the lease term from one year to six years.

All of the Company’s leases qualify as operating leases.

In October 2017, the Company entered into an amendment to a lease agreement for the Company’s laboratory and manufacturing space located at 34 Crosby Drive and 36 Crosby Drive, each in Bedford, Massachusetts.

The Company’s leases have remaining lease terms ranging from less than 1 year to 8 years .

Certain leases include one or more options to renew , exercised at the Company’s sole discretion, with renewal terms that can extend the lease term from one year to six years .

All of the Company’s leases qualify as operating leases.

The lease term commenced on June 30, 2018 and will expire on July 31, 2023.

The Company has a one-time option to terminate the lease on July 31, 2021.

In June 2016, the Company entered into a lease agreement for approximately 70,712 square feet of general office, research and development and manufacturing space located at 15 Crosby Drive in Bedford, Massachusetts.

3 unchanged sentences

The five-year lease commenced on April 18, 2019 and terminates on March 24, 2024 and does not include any lease renewal options .

The following table summarizes the presentation in the Company’s consolidated balance sheet of its operating leases:

Operating lease costs

Variable lease costs

Total lease costs

The following table summarizes the presentation in the Company’s consolidated balance sheet of its operating leases:

Balance sheet location

6 unchanged sentences

Total Operating lease liabilities:

The following table summarizes the effect of lease costs in the Company’s consolidated statements of operations and comprehensive loss:

Statement of operations and comprehensive loss location

Operating lease costs

Research and development

Selling and marketing

General and administrative

The minimum lease payments for the next five years and thereafter are expected to be as follows:

2 unchanged sentences

Present value of operating lease liabilities

The minimum lease payments for the next five years and thereafter is expected to be as follows:

As of December 31, 2019, the weighted average remaining lease term was 6.47 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 13.55%.

Supplemental disclosure of cash flow information related to our operating leases included in cash flows provided by operating activities in our consolidated statements of cash flows is as follows:

The following table summarizes the weighted average remaining lease term and the weighted average incremental borrowing rate used to determine the operating lease liability:

Weighted average remaining lease term in years

Weighted average discount rate

Supplemental disclosure of cash flow information related to the Company’s operating leases included in cash flows provided by operating activities in its consolidated statements of cash flows is as follows:

Cash paid for amounts included in the measurement of lease liabilities

During the years ended December 31, 2019, 2018 and 2017, the Company recognized $2,226, $1,788 and $1,733 of rental expense, respectively, related to office, laboratory, and manufacturing space.

ASC 840 Disclosures

The future minimum lease payments under the Company’s operating leases as of December 31, 2018, were as follows:

Minimum lease payments

During the years ended December 31, 2020 and 2019, the Company recorded no income tax benefits for the net operating losses incurred or the research and development tax credits generated in each year, due to its uncertainty of realizing a benefit from those items.

A reconciliation of the U.S.

federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended December 31,

Federal statutory income tax rate

Tax reform change

Research and development tax credits

1 unchanged sentence

Stock-based compensation

Change in deferred tax asset valuation allowance

Derivative liability

Change in the valuation allowance

Effective income tax rate

Changes in the valuation of the derivative liability do not provide a future tax benefit.

To the extent the deferred tax asset related to the derivative liability exceeds the deferred tax liability related to the 2026 Convertible Notes, the excess is recorded as a permanent item.

Net deferred tax assets consisted of the following:

6 unchanged sentences

Derivative liability

Accrued expenses and other temporary differences

Accrued expenses and other

Total deferred tax assets

6 unchanged sentences

Net deferred tax assets

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019, 2018 and 2017 related primarily to the increase in net operating loss carryforwards, capitalized research and development expenses and research and development tax credit carryforwards offset in 2017 by a decrease in a deferred tax asset resulting from the decreased federal corporate tax rate and were as follows:

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2020 and 2019 related primarily to the increase in net operating loss carryforwards, amortization of capitalized research and development expenses, and increase in research and development tax credit carryforwards were as follows:

Year Ended December 31,

1 unchanged sentence

Increases recorded to income tax provision

Decreases recorded to income tax provision

Valuation allowance as of end of year

As of December 31, 2019, the Company had net operating loss carryforwards for federal and state income tax purposes of $274,331 and $219,375, respectively.

The federal and state net operating losses generated for annual periods prior to January 1, 2018 begin to expire in 2024.

The Company’s federal net operating losses generated for the years ended December 31, 2019 and 2018, which amounted to a total of $148,250, can be carried forward indefinitely.

As of December 31, 2020, the Company had net operating loss (“NOL”) carryforwards for federal and state income tax purposes of $ 354,745 and $ 274,939 , respectively.

The federal and state NOLs generated for annual periods prior to January 1, 2018 begin to expire in 2026.

The Company’s federal NOLs generated for the years ended since December 31, 2018, which amounted to a total of $ 229,113 , can be carried forward indefinitely.

As of December 31, 2020, the Company also had available research and development tax credit carryforwards for federal and state income tax purposes of $ 9,226 and $ 4,988 , respectively, which begin to expire in 2026 and 2025, respectively.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.

Utilization of the NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

1 unchanged sentence

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the NOL carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the NOL carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.

Management considered the Company’s cumulative net losses and concluded that it is more likely than not that the Company would not realize the benefits of the deferred tax assets.

Management considered the Company’s cumulative net losses and concluded that it is more likely than not that

the Company would not realize the benefits of the deferred tax assets.

Accordingly, a full valuation allowance was established against the net deferred tax assets as of December 31, 2020 and 2019.

3 unchanged sentences

There are currently no pending income tax examinations.

The Company’s tax years are still open under statute from December 31, 2015 to the present.

The Company’s tax years are still open under statute from December 31, 2016 to the present.

Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods.

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

As of December 31, 2019 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss.

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss.

401(k) Savings Plan

4 unchanged sentences

Related Party Transactions

Since October 2017, the Company has engaged McCarter English LLP (“McCarter”) to provide legal services to the Company, including with respect to intellectual property matters.

Sparks, Ph.D., a partner at McCarter & English, has also served in the capacity as the Company’s in-house counsel since October 2017.

Since October 2017, the Company has engaged McCarter English LLP (“McCarter”) to provide legal services to the Company, including with respect to intellectual property matters.

Sparks, Ph.D., a partner at McCarter & English, has also served in the capacity as the Company’s in-house counsel from October 2017 through August 31, 2020.

The Company incurred fees for legal services rendered by McCarter of $ 766 and $ 1,119 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, there was $ 47 and $ 107 recorded in accounts payable for McCarter.

As of December 31, 2019, there was $242 recorded in accrued expenses for McCarter

As of December 31, 2020 and 2019, there was $ 0 and $ 242 recorded in accrued expenses for McCarter.

Restructuring and Other Costs

2019 Restructuring

On November 6, 2019, the Board of Directors approved an operational restructuring to eliminate a portion of the Company’s workforce to reduce expenses.

As part of this operational restructuring, the Company reduced headcount by approximately 22 % .

The Company completed the restructuring in the fourth quarter of 2019 and recorded total restructuring costs of approximately $ 554 in total costs and operating expenses in the consolidated statements of operations and comprehensive loss, all of which was paid.

2017 Transition Agreements and Other Costs

On July 31, 2017, the Board of Directors approved a strategic restructuring to eliminate a portion of the Company’s workforce as part of an initiative to enhance operations and reduce expenses.

As part of this strategic restructuring, the Company eliminated 30 positions across the organization.

During the twelve months ended December 31, 2017, t he Company recorded $1,703 of restructuring-related costs in operating expenses in research and development and selling and marking, including employee severance, benefits and related costs.

On July 31, 2017, the Company entered into a transition, separation and release of claims agreement (the “Ankerud Transition Agreement”), pursuant to which Eric Ankerud resigned from his role as Executive Vice President, Regulatory, Quality and Compliance of the Company, effective immediately.

Ankerud continued to serve as an at-will employee of the Company in the capacity of Senior Advisor until October 31, 2017.

Under the Ankerud Transition Agreement, Mr.

Ankerud is entitled to separation benefits until October 31, 2018, in the form of continuation of his base salary in the same amount in effect as of October 31, 2018;

the payment of monthly premiums for healthcare and/or

dental coverage;

and provided he continues to provide services to the Company as a consultant, the continued vesting of his outstanding stock options awards in accordance with the applicable equity plans and stock option agreements.

During the twelve months ended December 31, 2017, t he Company recorded $386 of severance expense which are included in operating expenses in research and development.

On October 13, 2017, the Company entered into a transition, separation and release of claims agreement (the “Fortune Transition Agreement”) with James Fortune, pursuant to which Mr.

Fortune resigned from his role as Chief Operating Officer and any and all other positions he holds as an officer or employee of the Company, effective December 31, 2017 (the “Separation Date”).

Pursuant to the Fortune Transition Agreement, effective as of October 13, 2017, the Employment Agreement, by and between the Company and Mr.

Fortune, dated June 19, 2014, was terminated.

Under the Fortune Transition Agreement, Mr.

Fortune will be entitled to separation benefits in the form of (i) the continuation of his base salary for twelve months after the Separation Date in the same amount in effect as of the October 13, 2017 and (ii) the payment of monthly premiums for healthcare and/or dental coverage at the same rate that is in effect on the Separation Date until the earlier of twelve months from the Separation Date or the date Mr.

Fortune becomes eligible to receive such benefits under another employer’s benefit plan.

Should any annual bonus payments be made to active Company executives for the calendar year 2017, Mr.

Fortune will also be eligible to receive a bonus payment in such amount, if any, he would have received had he remained employed with the Company through the date of such bonus payments.

During the twelve months ended December 31, 2017, t he Company recorded $417 of severance expense which are included in operating expenses in general and administration.

The following table summarizes the restructuring and other costs by category during the twelve months ended December 31, 2017:

Twelve Months Ended

December 31, 2017

Research and development

Selling and marketing

General and administration

Selected Quarterly Financial Data (Unaudited)

Three Months Ended

Statements of Operations Data:

Loss from operations

Basic net loss per common share

Diluted net loss per common share

Subsequent Events

The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day of each fiscal year, beginning on January 1, 2015 and ending on December 31, 2024, equal to the least of 1,659,218 shares of the Company’s common stock, 4 % of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

On January 1, 2021, the number of shares available for issuance under the 2014 Plan increased by 1,659,218 .

outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

The number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024, in an amount equal to the least of 207,402 shares of the Company’s common stock, 0.5 % of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year, and an amount determined by the Company’s board of directors.

On January 1, 2021, the number of shares available for issuance under the ESPP increased by 207,402 .

The Company sold an additional 2,229,514 shares of common stock between January 1, 2020 and February 21, 2020, under the 2019 Sales Agreement discussed in Note 12, resulting in net proceeds of approximately $10,686 after commissions and expenses.

On January 29, 2021, warrants covering 18,939 shares were exercised via net share settlement, and the Company issued 11,737 shares of common stock as a result of the exercise.

On February 1, 2021, the Company issued to the Senior Vice President, Clinical Development, a non-statutory stock option to purchase an aggregate of 100,000 shares of its common stock at an exercise price of $ 18.70 per share subject to a time-based vesting and a non-statutory stock option to purchase 50,000 shares of its common stock at an exercise price of $ 18.70 per share subject to performance-based vesting.

The stock option was issued under the Company’s 2019 Inducement Plan as an inducement material to such individual’s acceptance of an offer of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Subject to her continued service to the Company, the time-based stock option will vest over a four-year period, with 25 % of the shares underlying the option award vesting on the one-year anniversary of the grant date and the remaining 75 % of the shares underlying the award vesting monthly thereafter.

The performance-based stock option vests and becomes exercisable in whole or in part if the Company achieves specified milestones, subject to continued service to the Company through the applicable vesting dates.

The stock options are subject to the terms and conditions of stock option agreements covering the grant and the Company’s 2019 Inducement Plan, as amended to date.

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