UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2022~~March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36554

Ocular Therapeutix, ~~Inc~~.Inc.

(Exact name of registrant as specified in its charter)


Delaware	20-5560161
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

24 Crosby Drive
Bedford, MA	01730
(Address of principal executive offices)	(Zip Code)

(781) 357-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	OCUL	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒☐	Accelerated filer	☐

Non-accelerated filer	☐☒	Smaller reporting company	☐☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 5, 2022,~~May 4, 2023, there were ~~76,966,889~~77,524,666 shares of Common Stock, $0.0001 par value per share, outstanding.

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Ocular Therapeutix, Inc.

INDEX

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	4

	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3932

Item 4.	Controls and Procedures	3933

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4034

Item 1A.	Risk Factors	4034

Item 5.	Other Information	35

Item 6.	Exhibits	4035

SIGNATURES		4237

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

●

our ongoing and planned clinical trials, including our Phase 1 clinical trials of OTX-TKI for the treatment of wet age-related macular degeneration, or wet AMD, our Phase 1 clinical trial of OTX-TKI for the treatment of diabetic retinopathy, or DR, our Phase 2 clinical trial of OTX-TIC for the reduction of intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension, ~~and~~ our clinical trial to evaluate DEXTENZA^® in pediatric subjects following cataract surgery ~~in accordance with~~and our planned pivotal clinical trials of OTX-TKI for the ~~U.S. Food~~treatment of wet AMD and ~~Drug Administration’s post-approval requirement;~~the treatment of DR;

●

our commercialization efforts for our product DEXTENZA;

●

our plans to develop, seek regulatory approval for and commercialize OTX-TKI, OTX-TIC, OTX-DED, OTX-CSI, and our other product candidates based on our proprietary bioresorbable hydrogel technology ~~platform;~~ELUTYX™;

●

our ability to manufacture DEXTENZA and our product candidates in compliance with Current Good Manufacturing Practices and in sufficient quantities for our clinical trials and commercial use;

●

the timing of and our ability to submit applications and obtain and maintain regulatory approvals for DEXTENZA and our product candidates;

●

our estimates regarding future revenue; expenses; the sufficiency of our cash resources; our ability to fund our operating expenses, debt service obligations and capital expenditure requirements; and our needs for additional financing;

●

our plans to raise additional capital, including through equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements and marketing and distribution arrangements;

●

the potential advantages of DEXTENZA ~~ReSure Sealant,~~ and our product candidates;

●

the rate and degree of market acceptance and clinical utility of our products;

●

our ability to secure and maintain reimbursement for our products as well as the associated procedures to insert, implant or inject our products;

●

our estimates regarding the market opportunity for DEXTENZA and our product candidates;

●

our license agreement and collaboration with AffaMed Therapeutics Limited under which we are collaborating on the development and commercialization of DEXTENZA and our product candidate OTX-TIC in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations;

●

our capabilities and strategy, and the costs and timing of manufacturing, sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA ~~ReSure Sealant~~ and any additional products for which we may obtain marketing approval in the future;

●

~~our intellectual property position;~~

Table of Contents

●

our intellectual property position;

●

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

●

the impact of government laws and regulations;

●

~~the costs and outcomes of legal actions and proceedings;~~

●

~~uncertainty regarding the extent to which the COVID-19 pandemic and related response measures will adversely affect our business, results of operations and financial condition;~~ and

●

our competitive position.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q ~~particularly in Part II, Item 1A — Risk Factors section,~~ and in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission, or the SEC, on ~~February 28, 2022,~~March 6, 2023, in each case particularly in the section captioned “Risk Factors”, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, licensing agreements ~~collaborations,~~ or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q, and our other periodic reports, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q. We do not assume, and we expressly disclaim, any obligation or undertaking to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. All of the market data used in this Quarterly Report on Form 10-Q involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. While we believe that the information from these industry publications, surveys and studies is reliable, we have not independently verified such data. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.”

This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q and the documents incorporated by reference herein may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

●

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

Ocular Therapeutix, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Assets
Current assets:
Cash and cash equivalents	$	134,539	$	164,164	$	79,026	$	102,300
Accounts receivable, net		20,482		21,135		21,124		21,325
Inventory		1,500		1,250		2,266		1,974
Prepaid expenses and other current assets		3,801		4,751		4,746		4,028
Total current assets		160,322		191,300		107,162		129,627
Property and equipment, net		6,680		6,956		12,022		9,856
Restricted cash		1,764		1,764		1,764		1,764
Operating lease assets		4,305		4,867		7,625		8,042
Total assets	$	173,071	$	204,887	$	128,573	$	149,289
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,703	$	4,592	$	5,441	$	5,123
Accrued expenses and other current liabilities		19,450		20,121		21,993		24,097
Deferred revenue		1,189		—		463		576
Operating lease liabilities		1,771		1,624		1,818		1,599
Total current liabilities		26,113		26,337		29,715		31,395
Other liabilities:
Operating lease liabilities, net of current portion		4,999		5,924		8,114		8,678
Derivative liability		10,461		20,192		12,914		6,351
Deferred revenue, net of current portion		13,000		13,000		13,340		13,387
Notes payable, net of discount		25,128		25,000		25,321		25,257
Other non-current liabilities						100		93
2026 convertible notes, net		27,567		26,435		29,358		28,749
Total liabilities		107,268		116,888		118,862		113,910
Commitments and contingencies
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized and 0 shares issued or outstanding at June 30, 2022 and December 31, 2021, respectively		—		—
Common stock, $0.0001 par value; 200,000,000 shares authorized and 76,910,026 and 76,731,940 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		8		8
Preferred stock, $0.0001 par value; 5,000,000 shares authorized and no shares issued or outstanding at March 31, 2023 and December 31, 2022, respectively						—		—
Common stock, $0.0001 par value; 200,000,000 shares authorized and 77,516,638 and 77,201,819 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively						8		8
Additional paid-in capital		642,907		633,795		656,863		652,213
Accumulated deficit		(577,112)		(545,804)		(647,160)		(616,842)
Total stockholders’ equity		65,803		87,999		9,711		35,379
Total liabilities and stockholders’ equity	$	173,071	$	204,887	$	128,573	$	149,289

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

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Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Revenue:
Product revenue, net	$	13,214	$	12,498
Collaboration revenue		160		689
Total revenue, net		13,374		13,187
Costs and operating expenses:
Cost of product revenue		1,214		1,300
Research and development		14,747		13,100
Selling and marketing		10,835		9,063
General and administrative		9,127		7,557
Total costs and operating expenses		35,923		31,020
Loss from operations		(22,549)		(17,833)
Other income (expense):
Interest income		563		18
Interest expense		(1,768)		(1,683)
Change in fair value of derivative liability		(6,563)		6,958
Other expense, net		(1)		(2)
Total other (expense) income, net		(7,769)		5,291
Net loss	$	(30,318)	$	(12,542)
Net loss per share, basic	$	(0.39)	$	(0.16)
Weighted average common shares outstanding, basic		77,386,287		76,745,663
Net loss per share, diluted	$	(0.39)	$	(0.22)
Weighted average common shares outstanding, diluted		77,386,287		82,514,895

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

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Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021
Revenue:








Product revenue, net

$
12,144

$
11,718

$
24,642

$
19,061
Collaboration revenue

122

—

811

—
Total revenue, net

12,266

11,718

25,453

19,061
Costs and operating expenses:








Cost of product revenue

1,155

1,096

2,454

1,988
Research and development

13,100

13,859

26,200

24,786
Selling and marketing

10,140

8,391

19,203

16,477
General and administrative

7,787

8,603

15,344

16,268
Total costs and operating expenses

32,182

31,949

63,201

59,519
Loss from operations

(19,916)

(20,231)

(37,748)

(40,458)
Other income:








Interest income

73

8

89

20
Interest expense

(1,696)

(1,655)

(3,378)

(3,335)
Change in fair value of derivative liability

2,773

13,396

9,731

38,412
Other income (expense), net

—

1

(2)

1
Total other income, net

1,150

11,750

6,440

35,098
Net loss

$
(18,766)

$
(8,481)

$
(31,308)

$
(5,360)
Net loss per share, basic

$
(0.24)

$
(0.11)

$
(0.41)

$
(0.07)
Weighted average common shares outstanding, basic

76,764,296

76,324,367

76,755,028

76,198,384
Net loss per share, diluted

$
(0.25)

$
(0.25)

$
(0.47)

$
(0.51)
Weighted average common shares outstanding, diluted

82,533,528

82,093,599

82,524,260

81,967,616


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(30,318)	$	(12,542)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation expense		4,572		4,209
Non-cash interest expense		1,228		1,186
Change in fair value of derivative liability		6,563		(6,958)
Depreciation and amortization expense		483		557
Gain (loss) on disposal of property and equipment		(1)		2
Changes in operating assets and liabilities:
Accounts receivable		201		(2,072)
Prepaid expenses and other current assets		(718)		81
Inventory		(292)		(108)
Accounts payable		1,025		(1,113)
Operating lease assets and liabilities		72		(105)
Accrued expenses		(2,628)		(3,048)
Deferred revenue		(160)		1,311
Net cash used in operating activities		(19,973)		(18,600)
Cash flows from investing activities:
Purchases of property and equipment		(3,379)		(276)
Net cash used in investing activities		(3,379)		(276)
Cash flows from financing activities:
Proceeds from issuance of short-term bridge loan		2,000		—
Proceeds from exercise of stock options		78		129
Repayment of short-term bridge loan		(2,000)		—
Net cash provided by financing activities		78		129
Net decrease in cash, cash equivalents and restricted cash		(23,274)		(18,747)
Cash, cash equivalents and restricted cash at beginning of period		104,064		165,928
Cash, cash equivalents and restricted cash at end of period	$	80,790	$	147,181
Supplemental disclosure of cash flow information:
Cash paid for interest	$	701	$	495
Supplemental disclosure of non-cash investing and financing activities:
Additions to property and equipment included in accounts payable and accrued expenses	$	646	$	123

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

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Ocular Therapeutix, Inc.

Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity

(In ~~thousands)~~thousands, except share data)

(Unaudited)

Six Months Ended

June 30,


2022

2021
Cash flows from operating activities:


Net loss

$
(31,308)

$
(5,360)
Adjustments to reconcile net loss to net cash used in operating activities

Stock-based compensation expense

8,490

7,378
Non-cash interest expense

2,391

2,282
Change in fair value of derivative liability

(9,731)

(38,412)
Depreciation and amortization expense

1,109

1,257
Loss on disposal of property and equipment

2

—
Changes in operating assets and liabilities:

Accounts receivable

653

(6,482)
Prepaid expenses and other current assets

950

(167)
Inventory

(250)

89
Operating lease assets

562

466
Accounts payable

(809)

1,255
Accrued expenses

(1,946)

928
Deferred revenue

1,189

—
Operating lease liabilities

(778)

(649)
Net cash used in operating activities

(29,476)

(37,415)
Cash flows from investing activities:



Purchases of property and equipment

(771)

(287)
Net cash used in investing activities

(771)

(287)
Cash flows from financing activities:



Proceeds from issuance of notes payable, net

—

3,722
Proceeds from exercise of stock options

140

1,735
Proceeds from issuance of common stock pursuant to employee stock purchase plan

482

490
Issuance costs from the issuance of common stock upon public offering

—

(275)
Repayment of notes payable

—

(4,167)
Net cash provided by financing activities

622

1,505
Net decrease in cash, cash equivalents and restricted cash

(29,625)

(36,197)
Cash, cash equivalents and restricted cash at beginning of period

165,928

229,821
Cash, cash equivalents and restricted cash at end of period

$
136,303

$
193,624
Supplemental disclosure of cash flow information:



Cash paid for interest

$
990

$
1,065
Supplemental disclosure of non-cash investing and financing activities:



Additions to property and equipment included in accounts payable and accrued expenses

$
245

$
8


				Additional				Total
	Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Par Value		Capital		Deficit		Equity
Balances at December 31, 2022	77,201,819	$	8	$	652,213	$	(616,842)	$	35,379
Issuance of common stock upon exercise of stock options	26,443		—		78		—		78
Issuance of common stock upon vesting of restricted stock units	288,376		—		—		—		—
Stock-based compensation expense	—		—		4,572		—		4,572
Net loss	—		—		—		(30,318)		(30,318)
Balances at March 31, 2023	77,516,638	$	8	$	656,863	$	(647,160)	$	9,711

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

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Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


				Additional				Total					Additional				Total
	Common Stock			Paid-in		Accumulated		Stockholders’		Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Par Value		Capital		Deficit		Equity		Shares	Par Value		Capital		Deficit		Equity
Balances at December 31, 2021	76,731,940	$	8	$	633,795	$	(545,804)	$	87,999	76,731,940	$	8	$	633,795	$	(545,804)	$	87,999
Issuance of common stock upon exercise of stock options	27,674		—		129		—		129	27,674		—		129		—		129
Stock-based compensation expense	—		—		4,209		—		4,209	—		—		4,209		—		4,209
Net loss	—		—		—		(12,542)		(12,542)	—		—		—		(12,542)		(12,542)
Balances at March 31, 2022	76,759,614	$	8	$	638,133	$	(558,346)	$	79,795	76,759,614	$	8	$	638,133	$	(558,346)	$	79,795
Issuance of common stock upon exercise of stock options	9,469		—		11		—		11
Issuance of common stock in connection with employee stock purchase plan	140,943		—		482		—		482
Stock-based compensation expense	—		—		4,281		—		4,281
Net loss	—		—		—		(18,766)		(18,766)
Balances at June 30, 2022	76,910,026	$	8	$	642,907	$	(577,112)	$	65,803

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

~~Table of Contents~~

~~Ocular Therapeutix, Inc.~~

~~Condensed Consolidated Statements of Stockholders’ Equity~~

~~(In thousands, except share data)~~

~~(Unaudited)~~

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’


Shares

Par Value

Capital

Deficit

Equity
Balances at December 31, 2020

75,996,732

$
8

$
615,338

$
(539,251)

$
76,095
Issuance of common stock upon exercise of stock options

228,241

—

1,197

—

1,197
Issuance of common stock upon cashless exercise of warrant

11,737

—

—

—

—
Issuance costs associated with common stock public offering

—

—

(91)

—

(91)
Stock-based compensation expense

—

—

3,086

—

3,086
Net income

—

—

—

3,121

3,121
Balances at March 31, 2021

76,236,710

$
8

$
619,530

$
(536,130)

$
83,408
Issuance of common stock upon exercise of stock options

177,256

—

538

—

538
Issuance of common stock in connection with employee stock purchase plan

40,631

—

490

—

490
Stock-based compensation expense

—

—

4,292

—

4,292
Net loss

—

—

—

(8,481)

(8,481)
Balances at June 30, 2021

76,454,597

$
8

$
624,850

$
(544,611)

$
80,247

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

Table of Contents

Ocular Therapeutix, Inc.

Notes to the Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

(Unaudited)

1.1. Nature of the Business ~~and Basis of Presentation~~

Ocular Therapeutix, Inc. (the “Company”) was incorporated on September 12, 2006 under the laws of the State of Delaware. The Company is a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using its proprietary bioresorbable ~~hydrogel platform technology.~~hydrogel-based formulation technology ELUTYX. The Company’s ~~product candidates are designed~~mission is to ~~provide differentiated drug delivery solutions~~build an ophthalmology-focused biopharmaceutical company that ~~reduce~~capitalizes on the complexity and burden of the current standard of care by creating local programmed-release alternatives. Since inception, the Company’s operations have been primarily focused on organizing and staffinggaps that the Company ~~acquiring rights to intellectual property, business planning, raising capital, developing its technology, identifying~~believes increasingly exist in the ophthalmology sector between single product ~~candidates, undertaking preclinical studies~~companies and clinical trials, manufacturing its products and product candidates, building its sales and marketing infrastructure for the commercialization of the Company’s approved products and product candidates, and commercializing its approved products.

large, multi-product pharmaceutical companies.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, regulatory approval and compliance, reimbursement, uncertainty of market acceptance of products and the need to obtain additional financing. ~~Newly-approved~~Recently approved products will require significant sales, marketing and distribution support up to and including upon their launch. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization.

~~As of June 30, 2022, the~~The Company ~~had two U.S. Food and Drug Administration (“FDA”)-approved products in commercialization in the United States:~~is currently commercializing DEXTENZA^® (dexamethasone insert) 0.4mg, 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. While ReSure Sealant is commercially available~~ in the United ~~States, it does not receive sales support, is not currently being manufactured by the Company, and has not in the past generated, nor is it anticipated to in the future to generate, material revenues.~~States. The Company’s most advanced product candidates are in either Phase 1 or Phase 2 of clinical stage development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval and adequate reimbursement or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapidly changing technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants. The Company may not be able to generate significant revenue from sales of any product for several years, if at all. Accordingly, the Company will need to obtain additional capital to finance its operations.

The Company has incurred losses and negative cash flows from operations since its inception, and the Company expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future. As of ~~June 30, 2022,~~March 31, 2023, the Company had an accumulated deficit of ~~$577,112.~~$647,160. Based on its current ~~plans and forecasted expenses,~~operating plan which ~~include~~includes estimates ~~related to~~of anticipated cash inflows from ~~DEXTENZA~~ product sales and cash outflows from 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, the Company believes that its existing cash and cash equivalents of ~~$134,539,~~$79,026 as of ~~June 30, 2022,~~March 31, 2023 will enable it to fund its planned operating expenses, debt service obligations and capital ~~expenditure requirements through~~expenditures at least through the next 12 months from the issuance date of these unaudited condensed consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to generate cash flows from the sale of DEXTENZA and raise additional capital to finance its operations. The Company will need to finance its operations through public or private securities offerings, debt financings, collaborations, strategic alliances, licensing agreements, royalty ~~financings~~agreements, or ~~other sources, which may include licensing, collaborations or other strategic transactions or arrangements.~~marketing and distribution agreements. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. If the Company is unable to obtain funding, the Company could be forced to delay,

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

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2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are consistent with those described in Note 2 - Summary of Significant Accounting Policies in ~~our 2021~~the Company’s Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 6, 2023.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of these unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the measurement and recognition of reserves for variable consideration related to product sales, revenue recognition related to a collaboration agreement that contains multiple promises, the fair value of derivatives, stock-based compensation, and realizability of net deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The balance sheet at December 31, ~~2021~~2022 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of ~~June 30, 2022~~March 31, 2023 and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ have been prepared by the Company, pursuant to the rules and regulations of the ~~Securities and Exchange Commission (“SEC”)~~SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on ~~February 28, 2022.~~March 6, 2023. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of ~~June 30, 2022~~March 31, 2023 and results of operations and cash flows for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ have been made. The results of operations for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2022.~~2023.

Recently Issued Accounting Pronouncements

~~Effects of COVID-19~~

~~The pandemic caused~~From time to time, new accounting pronouncements are issued by ~~an outbreak of a new strain of coronavirus, (~~ the ~~“COVID-19 pandemic”) that is affecting~~ ~~the U.S.~~FASB and global economy and financial markets and the related responses of government, businesses and individuals are impacting our employees, patients, customers, 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. During the first half of 2022, the COVID-19 pandemic and related employee recruitment and retention challenges for ambulatory surgical centers (“ASCs”), and hospital out-patient departments (“HOPDs”) slowed the overall pace of cataract procedures performed in the United States, thereby reducing the number of opportunities for ophthalmologists to use DEXTENZAadopted by us as a treatment for post-surgical ocular inflammation and pain. In addition, recruitment and retention challenges with regards to the Company’s own sales force have adversely affected its ability to market DEXTENZA to ophthalmologists and in the office setting. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact the Company’s business, results of operations and financial condition and those of the ~~Company’s customers, vendors, suppliers, and collaboration partners will depend on future developments~~specified effective date. The Company believes that recently issued accounting pronouncements 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~~not yet effective will not have a material impact on ~~local, regional, national~~our consolidated financial statements and international markets. Management continues to actively monitor this situation and the possible effects on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce. For additional information on risks posed by the COVID-19 pandemic, please see “Item 1A — Risk Factors — Risks Related to the Coronavirus Pandemic,” included our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.disclosures.

~~2. Summary of Significant Accounting Policies~~3. Licensing Agreements and Deferred Revenue

Incept License Agreement (in-licensing)

~~Use~~On September 13, 2018, the Company entered into a second amended and restated license agreement with Incept, LLC (“Incept”) to use and develop certain intellectual property (the “Incept License”). Under the Incept License, as amended and restated, the Company was granted a worldwide, perpetual, exclusive license to use specific Incept technology to develop and commercialize products that are delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to ophthalmic diseases or conditions. The Company is obligated to pay low single-digit royalties on net sales of ~~Estimates~~

~~The preparation of financial statements in conformity~~commercial products developed using the licensed technology, commencing with ~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at~~ the date of the ~~condensed consolidated financial statements~~first commercial sale of such products and until the ~~reported amounts~~expiration of ~~revenues and expenses during~~ the ~~reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not~~last to expire of the patents covered by the license.

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limited to, revenue recognition, clinical trial accruals and the fair value of derivatives. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates.

~~Concentration of Credit Risk and of Significant Suppliers and Customers~~

The Company is dependent on a small number of third-party manufacturers to supply products for research and development activities in its preclinical and clinical programs and for sales of its products. The Company’s development programs as well as revenue from future product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

~~For the three and six months ended June 30, 2022, 4 specialty distributor customers accounted for 41%, 26%, 17%, and 10%, and 3 specialty distributor customers accounted for 41%, 25% and 20%, respectively, of the Company’s total product revenue, and no other customer accounted for more than 10% of the Company’s total product revenue. At June 30, 2022,~~ 4 specialty distributor customers accounted for 46%, 25%, 16% and 10% of the Company’s total accounts receivable and no other customer accounted for more than 10% of the Company’s total accounts receivable at June 30, 2022.

~~For the three and six months ended June 30, 2021, 3 specialty distributor customers accounted for 45%, 28%, and~~ ~~15%, and 45%, 25% and 14%, respectively, of the Company’s total product revenue, and no other customer accounted for more than 10% of the Company’s total product revenue.~~

At December 31, 2021, 3 specialty distributor customers accounted for 42%, 26% and 21% of the Company’s total accounts receivable. No other customer accounted for more than 10% of total accounts receivable for the year ended December 31, 2021.

~~Recently Adopted Accounting Pronouncements~~

Effective January 1, 2022, the Company adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.

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~~3. Fair Value~~The terms and conditions of ~~Financial Assets~~the Incept License are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023.

Royalties paid under this agreement related to product sales were $417 and ~~Liabilities~~$369 for the three months ended March 31, 2023 and 2022, respectively. Royalties have been charged to cost of product revenue.

AffaMed License Agreement (out-licensing)

On October 29, 2020, the Company entered into license agreement (“License Agreement”) with AffaMed Therapeutic Limited (“AffaMed”) for the development and commercialization of the Company’s DEXTENZA product regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis and for the Company’s OTX-TIC product candidate regarding open-angle glaucoma or ocular hypertension, in each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations. The Company retains development and commercialization rights for the AffaMed Licensed Products in the rest of the world.

The terms and conditions of the License Agreement are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023.

During the three months ended March 31, 2022, the Company invoiced AffaMed $2,000 for a clinical trial support payment in connection with the initiation of the OTX-TIC Phase 2 clinical trial. The Company concluded this clinical support payment was no longer constrained and has allocated the amount to the Phase 2 Clinical Trial of OTX-TIC performance obligation as an addition to deferred revenue.

The Company recognized $160 and $689 of collaboration revenue related to this performance obligation for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the aggregate amount of the transaction price allocated to the partially unsatisfied Phase 2 Clinical Trial of OTX-TIC performance obligation was $803. This amount is expected to be recognized as this performance obligation is satisfied through June 2025.

Deferred revenue activity for the three months ended March 31, 2023 was as follows:

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 and indicate the level of the fair value hierarchy utilized to determine such fair value:

Fair Value Measurements as of

June 30, 2022 Using:


Level 1

Level 2

Level 3

Total
Assets:








Cash equivalents:








Money market funds

$
32,424

$
—

$
—

$
32,424

Liability:

Derivative liability (Note 7)

$
—

$
—

$
10,461

$
10,461

Fair Value Measurements as of

December 31, 2021 Using:


Level 1

Level 2

Level 3

Total
Assets:








Cash equivalents:








Money market funds

$
62,392

$
—

$
—

$
62,392

Liability:








Derivative liability (Note 7)

$
—

$
—

$
20,192

$
20,192



	Deferred Revenue
Deferred revenue at December 31, 2022	$	13,963
Additions		—
Amounts recognized into revenue		(160)
Deferred revenue at March 31, 2023	$	13,803

4. Cash Equivalents and Restricted Cash

~~The~~As of March 31, 2023 and December 31, 2022, the Company held restricted cash of $1,764, ~~at June 30, 2022 and December 31, 2021,~~ respectively, on its unaudited condensed consolidated balance ~~sheet.~~sheets. The Company held restricted cash as security deposits for ~~the lease of~~ its ~~research and development space, manufacturing space and corporate headquarters.~~

real estate leases.

The Company’s unaudited condensed consolidated statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance ~~sheet~~sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statement of cash flows is as follows:


	June 30,		June 30,		March 31,		March 31,
	2022		2021		2023		2022
Cash and cash equivalents	$	134,539	$	191,860	$	79,026	$	145,417
Restricted cash		1,764		1,764		1,764		1,764
Total cash, cash equivalents and restricted cash	$	136,303	$	193,624	$	80,790	$	147,181

~~5. Inventory~~

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

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5. Inventory

Inventory consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Raw materials	$	325	$	388	$	228	$	309
Work-in-process		662		605		773		899
Finished goods		513		257		1,265		766
	$	1,500	$	1,250	$	2,266	$	1,974

6. ~~Accrued~~ Expenses ~~and Other Current Liabilities~~

Accrued expenses and other current liabilities ~~as of June 30, 2022 and December 31, 2021~~ consisted of the following:

June 30,

December 31,

2022

2021
Accrued payroll and related expenses

$
4,747

$
6,597
Accrued rebates and programs

3,260

3,615
Accrued professional fees

1,081

1,227
Accrued research and development expenses

1,683

1,102
Accrued interest payable on 2026 convertible notes

7,606

6,475
Accrued other

1,073

1,105

$
19,450

$
20,121

~~7. Derivative Liability~~

The unsecured senior subordinated convertible notes (the “2026 Convertible Notes”) (Note 8) contains an embedded conversion option that meets the criteria to be bifurcated and accounted for separately (the “Derivative Liability”) from the 2026 Convertible Notes. The Derivative Liability was recorded at fair value upon the issuance of the 2026 Convertible Notes and is subsequently remeasured to fair value at each reporting period. The Derivative Liability was initially valued and remeasured using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the Derivative Liability in the Company’s condensed consolidated balance sheet.

~~The estimated fair value of the 2026 Convertible Notes was $41,092~~ at June 30, 2022. The fair value of the 2026 Convertible Notes was estimated utilizing a binomial lattice model which requires the use of Level 3 unobservable inputs. The main inputs when determining the fair value for disclosure purposes are the common stock price and bond yield which are updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value. The main inputs to valuing the 2026 Convertible Notes with the conversion option are as follows:

As of

June 30,

December 31,

2022

2021

Company's stock price

$
4.02

$
6.97

Expected annual volatility

80.7
%

82.6
%
Bond yield

16.4
%

12.6
%

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~~A roll-forward of the derivative liability is as follows:~~


	As of		March 31,		December 31,
	June 30, 2022		2023		2022
Balance at December 31, 2021	$	20,192
Change in fair value		(9,731)
Balance at June 30, 2022	$	10,461
Accrued payroll and related expenses			$	4,527	$	7,509
Accrued rebates and programs				3,914		3,560
Accrued professional fees				1,035		1,228
Accrued research and development expenses				1,947		1,816
Accrued interest payable on 2026 convertible notes				9,191		8,756
Accrued other				1,379		1,228
			$	21,993	$	24,097

8. 7. Financial Liabilities

Convertible Notes

On March 1, 2019, the Company issued $37,500 of ~~2026 Convertible Notes. Each 2026 Convertible Note accrues~~convertible notes, which accrue interest at an annual rate of 6% of ~~its~~their outstanding principal amount, which is payable, along with the principal amount at maturity, on March 1, 2026, unless earlier converted, repurchased or ~~redeemed.~~redeemed (the “2026 Convertible Notes”). The Company presents accrued interest in accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheets because the 2026 Convertible Notes are currently convertible and the interest is payable in cash. The effective annual interest rate for the 2026 Convertible Notes was 14.8% through ~~June 30, 2022.~~

March 31, 2023.

The ~~holders~~terms and conditions of the 2026 Convertible Notes ~~may convert all or part of the outstanding principal amount of their 2026 Convertible Notes into shares of~~are described in the Company’s ~~common stock, par value $0.0001 per share, prior to maturity and provided that no conversion results in a holder beneficially owning more than 19.99% of~~Annual Report on Form 10-K for the ~~issued and outstanding common stock of~~year ended December 31, 2022, filed with the ~~Company. The conversion rate is 153.8462 shares of the Company’s common stock per $1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of $6.50~~ ~~per share. The conversion rate is subject to adjustment in customary circumstances such as stock splits or similar changes to the Company’s capitalization.~~

At its election, the Company may choose to make such conversion payment in cash, in shares of common stock, or a combination thereof. Upon any conversion of any 2026 Convertible Note, the Company is obligated to make a cash payment to the holder of such 2026 Convertible Note for any interest accrued but unpaidSEC on the principal amount converted. Upon the occurrence of a Corporate Transaction (as defined below), each holder has the option to require the Company to repurchase all or part of the outstanding principal amount of such 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. In addition, each holder is entitled to receive an additional make-whole cash payment in accordance with a table set forth in each 2026 Convertible Note.

Upon conversion by the holder, the Company has the right to select the settlement of the conversion in shares of common stock, cash, or in a combination thereof. In addition, the Company is obligated to make a cash payment to the holder of such 2026 Convertible Note for any interest accrued but unpaid on the principal amount converted.

●

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

●

If the Company elects to satisfy such conversion by cash settlement, the Company shall pay to the converting holder in respect of each $1,000 principal amount of 2026 Convertible Notes being converted cash in an amount equal to the sum of the Daily Conversion Values (as defined below) for each of the 20 ~~(20) consecutive trading days during a specified period. The “Daily Conversion Values” is defined as~~ each of the 20 consecutive trading days during the specified period, 5.0% of the product of (a) the conversion rate on such trading day and (b) the Daily VWAP on such trading day. The Daily VWAP is defined as each of the 20 consecutive trading days during the applicable observation period, the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on the Bloomberg page for the Company.

●

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

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in an amount equal to the lesser of (i) the Daily Measurement Value (as defined below) and (ii) the Daily Conversion Value on such Trading Day; and (b) if the Daily Conversion Value on such trading day exceeds the Daily Measurement Value, a number of shares equal to (i) the difference between the Daily Conversion Value and the Daily Measurement Value, divided by (ii) the Daily VWAP for such Trading Day. The “Daily Measurement Value” is defined as the Specified Dollar Amount (as defined below), if any, divided by 20. ~~The “Specified Dollar Amount” is defined as~~ ~~the maximum cash amount per $1,000 principal amount of Notes to be received upon conversion as specified in the notice specifying the Company’s chosen settlement method.~~

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

A corporate transaction includes (i) a merger or consolidation executed through a tender offer or change of control (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation); (ii) a sale, lease, transfer, of all or substantially all of the assets of the Company; or (iii) if the Company’s common stock ceases to be listed or quoted on any of the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (the “Corporate Transaction”).

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

6, 2023.

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

~~As discussed in Note 7, the~~ Company determined that the embedded conversion option is required to be separated from the 2026 Convertible Notes and accounted for as a freestanding derivative instrument subject to derivative accounting. The allocation of proceeds to the conversion option results in a discount on the 2026 Convertible Notes. The Company is amortizing the discount to interest expense over the term of the 2026 Convertible Notes using the effective interest method.

The terms and conditions of the 2026 Convertible Notes are described in the Company’s periodic reports including its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

~~A summary of the 2026 Convertible Notes at June 30, 2022 and December 31, 2021 is as follows:~~

June 30,

December 31,


2022

2021
2026 Convertible Notes

$
37,500

$
37,500
Less: unamortized discount

(9,933)

(11,065)
Total

$
27,567

$
26,435

~~Accrued interest related to the 2026 Convertible Notes amounted to $7,606 and $6,475~~ ~~at June 30, 2022 and December 31, 2021, respectively.~~

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~~9. Income Taxes~~

The Company did not provide for any income taxes in its condensed consolidated statement of operations and comprehensive income (loss) for the three and six month periods ended June 30, 2022 or 2021. The Company has provided a valuation allowance for the full amount of its net deferred tax assets because, at June 30, 2022 and December 31, 2021, it was more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

~~10. Collaboration Agreements~~

~~AffaMed License Agreement~~

In October 2020, the Company entered into a license agreement with AffaMed Therapeutics Limited (“AffaMed”) for the development and commercialization of the Company’s DEXTENZA product regarding ocular inflammation and pain following cataract surgery and ocular itching associated with allergic conjunctivitis and for the Company’s OTX-TIC product candidate (collectively with DEXTENZA, the “AffaMed Licensed Products”) regarding open-angle glaucoma or ocular hypertension, in each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations. The Company and AffaMed subsequently amended the license agreement in October 2021 (as amended, the “License Agreement”). The Company retains development and commercialization rights for the AffaMed Licensed Products in the rest of the world.

The terms and conditions of the License Agreement are described in the Company’s periodic reports including its Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

The Company recognized $122 and $811 of collaboration revenue related to the performance obligation to conduct a Phase 2 clinical trial of OTX-TIC under the License Agreement for the three and six months ended June 30, 2022. During the three months ended March 31, 2022, the Company invoiced AffaMed $2,000 for a clinical trial support payment, under the License Agreement, in connection with the initiation of the OTX-TIC Phase 2 clinical trial. The Company concluded this clinical support payment was no longer constrained and has allocated the amount to the performance obligation to conduct a Phase 2 clinical trial of OTX-TIC. As of June 30, 2022, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was $1,189~~. This amount is expected to be recognized as performance obligations are satisfied through June 2023.~~

For the Phase 2 clinical trial of OTX-TIC, performance obligation revenue is recognized under an input method using the ratio of effort incurred to date compared to the total estimated effort required to complete the performance obligation. The calculation of the total estimated effort includes the total amount of forecasted costs associated with the completion of the Phase 2 clinical trial, as well as the assumed timing of this activity. Such cost estimates include forecasted direct labor and material costs, subcontractor costs, and external contract research organization, or CRO, costs.

~~Deferred revenue activity for the six months ended June 30, 2022 was as follows:~~

Deferred Revenue
Deferred revenue at December 31, 2021

$
13,000
Additions

2,000
Amounts recognized into revenue

(811)
Deferred revenue at June 30, 2022

$
14,189

~~As of June 30, 2022, the aggregate amount of the transaction price allocated to DEXTENZA product and OTX-TIC product performance obligations that are partially unsatisfied was $13,000~~. This amount is expected to be recognized as performance obligations are satisfied. The Company recognizes revenue related to the amounts allocated to the combined performance obligations for the development and commercialization of the Company’s DEXTENZA product regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis and the Company’s OTX-TIC product candidate based on the point in time upon which control of supply is transferred to

~~Table of Contents~~

~~AffaMed for each delivery of the associated supply. The Company currently expects to recognize the revenue over a period of approximately~~ ~~seven~~ ~~to eight years~~ commencing on the date the Company begins delivering product to AffaMed. This estimate of this period considers the timing of development and commercial activities under the License Agreement and may be reduced or increased based on the various activities as directed by the joint committees, decisions made by AffaMed, regulatory feedback or other factors not currently known.

A summary of the 2026 Convertible Notes at March 31, 2023 and December 31, 2022 is as follows:


	March 31,		December 31,
	2023		2022
2026 Convertible Notes	$	37,500	$	37,500
Less: unamortized discount		(8,142)		(8,751)
Total	$	29,358	$	28,749

~~11.~~ Notes Payable

The Company entered into a credit and security agreement in 2014 (as amended to date, the “Credit Agreement”) establishing the Company’s credit facility (the “Credit Facility”). Under the Credit Facility, the Company has a total borrowing capacity of $25,000, which was fully drawn down as of ~~June 30, 2022.~~March 31, 2023. The carrying value of the Company’s variable interest rate notes payable are recorded at amortized cost, which approximates fair value due to their short-term nature.

The terms and conditions of the Credit Agreement and the Credit Facility are described in the Company’s ~~periodic reports including its~~ Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on ~~February 28, 2022.~~March 6, 2023, except with respect to Amendment No. 1 to the Credit Agreement as described below.

On March 12, 2023, the Company requested, and received, a protective advance of $2,000 under the Credit Agreement as a short-term bridge loan in response to the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. This protective advance was deemed a credit extension. The Company repaid the full principal amount of $2,000 in March 2023.

On March 31, 2023, the Company entered into Amendment No. 1 to the Credit Agreement (the “Amendment”) to replace the LIBOR-based interest rate provisions of the Credit Agreement with interest rate provisions based on the Secured Overnight Financing Rate, or SOFR, establish a benchmark replacement mechanism and make additional administrative updates. The Company accounted for the Amendment as a modification in accordance with the guidance in ASC 470-50 Debt. Application of the modification accounting guidance did not have a material effect on the carrying amount of the long-term notes payable.

Borrowings outstanding are as follows:


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Borrowings outstanding	$	25,000	$	25,000	$	25,000	$	25,000
Accrued exit fee		222		110		391		335
Unamortized discount		(94)		(110)		(70)		(78)
Long-term notes payable	$	25,128	$	25,000	$	25,321	$	25,257

As of ~~June 30, 2022,~~March 31, 2023, the annual requirement for the repayment of principal for the Credit Facility, inclusive of the final payment of $875 due at expiration, was as follows:




Year Ending December 31,	Principal		Final Payment		Total		Principal		Final Payment		Total
2022 (July 1 to December 31)		—		—		—
2023		—		—		—		—		—		—
2024		8,333		—		8,333		8,333		—		8,333
2025		16,667		875		17,542		16,667		875		17,542
	$	25,000	$	875	$	25,875	$	25,000	$	875	$	25,875

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8. Derivative Liability

The 2026 Convertible Notes (Note 7) contain an embedded conversion option that meets the criteria to be bifurcated and accounted for separately from the 2026 Convertible Notes (the "Derivative Liability"). The Derivative Liability was recorded at fair value upon the issuance of the 2026 Convertible Notes and is subsequently remeasured to fair value at each reporting period. The 2026 Convertible Notes were initially valued and are remeasured using a "with-and-without" method. The "with-and-without" methodology involves valuing the whole instrument on an as-is basis with the embedded conversion option and then valuing the 2026 Convertible Notes without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the Derivative Liability. Refer to Note 9 for details regarding the determination of fair value.

~~12. Net Loss Per Share~~9. Risks and Fair Value

Concentration of Credit Risk and of Significant Suppliers and Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has its cash and cash equivalents balances at two accredited financial institutions, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

For the three months ended March 31, 2023, three specialty distributor customers accounted for 52%, 25%, and 13% of the Company’s gross product revenue, and at March 31, 2023, three specialty distributor customers accounted for 55%, 24%, and 13% of the Company’s total accounts receivable. No other customer accounted for more than 10% of total revenue for the three months ended March 31, 2023, or accounts receivable at March 31, 2023.

For the three months ended March 31, 2022, three specialty distributor customers accounted for 42%, 25%, and 23% of the Company’s gross product revenue. At December 31, 2022, three specialty distributor customers accounted for 52%, 24%, and 15% of the Company’s total accounts receivable. No other customer accounted for more than 10% of total revenue for the three months ended March 31, 2022, or accounts receivable at December 31, 2022.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 and indicate the level of the fair value hierarchy utilized to determine such fair value:

~~Basic net loss per share was calculated as follows for the three and six months ended June 30, 2022 and 2021.~~

Three Months Ended June 30,

Six Months Ended June 30,


2022


2021

2022


2021
Numerator:

Net loss attributable to common stockholders

$
(18,766)

$
(8,481)

$
(31,308)

$
(5,360)
Denominator:





Weighted average common shares outstanding, basic

76,764,296

76,324,367

76,755,028

76,198,384
Net loss per share - basic

$
(0.24)

$
(0.11)

$
(0.41)

$
(0.07)


	Fair Value Measurements as of
	March 31, 2023 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	72,796	$	—	$	—	$	72,796

Liability:
Derivative liability	$	—	$	—	$	12,914	$	12,914

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	Fair Value Measurements as of
	December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	30,188	$	—	$	—	$	30,188

Liability:
Derivative liability	$	—	$	—	$	6,351	$	6,351

~~Diluted~~

At March 31, 2023, the 2026 Convertible Notes, net of the Derivative Liability, were carried at amortized cost totaling $38,549, comprised of the $29,358 non-current liability (Note 7) and $9,191 accrued interest (Note 6). At December 31, 2022, the 2026 Convertible Notes, net of the Derivative Liability, were carried at amortized cost totaling $37,505, comprised of the $28,749 non-current liability (Note 7) and $8,756 accrued interest (Note 6). The estimated fair value of the 2026 Convertible Notes, without the Derivative Liability, was $34,933 and $33,177 at March 31, 2023 and December 31, 2022, respectively.

The fair value of the 2026 Convertible Notes with and without the conversion option is estimated using a binomial lattice approach. The use of this approach requires the use of Level 3 unobservable inputs. The main input when determining the fair value of the 2026 Convertible Notes is the bond yield that pertains to the host instrument without the conversion option. The significant assumption used in determining the bond yield is the market yield movements of a comparable instrument issued as of the valuation date, which is assessed and updated each period. The main input when determining the fair value for disclosure purposes is the bond yield which is updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value.

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


		As of
	March 31,			December 31,
	2023			2022
Company's stock price	$	5.27		$	2.81
Volatility		76.0	%		93.8	%
Bond yield		15.5	%		16.2	%

A roll-forward of the derivative liability is as follows:


	As of
Balance at December 31, 2022	$	6,351
Change in fair value		6,563
Balance at March 31, 2023	$	12,914

10. Equity

On August 9, 2021, the Company and Jefferies LLC (“Jefferies”) entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100,000 from time to time through Jefferies, acting as agent. As of May 4, 2023, the Company has not sold any shares of common stock under the 2021 Sales Agreement.

11. Stock-Based Awards

For the three months ended March 31, 2023, the Company had three stock-based compensation plans under which it was able to grant stock-based awards, the 2021 Stock Incentive Plan, as amended (the “2021 Plan”), the 2019 Inducement Stock Incentive Plan, as amended (the “2019 Inducement Plan”), and the 2014 Employee Stock Purchase

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Plan (the “ESPP”), collectively the “Stock Plans”. The terms and conditions of the Stock Plans are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023.

During the three months ended March 31, 2023, the Company granted options to purchase 2,991,141 shares of common stock, at a weighted exercise price of $3.89 per share, all under the 2021 Plan.

During the three months ended March 31, 2023, the Company granted 947,633 restricted stock units, or RSUs, all under the 2021 Plan. Each RSU is equivalent to one share of common stock upon vesting.

During the three months ended March 31, 2023, a total of 131,347 stock options and RSUs expired or were forfeited.

As of March 31, 2023, 2,055,747, 545,375, and 689,475 shares of common stock remained available for issuance under the 2021 Plan, the 2019 Inducement Plan, and the ESPP, respectively.

The Company recorded stock-based compensation expense related to stock options and RSUs in the following expense categories of its unaudited condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended
	March 31,
	2023		2022
Research and development	$	1,141	$	1,062
Selling and marketing		1,043		1,138
General and administrative		2,388		2,009
	$	4,572	$	4,209

As of March 31, 2023, the Company had an aggregate of $26,118 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.58 years.

12. Income Taxes

The Company did not provide for any income taxes in its unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, respectively. The Company has provided a valuation allowance for the full amount of its net deferred tax assets because, at March 31, 2023 and December 31, 2022, it was more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

13. Net Loss Per Share

Basic net loss per share was calculated as follows for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~

Three Months Ended June 30,

Six Months Ended June 30,


2022


2021

2022


2021
Net loss attributable to common stockholders, basic

$
(18,766)

$
(8,481)

$
(31,308)

$
(5,360)
Interest expense on 2026 Convertible Notes

1,141

1,095

2,264

2,173
Change in fair value of derivative liability

(2,773)

(13,396)

(9,731)

(38,412)
Net loss attributable to common stockholders, diluted

$
(20,398)

$
(20,782)

$
(38,775)

$
(41,599)

Weighted average common shares outstanding, basic

76,764,296

76,324,367

76,755,028

76,198,384
Shares issuable upon conversion of 2026 Convertible Notes, as if converted

5,769,232

5,769,232

5,769,232

5,769,232
Weighted average common shares outstanding, diluted

82,533,528

82,093,599

82,524,260

81,967,616

Net loss per share attributable to common stockholders, diluted

$
(0.25)

$
(0.25)

$
(0.47)

$
(0.51)

2022:

The Company excluded the following common stock equivalents and restricted stock units, outstanding as of June 30, 2022 and 2021, from the computation of diluted net loss per share for the six months ended ~~June 30, 2022 and 2021 because they had an anti-dilutive impact.~~

Six Months Ended June 30,

2022

2021
Options to purchase common stock

13,892,884

11,049,287
Restricted stock units

1,017,111

—

14,909,995

11,049,287


	Three Months Ended March 31,
	2023			2022
Numerator:
Net loss attributable to common stockholders	$	(30,318)	$	(12,542)
Denominator:
Weighted average common shares outstanding, basic		77,386,287		76,745,663
Net loss per share - basic	$	(0.39)	$	(0.16)

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~~13. Stock-Based Awards~~

~~2021 Stock Incentive Plan~~For the three months ended March 31, 2023 there was no dilutive impact from potentially issuable common shares. Therefore, diluted net loss per share was the same as basic net loss per share.

~~The 2021 Stock Incentive Plan provides~~Diluted net loss per share was calculated as follows for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. Upon its adoption, the number of shares of common stock authorized for issuance under the 2021 Stock Incentive Plan equaled the total of 6,000,000 shares of common stock plus up to the sum of 456,334 shares remaining available for grant under the 2014 Stock Incentive Plan (the “2014 Plan”) as of immediately prior to the effective date of the 2021 Plan and 9,766,336 shares subject to awards granted under the 2014 Plan or the Company’s 2006 Stock Incentive Plan, which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject to certain limitations).

At the Company’s 2022 Annual Meeting of Stockholders held on June 16, 2022, the Company’s stockholders approved an amendment to the 2021 Stock Incentive Plan (as amended, the “2021 Plan”) to increase the number of shares of common stock authorized for issuance under the 2021 Plan by 3,600,000 ~~shares. As of June 30, 2022,~~ ~~5,837,806 shares of common stock remained available for issuance under the 2021 Plan.~~

~~Stock Option Awards for the Three and Six months Ended June 30, 2022~~

~~During the~~ three ~~and six~~ months ended ~~June 30, 2022, the Company granted options to purchase 557,050 and 3,419,253 shares of common stock, at a weighted exercise price of $3.69 and $5.02, respectively, per share under the 2021 Plan.~~March 31, 2022:

~~Restricted Stock Units (RSU) Awards for the Three and Six months Ended June 30, 2022~~

~~During the three and six months ended June 30, 2022, the Company granted 120,404 and 1,054,883~~ ~~restricted stock units (“RSUs”), respectively, under the 2021 Plan. Each RSU is equivalent to one share of common stock upon vesting. Each RSU award vests on an annual basis over a~~ ~~three-year~~ period. Holders of RSUs are not entitled to vote on any matters and are not entitled to dividends. The Company has determined the fair value of each RSU based on the closing price of the Company’s common stock on the date of grant and recognizes the compensation expense using the straight-line method over the service period, which coincides with the vesting period.

~~Stock-based Compensation Expense~~

Three Months Ended March 31,

2022
Net loss attributable to common stockholders, basic

$
(12,542)
Interest expense on 2026 Convertible Notes

1,123
Change in fair value of derivative liability

(6,958)
Net loss attributable to common stockholders, diluted

$
(18,377)

Weighted average common shares outstanding, basic

76,745,663
Dilutive options (treasury stock method)

—
Shares issuable upon conversion of 2026 Convertible Notes, as if converted

5,769,232
Weighted average common shares outstanding, diluted

82,514,895

Net loss per share attributable to common stockholders, diluted

$
(0.22)

The Company ~~recorded stock-based compensation expense related to stock options and RSUs in~~excluded the following ~~expense categories~~potentially issuable common shares, outstanding as of ~~its condensed consolidated statements~~March 31, 2023 and 2022, from the computation of ~~operations:~~diluted net loss per share for the three months ended March 31, 2023 and 2022 because they had an anti-dilutive impact.


	Three Months Ended				Six Months Ended				Three Months Ended March 31,
	June 30,				June 30,				2023	2022
Options to purchase common stock									16,546,260	13,618,221
Restricted stock units									1,708,741	926,063
Shares issuable upon conversion of 2026 Convertible Notes, if converted									5,769,232	—
	2022		2021		2022		2021		24,024,233	14,544,284
Research and development	$	1,036	$	1,206	$	2,098	$	1,883
Selling and marketing		1,191		1,129		2,329		1,883
General and administrative		2,054		1,957		4,063		3,612
	$	4,281	$	4,292	$	8,490	$	7,378

~~As of June 30, 2022, the Company had an aggregate of $25,612 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.7~~ ~~years.~~

14. ~~Related Party Transactions~~Commitments and Contingencies

Indemnification Agreements

In November 2020, the Company engaged Specialty Pharma Consulting, LLC (“Specialty Pharma”), an entity affiliated with Kevin Coughenour, to provide services for quality engineering and validation activities in the ordinary course of ~~business. Mr. Coughenour~~business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is ~~married to~~not determinable. To date, the ~~Company’s former Chief Operating Officer Patricia Kitchen. The~~Company has not incurred any material costs as a result of such indemnifications.

~~Table of Contents~~

~~Company incurred fees for quality engineering and validation activities rendered by Specialty Pharma of~~ ~~$29 and $155, for the three and six months ended June 30, 2021, respectively. On April 26, 2021, the Company and Specialty Pharma terminated their relationship.~~
15. Related Party Transactions
The Company has engaged Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to provide certain legal services to the Company. The Company's Chief Business Officer’s sister is a managing partner at WilmerHale, who has not participated in providing legal services to the Company. The Company incurred fees for legal services rendered by WilmerHale of approximately ~~$211~~$394 and ~~$535~~$327 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022, respectively. As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was ~~$153~~$156 and ~~$119~~$0 recorded in accounts payable for WilmerHale. As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was ~~$58~~$238 and ~~$68~~$24 recorded in accrued expenses for WilmerHale.

~~15. Common Stock~~16. Subsequent Events
On August 9, 2021, the Company and Jefferies LLC (“Jefferies”) mutually terminated an Open Market Sale Agreement and entered into another Open Market Sale Agreement (the “2021 Sales Agreement”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100,000 ~~from time to time through Jefferies, acting as agent. As of August 5, 2022, the Company has~~ ~~0t sold any shares of common stock under the 2021 Sales Agreement.~~
No subsequent events noted.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on ~~February 28, 2022.~~March 6, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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.

Overview

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~~technology which we refer to ~~our strategy~~as ELUTYX. Our mission is to ~~continue to (i)~~ build ~~upon our experience commercializing ophthalmology products~~an ophthalmology-focused biopharmaceutical company that ~~can be administered primarily~~capitalizes on the gaps that we believe increasingly exist in the ~~surgical and/or office settings~~ophthalmology sector between single product companies and ~~(ii) develop a clinical pipeline of innovative ophthalmology products that address~~ large, ~~areas of unmet need.~~multi-product pharmaceutical companies.
~~We currently have one FDA-approved product 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. We also have an additional FDA-approved product, ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions following cataract surgery that is not commercially available in the United States and that we are not currently manufacturing. 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, and other retinal diseases; glaucoma or ocular hypertension; and ocular surface diseases and conditions, including dry eye disease.
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, ~~and proteins,~~ into our proprietary bioresorbable hydrogel-based formulation technology ~~in our internal drug development activities,~~ELUTYX, with the goal of providing local ~~programmed-release~~programmed release to tailor the duration and amount of ~~drug~~the therapeutic agent to be delivered to the eye. We believe that our local programmed-release drug delivery technology has the potential to ~~treat~~enable the treatment of 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.
The hydrogel technology that underpins ELUTYX has been used in the human body since 1992 and has demonstrated its safety and effectiveness in over 5 million patients across five FDA-approved devices since that time. Our own approved product, DEXTENZA, has been used in nearly 300,000 eyes since launch with reported adverse events in less than 1 in 10,000 patients. This data demonstrates that the ELUTYX technology is well tolerated, and enables the ideal polymer for a product candidate like OTX-TKI. The only factors that regulate the bioresorption of our ELUTYX polymer are temperature and pH of the aqueous environment. As human body temperature and pH of the human aqueous environment are within a typical range for each human, and since water levels in essentially all retinas are generally sufficient to saturate our polymer matrix, we believe we can program the time to bioresorption so the polymer will be intact long-enough to deliver the active pharmaceutical ingredient and then be fully bio-resorbed when re-dosing is required. The added benefits of not creating an acidic micro-environment, its easy elimination from the vitreous leaving behind no harmful byproducts, and its soft gel properties give added comfort to the safety profile. This technology would potentially provide solutions not only for the durable therapies for wet age-related macular degeneration, or wet AMD, to decrease the injection burden, but also for the other retinal indications which need frequent injections, like geographic atrophy.
~~Our core pipeline assets include four programs~~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 clinical and preclinical development:

●OTX-TKI, an axitinib intravitreal implant being developed for the treatment of wet age-related macular degeneration, or AMD, diabetic retinopathy, or DR, 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; ~~and~~

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

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~~Commercial Portfolio~~●
~~Post-Surgical Ocular Inflammation and Pain~~
~~Ocular Itching Associated with Allergic Conjunctivitis~~
~~DEXTENZA (dexamethasone ophthalmic insert) 0.4mg for intracanalicular use for the Treatment of Post-Surgical Ocular Inflammation and Pain or Ocular Itching Associated with Allergic Conjunctivitis~~
~~DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert~~A complement inhibitor program in preclinical development for the treatment of ~~post-surgical~~dry age-related macular degeneration, or dry AMD; and
●A gene delivery program in preclinical development using our proprietary bioresorbable hydrogel technology ELUTYX to control the release of vectors such as adeno-associated virus to ocular ~~inflammation and pain. The FDA approved a new drug application, or NDA, for DEXTENZA~~tissues for the treatment of ~~post-surgical~~inherited and acquired ocular ~~pain in November 2018 and approved a supplemental new drug application,~~diseases, including dry 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.wet AMD.
Clinical Portfolio
~~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 an ophthalmology or optometric office during a routine, non-surgical appointment. In the first quarter of 2022, we commercially launched DEXTENZA in the United States for the treatment of ocular itching associated with allergic conjunctivitis. We have established a separate, smaller office sales force team, dedicated to calling on ophthalmology and optometric offices which is comprised of Key Account Managers and supported by the field reimbursement team. This dedicated in-office sales force could also support our broader pipeline of product candidates in the future, as we believe certain other product candidates would be primarily used, if approved, in the office setting.Retinal Diseases
In July 2022, the Centers for Medicare & Medicaid Services issued its proposed rule for the 2023 Outpatient Prospective Payment System rulemaking cycle recommending that DEXTENZA continue to be separately reimbursed under the non-opioid pain management supply provision through 2023. The final rule regarding the recommendation is anticipated in November 2022. In addition, physician reimbursement for the insertion of DEXTENZA remains available under the product’s Category 1 code, which became effective January 1, 2022, ensuring more reliable payment to physicians for DEXTENZA placement across all payer types and in all settings of care.
We are currently conducting one clinical trial as a post-approval requirement of the FDA in accordance with the Pediatric Research Equity Act of 2003, in connection with the FDA’s approval of DEXTENZA. In September 2020, we announced that we had dosed the first pediatric subjects in a U.S.-based, randomized, multicenter Phase 3 clinical trial evaluating DEXTENZA for the treatment of post-surgical ocular inflammation and pain in children following cataract surgery. We intend to enroll approximately 60 subjects in this clinical trial. It is designed to evaluate the safety and biological activity of DEXTENZA compared to an active control, prednisolone acetate suspension eye drops, for the treatment of inflammation and pain following ocular surgery for pediatric cataract in children between zero and five years of age. The primary endpoint is the absence of pain at day eight post-treatment as measured by a FLACC (Face, Legs, Activity, Cry, Consolability) score of zero. Enrollment is ongoing. The FDA has agreed that this Phase 3 clinical trial evaluating DEXTENZA for the treatment of post-surgical ocular inflammation and pain in children following cataract surgery will also satisfy the post-approval requirement for a pediatric trial as it relates to the approval for 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.

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We have received only limited revenues from ReSure Sealant to date as the product is only used in a minority of cataract surgeries and, currently, there is no direct separate reimbursement for the product—meaning ReSure Sealant is only reimbursed as part of a bundled payment for the associated surgery. As of the fourth quarter of 2021, we suspended the production of ReSure Sealant in order to focus our manufacturing resources on the commercialization of DEXTENZA. Currently, ReSure Sealant is not commercially available in the United States.

~~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 based on our ELUTYX technology incorporating axitinib, a small molecule ~~tyrosine kinase inhibitor, or~~ TKI 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.~~States to evaluate OTX-TKI for the treatment of wet AMD. Our implants have delivered anti-VEGF compounds in vitro over a targeted nine to twelve month period. We are delivering the implant through a 25 gauge or narrower needle and designed OTX-TKI to create a re-treatment window when an effective dose of axitinib is still getting to the target tissues after full bioresorption of the initial implant. This would ensure that the vitreous would never have more than one implant at any one time and that the patient would have some leeway in scheduling an appointment to be re-dosed. We are also conducting a Phase 1 clinical trial in the United States to evaluate OTX-TKI for the treatment of DR.

We are conducting our two Phase 1 trials of OTX-TKI for the treatment of wet AMD with different formulations of axitinib. We currently intend to move forward into pivotal trials with our single 600 µg axitinib implant formulation of OTX-TKI for both the treatment of wet AMD and the treatment of DR. We are also developing a second formulation of OTX-TKI that could be used in future trials of retinal indications.
Wet Age-Related Macular Degeneration (wet AMD)
~~Our~~In February 2023, we announced interim 10-month data from the ongoing Phase 1 clinical trial of OTX-TKI in Australia is comprised of four cohorts consisting of subjects with pre-existing intraretinal and/or subretinal fluid: a lower dose cohort of 200 µg with six subjects; a higher dose cohort of 400 µg with seven subjects; a third cohort with two parallel arms, one arm of six subjects receiving a concomitant anti-VEGF injection with 400 µg of OTX-TKI and the other arm of six subjects receiving a 600 µg of OTX-TKI with no anti-VEGF injection; and a fourth cohort with two parallel arms, one arm of six subjects receiving a 600 µg single implant of OTX-TKI and the other arm of six subjects receiving a 600 µg single implant of OTX-TKI with anti-VEGF injection. In this trial, we are evaluating whether a TKI could reduce existing fluid levels. This trial’s enrollment is complete.
AtUnited States at the Angiogenesis, Exudation, and Degeneration 2023 Annual Meeting. The trial enrolled a total of 21 subjects at six clinical sites, comprising two arms consisting of subjects previously treated with, and responsive to, standard of care anti-VEGF therapy: a 16-subject arm receiving OTX-TKI in combination with a single anti-VEGF injection at month one and a five-subject arm receiving on-label aflibercept at eight-week intervals. The trial is designed to assess the safety, durability and tolerability of OTX-TKI as well as to assess preliminary biological activity in subjects by measuring anatomical and functional changes. As of the December 12, 2022 ~~Meeting held~~cut-off date, the interim data showed that the single 600 µg OTX-TKI implant was generally well tolerated with no drug-related ocular or systemic serious adverse events, or SAEs, observed through 10 months. One SAE of endophthalmitis was observed in ~~February 2022,~~the OTX-TKI arm which occurred following the aflibercept injection required by the clinical trial protocol at month one and was assessed by the investigator as related to the injection procedure. There were no instances of elevated IOP, retinal detachment, retinal vasculitis, or implant migration into the anterior chamber observed in the OTX-TKI arm, and no subjects had dropped out of either arm as of the data cutoff.
The interim results showed subjects treated with a single OTX-TKI implant demonstrated stable and sustained BCVA (mean change from baseline of -0.3 letters) and CSFT (mean change from baseline of -1.3 µm) in the OTX-TKI arm at 10 months, which was comparable with the aflibercept arm (mean change from BCVA baseline of -0.8 letters; mean change from CSFT baseline of -4.5 µm). Up to Month 10, 73% of subjects remained rescue-free. One subject, the subject who experienced endophthalmitis, was rescued twice. Overall, a 92% reduction in treatment burden (average percent decrease in monthly injections over the period compared to the subjects’ historical injection regimen) was observed in OTX-TKI treated subjects for up to 10 months. Four subjects were rescued in the OTX-TKI arm up to Month 10. One additional subject was rescued at that subject’s Month 10 visit.
In April 2023, we presented an update on OTX-TKI at the 2023 Association for Research in Vision and Ophthalmology (ARVO) Annual Meeting that covered preclinical pharmacokinetics, or PK, and a review of the 10-month interim data from the ongoing Phase 1 clinical trial of OTX-TKI in the United States, including OTX-TKI

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implant resorption data to date. We augmented the results from our ongoing clinical trial with PK data in two animal models showing the uptake of axitinib from our hydrogel implant in the choroid and retinal pigment epithelium, or RPE, cells, where axitinib acts intra-cellularly to exert its VEGF receptor inhibiting effect. That data showed that clinically representative formulations of OTX-TKI delivered sustained axitinib concentrations through 12 months that were well above the IC50 for VEGFR-2 (vascular endothelial growth factor receptor) in cynomolgus monkey retina tissue and in choroid/RPE tissues. This preclinical PK data aligns with the pharmacodynamics data we have observed to date in our ongoing U.S. clinical trial, namely the high proportion of rescue-free subjects up to Month 10 and suggests that OTX-TKI may provide continuous VEGF receptor inhibition, which, in turn, may support this new treatment ofparadigm, Treat to Maintain, in wet AMD ~~conducted in Australia. In subjects with subretinal and/or intraretinal fluid due~~care.

We plan to ~~wet AMD, OTX-TKI was observed to be generally well tolerated with a favorable safety profile to date. This~~present topline 12-month data also showed a preliminary signal of biological activity as observed by a clinically meaningful decrease in intraretinal and/or subretinal fluid. We observed extended duration of activity of six months or more for over 60% of subjects across all cohorts and for over 80% of subjects in cohort 3a, in which we administered a 600μg dose. We believe that a six-month duration of activity could represent a compelling drug product profile.

~~Our~~from the ongoing Phase 1 clinical trial of OTX-TKI in the United States ~~is comprised~~in June 2023 at the Clinical Trials at the Summit 2023 conference sponsored by the American Society of Retina Specialists. We anticipate seeing a reactivation of disease in some patients, which we believe would indicate OTX-TKI continues to function as designed with axitinib concentrations beginning to fall below therapeutic levels.

We continue to have productive discussions with the FDA and recently completed a formal meeting with the FDA that included a discussion of our data and clinical development strategy. We believe we have two potential designs for pivotal clinical trials and intend to initiate the first of two ~~arms consisting~~required pivotal clinical trials for the treatment of ~~subjects previously treated with,~~wet AMD as early as the third quarter of 2023, subject to obtaining the necessary financing.

Diabetic Retinopathy (DR)

Given our belief in the potential applicability of OTX-TKI to other retinal diseases, we initiated a Phase 1 U.S.- based clinical trial to evaluate OTX-TKI for the treatment of DR in the fourth quarter of 2022 and ~~responsive to, a standard of care anti-VEGF therapy: a sixteen-subject arm receiving OTX-TKI~~dosed our first patient in ~~combination with an anti-VEGF injection and a five-subject arm receiving aflibercept at eight-week intervals. In this trial, we~~February 2023. We are ~~evaluating how long we are able to maintain subjects without~~conducting the ~~need for retreatment. This trial was fully enrolled as of February 2022. We expect to report 28-week interim data from our U.S.-based~~ Phase 1 clinical trial atinitially under an exploratory Investigational New Drug Application, or eIND. The trial is designed to include approximately 21 subjects with diabetic retinopathy secondary to type 1 or type 2 diabetes who had not had an anti-VEGF injection in the ~~American Academy~~prior 12 months or diabetic macular edema, or DME, in the prior six months, randomized 2:1 to either a single 600 µg implant of ~~Ophthalmology Meeting, Retina Subspecialty Day: Late Breaking Developments,~~OTX-TKI or sham control across approximately 10 sites. The Phase 1 trial is currently enrolling and we anticipate disclosing topline results as early as the fourth quarter of 2023.

We continue to have productive discussions with the FDA and recently completed a formal meeting with the FDA that included a discussion of our data and clinical development strategy. We believe that we have a potential pivotal design for DR that is consistent with the FDA’s guidance. Subject to topline data results from the ongoing Phase 1 clinical trial and obtaining the necessary financing, we plan to be ~~held on September 30, 2022.~~prepared to initiate a Phase 3 clinical trial for DR as early as the first quarter of 2024.

Glaucoma Program

~~Glaucoma Program~~

OTX-TIC (travoprost intracameral implant)

Our product candidate OTX-TIC is a bioresorbable hydrogel implant based on our ELUTYX technology incorporating travoprost, an FDA-approved prostaglandin analog designed to lower elevated IOP, 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.~~ months with a single treatment.

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. The clinical trial is designed to evaluate the safety, biological activity, durability and tolerability of OTX-TIC in subjects with controlled open-angle glaucoma or ocular hypertension. The clinical trial consisted of four patient cohorts: cohort 1 included five subjects who received a 15 μg dose, cohort 2 included four subjects who received a 26 μg dose, cohort 3 included five subjects who received a 15 μg dose with a fast-degrading implant, and cohort 4 included five subjects who received a 5 μg dose with a fast-degrading implant.

In the Phase 1 clinical trial, at least one subject in each of the four cohorts receiving OTX-TIC were observed to experience a mean change in IOP from baseline as measured at 8:00 am, 10:00 a.m. and 4:00 p.m. as early as two days following injection. We believe these results were comparable to the decrease in IOP achieved with topical travoprost administered via daily eye drops, the current standard of care. IOP lowering effects lasted more than six months in most

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of the subjects in cohorts 1 and 2 and approximately three to six months in subjects in cohorts 3 and 4. We believe, based on these results, that OTX-TIC shows potential as a sustained-release therapy with a long duration of action.

We initiated a Phase 2 clinical trial evaluating the safety, tolerability and efficacy of OTX-TIC for the treatment of patients with primary open-angle glaucoma or ocular hypertension in the fourth quarter of 2021 ~~we initiated a randomized, double-masked, controlled~~and dosed the first subject in the first quarter of 2022. The Phase 2 clinical trial ~~in which we plan~~was designed to ~~enroll~~include approximately 105 subjects ~~with open-angle glaucoma~~ at 15 to 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 ~~patients~~subjects compared to ~~DURYSTA~~^™~~. We dosed the first patient~~DURYSTA. The non-study eye of each subject will receive a topical prostaglandin daily. The primary efficacy endpoint is measured by diurnal IOP mean change from baseline (8 a.m., 10 a.m. and 4 p.m.) at two, six and 12 weeks. One arm in the ~~first quarter~~Phase 2 clinical trial is receiving the same formulation used in cohort 2 of ~~2022.~~

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At the ~~Glaucoma 360 Meeting in February 2022, we presented interim data from a~~ Phase 1 clinical trial, ~~evaluating OTX-TIC for~~containing a 26 µg dose of drug and utilizing a standard implant. The second arm was receiving the ~~treatment~~same formulation used in cohort 4 of ~~open-angle glaucoma or ocular hypertension. In this~~the Phase 1 clinical trial, ~~OTX-TIC was observed~~containing a 5 µg dose of drug and utilizing a fast-degrading implant. The active comparator control arm will receive one injection of DURYSTA in one eye and a topical prostaglandin daily in the non-study eye.Due to ~~cause a clinically meaningful decrease~~elevations in IOP ~~for~~observed in six ~~months or longer~~subjects in the OTX-TIC 5 µg arm of the trial approximately 12 weeks after enrollment, we terminated enrollment in the 5 µg arm of the trial in the fourth quarter of 2022 and are continuing forward with the OTX-TIC 26 µg and DURYSTA arms of the trial. We expect that the Phase 2 clinical trial will consist of approximately 86 patients: approximately 35 patients ~~while preserving corneal health. We believe these results are comparable~~in the OTX-TIC 26 µg treatment arm, 35 patients in the DURYSTA arm and approximately 16 patients that were previously enrolled in the OTX-TIC 5 µg treatment arm. The Phase 2 clinical trial is currently enrolling and we plan to provide topline data, assessing the ~~decrease in IOP seen with topical travoprost,~~efficacy and durability of OTX-TIC and the ~~current standard~~preservation of ~~care, and represent OTX-TIC’s potential for a unique and differentiated drug product profile. OTX-TIC was observed to be generally well tolerated with a favorable safety profile to date and~~ endothelial cell ~~counts, pachymetry assessments,~~health that could make the drug suitable for chronic dosing, in the fourth quarter of 2023.

In April 2023, we presented a poster on OTX-TIC at the 2023 Association for Research in Vision and ~~slit lamp examinations in subjects indicated no changes from baseline. As a result, we are developing OTX-TIC for potential chronic or repeat dosing.~~Ophthalmology (ARVO) Annual Meeting that covered data around the preclinical safety and tolerability of repeated intracameral travoprost implant (OTX-TIC) administrations.

Ocular Surface Disease Programs

Dry Eye Disease

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.~~insert based on our ELUTYX technology. OTX-DED incorporates the same active drug as DEXTENZA but includes a lower dose of the drug, is administered in the office setting as a smaller insert and is designed to release dexamethasone over a period of two to three weeks, compared with up to thirty days in the case of DEXTENZA.

We announced the topline clinical results ~~for~~from a Phase 2 clinical trial evaluating two different-strength formulations of OTX-DED (0.2 mg and 0.3 mg of dexamethasone) versus a hydrogel implant in a total of 166 subjects with dry eye disease, with more than 50 subjects per arm, in December 2021. The subjects were followed for approximately two months after randomization. This trial was designed to assess the safety and efficacy of these two formulations of OTX-DED for the short-term treatment of ~~the~~ signs and symptoms of dry eye ~~disease in December 2021.~~disease. The clinical trial achieved its pre-specified primary endpoint. ~~While~~Although 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 the vehicle hydrogel using a central reading photographic assessment in the modified ITT population. Both formulations of OTX-DED were generally observed to have a favorable safety profile and to be ~~generally~~ well tolerated.

Based on the data from the Phase 2 clinical trial, we ~~intend to conduct~~initiated a small trial in connection with our efforts to develop an appropriate placebo comparator that may be used in both the OTX-DED and OTX-CSI ~~programs. Specifically, we intend to evaluate~~programs in the second quarter of 2023. This trial evaluates the performance of OTX-DED versus ~~short-duration,~~placebo inserts, namely fast-dissolving, biodegradable collagen plugs, and no inserts at all, to explain the placebo performance seen in the Phase 2 clinical trials evaluating both ~~the~~ OTX-DED and ~~the~~ OTX-CSI ~~Phase 2 trials~~ in which the vehicle hydrogel placebo insert or placebo comparator vehicle remained in the canaliculus longer than anticipated, performing more like an active comparator than a placebo. ~~We currently expect to begin this trial in the first half~~

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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.~~insert based on our ELUTYX technology. The product candidate is designed for ~~a duration of three to four months for patients~~subjects suffering from moderate to severe dry eye and to be administered ~~in the office setting~~by a physician as a bioresorbable intracanalicular insert. OTX-CSI is designed to release cyclosporine to the ocular surface for approximately three to four months in order to increase tear production for the chronic treatment of dry eye disease.

WeIn October 2021, we announced topline results from a Phase 2 clinical trial ~~evaluating two different formulations~~designed to assess the safety, tolerability and durability and to evaluate the efficacy of OTX-CSI ~~for~~in the chronic treatment of dry eye ~~disease~~disease. The Phase 2 clinical trial evaluated two different formulations of OTX-CSI compared with a hydrogel vehicle insert in ~~October 2021.~~approximately 140 subjects who were followed for a period of 16 weeks (12-week study period, with an additional 4-week safety follow-up). The study did not show separation between the subjects receiving OTX-CSI ~~treated subjects (both~~(two formulations) and the subjects receiving the vehicle ~~hydrogel placebo insert treated subjects~~(both formulations) for the primary endpoint of increased tear production at 12 ~~weeks. The study did show an improvement compared with baseline in signs of dry eye disease as measured by total corneal fluorescein staining, or CFS, and symptoms of dry eye disease~~weeks as measured by the ~~Visual Analog Score, or VAS, eye dryness in subjects treated with the OTX-CSI insert (both formulations) starting as early as two weeks after insertion and continuing over the 12 week study period.~~ However, these improvements in OTX-CSI treated subjects were not statistically significant compared with the results of the vehicle insert in subjects with respect to either the signs of dry eye disease as measured by CFS or the symptoms of dry eye disease as measured by VAS eye dryness. Also, the trial results indicated that the durability of the OTX-CSI inserts was shorter than expected.Schirmer’s Test. Overall, the OTX-CSI insert (both formulations) was generally observed to ~~be generally well tolerated with~~have a favorable safety profile ~~to date.~~

and be well tolerated.

We are continuing formulation work to extend the durability of the OTX-CSI insert and select the most appropriate formulations to move forward. If we determine to advance the program, we believe we could advance the program to pivotal trials subject to discussions with the FDA.

23Commercial Portfolio

Post-Surgical Ocular Inflammation and Pain

Ocular Itching Associated with Allergic Conjunctivitis

~~Table~~DEXTENZA (dexamethasone intracanalicular insert)

DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as a preservative-free active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert based on our ELUTYX technology. Following FDA approval, we commercially launched DEXTENZA for the treatment of ~~Contents~~

post-surgical ocular inflammation and pain in July 2019. DEXTENZA is the first FDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.

In October 2021, the FDA approved our sNDA, for DEXTENZA to include the treatment of ocular itching associated with allergic conjunctivitis as an additional indication. We commercially launched DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the first quarter of 2022 utilizing a small, dedicated and highly focused sales force. In the fourth quarter of 2022, we redeployed this small sales force to join the DEXTENZA sales force focused on the ophthalmic surgery market, specifically cataract surgery, in ambulatory surgery centers, or ASCs, and hospital outpatient departments, or HOPDs, as we believe that DEXTENZA is currently used in less than 5% of cataract procedures. We believe that cataract surgeries represent a larger, near-term market opportunity and a faster return-on investment.

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, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian ~~Nations~~.Nations. 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;~~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; and in the second quarter of 2022, we received ~~another~~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

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DEXTENZA for the treatment of ~~post-surgical~~postsurgical 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 right to develop and commercialize DEXTENZA and OTX-TIC in all other global markets.

In ~~January 2022,~~April 2023, AffaMed announced that ~~it had dosed its first patient in~~China’s National Medical Products Administration, or NMPA, has approved AffaMed’s Clinical Trial Application to initiate a ~~real-world setting~~Phase 3 registrational study ~~conducted~~ in China ~~evaluating~~to investigate the ~~safety~~efficacy and ~~efficacy of DEXTENZA~~^® ~~(0.4mg dexamethasone ophthalmic insert) for the treatment of ocular inflammation and pain post-cataract surgery. This prospective, single-arm, real-world trial is designed to assess the~~ safety ~~and efficacy~~ of DEXTENZA ~~for the treatment of ocular inflammation and pain following cataract surgery~~ in approximately 120 patients at the Bo’ao Super Hospital. The trial’s primary efficacy endpoint is the absence of anterior chamber cells in the study eye at Day 14, and the key secondary endpoint is the absence of pain in the study eye at Day 8.

~~In April 2022, AffaMed announced~~ ~~that DEXTENZA has been approved in Macau, China for the treatment of ocular inflammation and pain~~subjects following ophthalmic surgery. ~~We do not expect~~The approval triggered a $1 million milestone payment that ~~DEXTENZA sales~~we invoiced in ~~Macau will result in material revenues to us.~~

~~Mosaic Biosciences Agreement~~

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. Our collaboration with Mosaic has yielded a lead compound that Mosaic is now humanizing and optimizing for our preclinical complement inhibitor program for the treatment of dAMD. We believe that a product candidate with this compound has the potential to be best-in-class in the complement space with targeted dosing every three to four months.

~~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, customers, 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. During the first half of 2022, the COVID-19 pandemic and related employee recruitment and retention challenges for ambulatory surgical centers, or ASCs, and hospital out-patient departments, or HOPDs, slowed the overall pace of cataract procedures performed in the United States, thereby reducing the number of opportunities for ophthalmologists to use DEXTENZA as a treatment for post-surgical ocular inflammation and pain. In addition, recruitment and retention challenges with regards to our own sales force have adversely affected our ability to market DEXTENZA to ophthalmologists and in the office setting. 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. For additional information on risks posed by the COVID-19 pandemic, please see “Item 1A — Risk Factors — Risks Related to the Coronavirus

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~~Pandemic,” included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.~~

April 2023.

Financial Position

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 ~~obtaining marketing approval for~~development and ~~commercializing~~commercialization of other products with significant market potential, including OTX-TKI for the treatment of wet AMD, DR, 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. Our net loss was ~~$18.8~~$30.3 million and ~~$31.3~~$12.5 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022, ~~respectively. Our net loss was $8.5 million and $5.4 million for the three and six months ended June 30, 2021,~~ respectively. As of ~~June 30, 2022,~~March 31, 2023, we had an accumulated deficit of ~~$577.1~~$647.2 million.

Our total costs and operating expenses were ~~$32.2 million and $63.2~~$35.9 million for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 including ~~$4.8~~$4.6 million and ~~$9.6~~$0.5 million in non-cash stock-based compensation expense and depreciation and amortization expense, respectively. Our total costs and operating expenses were ~~$31.9 million and $59.5~~$31.0 million for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022 including ~~$4.9~~$4.2 million and ~~$8.7~~$0.6 million in non-cash stock-based compensation expense and depreciation and amortization expense, respectively. Our operating expenses have grown as we continue to commercialize ~~DEXTENZA following its entry into the market in July 2019;~~DEXTENZA; pursue the clinical development of OTX-TKI, OTX-TIC, OTX-DED, and OTX-CSI; and research and develop other product ~~candidates; and seek marketing approval for any product candidate for which we obtain favorable pivotal clinical trial results.~~candidates. We expect to incur substantial sales and marketing expenses in connection with the ongoing commercialization of DEXTENZA and ~~that of~~any commercialization efforts for any other product candidate for which we may receive approval. ~~In addition, we will continue to incur costs associated with operating as a public company.~~

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 ~~ongoing~~ commercialization of DEXTENZA. If we are unable to raise capital ~~through equity offerings, debt financings, government~~ or ~~other third-party funding, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements~~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 June 30, 2022, we have financed our operations primarily through sales of our products, public offerings of our common stock, private placements of our convertible notes, borrowings under credit facilities and private placements of our preferred stock, which has resulted in net proceeds of $641.4 million to us.
In August 2021, we and Jefferies LLC, or Jefferies, entered into an 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 ~~August 5, 2022,~~May 4, 2023, we have not sold any shares of our common stock under the 2021 Sales Agreement.
~~DEXTENZA and all~~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, 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 surgery centers, or ASCs, hospital out-patient departments, or HOPDs, and ~~ophthalmology and optometric~~physicians’ offices. ~~We also sell directly to a small population of ASCs.~~ 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. During 2022, we 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. We renewed our focus on sales to ASCs and specifically strategic accounts that own and control multiple ASCs. In the first quarter of 2023, we launched a Commercial Assurance Program to provide assistance with patients’ out of pocket costs, supporting the expansion of DEXTENZA for commercially insured patients not covered by government payors.

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In-market unit sales figures—unit sales from specialty distributors to ASCs and HOPDs—in the first quarter of 2023 were in excess of 34,000 billable units, compared to more than 27,000 billable units in the first quarter of 2022, representing an increase of approximately 25%, and compared to more than 31,000 billable units in the fourth quarter of 2022, representing an increase of approximately 8%. As of March 31, 2023, we have achieved market access coverage of 100% coverage in Medicare Part B, over 90% coverage in Medicare Advantage, and over 70% coverage on the commercial payor side. In-market unit sales for April ~~May~~2023 were approximately 12,000 billable units. Differences between the growth in DEXTENZA’s product revenue, net as recognized in our unaudited condensed consolidated financial statements and ~~June~~the in-market unit sales figures are attributable to distributor stocking patterns. In November 2022, ~~were 8,111, 8,828~~as part of the annual CMS rule-making cycle, the CY 2023 OPPS rule was finalized and ~~10,187 units, respectively.~~provided that DEXTENZA would qualify under the criteria established for non-opioid pain management drugs as a surgical supply provision. This provision allows for continued separate payment of DEXTENZA in the ASC setting for 2023 but does not require separate payment for DEXTENZA in the HOPD setting. The ~~third month of each quarter typically reflects~~changes resulting from this provision have resulted in an increase in ~~in-market unit~~the relative share of sales of DEXTENZA to ASCs ~~due to the impact~~as a percentage of our ~~rebate program.~~total product revenue, net.

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~~Based on our current plans and forecasted expenses, which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses, we~~We believe that our existing cash and cash equivalents of ~~$134.5~~$79.0 million as of ~~June 30, 2022~~March 31, 2023 will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements, ~~through 2023.~~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.~~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. These estimates are subject to various assumptions including ~~those related~~assumptions as 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 we have based our ~~estimate~~estimates 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.”~~
Resources”.
Financial Operations Overview

Revenue

In June 2019, we began to recognize revenue from the sales of ~~DEXTENZA for the treatment of post-surgical ocular inflammation and pain.~~DEXTENZA. Following the FDA’s October 2021 approval of our sNDA, ~~in October 2021,~~ we ~~have~~ launched DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, our first in-office ~~indication. We began to recognize revenue from~~indication, in the sales of ReSure Sealant for the prevention of wound leaks in corneal incisions following cataract surgery in 2014, although we have received only limited revenues from ReSure Sealant to date. As of the fourthfirst quarter of ~~2021, we suspended the production of ReSure Sealant in order to focus our manufacturing resources on the commercialization of DEXTENZA.~~

For the three and six months ended June 30, 2022, four specialty distributor customers accounted for 41%, 26%, 17% and 10% and three specialty distributor customers accounted for 41%, 25% and 20%, respectively, of our total revenue, and no other customer accounted for more than 10% of our total revenue. At June 30, 2022, the four specialty distributor customers accounted for 46%, 25%, 16%% and 10% of our total accounts receivable and no other customer accounted for more than 10% of our total accounts receivable at June 30, 2022.

For the three months and six months ended June 30, 2021, three specialty distributor customers accounted for 45%, 28%, and 15%, and 45%, 25% and 14%, respectively, of our total revenue, and no other customer accounted for more than 10% of our total revenue.

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 our accounts receivable for the year ended December 31, 2021.

Operating Expenses

Cost of Product Revenue

Cost of product revenue consists primarily of costs of DEXTENZA product revenue, which include:
● Direct materials costs;
● Royalties;
● Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes, and stock-based compensation expense for employees engaged in the production process;
● Manufacturing overhead costs, which includes rent, depreciation, and indirect labor costs associated with the production process;
● Transportation costs; and
● Cost of scrap material.

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Research and Development Expenses

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;

●

expenses associated with developing our pre-commercial manufacturing capabilities and manufacturing clinical study materials;

●

ongoing research and development activities relating to our core bioresorbable hydrogel technology and improvements to this technology;

●

facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies;

●

costs relating to the supply and manufacturing of product inventory, prior to approval by the FDA or other regulatory agencies of our products; and

●

expenses associated with preclinical development activities.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials and regulatory fees. We do not allocate employee and contractor-related costs, costs associated with our ~~platform~~proprietary bioresorbable hydrogel technology ELUTYX, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor subject enrollment and perform data analysis for many of our clinical trials. These employees work across multiple development programs and, therefore, we do not track their costs by program.

The successful development and commercialization of our products or product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

●

the scope, progress, outcome and costs of our clinical trials and other research and development activities;

●

the timing, receipt and terms of any marketing approvals;

●

the efficacy and potential advantages of our products or product candidates compared to alternative treatments, including any standard of care;

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●

the market acceptance of our products or product candidates; and

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●

significant and changing government regulation.

Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical and preclinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. We anticipate that our research and development expenses will increase in the future as we support our continued development of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, information technology, human resources ~~legal~~ and administrative functions. General and administrative expenses also include insurance, facility-related costs and professional fees ~~costs associated with intellectual property,~~for legal, patent, consulting and accounting and audit services.

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, advertising and promotion costs. Selling and marketing expenses for DEXTENZA increased in 2021 in connection with the continued commercialization of DEXTENZA for the treatment of ocular inflammation and pain, focused on ASCs and HOPDs, and the preparations for the commercial launch of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis 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 ~~continue to grow our salesforce supporting DEXTENZA in 2022 and beyond and incur additional marketing expenses in connection with~~support the ongoing commercialization of DEXTENZA ~~for the treatment of ocular itching associated with allergic conjunctivitis.~~in 2023 and beyond.

Other Income (Expense)

Interest Expense. Interest expense is incurred on our debt. InOn June 4, 2021, we ~~amended~~entered into the Fourth Amended and ~~restated our credit~~Restated Credit and ~~security agreement,~~Security Agreement with MidCap Financial Trust, as administrative agent, or the Administrative Agent, and the lenders party thereto, which we refer to as ~~our~~the 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. In 2019, in connection with the issuance of our 2026 Convertible Notes, we identified an embedded derivative liability, which we are required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled. The changes in fair value are recorded through the condensed consolidated statement of operations and comprehensive loss and are presented under the caption change in fair value of derivative liability.

Critical Accounting Policies and Significant Judgments and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with ~~U.S.~~ generally accepted accounting ~~principles.~~ principles in the United States of America.

We define our critical accounting policies as those accounting policies that require us to make subjective estimates and judgments about matters that are uncertain and have had or are likely to have a material impact on our financial

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condition and results of operations, as well as the specific manner in which we apply those policies. Our critical accounting policies, which relate to revenue recognition and our derivative liability, are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023. There have been no significant changes to our critical accounting policies since the beginning of this fiscal year.

The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue,

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costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies, which include those related to revenue recognition and our derivative liability, are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022 and in the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. There have been no significant changes to our critical accounting policies since the beginning of this fiscal year.

Results of Operations

Comparison of the Three Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following table summarizes our results of operations for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Three Months Ended

Three Months Ended

June 30,

Increase

March 31,

Increase


2022

2021

(Decrease)

2023

2022

(Decrease)

(in thousands)

(in thousands)
Revenue:












Product revenue, net

$
12,144

$
11,718

$
426

$
13,214

$
12,498

$
716
Collaboration revenue

122

—

122

160

689

(529)
Total revenue, net

12,266

11,718

548

13,374

13,187

187
Costs and operating expenses:












Cost of product revenue

1,155

1,096

59

1,214

1,300

(86)
Research and development

13,100

13,859

(759)

14,747

13,100

1,647
Selling and marketing

10,140

8,391

1,749

10,835

9,063

1,772
General and administrative

7,787

8,603

(816)

9,127

7,557

1,570
Total costs and operating expenses

32,182

31,949

233

35,923

31,020

4,903
Loss from operations

(19,916)

(20,231)

315

(22,549)

(17,833)

(4,716)
Other income:






Other income (expense):






Interest income

73

8

65

563

18

545
Interest expense

(1,696)

(1,655)

(41)

(1,768)

(1,683)

(85)
Change in fair value of derivative liability

2,773

13,396

(10,623)

(6,563)

6,958

(13,521)
Other income (expense), net

—

1

(1)
Total other income, net

1,150

11,750

(10,600)
Net (loss) income

$
(18,766)

$
(8,481)

$
(10,285)
Other expense, net

(1)

(2)

1
Total other income (expense), net

(7,769)

5,291

(13,060)
Net loss

$
(30,318)

$
(12,542)

$
(17,776)

Gross-to-Net Deductions

We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provisions for the three months ended ~~June 30,~~March 31, 2023 and 2022 were 28.1% and ~~2021 were 23.1% and 23.9%~~21.9%, respectively, of gross DEXTENZA product sales.

Net Revenue

We generated ~~$12.1~~$13.2 million of net product revenue during the three months ended ~~June 30, 2022~~March 31, 2023 from sales of our products, all of which was attributable to sales of DEXTENZA. We generated ~~$11.7~~$12.5 million of net product revenue during the three months ended ~~June 30, 2021~~March 31, 2022 from sales of our products, of which $11.1 million was attributable to sales of DEXTENZA and $0.6 million was attributable to sales of ReSure Sealant. We believe the growth in the second quarter of 2022 net product revenue over second quarter of 2021 for DEXTENZA was primarily due to increased market acceptance and ongoing commercialization efforts. We believe that DEXTENZA net product revenues in the secondDEXTENZA.

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~~quarter of 2022 were adversely affected by recruitment and retention challenges at ASCs and HOPDs and recruitment and retention challenges amount our sales force.~~

~~Collaboration Revenue~~

We recognized ~~$0.1~~$0.2 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 three months ended ~~June 30,~~March 31, 2023 compared to $0.7 million in the three months ended March 31, 2022. We recognize collaboration revenue based on a cost-to-cost method. ~~There was no collaboration revenue for the three months ended June 30, 2021.~~

Research and Development Expenses

Three Months Ended

Three Months Ended

June 30,

Increase

March 31,

Increase


2022

2021

(Decrease)

2023

2022

(Decrease)

(in thousands)

(in thousands)
Direct research and development expenses by program:












OTX-TKI for diabetic retinopathy

$
601

$
—

$
601
OTX-TKI for wet AMD

$
1,335

$
1,912

$
(577)

1,785

1,209

576
OTX-TIC for glaucoma or ocular hypertension

644

898

(254)

654

546

108
OTX-CSI for treatment of dry eye disease

—

807

(807)

102

161

(59)
OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease

41

1,466

(1,425)

54

266

(212)
DEXTENZA for post-surgical ocular inflammation and pain

489

414

75

449

309

140
DEXTENZA for ocular itching associated with allergic conjunctivitis

3

44

(41)

—

18

(18)
ReSure Sealant

—

15

(15)
Preclinical programs

617

214

403

975

99

876
Unallocated expenses:

Personnel costs

6,321

5,466

855

7,341

6,543

798
All other costs

3,650

2,623

1,027

2,786

3,949

(1,163)
Total research and development expenses

$
13,100

$
13,859

$
(759)

$
14,747

$
13,100

$
1,647

Research and development expenses were $14.7 million for the three months ended March 31, 2023, compared to $13.1 million for the three months ended ~~June 30, 2022, compared to $13.9 million for the three months ended June 30, 2021.~~March 31, 2022. The ~~decrease~~increase of ~~$0.8~~$1.6 million was primarily due to an increase of ~~$1.9~~$2.0 million in ~~unallocated expenses~~clinical and preclinical programs offset by a decrease of ~~$3.2~~$0.4 million in ~~clinical related programs.~~unallocated expenses. For the three months ended ~~June 30, 2022,~~March 31, 2023, we incurred ~~$2.5~~$4.6 million in direct research and development expenses for our products and product candidates compared to ~~$5.6~~$2.6 million for the three months ended ~~June 30, 2021.~~March 31, 2022. The ~~decrease~~increase of ~~$3.1~~$2.0 million is related to timing and conduct of our various clinical trials for our product candidates and development activities related to our preclinical programs. We expect that clinical trial expenses will ~~increase~~be at approximately the same level in the remainder of 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 ~~the United States~~diabetic retinopathy and for OTX-TIC due to the continuation of the ongoing Phase 2 clinical trial excluding our planned pivotal clinical trials for OTX-TKI as we do not intend to initiate such trials without receipt of additional funding.
Selling and Marketing Expenses

Three Months Ended

March 31,

Increase


2023

2022

(Decrease)

(in thousands)
Personnel related (including stock-based compensation)

$
7,561

$
6,335

$
1,226
Professional fees

2,078

1,934

144
Facility related and other

1,196

794

402
Total selling and marketing expenses

$
10,835

$
9,063

$
1,772

Selling and marketing expenses were $10.8 million for the three months ended March 31, 2023, compared to $9.1 million for the three months ended March 31, 2022. The increase of $1.8 million was primarily due to an increase of $1.2 million in personnel costs, including stock-based compensation as we expanded our ~~ongoing Phase 3 clinical trial~~field-based team to ~~evaluate DEXTENZA in pediatric subjects following cataract surgery in accordance with~~support the ~~FDA’s post-approval requirement. In addition, we have adopted a plan to progress the development~~commercialization of OTX-CSI, including formulation work to improve product retention. We are also planning to conduct a small trial in connection with our efforts to develop an appropriate placebo comparator that may be used in both the OTX-DED and OTX-CSI programs. DEXTENZA.

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~~Selling and Marketing Expenses~~

Three Months Ended

June 30,

Increase


2022

2021

(Decrease)

(in thousands)
Personnel related (including stock-based compensation)

$
6,244

$
5,994

$
250
Professional fees

2,771

1,475

1,296
Facility related and other

1,125

922

203
Total selling and marketing expenses

$
10,140

$
8,391

$
1,749

Selling and marketing expenses were $10.1 million for the three months ended June 30, 2022, compared to $8.4 million for the three months ended June 30, 2021. The increase of $1.7 million was primarily due to an increase of $1.3 million in professional fees related to trade shows, conferences and advertising.

We expect our selling and marketing expenses to increase in the remainder of ~~2022~~2023 and beyond as we continue to support the commercialization of DEXTENZA.

General and Administrative Expenses

Three Months Ended

Three Months Ended

June 30,

Increase

March 31,

Increase


2022

2021

(Decrease)

2023

2022

(Decrease)

(in thousands)

(in thousands)
Personnel related (including stock-based compensation)

$
4,520

$
4,531

$
(11)

$
5,840

$
4,597

$
1,243
Professional fees

2,596

3,583

(987)

2,881

2,958

(77)
Facility related and other

671

489

182

406

2

404
Total general and administrative expenses

$
7,787

$
8,603

$
(816)

$
9,127

$
7,557

$
1,570

General and administrative expenses were $9.1 million for the three months ended March 31, 2023, compared to $7.6 million for the three months ended March 31, 2022, primarily due to an increase of $1.2 million personnel related costs, including stock-based compensation, and an increase of $0.4 million facility related and other cost.
Other Income (Expense), Net
Other expense, net was $7.8 million for the three months ended ~~June 30, 2022,~~March 31, 2023, compared to ~~$8.6~~other income, net of $5.3 million for the three months ended ~~June 30, 2021, primarily due to a decrease~~March 31, 2022. The change of ~~$1.0 million in professional fees associated with lower legal fees.~~

~~Other Income (Expense), Net~~

~~Other income, net was $1.2 million for the three months ended June 30, 2022, compared to $11.8 million for the three months ended June 30, 2021. The decrease of $10.6~~$13.1 million was due primarily to the change in fair value of the derivative liability ~~associated with~~related to the 2026 Convertible Notes, of ~~$10.6~~$13.5 million ~~due primarily~~as a result of an increase in our common stock price from December 31, 2022 to March 31, 2023 compared to a decrease in our common stock price from ~~April 1, 2022~~December 31, 2021 to ~~June 30,~~March 31, 2022.

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~~Comparison of the Six Months Ended June 30, 2022 and 2021~~

~~The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021:~~

Six Months Ended

June 30,

Increase


2022

2021

(Decrease)

(in thousands)

Revenue:







Product revenue, net

$
24,642

$
19,061

$
5,581

Collaboration revenue

811

—

811

Total revenue, net

25,453

19,061

6,392

Costs and operating expenses:







Cost of product revenue

2,454

1,988

466

Research and development

26,200

24,786

1,414

Selling and marketing

19,203

16,477

2,726

General and administrative

15,344

16,268

(924)

Total costs and operating expenses

63,201

59,519

3,682

Loss from operations

(37,748)

(40,458)

2,710

Other income (expense):







Interest income

89

20

69

Interest expense

(3,378)

(3,335)

(43)

Change in fair value of derivative liability

9,731

38,412

(28,681)

Other income (expense), net

(2)

1

(3)

Total other income (expense), net

6,440

35,098

(28,658)

Net loss

$
(31,308)

$
(5,360)

$
(25,948)

~~Gross-to-Net Deductions~~

We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provisions for the six months ended June 30, 2022 and 2021 were 22.5% and 25.4%, respectively, of gross DEXTENZA product sales.

~~Net Revenue~~
We generated $25.5 million in net revenue during the six months ended June 30, 2022. We generated $24.6 million of net revenue was attributable to sales of DEXTENZA, while $0.8 million in net revenue was due to collaboration revenue from our license agreement with AffaMed. During the six months ended June 30, 2021, we generated $19.1 million of net revenue from sales of our products, of which $17.9 million was attributable to sales of DEXTENZA and $1.2 million was attributable to sales of ReSure Sealant. We ~~believe the growth in revenue for DEXTENZA was primarily due to increased market acceptance and our ongoing commercialization efforts.~~

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~~Research and Development Expenses~~

Six Months Ended

June 30,

Increase


2022

2021

(Decrease)

(in thousands)

Direct research and development expenses by program:







OTX-TKI for wet AMD

$
2,544
$

3,083

$
(539)

OTX-TIC for glaucoma or ocular hypertension

1,190

1,504

(314)

OTX-CSI for treatment of dry eye disease

161

1,897

(1,736)

OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease

307

2,026

(1,719)

DEXTENZA for post-surgical ocular inflammation and pain

798

783

15

DEXTENZA for ocular itching associated with allergic conjunctivitis

21

76

(55)

ReSure Sealant

—

59

(59)

Preclinical programs

716

486

230

Unallocated expenses:



Personnel costs

12,864

9,969

2,895

All other costs

7,599

4,903

2,696

Total research and development expenses

$
26,200

$
24,786

$
1,414

Research and development expenses were $26.2 million for the six months ended June 30, 2022, compared to $24.8 million for the six months ended June 30, 2021. The increase of $1.4 million was primarily due to an increase of $5.6 million in unallocated expenses and offset by a decrease of $4.2 million in clinical related programs. For the six months ended June 30, 2022, we incurred $5.0 million in direct research and development expenses for our products and product candidates compared to $9.5 million for the six months ended June 30, 2021. The decrease of $4.5 million is related to timing and start of our various clinical trials for our product candidates and development activities related to our preclinical programs. We expect that clinical trial expenses will increase for our product candidates including for OTX-TKI due to the ongoing Phase 1 clinical trial in the United States and for OTX-TIC due to the ongoing Phase 2 clinical trial, and for our ongoing Phase 3 clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery in accordance with the FDA’s post-approval requirement. In addition, we have adopted a plan to progress the development of OTX-CSI, including formulation work to improve product retention. We are also planning to conduct a small trial in connection with our efforts to develop an appropriate placebo comparator that may be used in both the OTX-DED and OTX-CSI programs.
~~Selling and Marketing Expenses~~

Six Months Ended

June 30,

Increase


2022

2021

(Decrease)

(in thousands)

Personnel related (including stock-based compensation)

$
12,579

$
11,211

$
1,368

Professional fees

4,705

3,431

1,274

Facility related and other

1,919

1,835

84

Total selling and marketing expenses

$
19,203

$
16,477

$
2,726

Selling and marketing expenses were $19.2 million for the six months ended June 30, 2022, compared to $16.5 million for the six months ended June 30, 2021. The increase of $2.7 million was primarily due to increases of $1.4 million in personnel costs with the expansion of the commercial workforce to support DEXTENZA and $1.3 million in professional fees related to trade shows, conferences and advertising fees.

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~~General and Administrative Expenses~~

Six Months Ended

June 30,

Increase


2022

2021

(Decrease)

(in thousands)

Personnel related (including stock-based compensation)

$
9,117

$
8,405

$
712

Professional fees

5,554

6,711

(1,157)

Facility related and other

673

1,152

(479)

Total general and administrative expenses

$
15,344

$
16,268

$
(924)

~~General and administrative expenses were $15.3 million for the six months ended June 30, 2022, compared to $16.3~~ million for the six months ended June 30, 2021. The decrease of $0.9 million was primarily due to a decrease of $1.2 million in professional fees primarily related to legal fees and other professional service costs and $0.5 million in facility related and other costs offset by an increase of $0.7 million of personnel related costs, including stock-based compensation.

~~Other Income (Expense), Net~~

Other income, net was $6.4 million for the six months ended June 30, 2022, compared to $35.1 million other income, net for the six months ended June 30, 2021. The decrease of $28.7 million was due primarily to the change in fair value of the derivative liability associated with the 2026 Convertible Notes of $28.7 million related to a decrease in our stock price from January 1, 2022 to June 30, 2022.

Liquidity and Capital Resources

We have a history of incurring significant operating losses. Our net ~~loss was $18.8~~losses were $30.3 million for the three months ended June 30, 2022, primarily due to a loss from operations of $19.9 million, offset primarily by a change of $2.8 million in the fair value of our derivative liability related to unsecured senior subordinated convertible notes, or the 2026 Convertible Notes, during the period. Our net loss was $31.3 million for the six months ended June 30, 2022, primarily due to a loss from operations of $37.7 million offset by a change of $9.7 million in the fair value of our derivative liability related to the 2026 Convertible Notes during the period. Our net loss was $8.5 millionMarch 31, 2023, and ~~$5.4 million for the three~~$71.0 and ~~six months ended June 30, 2021. Our net losses were~~ $6.6 ~~million and $155.6~~ million for the years ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively. As of ~~June 30, 2022,~~March 31, 2023, we had an accumulated deficit of ~~$577.1~~$647.2 million.

~~We commercially launched DEXTENZA for~~Under the treatment of post-surgical ocular inflammation and pain in July 2019, and we commercially launched 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 the treatment of wet AMD and other retinal diseases, OTX-TIC for the treatment of open-angle glaucoma or ocular hypertension, and OTX-DED and OTX-CSI for the treatment of 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.

~~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~~as of ~~the most recent amendment to our Credit Facility in~~ June 4, 2021. As of ~~June 30, 2022,~~March 31, 2023, the interest rate was ~~7.81%~~11.8%. 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

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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.

InOn March ~~2019,~~31, 2023, we ~~issued $37.5 million of~~entered into Amendment No. 1 to the ~~2026 Convertible Notes. The 2026 Convertible Notes accrue~~Credit Agreement to replace the LIBOR-based interest ~~at an annual~~ rate of 6% of the 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 sharesprovisions of our ~~common stock, par value $0.0001 per share, prior~~Credit Agreement with interest rate provisions based on the Secured Overnight Financing Rate, or SOFR, establish a benchmark replacement mechanism and make additional administrative updates. On May 4, 2023, we entered into Amendment No. 2 to ~~maturity and provided that no conversion results in a holder beneficially owning more than 19.99%~~the Credit Agreement to permit us to maintain up to 50% of our ~~issued~~consolidated cash 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 of $6.50 per share. The conversion rate is subject to adjustment in customary circumstances such as stock splitscash equivalents with banks or ~~similar changes to our capitalization, none of which have occurred to date.~~

Through June 30, 2022, we have financed our operations primarily through sales of our products, private placements of our preferred stock, public offerings of our common stock, private placements of our convertible notesfinancial institutions other than Silicon Valley Bank and ~~borrowings under credit facilities, which has resulted in net proceeds of $641.4 million to us.~~

make additional administrative updates.

As of ~~June 30, 2022,~~March 31, 2023, we had cash and cash equivalents of ~~$134.5~~$79.0 million; ~~outstanding debt~~notes payable of ~~$25.1~~$25.0 million ~~net~~face value and senior convertible notes of ~~unamortized discount; and the 2026 Convertible Notes with~~ $37.5 million ~~of aggregate principal amount,~~par value, plus accrued interest of ~~$7.6~~$9.2 million.

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Cash Flows

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 ~~June 30, 2022,~~March 31, 2023, will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements ~~through 2023.~~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.

The following table summarizes our sources and uses of cash for each of the periods presented:

Six Months Ended

Three Months Ended

June 30,

March 31,


2022

2021

2023

2022

Cash used in operating activities

$
(29,476)

$
(37,415)

$
(19,973)

$
(18,600)
Cash used in investing activities

(771)

(287)

(3,379)

(276)
Cash provided by financing activities

622

1,505

78

129
Net decrease in cash and cash equivalents

$
(29,625)

$
(36,197)

$
(23,274)

$
(18,747)

Operating activities. Net cash used in operating activities was ~~$29.5~~$20.0 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, primarily resulting from our net loss of ~~$31.3~~$30.3 million, ~~and~~ net unfavorable changes in our operating assets and liabilities of ~~$0.4~~$2.9 million, offset by the ~~change~~increase in the fair value of our derivative liability of ~~$9.7~~$6.6 million ~~partially offset by $12.0~~and $6.7 million of other non-cash items. Our net loss was primarily attributed to research and development activities, selling and marketing expenses, and our general and administrative expenses, which significantly offset any contributions from our revenues to date. Our ~~net~~ non-cash charges during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 consisted primarily of ~~$8.5~~$4.6 million of stock-based compensation expense, ~~$2.4~~$1.2 million in non-cash interest expense, and ~~$1.1~~$0.9 million in depreciation and amortization expense, ~~and the change in fair value~~including amortization of ~~the derivative liability of $9.7 million.~~operating lease assets. Net cash used by unfavorable changes in our operating assets and liabilities during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 consisted primarily of ~~net decreases in accounts receivable, prepaid expenses and other operating assets of $1.9 million and~~ net decreases in accrued expenses and other ~~operating~~current liabilities, excluding accrued non-cash interest, of ~~$2.3~~$2.6 million, net increases of prepaid expenses and other current assets of $0.7 million, partially offset by net increases of accounts payable, excluding accounts payable related to additions to property and equipment, of $1.0 million.

Net cash used in operating activities was ~~$37.4~~$18.6 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, primarily resulting from our net loss of ~~$5.4~~$12.5 million, ~~and changes in our operating assets and liabilities of $4.6 million, offset by~~ the ~~change~~decrease in the fair value of our derivative liability of ~~$38.4~~$7.0 million, net unfavorable changes in our operating assets and ~~$10.9~~liabilities of $5.4 million, offset by $6.3 million of non-cash items. Our net loss was primarily attributed to research and development activities, selling and marketing expenses, and our general and

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administrative expenses, which significantly offset by any contributions from our revenues to date. Our ~~net~~ non-cash charges during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 consisted primarily of ~~$7.4~~$4.2 million of stock-based compensation expense, ~~$2.3~~$1.2 million ofin non-cash interest expense, ~~$1.3~~and $0.9 million in depreciation and amortization expense, ~~and the change in fair value~~including amortization of ~~the derivative liability of $38.4 million.~~operating lease assets. Net cash used by changes in our operating assets and liabilities during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 consisted primarily of increases in ~~accounts receivable accounts payable and~~ accrued expenses, ~~as we continue to commercialize DEXTENZA.~~

and accounts receivable.

Investing activities. Net cash used in investing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ totaled ~~$0.8~~$3.4 million and $0.3 million, respectively. For ~~both periods,~~the three months ended March 31, 2023, the investing activities were primarily related to leasehold improvements. For the three months ended March 31, 2022, the investing activities were purchases in equipment.

Financing activities. Net cash provided by financing activities was ~~$0.6~~$0.1 million for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~$1.5~~$0.1 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Net cash provided by financing activities for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 of ~~$0.6~~$0.1 million consisted of $0.1 million from the exercise of stock ~~options~~options. In March 2023, the Company requested a protective advance of $2.0 million under the Credit Agreement in response to the closure of Silicon Valley Bank by the California Department of Financial Protection and ~~$0.5~~Innovation, and the Federal Deposit Insurance Corporation was appointed as receiver, which was deemed a credit extension. The Company repaid the full principal amount of $2.0 million in ~~proceeds from the issuance of common stock pursuant to the employee stock purchase plan.~~ March 2023.

Net cash provided by financing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 of ~~$1.5~~$0.1 million consisted of ~~$1.7 million in~~ proceeds from the exercise of stock ~~options, $3.7 million (net) in borrowings under our Credit Facility and $0.5 million in proceeds from the issuance~~options.

Table of ~~common stock pursuant to the employee stock purchase plan partially offset by payments on notes payable of $4.2 million.~~Contents

Funding Requirements

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 ~~ongoing~~ 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 for DEXTENZA in the office setting for the treatment of ocular itching associated with allergic conjunctivitis;~~States;

●

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

●

continue ongoing clinical trials for ~~our product candidates~~ OTX-TKI for the treatment of wet AMD (in both Australia and the United States) ~~for~~and the treatment of ~~wet AMD~~DR (United States), 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;~~hypertension;

●

determine to initiate new clinical trials to evaluate ~~OTX-TKI for the treatment of wet AMD and other retinal diseases,~~our product candidates, including 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 ;~~diseases;

●

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

●

continue the research and development of our other product candidates;

●

seek to identify and develop additional product candidates;

●

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

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●

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

●

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

●

maintain, expand and protect our intellectual property portfolio;

●

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

●

defend ourselves against legal proceedings;

●

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

●

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

●

continue to operate as a public company.

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

●

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 OTX-TKI for the treatment of wet AMD and ~~other retinal diseases~~DR 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 any other product candidates;

●

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

●

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

●

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

●

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

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●

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

●

the costs and outcomes of legal actions and proceedings;

●

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and

●

the extent to which we acquire or invest in other businesses, products and technologies.

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, or royalty payments 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

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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 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.

Contractual Obligations and Commitments

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 ~~considered~~included in contractual obligations and commitments.

During the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, there were no significant changes to our contractual obligations and commitments as described under 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.~~

2022 other than Amendment No. 1 to the Credit Agreement, see “—Liquidity and Capital Resources”.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission, such relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

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Recently Issued Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~We are exposed to market risk related to changes in interest rates.~~ As of ~~June 30, 2022,~~March 31, 2023, we had cash and cash equivalents of ~~$134.5~~$79.0 million, which ~~consisted of~~includes cash in operating bank accounts, investments in money market accounts, and money market funds. We have policies requiring us to invest in high-quality issuers, limit our exposure to any individual issuer, and ensure adequate liquidity. Our primary exposure to market risk related to our cash and cash equivalents is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
We do not enter into financial instruments for trading or speculative purposes.
We account for the conversion option embedded in our unsecured senior subordinated convertible notes, or the 2026 Convertible Notes, as a separate financial instrument, measured at fair value, using a binomial lattice model, which we refer to as the Derivative Liability. As of ~~June 30, 2022,~~March 31, 2023, the Derivative Liability was valued at ~~$10.5~~$12.9 million. As of ~~June 30, 2022,~~March 31, 2023, a 10% increase or decrease of the main inputs to the valuation model would not have a material effect on the fair value of the Derivative Liability. Changes of the fair value of the Derivative Liability have no impact on anticipated cash outflows.

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As of ~~June 30, 2022,~~March 31, 2023, we had a variable interest rate-based note payable with a principal amount of $25.0 million. Expected cash outflows from this financial instrument fluctuate based on changes in the ~~U.S. dollar-denominated LIBOR index~~Secured Overnight Financing Rate, or SOFR, which is, among other factors, affected by the general level of U.S. and international central bank interest rates. As of ~~June 30, 2022,~~March 31, 2023, an immediate 100 basis point increase or decrease in the ~~U.S. dollar-denominated LIBOR index~~SOFR would not have a material effect on the anticipated cash outflows from this instrument.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June 30, 2022.~~March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management, including our Chief Executive Officer and Chief Financial Officer, recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~June 30, 2022,~~March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended ~~June 30, 2022~~March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material legal proceedings, nor to the knowledge of management are any material legal proceedings threatened against us.

Item 1A. Risk Factors.

We are subject to a number of risks that could materially and adversely affect our business, financial condition, and results of operations and future growth prospects, including those identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which was filed with the Securities and Exchange Commission on ~~February 28, 2022.~~March 6, 2023 which we refer to as our Annual Report on Form 10-K. The following information updates, and should be read in conjunction with, the risks factors discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K. Any of the risks and uncertainties described in our Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q could materially and adversely affect our business, financial condition, results of operations and future growth prospects, and such risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
We hold our cash and cash equivalents that we use to fund our operating expenses, debt service obligations, and capital expenditure requirements in deposit accounts that could be adversely affected if the financial institutions holding such funds fail.
We hold our cash and cash equivalents that we use to fund our operating expenses, debt service obligations, and capital expenditure requirements in deposit accounts at two financial institutions. The balances held in these accounts typically exceeds the standard deposit insurance limit of the Federal Deposit Insurance Corporation, or FDIC. If a financial institution in which we hold such funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject to a risk of loss of all or a portion of our uninsured funds or be subject to a delay in accessing all or a portion of such funds. Any such loss or lack of access to these funds could adversely impact our short-term liquidity and ability to meet our operating expense, debt service, and capital expenditure obligations.
For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver. The FDIC created a successor bridge bank, and all deposits of SVB were transferred to the bridge bank under a systemic risk exception approved by the United States Department of the Treasury, the Board of Governors of the Federal Reserve, and the FDIC. During this time, deposits held at SVB were temporarily inaccessible to SVB’s customers. Under our Fourth Amended and Restated Credit and Security Agreement, dated as of June 4, 2021, by and among us, MidCap Financial Trust, as administrative agent, and the lenders party thereto, which we refer to as our Credit Agreement, we were at that time obligated to maintain all of our deposit accounts, transaction accounts, and primary investment accounts with SVB and its affiliates, subject to specified limitations. As a result, at the time SVB was closed by its regulators, we maintained a significant portion of our cash and cash equivalents in deposit accounts with SVB.
On March 12, 2023, the United States Department of the Treasury, the Board of Governors of the Federal Reserve, and the FDIC issued a joint press release stating that, among other things, depositors of SVB, including us, would again have access to all of their money starting March 13, 2023. On March 27, 2023, First-Citizens Bank & Trust Company, or First Citizens, assumed all of SVB’s deposits and certain other liabilities and acquired substantially all of SVB’s loans and certain other assets from the FDIC.
Although we, our administrative agent, and our lenders amended our Credit Agreement in May 2023 to, among other things, permit us to hold up to 50% of our cash and cash equivalents in accounts with other financial institutions, our cash and cash equivalents remain concentrated in a small number of financial institutions. If any of the financial institutions in which we hold cash or cash equivalents were to fail in the future, we cannot provide any assurances that any governmental agencies would take action to protect or provide access to our uninsured deposits, or a third party would assume the failing financial institution’s obligations, in a similar manner as occurred in connection with the closure,

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receivership, and sale of SVB, and we may lose or be unable to access some or all of the uninsured funds we are holding at such financial institution.

We also maintain investment accounts with multiple financial institutions. If our access to our cash and cash equivalents in our deposit accounts is impaired, we may not be able to open new operating accounts or to sell investments or transfer funds from our investment accounts to new operating accounts on a timely basis sufficient to meet our operating expense, debt service, and capital expenditure obligations.

Item 5. Other Information.
On May 4, 2023, we entered into Amendment No. 2 to our Fourth Amended and Restated Credit and Security Agreement, or Amendment No. 2, with MidCap Financial Trust, as administrative agent, and the lenders party thereto. Amendment No. 2 provides that we may maintain up to 50% of our consolidated cash and cash equivalents with banks or financial institutions other than Silicon Valley Bank and makes additional administrative updates.
The foregoing description of the terms of Amendment No. 2 is qualified in its entirety by reference to such amendment, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the quarter ending June 30, 2023.

Item 6. Exhibits.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the following Exhibit Index.

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Exhibit Index

Incorporated by Reference
Exhibit
Number

Description of Exhibit

Form

File Number

Date of Filing

Exhibit Number

Filed Herewith

10.1

~~2021 Stock Incentive Plan, as amended~~

X

~~10.2~~

~~Consulting~~Amendment No. 1 to Fourth Amended and Restated Credit and Security Agreement, dated March 31, 2023, by and ~~between~~among MidCap Financial Trust, as administrative agent, the Registrant, and ~~Dr. Michael Goldstein, dated as of June 7, 2022.~~the Lenders listed therein.

X

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

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

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Database

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

104

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

X

4136

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OCULAR THERAPEUTIX, INC.

Date: ~~August~~May 8, ~~2022~~2023
By:
/s/ Donald Notman
Donald Notman
Chief Financial Officer
(Principal Financial and Accounting Officer)

4237


	Fair Value Measurements as of
	June 30, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	32,424	$	—	$	—	$	32,424

Liability:
Derivative liability (Note 7)	$	—	$	—	$	10,461	$	10,461


	Fair Value Measurements as of
	December 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	62,392	$	—	$	—	$	62,392

Liability:
Derivative liability (Note 7)	$	—	$	—	$	20,192	$	20,192



	Deferred Revenue
Deferred revenue at December 31, 2021	$	13,000
Additions		2,000
Amounts recognized into revenue		(811)
Deferred revenue at June 30, 2022	$	14,189


	Three Months Ended June 30,				Six Months Ended June 30,
	2022			2021	2022			2021
Numerator:
Net loss attributable to common stockholders	$	(18,766)	$	(8,481)	$	(31,308)	$	(5,360)
Denominator:
Weighted average common shares outstanding, basic		76,764,296		76,324,367		76,755,028		76,198,384
Net loss per share - basic	$	(0.24)	$	(0.11)	$	(0.41)	$	(0.07)


		Three Months Ended
		March 31,				Increase
		2023		2022		(Decrease)

		(in thousands)
Personnel related (including stock-based compensation)	$		7,561	$	6,335	$	1,226
Professional fees			2,078		1,934		144
Facility related and other			1,196		794		402
Total selling and marketing expenses	$		10,835	$	9,063	$	1,772


		Incorporated by Reference
Exhibit Number	Description of Exhibit	Form	File Number	Date of Filing	Exhibit Number	Filed Herewith

10.1	~~2021 Stock Incentive Plan, as amended~~					X

~~10.2~~	~~Consulting~~Amendment No. 1 to Fourth Amended and Restated Credit and Security Agreement, dated March 31, 2023, by and ~~between~~among MidCap Financial Trust, as administrative agent, the Registrant, and ~~Dr. Michael Goldstein, dated as of June 7, 2022.~~the Lenders listed therein.					X

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X

31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X

32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

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

101.SCH	Inline XBRL Taxonomy Extension Schema Document					X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Database					X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					X

104	The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101					X


	OCULAR THERAPEUTIX, INC.

Date: ~~August~~May 8, ~~2022~~2023	By:	/s/ Donald Notman
		Donald Notman
		Chief Financial Officer
		(Principal Financial and Accounting Officer)