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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-11 · 217 added, 192 removed, 298 unchanged (58% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using our proprietary, bioresorbable hydrogel platform technology.

We use this technology to tailor duration and amount of delivery of a range of therapeutic agents in our product candidates.

We currently incorporate therapeutic agents that have previously received regulatory approval from the U.S.

Food and Drug Administration, or FDA, including small molecules and proteins, into our hydrogel technology with the goal of providing local programmed-release of drug to the eye.

We believe that our local programmed-release drug delivery technology has the potential to treat conditions and diseases of both the front and the back of the eye and can be administered through a range of different modalities including intravitreal implants, suprachoroidal implants, intracameral implants and intracanalicular inserts.

We have product candidates in preclinical and clinical development designed to utilize this technology to treat retinal diseases including wet age-related macular degeneration, or wet AMD;

We are a biopharmaceutical company focused on the formulation, development, and commercialization of innovative therapies for diseases and conditions of the eye using our proprietary bioresorbable hydrogel-based formulation technology.

Core to our strategy is (i) to continue to build upon our experience commercializing ophthalmology products that can be administered primarily in the surgical and/or office settings and (ii) to continue to develop a clinical pipeline of innovative ophthalmology products that address large areas of unmet need.

We currently have two FDA-approved products in commercialization in the United States:

DEXTENZA, an intracanalicular insert for the treatment of both post-surgical ocular inflammation and pain and ocular itching associated with allergic conjunctivitis, and ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions following cataract surgery.

We also have product candidates in preclinical and clinical development designed to utilize our proprietary, bioresorbable hydrogel technology to treat retinal diseases including wet age-related macular degeneration, or wet AMD;

glaucoma and ocular hypertension;

and ocular surface diseases and conditions including chronic and acute dry eye disease and ocular itching associated with allergic conjunctivitis.

We also have two FDA-approved products in commercialization in the United States:

DEXTENZA ® , 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.

Our core pipeline assets include four development programs.

We are currently evaluating two of these programs in Phase 1 clinical trials:

OTX-TKI, an intravitreal implant injected by fine-gauge needle of a hydrogel, anti-angiogenic formulation of axitinib, a tyrosine kinase inhibitor, or TKI, for the treatment of wet AMD, and OTX-TIC, a travoprost intracameral implant for the reduction of intraocular pressure, or IOP, in patients with primary open-angle glaucoma or ocular hypertension.

We have commenced Phase 2 clinical trials of OTX-CSI, a cyclosporine intracanalicular insert for the chronic treatment of dry eye disease, and OTX-DED, a dexamethasone intracanalicular insert for the short-term treatment of the signs and symptoms of dry eye disease.

We also have a collaboration with Regeneron Pharmaceuticals, Inc., or Regeneron, for the development and potential commercialization of products containing our extended-delivery hydrogel in combination with Regeneron’s large molecule vascular endothelial growth factor, or VEGF, inhibitor, aflibercept, currently marketed under the brand name Eylea.

On May 8, 2020, we entered into an amendment to our existing collaboration agreement with Regeneron.

Pursuant to this amendment, we and Regeneron have adopted a new workplan to transition joint efforts under the existing 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 for our personnel and material costs for specified preclinical development activities in connection with the revised workplan, as well as costs of certain specialty equipment.

DEXTENZA is the first FDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.

We filed a supplemental New Drug Application, or sNDA, in the fourth quarter of 2020 for an additional indication of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis.

The FDA has accepted our sNDA for filing and has established a target action date under the Prescription Drug User Fee Act, commonly known as PDUFA, of October 18, 2021.

and ocular surface diseases and conditions including dry eye disease.

We incorporate therapeutic agents that have previously received regulatory approval from the U.S.

Food and Drug Administration, or FDA, including small molecules and proteins, into our proprietary bioresorbable hydrogel-based formulation technology in our internal drug development activities, with the goal of providing local programmed release to tailor the duration and amount of drug to be delivered to the eye.

Commercial Portfolio

Post-Surgical Ocular Inflammation and Pain

Ocular Itching Associated with Allergic Conjunctivitis

DEXTENZA (dexamethasone ophthalmic insert) 0.4 mg for intracanalicular use for the Treatment of Post-Surgical Ocular Inflammation and Pain

DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert for the treatment of post-surgical ocular inflammation and pain.

The FDA approved a new drug application, or NDA, for DEXTENZA for the treatment of post-surgical ocular pain in November 2018 and approved a supplemental new drug application, or sNDA, for DEXTENZA for the treatment of post-surgical ocular inflammation in June 2019.

In July 2019, we commercially launched DEXTENZA in the United States.

DEXTENZA is the first FDA-approved, physician-administered intracanalicular insert delivering dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.

In October 2021, the FDA approved an sNDA for DEXTENZA to include the treatment of ocular itching associated with allergic conjunctivitis as an additional indication.

With the approval, DEXTENZA is the first FDA-approved, physician-administered intracanalicular insert for the delivery of a preservative-free drug for the treatment of ocular itching associated with allergic conjunctivitis with a single administration for up to 30 days.

DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis also represents our first indication approved to be

administered in a physician’s office during a routine, non-surgical appointment.

In the first quarter of 2022, we are commercially launching DEXTENZA in the United States for the treatment of ocular itching associated with allergic conjunctivitis.

Prevention of Wound Leaks Following Cataract Surgery

ReSure Sealant

In 2014, we commercially launched ReSure Sealant in the United States as a device approved to prevent wound leaks in corneal incisions following cataract surgery.

In the pivotal clinical trials that formed the basis for FDA approval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure.

As of the fourth quarter of 2021, we have suspended the production of ReSure in order to focus our manufacturing resources to support the commercialization of DEXTENZA.

We have received only limited revenues from ReSure Sealant to date.

Clinical Portfolio

Our clinical portfolio is comprised of our development efforts in our retinal disease program, glaucoma program and ocular surface disease programs.

Retinal Disease Program

OTX-TKI (axitinib intravitreal implant)

Our product candidate OTX-TKI is a preformed, bioresorbable hydrogel fiber implant incorporating a small molecule tyrosine kinase inhibitor, or TKI, axitinib, with anti-angiogenic properties delivered by intravitreal injection and designed for a duration of six months or longer.

We are conducting a Phase 1 clinical trial of OTX-TKI in Australia and a Phase 1 clinical trial in the United States.

The U.S.-based Phase 1 clinical trial is fully enrolled, and we expect to report interim, six-month data in the second half of 2022.

At the Angiogenesis, Exudation, and Degeneration 2022 Meeting held in February 2022, we presented interim data from the ongoing Phase 1 clinical trial of OTX-TKI for the treatment of wet AMD conducted in Australia.

In subjects with subretinal and/or intraretinal fluid due to wet AMD, OTX-TKI was observed to be generally well tolerated with a favorable safety profile to date.

This data also showed a preliminary signal of biological activity as observed by a clinically-meaningful decrease in intraretinal and/or subretinal fluid.

Extended duration of activity was observed with over 60% of subjects across all cohorts and with over 80% of subjects in cohort 3a (600μg) with a duration of activity of six months or more that we believe could represent a compelling drug product profile.

Glaucoma Program

OTX-TIC (travoprost intracameral implant)

Our product candidate OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by a physician as an intracameral injection with an initial target duration of drug release of four to six months.

In the fourth quarter of 2021, we initiated a randomized, double-masked, active-controlled Phase 2 clinical trial in which we plan to enroll approximately 105 subjects with open-angle glaucoma at 15-20 sites between three arms of approximately 35 subjects each to evaluate two formulations of OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension in subjects compared to DURYSTA.

We expect to dose the first subject in the first quarter of 2022.

At Glaucoma 360 in February 2022, we presented interim data from a Phase 1 clinical trial evaluating OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension.

This data highlighted the product candidate’s ability to cause a clinically meaningful decrease in intraocular pressure for six months or longer while preserving corneal health.

We believe these results are comparable to the decrease in intraocular pressure seen with topical travoprost, the current standard of care, and represent OTX-TIC’s potential for a unique and differentiated drug product profile.

observed to be generally well tolerated with a favorable safety profile to date and endothelial cell counts, pachymetry assessments, and slit lamp examinations in subjects indicated no changes from baseline.

Ocular Surface Disease Programs

Dry Eye Disease

OTX-CSI (cyclosporine intracanalicular insert)

Our product candidate OTX-CSI incorporates the FDA-approved immunomodulator cyclosporine as a preservative-free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert.

The product candidate is designed for a duration of three to four months for patients suffering from moderate to severe dry eye and to be administered by a physician as a bioresorbable intracanalicular insert.

We announced topline results from a Phase 2 clinical trial evaluating two different formulations of OTX-CSI for the chronic treatment of dry eye disease in October 2021.

The study did not show separation between the subjects receiving OTX-CSI (two formulations) and the subjects receiving the vehicle (both formulations).

Overall, the OTX-CSI insert (both formulations) was observed to be generally well tolerated with a favorable safety profile to date.

We are currently developing an appropriate clinical-regulatory development and manufacturing plan.

This plan will include additional formulation work for the OTX-CSI insert to allow improved retention and the development of an appropriate vehicle comparator.

OTX-DED (dexamethasone intracanalicular insert)

Our product candidate OTX-DED incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active pharmaceutical ingredient in a hydrogel, drug-eluting intracanalicular insert.

OTX-DED incorporates the same active drug as DEXTENZA, but it includes a lower dose of the drug, delivers it via a smaller insert, and is designed to release it over a period of two to three weeks, compared with up to thirty days in the case of DEXTENZA.

We announced the topline results for a Phase 2 clinical trial evaluating OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease in December 2021.

The clinical trial achieved its pre-specified primary endpoint.

While the clinical trial was not powered to show statistical significance, the topline results demonstrated a statistically significant change of bulbar conjunctival hyperemia from baseline to day 15 compared to vehicle hydrogel using a central reading photographic assessment in the modified ITT population.

Both formulations of OTX-DED were observed to have a favorable safety profile and to be generally well tolerated.

We are currently developing an appropriate clinical-regulatory development and manufacturing plan.

This plan will include additional formulation work for the OTX-DED insert and the development of an appropriate vehicle comparator.

AffaMed License Agreement

In October 2020, we entered into a license agreement and collaboration with AffaMed Therapeutics Limited, or AffaMed, for the development and commercialization of DEXTENZA and OTX-TIC in mainland China , Hong Kong , Macau , and Taiwan ;

South Korea , and the ASEAN markets ( Brunei , Cambodia , Indonesia , Laos , Malaysia , Myanmar , the Philippines , Singapore , Thailand and Vietnam) .

We continue to assess the potential use of our hydrogel platform technology in other areas of the body.

South Korea ;

and the ASEAN markets ( Brunei , Cambodia , Indonesia , Laos , Malaysia , Myanmar , the Philippines , Singapore , Thailand and Vietnam ).

Under the terms of the agreement, we received an upfront payment of $12 million and became eligible to receive development, regulatory and commercial milestone payments and clinical development support payments of up to $91 million in the aggregate, as well as royalties from future product sales.

In the fourth quarter of 2021, we received a $1 million milestone payment;

we expect to recognize a clinical support payment of another $2 million in the first quarter of 2022 in connection with dosing the first subject in a Phase 2 clinical trial evaluating OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension.

Royalties are tiered and will range from the low teens to low twenty percent range.

In return, we agreed to grant AffaMed exclusive rights to develop and commercialize DEXTENZA for the treatment of post-surgical inflammation and pain following ophthalmic surgery and ocular itching in patients with allergic conjunctivitis, and OTX-TIC for the reduction of elevated intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension in specified Asian markets.

In January 2022,

AffaMed announced that it had dosed its first subject in a real-world study conducted in China evaluating the safety and efficacy of DEXTENZA for the treatment of ocular inflammation and pain post-cataract surgery.

We retain the right to develop and commercialize DEXTENZA and OTX-TIC in all other global markets.

Additional Potential Areas for Growth

We continue to leverage the potential of our hydrogel platform to explore areas for growth with our focus on formulating, developing and commercializing innovative therapies for diseases and conditions of the eye.

In June 2021, we entered into an agreement with Mosaic Biosciences, Inc., or Mosaic, to identify new targets and discover novel therapeutic agents aimed at the treatment of dry age-related degeneration, or dAMD.

Business Update Regarding COVID-19

The pandemic caused by an outbreak of a new strain of coronavirus, or the COVID-19 pandemic, that is affecting the U.S.

and global economy and financial markets and the related responses of government, businesses and individuals are also impacting our employees, patients, communities and business operations.

The implementation of travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders and shutdowns, for example, affected our business in 2020.

The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition and those of our customers, vendors, suppliers, and collaboration partners in 2021 will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

and global economy and financial markets and the related responses of government, businesses and individuals are impacting our employees, patients, communities and business operations.

The implementation of travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders and shutdowns, for example, affected our business in 2020 and 2021.

The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition and those of our customers, vendors, suppliers, and collaboration partners will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

Management continues to actively monitor this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce.

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Financial Position

We have local programmed-release drug delivery product candidates in preclinical and clinical development, and we have two FDA-approved products—DEXTENZA, 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—in commercialization in the United States.

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and our obtaining marketing approval for and commercializing other products with significant market potential, including DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, OTX-TKI for the treatment of wet AMD, OTX-TIC for the treatment of glaucoma and ocular hypertension, OTX-CSI for the chronic treatment of dry eye disease, and OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease.

We have product candidates in preclinical and clinical development, and we have two FDA-approved products—DEXTENZA, an intracanalicular insert for the treatment of post-surgical ocular inflammation and pain and for the treatment of ocular itching associated with allergic conjunctivitis, and ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions following cataract surgery—in commercialization in the United States.

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for both the treatment of ocular inflammation and pain following ophthalmic surgery, which commenced in July 2019, and the treatment of ocular itching associated with allergic conjunctivitis, which commenced in January 2022;

OTX-TKI for the treatment of wet AMD, OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, OTX-CSI for the chronic treatment of dry eye disease, and OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease.

Since inception, we have incurred significant operating losses.

Our net losses were $155.6 million and $86.4 million for the years ended December 31, 2020 and 2019, respectively.

Our net losses were $6.6 million, $155.6 million and $86.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, we had an accumulated deficit of $545.8 million.

Our total cost and operating expenses were $80.3 million and $90.0 million for the years ended December 31, 2020 and 2019, respectively, including $7.5 million and $8.8 million, respectively, in non-cash stock-based compensation expense.

Our operating expenses have grown as we continue to support the commercial launch of DEXTENZA following its entry into the market in July 2019;

continue to pursue the clinical development of OTX-TKI, OTX-TIC, OTX-CSI, OTX-DED, OTX-AFS and DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis;

Our total cost and operating expenses were $121.6 million, $80.3 million and $90.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, including $15.0 million, $7.5 million and $8.8 million, respectively, in non-cash stock-based compensation expense.

Our operating expenses have grown as we continue to support the commercialization of DEXTENZA following its entry into the market in July 2019;

continue to pursue the clinical development of OTX-TKI, OTX-TIC, OTX-CSI, and OTX-DED;

continue the research and development of our other product candidates;

and seek marketing approval for any such product candidate for which we obtain favorable pivotal clinical trial results.

We expect to incur substantial sales and marketing expenses in connection with the ongoing DEXTENZA commercial launch and that of any of our other product candidates .

In addition, we will continue to incur additional costs associated with operating as a public company, including legal costs associated with any pending legal proceedings.

Although we expect to generate revenue from sales of DEXTENZA and limited revenue from sales of ReSure Sealant, we will need to obtain substantial additional funding to support our continuing operations and the commercialization of DEXTENZA.

If we are unable to raise capital or access our borrowing capacity when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts or to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

Through December 31, 2018, we raised $337.7 million through the sale of common stock in various offerings and $25.0 million through a credit facility.

In November 2016, we entered into a controlled equity offering sales agreement, or the 2016 Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, under which we could offer and sell our common stock having aggregate proceeds of up to $40.0 million from time to time.

During 2019, we sold 1,318,481 shares of common stock pursuant to the 2016 Sales Agreement, resulting in net proceeds of approximately $5.0 million after underwriting discounts and commissions and expenses.

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

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

Through March 31, 2019, we sold an aggregate of 6,330,222 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $38.4 million after underwriting discounts and commissions and other offering expenses.

On March 1, 2019, we issued $37.5 million of unsecured senior subordinated convertible notes, or the 2026 Convertible Notes.

The 2026 Convertible Notes accrue interest at an annual rate of 6% of their outstanding principal amount, payable at maturity, on March 1, 2026, unless earlier converted, repurchased or redeemed.

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 our 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 our issued and outstanding common stock.

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

The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to our capitalization, none of which have occurred to date.

On April 5, 2019, we entered into an Open Market Sale Agreement SM , or the 2019 Sales Agreement, with Jefferies LLC, or Jefferies, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million 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 $32.7 million, respectively, after commissions and expenses.

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 $14.4 million, respectively, after commissions and expenses.

From inception to December 31, 2020 , we have sold 10,321,840 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $47.0 million after commissions and expenses.

We expect to incur substantial sales and marketing expenses in connection with the expansion of our commercialization efforts for DEXTENZA in response to the addition of ocular itching associated with allergic conjunctivitis as an approved indication in October 2021 and commercialization efforts for any of our other product candidates that may obtain marketing approval in the future.

In addition, we will continue to incur additional costs associated with operating as a public company.

Although we expect to generate revenue from sales of DEXTENZA, we will need to obtain substantial additional funding to support our continuing operations and the commercialization of DEXTENZA.

If we are unable to raise capital or access our borrowing capacity when needed or on attractive terms, we could be forced to delay, reduce or eliminate

our research and development programs or any future commercialization efforts or to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

Through December 31, 2019, we raised $412.6 million through the sale of common stock in various offerings $37.5 million of unsecured subordinated debt and $25.0 million through a credit facility.

In April 2019, we entered into an Open Market Sale Agreement SM , or the 2019 Sales Agreement, with Jefferies LLC, or Jefferies, under which we could offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through Jefferies, acting as agent.

In the twelve months ended December 31, 2019, we sold 7,337,459 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $32.7 million, after commissions and expenses.

In the twelve months ended December 31, 2020, we sold 2,984,381 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $14.4 million, respectively, after commissions and expenses.

In August 2021, we and Jefferies mutually terminated the 2019 Sales Agreement.

In 2020, we conducted three separate underwritten public offerings.

In May 2020, we entered into an underwriting agreement with Jefferies and Piper Sandler & Co., or the Underwriters, pursuant to which we issued and sold an aggregate of 9,409,091 shares of our common stock in an underwritten public offering at a public offering price of $5.50 per share.

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After deducting underwriting discounts and commissions and offering expenses, we received net proceeds from the May 2020 Offering of approximately $48.3 million.

In October 2020, we entered into an underwriting agreement with the Underwriters pursuant to which we issued and sold an aggregate of 8,257,000 shares of our common stock in an underwritten public offering at a public offering price of $9.75 per share.

In October 2020, we entered into a separate underwriting agreement with the Underwriters pursuant to which we issued and sold an aggregate of 8,257,000 shares of our common stock in an underwritten public offering at a public offering price of $9.75 per share.

We refer to this offering as the October 2020 Offering.

After deducting underwriting discounts and commissions and offering expenses, we received net proceeds from the October 2020 Offering of approximately $75.4 million.

In December 2020, we entered into an underwriting agreement with the Underwriters pursuant to which we issued and sold an aggregate of 4,283,750 shares of our common stock in an underwritten public offering at a public offering price of $21.50 per share.

In December 2020, we entered into a third underwriting agreement with the Underwriters pursuant to which we issued and sold an aggregate of 4,283,750 shares of our common stock in an underwritten public offering at a public offering price of $21.50 per share.

We refer to this offering as the December 2020 Offering.

After deducting underwriting discounts and commissions and offering expenses, we received net proceeds from the December 2020 Offering of approximately $86.4 million.

In August 2021, we and Jefferies entered into another Open Market Sale Agreement SM , or the 2021 Sale Agreement, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through Jefferies, acting as agent.

As of February 24, 2022, we have not sold any shares of our common stock under the 2021 Sales Agreement.

All of our product candidates are designed to be medical-benefit “buy-and-bill” products with associated procedure codes.

Products with these characteristics are designed to be attractive not only to physicians and patients but also to the sites of care that participate in utilization.

We primarily derive our product revenues from the sale of DEXTENZA in the United States to a network of specialty distributors, who then sell DEXTENZA to ambulatory surgical centers, or ASCs;

hospital out-patient departments, or HOPDs;

and physicians’ offices.

In addition to distribution agreements with specialty distributors, we enter into arrangements with government payors that provide for government-mandated rebates and chargebacks with respect to the purchase of DEXTENZA.

In the fourth quarter of 2021, in-market unit sales figures—unit sales from specialty distributors to ASCs and HOPDs— were in excess of 29,000 billable units, representing sequential quarterly growth of approximately 17% in in-market unit sales.

We believe that our existing cash and cash equivalents of $164.2 million as of December 31, 2021, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements through 2023.

This estimate is based on our current operating plan which includes estimates of anticipated cash inflows from DEXTENZA and ReSure Sealant product sales and cash outflows from operating expenses.

This estimate is based on our current operating plan which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses.

T hese estimates are subject to various assumptions including those related to the severity and duration of the COVID-19 pandemic, the revenues and expenses associated with the commercialization of DEXTENZA, the pace of our research and clinical development programs, and other aspects of our business.

These and other assumptions upon which w e have based our estimate may prove to be wrong, and we could use our capital resources sooner than we currently expect and would therefore need to

raise additional capital to support our ongoing operations or adjust our plans accordingly.

These and other assumptions upon which w e have based our estimate may prove to be wrong, and we could use our capital resources sooner than we currently expect and would therefore need to raise

additional capital to support our ongoing operations or adjust our plans accordingly.

See “—Liquidity and Capital Resources.”

Financial Operations Overview

From our inception through December 31, 2020, we have generated limited amounts of revenue from the sales of our products.

We commenced sales of ReSure Sealant in the first quarter of 2014, but we have received only limited revenues from ReSure Sealant to date and anticipate only limited sales for 2021.

Until June 2019, ReSure Sealant was our only source of revenue from product sales.

We began to recognize limited product revenue from DEXTENZA during the second quarter of 2019 with the first commercial shipments to customers in June 2019.

In June 2019, we began to recognize revenue from the sales of DEXTENZA.

We also commenced sales of ReSure Sealant in the first quarter of 2014, but we have received only limited revenues from ReSure Sealant.

Following the FDA’s October 2021 approval of our sNDA, we are launching DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, our first in-office indication, in the first quarter of 2022.

As further explained under “—Revenue Recognition—Product Revenue, Net” below, we recognize revenue when we sell DEXTENZA in the United States to a network of specialty distributors, who then resell the product to ambulatory surgical centers, or ASCs, and hospital outpatient departments, or HOPDs.

We refer to these resales from the specialty distributors to the ASCs and HOPDs as in-market unit sales.

For the first two months of 2021, in-market units sales neared 9,500, representing an increase of greater than 10% over the first two months of the fourth quarter of 2020.

We may generate revenue in the future if we continue to commercialize DEXTENZA and develop and commercialize one or more of our product candidates and receive marketing approval for any such product candidate or if we enter into longer-term collaboration agreements with third parties.

For the year ended December 31, 2021, three specialty distributor customers accounted for 42%, 26% and 17% of our total revenue and three specialty distributor customers accounted for 42%, 26% and 21% of our total accounts receivable.

No other customer accounted for more than 10% of total revenue or accounts receivable for the year ended December 31, 2021.

For the year ended December 31, 2020, three specialty distributor customers accounted for 42%, 29% and 12% of our total revenue and three specialty distributor customers accounted for 45%, 33% and 15% of our 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 our total revenue and three specialty distributor customers accounted for 39%, 18% and 11% of our total accounts receivable.

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● Direct materials costs;

● Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-based compensation expense for employees engaged in the production process;

● Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes, and stock-based compensation expense for employees engaged in the production process;

● Manufacturing overhead costs, which includes rent, depreciation, and indirect labor costs associated with the production process;

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We do not allocate employee and contractor-related costs, costs associated with our platform technology, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor patient enrollment and perform data analysis for many of our clinical trials.

We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor subject enrollment and perform data analysis for many of our clinical trials.

These employees work across multiple development programs and, therefore, we do not track their costs by program.

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We anticipate that our general and administrative expenses will increase in the future as we support our continued development and commercialization of our product candidates

We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketing functions as well as consulting and advertising and promotion costs.

During the years ended December 31, 2020 and 2019, we incurred limited marketing expenses in connection with ReSure Sealant, which we began commercializing in 2014.

Selling and marketing expenses for DEXTENZA increased in 2019 due to the product’s July 2019 commercial launch and further increased in 2020 with the continued commercialization of DEXTENZA.

We anticipate that our selling and marketing expenses associated with DEXTENZA will continue to increase, particularly as we plan to grow our salesforce supporting DEXTENZA in 2021.

Selling and marketing expenses for DEXTENZA increased in 2020 after the product’s July 2019 commercial launch and further increased in 2021 with the continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain, focused on ASCs and HOPDs, and preparations for the commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022, focused on the offices of ophthalmologists and optometrists.

We anticipate that our selling and marketing expenses associated with DEXTENZA will continue to increase, particularly as we grow our salesforce supporting DEXTENZA in 2022 and beyond.

Other Income (Expense)

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We borrowed $15.0 million in aggregate principal amount in April 2014.

We refer to the credit facility under which we drew down this indebtedness, as amended over time, as our Credit Facility.

In December 2015, we amended our credit and security agreement, which we refer to, as amended, as our Credit Agreement, to increase the aggregate principal amount borrowed under our Credit Facility to $15.6 million, extend the interest-only payment period through December 2016, and extend the maturity date to December 1, 2019.

In March 2017, we amended our Credit Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $18.0 million, extend the interest-only payment period through February 2018, and extend the maturity date to December 1, 2020.

In December 2018, we amended the Credit Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $25.0 million, extend the interest-only payment period through December 2020, and extend the maturity date to December 2023.

We refer to the credit facility under which we drew down this indebtedness, as amended over time, as our Credit Facility and the associated credit and security agreement, as amended over time, as our Credit Agreement.

We have amended our Credit Agreement several times.

In December 2018, we amended our Credit Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $25.0 million, extend the interest-only payment period through December 2020, and extend the maturity date to December 2023.

In June 2021, we amended our Credit Agreement to extend the interest-only payment period through May 2024 and extend the maturity date to November 2025.

In the event we achieve certain milestones under the amendment, we have the right to extend through April 1, 2026.

On March 1, 2019, we issued $37.5 million of the 2026 Convertible Notes.

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In 2019, in connection with the issuance of our 2026 Convertible Notes, we identified an embedded derivative liability, which we are required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled.

The changes in fair value are recorded through the statement of operations and comprehensive loss and are presented under the caption change in fair value of

derivative liability.

The changes in fair value are recorded through the statement of operations and comprehensive loss and are presented under the caption change in fair value of derivative liability.

Our derivative liability calculations are further described under the heading “—Critical Accounting Policies and Significant Judgments and Estimates—Derivative Liability” below.

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Product Revenue, Net — We derive our 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, we enter into arrangements with government payers that provide for government mandated rebates and chargebacks with respect to the purchase of DEXTENZA.

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

We recognize revenue on product sales when the customer obtains control of our product, which occurs at a point in time (upon delivery to the customer).

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We have assessed the existence of a significant financing component in the agreements with our customers.

The trade payment terms with our customers do not exceed one year and therefore we have elected to apply the practical expedient and no amount of consideration has been allocated as a financing

The trade payment terms with our customers do not exceed one year and therefore we have 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.

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However, we have determined such services received to date are not distinct from our 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 trade receivables, net on the consolidated balance sheets.

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

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

We estimate the amount of our product sales that may be returned by our customers and record 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.

We currently estimate product return reserves using available industry data and our own sales information, including its visibility into the inventory remaining in the distribution channel.

We have received no returns to date and believe the returns of DEXTENZA will be minimal.

We currently estimate product return reserves using available industry data and our own sales information, including our visibility into the inventory remaining in the distribution channel.

We have received minimal returns to date and believe the returns of DEXTENZA will be minimal.

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.

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For Medicaid programs, we estimate the portion of sales attributed to Medicaid patients and record a liability for the rebates to be paid to the respective state Medicaid programs.

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.

Our 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.

Rebates — We offer rebate payments for which ASCs, HOPDs and other prescribers qualify by meeting purchase volumes of DEXTENZA under our rebate program.

We calculate rebate payment amounts due under this program based on actual qualifying purchase and apply a contractual discount rate.

We calculate rebate payment amounts due under this program based on actual qualifying purchases and apply a contractual discount rate.

The calculation of the accrual for rebates is based on an estimate of claims that we expect 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 we offer 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 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 accrued expenses and other current liabilities on the consolidated balance sheets.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect 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 accrued expenses and other current liabilities on the consolidated balance sheets.

Derivative Liability

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Therefore, the entire conversion option is bifurcated from the underlying debt instrument and accounted for and valued separately from the host instrument.

The main input when determining the fair value of the 2026 Convertible Notes is the bond yield that pertains to the host instrument without the conversion option.

The significant assumption used in determining the bond yield is the market yield movements of a comparable instrument issued as of the valuation date, which is assessed and updated each period.

We measure the value of the embedded conversion option at its estimated fair value and recognize changes in the estimated fair value in other income (expense), net in the consolidated statements of operations and comprehensive loss during the period of change.

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In 2020, we introduced a rebate program under a purchase volume-discount program that primarily relates to the change over the prior year in the gross-to-net provisions.

Chargebacks and Rebates

We record a provision for estimated chargebacks and rebates at the time we recognize DEXTENZA product sales revenue and reduce the accrual when payments are made or credits are granted.

Our chargebacks are related to a pharmaceutical pricing agreement, a federal supply schedule agreement, a 340B prime vendor agreement, a Medicaid drug rebate agreement and beginning in 2020, rebates under our purchase volume-discount programs.

Distribution Fees and Product Return Allowances

We pay our wholesalers a distribution fee for services they perform for us based on the dollar value of their purchases of DEXTENZA.

We record a provision for these charges as a reduction to revenue at the time of sale to the wholesaler and we issue a credit memo to the wholesaler against its outstanding receivable to us.

We record a provision for returns upon sale of DEXTENZA to our wholesaler.

When a return or claim is received, we issue a credit memo to the wholesaler and reduce the corresponding liability.

We generated $17.4 million of revenue during the year ended December 31, 2020 from sales of our products, of which $15.7 million was attributable to sales of DEXTENZA and $1.7 million was attributable to sales of ReSure

We generated $4.2 million of product revenue during the year ended December 31, 2019, of which $2.2 million was attributable to DEXTENZA and $2.0 million was attributable to sales of ReSure Sealant during the year ended December 31, 2019.

We began to recognize product revenue from DEXTENZA during the second quarter of 2019 with the first commercial shipments to customers in June 2019.

The growth in revenue for DEXTENZA was due to increased market acceptance and commercialization efforts during 2020.

We generated $43.5 million of net revenue during the year ended December 31, 2021 from sales of our products, of which $42.0 million was attributable to sales of DEXTENZA and $1.5 million was attributable to sales of ReSure Sealant.

The growth in revenue for DEXTENZA was due to increased market acceptance and the continued commercialization efforts during 2021.

Research and Development Expenses

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OTX-TP for glaucoma and ocular hypertension

Preclinical activities

OTX-AFS for wet AMD, DME and RVO

Preclinical programs

Unallocated expenses:

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Research and development expenses were $50.1 million for the year ended December 31, 2021, compared to $28.7 million for the year ended December 31, 2020.

The decrease of $12.4 million was primarily due to a decrease of $12.6 million in unallocated expenses.

Unallocated research and development costs decreased $12.6 million for the year ended December 31, 2020, compared to the year ended December 31, 2019 primarily due to a decrease in unallocated personnel costs of $8.6 million and $4.0 million in all other costs as a result of the organizational restructuring that took place in November 2019 which reduced personnel and deferred program costs.

The increase of $21.4 million was primarily due to an increase of $12.1 million in unallocated expenses and direct research and development program expenses of $9.3 million.

Unallocated research and development costs increased $12.1 million for the year ended December 31, 2021, compared to the year ended December 31, 2020 primarily due to an increase in unallocated personnel costs of $8.9 million and $3.2 million in all other costs.

For the year ended December 31, 2021, we incurred $16.9 million in direct research and development expenses for our product candidates compared to $8.0 million for the year ended December 31, 2020.

The increase of $8.9 million is related to timing and start of our various clinical trials for our product candidates.

We expect that clinical trial expenses will increase for our product candidates including for OTX-TKI due to the planned initiation of Phase 1 and Phase 2 clinical trials in mid-2021, for OTX-TIC due to the planned initiation of a Phase 2 clinical trial in mid-2021, for OTX-CSI due to the continuation of our Phase 2 clinical trial initiated in 2020, and for OTX-DED due to the initiation of our Phase 2 clinical trial in February 2021.

We expect that clinical trial expenses will approximate the same level for 2022 for our product candidates including for OTX-TKI due to the continuation of the ongoing U.S.-based Phase 1 clinical trial and for OTX-TIC due to the continuation of the ongoing Phase 2 clinical trial.

Selling and Marketing Expenses

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Selling and marketing expenses were $35.2 million for the year ended December 31, 2021, compared to $26.6 million for the year ended December 31, 2020.

The increase of $2.1 million was primarily due to an increase of $4.9 million in personnel costs, including stock-based compensation as the Company increased the field-based team to

support the commercial launch of DEXTENZA, partially offset by a decrease of $3.1 million in professional fees including consulting, trade shows, and conferences.

We expect our selling and marketing expenses to increase in 2021 and beyond, as we continue to support the commercial launch of DEXTENZA and, if our sNDA is approved, support the planned commercial launch of DEXTENZA for ocular itching associated with allergic conjunctivitis in the first half of 2022.

The increase of $8.6 million was primarily due to an increase of $5.5 million in personnel costs, including stock-based compensation as the Company increased the field-based team to support the commercialization of DEXTENZA, and an increase of $2.1 million in professional fees including consulting, trade shows, and conferences.

We expect our selling and marketing expenses to increase in 2022 and beyond as we continue to support the commercialization of DEXTENZA, including the commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022.

General and Administrative Expenses

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General and administrative expenses were $31.9 million for the year ended December 31, 2021, compared to $22.9 million for the year ended December 31, 2020.

The increase of $0.7 million was primarily due to an increase of $0.6 million in professional fees.

The increase of $9.0 million was primarily due to an increase of $5.2 million in personnel related costs including stock-based compensation, $3.5 million in professional fees primarily related to an increase in legal costs of $2.7 million and an increase of $0.2 million in facility related and other costs.

Other Income (Expense), Net

Other expense, net was $92.8 million for the year ended December 31, 2020, compared to $0.6 million for the year ended December 31, 2019.

The change of $92.2 million, was due to an unrealized loss of $86.2 million on the change in fair value of the derivative liability associated with the 2026 Convertible Notes and lower interest income of $1.1 million.

The change in fair value of the derivative liability was a loss in the amount of $86.2 million in 2020 as compared to a gain of $4.3 million during the year ended December 31, 2019 due changes in the underlying assumptions of the derivative liability, primarily related to an increase in our common stock price between December 31, 2020 and 2019.

We expect the change in fair value of the derivative liability will continue to fluctuate until it is settled based on the extent changes occur in the underlying assumptions.

Other income, net was $71.5 million for the year ended December 31, 2021, compared to other expense, net of $92.8 million for the year ended December 31, 2020.

The change of $164.3 million, was primarily due to an unrealized gain of $78.1 million on the change in fair value of the derivative liability associated with the 2026 Convertible Notes.

The unrealized gain of $78.1 million during the year ended December 31, 2021 as compared to an unrealized loss in the amount of $86.2 million in December 31, 2020 due to changes in the underlying inputs of the derivative liability, primarily related to a decrease in our common stock price between December 31, 2021 and 2020.

We expect the change in fair value of the derivative liability will continue to fluctuate until it is settled based on the extent to which changes occur in the underlying inputs.

Comparison of the Years Ended December 31, 2020 and 2019

A discussion of changes in our results of operations during the year ended December 31, 2020 compared to the year ended December 31, 2019 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 11, 2021, which discussion is incorporated herein by reference and which is available free of charge on the SECs website at www.sec.gov.

Liquidity and Capital Resources

Since inception, we have incurred significant operating losses.

Our net losses were $155.6 million and $86.4 million, for the years ended December 31, 2020 and 2019, respectively.

Our net losses were $6.6 million, $155.6 million, and $86.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, we had an accumulated deficit of $545.8 million.

We have generated limited revenue to date.

In 2014, we began recognizing revenue from sales of ReSure Sealant.

We commercially launched DEXTENZA for post-surgical ocular inflammation and pain in July 2019.

All of our other sustained drug delivery products are in various phases of clinical and preclinical development.

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and our obtaining marketing approval for and commercializing other products with significant market potential, including DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, OTX-TKI for wet AMD, OTX-TIC for glaucoma or ocular hypertension, and OTX-CSI and OTX-DED for dry eye disease.

While it is difficult to predict the extent or duration of the impact of the global COVID-19 pandemic on future financial results, we anticipate current guidelines and recommendations from the global health authorities, including the delay of elective surgeries, will impact revenue in 2021.

We commercially launched DEXTENZA for the treatment of post-surgical ocular inflammation and pain in July 2019, and we are commercially launching DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022.

All of our product candidates are in various phases of clinical and preclinical development.

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis and our obtaining marketing approval for and commercializing other products with significant market potential, including OTX-TKI for wet AMD, OTX-TIC for open-angle glaucoma or ocular hypertension, and OTX-CSI and OTX-DED for dry eye disease.

Through December 31, 2021, we have financed our operations primarily through private placements of our preferred stock, public offerings of our common stock, private placements of our convertible notes and borrowings under credit facilities, which has resulted in net proceeds of $637.2 million to us.

As described above, we issued and sold an aggregate of 21,949,841 shares of our common stock in the May 2020 Offering, the October 2020 Offering, and the December 2020 Offering.

We received net proceeds from these offerings of approximately $210.0 million, after deducting underwriting discounts and commissions and offering expenses .

In April 2019, we entered into the 2019 Sales Agreement with Jefferies, acting as agent, for the issuance of up to $50.0 million of our common stock.

Through March 1, 2021, we have sold 10,321,840 shares of common stock under the 2019 Sales Agreement, resulting in net proceeds of approximately $47.0 million after commissions and expenses.

We have $1.3 million available for issuance as of March 1, 2021.

On March 2019, we issued $37.5 million of the 2026 Convertible Notes.

The 2026 Convertible Notes accrue interest at an annual rate of 6% of its outstanding principal amount, payable in cash at maturity on March 1, 2026, unless earlier converted, repurchased or redeemed.

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

The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to our capitalization, none of which have occurred to date.

In April 2014, we borrowed $15.0 million in aggregate principal amount under our Credit Facility and used $1.9 million of this amount to repay $1.7 million aggregate principal amount of indebtedness and pay $0.2 million of other amounts due in connection with our termination of a prior credit facility.

In December 2015, we amended the Credit Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $15.6 million, extend the interest-only payment period through December 2016, and extend the maturity date to December 1, 2019.

In March 2017, we amended the Credit Agreement to increase the aggregate principal amount borrowed under our Credit Facility to $18.0 million and extend the interest only period through February 1, 2018 and extend the maturity date to February 1, 2020.

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

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 is due upon maturity.

If we elect to prepay amounts borrowed under the Credit Agreement, we would also owe a prepayment fee of 2.00% of amounts prepaid until December 2021 or 1.00% of amounts prepaid thereafter.

See “—Contractual Obligations and Commitments” for additional information.

On June 4, 2021, which we refer to as the Closing Date, we entered into a Fourth Amended and Restated Credit and Security Agreement, or the Fourth Amendment, with MidCap Financial Trust, as administrative agent, or the Administrative Agent, and the lenders party thereto, or the Lenders, which amended and restated our Credit Agreement to refinance our Credit Facility.

Under the Fourth Amendment, the term loans outstanding under the Credit Facility, in the aggregate principal amount of approximately $20.8 million were converted into a new term loan under the Credit Facility as of June 4, 2021, or the Converted Term Loan.

The Fourth Amendment also established an additional term loan under the Credit Facility in the principal amount of approximately $4.2 million as of the Closing Date, or the 2021 Term Loan.

We refer to the Converted Term Loan and the 2021 Term Loan together as the Term Loans.

Under the Credit Facility, the aggregate principal amount of the Term Loans available under the Credit Facility, or the Total Credit Facility Amount, is $25.0 million, the entirety of which was drawn at closing.

The Fourth Amendment extends the term of the Credit Facility until November 30, 2025, provided that the term is not automatically extended until April 1, 2026, if the administrative agent receives evidence reasonably satisfactory to it, by November 15, 2025, that the outstanding principal amount of the 2026 Convertible Notes has been converted into equity interests of us and that such indebtedness is otherwise indefeasibly satisfied in full.

We refer to the maturity date, as applicable, as the Maturity Date.

The Fourth Amendment requires us to make interest-only payments on the Term Loans on a monthly basis until May 1, 2024.

The Fourth Amendment requires that thereafter, in addition to the monthly interest payments, we make principal payments on the Term Loans in accordance with the amortization schedules set forth in the Fourth Amendment.

Remaining unpaid principal and accrued interest outstanding on the Maturity Date is due on the Maturity Date.

As of December 31, 2021, we had cash and cash equivalents of $164.2 million, notes payable of $25.0 million face value and senior subordinated convertible notes of $37.5 million par value, plus accrued interest of $6.5 million.

Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows from DEXTENZA and ReSure Sealant product sales and cash outflows from operating expenses, we believe that our existing cash and cash equivalents, as of December 31, 2020, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements through 2023.

Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses, we believe that our existing cash and cash equivalents, as of December 31, 2021, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements through 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

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Cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating activities.

Net cash used in operating activities was $53.6 million for the year ended December 31, 2020, primarily resulting from our net loss of $155.6 million, partially offset by non-cash charges of $100.9 million and cash provided by changes in our operating assets and liabilities of $1.1 million.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially

offset by $17.4 million of revenue in the period.

Net cash used in operating activities was $65.6 million for the year ended December 31, 2021, primarily resulting from our net loss of $6.6 million and by non-cash adjustments of $56.1 million and cash used by changes in our operating assets and liabilities of $2.9 million.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $43.5 million of revenue in the period.

Our net non-cash charges during the year ended December 31, 2021 primarily consisted of the change in fair value of the derivative liability of $78.1 million, $15.0 million of stock-based compensation expense, $4.6 million of non-cash interest expense and $2.4 million of depreciation expense.

Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2020 consisted primarily of a $12.0 million in deferred revenue partially offset by the change in the working capital accounts and a $9.7 million increase in accounts receivable.

Net cash used by changes in our operating assets and liabilities during the year ended December 31, 2021 consisted primarily of an increase of $8.9 million in accounts receivable partially offset by increases in accounts payable, accrued expenses and deferred revenue of $6.5 million.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $17.4 million of revenue in the period.

Our net non-cash charges during the year ended December 31, 2019 primarily consisted of $8.8 million of stock-based compensation expense, $2.5 million of depreciation expense and non-cash interest expense partially offset by the change in fair value of the derivative liability of $4.3 million.

Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2019 consisted primarily of a $1.7 million increase in accrued expenses and deferred rent and a $2.3 million increase in accounts receivable.

Our net non-cash charges during the year ended December 31, 2020 primarily consisted of the change in fair value of the derivative liability of $86.2 million, $7.5 million of stock-based compensation expense, $4.4 million of non-cash interest expense and $2.8 million of depreciation expense.

Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2020 consisted primarily of a $12.0 million increase in deferred revenue partially offset by a $9.7 million increase in accounts receivable.

Net cash used in operating activities was $77.6 million for the year ended December 31, 2019, primarily resulting from our net loss of $86.4 million, partially offset by non-cash charges of $10.7 million and cash used by changes in our operating assets and liabilities of $1.9 million.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $4.2 million of revenue in the period.

Our net non-cash charges during the year ended December 31, 2019 primarily consisted of $8.8 million of stock-based compensation expense, $2.5 million of depreciation expense and non-cash interest expense of $3.7 million partially offset by the change in fair value of the derivative liability of $4.3 million.

Net cash used by changes in our operating assets and liabilities during the year ended December 31, 2019 consisted primarily of a $1.7 million increase in accrued expenses and a $2.3 million increase in accounts receivable.

Investing activities.

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Net cash used in investing activities was $0.8 million for the year ended December 31, 2020, consisting of cash used to purchase property and equipment.

Net cash used in investing activities was $2.2 million for the year ended December 31, 2019, consisting of cash used to purchase property and equipment.

Financing activities.

Net cash provided by financing activities for 2020 was $228.0 million and consisted primarily of proceeds from the May 2020 Offering, the October 2020 Offering and the December 2020 Offering of an aggregate of $210.0 million, net of underwriting discounts and commissions and offering expenses;

Net cash provided by financing activities for the year ended December 31, 2021 was $2.9 million and consisted primarily of $3.7 million, net, of proceeds in borrowings under our amended credit facility, proceeds from the exercise of stock options of $2.6 million;

and proceeds from issuance of common stock pursuant to our employee stock purchase plan of $1.0 million offset by payments on notes payable of $4.2 million.

Net cash provided by financing activities for the year ended December 31, 2020 was $228.0 million and consisted primarily of proceeds from the May 2020 Offering, the October 2020 Offering and the December 2020 Offering of an aggregate of $210.0 million, net of underwriting discounts and commissions and offering expenses;

proceeds from sales under the 2019 Sales Agreement of $14.4 million, net of commissions and other offering expenses;

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We anticipate we will incur substantial expenses if and as we:

● continue to commercialize DEXTENZA in the United States;

● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any of our products or product candidates;

● continue to pursue the clinical development of DEXTENZA for additional indications;

● continue ongoing clinical trials of our product candidates OTX-TKI, OTX-TIC, OTX-CSI and OTX-DED;

● initiate planned Phase 2 clinical trials for our product candidates OTX-TKI and OTX-TIC;

● conduct joint research and development under our strategic collaboration with Regeneron , for the development and potential commercialization of products containing our extended-delivery hydrogel formulation in combination with Regeneron’s large molecule , VEGF-targeting compounds to treat retinal diseases;

● conduct research and development activities on, and seek regulatory approvals for, DEXTENZA and OTX-TIC in certain Asian countries pursuant to our license agreement and collaboration with AffaMed Therapeutics Limited, or AffaMed;

● continue to commercialize DEXTENZA in the United States, including the commercial launch of DEXTENZA in the office setting for the treatment of ocular itching associated with allergic conjunctivitis;

● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any of our products or product candidates we intend to commercialize;

● continue ongoing clinical trials for our product candidates OTX-TKI (in both Australia and the United States) for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension and our ongoing clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery in accordance with the FDA’s post-approval requirement;

● determine to initiate new clinical trials to evaluate OTX-TKI for the treatment of wet AMD, OTX-CSI for the chronic treatment of dry eye disease and OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease and to initiate a new clinical trial to evaluate DEXTENZA in pediatric subjects with ocular itching associated with allergic conjunctivitis in accordance with the FDA’s post-approval requirement;

● conduct research and development activities on, and seek regulatory approvals for, DEXTENZA and OTX-TIC in specified Asian markets pursuant to our license agreement and collaboration with AffaMed;

● continue the research and development of our other product candidates;

● seek to identify and develop additional product candidates, including through additional preclinical development activities associated with our front-of-the-eye and back-of-the-eye programs and potential opportunities outside the field of ophthalmology;

● seek to identify and develop additional product candidates;

● seek marketing approvals for any of our product candidates that successfully complete clinical development;

● scale up our manufacturing processes and capabilities to support sales of commercial products, our ongoing clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval, and expand our facilities to accommodate this scale up and any corresponding growth in personnel;

● scale up our manufacturing processes and capabilities to support sales of commercial products, clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval, and expand our facilities to accommodate this scale up and any corresponding growth in personnel;

● renovate our existing facilities including research and development laboratories, manufacturing space and office space;

● maintain, expand and protect our intellectual property portfolio;

● expand our operational, financial and management systems and personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

● expand our operational, financial, administrative and management systems and personnel, including personnel to support our clinical development, manufacturing and commercialization efforts;

● defend ourselves against legal proceedings;

● increase our product liability and clinical trial insurance coverage as we expand our clinical trials and commercialization efforts;

● make investments to improve our defenses against cybersecurity and establish and maintain cybersecurity insurance;

● continue to operate as a public company.

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

● our ability to continue to commercialize and sell DEXTENZA in the United States;

● the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA or other regulatory authorities;

● the level of product sales from DEXTENZA and any additional products for which we obtain marketing approval in the future;

● the costs of manufacturing, sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA and any additional products for which we obtain marketing approval in the future;

● the costs of expanding our facilities to accommodate our manufacturing needs and headcount;

● the progress, costs and outcome of our planned and ongoing clinical trials of our extended-delivery drug delivery product candidates, in particular DEXTENZA for additional indications, OTX-TIC for the treatment of glaucoma or ocular hypertension, OTX-TKI for the treatment of wet AMD, OTX-CSI for the chronic treatment of dry eye disease, and OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease;

● the level of product sales from DEXTENZA and any additional products for which we obtain marketing approval in the future and the level of third-party reimbursement of such products;

● the costs of sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA and any additional products for which we obtain marketing approval in the future, including costs increases due to inflation;

● the progress, costs and outcome of our clinical trials of our product candidates, in particular OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension and OTX-TKI for the treatment of wet AMD;

● the scope, progress, costs and outcome of preclinical development and clinical trials of our other product candidates;

● the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA or other regulatory authorities;

● the costs of scaling up our manufacturing processes and capabilities to support sales of commercial products, clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval and of expanding our facilities to accommodate this scale up and any corresponding growth in personnel;

● the extent of our debt service obligations and our ability, if desired, to refinance any of our existing debt on terms that are more favorable to us;

● the amounts we are entitled to receive, if any, from Regeneron as potential option exercise fees, development, regulatory and sales milestone payments and royalty payments and the amounts we are obligated to pay to Regeneron as reimbursement if it chooses to exercise its option to advance a product candidate under our collaboration agreement;

● the amounts we are entitled to receive, if any, from AffaMed as reimbursements for clinical trial expenditures, development, regulatory, and sales milestone payments, and royalty payments under our license agreement with AffaMed;

● the amounts we are entitled to receive, if any, as reimbursements for clinical trial expenditures, development, regulatory, and sales milestone payments, and royalty payments under our license agreement with AffaMed;

● the extent to which we choose to establish additional collaboration, distribution or other marketing arrangements for our products and product candidates;

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Until such time, if ever, as we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements.

We do not have any committed external source of funds, although our collaboration agreement with Regeneron provides for Regeneron’s reimbursement of certain preclinical expenses incurred by us under our collaboration agreement and for our potential receipt of option exercise, development, regulatory and sales milestone payments and royalty payments and our license agreement with AffaMed provides for AffaMed’s reimbursement of certain clinical expenses incurred by us in connection with our collaboration and for our potential receipt of development and sales milestone payments as well as royalty payments.

We do not have any committed external source of funds, development, regulatory and sales milestone payments and royalty payments and our license agreement with AffaMed provides for AffaMed’s reimbursement of certain clinical expenses incurred by us in connection with our collaboration and for our potential receipt of development and sales milestone payments as well as royalty payments.

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

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We enter into contracts in the normal course of business to assist in the performance of our research and development activities and other services and products for operating purposes.

These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included contractual obligations and commitments.

These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in contractual obligations and commitments.

Operating lease commitments represent payments due under our leases of office, laboratory and manufacturing space in Bedford, Massachusetts and certain office equipment under operating leases that expire in July 2023, March 2024 and July 2027.

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We expect total costs of approximately $10.3 million over the terms of our current leases.

Under our Credit Agreement, we have been permitted to make interest-only payments since December 2018.

Commencing in January 2021, we are required to make 36 equal monthly installments of principal in the amount of $0.7 million, plus interest, through December 2023.

Under the Fourth Amendment, we are permitted to make interest-only payments under our Credit Facility through April 2024.

Commencing in May 2024, we are required to make 19 equal monthly installments of principal in the amount of $1.0 million, plus interest, then on the maturity date, November 30, 2025 the remaining balance of $5.2 million plus the exit fee.

In the event we achieve certain milestones under the Fourth Amendment, we have the right to extend through April 1, 2026 and make 5 equal monthly installments of principal in the amount of $1.0 million, plus interest.

We have not assumed the achievement of these milestones in the table above.

On March 2019, we issued the 2026 Convertible Notes pursuant to a note purchase agreement, or the Purchase Agreement, with Cap 1 LLC, an affiliate of Summer Road LLC.

The 2026 Convertible Notes accrue interest at an annual rate of 6% of its outstanding principal amount, payable at maturity, on March 1, 2026, unless earlier converted, repurchased or redeemed.

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 our 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 our issued and outstanding common stock.

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

The conversion rate is

subject to adjustment in customary circumstances such as stock splits or similar changes to our capitalization.

The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to our capitalization.

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

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We have not included in the table above any payments to Incept under this license agreement as the amount, timing and likelihood of such payments are not known.

In October 2016, we entered into the Collaboration Agreement with Regeneron.

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

We are obligated to reimburse Regeneron for certain development costs during the period through the completion of the initial clinical trial, subject to a cap of $25.0 million, which cap may be increased by up to $5.0 million under certain circumstances.

We have not included in the table above any payments to Regeneron under this Collaboration Agreement as the timing of such payments are not known.

Regeneron will be responsible for funding an initial preclinical tolerability study, which Regeneron initiated in early 2018.

We do not expect our funding requirements under our collaboration with Regeneron to be material over the next twelve months.

If Regeneron elects to proceed with further development beyond the initial clinical trial, it will be solely responsible for conducting and funding further development and commercialization of product candidates.

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

Pursuant to the Regeneron Amendment, we and Regeneron have adopted a new workplan 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

our personnel and material costs for specified preclinical development activities in connection with the revised workplan, 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.

On October 29, 2020, we entered into the License Agreement with AffaMed.

Pursuant to the terms of the License Agreement, we are generally responsible for expenses related to the development and commercialization of DEXTENZA regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis, or collectively, the DEXTENZA Field, and for OTX-TIC, or collectively with DEXTENZA, the AffaMed Licensed Products, regarding open-angle glaucoma and ocular hypertension, or 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, or collectively, the Territories, provided that AffaMed (i) reimburse us a low-teen percentage of expenses incurred in connection with certain clinical trials conducted by us and designed to support marketing approval of the AffaMed Licensed Product by FDA or the European Medicines Agency, or the Global Studies;

Pursuant to the terms of the License Agreement, we are generally responsible for expenses related to the development and commercialization of DEXTENZA regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis, or collectively, the DEXTENZA Field, and for OTX-TIC, or collectively with DEXTENZA, the AffaMed Licensed Products, regarding open-angle glaucoma or ocular hypertension, or 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, or collectively, the Territories, provided that AffaMed (i) reimburse us a low-teen percentage of expenses incurred in connection with certain clinical trials conducted by us and designed to support marketing approval of the AffaMed Licensed Product by FDA or the European Medicines Agency,

or the 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, or the Local Studies;

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Information regarding new accounting pronouncements is included in Note 2 – Summary of Significant Accounting Policies to the current period’s consolidated financial statements.

Smaller Reporting Company Status

We are a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

We would cease to be a smaller reporting company if we have a non-affiliate public float in excess of $250 million and annual revenues in excess of $100 million, or a non-affiliate public float in excess of $700 million, determined on an annual basis.

As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies.

These exemptions include:

● being permitted to provide only two years of audited consolidated financial statements in this Annual Report on Form 10-K, with correspondingly reduced “Management's Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

● reduced disclosure obligations regarding executive compensation;

● not being required to furnish a contractual obligations table in “Management's Discussion and Analysis of Financial Condition and Results of Operations”;

● not being required to furnish a stock performance graph in our annual report.

We expect to continue to take advantage of some or all of the available exemptions as long as we continue to qualify as a smaller reporting company.

We may cease to qualify as a smaller reporting company as early as June 30, 2021, which would require us to comply with disclosure requirements that are applicable to other public companies that are not smaller reporting companies following the filing of our Annual Report on Form 10-K for the year ending December 31, 2021, and any portions of our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders incorporated by reference therein.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis