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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-03-11 · 135 added, 188 removed, 248 unchanged (57% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

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

We are a biopharmaceutical company committed to enhancing people’s vision and quality of life through the development and commercialization of innovative therapies for diseases and conditions of the eye, with a specific focus on retinal disease.

Our program for retinal disease is led by AXPAXLI (axitinib intravitreal implant, also known as OTX-TKI), which is based on our ELUTYX proprietary bioresorbable hydrogel-based formulation technology.

We are currently conducting a pivotal Phase 3 clinical trial to evaluate AXPAXLI for the treatment of wet age-related macular degeneration, or wet AMD, which we refer to as the SOL-1 trial, and a Phase 1 clinical trial for the treatment of diabetic retinopathy.

Our clinical portfolio also includes PAXTRAVA (travoprost intracameral implant, also known as OTX-TIC), which is currently in Phase 2 clinical development for the treatment of primary open-angle glaucoma, or OAG, or ocular hypertension, or OHT.

Our expertise in the formulation, development and commercialization of innovative therapies and our ELUTYX platform supported the development and launch of our first commercial drug product, DEXTENZA, a corticosteroid approved by the U.S.

Food and Drug Administration, or FDA, for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis.

We are also developing two other clinical-stage assets, OTX-DED (dexamethasone intracanalicular insert) for the short-term treatment of the signs and symptoms of dry eye disease, and OTX-CSI (cyclosporine intracanalicular insert) for the chronic treatment of dry eye disease, which we collectively refer to as our Dry Eye Programs, and several preclinical programs.

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

We are a biopharmaceutical company committed to redefining the retina experience.

AXPAXLI (axitinib intravitreal hydrogel, also known as OTX-TKI), our product candidate for retinal disease, is based on our proprietary ELUTYX bioresorbable hydrogel-based formulation technology.

AXPAXLI is currently in two repeat-dosing Phase 3 clinical trials for the treatment of wet age-related macular degeneration, or wet AMD, which we refer to as the SOL-1 and the SOL-R trials.

We have also completed a Phase 1 clinical trial of AXPAXLI for the treatment of non-proliferative diabetic retinopathy, or NPDR, which we refer to as the HELIOS trial.

We intend to meet with the U.S.

Food and Drug Administration, or FDA, in the first half of 2025 to discuss the design of a potential registrational clinical program for AXPAXLI for the treatment of NPDR and diabetic macular edema, or DME, and then evaluate our next steps.

We also leverage the ELUTYX technology in our commercial product DEXTENZA, an FDA-approved corticosteroid for the treatment of ocular inflammation and pain following ophthalmic surgery and for the treatment of ocular itching associated with allergic conjunctivitis, and our product candidate PAXTRAVA (travoprost intracameral hydrogel also known as OTX-TIC), which is currently in a Phase 2 clinical trial for the treatment of open-angle glaucoma, or OAG, or ocular hypertension, or OHT.

Key Business and Financial Developments

Board of Directors and Leadership Updates

In February 2024, we expanded our leadership team and added Pravin Dugal, M.D.

as Executive Chairman on a full-time basis.

We also added Jeffrey Heier, M.D.

as Chief Scientific Officer, Peter Kaiser, M.D.

as Medical Director, both on a part-time basis, and Sanjay Nayak, MBBS, PhD as Chief Strategy Officer on a full-time basis.

We believe the contribution of these acknowledged strategic and clinical experts will put the Company on track to be a leader in retina care for wet AMD, non-proliferative diabetic retinopathy, or NPDR, and other conditions.

In connection with these additions, Charles Warden transitioned from Chairman of the Board to Lead Independent Director.

To enable full transitions to their new operating roles, Dr.

Heier resigned from his positions with us as a Board Director and Advisor – Retina, and Dr.

Kaiser resigned from his position as Chief Medical Advisor – Retina.

In addition, Peter Jarrett, PhD has begun the new role of Chief Technical Officer.

Rabia Gurses Ozden, M.D.

will continue in her role as Chief Medical Officer.

We are conducting a pivotal Phase 3 clinical trial as the first of two planned pivotal trials for the treatment of wet AMD, which we refer to as the SOL-1 trial.

The first subjects in the SOL-1 trial were screened and received their first aflibercept injection in February 2024.

We expect to complete enrollment of the SOL-1 trial by the end of the first quarter of 2025.

Subject to agreement with the FDA, we intend to commence screening of a second pivotal Phase 3 clinical trial for the treatment of wet AMD, which we refer to as the SOL-2 trial, by the first quarter of 2025.

In September 2023, we submitted a request for a Special Protocol Assessment, or SPA, to the FDA to determine whether the proposed clinical protocol and the statistical analysis plan for the SOL-1 trial adequately addressed scientific and regulatory requirements for a clinical trial that could support a marketing application.

We received an agreement letter regarding the overall trial design from the FDA under the SPA in October 2023.

In December 2023, we submitted an amendment to the SPA to the FDA to broaden the inclusion criteria for subjects in the SOL-1 trial and to reflect our intention to evaluate a single optimized implant of AXPAXLI with a drug load of 450 µg of a more soluble form of axitinib in the SOL-1 trial, or the SPA Agreement Modification.

We received an agreement letter regarding the SPA Agreement Modification in January 2024.

If we were to obtain favorable results from both the SOL-1 trial and the SOL-2 trial, we plan to submit a New Drug Application, or NDA, with the FDA for marketing approval.

In June 2023, we presented 12-month data from the clinical trial of AXPAXLI for the treatment of wet AMD in the United States at the Clinical Trials at the Summit 2023 conference sponsored by the American Society of Retina Specialists.

We initiated a U.S.-based multicenter, double-masked, randomized, parallel group study evaluating the safety, tolerability and biological activity of AXPAXLI in patients with moderately severe to severe NPDR without DME, which we refer to as the HELIOS trial, in the fourth quarter of 2022.

We dosed our first subject in February 2023.

We announced the completion of enrollment in the HELIOS trial in June 2023 and expect to provide 9-month topline data in the second quarter of 2024.

Subject to favorable topline data from the HELIOS trial and agreement with the FDA, we intend to commence a pivotal Phase 3 clinical trial.

We are conducting a Phase 2 clinical trial evaluating the safety, tolerability and efficacy of PAXTRAVA for the treatment of subjects with primary OAG or OHT.

We completed enrollment of this Phase 2 clinical trial in July 2023.

We have started a pilot repeat-dose substudy in the Phase 2 clinical trial to evaluate the safety of a repeat, sustained release dose in a small subset of subjects with OAG or OHT.

We plan to provide topline data from this Phase 2 clinical trial at the American Society of Cataract and Refractive Surgery 2024 Annual Meeting in April 2024.

Subject to favorable topline data, we intend to evaluate our strategic alternatives in moving the PAXTRAVA program into pivotal Phase 3 clinical trials.

AXPAXLI for the treatment of wet AMD

In December 2024, the SOL-1 trial, our first registrational Phase 3 clinical trial of AXPAXLI for the treatment of wet AMD, completed randomization of more than 300 evaluable treatment-naïve subjects with a diagnosis of wet AMD in the study eye.

On January 14, 2025, we announced that, as of January 10, 2025, we had enrolled 311 subjects across various stages of loading and randomization in the SOL-R trial, our repeat-dosing registrational Phase 3 clinical trial of AXPAXLI for the treatment of wet AMD.

On February 24, 2025, we received an agreement letter regarding a second modification of our Special Protocol Assessment, or SPA, agreement for our SOL-1 trial from the FDA that allows us to add a repeat dose of AXPAXLI at each of Week 52 and Week 76 for the AXPAXLI arm to generate the required safety data for subjects re-dosed with AXPAXLI through Week 104 to support long-term dosing.

As of March 3, 2025, subject retention in the SOL-1 trial has been exceptional, and the vast majority of supplemental treatments, reviewed on a masked basis, have been in accordance with pre-specified criteria under the trial protocol.

Because the inclusion of re-dosing requires all data to be masked until Week 52, we now expect topline results for SOL-1 to be available in the first quarter of 2026.

The optimized design of the SOL-1 trial enhances the potential for a 6 - 12 month dosing label for AXPAXLI for the treatment of wet AMD and also provides insights into the long-term durability of AXPAXLI.

We previously intended to randomize 825 subjects in the SOL-R trial.

The inclusion of re-dosing in the SOL-1 trial and the exceptional subject retention to date in the SOl-1 trial allow us to reduce the SOL-R trial size to 555 subjects.

AXPAXLI for the treatment of NPDR and DME

We have completed the HELIOS trial of AXPAXLI for the treatment of NPDR.

We intend to meet with the FDA in the first half of 2025 to discuss the design of a potential registrational clinical program for AXPAXLI for the treatment of NPDR and DME and then evaluate our next steps.

Our net product revenue is generated from the sale of DEXTENZA to specialty distributors, or SDs, for resale to certain ambulatory surgery centers, or ASCs, certain hospital outpatient departments, or HOPDs, and certain physicians’ offices, and from the direct sale by us to ASCs and physicians’ offices.

Our net product revenue was $63.5 million for the year ended December 31, 2024, reflecting an increase of $5.6 million or 9.7% over the year ended December 31, 2023.

In November 2023, the Centers for Medicare and Medicaid Services, or CMS, released the final rulemaking for CY 2024 under the Outpatient Prospective Payment System, or OPPS.

The final rule confirms that DEXTENZA will continue to be separately reimbursed by Medicare in the ambulatory surgical center, or ASC, setting under the non-opioid pain provision;

and that CPT 68841, the code that describes the insertion of DEXTENZA, maintains a Q1 status indicator.

We believe that DEXTENZA is currently used in less than 5% of cataract procedures and that commercial growth may be driven by a continued focus on sales to ASCs, specifically strategic accounts that own and control multiple ASCs.

Pursuant to 42 U.S.C.

1395 et seq., or the Medicare Statute, physician administered non-opioid pain medications will receive separate payment in both the ASC and HOPD settings of care effective as of January 1, 2025.

The Medicare Statute allows for continued separate payment of DEXTENZA in the ASC setting for 2025, and it re-establishes the separate payment of DEXTENZA in the HOPD setting that was lost for 2024.

Additionally, the Medicare Statute limits the separate payment for physician administered non-opioid pain medications.

In November 2024, the Centers for Medicare & Medicaid Services, or CMS, released the final Medicare Physician Fee Schedule, or MPFS, for the calendar year 2025, which results in a marginal decrease in physician payments for DEXTENZA.

Effective January 2025, a clinician’s cost for DEXTENZA is included in the cost performance category of CMS’ Merit-based Incentive Payment System, or MIPS.

For eligible clinicians, CMS calculates the MIPS final score based on four performance categories, which is then used by CMS to determine the payment adjustment applied to the clinicians’ Medicare Part B claims, with clinicians that incur costs above or below national average spending being penalized or incentivized, respectively.

We believe that DEXTENZA is currently used in less than 5% of cataract procedures and that commercial growth may be driven by a continued focus on sales to ASCs, specifically corporate accounts that own and control multiple ASCs and HOPDs.

In June 2024, we submitted the data for our clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery to the FDA to fulfill a post-approval requirement of the FDA in connection with the FDA’s prior approval of DEXTENZA for the treatment of inflammation and pain following ophthalmic surgery in adults.

We anticipate receiving the FDA’s decision on the pediatric labeling for DEXTENZA during the second quarter of 2025.

Reduction in Force

In May 2024, our board of directors approved a strategic reduction in force to eliminate 37 full-time employees, primarily in research and development and technical operations and representing approximately 13% of our workforce, as part of an initiative to prioritize our resources on the clinical development of AXPAXLI for the treatment of wet AMD, or the Strategic Restructuring.

We completed the Strategic Restructuring, recorded the related restructuring charges of $1.6 million, resulting primarily from garden leaves and severance benefits, and paid all previously accrued restructuring charges in the year ended December 31, 2024.

2024 Private Placement

In February 2024, concurrent with the Board of Directors and Leadership Updates detailed above, we sold 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for aggregate gross proceeds of approximately $325.0 million, before deducting placement agent fees and other offering expenses, or the 2024 Private Placement.

In February 2024, we sold in a private placement 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for total net proceeds to us of approximately $316.4 million, after deducting placement agent fees and other offering expenses, or the 2024 Private Placement.

Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.

2023 Equity Financing

In December 2023, we completed an underwritten public offering of 35,420,000 shares of our common stock at a public offering price of $3.25 per share.

The total gross proceeds of the public offering were approximately $115.1 million, before deducting underwriting discounts and commissions and other offering expenses payable by us, resulting in net proceeds of approximately $107.7 million.

In 2023, we sold 1,514,926 shares of our common stock under our Open Market Sale Agreement with Jefferies LLC, or Jefferies, resulting in gross proceeds to us of $9.9 million, and net proceeds, after accounting for issuance costs, of $9.5 million.

2023 Debt Financing

In August 2023, we entered into a credit and security agreement, or the Barings Credit Agreement, with Barings Finance LLC, or Barings, as administrative agent, and the lenders party thereto, providing for a secured term loan facility for us, or the Barings Credit Facility, in the aggregate principal amount of $82.5 million.

We borrowed the full amount of $82.5 million at closing and received proceeds of $77.3 million, after the application of an original issue discount and fees.

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

Concurrently with entering into the Barings Credit Agreement, in August 2023, we and the holders of the Convertible Notes extended the maturity of the Convertible Notes, which would otherwise have matured on March 1, 2026, to a date 91 days following the maturity of the indebtedness under the Barings Credit Facility.

In connection with entering the Barings Credit Facility, in August 2023, we paid MidCap Financial Trust, as administrative agent, and our other lenders an aggregate of $26.2 million in satisfaction of our obligations under our prior credit facility, which we refer to as the MidCap Credit Facility.

Collaborations

In the second quarter of 2023, we received a $1 million milestone payment from our collaboration partner AffaMed Therapeutics Limited, or AffaMed, upon the approval of AffaMed’s clinical trial application to initiate a Phase 3 registrational study in China to investigate the efficacy and safety of DEXTENZA in subjects following ophthalmic surgery by China’s National Medical Products Administration.

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 PAXTRAVA for the treatment of OAG or OHT.

Convertible Notes

In March 2024, the holder of our $37.5 million unsecured senior subordinated convertible notes, or the Convertible Notes, converted the principal amount of the Convertible Notes, and we issued to the holder of the Convertible Notes 5,769,232 shares of our common stock with a total fair value of $52.5 million and paid $11.4 million for accrued interest.

The accounting for the extinguishment of the Convertible Notes resulted in a non-cash loss of $28.0 million.

Components of our Financial Performance

We recognize product revenue when we sell DEXTENZA in the United States to a network of specialty distributors on a direct basis, who then resell the product to ASCs and hospital out-patient departments, or HOPDs, and physicians’ offices, and when we sell DEXTENZA on a direct basis to a small number of ASCs.

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

We recognize product revenue when we sell DEXTENZA in the United States to a network of SDs who then resell the product to ASCs, HOPDs, and physicians’ offices, and when we sell DEXTENZA on a direct basis to a small number of ASCs and physicians’ offices.

We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns.

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Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

● employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-based compensation expense for employees engaged in research and development, clinical and regulatory and other related functions;

● expenses incurred in connection with the clinical trials of our product candidates, including with the investigative sites that conduct our clinical trials and under agreements with contract research organizations, or CROs;

● expenses relating to regulatory activities, including filing fees paid to the FDA for our submissions for product approvals;

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Interest expense is incurred on our debt.

For the year ended December 31, 2023, our interest-bearing debt included the Barings Credit Facility ($82.5 million outstanding principal since August 2, 2023), the Convertible Notes ($37.5 million outstanding principal) and the notes payable under the MidCap Credit Facility ($25.0 million outstanding principal through August 2, 2023, no outstanding principal thereafter).

In August 2023, we entered into a credit and security agreement, or the Barings Credit Agreement, with Barings Finance LLC, or Barings, as administrative agent, and the lenders party thereto, providing for a secured term loan facility, or the Barings Credit Facility, in the aggregate principal amount of $82.5 million.

For the year ended December 31, 2024, our interest-bearing debt included the Barings Credit Facility ($82.5 million outstanding principal) and the Convertible Notes (through March 28, 2024, no outstanding principal thereafter).

For the year ended December 31, 2023, our interest-bearing debt included the Barings Credit Facility (from August 2, 2023), the Convertible Notes, and our obligations under a credit and security agreement with MidCap Financial Trust, as administrative agent, and other lenders that we entered into in 2014, or, as amended, the MidCap Credit Agreement, establishing a credit facility, or the MidCap Credit Facility ($25.0 million outstanding principal through August 2, 2023, no outstanding principal thereafter).

Change in Fair Value of Derivative Liabilities.

In August 2023, in connection with entering into the Barings Credit Agreement, we identified an embedded derivative liability, which we are required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled.

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

In August 2023, in connection with entering into the Barings Credit Agreement, we identified an embedded derivative liability, or the Royalty Fee Derivative Liability, which we are required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled.

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

The settlement of the Conversion Option Derivative Liability occurred on March 28, 2024.

The changes in fair value of these derivative liabilities are recorded through the consolidated statement of operations and comprehensive loss and are presented under the caption “change in fair value of derivative liabilities”.

Gains and Losses from Debt Extinguishment .

In August 2023, we amended the Convertible Notes and accounted for the amendment as an extinguishment of debt in accordance with the guidance in Accounting Standards Codification Topic 470-50 Debt .

Application of this accounting standard resulted in a gain on extinguishment.

In August 2023, we also extinguished our obligations under the MidCap Credit Facility, resulting in a loss on extinguishment.

In March 2024, the holder of the Convertible Notes converted the Convertible Notes.

In connection with the conversion, our obligations under the Convertible Notes extinguished, resulting in a non-cash loss on extinguishment.

In August 2023, we amended the Convertible Notes and accounted for the amendment, or the Convertible Notes Amendment, as an extinguishment of debt in accordance with the guidance in Accounting Standards Codification Topic 470-50 Debt .

Application of this accounting standard resulted in a non-cash gain on extinguishment.

In August 2023, we also extinguished our obligations under the MidCap Credit Facility, resulting in a non-cash loss on extinguishment.

Results of Operations

Comparison of the Years Ended December 31, 2023 and December 31, 2022

The following table summarizes our results of operations for the years ended December 31, 2024, 2023 and 2022:

Increase (Decrease)

(in thousands)

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All of our product revenue, net, was attributable to sales of DEXTENZA.

Our total gross-to-net provisions for the years ended December 31, 2023 and 2022 were 30.1% and 24.9%, respectively, of gross DEXTENZA product sales.

Our total gross-to-net provisions, or GTN Provisions, for the years ended December 31, 2024 and 2023 were 38.5% and 30.1%, respectively, of gross DEXTENZA product sales.

We increased the wholesale acquisition cost, or WAC, for DEXTENZA effective April 2024 and again effective October 2024.

Concurrently with the increases of the WAC, and additionally at other points in time in 2024, we also increased the off-invoice discount, or OID, for DEXTENZA as part of our overall pricing strategy.

The OID amounts are generally determined at the time of resale by SDs or direct sales to ASCs or physicians’ offices by us.

The GTN Provisions relative to gross DEXTENZA product sales increased as a result of the changes in the OID and are expected to increase with any additional anticipated OID increases, and we expect that GTN Provisions relative to gross DEXTENZA product sales will remain at this increased level, or might increase further, for 2025 and beyond.

Collaboration Revenue

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Research and Development Expenses

Increase (Decrease)

(in thousands)

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AXPAXLI for wet AMD

PAXTRAVA for glaucoma or ocular hypertension

AXPAXLI for diabetic retinopathy

AXPAXLI for NPDR

PAXTRAVA for OAG or OHT

DEXTENZA for post-surgical ocular inflammation and pain

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Research and development expenses were $127.6 million and $61.1 million for the years ended December 31, 2024 and 2023, respectively, reflecting an increase of $66.6 million year-over-year.

Within research and development expenses, expenses for clinical programs increased $7.2 million, unallocated expenses increased $0.8 million, and expenses for preclinical programs decreased $0.4 million.

Within research and development expenses, direct expenses for clinical programs increased $46.3 million, unallocated expenses increased $20.9 million, and expenses for preclinical programs decreased $0.6 million.

For the year ended December 31, 2024, we incurred $65.6 million in direct research and development expenses for our products and product candidates compared to $19.9 million for the year ended December 31, 2023.

The increase of $7.2 million is related to timing and conduct of our various clinical trials for our product candidates, including the initiation of the SOL-1 trial and the HELIOS trial, and development activities related to our preclinical programs.

We expect that clinical trial expenses for our product candidates will increase for 2024 and beyond, as we progress with the SOL-1 trial, the HELIOS trial, and the ongoing Phase 2 clinical trial of PAXTRAVA for the treatment of primary OAG or OHT, and as we initiate the planned SOL-2 trial of AXPAXLI in the first quarter of 2025, and as we, subject to favorable topline data from the HELIOS trial and agreement with the FDA, intend to commence a pivotal Phase 3 clinical trial of AXPAXLI for NPDR as a next step of clinical development.

The increase of $45.7 million is related to timing and conduct of our various clinical trials for our product candidates, including the progression of the SOL-1 trial, which was fully randomized by December 2024, the initiation of the SOL-R trial, the completion of the HELIOS trial, and development activities related to our preclinical programs.

We expect that direct research and development expenses for our products and product candidates will increase significantly for 2025 as we progress with the SOL-1 and the SOL-R trials;

complete our other ongoing clinical trials;

and initiate any other clinical trials of our product candidates that we might determine in the future to conduct, partially offset by reduced costs related to preclinical programs as a result of the Strategic Restructuring.

We expect that personnel costs will increase for 2025 and beyond, as we have strengthened in 2024, and may continue to further strengthen in 2025, our clinical leadership team and our clinical teams dedicated to the SOL-1 and SOL-R trials, with the addition of several retinal disease experts and other key professionals.

The anticipated increase will be partially offset by reduced personnel costs as a result of the Strategic Restructuring.

We do not anticipate to incur significant research and development costs for our former product candidates OTX-DED and OTX-CSI in 2025 and beyond.

Selling and Marketing Expenses

Increase (Decrease)

(in thousands)

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Selling and marketing expenses were $41.6 million and $40.5 million for the years ended December 31, 2024 and 2023, respectively, reflecting an increase of $1.0 million year-over-year.

The increase was primarily due to an increase of $0.8 million in personnel costs, including stock-based compensation, as we expanded our field-based team to support the commercialization of DEXTENZA, and an increase in facility-related and other costs of $0.7 million, partially offset by a decrease in professional fees, including consulting, trade shows, and conferences, of $0.8 million.

We expect our selling and marketing expenses to continue to increase for the remainder of 2024 and beyond as we continue to support the commercialization of DEXTENZA.

The increase was primarily due to an increase of $0.6 million in professional fees, an increase in facility-related and other costs of $0.3 million, and an increase in personnel costs, including stock-based compensation, of $0.1 million.

We expect our selling and marketing expenses to remain stable or increase slightly for 2025 as we continue to support the commercialization of DEXTENZA.

General and Administrative Expenses

Increase (Decrease)

(in thousands)

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General and administrative expenses were $60.7 million and $33.9 million for the years ended December 31, 2024 and 2023, respectively, reflecting an increase of $26.7 million year-over-year.

The increase was primarily due to an increase of $3.1 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 $0.6 million in facility related and other costs.

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.

The increase was primarily due to an increase of $18.9 million in personnel-related costs including stock-based compensation, an increase in professional fees of $4.7 million and an increase of $3.0 million in facility related and other costs.

Personnel-related costs, including stock-based compensation, for the year ended December 31, 2024 include $1.6 million related to wages, severance, and other benefits under the Strategic Restructuring, and $9.3 million related to accrued severance and acceleration of stock-based compensation for certain former members of our senior leadership team who departed during the year ended December 31, 2024 separate from the Strategic Restructuring.

We anticipate that the level of our general and administrative expenses, exclusive of the one-time charges related to restructuring activities, will increase for 2025, as we have recently strengthened, and will continue to further

strengthen, our leadership team and other certain functions that support our clinical trials of AXPAXLI, including the SOL-1 trial and the SOL-R trial, and our business in general.

Other Income (Expense), Net

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Interest expense was $13.6 million and $11.3 million for the years ended December 31, 2024 and 2023, respectively, reflecting an increase of $2.2 million year-over-year.

The increase is primarily due to higher balances of debt outstanding as a result of us drawing $82.5 million of debt under the Barings Credit Facility in August 2023, partially offset by us paying off the MidCap Credit Facility of $25.0 million in August 2023.

The increase is primarily due to higher average balances of debt outstanding as a result of us drawing $82.5 million of debt under the Barings Credit Facility in August 2023, partially offset by us paying off the MidCap Credit Facility, of $25.0 million in August 2023, and the conversion of the Convertible Notes of $37.5 million in March 2024, and higher interest rates.

Change in Fair Value of Derivative Liabilities.

We recognized a loss from the change in fair values of our derivative liabilities of $5.2 million for the year ended December 31, 2023, compared to a gain of $13.8 million for the year ended December 31, 2022.

The net loss for 2023 comprises of a loss of $4.5 million from the change in the fair value of the derivative liability related to a conversion option embedded in the Convertible Notes and $0.9 million related to royalty fees under the Barings Credit Agreement that we paid or accrued, partially offset by a gain of $0.2 million from the change in the fair value of the derivative liability related to the Barings Credit Agreement.

The net gain for 2022 results solely from the change in the fair value of the derivative liability related to the Conversion Option.

We cannot predict how the fair value of the derivative liabilities will change in 2024 and beyond.

We recognized a net loss from the change in fair values of our derivative liabilities of $0.5 million for the year ended December 31, 2024, compared to a net loss of $5.2 million for the year ended December 31, 2023.

The net loss for 2024 comprises of a gain of $2.6 million from the change in the fair value of the Conversion Option Derivative Liability, a loss of $0.9 million from the change in the fair value of the Royalty Fee Derivative Liability, and an expense of $2.2 million related to royalty fees under the Barings Credit Agreement that we paid or accrued.

The net loss for 2023 comprises of a loss of $4.5 million from the change in the fair value of the Conversion Option Derivative Liability and $0.9 million related to royalty fees under the Barings Credit Agreement that we paid or accrued, partially offset by a gain of $0.2 million from the change in the fair value of the Royalty Fee Derivative Liability.

Gains and Losses on Extinguishment of Debt, Net.

We recognized a gain from accounting for the modification of the Convertible Notes as an extinguishment of $14.9 million, partially offset by a loss from extinguishment of the MidCap Credit Facility of $0.7 million.

We recognized a non-cash loss on extinguishment of debt of $28.0 million for the year ended December 31, 2024, compared to a gain, net, on extinguishment of debt of $14.2 million for the year ended December 31, 2023.

The net loss for the year ended December 31, 2024 results from the conversion of the Convertible Notes in March 2024.

The net gain for the year ended December 31, 2023 results from the accounting for the Convertible Notes Amendment, which resulted in a non-cash gain on extinguishment of debt of $14.9 million, and for the extinguishment of our obligations under the MidCap Credit Agreement, which resulted in a loss on extinguishment of debt of $0.7 million.

Comparison of the Years Ended December 31, 2023 and 2022

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Sources of Liquidity

We have financed our operations primarily through private placements of our preferred stock, public offerings and private placements of our common stock, borrowings under credit facilities, the private placements of our convertible notes, and sales of our products.

As of December 31, 2023, we had cash and cash equivalents of $195.8 million;

outstanding notes payable with a principal amount of $82.5 million par value under the Barings Credit Facility, and outstanding Convertible Notes of $37.5 million par value plus total unpaid interest obligations related to the amounts outstanding under the Barings Credit Facility and the Convertible Notes of $11.7 million.

2023 Equity Financing

On December 18, 2023, we completed an underwritten public offering of 35,420,000 shares of our common stock at a public offering price of $3.25 per share, which includes 4,620,000 shares issued upon the exercise in full by the underwriters of their option to purchase additional shares of common stock in the public offering at the public offering price, less underwriting discounts and commissions.

In 2023, we sold 1,514,926 shares of our common stock under our Open Market Sale Agreement with Jefferies, resulting in gross proceeds to us of $9.9 million, and net proceeds, after accounting for issuance costs, of $9.5 million.

2023 Debt Financing

On August 2, 2023, or the Closing Date, we entered into the Barings Credit Agreement, with Barings, as administrative agent, and the lenders party thereto, providing for the Barings Credit Facility, in the aggregate principal amount of $82.5 million, or the Total Credit Facility Amount.

We have financed our operations primarily through private placements of our preferred stock, public offerings and private placements of our common stock and pre-funded warrants to purchase our common stock, borrowings under credit facilities, the private placements of our convertible notes, and sales of our products.

As of December 31, 2024, we had cash and cash equivalents of $392.1 million, and outstanding notes payable with a principal amount of $82.5 million par value under the Barings Credit Facility.

In February 2024, we sold 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for total net proceeds of approximately $316.4 million, after deducting placement agent fees and other offering expenses, in the 2024 Private Placement.

Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.

On December 18, 2023, we sold 35,420,000 shares of our common stock in an underwritten public offering at a public offering price of $3.25 per share.

The total net proceeds of the public offering to us were approximately $107.7 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

In August 2023, we entered into the Barings Credit Agreement with Barings as administrative agent, and the lenders party thereto, providing for the Barings Credit Facility in the aggregate principal amount of $82.5 million.

We borrowed the full amount of $82.5 million at closing and received proceeds of $77.3 million, after the application of an original issue discount and fees.

Indebtedness under the Barings Credit Facility matures on the earlier to occur of (i) the six-year anniversary of the Closing Date and (ii) the date that is 91 days prior to the maturity date for our Convertible Notes.

Indebtedness under the Barings Credit Facility incurs interest at a Secured Overnight Financing Rate, or SOFR, based rate, subject to a minimum 1.50% floor, plus 6.75%.

We are obligated to make interest payments on our indebtedness under the Barings Credit Facility on a monthly basis, commencing on the Closing Date;

to pay annual administration fees;

and to pay, on the maturity date, any principal and accrued interest that remains outstanding as of such date.

In addition, we are obligated to pay a fee, which we refer to as the Royalty Fee, in an amount equal to the Total Credit Facility Amount, which amount shall be reduced by the total amount of interest and principal prepayment fees paid under the Barings Credit Agreement.

We are required to pay the Royalty Fee in installments to Barings, for the benefit of the lenders, on a quarterly basis in an amount equal to three and one-half percent (3.5%) of the net sales of DEXTENZA occurring during such quarter, subject to the terms, conditions and limitations specified in the Barings Credit Agreement, until the Royalty Fee is paid in full.

The Royalty Fee is due and payable upon a change of control of the company.

In the event we complete a change of control transaction or sell all or substantially all of our assets on or prior to the twelve-month anniversary of the Closing Date, the Royalty Fee is subject to a reduction to an amount that is equal to (i) 20% of the Total Credit Facility Amount, in the event that a signed letter of intent evidencing such transaction was entered into by us on or prior to the date that is six months after the Closing Date and (ii) 30% of the Total Credit Facility Amount, in the event that a signed letter of intent evidencing such transaction was entered into by us after the date that is six months, but before the date that is twelve months, after the Closing Date.

We may, at our option, prepay any or all of the Royalty Fee at any time without penalty.

In connection with the Barings Credit Agreement, we have granted the lenders a first-priority security interest in all of our assets, including our intellectual property, subject to certain agreed-upon exceptions.

The Barings Credit Agreement includes negative covenants restricting us from making payments to the holders of the Convertible Notes except in connection with a proposed conversion to equity and with respect to certain permitted expenses and requiring us to maintain a minimum liquidity amount of $20.0 million.

The Barings Credit Agreement also includes customary affirmative and negative covenants.

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

Concurrently with entering into the Barings Credit Agreement, on August 2, 2023, we and the holders of the Convertible Notes extended the maturity of the Convertible Notes, which would otherwise have matured on March 1, 2026, to a date 91 days following the maturity of the indebtedness under the Barings Credit Facility.

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

The holders of the Convertible Notes may convert all or part of the outstanding principal amount of their 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 Convertible Notes, which is equivalent to an initial conversion price is $6.50 per share.

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

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

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

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

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

The Purchase Agreement does not include any financial covenants.

Our obligations under the Purchase Agreement and the Convertible Notes are subject to acceleration upon the occurrence of specified events of default, including a default or breach of certain contracts material to us and the delisting and deregistration of our common stock.

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

We did not offer or sell shares of our common stock under the 2021 Sales Agreement during the year ended December 31, 2024.

During the year ended December 31, 2023, we sold 1,514,926 shares of common stock under the 2021 Sales Agreement, resulting in net proceeds to us, after accounting for issuance costs, of $9.5 million.

2024 Private Placement

In February 2024, we sold 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for aggregate gross proceeds of approximately $325.0 million, before deducting placement agent fees and other offering expenses, under the 2024 Private Placement.

Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.

Funding Requirements

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As of December 31, 2024, we had an accumulated deficit of $891.1 million.

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 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, including AXPAXLI, 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 our ongoing clinical trials, including the SOL-1 trial of AXPAXLI for the treatment of wet AMD;

our Phase 1 clinical trials of AXPAXLI for the treatment of wet AMD;

the HELIOS trial of AXPAXLI for the treatment of NPDR;

our Phase 2 clinical trial of PAXTRAVA for the treatment of OAG or OHT;

our Phase 2 clinical trial of OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease;

● continue to monitor subjects according to the applicable clinical trial protocols in our clinical trials that have been completed, including our clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery;

● determine to initiate new clinical trials to evaluate our product candidates, including our planned SOL-2 trial of AXPAXLI for the treatment of wet AMD;

our planned pivotal clinical trials of AXPAXLI for the treatment of NPDR;

and, subject to our evaluation of strategic alternatives, possible pivotal clinical trials of PAXTRAVA for the reduction of IOP in patients with primary OAG or OHT;

● 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;

● conduct or support research and development activities on, and seek regulatory approvals for, DEXTENZA and PAXTRAVA 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;

● seek to identify and develop additional product candidates;

● continue our ongoing clinical trials, including the SOL-1 and the SOL-R trials, our two registrational Phase 3 clinical trials of AXPAXLI for the treatment of wet AMD;

● initiate any additional clinical trials we might determine in the future to conduct for our product candidates, including any clinical trials that we might conduct for AXPAXLI for the treatment of NPDR and DME;

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

● scale up our sales, marketing and distribution capabilities to prepare for commercialization of any product candidates for which we intend to obtain marketing approval;

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

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

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

● continue to monitor subjects according to the applicable clinical trial protocols, or prepare submission documentation such as clinical study reports, for our clinical trials that have been completed;

● continue to commercialize DEXTENZA in the United States;

● maintain, expand and protect our intellectual property portfolio;

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

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

● defend ourselves against legal proceedings, if any;

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

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

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

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The amount and timing of these expenses determines our future capital requirements.

Based on our current operating plan, which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses and capital expenditures and reflects our observance of the minimum liquidity covenant of $20.0 million under the Barings Credit Agreement, we believe that our existing cash and cash equivalents as of December 31, 2023, plus the cash received from the 2024 Private Placement of our common stock in February 2024 of $325.0 million before deducting placement agent fees and other offering expenses, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements at least into 2028.

Based on our current operating plan, which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses and capital expenditures and reflects our observance of the minimum liquidity covenant of $20.0 million under the Barings Credit Agreement, we believe that our existing cash and cash equivalents as of December 31, 2024 will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements into 2028.

Our planned operating expenses do not include the expenses necessary to conduct a clinical trial of AXPAXLI for NPDR and DME, or to build out our manufacturing capabilities beyond the buildout of our existing manufacturing facilities.

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

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

● the progress, costs and outcome of our ongoing clinical trials of AXPAXLI for the treatment of wet AMD;

● the timing, scope, progress, costs and outcome of a potential registrational clinical program of AXPAXLI for the treatment of NPDR and DME;

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

● the scope, progress, costs and outcome of preclinical development and any additional clinical trials we might determine in the future to conduct for our other product candidates, including PAXTRAVA for the reduction of intraocular pressure, or IOP, in patients with primary open-angle glaucoma, or OAG, or ocular hypertension, or OHT;

● 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 cost increases due to inflation;

● the progress, costs and outcome of our ongoing and planned clinical trials of our product candidates, in particular AXPAXLI for the treatment of wet AMD and NPDR, and, subject to our evaluation of strategic alternatives, PAXTRAVA for the treatment of OAG or OHT;

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

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

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

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

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

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

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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, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements.

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 securityholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing securityholders’ rights as holders or beneficial owners 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.

Our pledge of our assets as collateral to secure our obligations under the Barings Credit Facility pursuant to which we have a total borrowing capacity of $82.5 million, which has been fully drawn down, may limit our ability to obtain additional debt or other financing.

The covenants under the Barings Credit Facility and our pledge of our assets as collateral to secure our obligations under the Barings Credit Facility pursuant to which we have a total borrowing capacity of $82.5 million, which has been fully drawn down, may limit our ability to obtain additional debt or other financing.

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.

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Year Ended December 31,

(in thousands)

Cash used in operating activities

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Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Operating activities.

Net cash used in operating activities was $70.2 million for the year ended December 31, 2023, primarily resulting from our net loss of $80.7 million, adjusted for net gains on extinguishment of debt of $14.2 million, partially offset by changes in the fair value of our derivative liabilities of $5.2 million and $19.5 million of other non-cash items and changes in operating assets and liabilities.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $58.4 million of revenue and other income of $1.6 million.

Our other non-cash items during the year ended December 31, 2023 consisted primarily of $17.8 million of stock-based compensation expense, $6.1 million in non-cash interest expense, and $3.0 million in depreciation and amortization expense, partially offset by $7.4 million unfavorable changes in our operating assets and liabilities.

Net cash used by unfavorable changes in our operating assets and liabilities during the year ended December 31, 2023 consisted primarily of net increases of prepaid expenses and other current assets of $5.0 million, net increases in accounts receivable of $4.9 million, partially offset by increases of accounts payable, excluding accounts payable related to additions to property and equipment, of $1.8 million, and increases in accrued expenses and other current liabilities, excluding accrued non-cash interest, of $0.8 million.

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, adjusted for changes in the fair value of our derivative liabilities of $13.8 million, partially offset by $25.2 million of other non-cash items and changes in operating assets and liabilities.

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 and $7.6 million of other income.

Our other non-cash items during the year ended December 31, 2022 consisted primarily of $17.0 million of stock-based compensation expense, $4.9 million in non-cash interest expense, $2.1 million in depreciation and amortization expense, and $1.3 million net cash generated by favorable changes in our operating assets and liabilities.

Net cash generated by changes in our operating assets and liabilities during the year ended December 31, 2022 consisted primarily of an increase of $1.6 million in accrued expenses, an increase in deferred revenue of $1.0 million and a 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, adjusted for changes in the fair value of our derivative liabilities of $78.1 million, partially offset by $19.1 million of other non-cash items and changes in operating assets and liabilities.

Our net loss was primarily attributed to research and development activities, selling and marketing costs and our general and administrative expenses partially offset by $71.5 million of other income and $43.5 million of revenue.

Our other non-cash items during the year ended December 31, 2021 consisted primarily of $15.0 million of stock-based compensation expense, $4.6 million in non-cash interest expense, and $2.4 million in depreciation and amortization expense, partially offset by $2.9 million unfavorable changes in our operating assets and liabilities.

Net cash used by unfavorable 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 accrued expenses and other current liabilities, excluding accrued non-cash interest, of $3.7 million, increases of accounts payable, excluding accounts payable related to additions to property and equipment, of $1.8 million, and increases of deferred revenue of $1.0 million.

Net cash used in operating activities was $134.7 million for the year ended December 31, 2024, primarily resulting from our net loss of $193.5 million and net unfavorable changes in operating assets and liabilities of $10.2 million, partially offset by non-cash adjustments of $69.1 million.

Our net loss was primarily attributed to operating expenses of $235.5 million, which we incurred primarily for research and development activities, selling and marketing activities, and general and administrative activities, and non-operating expenses of $21.7 million, partially offset by $63.7 million of revenue.

Non-cash adjustments primarily include losses on extinguishment of debt of $28.0 million, stock-based compensation expense of $33.1 million, depreciation and amortization expense of $3.8 million, non-cash interest expense of $3.7 million, and a net non-cash loss related to changes in the fair value of our derivative liabilities of $0.5 million.

Net cash used by net unfavorable changes in our operating assets and liabilities during the year ended December 31, 2024 consisted primarily of increases of accounts receivable of $6.2 million, resulting from increased sales of DEXTENZA, and increases of prepaid expenses and other current assets of $5.7 million, resulting predominantly from our clinical development activities, partially offset by other decreases, net, of $1.6 million.

Net cash used in operating activities was $70.2 million for the year ended December 31, 2023, primarily resulting from our net loss of $80.7 million and net unfavorable changes in operating assets and liabilities of $7.4 million, partially offset by non-cash adjustments of $17.9 million.

Our net loss was primarily attributed to operating expenses of $140.8 million, which we incurred primarily for research and development activities, selling and marketing activities, and general and administrative activities, partially offset by $58.4 million of revenue and a net non-operating income of $1.6 million.

Non-cash adjustments primarily include a net gain on extinguishment of debt of $14.2 million, stock-based compensation expense of $17.8 million, non-cash interest expense of $6.1 million, non-cash expenses related to changes in the fair value of our derivative liabilities of $5.2 million, and depreciation and amortization expense of $3.0 million.

Net cash used by net unfavorable changes in our operating assets and liabilities during the year ended December 31, 2023 consisted primarily of increases of accounts receivables of $4.9 million, increases of prepaid expenses and other current assets of $3.8 million, partially offset by increases of other items, net, of $1.2 million.

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, partially offset by non-cash adjustments of $10.1 million and net favorable changes in operating assets and liabilities of $1.3 million.

Our net loss was primarily attributed to operating expenses of $130.1 million, which we incurred primarily for research and development activities, selling and marketing activities, and general and administrative activities, partially offset by $51.5 million of revenue and a net non-operating income of $7.6 million.

Non-cash adjustments primarily include stock-based compensation expense of $17.0 million, non-cash income related to changes in the fair value of our derivative liabilities of $13.8 million, non-cash interest expense of $4.9 million, and depreciation and amortization expense of $2.1 million.

Net cash provided by net favorable changes in our operating assets and liabilities during the year ended December 31, 2022 consisted primarily of increases of accrued expenses of $1.6 million, partially offset by decreases of other items, net, of $0.3 million.

Investing activities.

Net cash used in investing activities was $1.3 million for the year ended December 31, 2024, consisting of cash used to purchase property and equipment and leasehold improvements.

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.

Net cash used in investing activities was $6.1 million for the year ended December 31, 2023, consisting of cash used to purchase property and equipment and leasehold improvement.

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.

Financing activities.

Net cash provided by financing activities for the year ended December 31, 2024 was $332.1 million and consisted of total net proceeds from the issuance of common stock and pre-funded warrants in a private placement of approximately $316.4 million, proceeds from the exercise of stock options of $14.7 million, and proceeds from issuing shares under our Employee Stock Purchase Plan, or ESPP, of $1.0 million.

Net cash provided by financing activities for the year ended December 31, 2023 was $169.8 million and consisted of proceeds from the issuance of common stock in public offerings of $117.3 million, drawings under the Barings Credit Facility of $77.3 million, net of issuance costs, 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 $0.6 million, partially offset by repayment of the MidCap Credit Facility of $26.1 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.

Contractual Obligations and Commitments

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Barings Credit Agreement

Convertible Notes

The table above includes our enforceable and legally binding obligations and future commitments at December 31, 2024, as well as obligations related to contracts that we are likely to continue, regardless of the fact that they may be cancelable at December 31, 2024.

Some of the figures that we include in this table are based on management’s estimates and assumptions about these obligations, including their duration, and other factors.

Because these estimates and assumptions are necessarily subjective, the amounts we will actually pay in future periods may vary from those reflected in the table.

these estimates and assumptions are necessarily subjective, the amounts we will actually pay in future periods may vary from those reflected in the table.

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 which are 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 March 2024, July 2027, and July 2028.

Operating lease commitments represent payments due under our leases of office, laboratory and manufacturing space in Bedford, Massachusetts that expire in July 2027 and July 2028, and leases of equipment that expire between 2026 and 2028.

The commitments under the Barings Credit Agreement represent repayment of principal only.

Future payments of interest under the Barings Credit Agreement depends on the level of SOFR, and future payments of royalty fees depend on our future revenue from DEXTENZA, both of which cannot be estimated at this time.

The commitments under the Convertible Notes represent repayment of principal and payment of previously accrued interest at maturity in November 2029.

Future payments of interest under the Barings Credit Agreement depends on the level of the Secured Overnight Financing Rate, or SOFR, and future payments of royalty fees depend on our future revenue from DEXTENZA, both of which cannot be estimated at this time.

We have in-licensed a significant portion of our intellectual property from Incept, an intellectual property holding company, under an amended and restated license agreement, or the License Agreement, that we entered into with Incept in January 2012, which was most recently amended in September 2018.

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Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

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

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.

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

We also sell DEXTENZA directly to a small population of ASCs and physicians’ offices, 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.

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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 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 Liabilities

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

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

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

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

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

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

The embedded conversion is recognized as a derivative liability in our consolidated balance sheet.

The Barings Credit Agreement contains an embedded obligation to pay the Royalty Fee, or the Royalty Fee Obligation, that meets the criteria to be bifurcated and accounted for separately from the Barings Credit Facility, or the Royalty Fee Derivative Liability.

The Barings Credit Agreement contains the Royalty Fee Derivative Liability, an embedded obligation to pay the Royalty Fee, that meets the criteria to be bifurcated and accounted for separately from the Barings Credit Facility.

Royalty payments are estimated using a Monte Carlo simulation.

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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