What changed in this filing

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Item 1A. Risk Factors

2023-03-06 compared with 2022-02-28 · 212 added, 327 removed, 753 unchanged (42% of the section changed)

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If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

Risks Related to the Coronavirus Pandemic

The coronavirus (COVID-19) pandemic has disrupted, and is expected to continue to adversely affect, our operations, including our commercialization of DEXTENZA, our ability to generate revenue from sales of DEXTENZA and ReSure Sealant, and our enrollment of certain clinical trials.

In the future, the COVID-19 pandemic or other pandemics may have other adverse effects on our business, operations and ability to raise capital .

The COVID-19 coronavirus pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the pandemic through quarantines, strict travel restrictions, heightened border scrutiny, and other measures.

The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred;

supply chains have been disrupted;

facilities and production have been suspended;

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

As the recent resurgence of cases due to the delta and omicron variants have illustrated, the future progression of the pandemic and its effects on our business and operations are uncertain.

We believe the COVID-19 pandemic has adversely affected, and we expect it to continue to adversely affect, our commercialization of DEXTENZA and our ability to generate revenue from sales of DEXTENZA, as a result of many factors, including:

● a decrease in patients attending routine ophthalmology appointments or undergoing elective surgical procedures, including cataract surgery;

● diversion of healthcare resources away from elective surgical procedures, including cataract surgery, to focus on pandemic concerns;

● government and institutional restrictions limiting the ability of our key account managers to conduct sales activities or access accounts and healthcare professionals, which could adversely impact our commercialization of DEXTENZA;

● limitations of employees being able to fulfill their job requirements because they have chosen or may choose not to be vaccinated;

● challenges in retaining and recruiting key personnel in certain operations of our business;

● potential interruptions in global shipping affecting the transport of raw materials used in the manufacture of our product, drug product, patient samples and related literature and similar issues related to current economy-wide supply chain concerns.

While we saw improvement in certain of these factors earlier in 2021 as a result of the increased availability of vaccines and a reduction in COVID-19 infections in the United States, we saw the renewed impact of the COVID-19 pandemic in the second half of 2021 with the surges of the delta and omicron variants.

Elective ophthalmology surgeries declined during the periods of these surges, which we believe led to slower than expected in-market sales of DEXTENZA during both the third and fourth quarters of 2021.

The COVID-19 pandemic has delayed, and has the potential to further delay or otherwise adversely affect, our clinical development activities, including our ability to recruit or retain subjects in and otherwise conduct our ongoing clinical trials, as a result of many factors, including:

● diversion of healthcare resources away from the conduct of our clinical trials to focus on pandemic concerns, including the availability of necessary materials, the attention of physicians serving as our clinical trial investigators, access to hospitals serving as our clinical trial sites, and availability of hospital staff supporting the conduct of our clinical trials;

● the inability or reluctance of subjects enrolled in our clinical trials to visit clinical trial sites if subjects are affected by the virus or are fearful of traveling to our clinical trial sites because of the pandemic;

● potential interruptions in global shipping affecting the transport of clinical trial materials, such as investigational drug product, patient samples, and raw materials used in the manufacture of our product candidates;

medical and laboratory supplies used in our clinical trials or preclinical studies;

or animals that are used for preclinical testing, and other supplies used in our clinical trials and preclinical studies;

● the impact of personnel shortages, further limitations on travel, or other operational challenges that could interrupt key clinical trial activities, such as clinical trial site initiations and monitoring and reporting activities, travel by our employees, contract research organizations, or CROs, or patients to clinical trial sites, or the ability of employees at our manufacturing facility to report to work, any of which could delay or adversely impact the conduct or progress of our clinical trials or limit the amount of clinical data we will be able to report;

● potential interruptions in the operations of the U.S.

Food and Drug Administration, or the FDA, or other regulatory authorities, which could delay or adversely impact the review of any investigational new drug, or IND, application or new drug application, or NDA, we submit to the FDA or such other regulatory authorities or delay our ability to discuss and receive guidance on the clinical development of our product candidates;

● any future interruption of, or delays in receiving, supplies of clinical trial material from our manufacturing facility due to stay-at-home orders, production slowdowns or stoppages, or disruptions in delivery systems.

If delays related to the COVID-19 pandemic affect the enrollment of any of our ongoing or planned clinical trials, as they did for our Phase 1 clinical trial evaluating OTX-TIC, the completion of such trials could be delayed.

We are currently experiencing slow enrollment of the fourth cohort in our OTX-TKI Phase 1 clinical trial due to COVID-19 restrictions in Australia.

The COVID-19 pandemic has also impacted, and may in the future impact, the administration of our clinical trials.

In May 2020, we disclosed the receipt of interim data regarding our ongoing Phase 1 clinical trial of OTX-TKI for the potential treatment of wet AMD and other retinal diseases.

Subsequently, we learned that the data collection and other administrative activities of a clinical trial site in Australia had been adversely impacted by the effects of the COVID-19 pandemic and the site had, as a result, erroneously reported the status of a subject to us because certain information had not been entered into the clinical trial database in a timely manner.

In July 2020, we reported the updated data.

The COVID-19 pandemic continues to evolve and its ultimate scope, duration and effects are unknown.

The extent of the impact on our business, preclinical studies and clinical trials, commercialization activities and revenue will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

These include, but are not limited to, the duration of the pandemic;

actions to contain the pandemic or treat its impact, such as travel restrictions, vaccination campaigns, social distancing, masking requirements and quarantines or lock-downs in the United States and other countries;

staffing shortages in the healthcare industry;

business closures or business disruptions;

and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

We cannot be certain what the overall impact of the COVID-19 pandemic or any future pandemic will be on our business or as to its potential to continue to adversely affect our business, financial condition, results of operations, and prospects.

Risks Related to Our Financial Position and Need for Additional Capital

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We have a history of incurring significant losses.

Our net loss was $155.6 million for the year ended December 31, 2020, primarily due to a loss from operations of $62.8 million and a change in fair value of a derivative liability of $86.2 million.

Our net loss was $71.0 million for the year ended December 31, 2022, primarily due to a loss from operations of $78.7 million offset by a change in fair value of a derivative liability of $13.8 million.

Our net loss was $6.6 million for the year ended December 31, 2021, primarily due to a loss from operations of $78.0 million and a change in fair value of a derivative liability of $78.1 million.

As of December 31, 2022, we had an accumulated deficit of $616.8 million.

We have financed our operations primarily through sales of our products, private placements of our preferred stock, public offerings of our common stock, the private placement of convertible notes in the aggregate principal amount of our $37.5 million, or the Convertible Notes, and borrowings under credit facilities.

We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials, and the commercialization of DEXTENZA ® for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis.

We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials, and the commercialization of DEXTENZA.

Although we expect to continue to generate revenue from sales of DEXTENZA, we expect to continue to incur significant expenses and operating losses over the next several years.

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

● 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 commercialize DEXTENZA in the United States;

● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any other 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 or support research and development activities on, and seek regulatory approvals for, DEXTENZA and OTX-TIC in mainland China, Taiwan, Hong Kong, Macau, South Korea and the countries of the Association of Southeast Asian Nations pursuant to our license agreement and collaboration with AffaMed Therapeutics Limited, or AffaMed;

● continue ongoing clinical trials for OTX-TKI (in both Australia and the United States) for the treatment of wet AMD and diabetic retinopathy and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension;

● determine to initiate new clinical trials to evaluate our product candidates, including OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease;

● conduct or support 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 Therapeutics Limited, or AffaMed;

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

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Our development expenses will increase if:

● we are required by the FDA or the other regulatory authorities such as the European Medicines Agency, or EMA, to perform trials or studies in addition to those currently expected;

● we are required by the FDA or the other regulatory authorities to perform trials or studies in addition to those currently expected;

● there are any delays in receipt of regulatory clearance to begin our planned clinical programs;

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● continuing to commercialize DEXTENZA in the United States, including by further developing our manufacturing, marketing, sales force, and distribution capabilities;

● completing clinical development of our product candidates, including OTX-TKI, OTX-TIC, OTX-CSI and OTX-DED;

● completing clinical development of our product candidates, including OTX-TKI, OTX-TIC, OTX-DED, and OTX-CSI;

● obtaining marketing approval for these product candidates;

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

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we continue to commercialize DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery, begin to commercialize DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, and advance OTX-TKI, OTX-TIC, OTX-CSI and OTX-DED through clinical development.

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we continue to commercialize DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and for the treatment of ocular itching associated with allergic conjunctivitis, and advance OTX-TKI, OTX-TIC, OTX-DED and OTX-CSI through clinical development.

We expect to devote substantial financial resources as we conduct late-stage clinical trials for our product candidates, seek marketing approval for any such product candidate for which we obtain favorable pivotal clinical results, and commercialize any products for which we receive marketing approval.

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As of December 31, 2022, we had cash and cash equivalents of $102.3 million, outstanding debt of $25.3 million, net of unamortized discount, and $37.5 million aggregate principal amount of Convertible Notes plus accrued interest of $8.8 million.

We believe that our existing cash and cash equivalents 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 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 commercialization of DEXTENZA, the pace of our research and clinical development programs and other aspects of our business.

Our assumptions 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 sooner or adjust our plans accordingly.

We believe that our existing cash and cash equivalents will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements, excluding our planned pivotal clinical trials for OTX-TKI, into the middle of 2024.

This estimate is based on our current operating plan which includes estimates of anticipated cash inflows from product sales and cash outflows from operating expenses but excludes expenses related to our planned pivotal clinical trials for OTX-TKI as we do not intend to initiate such trials without receipt of additional funding, which could be provided through a strategic collaboration.

T hese estimates are subject to various assumptions including those related the commercialization of DEXTENZA, the pace of our research and clinical development programs and other aspects of our business.

Our assumptions 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 sooner or adjust our plans accordingly.

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

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

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

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We do not have any committed external source of funds, although 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 and royalty payments.

To the extent that we raise additional capital through the sale of

equity, preferred equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights as holders of our common stock.

To the extent that we raise additional capital through the sale of equity, preferred equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights as holders of our common stock.

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

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

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

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

grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

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

Under our credit facility, or the Credit Facility, we have $25.0 million, net of unamortized discount, of outstanding principal indebtedness.

Under the accompanying credit and security agreement, as amended and/or restated to date, which we refer to as the Credit Agreement, we are permitted to make interest-only payments through April 2024, at which time we will be required to make, in addition to the monthly interest payments, principal payments on the term loans in accordance with the amortization schedules set forth in the Credit Agreement.

Our obligations under the Credit Agreement are secured by all of our assets, including our intellectual property.

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

● requiring us to dedicate a substantial portion of cash and cash equivalents and marketable securities to the payment of interest on, and principal of, our debt, which would reduce the amounts available to fund working capital, commercialization expenditures, capital expenditures, product development efforts and other general corporate purposes;

● requiring us to dedicate a substantial portion of cash and cash equivalents and marketable securities to the payment of interest on, and principal of, our debt, which would reduce the amounts available to fund operating expenditures, including working capital, and capital expenditures and other general corporate purposes;

● obligating us to additional negative covenants further restricting our activities;

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A failure to comply with conditions of our Credit Agreement or the Convertible Notes could result in an event of default under those instruments.

In the event of an acceleration of amounts due under our Credit Agreement or the Convertible Notes as a result of an event of default, including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any amount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our

indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness.

The Credit Agreement and Convertible Notes also have cross-default provisions, pursuant to which a default under one instrument could cause a default in others.

In an event of default, including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business or operations, the amounts due under our Credit Agreement or the Convertible Notes could accelerate.

As a result, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness.

The elimination of LIBOR could adversely affect our business, results of operations or financial condition.

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Although the impact is uncertain at this time, the elimination of LIBOR could have an adverse impact on our business, results of operations, or financial condition.

We may incur significant expenses to amend our LIBOR-indexed loans and other applicable financial or contractual obligations, including our Credit Facility, to a new reference rate, which may differ significantly from LIBOR.

We may incur significant expenses to amend our LIBOR-indexed loans and other applicable

financial or contractual obligations, including our Credit Facility, to a new reference rate, which may differ significantly from LIBOR.

Accordingly, the use of an alternative rate could result in increased costs, including increased interest expense on our credit facilities, and increased borrowing and hedging costs in the future.

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These NOL and tax credit carryforwards could expire unused and be unavailable to offset our future income tax liabilities.

As described below under the heading “ Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition ,” the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act , includes changes to U.S.

federal tax rates and the rules governing NOL carryforwards that may significantly impact our ability to utilize our NOLs to offset taxable income in the future.

Nor is it clear how various states will respond to the 2017 Tax Act;

the Families First Coronavirus Response Act, or FFCR Act;

or the CARES Act.

In addition, state NOLs generated in one state cannot be used to offset income generated in another state.

Furthermore, the use of NOL carryforwards may become subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions in the event of certain cumulative changes in the ownership interest of significant shareholders in excess of 50 percent over a three-year period.

This could limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income or tax liabilities.

The amount of the annual limitation is determined based on the value of a company immediately prior to the ownership change.

We have not conducted a full study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

As a result, we are uncertain as to whether we have completed one or more transactions since our inception which may have resulted in an ownership change under Section 382 of the Code.

In addition, there may be changes in our stock ownership, some of which are outside of our control, that could result in ownership changes in the future.

For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

Even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes because, among other reasons, federal tax rates and the rules governing NOL carryforwards might change;

state NOLs generated in one state cannot be used to offset income generated in another state;

and the use of NOL carryforwards might become subject to annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions.

Risks Related to Product Development

Clinical trials of our product candidates may not be successful.

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, the EMA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be delayed or unable to complete, the development and commercialization of such product candidate and our business may be harmed.

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

product candidates in humans .

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be delayed or unable to complete, the development and commercialization of such product candidate and our business may be harmed.

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

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We have devoted a significant portion of our financial resources and business efforts to the development of DEXTENZA and our product candidates.

We are currently investing substantial resources to advance the development of 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.

We are currently investing substantial resources to advance the development of OTX-TKI for the treatment of wet AMD and diabetic retinopathy, 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.

We currently have several ongoing clinical trials, including our Phase 1 clinical trials of OTX-TKI in Australia and the United States and our Phase 2 clinical trial of OTX-TIC.

We have, however, experienced the uncertainty of clinical trials in our own development programs.

In our Phase 2 clinical trial for OTX-CSI for the treatment of dry eye disease, for example, OTX-CSI did not meet the primary endpoint of the clinical trial.

The Phase 2, U.S.-based, randomized, double-masked, multi-center, vehicle-controlled clinical trial was designed to evaluate safety, tolerability, durability, and efficacy of two different formulations of OTX-CSI by measuring signs and symptoms of dry eye disease in 140 subjects treated in both eyes over approximately 16 weeks (a 12-week study period, with an additional 4-week safety follow-up).

In our Phase 2 clinical trial for OTX-CSI for the treatment of dry eye disease, for example, OTX-CSI did not meet the primary endpoint

of the clinical trial.

The trial was designed to evaluate safety, tolerability, durability, and efficacy of two different formulations of OTX-CSI by measuring signs and symptoms of dry eye disease in 140 subjects treated in both eyes over approximately 16 weeks (a 12-week study period, with an additional 4-week safety follow-up).

The four groups evaluated in this study were:

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The study did not show separation between the OTX-CSI treated subjects (both formulations) and the vehicle treated subjects (both formulations) for the primary endpoint of increased tear production at 12 weeks as measured by the Schirmer’s Test.

We are continuing to review the Phase 2 data, including baseline characteristics of the subject population and retention data showing lower than anticipated insert retention rates in the active drug groups, and to assess the impact and reasons for lower than expected retention rates before determining next steps for this program.

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

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The FDA may also require that NDA submissions for our product candidates include pediatric data.

We applied for a deferral from the FDA for this requirement for DEXTENZA for the treatment of post-surgical ocular inflammation and pain following cataract surgery until after approval of such product in adult populations.

While the FDA ultimately approved our request, if the FDA had required us to conduct pediatric studies in advance of FDA approval in adult populations, we would have experienced significant delays in our ability to obtain marketing approval for DEXTENZA for these indications.

We will face a similar risk if we seek a comparable deferral for other product candidates or indications.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not favorable or are only modestly favorable or if there are safety concerns, we may:

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, such as the FDA’s requirement that we provide pediatric data for DEXTENZA for the treatment of post-surgical ocular inflammation and pain following cataract surgery prior and for the treatment of ocular itching associated with allergic conjunctivitis in connection with the approval of our NDA for DEXTENZA for those indications, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not favorable or are only modestly favorable or if there are safety concerns, we may:

● be delayed in obtaining or unable to obtain marketing approval for our product candidates;

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Delays can be more pronounced with later-stage clinical trials because they tend to be larger than early-stage trials.

For example, enrollment in our completed Phase 3 clinical trial of our former product candidate OTX-TP, the largest clinical trial we have conducted to date, was significantly slower than expected.

It had a target enrollment of 550 subjects and was conducted at approximately 49 sites in the United States.

Enrollment in our ongoing Phase 3 clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery, to fulfill FDA post-approval regulatory requirements, is proceeding slowly due to the relative scarcity of pediatric cataract surgical subjects.

For example, enrollment in our ongoing Phase 3 clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery, to fulfill FDA post-approval regulatory requirements, is proceeding slowly due to the relative scarcity of pediatric cataract surgical subjects.

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

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If serious adverse or unacceptable side effects are identified during the development of our product candidates or any other product candidates that we may develop, we may need to abandon or limit our development of such product candidates.

more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

If any of our product candidates are associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

Many compounds that initially showed promise in clinical or early-stage testing for treating ophthalmic disease have later been found to cause side effects that prevented further development of the compound.

In addition, adverse events which had initially been considered unrelated to the study treatment may later be found to be caused by the study treatment.

We may not be successful in our efforts to develop additional products and product candidates based on our bioresorbable hydrogel technology platform or expand the use of our bioresorbable hydrogel technology for treating additional diseases and conditions.

We may not be successful in our efforts to develop additional products and product candidates based on our bioresorbable hydrogel technology platform.

We are currently directing most of our development efforts towards applying our proprietary, bioresorbable hydrogel technology platform to products and product candidates that are designed to provide local programmed-release hydrogel-based therapeutic agents to the eye using active pharmaceutical ingredients that are currently used in FDA-approved ophthalmic drugs.

In addition to DEXTENZA and ReSure Sealant, we have a number of product candidates at various stages of development based on our bioresorbable hydrogel technology platform and are exploring the potential use of our platform for other ophthalmic diseases and conditions.

We have a number of product candidates at various stages of development based on our bioresorbable hydrogel technology platform and are exploring the potential use of our platform for other ophthalmic diseases and conditions.

These product candidates include intracanalicular inserts eluting drug product to the ocular surface;

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

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

We are currently prioritizing the continued commercialization of DEXTENZA, the advancement through Phase 1 clinical development of OTX-TKI for the treatment of wet AMD, and the advancement through Phase 2 clinical development of OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension and are assessing the further development of 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.

In addition, if we

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

We are currently prioritizing the continued commercialization of DEXTENZA, the advancement through Phase 1 clinical development of OTX-TKI for the treatment of wet AMD and diabetic retinopathy, and the advancement through Phase 2 clinical development of OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension and are assessing the further development of OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease and OTX-CSI for the chronic treatment of dry eye disease .

Although we believe our prioritization of resources is currently the best use of our resources, we may not be correct.

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Other risks inherent in conducting international clinical trials include:

● foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;

● foreign regulatory requirements, differences in healthcare services, and differences in cultural customs that could restrict or limit our ability to conduct our clinical trials;

● administrative burdens of conducting clinical trials under multiple sets of foreign regulations;

● failure of enrolled subjects to adhere to clinical protocols as a result of differences in healthcare services or cultural customs;

● foreign exchange fluctuations;

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● maintaining a continued acceptable safety profile of our products following approval;

● obtaining and maintaining patent and trade secret protection and regulatory exclusivity;

● protecting our rights in our intellectual property portfolio.

In certain cases, such as in our collaboration with AffaMed and our prior collaboration with Regeneron, many of these factors may be or were beyond our control, including clinical development and sales, marketing and distribution efforts.

● protecting our intellectual property rights, including obtaining and maintaining patent and trade secret protection and regulatory exclusivity.

In certain cases, such as in our ongoing collaboration with AffaMed, many of these factors may be or are beyond our control, including clinical development and sales, marketing and distribution efforts.

If we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our products and product candidates, which would materially harm our business.

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DEXTENZA, ReSure Sealant or any of our product candidates that receives marketing approval may fail to gain market acceptance by physicians, patients, third-party payors and others in the medical community.

We commercially launched ReSure Sealant in the first quarter of 2014, DEXTENZA for the treatment of post-surgical ocular inflammation and pain in July 2019, and are commercially launching DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022, and we cannot yet accurately predict the extent to which these products will gain market acceptance and become commercially successful, if at all.

We previously commenced commercialization in Europe of an earlier version of ReSure Sealant that was approved and marketed as an ocular bandage, but we were unsuccessful and ceased commercialization efforts of the product.

If our products do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable.

The degree of market acceptance of DEXTENZA, ReSure Sealant, or any product candidate for which we obtain marketing approval will depend on a number of factors, including:

We commercially launched ReSure Sealant in the first quarter of 2014, DEXTENZA for the treatment of post-surgical ocular inflammation and pain in July 2019, and DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022, and we cannot yet accurately predict the extent to which these products will gain market acceptance and become commercially successful, if at all.

The degree of market acceptance of any of our products, or any product candidate for which we obtain marketing approval will depend on a number of factors, including:

● the efficacy and potential advantages compared to alternative treatments;

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● timing of market introduction of competitive products;

● the availability of third-party coverage and adequate reimbursement and, for ReSure Sealant, the lack of separate reimbursement when used as part of a cataract surgery procedure;

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

● the prevalence and severity of any side effects;

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

For example, because we have not conducted any clinical trials to date comparing the effectiveness of DEXTENZA directly to currently approved alternative treatments for post-surgical ocular inflammation and pain following cataract surgery or allergic conjunctivitis, it is possible that the market acceptance of DEXTENZA could be less than if we had conducted such trials, and we may not be able to achieve the market share we anticipate.

We also expect DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis to be priced at a premium to certain treatment alternatives.

As a result, we believe that certain payors will “step-edit” DEXTENZA for this indication, meaning that patients will be asked to try lower priced therapeutics before the payor may be willing to reimburse for the use of DEXTENZA.

Our assessment of the potential market opportunity for DEXTENZA, ReSure Sealant and our product candidates is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties.

For example, because we have not conducted any clinical trials to date comparing the effectiveness of DEXTENZA directly to currently approved alternative treatments for post-surgical ocular inflammation and pain following cataract surgery or ocular itching associated with allergic conjunctivitis, market acceptance of DEXTENZA could be less than if we had conducted such trials, and we may not be able to achieve the market share we anticipate.

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

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

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

If the actual market for DEXTENZA, ReSure Sealant or any of our product candidates is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, we may not be successful in commercializing DEXTENZA, ReSure Sealant, or any product candidates if and when they are approved.

If the actual market for DEXTENZA or any of our product candidates is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, we may not be successful in commercializing DEXTENZA or any product candidates if and when they are approved.

We have limited experience in the sale, marketing and distribution of drug and device products.

To achieve commercial success for DEXTENZA, ReSure Sealant, and any product candidate for which we obtain marketing approval, we will need to establish and maintain adequate sales, marketing and distribution capabilities, either ourselves or through collaborations or other arrangements with third parties.

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

We have built our own highly targeted, key account sales force for DEXTENZA that has focused primarily on ambulatory surgical centers, or ASCs, responsible for the largest volumes of cataract surgery.

In connection with our commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, we intend to launch a separate sales force focused on ophthalmologists’ offices.

In connection with our commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, we launched a separate sales force focused on ophthalmologists’ offices.

We believe that certain other of our product candidates, if they are successfully developed and obtain marketing approval, would also be primarily used in the office setting.

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Our product revenues and our profitability, if any, under third-party collaboration, distribution or other marketing arrangements may also be lower than if we were to sell, market and distribute a product ourselves.

On the other hand, recruiting and training a sales force is expensive and time-consuming and could delay any product launch.

On the other hand, recruiting and training a sales force is expensive and time-consuming and could delay any

product launch.

If the commercial launch of any product or product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.

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● unforeseen costs and expenses associated with creating an independent sales and marketing organization.

If we do not establish and maintain sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing DEXTENZA, ReSure Sealant or any of our product candidates.

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

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

Given that we are primarily developing products based on FDA-approved therapeutic agents, our products and product candidates, if approved, will face competition from generic and branded versions of existing drugs based on the same active pharmaceutical ingredients that are administered in a different manner, typically through eye drops or intravitreal injections.

As a result, our products face, and product candidates, if approved, will face, competition from drugs based on the same or similar active pharmaceutical ingredients but that are administered in a different manner, typically through eye drops or intravitreal injections.

Because the active pharmaceutical ingredients in our products and product candidates are primarily available on a generic basis, or are soon to be available on a generic basis, competitors will be able to offer and sell products with the same active pharmaceutical ingredient as our products so long as these competitors do not infringe the patents that we license or own.

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As such, if a third party were able to design around the formulation and process patents that we license or own and create a different formulation using a different production process not covered by our licensed patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing its product.

Icon Biosciences, Inc.

received FDA approval of DEXYCU in February 2018.

DEXYCU is an injection of dexamethasone into the anterior chamber of the eye to treat inflammation associated with cataract surgery.

Other companies have also advanced into Phase 3 clinical development biodegradable, programmed-release drug delivery product candidates that could compete with our intracanalicular insert products and product candidates.

ReSure Sealant is the first and only surgical sealant approved as a device for ophthalmic use in the United States, but it competes with sutures as an alternative method for closing ophthalmic wounds.

Other companies have advanced into Phase 3 clinical development biodegradable, programmed-release drug delivery product candidates that could compete with our intracanalicular insert products and product candidates.

Multiple companies are exploring in early-stage development alternative means to deliver anti-VEGF and TKI products in an extended-delivery fashion to the back of the eye.

There are also multiple branded, generic and over-the-counter products, in the dry eye space, including Restasis®, for increasing tear production, marketed by Allergan;

Cequa™ for increasing tear production, marketed by

Sun Ophthalmics in the United States;

lifitegrast, for the treatment of the signs and symptoms of dry eye disease, marketed by Novartis under the brand name Xiidra®;

Cequa™ for increasing tear production, marketed by Sun Ophthalmics in the United States;

lifitegrast, for the treatment

of the signs and symptoms of dry eye disease, marketed by Novartis under the brand name Xiidra®;

and off-label use of corticosteroids.

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

DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

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

DEXTENZA and any product candidates for which we obtain marketing approval may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

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

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

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

Coverage and reimbursement may not be available for DEXTENZA, ReSure Sealant or any other product that we commercialize and, even if they are available, the level of reimbursement may not be satisfactory.

Inadequate reimbursement may adversely affect the demand for, or the price of, DEXTENZA, ReSure Sealant or any product candidate for which we obtain marketing approval.

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

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

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

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

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize DEXTENZA, ReSure Sealant or any product candidates for which we obtain marketing approval.

If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize DEXTENZA or any product candidates for which we obtain marketing approval.

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

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

DEXTENZA, ReSure Sealant or any product candidate for which we obtain marketing approval in the United States or in other countries may not be considered medically reasonable and necessary for a specific indication, may not be considered cost-effective by third-party payors, coverage and an adequate level of reimbursement may not be available, and reimbursement policies of third-party payors may adversely affect our ability to sell our products and product candidates profitably.

ReSure Sealant is not separately reimbursed when used as part of a cataract surgery procedure, which limits the degree of market acceptance of this product by surgeons.

DEXTENZA or any product candidate for which we obtain marketing approval in the United States or in other countries may not be considered medically reasonable and necessary for a specific indication, may not be considered cost-effective by third-party payors, coverage and an adequate level of reimbursement may not be available, and reimbursement policies of third-party payors may adversely affect our ability to sell our products and product candidates profitably.

DEXTENZA is currently considered a post-surgical product, in the same fashion as eye drops.

However, if DEXTENZA were instead categorized as an intra-operative product, it would not be subject to separate reimbursement in ASCs and hospital out-patient departments, or HOPDs, which could likewise limit its market acceptance.

A specific and permanent J-Code for ophthalmic inserts containing dexamethasone including DEXTENZA is in effect, and DEXTENZA currently benefits from transitional pass-through status.

However, DEXTENZA is scheduled to lose transitional pass-through status in July 2022.

In November 2021, Centers for Medicare & Medicaid Services, or CMS, in its annual rulemaking, indicated that DEXTENZA will be paid separately in the ASC and HOPD settings through 2022 despite its scheduled loss of pass-through status.

CMS also indicated that DEXTENZA is eligible for separate payment in the ASC setting beyond 2022 because it meets the criteria set forth for non-opioid pain management drugs as a surgical supply provision.

There can be no assurance that CMS will not change the criteria applicable to non-opioid pain management drugs for 2023 or beyond.

A specific and permanent J-Code for ophthalmic inserts containing dexamethasone including DEXTENZA is in effect, and DEXTENZA currently benefits from separate payment in the ASC setting because it meets the criteria set forth for non-opioid pain management drugs as a surgical supply provision.

CMS evaluates the eligibility of products such as DEXTENZA for separate payment annually, and there can be no assurance that CMS will not change the criteria applicable to non-opioid pain management drugs for 2023 or beyond.

If DEXTENZA is no longer eligible for reimbursement separately from ophthalmic surgery, due to the loss of pass-through status or otherwise, our net product revenues, which currently consist primarily of DEXTENZA sales in reliance on separate reimbursement through pass-through status, would decline significantly, and our ability to generate revenues from future sales of DEXTENZA to ASCs and HOPDs for the treatment of post-surgical ocular inflammation and pain would be adversely affected.

In addition, CMS, during the same rulemaking cycle, made a final recommendation on the fixed reimbursement amount for Category I Current Procedural Terminology, or CPT, code 68841, the procedure code for the insertion of DEXTENZA, effective January 1, 2022.

As this new fee schedule is lower than reimbursement many physicians received under the prior Category III CPT code for DEXTENZA, physicians may have less incentive to use DEXTENZA and, as a result, our ability to continue to commercialize DEXTENZA may decrease.

Additionally, although CMS established these reimbursement amounts for 2022, CMS will review such determination as part of its annual rulemaking cycle, and such amount could be further reduced in the future.

Physicians’ desire to use DEXTENZA could also be adversely impacted if competitive products secure higher procedure payments for their use than DEXTENZA, negatively impacting our ability to continue to commercialize DEXTENZA.

CMS has also established the fixed reimbursement amount for Category I Current Procedural Terminology, or CPT, code 68841, the procedure code for the insertion of DEXTENZA.

As this fee schedule is lower than reimbursement many physicians received under the prior Category III CPT code for DEXTENZA, physicians may have less incentive to use DEXTENZA and, as a result, our ability to continue to commercialize DEXTENZA may decrease.

Additionally, CMS will review such determination as part of its annual rulemaking cycle, and such amount could be further reduced in the future.

Physicians’ desire to use DEXTENZA could also be adversely impacted if competitive products secure higher procedure payments for their use than DEXTENZA.

There are no assurances that we will be successful in maintaining reimbursement for DEXTENZA or of obtaining or maintaining reimbursement for any products or product candidates for which we might receive marketing approval in the future.

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

We face an even greater risk for any products we develop and commercially sell, including DEXTENZA and ReSure Sealant.

We face an even greater risk for any products we develop and commercially sell or have sold, including DEXTENZA and ReSure Sealant.

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

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

● decreased demand for any product candidates or products that we develop;

● decreased demand for any products or product candidates that we develop;

● injury to our reputation and significant negative media attention;

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● the inability to commercialize any products that we develop.

We currently hold $10.0 million in U.S.

product liability insurance coverage in the aggregate, with a per incident limit of $10.0 million and approximately $15.0 million in product liability insurance in another jurisdiction in which we operate, with a per incident liability limit of approximately $15.0 million.

These policies may not be adequate to cover all liabilities that we may incur and we may need to increase our insurance coverage as we expand our clinical trials and our sales of DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval.

We currently hold product liability insurance coverage;

however these policies may not be adequate to cover all liabilities that we may incur and we may need to increase our insurance coverage as we expand our clinical trials and our sales of DEXTENZA and any product candidates for which we obtain marketing approval.

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

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Such an event could delay our clinical trials or, particularly because we have sought to adopt just-in-time manufacturing practices and maintain limited commercial product inventory with our distributors, reduce our product sales.

Currently, we maintain insurance coverage against damage to our property and equipment in the amount of up to $27.8 million and to cover business interruption and research and development restoration expenses in the amount of up to $15.8 million.

Currently, we maintain insurance coverage against damage to our property and equipment and to cover business interruption and research and development restoration expenses.

However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer.

We may be unable to meet our requirements for DEXTENZA, ReSure Sealant, or any of our product candidates if there were a catastrophic event or failure of our current manufacturing facility or processes.

We may be unable to meet our requirements for DEXTENZA or any of our product candidates if there were a catastrophic event or failure of our current manufacturing facility or processes.

We will need to upgrade and expand our manufacturing facility or relocate to another facility and to augment our manufacturing personnel and processes in order to meet our business plans.

If we fail to do so, we may not have sufficient quantities of our products or product candidates to meet our commercial and clinical trial requirements.

We manufacture DEXTENZA, ReSure Sealant and our product candidates for use in clinical trials, research and development and commercial efforts at our single-site clinical and commercial manufacturing facility located in Bedford, Massachusetts.

We manufacture DEXTENZA and our product candidates for use in clinical trials, research and development and commercial efforts at our single-site clinical and commercial manufacturing facility located in Bedford, Massachusetts.

In order to meet our business plan, which contemplates our scaling up manufacturing processes to support the commercialization of our current products and the development and potential commercialization of our current and future product candidates, we will need to upgrade and expand our existing manufacturing facility, or relocate to another manufacturing facility;

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If we are unable to expand our manufacturing facility or relocate to another facility in compliance with regulatory requirements or to hire additional necessary manufacturing personnel, we may encounter delays or additional costs in achieving our research, development and commercialization objectives, including obtaining regulatory approvals of our product candidates and meeting customer demand for our products, which could materially damage our business and financial position.

For example, we are not currently manufacturing ReSure Sealant in order to focus our manufacturing resources on supporting the commercialization of DEXTENZA.

We must comply with federal, state and foreign regulations, including quality standards applicable to medical device and pharmaceutical manufacturers, such as cGMP, which are enforced by the FDA through its facilities inspection program and by similar regulatory authorities in other jurisdictions where we do business.

We must comply with federal, state and foreign regulations, including quality standards applicable to medical device and pharmaceutical manufacturers, such as cGMP, which are enforced by the FDA through means including its facilities inspection program and system audits and by similar regulatory authorities in other jurisdictions where we do business.

These requirements include, among other things, quality control, quality systems and the maintenance of records and documentation.

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In each of July 2016 and July 2017, we also received a Complete Response Letter, or CRL, from the FDA regarding our NDA for DEXTENZA pertaining to, among other things, the deficiencies in manufacturing processes, controls, and analytical testing identified during pre-NDA approval inspections of our manufacturing facility documented on Form 483s.

We may be subject to similar inspections and requirements in connection with subsequent applications for other product candidates or DEXTENZA or in connection with periodic, routine inspections for products for which we have received marketing authorization.

As our facility is an approved pharmaceutical and medical device commercial manufacturing location, we are subject to routine inspections and system audits in connection with, among other things, our Safety, Identity, Strength, Purity, and Quality, or SISPQ;

our process controls;

and our standard operating procedures.

If we fail to respond or comply in a satisfactory manner with any directives or observations that we may receive from the FDA as a result of inspections or informational requests, the FDA may take regulatory or other actions that would adversely impact our ability to continue manufacturing our commercial products and clinical or preclinical product candidates or to otherwise hinder or delay the clinical development and commercialization of our products and product candidates.

In January and February 2021, the FDA requested information and records from us relating to our DEXTENZA commercial manufacturing operations and quality systems pursuant to Form 4003 in advance or in lieu of a drug inspection.

In early March 2021, the FDA provided confirmation of receipt of the records that had been requested from us.

We may be subject to similar inspections, audits and other requirements in connection with subsequent applications for other product candidates or in connection with periodic, routine surveillance for products for which we have received marketing authorization.

The FDA or similar foreign regulatory authorities at any time also may implement new standards, or change their interpretation and enforcement of existing standards, for the manufacture, packaging or testing of our products.

Any failure to comply with applicable regulations may result in fines and civil penalties, suspension of production, product seizure or recall, imposition of a consent decree, or withdrawal of product approval, and would limit the availability of DEXTENZA, ReSure Sealant and our product candidates that we manufacture.

Any manufacturing defect, failure against SISPQ, or error discovered after products have been produced and distributed could result in significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.

Any manufacturing defect or error discovered after products have been produced and distributed could result in significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.

We expect to continue to contract with third parties for at least some aspects of the production of our products and product candidates.

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This increases the risk that we will not have sufficient quantities of our products or product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We currently rely on third parties for some aspects of the production of DEXTENZA, ReSure Sealant and our product candidates for commercialization and preclinical testing and clinical trials.

While we expect that our existing manufacturing facility, or additional facilities that we might be able to build, will be sufficient to meet our requirements for manufacturing DEXTENZA, ReSure Sealant and any of our product candidates for which we obtain marketing approval, we may in the future need to rely on third-party manufacturers for some aspects of the manufacture of our products or product candidates.

We also depend on single-source suppliers for certain materials used in the manufacturing of our products and product candidates, including our supply of PEG, the molecule that forms the basis of our hydrogels, and other raw materials of DEXTENZA, ReSure Sealant and our product candidates and for sterilization of the finished product.

We do not have any long-term supply agreements in place for the clinical or commercial supply of any drug substances or raw materials for DEXTENZA, ReSure Sealant or any of our product candidates.

We currently rely on third parties for some aspects of the production of DEXTENZA and our product candidates for commercialization and preclinical testing and clinical trials.

While we expect that our existing manufacturing facility, or additional facilities that we might be able to build, will be sufficient to meet our requirements for manufacturing DEXTENZA and any of our product candidates for which we obtain marketing approval, we may in the future need to rely on third-party manufacturers for some aspects of the manufacture of our products or product candidates.

We also depend on single-source suppliers for certain materials used in the manufacturing of our products and product candidates, including our supply of PEG, the molecule that forms the basis of our hydrogels, and other raw materials of our products and product candidates and for sterilization of the finished product.

We do not have any long-term supply agreements in place for the clinical or commercial supply of any drug substances or raw materials for DEXTENZA or any of our product candidates.

We purchase drug substance and raw materials, including the chemical constituents for our hydrogel, from independent suppliers on a purchase order basis.

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For example, we depend on a sole source supplier for the supply of our PEG.

This sole source supplier may be unwilling or unable to supply PEG to us reliably, continuously and at the levels we anticipate or are required by the market.

This sole source supplier may be unwilling or unable to supply PEG to us reliably, continuously and at the

levels we anticipate or are required by the market.

Although we believe that there are a number of potential long-term replacements to our suppliers, including our PEG supplier, we may incur added costs and delays in identifying and qualifying any such replacements.

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Our failure, or the failure of our third parties, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and product candidates.

Our potential future dependence upon others for the manufacture of our products and product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive regulatory approval on a timely and competitive basis.

Further, reliance on third-party suppliers or manufacturers may adversely affect our future profit margins and our ability to commercialize any products that receive regulatory approval on a timely and competitive basis.

Risks Related to Our Dependence on Third Parties

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If our collaborations are not successful, we may not be able to capitalize on the market potential of these products or product candidates.

We have in the past entered into collaboration agreements with third parties, including our collaborations with AffaMed and with our former collaborator, Regeneron, and expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to commercialize DEXTENZA, ReSure Sealant, or any of our product candidates for which we obtain marketing approval in markets outside the United States.

We have in the past entered into collaboration agreements with third parties, including our collaborations with AffaMed, and expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to commercialize DEXTENZA, ReSure Sealant, or any of our product candidates for which we obtain marketing approval in markets outside the United States.

We also may enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States for such products or if we determine that such third-party arrangements are otherwise beneficial.

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● collaborators may not perform their obligations as expected;

● collaborators may not pursue development and commercialization of our products or product candidates that receive marketing approval or may elect not to continue or renew development or commercialization programs based on results of clinical trials or other studies, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

programs based on results of clinical trials or other studies, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

● collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

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● a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;

respect to products or product candidates, or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive;

● disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of products or product candidates, might lead to additional responsibilities for us with respect to products or product candidates, or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive;

● collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

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If we are not able to establish additional collaborations, we may have to alter our development and commercialization plans and our business could be adversely affected.

For some of our other product candidates, we may decide to collaborate with pharmaceutical, biotechnology and medical device companies for the development and potential commercialization of those product candidates.

In October 2020, we entered into a collaboration with AffaMed for the development and commercialization of DEXTENZA regarding ocular inflammation and pain following cataract surgery and ocular itching associated with allergic conjunctivitis and for OTX-TIC regarding open-angle glaucoma and ocular hypertension in specified territories in Asia.

For some of our product candidates, we may decide to collaborate with pharmaceutical, biotechnology and medical device companies for the development and commercialization of one or more of our product candidates.

We face significant competition in seeking appropriate collaborators.

Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors.

Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to subjects, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate.

We may also be restricted under current or future license and collaboration agreements from entering into agreements on certain terms with potential collaborators.

Collaborations are complex and time-consuming to negotiate, document, and operate under.

In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.

If we elect to fund and undertake development or commercialization activities on our own, we will need to

obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all.

If we are unable to reach agreements with suitable collaborators on a timely basis and on acceptable terms, we may have to curtail the development of a product candidate, reduce or delay one or more development programs, or limit potential commercialization activities.

If we elect to fund and undertake development or commercialization activities on our own, we will need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all.

If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform.

Although the majority of our clinical development is administered and managed by our own employees, we have relied, and may continue to rely, on third parties for certain aspects of our clinical development, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

Our employees have administered and managed most of our clinical development work, including our clinical trials for DEXTENZA for the treatment of post-surgical ocular inflammation and pain following cataract surgery.

However, we have relied on third parties, such as CROs, to conduct clinical trials of certain of our product candidates, including OTX-TKI for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, and we may continue to do so.

Our employees have administered and managed most of our clinical development work to date.

However, we also utilize third parties, such as CROs, to conduct clinical trials of certain of our product candidates, including OTX-TKI for the treatment of wet AMD and OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, and we may continue to do so.

If we deem necessary, we may engage additional third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct or assist in our clinical trials or other clinical development work.

If we are unable to enter into an agreement with a CRO or other service provider when required, our product development activities would be delayed.

If we are unable to enter into an agreement with a CRO or other service provider when required, our product development activities could be delayed.

Our reliance on third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities.

For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.

Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.

For example, in May 2020, we disclosed the receipt of interim data regarding our ongoing Phase 1 clinical trial of OTX-TKI, in Australia, for the potential treatment of wet AMD and other retinal diseases.

In July 2020, however, we received further, and partially contradictory, information from the clinical trial site where certain subjects were being treated.

As the clinical trial site had not entered certain data concerning these subjects into the clinical trial database in a timely manner, complete information was not available to or known by us at the time of our prior disclosures.

We are also required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes.

Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

For example, in May 2020, we disclosed the receipt of interim data regarding our ongoing Phase 1 clinical trial of OTX-TKI, in Australia, for the treatment of wet AMD and other retinal diseases.

We discovered, however, that our disclosures did not include complete information when we became aware in July 2020 that a clinical trial site had not entered certain data concerning these subjects into the clinical trial database in a timely manner.

If we engage third parties and they do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

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We and our licensor have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies, products and product candidates.

Some of our licensed patents that we believe are integral to our hydrogel technology platform have terms that extend through at least 2024.

However, other broader patents within our patent portfolio have already expired.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our candidates might expire before or shortly after such candidates are commercialized.

As a result, our patent portfolio would be less effective in excluding others from commercializing products similar or identical to ours.

Our licensed and owned patent portfolio that we believe is integral to our business includes patents with terms that extend from 2024 to 2041.

Given the amount of time required for the development, testing and regulatory review of new product candidates, we may have a reduced patent exclusivity period upon approval.

The patent prosecution process is expensive and time-consuming, and we may not have filed or prosecuted and may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

It is also possible that we have failed, or may in the future fail, to identify patentable aspects of our research and development efforts before it is too late to obtain patent protection.

In some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to enforce or maintain the patents, covering technology that we license from third parties.

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We also have no right to control the defense of such licensed patents if their validity or scope is challenged before the U.S.

Patent and Trademark Office, or USPTO, European Patent Office, or other patent office or tribunal.

Patent and Trademark Office, or USPTO, or other patent office or tribunal.

Instead, we would essentially rely on our licensor to defend such challenges, and it may not do so in a way that would best protect our interests.

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In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States.

For example, unlike patent law in the United States, European patent law precludes the patentability of methods of treatment of the human body and imposes substantial restrictions on the scope of claims it will grant if broader than specifically disclosed embodiments.

We have only three issued patents outside of the United States that cover all three intracanalicular insert products and product candidates.

We have three licensed patent families in Europe and certain other parts of the world for our intravitreal drug delivery product candidates, but only one patent issuance to date outside of the United States.

Patents might not be issued and we may never obtain any patent protection or may only obtain substantially limited patent protection outside of the United States with respect to our products.

Further, the complexity and uncertainty of European patent laws have increased in recent years.

In Europe, a new unitary patent system will likely be introduced by the end of 2023, which would significantly impact European patents, including those granted before the introduction of such a system.

Under the unitary patent system, European applications will soon have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (UPC).

As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation.

Patents granted before the implementation of the UPC will have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries.

Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC.

We cannot predict with certainty the long-term effects of any potential changes.

Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all.

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Databases for patents and publications, and methods for searching them, are inherently limited so it is not practical to review and know the full scope of all issued and pending patent applications.

As a result, the issuance, scope, validity, enforceability and commercial value of our licensed patent rights are uncertain.

As a result, the issuance, scope, validity, enforceability and commercial value of our licensed and owned patent rights are uncertain.

Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.

In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional preclinical or clinical data that support the patentability of our proposed claims.

We may not be able to generate sufficient additional data on a timely basis, or at all.

Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

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Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

However, the Leahy-Smith Act and its

implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

For example, the Leahy-Smith Act provides an administrative tribunal known as the Patent Trial and Appeals Board, or PTAB, that provides a venue for companies to challenge the validity of competitor patents at a cost that is much lower than district court litigation and on timelines that are much faster.

Although it is not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S.

Although it is not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the results of patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S.

patent claims.

The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challenging patents could therefore increase the likelihood that our own licensed patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.

Moreover, if such challenges occur, as indicated above, we have no right to control the defense.

The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challenging patents could therefore increase the likelihood that our own licensed and owned patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.

Moreover, if such challenges occur, as indicated above, we have no right to control the defense of our licensed portfolio.

Instead, we would essentially rely on our licensor to consider our suggestions and to defend such challenges, with the possibility that it may not do so in a way that best protects our interests.

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Such indirect enforcement is more difficult to achieve.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed patents may be challenged in the courts or patent offices in the United States and abroad.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed and owned patents may be challenged in the courts or patent offices in the United States and abroad.

Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

These patents largely relate to the hydrogel composition of our intracanalicular inserts and the drug-release design scheme of our inserts.

As such, if a third party were able to design around the formulation and process patents that we license and create a different formulation using a different production process not covered by our patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing its product.

These patents largely relate to the hydrogel composition and drug-release design scheme of our products.

As such, if a third party were able to design around the formulation and process patents that we license and own and create a different formulation using a different production process not covered by our patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing its product.

If we are not able to obtain patent term extensions in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of our marketing exclusivity for our product and product candidates, our business may be impaired.

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Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates.

Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to

apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements.

Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements.

Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request.

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If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially.

We may become involved in lawsuits to protect or enforce our licensed patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our licensed patents or other intellectual property.

We may become involved in lawsuits to protect or enforce our licensed and owned patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our licensed or owned patents or other intellectual property.

As a result, to counter infringement or unauthorized use, we may file infringement claims, which can be expensive and time-consuming.

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Our commercial success depends upon our ability to develop, manufacture, market and sell our products and product candidates and use our proprietary technologies without infringing the proprietary rights of third parties.

There is considerable intellectual property litigation in the biotechnology, medical device, and pharmaceutical industries.

We may become party to, or threatened with, infringement litigation claims regarding our products and technology, including claims from competitors or from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect.

Moreover, we may become party to future adversarial proceedings or litigation regarding our patent portfolio or the patents of third parties.

Such proceedings could also include contested post-grant proceedings such as oppositions, inter partes review, reexamination, interference or derivation proceedings before the USPTO or foreign patent offices.

Such proceedings could also

include contested post-grant proceedings such as oppositions, inter partes review, reexamination, interference or derivation proceedings before the USPTO or foreign patent offices.

The legal threshold for initiating litigation or contested proceedings is low, so that even lawsuits or proceedings with a low probability of success might be initiated and require significant resources to defend.

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The risks of being involved in such litigation and proceedings may increase as our products or product candidates near commercialization and as we gain the greater visibility associated with being a public company.

Third parties may assert infringement claims against us based on existing patents or patents that may acquire or be granted in the future.

Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.

We may not be aware of all such intellectual property rights potentially relating to our products or product candidates and their uses, or we may incorrectly determine that a patent is invalid or does not cover a particular product or product candidate.

Thus, we do not know with certainty that DEXTENZA, ReSure Sealant or any of our product candidates, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.

Thus, we do not know with certainty that any of our products or product candidates, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.

We have been made aware by a third party of patents relating to intracanalicular inserts that may relate to, and potentially could be asserted against, our intracanalicular insert product and product candidates, including DEXTENZA.

We believe that DEXTENZA does not infringe any claims of these patents.

We also believe that such claims, if and to

the extent they were asserted against our product candidates, would be subject to claims of invalidity.

We also believe that such claims, if and to the extent they were asserted against our product candidates, would be subject to claims of invalidity.

We initiated legal proceedings against one of these patents and administrative proceedings against the other two patents in order to show that DEXTENZA does not infringe the claims of these patents or that these patents are invalid.

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If this patent were asserted against DEXTENZA or other of our product candidates, we believe such patent would be non-infringed and subject to a claim of invalidity.

If we are found to infringe a third party’s intellectual property rights, such as the patents referred to in the preceding paragraph, we could be required to obtain a royalty-bearing license from such third party to continue developing and marketing our products and technology.

If we are found to infringe a third party’s intellectual property rights, we could be required to cease manufacturing or commercializing the infringing product or product candidate or to obtain a license from such third party to continue developing and marketing our products and product candidates.

However, we may not be able to obtain any required license on commercially reasonable terms or at all.

Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us.

We could be forced, including by court order, to cease commercializing the infringing technology or product including our intracanalicular insert product and product candidates.

We could be forced, including by court order, to cease commercializing the infringing technology or product containing such technology.

In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent and could be forced to indemnify our customers or collaborators.

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If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

Our license agreement with Incept, under which we license a significant portion of our patent rights and the technology for DEXTENZA, ReSure Sealant and our product candidates, imposes royalty and other financial obligations and other substantial performance obligations on us.

Our license agreement with Incept, under which we license certain portions of our patent rights and the technology for our products and product candidates, imposes royalty and other financial obligations and other substantial performance obligations on us.

We also may enter into additional licensing and funding arrangements with third parties that may impose diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us.

If we fail to comply with our obligations under current or future license and collaboration agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements.

manufacture or market any product that is covered by these agreements or may face other penalties under the agreements.

Such an occurrence could diminish the value of our product.

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As a result, termination of our agreement with Incept, based on our failure to comply with this or any other obligation under the agreement, would cause us to lose a significant portion of our rights to important intellectual property or technology upon which our business depends.

Additionally, the field limit of the license and the requirement that we assign to Incept our rights in certain patent applications may restrict our ability to use certain of our licensed rights to expand our business outside of

the specified fields.

If we determine to pursue a strategy of expanding the use of the hydrogel technology outside of the specified fields, we would need to negotiate and enter into an amendment to our existing license agreement with Incept or a new license agreement with Incept covering one or more additional such fields of use or utilize technologies that do not infringe on such licensed rights.

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Litigation may be necessary to defend against these claims.

In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own.

Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.

Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

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Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.

In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

In addition, some courts are less willing or unwilling to protect trade secrets.

If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us.

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We have only received approval to market DEXTENZA and ReSure Sealant in the United States, and have not received approval to market any of our product candidates or to market DEXTENZA or ReSure Sealant in any jurisdiction outside the United States.

Further, we have only received approval to market DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis and have not received approval to market DEXTENZA for any other indications.

We may determine to seek a CE Certificate of Conformity, which demonstrates compliance with relevant requirements and provides approval to commercialize ReSure Sealant in the European Union.

If we are unable to obtain a CE Certificate of Conformity for DEXTENZA, ReSure Sealant, or any of our product candidates for which we seek European regulatory approval, we will be prohibited from commercializing such product or products in the European Union and other places which require the CE Certificate of Conformity.

Further, we have only received approval to market DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis.

If we are unable to obtain a CE Certificate of Conformity for any of our products or product candidates for which we seek European regulatory approval, we will be prohibited from commercializing such product or products in the European Union and other places which require the CE Certificate of Conformity.

In such a case, the potential market to commercialize our products may be significantly smaller than we currently estimate.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, especially if additional clinical trials are required, if approval is obtained at all.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, if approval is obtained at all.

Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and purity.

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The FDA, the EMA or other regulatory authorities may determine that our product candidates are not safe or effective, are only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use.

As part of its review of the NDA for DEXTENZA for post-surgical ocular pain, the FDA completed inspections of three sites from our two completed Phase 3 clinical trials for compliance with the study protocol and Good Clinical Practices.

During the first of these inspections, the FDA identified storage temperature excursions for the investigational product that is labeled to be stored in a refrigerated condition between two degrees and eight degrees Celsius.

We also had previously addressed a minor temperature deviation report during the conduct of the Phase 3 trials and communicated a response to the trial sites.

In addition, while investigating the report stemming from the FDA inspection, several more noteworthy temperature excursions were found to have occurred that had not been fully reported.

The FDA also completed two inspections of our manufacturing facility in connection with our NDA for DEXTENZA for the treatment of post-surgical ocular pain.

After each inspection, we received a Form 483 from the FDA pertaining to deficiencies in our manufacturing processes identified during such inspection.

After we responded to the issues which had been identified with corrective action plans, we subsequently received CRLs from the FDA.

We may be subject to similar inspections in the future for DEXTENZA or for other product candidates for which we seek FDA approval.

For example, in February 2021, the FDA requested information and records from us relating to our DEXTENZA commercial manufacturing operations and quality systems pursuant to Form 4003 in advance or in lieu of a drug inspection.

If we are unable to address any identified issues successfully or if the FDA determines that the actions we take to remediate any identified issues to be inadequate, our ability to commercialize any products could be limited, which could adversely affect our ability to achieve or sustain profitability.

The FDA identified several deficiencies and issued us multiple Forms 483s and two CRLs, each of which delayed our development and commercialization efforts.

We may be subject to similar inspections in the future for any of our products and product candidates.

Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the

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Any marketing approval we or any current or future collaborator of ours ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

For example, in December 2022, with the passage of Food and Drug Omnibus Reform Act, or FDORA, Congress required sponsors to develop and submit a diversity action plan for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product.

These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products.

Actions plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them.

In addition to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans.

Similarly, the regulatory landscape related to clinical trials in the EU recently evolved.

The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022.

While the Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application to all member states concerned.

The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state.

The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules.

Each member state’s decision is communicated to the sponsor via the centralized EU portal.

Once the CTA is approved, clinical study development may proceed.

If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans might be adversely impacted.

Finally, disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business.

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Thus, if any of our product candidates receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.

The FDA required two post-approval studies as a condition for approval of our premarket approval application for ReSure Sealant.

The first post-approval study, identified as the Clinical PAS, was to enroll at least 598 subjects to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of the most prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSure Sealant.

We submitted the final study report of the Clinical PAS to the FDA in June 2016.

The second post-approval study, identified as the Device Exposure Registry, or DER, Study, was intended to link to the Medicare database to ascertain if subjects are diagnosed or treated for endophthalmitis within 30 days following cataract surgery and application of ReSure Sealant.

The originally approved DER Study was required to include at least 4,857 subjects.

Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we were unable to enroll trial sites and subjects, collect subject data and report study data to the FDA.

On October 18, 2018, we received a warning letter from the FDA, dated October 17, 2018, relating to our compliance with data collection and information reporting obligations in this study.

A teleconference was held with the FDA in January 2019 resulting in tentative agreement on a proposed retrospective registry study of endophthalmitis rates to satisfy the DER Study requirements.

In December 2019, we submitted the protocol for the agreed-upon retrospective study and the prospective study outline, as required per the terms of the warning letter.

In May 2020, the FDA approved the protocol.

We completed the retrospective study in accordance with our agreement with the FDA and submitted the final study report for the DER Study to the FDA in January 2021.

In April 2021, the FDA confirmed that the DER Study had been completed and that we had fulfilled our post-approval study requirements.

The FDA is also requiring us to conduct clinical trials of DEXTENZA for the treatment of post-surgical ocular inflammation and pain and for the treatment of ocular itching associated with allergic conjunctivitis in pediatric populations.

These are post-approval requirements in accordance with the Pediatric Research Equity Act of 2003.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs applicable to drug and biologic manufacturers or quality assurance standards applicable to medical device manufacturers, which include requirements relating to quality control and quality assurance as well as the corresponding

maintenance of records and documentation and reporting requirements.

The FDA required two post-approval studies as a condition for approval of our premarket approval application for ReSure Sealant, the last of which the FDA confirmed was complete in April 2021.

The studies were expensive, required extensive communication and coordination with the FDA, and took more than five years to complete.

The FDA is currently requiring us to conduct a clinical trial of DEXTENZA for the treatment of post-surgical ocular inflammation and pain and for the treatment of ocular itching associated with allergic conjunctivitis in pediatric populations in accordance with the Pediatric Research Equity Act of 2003.

We, any contract manufacturers we may engage in the future, our current or future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to physicians, recordkeeping, and costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.

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Our relationships with healthcare providers, physicians and third-party payors will be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, in the event of a violation, could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription and use of DEXTENZA, ReSure Sealant and any product candidates for which we obtain marketing approval.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription and use of our products and any product candidates for which we obtain marketing approval.

Our future arrangements with healthcare providers, physicians and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval.

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● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

● the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals;

● the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians, other healthcare providers and teaching hospitals;

● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

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Current and future legislation or executive actions may increase the difficulty and cost for us and any current or future collaborators to obtain marketing approval of and commercialize our products or product candidates and affect the prices we, or they, may obtain.

of our drug candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any future collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval.

In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any future collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval.

We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved drugs.

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These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2031 under the CARES Act.

Pursuant to subsequent legislation, however, these Medicare sequester reductions have been suspended through the end of March 2022.

From April 2022 through June 2022 a 1% sequester cut is scheduled to go into effect, with the full 2% cut scheduled to resume thereafter.

Pursuant to subsequent legislation, however, these Medicare sequester reductions were suspended and reduced through the end of June 2022, with the full 2% cut scheduled to resume thereafter.

The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our products or product candidates for which we may obtain regulatory approval or the frequency with which any such product is prescribed or used.

Under current legislation, the actual reductions in Medicare payments may vary up to 4%.

Since enactment of the ACA, there have been and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law.

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We expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market.

Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered.

Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our

products are prescribed or administered.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

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The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA.

Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.

The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation.

The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed by the Biden administration until January 1, 2023.

The final rule would eliminate the current safe harbor for Medicare drug rebates and create new safe harbors for beneficiary point-of-sale discounts and PBM service fees.

It originally was set to go into effect on January 1, 2022, but with passage of the Inflation Reduction Act has been delayed by Congress to January 1, 2032.

On July 9, 2021, President Biden signed Executive Order 14063, which focuses on, among other things, the price of pharmaceuticals.

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and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.

More recently, on August 16, 2022, the IRA was signed into law by President Biden.

The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage.

Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap;

imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023);

and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025).

The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed

under Medicare Part B and Part D.

CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond.

This provision applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition.

Nonetheless, since CMS may establish a maximum price for these products in price negotiations, we would be fully at risk of government action if our products were to become the subject of Medicare price negotiations.

Moreover, given the risk that could be the case, these provisions of the IRA may also further heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products if prices are set after such products have been on the market for nine years.

Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation.

The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation.

The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.

In addition, the IRA potentially raises legal risks with respect to individuals participating in a Medicare Part D prescription drug plan who may experience a gap in coverage if they required coverage above their initial annual coverage limit before they reached the higher threshold, or “catastrophic period” of the plan.

Individuals requiring services exceeding the initial annual coverage limit and below the catastrophic period, must pay 100% of the cost of their prescriptions until they reach the catastrophic period.

Among other things, the IRA contains many provisions aimed at reducing this financial burden on individuals by reducing the co-insurance and co-payment costs, expanding eligibility for lower income subsidy plans, and price caps on annual out-of-pocket expenses, each of which could have potential pricing and reporting implications.

Accordingly, while it is currently unclear how the IRA will be effectuated, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

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In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.

To obtain reimbursement or pricing approval in some countries, we or our

collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies.

To obtain reimbursement or pricing approval in some countries, we or our collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies.

If reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, our business could be materially harmed.

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The regulations governing the calculations, price reporting and payment obligations are complex and subject to interpretation by various government and regulatory authorities, as well as the courts.

Reasonable assumptions have been made where there is lack of regulations or clear guidance and such assumptions involve subjective decisions and estimates.

Reasonable assumptions have been made where there is

lack of regulations or clear guidance and such assumptions involve subjective decisions and estimates.

Pharmaceutical companies are required to report any revisions to calculations, price reporting and payment obligations previously reported or paid.

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Failure to obtain marketing approval in foreign jurisdictions would prevent our products or product candidates from being marketed abroad.

In order to market and sell DEXTENZA, ReSure Sealant or our product candidates in the European Union and many other jurisdictions, including certain jurisdictions covered by our AffaMed collaboration, we or our third-party

collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements.

In order to market and sell our products and product candidates in the European Union and many other jurisdictions, including certain jurisdictions covered by our AffaMed collaboration, we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements.

The approval procedure varies among countries and can involve additional testing.

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We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.

Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit.

Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, may force us to restrict or delay efforts to commercialize any product candidates in the United Kingdom and restrict our ability to generate revenue and achieve and sustain profitability, which could significantly and materially harm our business.

We expect that we will also be subject to additional risks in commercializing any of our product candidates that receive marketing approval outside the United States, including tariffs, trade barriers and regulatory requirements;

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Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.

Given the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements is rigorous and time intensive and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in applicable jurisdictions.

and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in applicable jurisdictions.

These changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.

Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Our computer systems and those of our current and any future collaborators, contractors or consultants are vulnerable to damage including from computer viruses, unauthorized access, and telecommunication and electrical failures.

If a material system failure, accident or security breach were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations.

For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.

To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the development and commercialization of our products and product candidates could be delayed.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

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Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time.

We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is critical to our success.

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In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy.

Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

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We have been subject to legal proceedings related to the decline in our stock price, and we could be subject to similar legal proceedings in the future, which could distract our management and could result in substantial costs or large judgments against us.

The market prices of securities of companies in the biotechnology and pharmaceutical industry have been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.

These fluctuations could adversely affect the market price of our common stock.

In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities.

In July 2017, we experienced a decline in our stock price following our announcement that we had received notice of the FDA’s determination that it could not approve our NDA for DEXTENZA in its then present form.

In 2017 and 2018, class action lawsuits were filed against us and certain of our current and former executive officers and shareholder derivative actions were filed against certain of our current and former executive officers, certain of our current and former board members, and two of our investors and against the company as a nominal defendant.

In 2017 and 2018, class action lawsuits were filed against us and certain of our executive officers and shareholder derivative actions were filed against certain of our executive officers and directors, and two of our investors and against the company as a nominal defendant.

While these legal proceedings were ultimately resolved in our and/or the applicable defendants’ favor, they were distracting and were both time-consuming and costly to defend.

Around this time, we also received subpoenas from the Securities and Exchange Commission seeking documents and information concerning DEXTENZA, including related communications with the FDA and investors;

in May 2019, the SEC notified us that it had concluded its investigation.

Due to the volatility in our stock price, we may be the target of similar proceedings in the future.

We also may face securities class-action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize DEXTENZA or our other product candidates successfully.

We may be the target of similar proceedings in the future.

We also may face securities class-action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize our products or product candidates successfully.

In connection with any such legal proceedings, we could incur substantial costs and such costs and any related settlements or judgments may not be covered by insurance.

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The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for holders of our common stock.

Our stock price may be volatile.

Our stock price has been, and in the future may be, volatile.

The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance.

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● the recruitment or departure of key scientific or management personnel;

● the level of expenses related to any of our product candidates or clinical development programs;

● the results of our efforts and the efforts of our current and future collaborators to discover, develop, acquire or in-license additional products, product candidates or technologies for the treatment of ophthalmic diseases or conditions, the costs of commercializing any such products and the costs of development of any such product candidates or technologies;

● the results of our efforts and the efforts of our current and future collaborators to discover, develop, acquire or in-license and out-license additional products, product candidates or technologies for the treatment of ophthalmic diseases or conditions, the costs of commercializing any such products and the costs of development of any such product candidates or technologies and any potential dilution to our shareholders as a result of these efforts;

● actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

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● the ability to secure third-party reimbursement for our products or product candidates;

● changes in the structure of healthcare payment systems;

● market conditions in the pharmaceutical and biotechnology sectors;

● general economic, political and social, industry and market conditions;

● the other factors described in this “Risk Factors” section.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

In addition, certain holders of our convertible notes and their affiliates beneficially own approximately 9.5 million shares of our common stock and have rights, subject to specified conditions, to require us to file registration statements covering such common stock.

Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gain.

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As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.

General Risk Factors

We incur increased costs as a result of operating as a public company, and as a result, our management is required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, we incur and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

Our management and other personnel devote a substantial amount of time to these compliance initiatives.

Moreover, these rules and regulations generate significant legal and financial compliance costs and make some activities more time-consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting.

On January 1, 2020, we became subject to the requirement to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm because we were no longer an emerging growth company.

It is both costly and challenging to maintain compliance with other provisions of Section 404.

In this regard, we will continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.

Despite our efforts, there is a risk that neither we nor, if required, our independent registered public accounting firm will be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

If we or our independent registered public accounting firm identify one or more material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.

Our internal computer systems and those of our current and any future collaborators, contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.

While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions.

For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.

To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our products and product candidates could be delayed.

Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.

Changes in tax law may adversely affect our business or financial condition.

On December 22, 2017, President Trump signed the 2017 Tax Act into law, which significantly revised the Internal Revenue Code of 1986, as amended.

The 2017 Tax Act, among other things, contained significant changes to corporate federal income taxation, including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), the limitation of the deduction for NOLs to 80% of current year taxable income and elimination of NOL carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such NOLs may be carried forward indefinitely), the imposition of one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, the elimination of U.S.

tax on foreign earnings (subject to certain important exceptions), the allowance of immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits.

As part of Congress’ response to the COVID-19 pandemic, the FFCR Act was enacted on March 18, 2020, and the CARES Act was enacted on March 27, 2020.

Both contain numerous tax provisions.

In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of NOLs, which was enacted as part of the 2017 Tax Act.

It also provides that NOLs arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30 to 50% of adjusted taxable income.

Regulatory guidance under the 2017 Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition.

It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic or that additional tax legislation may also be enacted;

any such additional legislation could have an impact on us.

In addition, it is uncertain if and to what extent various states will conform to the 2017 Tax Act, the FFCR Act or the CARES Act.

Unresolved Staff Comments

Not Applicable.

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 1A. Risk Factors