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Item 7. Management’s Discussion and Analysis

2023-03-06 compared with 2022-02-28 · 138 added, 222 removed, 293 unchanged (55% of the section changed)

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

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

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

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

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

glaucoma and ocular hypertension;

and ocular surface diseases and conditions including dry eye disease.

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

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

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

Commercial Portfolio

Post-Surgical Ocular Inflammation and Pain

Ocular Itching Associated with Allergic Conjunctivitis

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

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

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

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

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

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

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

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

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

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

Prevention of Wound Leaks Following Cataract Surgery

ReSure Sealant

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

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

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

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

Clinical Portfolio

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

Retinal Disease Program

OTX-TKI (axitinib intravitreal implant)

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

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

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

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

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

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

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

Glaucoma Program

OTX-TIC (travoprost intracameral implant)

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

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

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

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

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

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

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

Ocular Surface Disease Programs

Dry Eye Disease

OTX-CSI (cyclosporine intracanalicular insert)

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

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

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

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

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

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

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

OTX-DED (dexamethasone intracanalicular insert)

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

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

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

The clinical trial achieved its pre-specified primary endpoint.

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

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

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

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

Our mission is to build an ophthalmology-focused biopharmaceutical company that capitalizes on the gaps that we believe increasingly exist in the ophthalmology sector between single product companies and large, multi-product pharmaceutical companies.

Our current products and product candidates in clinical development incorporate therapeutic agents that have previously received regulatory approval from the U.S.

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

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

We are currently commercializing DEXTENZA, an intracanalicular insert for the treatment of both post-surgical ocular inflammation and pain and ocular itching associated with allergic conjunctivitis, in the United States.

We also have product candidates in preclinical and clinical development:

● OTX-TKI, an axitinib intravitreal implant being developed for the treatment of wet AMD, diabetic retinopathy and other retinal diseases;

● OTX-TIC, a travoprost intracameral implant being developed for the reduction of intraocular pressure, or IOP, in patients with primary open-angle glaucoma or ocular hypertension;

● OTX-DED, a dexamethasone intracanalicular insert being developed for the short-term treatment of the signs and symptoms of dry eye disease;

● OTX-CSI, a cyclosporine intracanalicular insert being developed for the chronic treatment of dry eye disease;

● A complement inhibitor program in preclinical development for the treatment of dry age-related macular degeneration, or dry AMD;

● A gene delivery program in preclinical development using our hydrogel technology to control the release of vectors such as adeno-associated virus to ocular tissues for the treatment of inherited and acquired ocular diseases, including dry or wet AMD.

AffaMed License Agreement

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

South Korea ;

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

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

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

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

South Korea and the countries of the Association of Southeast Asian Nations.

well as royalties from future product sales.

In the fourth quarter of 2021, we received a $1 million milestone payment upon the approval by the FDA of an sNDA for DEXTENZA to include the treatment of ocular itching associated with allergic conjunctivitis as an additional indication;

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

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

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

In January 2022,

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

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

Additional Potential Areas for Growth

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

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

Business Update Regarding COVID-19

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

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

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

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

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

In the paragraphs that follow, we have described impacts of the COVID-19 pandemic on our clinical development programs.

For additional information on risks posed by the COVID-19 pandemic, please see “Item 1A — Risk Factors — Risks Related to the Coronavirus Pandemic,” included elsewhere in this Annual Report on Form 10-K.

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

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

Financial Position

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

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

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

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on our continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery and for the treatment of ocular itching associated with allergic conjunctivitis, and our development and commercialization of other products with significant market potential, including OTX-TKI for the treatment of wet AMD, diabetic retinopathy and other retinal diseases, OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, 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.

Since inception, we have incurred significant operating losses.

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

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

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

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

continue the research and development of our other product candidates;

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

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

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

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

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

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

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

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

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

Our total costs and operating expenses were $130.1 million, $121.6 million and $80.3 million for the years ended December 31, 2022, 2021 and 2020, respectively, including $17.0 million, $15.0 million and $7.5 million, respectively, in non-cash stock-based compensation expense.

Our operating expenses have grown as we continue to commercialize DEXTENZA;

pursue the clinical development of OTX-TKI, OTX-TIC, OTX-DED and OTX-CSI, develop other product candidates;

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

We expect to incur substantial sales and marketing expenses in connection with the ongoing commercialization of DEXTENZA and any commercialization efforts for any other product candidate for which we may receive approval.

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

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

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

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

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

In 2020, we conducted three separate underwritten public offerings.

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

We refer to this offering as the May 2020 Offering.

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

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

We refer to this offering as the October 2020 Offering.

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

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

We refer to this offering as the December 2020 Offering.

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

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

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

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

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

In the twelve months ended December 31, 2020, we sold in the aggregate 21,949,841 shares of common stock resulting in net proceeds of approximately $210.1 million, after commissions and expenses.

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

In connection with entering into the 2021 Sales Agreement, we and Jefferies terminated our prior Open Market Sale Agreement which we had entered into in 2019.

As of March 3, 2023, we have not sold any shares of our common stock under the 2021 Sales Agreement.

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

Products with these characteristics are designed to be attractive not only to physicians,

optometrists and patients but also to the sites of care that participate in utilization.

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

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

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

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

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

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

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

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

In the fourth quarter of 2022, in-market unit sales figures—unit sales from specialty distributors to ASCs and HOPDs — were in excess of 31,000 billable units.

During 2022, we established a rigorous hiring process to assemble an experienced sales team that has deep buy-and-bill, ophthalmology, and surgical experience.

We also adjusted our discounting strategy to meet the demands of the market.

In the third quarter of 2022, we implemented an off-invoice discount program whereby providers receive the discounted price immediately upon purchase, rather than having to wait until the end of the quarter for a rebate payment.

During the first two months of 2023, we are seeing continued momentum with sales of in-market billable units running more than 20% ahead of 2022 levels in the same period.

In 2023, we plan to launch a customer assistance program to support the expansion of DEXTENZA in-market unit sales for commercially insured patients not covered by government payors.

We believe that our existing cash and cash equivalents of $102.3 million as of December 31, 2022, 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 DEXTENZA product sales and cash outflows from both operating expenses and capital expenditures 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.

These and other assumptions upon which w e have based our estimate may prove to be wrong, and we could use our capital resources sooner than we currently expect and would therefore need to raise additional capital to support our ongoing operations or adjust our plans accordingly.

See “—Liquidity and Capital Resources.”

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

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

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

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

We also commenced sales of ReSure Sealant in the first quarter of 2014, but we have received only limited revenues from ReSure Sealant and do not expect to receive revenues in the future.

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

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

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

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

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

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

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

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

For the year ended December 31, 2022, three specialty distributor customers accounted for 44%, 25% and 17% of our total revenue, and at December 31, 2022, three specialty distributor customers accounted for 52%, 24% and 15% of our total accounts receivable.

No other customer accounted for more than 10% of total revenue for the year ended December 31, 2022, or accounts receivable at December 31, 2022.

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

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

For the year ended December 31, 2020, three specialty distributor customers accounted for 42%, 29% and 12% of our total revenue.

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

Operating Expenses

Cost of Product Revenue

Cost of product revenue consists primarily of costs of DEXTENZA and ReSure product revenue, which include:

Cost of product revenue consists primarily of costs of DEXTENZA product revenue, which include:

● Direct materials costs;

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

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

Selling and Marketing Expenses

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

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

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

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

Selling and marketing expenses for DEXTENZA have increased in connection with the approval of the additional indication for ocular itching associated with allergic conjunctivitis.

We anticipate that our selling and marketing expenses associated with DEXTENZA will continue to increase, particularly as we support the ongoing commercialization of DEXTENZA in 2023 and beyond.

Other Income (Expense)

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Interest Expense .

Interest expense consists of interest expense on our debt.

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

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

We have amended our Credit Agreement several times.

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

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

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

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

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

Interest expense is incurred on our debt.

In June 2021, we amended and restated our credit and security agreement, which we refer to as our Credit Agreement, to increase the aggregate principal amount borrowed under our credit facility, which we refer to as our Credit Facility, to $25.0 million, extend the interest-only payment period to May 1, 2024, and extend the maturity date to November 2025.

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

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

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

Change in Fair Value of Derivative Liability.

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

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

We also sell DEXTENZA directly to a small population of ASCs, based on individually negotiated direct distribution agreements.

In addition, we enter into arrangements with health care providers and payors that provide for government mandated or privately negotiated rebates and chargebacks with respect to the purchase of DEXTENZA.

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

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Trade Discounts and Allowances —We compensate (through trade discounts and allowances) our customers for sales order management, data, and distribution services.

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

However, we have determined such services received to date are not distinct from our sale of products to the customer and, therefore, these payments have been recorded as a reduction

of revenue within the statement of operations and comprehensive loss, as well as a reduction to trade receivables, net on the consolidated balance sheets.

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

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

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

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

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

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

Purchaser/Provider Discounts and Rebates —We offer rebate payments for which ASCs, HOPDs and other prescribers qualify by meeting quarterly purchase volumes of DEXTENZA under our volume-based rebate program.

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

In the third quarter of 2022, we implemented a separate off-invoice discount, or OID, rebate program whereby end- users receive the discounted price immediately upon purchase, rather than having to wait until the end of the quarter for a rebate payment.

The OID amounts are generally determined at the time of resale by specialty distributors, or SDs, or direct sales to ASCs by us.

We generally issue credits for such amounts within a few weeks of the SD’s notification to us of the resale.

We include the OID on the invoice when we sell to an ASC directly.

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

The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as an accrued expenses and other current liabilities for volume-based rebates and as a reduction of accounts receivable for OID rebates.

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

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

The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the

establishment of a current liability which is included as accrued expenses and other current liabilities on the consolidated balance sheets.

Derivative Liability

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Product revenue, net

Collaboration revenue

Total revenue, net

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Our total gross-to-net provisions for the years ended December 31, 2022 and 2021 were 24.9% and 25.5%, respectively, of gross DEXTENZA product sales.

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

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

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

We generated $50.5 million of net revenue during the year ended December 31, 2022 from sales of our products, all of which was attributable to sales of DEXTENZA.

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

million was attributable to sales of ReSure Sealant.

The growth in revenue for DEXTENZA was due to increased market acceptance and the continued commercialization efforts during 2022.

Collaboration Revenue

We recognized $1.0 million of collaboration revenue related to the performance obligation under our license agreement with AffaMed to conduct a Phase 2 clinical trial of OTX-TIC during the year ended December 31, 2022.

We recognize collaboration revenue based on a cost-to-cost method.

There was no collaboration revenue during the year ended December 31, 2021.

Research and Development Expenses

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Direct research and development expenses by program:

OTX-TKI for diabetic retinopathy

OTX-TKI for wet AMD

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ReSure Sealant

OTX-TP for glaucoma and ocular hypertension

OTX-AFS for wet AMD, DME and RVO

Preclinical programs

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Research and development expenses were $53.5 million for the year ended December 31, 2022, compared to $50.1 million for the year ended December 31, 2021.

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

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

The increase of $3.4 million was primarily due to an increase of $7.9 million in unallocated expenses offset by a decrease in direct research and development program expenses of $4.5 million.

Unallocated research and development costs increased $7.9 million for the year ended December 31, 2022, compared to the year ended December 31, 2021 primarily due to an increase in unallocated personnel costs of $4.7 million in personnel to support our product candidates and $3.2 million in all other costs related to facilities, general lab supplies and consulting.

For the year ended December 31, 2022, we incurred $11.2 million in direct research and development expenses for our product candidates compared to $16.9 million for the year ended December 31, 2021.

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

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

The decrease of $5.7 million is related to timing and start of our various clinical trials for our product candidates.

We expect that clinical trial expenses will be at approximately the same level for 2023 for our product candidates including for OTX-TKI for wet AMD due to the continuation of the ongoing U.S.-based Phase 1 clinical trial and our Phase 1 clinical trial in diabetic retinopathy and for OTX-TIC due to the continuation of the ongoing Phase 2 clinical trial.

Selling and Marketing Expenses

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Selling and marketing expenses were $39.9 million for the year ended December 31, 2022, compared to $35.2 million for the year ended December 31, 2021.

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

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

The increase of $4.7 million was primarily due to an increase of $3.8 million in personnel costs, including stock-based compensation as the Company expanded the field-based team to support the commercialization of DEXTENZA, and an increase of $1.0 million in professional fees including consulting, trade shows, and conferences.

We expect our selling and marketing expenses to increase in 2023 and beyond as we continue to support the commercialization of DEXTENZA.

General and Administrative Expenses

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General and administrative expenses were $32.2 million for the year ended December 31, 2022, compared to $31.9 million for the year ended December 31, 2021.

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

The increase of $0.3 million was primarily due to an increase of $1.3 million in personnel related costs including stock-based compensation, which was partially offset by a decrease in professional fees of $0.8 million and a decrease of $0.2 million in facility related and other costs.

Other Income (Expense), Net

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

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

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

Other income, net was $7.6 million for the year ended December 31, 2022, compared to other income, net of $71.5 million for the year ended December 31, 2021.

The change of $63.9 million, was primarily due to an unrealized gain of $13.8 million during the year ended December 31, 2022 as compared to unrealized gain of $78.1 million in December 31, 2021 due to changes in the underlying inputs of the derivative liability, primarily related to a decrease in our common stock price between the time periods between December 31, 2020 and December 31, 2021 and December 31, 2021 and December 31, 2022.

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

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A discussion of changes in our results of operations during the year ended December 31, 2021 compared to the year ended December 31, 2020 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022, which discussion is incorporated herein by reference and which is available free of charge on the SECs website at www.sec.gov.

Liquidity and Capital Resources

Since inception, we have incurred significant operating losses.

We have a history of incurring significant operating losses.

Our net losses were $71.0 million, $6.6 million, and $155.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

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

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

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

While it is difficult to predict the extent or duration of the impact of the global COVID-19 pandemic on future financial results, we anticipate current guidelines and recommendations from the global health authorities, including the delay of elective surgeries, will impact revenue for 2022 and potentially beyond.

Through December 31, 2022, we have financed our operations primarily through private placements of our preferred stock, public offerings of our common stock, private placements of our convertible notes and borrowings under credit facilities, which has resulted in net proceeds of $637.2 million to us.

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

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

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

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

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

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

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

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

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

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

Under our Credit Agreement, we have a term loan in the aggregate principal amount of approximately $20.8 million, which was rolled over from our prior borrowings under our Credit Facility, and an additional term loan in the principal amount of approximately $4.2 million.

We refer to these term loans together as the Term Loans.

The aggregate principal amount of the Term Loans available under the Credit Facility, or the Total Credit Facility Amount, is $25.0 million, the entirety of which was drawn at the closing of the most recent amendment to our Credit Facility in June 2021.

As of December 31, 2022, the interest rate was 10.87%.

Under the current terms of our Credit Facility, we are permitted to make interest-only payments on the Term Loans on a monthly basis until May 1, 2024.

Thereafter, in addition to the monthly interest payments, we are required to make principal payments on the Term Loans in accordance with the amortization schedules set forth in the Credit Agreement.

Remaining unpaid principal and accrued interest outstanding on the maturity date is due on the maturity date, which shall be November 30, 2025, unless we are able to provide the Administrative Agent evidence reasonably satisfactory to it, by November 15, 2025, that the outstanding principal amount of the 2026 Convertible Notes has been converted into equity interests of ours and that such indebtedness is otherwise indefeasibly satisfied in full, in which case the term is automatically extended until April 1, 2026.

As of December 31, 2022, we had cash and cash equivalents of $102.3 million, notes payable of $25.0 million face value and senior subordinated convertible notes of $37.5 million par value, plus accrued interest of $8.8 million.

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

Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses, we believe that our existing cash and cash equivalents, as of December 31, 2022, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements into the middle of 2024, excluding our planned pivotal clinical trials for OTX-TKI as we do not intend to initiate such trials without receipt of additional funding .

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

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Cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Operating activities.

Net cash used in operating activities was $59.6 million for the year ended December 31, 2022, primarily resulting from our net loss of $71.0 million and by non-cash adjustments of $10.1 million and cash generated by changes in our operating assets and liabilities of $1.3 million.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $51.5 million of revenue in the period.

Our net non-cash charges during the year ended December 31, 2022 primarily consisted of $17.0 million in stock-based compensation, the change in fair value of the derivative liability of $13.8 million, $4.9 million of non-cash interest expense and $2.1 million of depreciation expense.

Net cash generated by changes in our operating assets and liabilities during the year ended December 31, 2022 consisted primarily of an increase in operating lease liability of $2.7 million, an increase of $1.6 million in accrued expenses, an increase in deferred revenue of $1.0 million and an decrease of prepaid expenses of $0.7 million partially offset by increase in inventory of $0.7 million, decrease in accounts payable of $0.6 million and an increase of accounts receivable of $0.2 million.

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

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

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

million of non-cash interest expense and $2.4 million of depreciation expense.

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

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

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

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

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

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

Investing activities.

Net cash used in investing activities was $1.2 million for the year ended December 31, 2021, consisting of cash used to purchase property and equipment.

Net cash used in investing activities was $3.7 million for the year ended December 31, 2022, consisting of cash used to purchase property and equipment and leasehold improvements.

Net cash used in investing activities was $1.2 million for the year ended December 31, 2021, consisting of cash used to purchase property and equipment.

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Financing activities.

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

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

Net cash provided by financing activities for the year ended December 31, 2022 was $1.5 million and consisted of proceeds from the issuance of common stock pursuant to our employee stock purchase plan of $0.9 million and proceeds from the exercise of stock options of $0.5 million.

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

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

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

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proceeds from the exercise of stock options of $2.6 million;

and proceeds from issuance of common stock pursuant to our employee stock purchase plan of $0.8 million.

Net cash provided by financing activities for 2019 was $75.3 million and consisted primarily of proceeds from the 2026 Convertible Notes of $37.3 million and the 2016 Sales Agreement of $4.9 million, net of commissions and other offering expenses and the 2019 Sales Agreement of $32.6 million, net of commissions and other offering expenses.

and proceeds from the issuance of common stock pursuant to our employee stock purchase plan of $0.8 million.

Funding Requirements

We expect to continue to incur losses in connection with our ongoing activities, particularly as we advance the clinical trials of our products in development and increase our sales and marketing resources to support the DEXTENZA launch and the potential launch of our product candidates, subject to receiving FDA approval.

We expect to continue to incur losses in connection with our ongoing activities, particularly as we advance the clinical trials of our product candidates in development and increase our sales and marketing resources to support the commercialization of DEXTENZA and the potential launch of our product candidates, subject to receiving FDA approval.

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

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

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

● 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 OTX-TKI (in both Australia and the United States) for the treatment of wet AMD OTX-TKI in the United States for the treatment of diabetic retinopathy and diabetic retinopathy 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 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;

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

● defend ourselves against legal proceedings;

● d efend ourselves against legal proceedings;

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

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

● continue to operate as a public company.

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

Based on our current plans and forecasted expenses, which includes estimates related to anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses, we believe that our existing cash and cash equivalents, as of December 31, 2022, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements into the middle of 2024, excluding our planned pivotal clinical trials for OTX-TKI as we do not intend to initiate such trials without receipt of additional funding .

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

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

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

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

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

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

We do not have any committed external source of funds 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 as well as royalty payments.

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

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.

The covenants under our existing Credit Agreement, the pledge of our assets as collateral limit our ability to obtain additional debt financing.

The covenants under our existing Credit Agreement and the pledge of our assets as collateral limit our ability to obtain additional debt financing.

If we raise additional funds through government or other third-party funding, 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 or product candidates or grant licenses on terms that may not be favorable to us.

In addition, the COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could adversely impact our ability to raise additional funds through equity or debt financings.

If we are unable to raise additional funds through equity or debt financings 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.

If we are unable to raise additional funds through equity or debt financings 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.

Since our inception in 2006, we have not recorded any U.S.

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Our federal NOLs generated for the years ended after December 31, 2018, which amounted to a total of $327.5 million, can be carried forward indefinitely.

As of December 31, 2021, we also had available research and development tax credit carryforwards for federal and state income tax purposes of $10.9 million and $6.1 million , respectively, which begin to expire in 2026 and 2025, respectively.

As of December 31, 2022, we also had available research and development tax credit carryforwards for federal and state income tax

purposes of $13.4 million and $7.8 million, respectively, which begin to expire in 2026 and 2025, respectively.

We have not completed a study to assess whether an ownership change, generally defined as a greater than 50% change (by value) in the equity ownership of our corporate entity over a three-year period, has occurred or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such studies.

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

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

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

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

We expect lease costs under these commitments to total $2.7 million in 2023 and increase annually.

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

The holders of the 2026 Convertible Notes may convert all or part of the outstanding principal

amount of their 2026 Convertible Notes into shares of our common stock, par value $0.0001 per share, prior to maturity and provided that no conversion results in a holder beneficially owning more than 19.99% of our issued and outstanding common stock.

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

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

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Upon any conversion of any 2026 Convertible Note, we are obligated to make a cash payment to the holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted.

Upon the occurrence of a Corporate Transaction (as defined in the 2026 Convertible Notes), the holder of a 2026 Convertible Note is entitled, at such holder’s option, to convert all of the outstanding principal amount of the 2026 Convertible Note in accordance with the foregoing and receive an additional, “make-whole” cash payment in accordance with a table set forth in each 2026 Convertible Note.

with the foregoing and receive an additional, “make-whole” cash payment in accordance with a table set forth in each 2026 Convertible Note.

Upon the occurrence of a Corporate Transaction, each holder of a 2026 Convertible Note has the option to require us to repurchase all or part of the outstanding principal amount of such 2026 Convertible Note at a repurchase price equal to 100% of the outstanding principal amount of the 2026 Convertible Note to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

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

If the last reported sale price of the common stock has been at least 130% of the conversion rate then in effect for twenty of the preceding thirty trading days (including the last trading day of such period), we are entitled, at our option, to redeem all or part of the outstanding principal amount of the 2026 Convertible Notes, on a pro rata basis, at an optional redemption price equal to 100% of the outstanding principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the optional redemption date.

The Purchase Agreement contains customary representations and warranties by us and the noteholder.

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

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

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

or the Global Studies;

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

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

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

Off-Balance Sheet Arrangements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis