UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 September 30, ~~2020~~2021


☐			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: 001-39112

OYSTER POINT PHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware			81-1030955
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
202 Carnegie Center, Suite 109 Princeton, New Jersey			08540
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (609) 382-9032

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, par value $0.001

OYST

The Nasdaq Global Select 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, 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 October ~~30, 2020,~~29, 2021, the registrant had ~~25,868,264~~26,163,861 shares of common stock, $0.001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Any statements contained in this Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, such forward-looking statements are identified by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•the likelihood of the Company's clinical trials demonstrating safety and efficacy of its product candidates, and other positive results;

•the timing of initiation of the Company's future clinical trials, and the reporting of data from completed, current and future clinical trials and preclinical studies;

•plans relating to the clinical development of the Company's product candidates, including the size, number and disease areas to be evaluated;

•the size of the market opportunity and prevalence of dry eye disease for the Company's product candidates;

•plans relating to commercializing the Company's product candidates, if approved by regulatory agencies, including the geographic areas of focus and sales strategy;

•the success of competing therapies that are or may become available;

•the Company's estimates of the number of patients in the United States who suffer from dry eye disease, and the number of patients that will enroll in its clinical trials;

•the beneficial characteristics, safety, efficacy and therapeutic effects of the Company's product candidates;

•the timing, likelihood or scope of regulatory filings and approval for its product candidates;

•the Company's ability to obtain and maintain regulatory approval of its product candidates;

•the Company's plans relating to the further development and manufacturing of its product candidates, including additional indications for which it may pursue;

•the expected potential benefits of strategic collaborations with third parties and the Company's ability to attract collaborators with development, regulatory and commercialization expertise;

•existing regulations and regulatory developments in the United States and other jurisdictions;

•the Company's plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;

•continued reliance on third parties to conduct additional clinical trials of the Company's product candidates, and for the manufacture and supply of product candidates, components for preclinical studies and clinical trials and ~~products and components~~potentially for ~~commercialization of any approved products;~~commercial supply;

•the ~~need to hire additional personnel, and the Company's~~Company’s ability to ~~attract~~recruit and retain ~~such personnel;~~key personnel needed to develop and commercialize the Company’s product candidates, if approved, and to grow the Company;

•the potential effects of the novel strain coronavirus, or SARS-CoV-2 virus pandemic, including the resurgence of cases relating to the spread of the Delta variant, on business, operations and clinical development timelines and plans;

•the accuracy of estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•the Company's financial performance;

•the sufficiency of existing capital resources to fund future operating expenses and capital expenditure requirements;

•expectations regarding the period during which the Company will qualify as an emerging growth company under the JOBS Act; and

•the Company's anticipated use of its existing resources and proceeds from the initial and follow-on public ~~offering.~~offerings.

The Company has based these forward-looking statements largely on its current expectations and projections about its business, the industry in which it operates and financial trends that may affect business, financial condition, results of operations and growth prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and the ~~Company’s~~Company's Quarterly ~~Report~~Reports on Form 10-Q for the ~~six months~~periods ended March 31, 2021 and June 30, ~~2020.~~2021. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, they should not be relied on as predictions of future events. The events and circumstances reflected in these forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, the Company does not plan to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

In addition, statements that “the Company believes” and similar statements reflect the Company's beliefs and opinions on the relevant subject. These statements are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and the Company's statements should not be read to indicate that it has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and should not be unduly relied upon.

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION
ITEM 1	Financial Statements (unaudited)	1
	Condensed Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	1
	Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	2
	Condensed Statements of ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~ for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	3
	Condensed Statements of Cash Flows for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	54
	Notes to Unaudited Interim Condensed Financial Statements	65
ITEM 2	Management's Discussion and Analysis of Financial Conditions and Results of Operations	1621
ITEM 3	Quantitative and Qualitative Disclosure About Market Risk	2334
ITEM 4	Controls and Procedures	2434

	PART II – OTHER INFORMATION
ITEM 1	Legal Proceedings	2635
ITEM 1A	Risk Factors	2635
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	3941
ITEM 3	Defaults Upon Senior Securities	3941
ITEM 4	Mine Safety Disclosures	3941
ITEM 5	Other Information	3941
ITEM 6	Exhibits	3941
SIGNATURES		4144

iii

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

OYSTER POINT PHARMA, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	214,331	$	139,147	Cash and cash equivalents	$	184,166	$	192,585
Other receivable - related party						Other receivable - related party	2,500		—
Prepaid expenses and other current assets	Prepaid expenses and other current assets	861		3,033		Prepaid expenses and other current assets	3,020		3,782
Total current assets	Total current assets	215,192		142,180		Total current assets	189,686		196,367
Property and equipment, net	Property and equipment, net	466		181		Property and equipment, net	1,976		804
Restricted cash	Restricted cash	61		51		Restricted cash	61		61
Other assets						Other assets	2,635		—
Right-of-use assets, net	Right-of-use assets, net	777		797		Right-of-use assets, net	651		678
Total Assets	Total Assets	$	216,496	$	143,209	Total Assets	$	195,009	$	197,910
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	2,291	$	507	Accounts payable	$	3,506	$	2,279
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	6,747		4,596		Accrued expenses and other current liabilities	11,174		8,285
Lease liabilities	Lease liabilities	409		296		Lease liabilities	481		418
Total current liabilities	Total current liabilities	9,447		5,399		Total current liabilities	15,161		10,982
Lease liabilities, non-current	Lease liabilities, non-current	376		512		Lease liabilities, non-current	179		269
Long-term debt, net						Long-term debt, net	41,919		—
Other long-term liabilities						Other long-term liabilities	238		—
Total long-term liabilities						Total long-term liabilities	42,336		269
Total Liabilities	Total Liabilities	9,823		5,911		Total Liabilities	57,497		11,251
Commitments and Contingencies (Note 8)
Commitments and Contingencies						Commitments and Contingencies	0		0
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; NaN outstanding		0		0
Common stock, $0.001 par value per share; 1,000,000,000 shares authorized, 25,844,761 and 21,366,950 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		26		21
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; none outstanding						Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; none outstanding	—		—
Common stock, $0.001 par value per share; 1,000,000,000 shares authorized, 26,094,253 and 25,890,490 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively						Common stock, $0.001 par value per share; 1,000,000,000 shares authorized, 26,094,253 and 25,890,490 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	26		26
Additional paid-in capital	Additional paid-in capital	339,166		221,508		Additional paid-in capital	350,832		341,384
Accumulated deficit	Accumulated deficit	(132,519)		(84,231)		Accumulated deficit	(213,346)		(154,751)
Total Stockholders’ Equity	Total Stockholders’ Equity	206,673		137,298		Total Stockholders’ Equity	137,512		186,659
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	216,496	$	143,209	Total Liabilities and Stockholders’ Equity	$	195,009	$	197,910

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

OYSTER POINT PHARMA, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue:										Revenue:
License revenue - related party										License revenue - related party	$	17,943	$	—	$	17,943	$	—
Total revenue										Total revenue	17,943		—		17,943		—
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	$	8,210	$	8,088	$	28,104	$	18,594	Research and development	$	6,214	$	8,210	$	18,772	$	28,104
General and administrative		8,112		3,809		20,641		8,546
Selling, general and administrative										Selling, general and administrative	28,497		8,112		56,885		20,641
Total operating expenses	Total operating expenses	16,322		11,897		48,745		27,140		Total operating expenses	34,711		16,322		75,657		48,745
Loss from operations	Loss from operations	(16,322)		(11,897)		(48,745)		(27,140)		Loss from operations	(16,768)		(16,322)		(57,714)		(48,745)
Other income (expense):										Other income (expense):
Other income, net	Other income, net	17		400		457		1,153		Other income, net	222		17		243		457
Interest expense										Interest expense	(1,124)		—		(1,124)		—
Total other income (expense), net										Total other income (expense), net	(902)		17		(881)		457
Net loss and comprehensive loss	Net loss and comprehensive loss	$	(16,305)	$	(11,497)	$	(48,288)	$	(25,987)	Net loss and comprehensive loss	$	(17,670)	$	(16,305)	$	(58,595)	$	(48,288)
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.63)	$	(8.10)	$	(2.05)	$	(18.37)	Net loss per share, basic and diluted	$	(0.68)	$	(0.63)	$	(2.25)	$	(2.05)
Weighted average shares outstanding, basic and diluted	Weighted average shares outstanding, basic and diluted	25,797,282		1,419,064		23,544,035		1,414,475		Weighted average shares outstanding, basic and diluted	26,037,975		25,797,282		25,984,412		23,544,035

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

OYSTER POINT PHARMA, INC.

CONDENSED STATEMENTS OF ~~REDEEMABLE CONVERTIBLE PREFERRED STOCK AND~~ STOCKHOLDERS' EQUITY ~~(DEFICIT)~~

~~For the Nine Months Ended September 30, 2020~~

(in thousands, except share amounts)

(unaudited)

Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity
Shares Amount Shares Amount
Balance at January 1, 2020 0 $ 0 21,366,950 $ 21 $ 221,508 $ (84,231) $ 137,298
Net loss — — — — — (16,519) (16,519)
Issuance of common stock upon exercise of stock options — — 3,530 — 4 —

4
Stock-based compensation expense — — — 1,180 — 1,180
Balance at March 31, 2020 0 $ 0 21,370,480 $ 21 $ 222,692 $ (100,750) $ 121,963
Net loss — — — — — (15,464) (15,464)
Issuance of common stock upon follow-on equity offering, net of issuance costs of $8,125 — — 4,312,500 5 112,620 — 112,625
Issuance of common stock upon exercise of stock options — — 60,425 — 82 — 82
Stock-based compensation expense — — — — 1,609 — 1,609
Balance at June 30, 2020 0 $ 0 25,743,405 $ 26 $ 337,003 $ (116,214) $ 220,815
Net loss — — — — (16,305) (16,305)
Issuance of common stock upon exercise of stock options — — 87,755 — 173 — 173
Issuance of common stock upon vesting of restricted stock units — — 13,601 — — —
Stock-based compensation expense — — — — 1,990 — 1,990
Balance at September 30, 2020 0 $ 0 25,844,761 $ 26 $ 339,166 $ (132,519) $ 206,673


	Common Stock		Additional Paid-In Capital			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount
Balance at January 1, 2021		25,890,490	$	26		$	341,384	$	(154,751)	$	186,659
Net loss		—	—			—		(18,909)		(18,909)
Issuance of common stock upon exercise of stock options		55,046	—			218		—		218
Issuance of common stock upon vesting of restricted stock units		15,252	—			—		—		—
Stock-based compensation expense		—	—			2,680		—		2,680
Balance at March 31, 2021		25,960,788	$	26		$	344,282	$	(173,660)	$	170,648
Net loss		—	—			—		(22,016)		(22,016)
Issuance of common stock upon exercise of stock options		28,748	—			104		—		104
Issuance of common stock upon vesting of restricted stock units		16,901	—			—		—		—

Stock-based compensation expense		—	—			3,048		—		3,048
Balance at June 30, 2021		26,006,437	$	26		$	347,434	$	(195,676)	$	151,784
Net loss		—	—					(17,670)		(17,670)
Issuance of common stock upon exercise of stock options		87,816	—			283		—		283

Stock-based compensation expense		—	—			3,115		—		3,115
Balance at September 30, 2021		26,094,253	$	26		$	350,832	$	(213,346)	$	137,512


	Common Stock		Additional Paid-In Capital			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount
Balance at January 1, 2020		21,366,950	$	21		$	221,508	$	(84,231)	$	137,298
Net loss		—	—			—		(16,519)		(16,519)
Issuance of common stock upon exercise of stock options		3,530	—			4		—		4
Stock-based compensation expense		—	—			1,180		—		1,180
Balance at March 31, 2020		21,370,480	$	21		$	222,692	$	(100,750)	$	121,963
Net loss		—	—			—		(15,464)		(15,464)
Issuance of common stock upon secondary equity offering, net of issuance costs of 8,125		4,312,500	5			112,620		—		112,625
Issuance of common stock upon exercise of stock options		60,425	—			82		—		82
Stock-based compensation expense		—	—			1,609		—		1,609
Balance at June 30, 2020		25,743,405	$	26		$	337,003	$	(116,214)	$	220,815
Net loss		—	—			—		(16,305)		(16,305)
Issuance of common stock upon exercise of stock options		87,755	—			173		—		173
Issuance of common stock upon vesting of restricted stock units		13,601	—			—		—		—
Stock-based compensation expense		—	—			1,990		—		1,990
Balance at September 30, 2020		25,844,761	$	26		$	339,166	$	(132,519)	$	206,673

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

OYSTER POINT PHARMA, INC.

CONDENSED STATEMENTS OF ~~REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)~~

~~For the Nine Months Ended September 30, 2019~~CASH FLOWS

(in ~~thousands, except share amounts)~~thousands)

(unaudited)

Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit
Shares Amount Shares Amount
Balance at January 1, 2019 7,611,691 $ 43,001 1,411,966 $ 1 $ 276 $ (38,520)

$ (38,243)
Net loss — — — — — (3,760)

(3,760)
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $146 6,015,431 84,852 — — — — —
Stock-based compensation — — — — 40 —

40
Balance at March 31, 2019 13,627,122 $ 127,853 1,411,966 $ 1 $ 316 $ (42,280) $ (41,963)
Net loss — — — — — (10,730) (10,730)
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $2 566,159 $ 8,000 — — — — —
Issuance of common stock upon exercise of stock options — — 7,060 — 7 — 7
Stock-based compensation — — — — 1,175 — 1,175
Balance at June 30, 2019 14,193,281 $ 135,853 1,419,026 $ 1 $ 1,498 $ (53,010) $ (51,511)
Net loss — — — — — (11,497) (11,497)
Issuance of common stock upon exercise of stock options — — 231 — — — —
Stock-based compensation — — — 1,058 — 1,058
Balance at September 30, 2019 14,193,281 $ 135,853 1,419,257 $ 1 $ 2,556 $ (64,507) $ (61,950)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net loss	$	(58,595)	$	(48,288)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	8,843		4,779
Depreciation	91		57
Amortization and accretion of long-term debt related costs	508		—
Reduction in the carrying amount of the right-of-use assets	371		285
Non-cash consideration for license revenue - related party	(443)		—
Change in fair value of net embedded derivative liability	(212)		—
Changes in assets and liabilities:
Other receivable - related party	(2,500)		—
Prepaid expenses and other current assets	395		2,172
Accounts payable	1,215		1,784
Lease liabilities	(371)		(283)
Accrued expenses and other current liabilities	2,921		2,146
Other assets	(118)		—
Net cash used in operating activities	(47,895)		(37,348)
Cash flows from investing activities
Purchases of property and equipment	(1,250)		(342)
Net cash used in investing activities	(1,250)		(342)
Cash flows from financing activities
Payment of deferred equity offering costs	(30)		—
Proceeds from follow-on equity offering, net of issuance costs	—		112,625

Net proceeds from long-term debt	40,151		—
Proceeds from the exercise of stock options	605		259
Net cash provided by financing activities	40,726		112,884
Net (decrease) increase in cash, cash equivalents and restricted cash	(8,419)		75,194
Cash, cash equivalents and restricted cash at the beginning of the period	192,646		139,198
Cash, cash equivalents and restricted cash at the end of the period	$	184,227	$	214,392

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	184,166	$	214,331
Restricted cash	61		61
Cash, cash equivalents and restricted cash	$	184,227	$	214,392
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	617	$	—
Non-cash investing and financing activities:
Right-of-use assets acquired through leases	344		$	320

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

~~OYSTER POINT PHARMA, INC.~~

~~CONDENSED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Nine Months Ended September 30,
2020 2019
Cash flows from operating activities
Net loss $ (48,288) $ (25,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense 4,779 2,273
Depreciation and amortization 57 6
Reduction in the carrying amount of the right-of-use assets 285 84
Changes in assets and liabilities:
Prepaid expenses and other assets 2,172 (4,227)
Accounts payable 1,784 1,211
Change in lease liabilities (283) (77)
Accrued expenses and other current liabilities 2,146 2,441
Net cash used in operating activities (37,348) (24,276)
Cash flows from investing activities
Purchase of property and equipment (342) (117)
Net cash used in investing activities (342) (117)
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 0 92,852
Payment of deferred offering costs 0 (1,365)
Proceeds from follow-on equity offering, net of issuance costs 112,625 0
Proceeds from the issuance of common stock upon exercise of stock options 259 7
Net cash provided by financing activities 112,884 91,494
Net increase in cash, cash equivalents and restricted cash 75,194 67,101
Cash, cash equivalents and restricted cash at the beginning of the period 139,198 5,228
Cash, cash equivalents and restricted cash at the end of the period $ 214,392 $ 72,329
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 214,331 $ 72,278
Restricted cash 61 51
Cash, cash equivalents and restricted cash $ 214,392 $ 72,329
Supplemental cash flow information
Right-of-use for office space and office equipment acquired through leases $ 320 $ 897
Supplemental non-cash flow information
Unpaid offering costs $ 0 $ 754

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

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements

1. Nature of Business, Basis of Presentation and Significant Accounting Policies

Description of the Business

Oyster Point Pharma, Inc. (the Company) was incorporated in the state of Delaware on June 30, 2015. From inception through September 30, 2020, the Company has been primarily engaged in business planning, research, clinical development of its lead therapeutic product candidates, recruiting and raising capital. The Company is a ~~clinical stage~~commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class pharmaceutical therapies to treat ~~ocular surface~~ophthalmic diseases. ~~The Company’s principal office is located in Princeton, New Jersey.~~

InOn October ~~2019,~~15, 2021, TYRVAYA™ (varenicline solution) Nasal Spray (TYRVAYA Nasal Spray), formerly referred to as OC-01 (varenicline solution) nasal spray, a highly selective nicotinic acetylcholine receptor (nAChR) agonist, was approved by the ~~Company effected a 2.832861-for-1 reverse stock split~~U.S. Food and Drug Administration (FDA) for the treatment of the ~~Company’s common stock~~signs and ~~redeemable convertible preferred stock. The par values~~symptoms of ~~the common stock and redeemable convertible preferred stock were not adjusted as~~dry eye disease. TYRVAYA Nasal Spray’s highly differentiated mechanism of action is designed to increase basal tear production with a result of the reverse stock split. Accordingly, all common stock, redeemable convertible preferred stock, stock options, and related per share amounts for the period through October 18, 2019 have been retroactively adjustedgoal to ~~give effect to the reverse stock split.~~re-establish tear film homeostasis.

Liquidity

On August 5, 2021, the Company entered into a $125 million term loan credit facility (the Credit Agreement) with OrbiMed Royalty & Credit Opportunities III, LP, as administrative agent and initial lender (OrbiMed). The Credit Agreement provides for loans to be funded in three separate tranches: the first $45 million tranche was funded on August 10, 2021, the second $50 million tranche to be funded, at the option of the Company, upon FDA approval of TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease, with an approved label that includes eye dryness score data from clinical trials, among other conditions, and the third $30 million tranche to be funded on or prior to June 30, 2023, at the option of the Company, upon the Company having received at least $40 million in net recurring revenue from the sale and/or licensing of TYRVAYA Nasal Spray in any twelve month period prior to March 31, 2023, among other conditions, including having already drawn on the second tranche.

On October 19, 2021, the Company entered into a waiver and amendment (the Amendment) to the Credit Agreement to waive certain labeling requirements required for, and to permit the availability of, the second $50 million tranche of funding under the Credit Agreement (among other customary funding provisions) and make certain other amendments thereto, subject to the terms and conditions contained therein. Because the label approving TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease did not include eye dryness score data from clinical trials, the Amendment was required in order for the Company to draw the second tranche and to be eligible to draw the third tranche under the Credit Agreement. The Amendment also increased the amount of principal that is required to be repaid if the Company does not meet certain minimum recurring revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray on a quarterly basis for the most recently ended four fiscal quarter period, from $5 million to $10 million if (i) the Company does not meet such minimum recurring revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray in the last four quarters and (ii) an improper promotional event has occurred. The Company would also be barred from drawing the second tranche in the event an improper promotional event occurs prior to the funding of the second tranche. The Company delivered notice to OrbiMed on October 19, 2021 that it intended to borrow the second tranche and the Company received the second tranche funding on November 4, 2021. Additional information on the terms of the Amendment and the Credit Agreement are further described in Note 7, Long-term Debt and Note 10, Subsequent Events.

On August 5, 2021, the Company entered into a license and collaboration agreement (the License Agreement) with Ji Xing Pharmaceuticals Limited (Ji Xing), which is an entity affiliated with RTW Investments, LP. RTW Investments, LP is one of the Company's beneficial owners, which owns more than 5% of the Company's outstanding shares as of September 30, 2021, and, as a result, the License Agreement is considered to be a related party transaction. Pursuant to the License Agreement, the Company was entitled to receive upfront payments of $17.5 million from the licensee, as well as up to 795,123 of the licensee's senior common shares. As described in Note 8, License and Collaboration Agreements, during the third quarter, the Company received $15.0 million in cash consideration, 397,562 of the senior common shares of Ji Xing as partial consideration upon signing of the License Agreement, and included $2.5 million in other receivable-related party on the condensed balance sheet as of September 30, 2021. Following FDA approval of TYRVAYA Nasal Spray on October 15, 2021, the Company received an additional $5 million development milestone payment and an additional 397,561 of the senior common shares of Ji Xing. The Company is also eligible to receive up to $204.8 million in aggregate development and sales-based milestone payments and royalty payments that are tiered on future net sales of OC-01 and OC-02 and are based on royalty rates between 10% and 20%.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

The Company incurred net losses of ~~$48.3~~$58.6 million and ~~$26.0~~$48.3 million for the nine months ~~periods~~ ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and had an accumulated deficit of ~~$132.5~~$213.3 million as of September 30, ~~2020.~~

2021. The Company has historically financed its operations primarily through the sale and issuance of its securities. The Company completed its initial public offering (IPO) in November of 2019 selling 5,750,000 shares of common stock at a price of $16.00 per share. The net proceeds from the offering were $82.1 million. On May 19, 2020, the Company completed its follow-on equity offering selling 4,312,500 shares of common stock at a price of $28.00 per share. The net proceeds from the offering were $112.6 million. For further discussion on changes inbeen incurring higher expenses due to the Company's ~~capital structure, see~~ ~~Note 4. Stockholders' Equity.~~

~~To date, none of the Company’s product candidates have been approved~~preparation for ~~sale and therefore it has not generated any revenue from product sales. The Company expects to incur increased sales and marketing expenses with~~ the commercialization of ~~new~~TYRVAYA Nasal Spray, including to establish commercial scale manufacturing arrangements and ~~existing products,~~to provide for the marketing, commercial operations and distribution of the product. The Company expended and will continue to expend funds to complete the research, development and clinical testing of its product candidates. The Company will require additional funds as it commercializes TYRVAYA Nasal Spray and to commercialize any future products. The Company is unable to entirely fund these efforts with its current financial resources and there can be no assurance that it will be able to secure such additional financing on a timely basis, if ~~approved for sale,~~at all, that will be sufficient to meet these needs. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay, reduce and or eliminate certain commercial related expenses, included in selling, general and administrative expenses, as well as ~~increased research and development expenses as it develops additional product candidates. In addition,~~delay, reduce or eliminate the ~~Company expects its operating losses to continue to increase for the foreseeable future.~~

~~The Company is subject to risks and uncertainties as a result~~scope of the SARS-CoV-2 virus pandemic. The pandemic, which has continued to spread, and any related public health developments, have adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the durationone or ~~magnitude of the adverse results of the pandemic or the full extent~~more of its ~~effects on the Company's~~research or development programs, which would materially and adversely affect its business, financial condition ~~liquidity or results of~~and operations.

The Company had cash and cash equivalents of ~~$214.3~~$184.2 million as of September 30, ~~2020.~~2021. Management believes that the Company’s current cash and cash equivalents will be sufficient to fund its planned operations for at least 12 months from the date of issuance of these financial statements.

SARS-CoV-2 Update

The Company continues to be subject to risks and uncertainties as a result of the SARS-CoV-2 virus pandemic. The pandemic and related public health developments, have adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. With the surge of the Delta variant of the virus across the United States (U.S.) during the second half of 2021, the Company delayed its plans for a voluntary return to the office for its employees until at least December 2021. However, the Company will continue monitoring SARS-CoV-2 infection rates and make practical decisions about voluntary reopening in compliance with Centers for Disease Control and Prevention (CDC), federal, state and local guidelines. As of September 30, 2021, the Company has not been materially affected by the adverse results of the pandemic, however, it is not possible to predict the duration or magnitude of the adverse results of the pandemic or the full extent of its effects on the Company's financial condition, liquidity or results of operations. The extent to which the global pandemic will impact the Company’s business beyond September 2021 will depend on future developments that are highly uncertain and cannot be predicted.

Basis of Presentation

The unaudited interim condensed financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to state fairly the Company’s financial position as of September 30, ~~2020~~2021 and as of December 31, ~~2019,~~2020, the results of operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, and cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. While management believes that the disclosures presented are adequate to ~~make~~mitigate the risk of the information ~~not~~being misleading, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes ~~thereto in the Company’s latest year-end financial statements, which are~~ included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Unaudited Interim Condensed Financial Statements (continued)~~

results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of expenses in the condensed financial statements and accompanying notes. Significant items subject to such estimates and assumptions include stock-based compensation, net embedded derivative liability bifurcated from the Credit Agreement and certain research and development accruals. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.

~~Summary of~~ Significant Accounting Policies Update

The Company’s significant accounting policies are disclosed in Note 1,~~Note 1. Organization~~ Nature of Business, Basis of Presentation and ~~Summary of~~ Significant Accounting Policies in the Annual Report on Form 10-K for the year ended December 31, ~~2019. There have been no material~~2020. The Company

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Notes to Unaudited Interim Condensed Financial Statements (continued)

adopted new accounting policies, as described below, as a result of the events and transactions that took place during the nine months ended September 30 2021.

Stock-Based Compensation

Effective April 1, 2021, the Company established its first offering period under the Company's 2019 Employee Stock Purchase Plan (the ESPP), as described in Note 4, Stockholders' Equity. Stock-based compensation expense related to purchase rights issued under the ESPP, is based on the Black-Scholes option-pricing model fair value of the estimated number of awards as of the beginning of the offering period. Stock-based compensation expense is recognized using the straight-line method over the offering period.

The determination of the grant date fair value of shares purchased under the ESPP is affected by the estimated fair value of the Company's common stock as well as other assumptions and judgments, which are estimated as follows:

•Expected term. The expected term for the ESPP is the beginning of the offering period to the end of each purchase period.

•Expected volatility. As the Company has a limited trading history of its common stock, the expected volatility is estimated based on the third quartile of the range of the observed volatilities for comparable publicly traded biotechnology and pharmaceutical related companies over a period equal to length of the offering period. The comparable companies are chosen based on industry, stage of development, size and financial leverage of potential comparable companies.

•Risk-free interest rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the offering period.

•Expected dividend rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

Revenue

The Company entered into the License Agreement with Ji Xing during the three months ended September 30, 2021, as further described in Note 8, License and Collaboration Agreements. The License Agreement provides for Ji Xing to develop and commercialize certain Company products in exchange for payments by the licensee that include a non-refundable, up-front license fee, development and sales-based milestone payments, as well as royalties on net sales of licensed products. In connection with the License Agreement, the Company adopted revenue policies under the guidance of ASC 606, Revenue from Contracts with Customers, to recognize revenue based on the transfer of control of promised goods or services in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods and services. Revenue is recognized when the Company transfers control of a good or service to the customer in an amount that reflects the transaction price allocated to the distinct goods or services. U.S. GAAP provides a five-step model for recognizing revenue from contracts with customers:

1.Identify the contract with the customer

2.Identify the performance obligations within the contract

3.Determine the transaction price

4.Allocate the transaction price to the performance obligations

5.Recognize revenue when (or as) the performance obligations are satisfied

License Revenue — The Company recognizes license revenue when the licensee has the ability to direct the use of and benefit from the licensed intellectual property.

Royalty Revenue —The Company recognizes royalty revenue from licensees based on third-party sales of licensed products and is recorded when the related third-party product sale occurs.

Development and Sales Milestone Revenue —The Company recognizes development and sales-based milestone revenue when the development and sales milestones occur.

Loan Commitment Fees, Debt Issuance and Discount Costs

As described in Note 7, Long-term Debt, the Company entered into a term loan credit facility with OrbiMed during the three months ended September 30, 2021.The Company capitalizes initial loan commitment fees that are directly associated with

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

obtaining access to capital under its term loan credit facility. Loan commitment fees related to undrawn tranches are recorded in other assets on the Company's condensed balance sheet and are amortized using a straight-line method over the term of the loan commitment. Debt issuance and discount costs that are attributable to the specific tranches drawn on the term loan credit facility are recorded as a reduction of the carrying amount of the debt liability incurred and are amortized to interest expense using the effective interest method over the repayment term. If the Company draws down on the term loan credit facility, it will reclassify the capitalized loan commitment fees on a pro-rata basis to debt issuance and discount costs that reduce the carrying amount of the debt liability.

Non-Marketable Equity Investment

In connection with the License Agreement described in Note 8, License and Collaboration Agreements, the Company received 397,562 senior common shares from Ji Xing valued at $0.4 million as of September 30, 2021 (the Investment). The Investment was recorded at fair value and will be subject to impairment analysis on a periodic basis. The impairment analysis would involve an assessment of both qualitative and quantitative factors, which may include regulatory approval of the investee's product or technology, as well as the investee’s financial metrics, such as subsequent rounds of financing that may indicate the Investment is impaired. If the Investment is considered impaired, the Company will recognize an impairment through other income (expense), net in the statements of operations and establish a new carrying value for the Investment.

Net Embedded Derivative Asset or Liability

Certain contracts may contain explicit terms that affect some or all of the cash flows or the value of other exchanges required by the contract. When these embedded features in a contract act in a manner similar to a derivative financial instrument and are not clearly and closely related to the economic characteristics of the host contract, the Company bifurcates the embedded feature and accounts for it as an embedded derivative asset or liability in accordance with guidance under ASC 815-40, Derivatives and Hedging. Embedded derivatives are measured at fair value with changes in ~~the Company's accounting policies from those disclosed~~fair value reported in other income, net in the ~~financial statements and the related notes included in the Annual Report on Form 10-K for the year ended December 31, 2019.~~condensed statement of operations.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB) under its accounting ~~standard~~standards codifications (ASC) or other standard setting bodies and are adopted by the Company as of the specified effective date, unless otherwise discussed below.

~~Recently Adopted Accounting Pronouncements~~

ASU 2020-10 — In ~~December 2019,~~October 2020, the FASB issued ASU ~~No. 2019-12, Income Taxes (Topic 740) - Simplifying~~2020-10, Codification Improvements, which updated various codification topics by clarifying or improving disclosure requirements to align with the ~~Accounting for Income Taxes, which simplifies various aspects related to the accounting for income taxes. This~~Securities and Exchange Commission’s (SEC’s) regulations. The amendments in ASU removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public companies, this ASU is2020-10 are effective for ~~interim and~~ annual ~~reporting~~ periods beginning after December 15, ~~2020. Early adoption is permitted.~~2020, for public business entities. The Company adopted ASU ~~2019-12~~2020-10 on January 1, 2021 and its adoption did not have a material effect on the Company’s financial statements and related disclosures.

ASU 2016-13 — In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard introduced the expected credit loss methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendment in ASU 2016-13 also modified the ~~second quarter of 2020~~accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized costs basis. The guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those years, for public business entities. The Company adopted ASU 2016-13 on January 1, 2021 and its adoption did not have a material effect on the Company's financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-13 effective January 1, 2020 and its adoption did not have a material effect on the Company’s financial statements and related disclosures.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In March 2020, the FASB issued ASU No. 2020-03,~~ ~~Codification Improvements to Financial Instruments~~. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures, but does not expect adoption will have a material impact on the Company’s financial statements and disclosures.

~~Reclassification~~

~~Certain prior year amounts have been reclassified for comparative purposes.~~

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Unaudited Interim Condensed Financial Statements (continued)~~

2. Fair Value Measurements

The Company assesses the fair value of financial instruments as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 ~~Observable inputs other than Level 1 prices such as quoted~~Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not ~~active,~~active; or ~~other~~model derived valuations whose inputs ~~that~~ are observable or ~~can be corroborated by observable market data for substantially the full term of the assets or liabilities.~~whose significant value drivers are observable.

Level 3 ~~Unobservable~~Valuations derived from valuation techniques in which one or more significant inputs ~~that~~to the valuation model are ~~supported by little~~unobservable.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As further discussed in Note 7, Long-term Debt, the Company is required to make quarterly payments to OrbiMed in the form of a revenue sharing fee, which was evaluated under ASC 815-40, Derivatives and Hedging, and determined to be an embedded derivative liability. In addition, the Company has the right to optionally prepay, in whole or ~~no market activity~~in part, the outstanding principal amount of the term loan in an amount equal to the outstanding principal, accrued and ~~that are significant~~unpaid interest, together with other fees and payments required under the term loan. This prepayment option has been determined to qualify as an embedded derivative asset under ASC 815-40, Derivatives and Hedging. The embedded derivative asset and liability have been netted to result in a net embedded derivative liability and is classified as a Level 3 financial liability in the fair value hierarchy as of September 30, 2021. The valuation method for both embedded derivatives includes certain unobservable Level 3 inputs including revenue projections, probability and timing of future cash flows, probability of regulatory approval, discounts rates and risk-free rates of interest. The change in fair value due to the remeasurement of the ~~assets or liabilities.~~net embedded derivative liability is recorded as other income, net in the Company’s condensed statement of operations and comprehensive loss.

The following table reconciles the beginning and ending balances for the Company’s net embedded derivative liability that is carried at fair value as long-term liabilities on the Company's condensed balance sheet using significant unobservable inputs (Level 3) (in thousands):

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)


	Three months ended September 30,		Nine months ended September 30,
	2021		2021

Beginning balance:	$	—��	$	—
Net embedded derivative liability	450		450
Change in fair value of the net embedded derivative liability	(212)		(212)
Ending balance	$	238	$	238

As of September 30, ~~2020,~~2021, financial assets ~~measured~~ and ~~recognized~~liabilities measured at fair value on a recurring basis were as follows (in thousands):


	Fair Value Measurements at September 30, 2021
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	183,166		—		—		183,166
Total assets	$	183,166	$	—	$	—	$	183,166
Liabilities:
Net embedded derivative liability	—		—		238		238
Total liabilities	$	—	$	—	$	238	$	238

Fair Value Measurements at September 30, 2020
Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
Assets
Money market funds $ 213,331 $ 0 $ 0 $ 213,331
Total fair value of assets $ 213,331 $ 0 $ 0 $ 213,331

As of December 31, ~~2019,~~2020, financial assets ~~measured~~ and ~~recognized~~liabilities measured at fair value on a recurring basis were as follows (in thousands):

Fair Value Measurements at December 31, 2019
Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Money market funds $ 138,147 $ 0 $ 0 $ 138,147
Total fair value of assets $ 138,147 $ 0 $ 0 $ 138,147


	Fair Value Measurements at December 31, 2020
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	191,585		—		—		191,585
Total assets	$	191,585	$	—	$	—	$	191,585
Liabilities:
Net embedded derivative liability	—		—		—		—
Total liabilities	$	—	$	—	$	—	$	—

Money market funds are included in cash and cash equivalents on the Company's condensed balance sheets and are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices.

The carrying amounts reflected in the Company's condensed balance sheets for cash ~~and cash~~ equivalents, ~~prepaid expenses and~~ other ~~current assets,~~receivable-related party, restricted cash, and accounts payable ~~and accrued expenses and other liabilities~~ approximate their fair values, due to their short-term nature.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Investment in Ji Xing Senior Common Shares - Related Party

In connection with entering into the License Agreement with Ji Xing, as described in Note 8, License and Collaboration Agreements, the Company received 397,562 senior common shares of Ji Xing on August 5, 2021 (Investment), which were accounted for as a non-marketable equity investment and valued as of August 5, 2021. The Investment is classified within Level 3 in the fair value hierarchy because the fair value was determined based on a market approach in which one or more significant inputs to the valuation model are unobservable. The Investment is subject to non-recurring fair value measurements for the evaluation of potential impairment losses and observable price changes in orderly transactions for an identical or similar investment of Ji Xing.

The following table represents significant unobservable inputs used in determining the estimated fair value of the Investment as of August 5, 2021 (in thousands):

Valuation Technique

Unobservable Inputs

Value

Asset

Investment

Market Approach - Backsolve method

Equity values of recent rounds of financing by the issuer

443

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are money market funds, which are included in cash and cash equivalents on the Company's condensed balance sheets. The Company attempts to minimize the risks related to cash and cash equivalents by using highly-rated financial institutions that invest in a broad and diverse range of financial

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Unaudited Interim Condensed Financial Statements (continued)~~

instruments. The Company's investment portfolio is maintained in accordance with its investment policy that defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.

3. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30, 2021		December 31, 2020

Accrued compensation	7,000		3,500
Accrued professional services	3,161		1,244
Accrued research and development expense	1,013		3,541
Total accrued expenses and other current liabilities	$	11,174	$	8,285

September 30, 2020 December 31, 2019
Accrued compensation 2,230 1,214
Accrued professional services 1,311 1,163
Accrued research and development expense 3,206 2,219
Total accrued expenses and other current liabilities $ 6,747 $ 4,596

911

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

4. Stockholders' Equity

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, at a par value of $0.001 per share. Each share of common stock is entitled to 1 vote.

The Company reserved common stock for future issuance as follows:

September 30, 2020 December 31, 2019
Outstanding options under the 2016 Plan 2,590,886 2,748,434
Outstanding options under the 2019 Plan 614,945 29,466
Equity awards available for grant under the 2019 Plan 2,113,001 2,747,047
Unvested restricted stock units (RSUs) 63,929 23,125
Shares reserved for purchase under the ESPP (a)
270,000 270,000
Total 5,652,761 5,818,072


	September 30, 2021	December 31, 2020
Outstanding options under the 2016 Equity Incentive Plan	2,370,256	2,567,566
Outstanding options under the 2019 Equity Incentive Plan	2,031,932	918,145
Outstanding options under the 2021 Inducement Plan	270,600	—
Equity awards available for grant under the 2019 Equity Incentive Plan (1)	1,588,105	1,790,106
Equity awards available for grant under the 2021 Inducement Plan	379,400	—
Unvested restricted stock units (RSUs)	178,595	61,215
Shares reserved for purchase under the Employee Stock Purchase Plan (the ESPP)	270,000	270,000
Total	7,088,888	5,607,032

~~(a)~~(1) — ~~Employee Stock Purchase Plan approved~~Effective January 1, 2021, in ~~October~~connection with the evergreen provision under the 2019 ~~as further described in~~ ~~Note 5.~~ Equity Incentive ~~Plans~~.Plan (the 2019 Plan) 1,035,619 shares were added to the 2019 Plan.

~~Changes in Capital Structure~~2021 Inducement Plan

~~During~~

In July 2021, the Company's Board of Directors approved the adoption of the Company's 2021 Inducement Plan (the Inducement Plan), which is used exclusively for grants of awards to individuals who were not previously employees or directors of the Company (or following a bona fide period of non-employment) as a material inducement to such individuals’ entry into employment with the Company. The Company reserved 650,000 shares of its common stock that may be issued under the Inducement Plan. The terms and conditions of the Inducement Plan are substantially similar to those of the 2019 Plan.

Stock Options

The following table summarizes stock option activity under the 2016 Equity Incentive Plan, the 2019 Plan and the 2021 Inducement Plan during the nine months ended September 30, ~~2020, the Company issued 151,710~~2021 (in thousands, except shares, ~~of common stock as a result of stock options exercises, as well as 13,601 shares of common stock due to vesting of the RSUs, as further described in~~ ~~Note 5, Equity Incentive Plans.~~

On May 19, 2020, the Company completed its follow-on public offering selling 4,312,500 shares of common stock at a price to the public of $28.00 per share. The net proceeds from the offering were $112.6 million.

~~On November 4, 2019, upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock were converted into an aggregate of 14,193,281 shares of the Company’s common stock~~contractual term and $135.9 million of mezzanine equity was reclassified to common stock and additional paid-in capital. As of September 30, 2020, and December 31, 2019, there were 0 shares of redeemable convertible preferred stock issued and outstanding.

In October 2019, the Company effected a 2.832861-for-1 reverse stock split of the Company’s common stock and redeemable convertible preferred stock. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, redeemable convertible preferred stock, stock options, and related per share ~~amounts for the period through October 18, 2019 have been retroactively adjusted to give effect to the reverse stock split.~~data):

On February 15, 2019, the Company executed the Series B Preferred Stock Purchase Agreement to sell 6,581,590 shares of Series B redeemable convertible preferred stock. In February and April of 2019, the Company received gross cash proceeds of $85.0 million and $8.0 million, respectively, from the sale of Series B redeemable convertible preferred stock.


	Outstanding Options
	Number of Shares Underlying Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance, January 1, 2021	3,485,711	$	10.74	8.2	$	36,506
Options granted	1,479,153	16.59
Options exercised	(171,610)	3.53			2,272
Options forfeited	(120,466)	19.42			342
Balance, September 30, 2021	4,672,788	12.64		8.1	17,535
Shares vested and exercisable as of September 30, 2021	2,058,694	7.15		7.0	14,885
Vested and expected to vest as of September 30, 2021	4,672,788	$	12.64	8.1	$	17,535

1012

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

~~5. Equity Incentive Plans~~

In October 2019, the Company’s Board of Directors (BOD) and stockholders approved the 2019 Equity Incentive Plan (the 2019 Plan). The 2019 Plan provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to the Company's employees, directors, and others.

The exercise price of an incentive stock option (ISO) and non-qualified stock option (NSO) shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the BOD. The exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the BOD. To date, outstanding options have a term of 10 years and generally vest monthly over a four-year period.

In October 2019, the Company’s BOD and stockholders approved the 2019 Employee Stock Purchase Plan (the ESPP), which qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code, and pursuant to which 270,000 shares of common stock were reserved for future issuance. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions. There have been no ESPP purchases to date.

~~Stock Options~~

The following table summarizes stock option activity under the 2016 Plan and the 2019 Plan during the nine months ended September 30, 2020 (in thousands, except share, contractual term and per share data):

Outstanding Options
Number of Shares Underlying Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Balance, January 1, 2020 2,777,900 $ 4.59 8.7 $ 55,146
Options granted 586,729 32.22
Options exercised (151,710) 1.71 3,911
Options canceled (7,088) 17.52 91
Balance, September 30, 2020 3,205,831 9.75 8.3 42,912
Shares vested and exercisable as of September 30, 2020 1,424,602 3.16 7.7 25,577
Vested and expected to vest as of September 30, 2020 3,205,831 $ 9.75 8.3 $ 42,912

The weighted average ~~grant date~~ fair value of options granted during the nine months ended September 30, ~~2020~~2021 was ~~$23.64~~$10.88 per share. As of September 30, ~~2020,~~2021, the total unrecognized stock-based compensation expense for stock options was ~~$19.5~~$28.8 million, which is expected to be recognized over a weighted average period of ~~3.1~~2.9 years.

Restricted Stock Units

Restricted stock units ~~(RSUs) consist of restricted stock unit awards which~~(the RSUs) are granted to the Company's ~~directors.~~directors and certain employees. The value of an RSU award is based on the Company's stock price on the date of the grant. The shares underlying the RSUs are not issued until the RSUs vest. Upon vesting, each RSU converts into one share of the Company's common stock.

Activity with respect to the Company's restricted stock units during the nine months ended September 30, ~~2020~~2021 was as follows (in thousands, except share, contractual term, and per share data):

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Unaudited Interim Condensed Financial Statements (continued)~~

Outstanding RSUs
Number of Shares Underlying Outstanding Awards Weighted Average Grant Date Fair Value per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at January 1, 2020 23,125 $ 16.00 2.8 $ 565
Restricted stock units granted 54,405 28.03 1,525
Restricted stock units vested (13,601) 28.03 —
Balance, September 30, 2020 63,929 23.68 1.2 1,350
Unvested and expected to vest as of September 30, 2020 63,929 $ 23.68 1.2 $ 1,350


	Outstanding RSUs
	Number of Shares Underlying Outstanding Awards	Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2021	61,215	$	23.83	1.4	$	1,152
Restricted stock units granted	154,431	18.26			2,820
Restricted stock units vested	(32,153)	27.15			648
Restricted units forfeited	(4,898)	18.77			87
Balance, September 30, 2021	178,595	18.56		2.5	2,116

Unvested and expected to vest as of September 30, 2021	178,595	$	18.56	2.5	$	2,116

As of September 30, ~~2020,~~2021, the total unrecognized stock-based compensation expense for RSUs was ~~$1.3~~$2.6 million, which is expected to be recognized over a weighted average period of ~~1.2~~2.6 years.

~~Fair Value~~2019 Employee Stock Purchase Plan

In October 2019, the Company adopted the ESPP, which became effective on October 29, 2019. Effective April 1, 2021, the Company established its first offering period under the ESPP, which began on April 16, 2021 and ends on November 15, 2021. After the first offering period, the ESPP provides for automatic six-month offering periods. The ESPP allows eligible employees to purchase shares of ~~Common Stock~~

~~Prior~~the Company's common stock at a 15% discount through payroll deductions, subject to plan limitations. At the ~~IPO,~~end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the ~~Company’s~~Company's common stock ~~underlying~~on the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidityfirst trading day of the ~~Company’s common stock and~~offering period or on the ~~general and industry-specific economic outlook. Subsequent to the IPO, the fair value~~last day of the ~~Company’s common stock is determined based on its closing market price.~~offering period. Because the first offering period has not yet expired, no shares have been purchased under the ESPP as of September 30, 2021.

Stock-Based Compensation Expense

Total stock-based compensation expense ~~recorded~~ related to ~~awards granted to employees and non-employees~~the Company's equity incentive plans was as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Research and development	Research and development	$	246	$	203	$	702	$	417	Research and development	$	485	$	246	$	1,311	$	702
General and administrative		1,744		855		4,077		1,856
Selling, general and administrative										Selling, general and administrative	2,630		1,744		7,532		4,077
Total stock-based compensation expense	Total stock-based compensation expense	$	1,990	$	1,058	$	4,779	$	2,273	Total stock-based compensation expense	$	3,115	$	1,990	$	8,843	$	4,779

1213

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

6.5. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Net loss	Net loss	$	(16,305)	$	(11,497)	$	(48,288)	$	(25,987)	Net loss	$	(17,670)	$	(16,305)	$	(58,595)	$	(48,288)
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding, basic and diluted	Weighted average shares outstanding, basic and diluted	25,797,282		1,419,064		23,544,035		1,414,475		Weighted average shares outstanding, basic and diluted	26,037,975		25,797,282		25,984,412		23,544,035
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.63)	$	(8.10)	$	(2.05)	$	(18.37)	Net loss per share, basic and diluted	$	(0.68)	$	(0.63)	$	(2.25)	$	(2.05)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

As of September 30,
2020 2019
Series A redeemable convertible preferred stock 0 7,611,691
Series B redeemable convertible preferred stock 0 6,581,590
Options to purchase common stock 3,205,831 2,559,935
Unvested restricted stock units 63,929 0
Total 3,269,760 16,753,216

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Unaudited Interim Condensed Financial Statements (continued)~~

~~7. Leases~~

~~Lease Obligations~~

In April 2019, the Company entered into a non-cancelable operating lease for office space in Princeton, New Jersey, commencing on July 1, 2019, for a period of three years from the commencement date. In January 2020, the Company amended this lease to include additional office space, with the same terms as the original lease. Total future minimum lease payments under this amendment are $0.8 million as of September 30, 2020. The total lease payments required over the life of this lease are $1.2 million. The remaining lease term was 1.8 years as of September 30, 2020. Rent expense was $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company leases certain office equipment under finance leases with remaining lease terms of 1.9 to 2.6 years. At the commencement date, the Company determined the amount of lease liability using a discount rate of 3%, which management determined represents the rate implicit in the lease. Interest expense and amortization expense for the finance leases were immaterial for the three and nine months ended September 30, 2020 and 2019, respectively.

~~Supplemental balance sheet information for the leases is as follows (in thousands):~~

September 30, 2020 December 31, 2019
Operating lease right-of-use asset $ 739 $ 783
Finance lease right-of-use asset 38 14
Total right-of-use asset $ 777 $ 797
Operating lease liabilities $ 391 $ 290
Finance lease liabilities 18 6
Total lease liabilities $ 409 $ 296
Operating lease liabilities, non-current $ 353 $ 500
Finance lease liabilities, non-current 23 12
Total lease liabilities, non-current $ 376 $ 512

~~The maturities of the lease liabilities under non-cancelable operating and finance leases are as follows (in thousands):~~

As of September 30, 2020 Finance Leases Operating Leases Total
2020 (remainder) $ 5 $ 107 $ 112
2021 18 432 450
2022 16 254 270
2023 4 0 4
Total undiscounted cash flows 43 793 836
Less: imputed interest (2) (49) (51)
Total lease liability 41 744 785
Less: current portion (18) (391) (409)
Lease liability $ 23 $ 353 $ 376


	As of September 30,
	2021	2020
Options to purchase common stock	4,672,788	3,205,831
Unvested restricted stock units	178,595	63,929
Shares committed under the ESPP	30,170	—
Total	4,881,553	3,269,760

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

~~8. Commitments~~6. Leases

The Company is party to several operating and ~~Contingencies~~

~~Asset Purchase of OC-02~~finance lease agreements related to office and laboratory space and office equipment.

In ~~October 2016,~~February 2021, the Company entered into a lease agreement for laboratory and office space in New Jersey for a three-year term beginning on March 1, 2021 and ending on February 29, 2024. Total future minimum lease payments under the Company's operating lease agreements are $0.7 million as of September 30, 2021. Total lease payments required over the life of the Company's operating leases are $1.6 million. Rent expense was $0.4 million and $0.3 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The remaining lease terms were between 0.8 and 2.4 years as of September 30, 2021.

Supplemental balance sheet information for the Company's leases is as follows (in thousands):


	September 30, 2021		December 31, 2020
Operating lease right-of-use assets	$	629	$	644
Finance lease right-of-use assets	22		34
Total right-of-use assets	$	651	$	678

Operating lease liabilities	$	464	$	400
Finance lease liabilities	17		18
Total lease liabilities	$	481	$	418

Operating lease liabilities, non-current	$	172	$	250
Finance lease liabilities, non-current	7		19
Total lease liabilities, non-current	$	179	$	269

The maturities of the lease liabilities under non-cancelable operating and finance leases are as follows (in thousands):


As of September 30, 2021	Finance Leases		Operating Leases		Total
2021 (remainder)	$	5	$	138	$	143
2022	16		376		392
2023	4		126		130
2024	—		21		21
Total undiscounted cash flows	25		661		686
Less: imputed interest	(1)		(25)		(26)
Total lease liabilities	24		636		660
Less: current portion	(17)		(464)		(481)
Lease liabilities	$	7	$	172	$	179

In August 2021, the Company entered into a lease agreement for office space in Boston, Massachusetts for a five-year term beginning on December 1, 2021 and ending on November 30, 2026. The lease will be classified as an ~~asset purchase~~operating lease in accordance with Accounting Standards Codification Topic 842, Leases. Total future minimum lease payments under this agreement ~~pursuant to which it acquired~~are $2.7 million as of September 30, 2021 with the ~~compound OC-02.~~first lease payment due on December 1, 2021.

7.Long-term Debt

Credit Facility with OrbiMed

On August 5, 2021, the Company entered into a $125 million term loan credit facility (the Credit Agreement) with OrbiMed Royalty & Credit Opportunities III, LP, as administrative agent and initial lender (OrbiMed). The ~~agreement~~Credit Agreement provides for ~~milestone~~loans to be funded in 3 separate tranches: the first $45 million tranche was funded on August 10, 2021, the

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

second $50 million tranche to be funded, at the option of the Company, upon FDA approval of TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease, with an approved label that includes eye dryness score data from clinical trials, among other conditions, and the third $30 million tranche to be funded on or prior to June 30, 2023, at the option of the Company, upon the Company having received at least $40 million in net recurring revenue from the sale and/or licensing of TYRVAYA Nasal Spray in any twelve month period prior to March 31, 2023, among other conditions, including having already drawn on the second tranche.

The term loans underlying the Credit Agreement mature on August 5, 2027 and are structured for full principal repayment at maturity. The term loans bear interest at the secured overnight financing rate (with a floor of 0.40%) plus a spread of 8.10% per annum (Contractual Interest). Upon an event of default, the Contractual Interest rate shall increase by 3%. The Company is required to pay a 6% exit fee (the Exit Fee), or $2.7 million for the first $45 million tranche at the time of the loan maturity; further, in connection with any prepayment event, the Company must also pay a prepayment premium equal to 10% of the principal amount of the loans drawn if the prepayment occurs prior to the first anniversary of the closing date, 8% after the first anniversary and prior to the second anniversary of the closing date, 6% after the second anniversary and prior to the third anniversary, and 4% after the third anniversary and prior to the fourth anniversary of the closing date. An early prepayment fee shall not be payable at any time on or after the earlier to occur of (a) the drawing of the second tranche and (b) the fourth anniversary of the closing date. Additionally, any repayment of the debt will be subject to a buyout amount, which is the revenue interest cap described below, minus the revenue sharing fee (the Revenue Sharing Fee) payments made to date to OrbiMed under the Credit Agreement.

Commencing with the fourth full fiscal quarter after the TYRVAYA Nasal Spray approval, if the Company does not meet certain minimum recurring revenue thresholds from the sale and/ or licensing of upOC-01 in the last four quarters, the Credit Agreement requires a $5 million repayment of principal on the interest payment date following such fiscal quarter. This test is applied each quarter following commencement of the Credit Agreement. The Company is permitted to ~~$37.0 million upon achievement~~prepay at any time, in whole or in part, the term loans, subject to the payment of a prepayment fee, an exit fee, and a buyout amount. The term loans are also required to be mandatorily prepaid with the proceeds of certain ~~milestone events.~~asset sales and casualty events and the issuance of convertible debt and would be subject to prepayment upon the occurrence of an event of default, upon if the loans become an Applicable High Yield Discount Obligation, or upon if it becomes illegal for the lender to lend the loans to the Company. The ~~agreement also provides~~optional prepayment feature, the contingent prepayment features, and the contingent interest features that are unrelated to the Company’s credit worthiness meet the criteria to be accounted for ~~royalty payments in~~as embedded derivatives because their economic characteristics are not clearly and closely related to that of the ~~mid-single digit percentage on covered product net worldwide sales.~~ debt host and they meet the definition of a derivative.The ~~Company’s obligation to pay royalties will terminate at~~optional prepayment feature has been bifurcated as an embedded derivative asset; however, because the ~~latter~~probability of ~~patent expiration in each country or ten years. In addition,~~triggering the contingent repayment and the contingent interest features is remote, the fair values of these features are currently immaterial.

Commencing with the fourth quarter of 2021, the Company is required to make quarterly payments to OrbiMed in the form of the Revenue Sharing Fee in an amount equal to 3% of all net revenue from fiscal year net sales and licenses of OC-01 up to $300 million and 1% of all revenue from fiscal year sales and licenses of TYRVAYA Nasal Spray in excess of $300 million and up to $500 million, subject to caps on such fiscal year net sales and license revenues. These caps increase both on an annual fiscal year basis and upon funding of the second and third term loan tranches. The Revenue Sharing Fee for the first tranche is capped at a fixed $9 million. The Company is subject to additional Revenue Sharing Fee cap amounts for any future tranches drawn. The Company is obligated to pay ~~15%~~the Revenue Sharing Fee cap amount regardless of ~~any (i) licensing revenue received that~~the level of net sales and license revenues. If the Company were to make a prepayment of the term loan, in whole or part, or when the Company repays the principal of the loan at maturity, it is obligated to pay a buyout amount, which is composed of the Revenue Sharing Fee cap amount minus and Revenue Sharing Fees paid since the origination of the term loan.

The Company has separated the Revenue Sharing Fee feature from the host debt instrument and accounted for it as an embedded derivative liability because its economic characteristics are not clearly and closely related to ~~OC-02~~that of the host contract, and ~~(ii) revenue received from~~it meets the ~~sale~~definition of ~~OC-02, up~~a derivative. In addition, the Company has the right to ~~a maximum aggregate~~optionally prepay, in whole or in part, the outstanding principal amount of ~~$10.0 million. No milestone was achieved~~the term loan in an amount equal to the outstanding principal, accrued and unpaid interest, together with early prepayment fee, the exit fee and buyout amount (if applicable). This prepayment option has been determined to qualify as an embedded derivative asset. The Revenue Sharing Fee feature does not meet the scope exception in ASC 815, Derivatives and Hedging, for non-exchange-traded contracts for which the settlement is based on a specified volume of sales or ~~probable~~service revenues of one of the parties to ~~be achieved or royalties payable accrued~~the contract because it does not affect the variability of payment, only the timing of certain payments under the debt host. The embedded derivative asset and liability have been netted together to result in a net embedded derivative liability, which is recorded in other long-term liabilities on the Company’s condensed balance sheet. This bifurcation of the net embedded derivative liability resulted in an adjustment to increase the debt discount on the loan drawn under the first tranche.The discount created by the bifurcated net embedded derivative liability, together with the exit fee, the buyout amount, and any debt issuance fees attributable to the initial tranche are deferred and amortized using the effective interest method over the life of the term loan, which resulted in an effective interest rate of 14.11% on the loan as of September 30, ~~2020~~2021.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

The value of the net embedded derivative liability as of August 5, 2021 and September 30, 2021 was $0.4 million and $0.2 million, respectively, with the change in fair value of $0.2 million recorded in other income, net in the condensed statement of operations for the three and nine months ended September 30, 2021.

In connection with entering into the Credit Agreement, and as shown in the table below, the Company incurred loan commitment fees, which were capitalized and recorded in other assets on the Company's condensed balance sheet as of ~~December 31, 2019.~~September 30, 2021. The Company amortizes loan commitment fees on a straight-line basis over the term of the loan commitment. The balance of the loan commitment fees and accumulated amortization recorded on the Company’s condensed balance sheet were as follows:

~~License~~


	September 30, 2021

Loan commitment fees	$	1,981
Accumulated amortization of loan commitment fees	(271)
Loan commitment fees, net	$	1,710

In connection with entering into the Credit Agreement, and as shown in the table below, the Company incurred debt issuance costs, which were capitalized and recorded as a contra-liability on the Company's condensed balance sheet as of September 30, 2021. The debt issuance and discount costs are being accreted over the life of the tranche drawn by the Company using the effective interest method, which currently include the $2.7 million exit fee which will be paid upon maturity of the first tranche, the $9.0 million Revenue Sharing Fee, as well as the net embedded derivative liability recorded in connection with the Revenue Sharing Fee. The balances of the long-term debt, debt issuance and discount costs, net embedded derivative liability, and accumulated accretion recorded on the Company's condensed balance sheet were as follows:


	September 30, 2021

Long-term debt	$	45,000
Debt issuance and discount costs	(2,868)
Net embedded derivative liability	(450)
Accumulated accretion of long-term debt related costs	237
Long-term debt, net	$	41,919

During the three months and nine months ended September 30, 2021, the Company recorded interest expense of $1.1 million in each period, of which $0.5 million related to the amortization of the loan commitment fees and accretion of the Revenue Sharing Fee and the related net embedded derivative liability, as well as debt issuance and discount costs.

The following table identifies the Company's obligations under the Credit Agreement as of September 30, 2021 (in thousands):


	Less than a year		1-3 years		3-5 years		More than 5 years		Total
Debt Principal	$	—	$	—	$	—	$	45,000	$	45,000
Exit Fee	—		—		—		2,700		2,700
Contractual Interest on debt	3,878		7,767		7,756		3,283		22,684
Revenue Sharing Cap (a)	—		—		—		9,000		9,000
Total obligations	$	3,878	$	7,767	$	7,756	$	59,983	$	79,384

(a) — The Revenue Sharing Fee is capped at $9 million and timing of payments will vary based on the Company's net sales of OC-01.

The Company’s obligations under the Credit Agreement are secured by all or substantially all of its assets and property, subject to customary exceptions. Any material subsidiaries that the Company (other than certain immaterial subsidiaries) forms or acquires after closing are required to provide a guarantee of the Company’s obligations under the Credit Agreement and provide a pledge of their assets.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

The Credit Agreement contains customary affirmative and negative covenants, including but not limited to the Company’s ability to enter into certain forms of indebtedness, as well as to pay dividends and other restricted payments. The Credit Agreement also includes provisions for customary events of default. The Credit Agreement required compliance with a minimum liquidity covenant of $20 million prior to TYRVAYA Nasal Spray approval and now requires $5 million following the approval of TYRVAYA Nasal Spray approval. The Company was in compliance with the minimum liquidity requirement as of September 30, 2021.

On October ~~18, 2019,~~19, 2021, the Company entered into a ~~non-exclusive patent~~waiver and amendment (Amendment) to the Credit Agreement, to waive certain labeling requirements required for, and to permit the availability of, the second $50 million tranche of funding under the Credit Agreement (among other customary funding provisions) and make certain other amendments thereto, subject to the terms and conditions contained therein. Because the label approving TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease did not include eye dryness score data from clinical trials, the Amendment was required in order for the Company to draw the second tranche and to be eligible to draw the third tranche under the Credit Agreement. The Amendment also increased the amount of principal that is required to be repaid if the Company does not meet certain minimum recurring revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray on a quarterly basis for the most recently ended four fiscal quarter period, from $5 million to $10 million if (i) the Company does not meet such minimum recurring revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray in the last four quarters and (ii) an improper promotional event has occurred. The Company delivered a notice to OrbiMed on October 19, 2021 that it intended to borrow the second tranche and the Company received the second tranche funding on November 4, 2021. The Company would also be barred from drawing the second tranche in the event an improper promotional event occurs prior to the funding of the second tranche.

8. License and Collaboration Agreements

Ji Xing Pharmaceuticals Limited - Related Party

On August 5, 2021, the Company entered into a license and collaboration agreement (the License Agreement) with Ji Xing Pharmaceuticals Limited (Ji Xing), which is an entity affiliated with RTW Investments, LP. RTW Investments, LP is one of the Company's beneficial owners and, as a result, the License Agreement is considered to be a related party transaction. Pursuant to the License Agreement, the Company granted Ji Xing an exclusive license to develop and commercialize OC-01 (varenicline solution) nasal spray and OC-02 (simpinicline) nasal spray pharmaceutical products, for all prophylactic uses for, and treatment of, ophthalmology diseases or disorders (the Field) in the greater China region, including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (the Territory). Ji Xing will be responsible for development, regulatory, manufacturing and commercialization activities in the Territory, and the Company will be responsible for supplying the drug substance and finished products of OC-01 (varenicline solution) and OC-02 (simpinicline) for Ji Xing’s clinical development at quantities to be agreed by the parties, subject to one or more separate supply agreements as contemplated by the License Agreement. Ji Xing is prohibited from engaging in certain competitive activities during the term of the License Agreement. Subject to certain limitations, the Company may not commercialize any nAChR agonist in the Field in the Territory, without first offering Ji Xing a right of first negotiation for such product in the Territory. The Company has also granted Ji Xing a right of first negotiation to expand indications or uses of OC-01 (varenicline solution) or OC-02 (simpinicline) in the Territory.

In August 2021, the Company recognized $17.9 million of revenue in connection with the License Agreement, which is inclusive of 397,562 senior common shares of Ji Xing valued at $0.4 million. The Company received $15.0 million in cash consideration during the three months ended September 30, 2021 and included $2.5 million in other receivable-related party on the condensed balance sheet as of September 30, 2021.

As provided for in the License Agreement, the Company is entitled to receive an additional 397,561 senior common shares of Ji Xing, which occurred on October 28, 2021, and $5.0 million in development milestone payments upon the FDA approval of TYRVAYA Nasal Spray, which occurred on October 15, 2021. Per the License Agreement the Company is eligible to receive up to $204.8 million in aggregate development and sales-based milestone payments and royalty payments that are tiered on future net sales of OC-01 and OC-02 and are based on royalty rates between 10% and 20%. The License Agreement will remain in effect, unless terminated earlier, until the expiration of all royalty terms for all licensed products in the Territory under the License Agreement. Ji Xing may terminate the License Agreement for convenience by providing at least 180 days written notice. Each party has the right to terminate the License Agreement for the other party’s uncured material breach or insolvency. The Company may also terminate the License Agreement if Ji Xing, its affiliates or sublicensees challenges the enforceability, validity or scope of certain patents owned by the Company, subject to customary exceptions set forth in the License Agreement. Upon termination, any license granted by the Company to Ji Xing will terminate, and all sublicenses granted by Ji Xing shall also terminate.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

Adaptive Phage Therapeutics

In May 2021, the Company entered into a research collaboration agreement with Adaptive Phage Therapeutics (APT) for the development of potential biological treatments for multiple ophthalmic diseases. Under the terms of the collaboration agreement, the Company has the option and certain rights to obtain an exclusive license to develop and commercialize APT’s technology for ophthalmic diseases and disorders. Under the license terms, if such option is exercised, the Company would make potential development and regulatory milestones payments, as well as the potential to make sales-related milestones and tiered royalty payments of net sales, if a licensed phage therapy is approved by the FDA or certain other regulatory authorities. Pursuant to the terms of the agreement, the Company paid a one-time, non-refundable, upfront payment of $0.5 million for the collaboration and option agreement which was included in research and development expense for the nine months ended September 30, 2021. The Company has not exercised the option granted under the agreement as of September 30, 2021.

Pfizer Inc.

The Company is party to a non-exclusive patent license agreement with Pfizer Inc. (Pfizer), which granted the Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate to develop, manufacture, and commercialize the OC-01 ~~varenicline~~(varenicline solution) nasal spray product. ~~Under~~Pursuant to the ~~terms of the~~license agreement, the Company ~~made an upfront payment to Pfizer of $5 million. If the Company commercializes OC-01, it may be~~is required to pay a ~~single~~one-time sales-based milestone payment ~~in the very low double-digit millions and tiered royalties on~~of $10 million if annual U.S. net sales of ~~OC-01~~TYRVAYA Nasal Spray exceed $250 million prior to December 31, 2026. The Company is also required to pay royalties based on annual U.S. tiered net sales of TYRVAYA Nasal Spray at percentages ranging from 7.5% to 15% until the ~~mid-single digits to~~expiration of the ~~mid-teens.~~royalty term. The royalty obligation to Pfizer ~~will commence~~commences upon the first commercial sale of ~~OC-01~~TYRVAYA Nasal Spray and ~~will expire~~expires upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents. No milestone was achieved or ~~probable to be achieved or~~ royalties ~~payable~~ accrued as of September 30, ~~2020~~2021 and December 31, 2020.

9. Commitments and Contingencies

Commitments

In addition to disclosures in these condensed financial statements, the following are the Company's commitments as of September 30, 2021:

Purchase Commitment

In July 2021, the Company entered into a manufacturing and supply agreement with a contract manufacturing organization (CMO) to manufacture and supply TYRVAYA Nasal Spray for an initial term of three years. Under this agreement, the Company will pay a minimum capacity reservation fee in the amount of $2.5 million for each of the next three years ending December 31, ~~2019.~~2021, 2022, and 2023, respectively. The minimum capacity reservation fee is subject to potential future credit allowances based upon the prior year's manufacturing production, as provided for in the agreement. The Company made no minimum capacity reservation fee payments as of September 30, 2021.

Contingencies ~~and Indemnifications~~

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.

~~In the normal course of business,~~ There are no matters pending that the Company ~~enters into contracts and agreements that contain~~currently believes are reasonably possible or probable of having a ~~variety~~material impact to the Company's business, financial position, results of ~~representations and warranties and provide for general indemnifications, including for losses suffered~~operations, or ~~incurred~~statements of cash flows.

OYSTER POINT PHARMA, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

10. Subsequent events

On October 15, 2021, TYRVAYA Nasal Spray was approved by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time afterFDA for the ~~execution~~treatment of the ~~agreement. The Company’s exposure under these agreements is unknown because it involves claims that may be made against~~signs and symptoms of dry eye disease.

On October 19, 2021, the Company entered into the Amendment to the Credit Agreement, to waive certain labeling requirements required for, and to permit the availability of, the second $50 million tranche of funding under the Credit Agreement (among other customary funding provisions) and make certain other amendments thereto, subject to the terms and conditions contained therein. Because the label approving TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease did not include eye dryness score data from clinical trials, the Amendment was required in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

~~The Company has agreed to indemnify its directors and officers~~order for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to ~~recover~~draw the second tranche and to be eligible to draw the third tranche under the Credit Agreement. The Company delivered notice to OrbiMed on October 19, 2021 that it intended to borrow the second tranche and the Company received the second tranche funding on November 4, 2021.

The Amendment also increased the amount of principal that is required to be repaid if the Company does not meet certain minimum recurring revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray on a ~~portion~~quarterly basis for the most recently ended four fiscal quarter period, from $5 million to $10 million if (i) the Company does not meet such minimum recurring revenue thresholds from the sale and/or licensing of ~~any future amounts paid.~~TYRVAYA Nasal Spray in the last four quarters and (ii) an improper promotional event has occurred.

In October 2021, the Company received an additional 397,561 of the senior common shares of Ji Xing and $5.0 million in development milestone payments which were contingent upon the FDA approval of TYRVAYA Nasal Spray which occurred on October 15, 2021.

1520

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

The following discussion analyzes the Company's historical financial condition and results of ~~operation.~~operations. As you read this discussion and analysis, refer to the Company's financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which represents the results of operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. Also refer to the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition. The discussion and analysis below has been organized as follows:

•Executive ~~Summary,~~summary, including a description of the business and ~~significant~~recent events that are important to understanding the results of operations and financial condition;

•Results of operations, including an explanation of significant differences between the periods in the specific line items of the condensed statements of operations;

•Financial condition addressing the Company's sources of liquidity, ~~position,~~future funding requirements, cash flow, sources and uses of cash, ~~capital resources~~updates to contractual obligations and ~~requirements,~~ commitments, and off-balance sheet arrangements; and

•Critical accounting policies, significant judgements and estimates, which are most important to both the portrayal of the Company's ~~financial condition and~~ results of ~~operations.~~operations and financial condition.

Some of the information contained in the following discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements within the meaning of Section 27A of the Act and Section 21E of the Exchange Act that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and in this Quarterly Report on Form 10-Q, the Company’s actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section of this Quarterly Report on Form 10-Q titled “Special Note Regarding Forward-Looking Statements.”

Executive Summary

Introduction and Overview

Oyster Point Pharma, Inc. (the Company) is a ~~clinical stage~~commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class pharmaceutical therapies to treat ~~ocular surface~~ophthalmic diseases. ~~The Company's lead product candidate~~On October 15, 2021, TYRVAYA™ (varenicline solution) Nasal Spray (TYRVAYA Nasal Spray), formerly referred to as OC-01 ~~(varenicline),~~(varenicline solution) nasal spray, a highly selective nicotinic acetylcholine receptor (nAChR) agonist, ~~is being developed as a nasal spray to treat~~was approved by the U.S. Food and Drug Administration (FDA) for the treatment of the signs and symptoms of dry eye disease. ~~OC-01’s novel~~TYRVAYA Nasal Spray’s highly differentiated mechanism of action is designed to increase basal tear production with a goal to re-establish tear film homeostasis by activating the trigeminal parasympathetic pathway and stimulating the glands and cells responsible for natural tear film production. Based on OC-01’s clinical trial results and its novel mechanism of action, the Company believes OC-01, if approved, has the potential to become the new standard of care and redefine how dry eye disease is treated for millions of patients. The Company believes that targeting the parasympathetic nervous system through the use of locally administered cholinergic agonists has the potential to treat a wide range of diseases and disorders. The Company has identified several additional indications, including the ones outside of ophthalmology, where this approach could provide a meaningful benefit to patients..

~~Since its formation in June 2015, the Company has devoted substantially all of its resources to developing its product candidates.~~ The Company ~~has incurred significant operating losses~~expects to ~~date.~~continue to finance its operations through private and public equity, debt financing, collaborative or other arrangements with corporate sources or through other sources of financing. The Company’s net losses were $58.6 million and $48.3 million ~~and~~ ~~$26.0 million~~for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. As of September 30, ~~2020,~~2021, the Company had an accumulated deficit of ~~$132.5 million.~~$213.3 million. The Company expects that its selling, general and administrative expenses will continue to increase as the Company commercializes TYRVAYA Nasal Spray following its recent approval by the FDA. Additionally, operating expenses will increase ~~significantly~~ as itthe Company advances its other product candidates through preclinical and clinical development, seeks regulatory approval, and prepares for and, if approved, proceeds to commercialization; acquires, discovers, validates and develops additional product candidates; obtains, maintains, protects and enforces its intellectual property portfolio; and hires additional personnel. ~~In addition, the Company has incurred and will continue to incur additional costs associated with operating as a public company.~~

The Company does not have any products approved for sale and has not generated any revenue since inception. The Company’s ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of its product candidates. Until such time as it can generate significant revenue from product sales, if ever, the Company expects to finance its operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate funding may not be available to the

Company on acceptable terms, or at all. If the Company fails to raise capital or enter into such agreements as and when needed, it may have to significantly delay, scale back or discontinue the development and commercialization of its product candidates.

The Company plans to continue to use third-party service providers, including clinical research organizations (CROs) and contract manufacturing organization (CMOs), to carry out its preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of its product candidates. The Company does not currently have a sales force. If OC-01 is approved, the Company intends to deploy a specialty sales force of approximately 150 to 200 field representatives.

Recent Events

FDA Approval of TYRVAYA Nasal Spray

On October 15, 2021, TYRVAYA Nasal Spray was approved by the FDA for the treatment of the signs and symptoms of dry eye disease. TYRVAYA Nasal Spray is the first and only nasal spray approved for the treatment of dry eye disease. TYRVAYA Nasal Spray is believed to bind to cholinergic receptors to activate the trigeminal parasympathetic pathway resulting in increased production of basal tear film as a treatment for dry eye disease. TYRVAYA Nasal Spray is a highly selective cholinergic agonist delivered twice daily as a multi-dose, aqueous nasal spray into each nostril to activate basal tear production. Nasal spray administration provides a new way to treat dry eye disease without administering medication onto an already irritated ocular surface.

Credit Facility with OrbiMed

On August 5, 2021, Company entered into a $125 million term loan credit facility (the Credit Agreement) with OrbiMed Royalty & Credit Opportunities III, LP, as administrative agent and initial lender (OrbiMed). The Credit Agreement provides for loans to be funded in three separate tranches: the first $45 million tranche was funded on August 10, 2021, the second $50 million tranche to be funded, at the option of the Company, upon FDA approval of TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease, with an approved label that includes eye dryness score data from clinical trials, among other conditions, and the third $30 million tranche to be funded on or prior to June 30, 2023, at the option of the Company, upon the Company having received at least $40 million in net recurring revenue from the sale and/or licensing of TYRVAYA Nasal Spray in any twelve month period prior to March 31, 2023, among other conditions, including having already drawn on the second tranche.

Ji Xing License and Collaboration Agreement

On August 5, 2021, the Company entered into a license and collaboration agreement (the License Agreement) with Ji Xing Pharmaceuticals Limited (Ji Xing), a biotechnology company headquartered in Shanghai, China and backed by RTW

Investments, LP (RTW). Pursuant to the License Agreement, the Company has granted Ji Xing an exclusive license to develop and commercialize OC-01 (varenicline solution) and OC-02 (simpinicline) nasal sprays, for all prophylactic uses for, and treatment of, ophthalmology diseases or disorders in the greater China region. Ji Xing will be responsible for the development, regulatory, manufacturing and commercialization activities costs in the greater China region, including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan. The Company will be responsible for supplying the drug substance and finished products of OC-01 (varenicline solution) and OC-02 (simpinicline) for Ji Xing's clinical development at quantities to be agreed by the parties for a period of up to twelve months, subject to one or more separate supply agreements as contemplated by the License Agreement. In August 2021, the Company recognized $17.9 million of revenue in connection with the License Agreement, which is inclusive of 397,562 of Ji Xing senior common shares valued at $0.4 million. The Company received $15.0 million in cash consideration during the three months ended September 30, 2021 and included $2.5 million in other receivable-related party on the condensed balance sheet as of September 30, 2021. In October 2021, the Company received an additional 397,561 senior common shares of Ji Xing and $5.0 million in development milestone payments upon the FDA approval of TYRVAYA Nasal Spray which occurred on October 15, 2021. Per the License Agreement, the Company is eligible to receive up to $204.8 million in aggregate development and sales-based milestone payments and royalty payments that are tiered on future net sales of OC-01 and OC-02 and based on royalty rates between 10% and 20%.

Commercial Launch Agreements

In anticipation of the Company's commercial launch of TYRVAYA Nasal Spray in the fourth quarter of 2021, the Company entered into wholesaler, patient services, manufacturing and supply, as well as a third party logistics services agreements.

Full Onboarding of U.S. Sales Representatives

The Company has fully onboarded its planned field force of 150-200 sales resources in 2021, who have been in the field communicating the Company's dry eye disease-state awareness campaign and will now begin promoting TYRVAYA Nasal Spray to eye care practitioners. TYRVAYA Nasal Spray is now available at U.S. regional wholesalers for distribution to pharmacies, and samples are available to eye care practitioners.

Preclinical Data Highlighting Potent Activity of TYRVAYA Nasal Spray and OC-02 (simpinicline) against SARS-CoV-2 Virus and Variants.

In July 2021, the Company announced preclinical data in non-human primates and in vitro models evaluating TYRVAYA Nasal Spray against SARS-CoV-2 and the alpha and beta variants, the viruses that cause COVID-19 disease. Administration of TYRVAYA Nasal Spray to non-human primates was observed to inhibit viral replication in the nose within 24 hours of infectious SARS-CoV-2 challenge with absence of subgenomic RNA at Day 3 and Day 5 post-challenge. The results were published on the preprint server bioRxiv. In addition, varenicline was observed to inhibit cellular entry and replication of SARS-CoV-2 and its alpha and beta variants in multiple human cell types. Lastly, OC-02 (simpinicline) was also observed to inhibit cellular entry and replication of SARS-CoV-2 alpha variant in Calu-3 human cells at very low concentrations. Additional preclinical studies with SARS-CoV-2 variants are currently underway.

2021 Inducement Plan

In July 2021, the Company's Board of Directors approved the adoption of the 2021 Inducement Plan (the Inducement Plan), which is used exclusively for grants of awards to individuals who were not previously employees or directors of the Company (or following a bona fide period of non-employment) as a material inducement to such individuals’ entry into employment with the Company. The Company has reserved 650,000 shares of its common stock that may be issued under the Inducement Plan. The terms and conditions of the Inducement Plan are substantially similar to those of the 2019 Plan.

Enrollment of First Subject in the OLYMPIA Phase 2 Clinical Trial of TYRVAYA Nasal Spray (varenicline solution) Nasal Spray for Patients with Neurotrophic Keratopathy

In June 2021, the Company announced enrollment of the first subject in the OLYMPIA Phase 2 clinical trial of TYRVAYA Nasal Spray for the treatment of Stage 1 Neurotrophic Keratopathy (NK). Enrollment is expected to be completed in 2022.

Pipeline Expansion with Enriched Tear Film (ETF™) Gene Therapy to Target Ophthalmic Diseases

In June 2021, the Company announced the expansion of its pipeline with the introduction of its proprietary ETF™ gene therapy and proof-of-concept in vivo study results from it first gene therapy candidate, OC-101. Preclinical study results from a 42-day proof-of-concept in vivo study demonstrated a single, intralacrimal gland injection of an adeno-associated virus (AAV) vector that delivers the human Nerve Growth Factor (NGF) gene. A single injection produced statistically significant increase of NGF in tear film, as compared to control. Preclinical study results also demonstrated that following AAV transduction of the lacrimal gland, cholinergic activation with TYRVAYA Nasal Spray produced statistically significant increase of NGF levels in tear film of a rabbit model, as compared to control, potentially indicating OC-01’s ability to modulate lacrimal secretion of NGF. No macroscopic or microscopic safety findings were observed associated with either the intralacrimal gland administration of TYRVAYA Nasal Spray or intranasal administration of TYRVAYA Nasal Spray.

Research Collaboration with Adaptive Phage Therapeutics, Inc. to Target Ophthalmic Diseases

for potential development and regulatory milestones, as well as the potential for sales-related milestones and tiered royalties of net sales, if a licensed phage therapy is approved by the FDA or certain other regulatory authorities. Pursuant to the terms of the agreement, the Company paid a one-time, non-refundable, upfront payment of $0.5 million for the collaboration and option agreement which was included in research and development expense for the nine months ended September 30, 2021.

The Impact of the SARS-CoV-2 Virus Pandemic

In March 2020, the World Health Organization declared the SARS-CoV-2 virus outbreak to be a pandemic. Also, in March of 2020, due to the SARS-CoV-2 virus pandemic, the Company experienced an impact at select clinical trial sites where ophthalmology practices were closed, or subjects were unable to attend visits, or where clinical trial sites did not feel comfortable putting their staff or subjects into a controlled adverse environment (CAE), which limited the Company's ability to assess the related secondary endpoint in its ONSET-2 study for those subjects. The Company then conducted a further post-hoc analyses on the data, which led to discovering additional treatment benefits in the 1.2 mg/ml dose group that were not captured with the statistical method used for analysis of the secondary endpoint.The Company intends to discuss with the FDA the appropriateness of its original secondary endpoint analysis and interpretation of the treatment benefit with the CAE of the 1.2 mg/ml dose group based on these post hoc analyses in the context of its planned NDA submission in the fourth quarter of 2020.

During the nine months ended September 30, ~~2020,~~2021, the financial results of the Company were not significantly affected by the SARS-CoV-2 virus pandemic. However, the extent to which the SARS-CoV-2 virus ~~outbreak affects~~pandemic may affect the Company’s future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the ~~severity~~pandemic, the availability and effectiveness of ~~the outbreak,~~vaccines and treatment options, and current or future domestic and international actions to contain it and treat it. The Company continues to evaluate the impact of the SARS-CoV-2 virus pandemic on its trials, expected timelines and costs, as well as potential supply-chain challenges as it prepares itself for commercialization of the ~~OC-01 candidate~~TYRVAYA Nasal Spray and as it continues to learn more about the impact of the SARS-CoV-2 virus pandemic on the industry. In addition, the Company has taken a variety of measures in an effort to ensure the availability and functioning of the Company's critical infrastructure and to promote the safety and security of its employees, including previously instituted remote working arrangements for employees through at least the third quarter of 2021 and investing in personal protective equipment for the future return to the office. With the surge of the Delta variant of the virus across the United States during the second half of 2021, the Company delayed the planned voluntary return to the office for its employees until at least December 2021. However, the Company will continue monitoring COVID-19 infection rates and make practical decisions about voluntary reopening in compliance with Centers for Disease Control and Prevention, federal, state and local guidelines.

The Company continues to evaluate and develop pipeline candidates for the potential treatment of various medical indications. The ongoing SARS-CoV-2 virus pandemic may impact access to supplies necessary to conduct preclinical studies, cause delay to the timelines to initiate or complete in vitro or in vivo animal studies, or indirectly impact the operation of ~~contract organizations~~third parties that are necessary for the Company to advance preclinical projects. If the SARS-CoV-2 virus pandemic continues and persists for an extended period of time, the Company could experience significant disruptions to its clinical development timelines, which could adversely affect its business, financial condition and results of operations.

The ultimate impact of the SARS-CoV-2 virus pandemic or a similar health epidemic is highly uncertain and subject to change. The Company has taken a variety of measures to ensure the availability and functioning of the Company's critical infrastructure and to promote the safety and security of its employees. These measures include requiring remote working arrangements for employees, which will continue through the first quarter of 2021, investing in personal protective equipment, and providing sick leave to affected employees. In addition, Company management is currently evaluating and developing an implementation plan for employees’ safe return to the office once that option becomes feasible. The Company will continue to actively monitor the evolving situation related to the SARS-CoV-2 virus pandemic and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees, partners and other third-parties with whom the Company does business. At this point, the full extent to which the SARS-CoV-2 virus pandemic may affect the Company’s business, operations, preclinical and clinical development and commercialization timelines and plans, including the resulting impact on its expenditures and capital needs, remains uncertain.

For further discussion of the risks that the Company faces as a result of the SARS-CoV-2 virus pandemic refer to the~~Part II, Item 1A, Risk~~ ”Risk Factors” section of ~~this Quarterly~~the Company's Annual Report on Form ~~10-Q.~~10-K for the year ended December 31, 2020 and the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021.

~~Components of Operating Results~~

~~Revenue~~

~~The Company has not generated any revenue from product sales and does not expect to do so in the near future.~~

~~Operating Expenses~~

~~Research and Development Expenses~~

Substantially all of the Company’s research and development expenses consist of expenses incurred in connection with the development of its product candidates. These expenses include fees paid to third parties to conduct certain research and development activities on the Company’s behalf, consulting costs, costs for laboratory supplies, product acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for employees dedicated to the Company’s research and product development. The Company expenses both internal and external research and development expenses as they are incurred.

The Company does not allocate its costs by product candidate, as a significant amount of research and development expenses includes internal costs, such as payroll and other personnel expenses, laboratory supplies, and external costs, such as fees paid to third parties to conduct research and development activities on the Company's behalf, are not tracked by product candidate. Several of the Company's departments support multiple product candidate research and development programs, and therefore the costs cannot be allocated to a particular product candidate or development program. The Company tracks its research and development expenses by type of activity: clinical and preclinical, chemistry, manufacturing and controls (CMC), and other costs.

The Company is focusing substantially all of its resources on the development of its product candidates, particularly OC-01. The Company expects its research and development expenses to increase for at least the next few years, as it seeks to initiate additional clinical trials for its product candidates, complete its clinical programs, and prepare for the potential regulatory approval of these product candidates. Predicting the timing or cost to complete the Company’s clinical programs or validation of its commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of the Company’s control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that it currently anticipates, the Company could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, the Company is unable to predict when or if its product candidates will receive regulatory approval with any certainty.

~~General and Administrative Expenses~~

General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, certain commercial planning expenses, rent, office equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

The Company anticipates that its general and administrative expenses will increase as a result of increased personnel costs, commercial planning expenses, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable stock exchange and SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company.

~~Other Income, Net~~

~~Other income, net consists primarily of interest income earned on money market funds, which are included in cash and cash equivalents on the Company's condensed balance sheets.~~

1825

Results of Operations

Comparison of the Results of Operations for the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

The following table summarizes the Company's results of operations for the periods indicated (in thousands, except percentages):


	Three Months Ended September 30,
	2021		2020		$ Change		% Change

Revenue:
License revenue - related party	$	17,943	$	—	$	17,943	100	%
Total revenue	17,943		$	—	17,943		100	%
Research and development:
Clinical, preclinical	1,467		2,148		(681)		(32)	%
Chemistry, manufacturing and controls (CMC)	3,727		4,676		(949)		(20)	%
Other	1,020		1,386		(366)		(26)	%
Total research and development	6,214		8,210		(1,996)		(24)	%
Selling, general and administrative	28,497		8,112		20,385		251	%
Loss from operations	(16,768)		(16,322)		(446)		3	%
Other income (expense)
Other income, net	222		17		205		1206	%
Interest expense	(1,124)		—		(1,124)		100	%
Total other expense, net	(902)		17		(919)		N/M
Net loss	$	(17,670)	$	(16,305)	$	(1,365)	8	%

Three Months Ended September 30,
2020 2019 $ Change % Change
Research and development:
Clinical, preclinical $ 2,148 $ 3,356 $ (1,208) (36) %
Chemistry, manufacturing and controls (CMC) 4,676 4,283 393 9 %
Other 1,386 449 937 209 %
Total research and development 8,210 8,088 122 2 %
General and administrative 8,112 3,809 4,303 113 %
Loss from operations (16,322) (11,897) (4,425) 37 %
Other income, net 17 400 (383) (96) %
Net loss $ (16,305) $ (11,497) $ (4,808) 42 %

N/M - Not Meaningful.

License Revenue - Related Party

In connection with the License Agreement entered into with Ji Xing, the Company recognized $17.9 million in license revenue during the three months ended September 30, 2021. The license revenue was recognized upon the transfer of control of the licenses to Ji Xing and was comprised of $17.5 million cash consideration, of which $2.5 million was included in other receivable-related party on the condensed balance sheet as of September 30, 2021, and non-cash consideration of 397,562 senior common shares of Ji Xing valued at $0.4 million. The receipt of the Ji Xing senior common shares was recorded as a non-marketable equity investment and included in other assets on the condensed balance sheet as of September 30, 2021.

Research and Development Expenses

Research and development expenses ~~remained relatively consistent~~decreased by $2.0 million during the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019.~~2020. The ~~Company's clinical, preclinical expense~~decrease was ~~$1.2 million~~driven by lower ~~during~~CMC expenses incurred by the Company in the third quarter of 2021 compared to the third quarter of 2020, ~~primarily~~which included significant pre-approval inventory costs, as well as expenses related to the preparation of the NDA filing in December 2020. The Company also incurred lower clinical and pre-clinical expense due to the ~~completion~~timing and number of the ~~ONSET-2 Phase 3 clinical trial in May 2020.~~ ~~The Company incurred higher CMC and other research and development expense of $1.3 million primarily due~~studies conducted during the three months ended September 30, 2021 compared to the ~~continued advancement of OC-01, as well as costs associated with the NDA submission planned in the fourth quarter of~~three months ended September 30, 2020.

Selling, General and Administrative Expenses

~~General~~Selling, general and administrative expenses increased by ~~$4.3~~$20.4 million during the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019.~~2020. The increase was ~~due to~~driven by higher ~~headcount and reflects an~~payroll-related expenses of $11.2 million, inclusive of increase in ~~payroll-related expense, including~~ stock-based compensation of ~~$2.1 million.~~$0.8 million, primarily driven by onboarding a commercial field force during the three months ended September 30, 2021. The Company incurred higher commercial planning expenses of ~~$1.0~~$5.2 million in anticipation of a U.S. launch of ~~OC-01, if approved, in the fourth quarter of 2021. Additionally, there was an increase in other~~TYRVAYA Nasal Spray, and higher general and administrative expenses of ~~$1.2~~$3.1 million, ~~due~~related to ~~expansion~~accounting, legal, facilities, and information technology costs. The Company also incurred higher medical affairs costs in the amount of ~~the Company's organization and operating as a publicly traded company.~~

~~Other Income, Net~~

~~Other income, net decreased by $0.4~~$0.9 million ~~for~~during the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019, primarily due to lower rate~~2020.

Interest Expense

The Company incurred $1.1 million of ~~return on the money market funds earned~~interest expense during the ~~period.~~three months ended September 30, 2021 related to the Credit Agreement. Interest expense for the three months ended September 30, 2021 includes contractual interest, as well as the amortization of loan commitment fees and accretion of other long-term debt related costs.

Comparison of the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

The following table summarizes the Company's results of operations for the periods indicated (in thousands, except percentages):


											Nine Months Ended September 30,
		Nine Months Ended September 30,									2021		2020		$ Change		% Change
		2020		2019		$ Change		% Change
Revenue:										Revenue:
License revenue - related party										License revenue - related party	$	17,943	$	—	$	17,943	100	%
Total revenue										Total revenue	17,943		—		17,943		100	%
Research and development:	Research and development:									Research and development:
Clinical, preclinical	Clinical, preclinical	$	10,141	$	6,838	$	3,303	48	%	Clinical, preclinical	5,468		10,141		(4,673)		(46)	%
Chemistry, manufacturing and controls (CMC)	Chemistry, manufacturing and controls (CMC)	14,236		10,769		3,467		32	%	Chemistry, manufacturing and controls (CMC)	12,772		14,236		(1,464)		(10)	%
Other	Other	3,727		987		2,740		278	%	Other	532		3,727		(3,195)		(86)	%
Total research and development	Total research and development	28,104		18,594		9,510		51	%	Total research and development	18,772		28,104		(9,332)		(33)	%
General and administrative		20,641		8,546		12,095		142	%
Selling, general and administrative										Selling, general and administrative	56,885		20,641		36,244		176	%
Loss from operations	Loss from operations	(48,745)		(27,140)		(21,605)		80	%	Loss from operations	(57,714)		(48,745)		(8,969)		18	%
Other income (expense)										Other income (expense)
Other income, net	Other income, net	457		1,153		(696)		(60)	%	Other income, net	243		457		(214)		(47)	%

Interest expense										Interest expense	(1,124)		—		(1,124)		100	%
Total other expense, net										Total other expense, net	(881)		457		(1,338)		(293)	%
Net loss	Net loss	$	(48,288)	$	(25,987)	$	(22,301)	86	%	Net loss	$	(58,595)	$	(48,288)	$	(10,307)	21	%

License Revenue - Related Party

In connection with the License Agreement entered into with Ji Xing, the Company recognized $17.9 million in license revenue during the nine months ended September 30, 2021. The license revenue was recognized upon the transfer of control of the licenses to Ji Xing and was comprised of $17.5 million cash consideration, of which $2.5 million was included in other receivable-related party on the condensed balance sheet as of September 30, 2021, and non-cash consideration of 397,562 senior common shares of Ji Xing valued at $0.4 million. The receipt of the Ji Xing senior common shares was recorded as a non-marketable equity investment and included in other assets on the condensed balance sheet as of September 30, 2021.

Research and Development Expenses

Research and development expenses ~~increased~~decreased by ~~$9.5~~$9.3 million during the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~2020. The ~~increase~~decrease in clinical, preclinical, and CMC expense of $~~6.8~~6.1 million was primarily due to ~~an increase~~the completion of the ONSET-2 Phase 3 clinical trial in ~~expense related~~May 2020. The decrease in other research and development costs of $3.2 million was primarily driven by the application fee waiver granted to ~~CROs and CMO~~sthe Company in ~~connection~~April 2021. In December 2020, the Company paid a fee of $2.9 million to the FDA under the Prescription Drug User Fee Act (PDUFA) in conjunction with the ~~advancement~~filing of ~~OC-01.~~its NDA for TYRVAYA Nasal Spray. The ~~increase~~Company filed a request with the FDA to grant a waiver and refund the fee under the small business waiver provision of ~~$2.7 million~~the PDUFA. Due to the uncertainty regarding the collectability of this refund, the Company recorded the filing fee in research and development expense in December 2020. In February 2021, the FDA granted the Company’s request for the waiver. The refund was recorded as a reduction in other research and development expense ~~primarily relates to an increase in costs related to data management, quality and regulatory costs incurred in connection with~~for the ~~advancement of OC-01, as well as higher employee headcount, which resulted in an increase in payroll-related expense.~~nine months ended September 30, 2021.

Selling, General and Administrative Expenses

~~General~~Selling, general and administrative expenses increased by ~~$12.1~~$36.2 million ~~for~~during the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~2020. The increase was ~~primarily~~ driven by ~~additional~~higher payroll-related ~~expense, including~~expenses of $20.6 million, inclusive of increase in stock-based compensation of ~~$5.9 million,~~$3.4 million. The increase in payroll-related expenses is related to the onboarding of commercial sales force and other employees to support the anticipated commercial launch of TYRVAYA Nasal Spray in the fourth quarter of 2021. In addition to the increase in payroll-related expenses related to the anticipated launch of the product, the Company also incurred higher marketing and advertising expenses of $9.0 million. The Company incurred higher other general and administrative expenses of ~~$4.6~~$4.3 million, ~~due~~related to ~~expansion of the Company's organization, as well as additional costs incurred by the Company due to operating as a publicly traded company.~~accounting, legal, facilities, and information technology costs. The Company also incurred ~~higher commercial planning expenses of $1.6 million~~an increase in ~~anticipation of a U.S. launch of OC-01, if approved,~~medical affairs costs in the ~~fourth quarter~~amount of ~~2021.~~

~~Other Income, Net~~

~~Other income, net decreased by $0.7~~$2.3 million ~~for~~during the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019, primarily due to lower rate of return on the money market funds earned during the period.~~2020.

Interest Expense

The Company incurred $1.1 million of interest expense during the nine months ended September 30, 2021 related to the Credit Agreement. Interest expense for the three months ended September 30, 2021 includes contractual interest, as well as the amortization of loan commitment fees and accretion of other long-term debt related costs.

Liquidity and Capital Resources

Sources of Liquidity

The Company's principal sources of liquidity include cash on hand and borrowings under the Credit Agreement the Company entered into with OrbiMed in August 2021. In August 2021, the Company drew upon the first tranche of the credit facility in the amount of $45.0 million and received proceeds of $40.2 million, net of loan commitment fees, debt issuance and discount costs. In October 2021, the Company entered into the Amendment, to waive certain labeling requirements required for, and to permit the availability of, the second $50 million tranche of funding under the Credit Agreement (among other customary funding provisions) and make certain other amendments thereto. The Company delivered a notice to OrbiMed on October 19, 2021 that it intended to borrow the second tranche and the Company received the second tranche funding on November 4, 2021. The Company would also be barred from drawing the second tranche in the event an improper promotional event occurs prior to the funding of the second tranche. The Credit Agreement provides for the third $30 million tranche to be funded on or prior to June 30, 2023, at the option of the Company, upon the Company having received at least $40 million in net recurring revenue from the sale and/or licensing of TYRVAYA Nasal Spray prior to March 31, 2023, among other conditions, including having already drawn on the second tranche.

As of September 30, ~~2020 and December 31, 2019,~~2021, the Company had cash and cash equivalents of ~~$214.3~~approximately $184.2 million and ~~$139.1~~$80 million ~~respectively.~~ remaining under the term loan credit facility, which will be available upon the achievement of certain events and the passage of time.

~~On May 19,~~In November 2020, the Company ~~completed its follow-on public offering selling 4,312,500~~entered into a sales agreement with Cowen and Company, LLC (the Agent), pursuant to which the Company may offer and sell shares of its common stock ~~at a~~having an aggregate offering price of up to $100 million through the ~~public of $28.00 per share. The net proceeds from the offering were $112.6 million.~~Agent (the ATM).

Future Funding Requirements

Based on the Company's current business plan, management believes that its available cash and cash equivalents will be sufficient to fund the Company's planned operations for at least 12 months from the filing date of this Quarterly Report on Form 10-Q. ~~As a result, the Company did not apply for, nor received, assistance under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).~~

~~To date,~~Since inception, the Company has ~~not~~incurred recurring losses and negative cash flows from operations. The Company generated ~~any revenue. Since its formation in June 2015, the Company has devoted substantially all of its resources to developing its product candidates. It has incurred~~ net losses of ~~$48.3~~$58.6 million and ~~$26.0~~$48.3 million for the nine months ended September 30, 2021 and 2020, respectively, and ~~2019, respectively. As of September 30, 2020, the Company~~ had an accumulated deficit of ~~$132.5 million. The Company expects that operating expenses will increase significantly~~$213.3 million as ~~it advances its~~of September 30, 2021. On October 15, 2021, the Company's first product, ~~candidates through preclinical and clinical development, seeks regulatory approval, and prepares for and, if~~TYRVAYA Nasal Spray, was approved proceeds to commercialization; acquires, discovers, validates and develops additional product candidates; obtains, maintains, protects and enforces intellectual property portfolio; and hires additional personnel. In addition,by the Company has incurred and will continue to incur additional costs associated with operating as a public company. The Company does not expect to generate any meaningful revenue unless and until it obtains regulatory approval of and commercializes any of its product candidates or decides to enter into collaborative agreements with third parties. The Company expects to continue to incur significant lossesFDA for the ~~foreseeable future,~~treatment of the signs and ~~expects the losses to increase as it continues the development~~symptoms of ~~and seeks regulatory approvals for, its product candidates and begins to commercialize any approved products.~~dry eye disease. The Company is subject to all of the risks typically related to the development and sale of new ~~product candidates,~~pharmaceutical products, and it may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business.

The Company will ~~continue to~~ require additional ~~capital~~funds as it commercializes TYRVAYA Nasal Spray, any future products, and to ~~develop its product candidates and~~ fund operations for the foreseeable future. ItThe Company is unable to entirely fund these efforts with its current financial resources and there can be no assurance that it will be able to secure such additional financing on a timely basis, if at all, that will be sufficient to meet these needs. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay, reduce or eliminate certain commercial related expenses, included in selling, general and administrative expenses, as well as delay, reduce or eliminate the scope of or eliminate one or more of its research or development programs, which would materially and adversely affect its business, financial condition and operations. The Company may seek to raise capital through private or public equity or debt financings, collaborative or other ~~arrangements~~arrangement with corporate sources, or through other sources of financing.

The Company anticipates that it will need to raise substantial additional capital, the requirements for which will depend on many factors, including:

•the scope, timing, rate of progress and costs of the Company's drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for ~~its~~the Company's product candidates;

•the number and scope of clinical programs the Company decides to pursue;

•the cost, timing and outcome of preparing for and undergoing regulatory review of ~~its~~the Company's product candidates;

•the scope and costs of development and commercial manufacturing ~~and supply~~ activities;

•the cost and timing associated with commercializing of the Company's product candidates, if they receive marketing approval;

•the extent to which the Company acquires or in-licenses other product candidates and technologies;

•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing the Company's intellectual property rights and defending intellectual property-related claims;

•the Company's ability to establish and maintain collaborations on favorable terms, if at all;

•~~the Company's~~its efforts to enhance operational systems and ~~its~~the Company's ability to attract, hire and retain qualified personnel, including personnel to support the development of ~~its~~the Company's product candidates and, ultimately, the sale of the Company's products, following FDA approval;

•the Company's implementation of operational, financial and management systems;

•any current or future potential effects of the SARS-CoV-2 virus pandemic on the Company's business, operations, preclinical and clinical development and commercialization timelines and plans; and

•the costs associated with being a public company.

A change in the outcome of any of these or other variables with respect to the development of any of the Company's product candidates could significantly change the costs and timing associated with the development of that product candidate.

Furthermore, the Company's operating plans may change in the future, and it will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If additional funds are raised by issuing equity securities, the Company's stockholders may experience dilution. Any future debt financing into which the Company might enter may impose upon it additional covenants that restrict the Company's operations, including limitations on its ability to incur liens or additional debt, pay dividends, repurchase its common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that it raises may contain terms that are not favorable to the Company or its stockholders.

Adequate funding may not be available to the Company on acceptable terms or at all, and any uncertainty and volatility in capital markets caused by the SARS-CoV-2 virus pandemic may negatively impact the availability and cost of capital. The Company's failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce, or terminate some or all of its development programs and clinical trials or may also be required to sell or license to others rights to its p~~roduct~~product candidates in certain territories or indications that it would prefer to develop and commercialize itself. If the Company is required to enter into collaborations and other arrangements to supplement its funds, it may have to give up certain rights, ~~that limit~~thereby limiting its ability to develop and commercialize the product candidates or may have other terms that are not favorable to the Company or its stockholders, which could materially affect its business, results of operation and financial condition.

See ~~the section of this Quarterly Report on Form 10-Q titled “Risk Factors”, as well as~~ Item 1A. Risk Factors to the Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for additional risks associated with the Company's substantial capital requirements.

Cash Flow Discussion

The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the periods presented below (in thousands):


		Nine Months Ended September 30,							Nine Months Ended September 30,
		2020		2019		$ Change			2021		2020		$ Change
Net cash (used in) provided by:	Net cash (used in) provided by:							Net cash (used in) provided by:
Operating activities	Operating activities	$	(37,348)	$	(24,276)	$	(13,072)	Operating activities	$	(47,895)	$	(37,348)	$	(10,547)
Investing activities	Investing activities	(342)		(117)		(225)		Investing activities	(1,250)		(342)		(908)
Financing activities	Financing activities	112,884		91,494		21,390		Financing activities	40,726		112,884		(72,158)
Net increase in cash and cash equivalents		$	75,194	$	67,101	$	8,093
Net (decrease) increase in cash and cash equivalents, and restricted cash								Net (decrease) increase in cash and cash equivalents, and restricted cash	$	(8,419)	$	75,194	$	(83,613)

Cash Flows Used in Operating Activities

Net cash used in operating activities increased by ~~$13.1~~$10.5 million for the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019,~~2020, due to higher net loss adjusted for non-cash items during the period ~~partially offset by an increase~~in the amount of $6.2 million, as well as a decrease in working capital of ~~$6.5 million~~$4.3 million. The decrease in working capital was driven primarily by timing of the $2.5 million receivable due from Ji Xing in connection with the License Agreement, as well as timing of payments to the Company's service providers. The Company's higher net loss was driven by the preparation for the commercial launch of TYRVAYA Nasal Spray in the fourth quarter of 2021, as well as continued development of the Company's product ~~candidates and preparation to submit an NDA for the Company's lead product candidate, OC-01, to the FDA in the fourth quarter of 2020.~~candidates.

Cash Flows Used in Investing Activities

Net cash used in investing activities increased by ~~$0.2~~$0.9 million for the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019~~2020, primarily related to partial ~~payment~~payments for equipment to be used in manufacturing ~~for OC-01.~~of TYRVAYA Nasal Spray, as well as purchases of laboratory equipment.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities ~~increased~~decreased by ~~$21.4~~$72.2 million for the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~2020. The ~~increase was primarily due to the higher~~Company received $112.6 million in proceeds ~~generated~~ from the ~~Company's follow-on~~follow on public offering ~~on May 19,~~during the second quarter of 2020, compared to ~~the~~ net proceeds ~~received for the issuance~~ from long-term debt of ~~redeemable preferred stock~~$40.2 million received during the nine months ended September 30, ~~2019.~~2021 under the Credit Agreement.

2231

Contractual Obligations and Commitments

In connection with the Credit Agreement and as further described in Note 7, Long-term Debt, the Company is required to make certain contractual payments in future periods. The Credit Agreement matures on August 5, 2027 and the loan is structured for full principal repayment at maturity.

The following table identifies the Company's obligations under the Credit Agreement as of September 30, 2021 (in thousands):


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Debt Principal	$	—	$	—	$	—	$	45,000	$	45,000
Exit Fee	—		—		—		2,700		2,700
Contractual Interest on debt	3,878		7,767		7,756		3,283		22,684
Revenue Sharing Cap (a)	—		—		—		9,000		9,000
Total obligations	$	3,878	$	7,767	$	7,756	$	59,983	$	79,384

(a) — The Revenue Sharing Fee is capped at $9 million and timing of payments will vary based on the Company's net sales of OC-01.

In August 2021, the Company entered into a lease agreement for office space in Boston, Massachusetts for a five-year term beginning on December 1, 2021 and ending on November 30, 2026. Total future minimum lease payments under this lease are $2.7 million as of September 30, 2021 with the first lease payment to be made on December 1, 2021.

In July 2021, the Company entered into a manufacturing and supply agreement with a contract manufacturing organization (CMO) to manufacture and supply TYRVAYA Nasal Spray for an initial term of three years. Under this agreement, the Company will pay a minimum capacity reservation fee in the amount of $2.5 million for each of the next three years ending December 31, 2021, 2022, and 2023, respectively. The minimum capacity reservation fee is subject to potential future credit allowances based upon the prior year's manufacturing production, as provided for in the agreement. The Company made no minimum capacity reservation fee payments as of September 30, 2021.

In February 2021, the Company entered into a lease agreement for laboratory and office space in New Jersey for a three-year term beginning on March 1, 2021 and ending on February 29, 2024. Total future minimum lease payments under this agreement are $0.7 million as of September 30, 2021.

As of September 30, ~~2020~~2021, other than noted above, there ~~, there~~ have been no other material changes ~~from~~in the contractual obligations and commitments from those disclosed in the financial statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Off-Balance Sheet Arrangements

As of September 30, ~~2020~~2021, the Company does not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies, Significant Judgments and Estimates

The Company's financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the Company 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 the financial statements and the reported revenues and expenses incurred during the reporting periods. The Company bases its estimates on historical experience, terms of existing contracts, commonly accepted industry practices and on ~~various~~ other assumptions that it believes are reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The future effects of the SARS-CoV-2 virus pandemic on the Company's results of operations, cash flows, and financial position are unclear, however the Company believes it has used reasonable estimates and assumptions in preparing the interim condensed financial statements. Actual results may differ from these estimates under different assumptions or conditions.

~~There have been no material changes to the~~The Company’s critical accounting policies and estimates ~~from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”~~are included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The Company periodically reviews its accounting policies, estimates and assumptions and makes adjustments when facts and circumstances dictate. In addition to the accounting policies that are described in the Company's 2020 Annual Report on Form 10-K, the following critical accounting policies were affected by critical accounting estimates in connection with the Company offering its employees an option to purchase the Company's common stock under the ESPP effective April 1, 2021 and the Company entering into the License Agreement with Ji Xing in August 2021.

Stock-Based Compensation

Effective April 1, 2021, the Company established its first offering period under the ESPP. Stock-based compensation expense related to purchase rights issued under the ESPP, is based on the Black-Scholes option-pricing model fair value of the estimated number of awards as of the beginning of the offering period. Stock-based compensation expense is recognized using the straight-line method over the offering period.

The determination of the grant date fair value of shares purchased under the ESPP is affected by the estimated fair value of our common stock as well as other assumptions and judgments, which are estimated as follows:

•Expected term. The expected term for ESPP is the beginning of the offering period to the end of each purchase period.

•Expected dividend rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

Revenue

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 1,~~Note 1.~~ Nature of Business, Basis of Presentation and Significant Accounting Policies to the Company's unaudited interim condensed financial statements included ~~elsewhere~~ in this Quarterly Report.

JOBS Act

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has irrevocably elected not to avail itself of this extended transition period, and, as a result, it will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. The Company intends to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

The Company will remain an emerging growth company until the earliest to occur of: (1) the last day of its first fiscal year in which it has total annual revenues of more than $1.07 billion; (2) the date it qualifies as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of its initial public offering.

ITEM 3 — Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

The Company's Credit Agreement is a variable rate term loan credit facility, which subjects the Company to the risk of loss associated with movements in market ~~risk inherent in the Company's financial instruments and in its financial position represents the potential loss arising from adverse changes in~~ interest ~~rates or exchange~~ rates. As of September 30, ~~2020,~~2021, a 1% change in interest rates would result in less than $0.5 million change in interest expense on a rolling twelve-month basis.

In addition, as of September 30, 2021, the Company had cash equivalents of ~~$213.3~~$183.2 million, consisting of interest-bearing money market funds, ~~for~~ which ~~the fair value~~ would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of cash equivalents, ~~an immediate 10% relative~~a change in interest rates would not have a material effect on the ~~fair value of~~ Company's ~~cash equivalents or on~~interest income generated from its ~~future interest income.~~money-market funds.

The Company does not believe that inflation, interest rate changes or foreign currency exchange rate fluctuations have had a significant impact on its results of operations for any periods presented herein.

ITEM 4 — Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As of September 30, ~~2020~~2021, management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the evaluation of its disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were ~~ineffective~~effective as of September 30, ~~2020~~2021 ~~due~~ to ~~the material weaknesses~~provide reasonable assurance that information required to be disclosed in the Company's ~~control environment~~reports under the Exchange Act is (i) recorded, processed, summarized and ~~formal accounting policies identified~~ reported within the time periods specified in the Annual Report on Form 10-K for the year ended December 31, 2019. The first previously identified material weakness is that the Company did not design or maintain an effective control environment commensurate with its financial reporting requirementsSEC’s rules and ~~specifically, the Company lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training~~forms and ~~experience~~(ii) accumulated and communicated to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to an additional material weakness in that the Company did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliation and journal entries.

Notwithstanding the identified material weaknesses, management, including Chief Executive Officer and Chief Financial Officer, believes the financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects the Company's ~~financial condition, results of operations~~management, as appropriate, to allow timely decisions regarding required disclosure. In designing and ~~cash flows at~~evaluating our disclosure controls and ~~for the periods presented in accordance with U.S. GAAP.~~

~~Remediation of the Material Weaknesses~~

~~The Company is committed to remediating the material weaknesses in its control environment~~procedures, management recognizes that any controls and ~~formal accounting policies,~~ procedures, and controls. The Company initiated a remediation plan at the beginning of 2020 and has implemented the following actions as of November 5, 2020: (i) hired additional qualified accounting, finance and IT personnel to ensure proper analysis, recording and disclosure of accounting matters in a timely and accurate manner; (ii)no matter how well designed and ~~implemented month-end processes~~operated, can provide only reasonable assurance of achieving their objectives, and ~~control procedures to assist~~management necessarily applies its judgment in evaluating the accounting and financial reporting close cycles, and (iii) implemented and adopted formal accounting policies and procedures. While the Company has made progress in implementing the remediation initiatives outlined above, these actions alone were not sufficient to fully remediate the material weaknesses in internal control discussed above. Company management will continue to review the effectivenessbenefits of ~~its internal control policies, procedures and~~possible controls and ~~make changes or implement further actions as needed. After the remediation plan is fully implemented, the Company intends~~procedures relative to ~~perform testing to determine operating effectiveness of its internal controls over financial reporting.~~their costs.

Changes in Internal Control over Financial Reporting

~~Except as otherwise disclosed above, there have been~~There were no changes in the Company's internal control over financial reporting during the ~~nine months~~quarter ended September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

~~Limitations on the Effectiveness of Disclosure Controls and Procedures~~

The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent

limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

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PART II — OTHER INFORMATION

ITEM 1 — Legal Proceedings.

The Company is not currently involved in any litigation or legal proceedings that, in management’s opinion, are likely to have any material adverse effect on its business. While the Company knows of no imminent legal action in which it is likely to be involved, it may in the future become engaged in litigation or other legal proceedings. Regardless of the outcome, litigation can have an adverse impact on the Company due to defense fees, settlement costs, demands on management attention, and other concerns.None.

ITEM 1A — Risk Factors.

Information regarding risk factors appears in Part I, Item 1A, Risk Factors, in the Company's ~~2019~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020. The Company has reviewed the risk factors, and, except as presented below, there have been no material changes in the Company’s risk factors since those reported in its ~~2019~~Annual Report on Form ~~10-K.~~

10-K for the year ended December 31, 2020 and

~~Risks Related to~~ the Company's ~~Business~~

~~The Company is highly dependent~~Quarterly Report on ~~the success of its lead product candidate OC-01~~Form 10-Q for the treatment of dry eye disease. If it is unable to successfully obtain the marketing approvals necessary to commercialize OC-01 or experiences significant delays in doing so, or if after obtaining marketing approvals, the Company fails to commercialize this product candidate, its business will be materially harmed.

The Company has devoted a significant portion of its financial resources and business efforts to the development of OC-01 for the treatment of dry eye disease. Although it is also developing OC-01 for other indications and a second product candidate OC-02, the Company does not anticipate receiving marketing approvals for any product candidates other than OC-01 in the next several years. The Company's ability to generate revenues from product sales will depend on its obtaining marketing approval for and commercializing OC-01, and it cannot accurately predict when or if OC-01 will receive marketing approval for dry eye disease or a secondary indication. Because the Company has focused its resources and efforts on developing OC-01 for dry eye disease, it has limited resources and may fail to commit adequate resources to, or delay the pursuit of opportunities for, other indications or other product candidates that may have greater commercial potential, and its resource allocation decisions may cause the Company to fail to capitalize on viable product candidates and profitable market opportunities. If the Company fails to successfully develop OC-01 for dry eye disease, it may not be able to identify, assess and develop OC-01 for other indications or OC-02 or a second lead product candidate or other product candidates on a timely basis, which could materially affect Company's business, financial condition, results of operations and growth prospects.

OC-01 uses a novel and unproven therapeutic approach and mechanism of action to treat dry eye disease and therefore its efficacy and safety are difficult to predict, and there is no guarantee that OC-01 or any other product candidates will be approved by the FDA.

The Company is developing OC-01 as a preservative-free, aqueous nasal spray that will stimulate the lacrimal functional unit (LFU) to produce natural tear film. To the Company’s knowledge, OC-01 represents the first pharmacological treatment approach for dry eye disease that is aimed at stimulating the LFU. Other than with respect to data from studies and trials of OC-01 and OC-02, there is limited or no clinical evidence showing that natural tear film can be produced through the stimulation of the LFU. For instance, even though OC-01 has shown promising results in preclinical studies and clinical trials for the treatment of dry eye disease, the Company may not succeed in demonstrating safety and efficacy of OC-01 for other indications, including neurotrophic keratitis (NK), which is the disease being studied in OLYMPIA, the Company’s upcoming Phase 2 clinical trial. Advancing OC-01 as a novel product creates significant challenges for the Company, including:

•~~obtaining marketing approval;~~

•educating medical personnel, including eye care practitioners (ECPs), and patients regarding the potential efficacy and safety benefits, as well as the challenges, of incorporating the Company’s product candidates, if approved, into treatment regimens; and

•~~establishing the sales and marketing capabilities upon obtaining any marketing approvals to gain market acceptance.~~

The Company cannot guarantee that OC-01 or any of its other future product candidates will be approved by the FDA. Product candidates in later-stage clinical trials often fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA, EMA and other comparable foreign regulatory authorities despite having successfully progressed through preclinical studies

and other clinical trials. In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. For example, although OC-01 met the primary endpoint in ONSET-2 in both the 1.2 mg/ml and 0.6 mg/ml dose groups, OC-01 nasal spray did not meet the secondary endpoint for patient-reported symptoms of eye dryness in a Controlled Adverse Environment (CAE) and other secondary endpoints in either dose group. Following completion of ONSET-2, the Company conducted additional analyses on a post-hoc basis of the data from its ONSET-2 study to support its planned NDA submission. The Company may also conduct additional post-hoc analyses on the results of clinical trials in the future. Post-hoc analyses performed after unmasking trial results can result in the introduction of bias, may not be predictive of success in any future clinical trials and are given less weight by regulatory authorities than pre-specified analyses. Additionally, the Company cannot guarantee that the safety profile of OC-01 in healthy volunteers and patients with dry eye disease will be replicated in trials and studies for other indications, such as NK. Assessments of efficacy can vary widely for a particular participant, and from participant to participant and site to site within a clinical trial. This subjectivity can increase the uncertainty of, and adversely impact, the Company’s clinical trial outcomes. In addition, participants treated with OC-01 may also be treated with other investigational drugs, prescription drugs or even over-the-counter treatments following the treatment period of the Company’s OC-01 studies, any of which can cause side effects or adverse events that are unrelated to the Company’s product candidate, but which are observed during the long-term safety follow-up for OC-01. The occurrence of such side effects or adverse events could have a negative impact on OC-01’s safety profile.

If the Company experiences delays or difficulties in the enrollment of subjects or conduct of follow up visits in clinical trials, its receipt of necessary regulatory approvals could be delayed or prevented.

The Company may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate and enroll a sufficient number of subjects to participate in these trials to such trial’s conclusion as required by the FDA, EMA or other comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. Any difficulties the Company experiences relating to completion of patient visits in clinical trials, including as impacted by the ~~SARS-CoV-2 virus, could delay regulatory approval for its product candidates.~~

Patient enrollment may be affected if the Company’s competitors have ongoing clinical trials for product candidates that are under development for the same indications as its product candidates, and subjects who would otherwise be eligible for clinical trials instead enroll in clinical trials of the Company’s competitors’ product candidates. Patient enrollment for any of the Company’s future clinical trials may be affected by other factors, including:

•~~size and nature of the patient population;~~

•~~severity of the disease under investigation;~~

•~~availability and efficacy of approved drugs for the disease under investigation;~~

•~~participant eligibility criteria for the trial in question as defined in the protocol;~~

•~~perceived risks and benefits of the product candidate under study;~~

•~~ECP's and participants' perceptions as to the potential advantages of the product candidate being studied in relation to~~

~~other available therapies, including any new products that may be approved for the indications the Company is~~

~~investigating;~~

•~~efforts to facilitate timely enrollment in clinical trials;~~

•~~participant referral practices of ECPs;~~

•~~the ability to monitor participants adequately during and after treatment;~~

•~~proximity and availability of clinical trial sites for prospective trial subjects;~~

•~~continued enrollment of prospective subjects by clinical trial sites;~~

•~~the risk that subjects enrolled in clinical trials will drop out of the trials before completion; and~~

• ~~disruptions or difficulties, or other restrictions, in initiating, enrolling, conducting or completing trials due to the~~ ~~SARS-CoV-2 virus outbreak~~three months ended June 30, 2021.

The Company’s inability to enroll a sufficient number of subjects for its clinical trials would result in significant delays or may require it to abandon one or more clinical trials altogether. Enrollment delays in the Company’s clinical trials may result in increased development costs for its product candidates and jeopardize its ability to obtain marketing approval for the sale of its product candidates. Furthermore, even if the Company is able to enroll a sufficient number of subjects for its clinical trials, the Company may have difficulty maintaining enrollment of such subjects in its clinical trials.

~~The Company may also face challenges in collecting data from follow up visits related to its enrolled clinical trials. For example, due to the~~ ~~SARS-CoV-2 virus outbreak, select clinical trial sites in the Company’s ONSET-2 clinical trial were closed~~

and subjects were unable to attend visits per the trial protocol, which reduced the amount of data the Company was able to collect for subjects at these affected centers with respect to primary and secondary endpoints. The Company believes that this inability to collect data had an adverse impact on the statistical powering of certain of its secondary endpoints in ONSET-2, and may impact its future clinical trial results.

Internal computer systems, or those used by the Company’s third-party research institution collaborators, CROs or other contractors or consultants, may fail or suffer other breakdowns, cyber-attacks or information security breaches that could compromise the confidentiality, integrity, and availability of such systems and data, expose the Company to liability, and affect its reputation.

~~The Company is increasingly dependent upon information technology systems, infrastructure, and data to operate its business, particularly during the~~ ~~SARS-CoV-2 virus pandemic~~. The Company also relies on third party vendors and their information technology systems. Despite the implementation of security measures, the Company’s internal computer systems and those of its CROs and other contractors and consultants may be vulnerable to damage from computer viruses or unauthorized access, or breached due to operator error, malfeasance or other system disruptions. As the cyber-threat landscape evolves, these attacks are growing in frequency, sophistication and intensity, and are becoming increasingly difficult to detect. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to a state-sponsored attack. Cyber-threats may be generic, or they may be custom-crafted against the Company’s information systems. Over the past few years, cyber-attacks have become more prevalent, intense, sophisticated and much harder to detect and defend against. Such attacks could include the use of key loggers or other harmful and virulent malware, including ransomware or other denials of service, and can be deployed through malicious websites, the use of social engineering and/or other means. The Company and its third party vendors may not be able to anticipate all types of security threats, and the Company may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources. As a result of the ~~SARS-CoV-2 virus~~ pandemic, the Company may face increased cybersecurity risks due to its reliance on internet technology and the number of its employees that are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Although to its knowledge the Company and its vendors have not experienced any such material system failure or security breach to date, if a breakdown, cyber-attack or other information security breach were to occur and cause interruptions in the Company’s operations, it could result in a material disruption of its development programs and business operations, whether due to a loss of trade secrets or other proprietary information or other similar disruption and the Company could incur liability and reputational damage. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in the Company’s regulatory approval efforts and significantly increase its costs to recover or reproduce the data. Likewise, the Company relies on its third-party research institution collaborators for research and development of its product candidates and other third parties for the manufacture of its product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on the Company’s business.

Cyber-attacks, breaches, interruptions or other data security incidents could result in legal claims or proceedings, liability under federal or state laws that protect the privacy of personal information, regulatory penalties, significant remediation costs, disrupt key business operations and divert attention of management and key information technology resources. In the United States, notice of breaches of protected health information as defined under the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA) must be made to affected individuals, the U.S. Secretary of the Department of Health and Human Services (HHS), and for extensive breaches, notice may need to be made to the media or U.S. state attorneys general. Such a notice could harm the Company’s reputation and its ability to compete. The HHS has the discretion to impose penalties without attempting to resolve violations through informal means. In addition, U.S. state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. There can be no assurance that the Company, its collaborators, CROs, vendors, and any other business counterparties will be successful in efforts to detect, prevent, protect against or fully recover systems or data from all break-downs, service interruptions, attacks or breaches of systems. In addition, the Company does not maintain standalone cyber-security insurance and has limited insurance coverage in the event of any breach or disruption of its or its collaborators’, CROs’, or vendors’ systems, including any unauthorized access or loss of any personal data that the Company may collect, store or otherwise process. The costs related to significant security breaches or disruptions could be material and exceed the limits of any insurance coverage the Company may have. To the extent that any disruption or security breach were to result in a loss of, or damage to, the Company’s data or systems, or inappropriate disclosure of confidential or proprietary information, including data related to its personnel, the Company could incur liability and the further development and commercialization of its product candidates could be delayed and its business and operations could be adversely affected and/or could result in the loss or disclosure of critical or sensitive data, which could result in financial, legal, business or reputational harm to the Company.

The Company’s business is subject to complex and evolving U.S. and foreign laws and regulations, information security policies and contractual obligations relating to privacy and data protection, including the use, processing, and cross-border transfer of personal information. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to its business practices, or monetary penalties, and otherwise may harm the Company’s business.

The Company receives, generates and stores significant and increasing volumes of sensitive information and business-critical information, including employee and personal data (including protected health information), research and development information, commercial information, and business and financial information. The Company heavily relies on external security and infrastructure vendors to manage its information technology systems and data centers. The Company faces a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of it being unable to adequately monitor, audit and modify its controls over its critical information. This risk extends to the third-party vendors and subcontractors the Company uses to manage this sensitive data.

The Company is subject to governmental regulation and risks related to privacy, security, and data protection, and its actual or perceived failure to comply with such obligations could harm its business.

A wide variety of provincial, state, national, and international laws, and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, the collection and use of personal data in the European Union are governed by the European Union General Data Protection Regulation (GDPR), which became fully effective on May 25, 2018. The GDPR imposes stringent data protection requirements, including, for example, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of data, such as health data, and additional obligations when the Company contracts with third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States and other third countries and in the context of clinical trials, the Company currently relies on patient informed consent as the legal basis for such transfers. In addition, the GDPR provides that European Union member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data. The GDPR provides for penalties for noncompliance of up to the greater of €20 million or four percent of worldwide annual revenues. The GDPR applies extraterritorially, and the Company may be subject to the GDPR because of its data processing activities that involve the personal data of individuals located in the European Union, such as in connection with any European Union clinical trials. GDPR regulations may impose additional responsibility and liability in relation to the personal data that the Company processes, and it may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. This may be onerous and may interrupt or delay the Company’s development activities, and adversely affect its business, financial condition, results of operations and growth prospects. In addition, the United Kingdom leaving the EU could also lead to further legislative and regulatory changes. It remains unclear how the United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfer to the United Kingdom from the EU will be regulated, especially following the United Kingdom’s departure from the EU on January 31, 2020 without a deal. However, the United Kingdom has transposed the GDPR into domestic law with the Data Protection Act 2018, which remains in force following the United Kingdom’s departure from the EU.

Further, various states, such as California and Massachusetts, have implemented similar privacy laws and regulations that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. These laws and regulations are not necessarily preempted by HIPAA, particularly if a state affords greater protection to individuals than HIPAA. Where state laws are more protective, the Company has to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. For example, California recently enacted legislation, the California Consumer Privacy Act (CCPA), that, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, that became effective on January 1, 2020. The CCPA was amended several times throughout 2018 and 2019, and it is unclear whether further modifications will be made to this legislation or how it will be interpreted. In addition, the CCPA requires covered companies to provide new disclosures to individuals and consumers in California, and afford such individuals and consumers new data protection rights, including the ability to opt-out of certain sales of personal information. The GDPR, CCPA and many other laws and regulations relating to privacy and data protection are still being tested in courts, and they are subject to new and differing interpretations by courts and regulatory officials. Additionally, the interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for the Company and data it receives, uses and shares, potentially exposing it to additional expense, adverse publicity and liability. The Company is working to comply with

the GDPR, CCPA and other privacy and data protection laws and regulations that apply to it, and it anticipates needing to devote significant additional resources to complying with these laws and regulations.

It is possible that the GDPR, CCPA or other laws and regulations relating to privacy and data protection may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with the Company’s current policies and practices and compliance with such laws and regulations could require it to change its business practices and compliance procedures in a manner adverse to its business. The Company cannot guarantee that it is in compliance with all such applicable data protection laws and regulations and it cannot be sure how these regulations will be interpreted, enforced or applied to the Company’s operations. Furthermore, other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules, and regulations, which could increase the Company’s compliance costs and the risks associated with noncompliance. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with the Company’s practices and its efforts to comply with the evolving data protection rules may be unsuccessful. The Company cannot guarantee that it or its vendors may be in compliance with all applicable international laws and regulations as they are enforced now or as they evolve. For example, the Company’s privacy policies may be insufficient to protect any personal information it collects or may not comply with applicable laws. The Company’s non-compliance could result in government-imposed fines or orders requiring that it change its practices, which could adversely affect its business. In addition to the risks associated with enforcement activities and potential contractual liabilities, the Company’s ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to its policies, procedures and systems. In addition, if the Company is unable to properly protect the privacy and security of protected health information, it could be found to have breached its contracts.

The Company’s actual or perceived failure to adequately comply with applicable laws and regulations relating to privacy and data protection, or to protect personal data and other data it processes or maintains, could result in regulatory enforcement actions against the Company, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, other lawsuits or reputational and damage, all of which could materially affect the Company’s business, financial condition, results of operations and growth prospects.

~~Risks Related to Development and Commercialization of the Company’s Product Candidates~~

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results. If clinical trials of the Company’s product candidates, particularly OC-01, are prolonged or delayed, the Company may be unable to obtain required regulatory approvals, and therefore be unable to commercialize its product candidates on a timely basis or at all.

Before obtaining marketing approval from regulatory authorities for the sale of its product candidates, the Company must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. To date, the Company has focused substantially all of its efforts and financial resources on identifying, acquiring, and developing its product candidates, including conducting preclinical studies and clinical trials. Clinical testing is expensive and can take many years to complete, and the Company cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. The Company’s inability to successfully complete preclinical and clinical development could result in additional costs to it and negatively impact its ability to generate revenue. The Company’s future success is dependent on its ability to successfully develop, obtain regulatory approval for, and then successfully commercialize product candidates. The Company currently does not generate any revenues from sales of any products, and it may never be able to develop or commercialize a marketable product.

Each of the Company’s product candidates may require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, achieving and maintaining commercial-scale supply, building of a commercial organization, substantial investment and significant marketing efforts before the Company generates any revenues from product sales. The Company is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and it may never receive such regulatory approval for any of its product candidates. The Company may experience delays in its ongoing clinical trials and it does not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all.

The Company may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or commercialize OC-01, OC-02 or any other product candidates that it may develop, including:

•the Company may experience delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites

•~~the Company may fail to obtain sufficient enrollment in its clinical trials or participants may fail to complete its clinical trials;~~

•clinical trials of its product candidates may produce negative or inconclusive results, and it may decide, or regulators may require the Company, to conduct additional clinical trials or abandon product development programs;

•the Company may decide, or regulators or institutional review boards may require it, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

•regulators or institutional review boards may require the Company to perform additional or unanticipated clinical trials to obtain approval or it may be subject to additional post-marketing testing requirements to maintain regulatory approval;

•~~regulators may revise the requirements for approving its product candidates, or such requirements may not be as it anticipates;~~

•the cost of clinical trials of its product candidates may be greater than it anticipates, and the Company may need to delay or suspend one or more trials until it completes additional financing transactions or otherwise receive adequate funding;

•~~the supply or quality of its product candidates or other materials necessary to conduct clinical trials of its product candidates may be insufficient or inadequate or may be delayed;~~

•the Company’s product candidates may have undesirable side effects or other unexpected characteristics, causing it or its investigators, regulators or institutional review boards to suspend or terminate trials;

•~~regulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its distribution;~~

•~~the Company may experience delays due to the~~ ~~SARS-CoV-2 virus~~ pandemic, including with respect to the receipt of product candidates or other materials, submission of New Drug Application, or NDAs, filing of Investigational New Drug Application, or INDs and starting any clinical trials for other indications or programs; and

•~~the Company may experience manufacturing delays due to the~~ ~~SARS-CoV-2 virus~~ pandemic in its supply chain caused by a shortage of raw materials, a lack of employees on site at its suppliers due to illness, or a lack of productivity at its suppliers due to local or national government quarantine restrictions on coming to the workplace.

~~For example, due to the~~ ~~SARS-CoV-2 virus~~ pandemic, the Company experienced an impact at select clinical trial sites during the month of March 2020 where ophthalmology practices were closed or subjects were unable to attend visits or where clinical trial sites did not feel comfortable putting their staff or subjects into a CAE, which limited the Company’s ability to assess the related secondary endpoint in its ONSET-2 study for those subjects. The Company does not know whether any of its preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. If the Company experiences delays in the completion of, or termination of, any clinical trial of its product candidates, or is unable to achieve clinical endpoints due to unforeseen events, such as the ~~SARS-CoV-2 virus~~ pandemic, the commercial prospects of its product candidates will be harmed, and its ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing its clinical trials will increase the Company’s costs, slow down its product candidate development and approval process and jeopardize its ability to commence product sales and generate revenues. Significant clinical trial delays could also allow the Company’s competitors to bring products to market before it does or shorten any periods during which the Company has the exclusive right to commercialize its product candidates and impair its ability to commercialize its product candidates and may harm its business and results of operations.

~~The commercial success of the Company's products depends on the availability and sufficiency of third party payor coverage and reimbursement.~~

Patients in the United States and elsewhere generally rely on third party payors to reimburse part or all of the costs associated with their prescription drugs. Accordingly, market acceptance of the Company's products is dependent on the extent to which third party coverage and reimbursement is available from third-party payors, including government health administration authorities (including in connection with government healthcare programs, such as Medicare and Medicaid), private healthcare insurers and other healthcare funding organizations.

Significant uncertainty exists as to the coverage and reimbursement status of any products for which the Company may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives are already available. Even if the Company obtains coverage for a given product, the associated reimbursement rate may not be adequate to cover its costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require copayments that patients find unacceptably high. Patients are unlikely to use the Company's products unless reimbursement is adequate to cover all or a significant portion of the cost of its products.

Coverage and reimbursement policies for products can differ significantly from payor to payor as there is no uniform policy of coverage and reimbursement for products among third party payors in the United States. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time consuming and costly which will require the Company to provide scientific and clinical support for the use of its products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained.

In addition, the Company expects that the increased emphasis on managed care and cost containment measures in the United States by third party payors and government authorities to continue and will place pressure on pharmaceutical pricing and coverage. Coverage policies and third party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which the Company receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

If the Company is unable to obtain and maintain sufficient third party coverage and adequate reimbursement for its products, the commercial success of these products may be greatly hindered and the Company's financial condition and results of operations may be materially and adversely affected.

~~The Company's business, operations and clinical development timelines and plans could be adversely affected by the effects of health epidemics, including the~~ ~~SARS-CoV-2 virus~~ ~~pandemic.~~

The Company's business, operations and clinical development timelines and plans could be adversely affected by health epidemics in regions where it has concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of CROs upon whom it relies. In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19, was reported to have surfaced in Wuhan. Since then, the SARS-CoV-2 virus has spread to multiple countries worldwide, including the United States, where the Company has planned and has ongoing preclinical studies and clinical trials. On March 11, 2020, the World Health Organization declared the outbreak of the SARS-CoV-2 virus to be a global pandemic. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services has fallen.

The President of the United States has declared the SARS-CoV-2 virus pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response and powers under the Defense Production Act, the legislation that facilitates the production of goods and services necessary for national security and for other purposes. In addition, in response to the SARS-CoV-2 virus pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, and the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt the Company's business and operations. For example, the Company's headquarters and certain of its trial sites are located in New Jersey, and in March 2020, the Governor of New Jersey announced that all businesses, excluding essential services, must decrease their in-office workforce by 100%. While some of these governmental restrictions have begun to be lifted, the timing and extent to which such orders and restrictions will be removed remains uncertain. The Company has implemented a work-from-home policy for all employees, and it continues evaluating the situation as more information about the virus becomes available. Moreover, the Company's clinical development timelines and plans could be affected by the SARS-CoV-2 virus pandemic. Site initiation and patient enrollment could be delayed or suspended due to prioritization of hospital resources toward the SARS-CoV-2 virus pandemic. In addition, some patients may not be able to comply with clinical trial protocols and the ability to conduct follow up visits with treated patients may be limited if quarantines impede patient movement or interrupt healthcare services. For example, due to the SARS-CoV-2 virus pandemic, select clinical trial sites in ONSET-2 clinical trial were closed and subjects were unable to attend visits per the trial protocol, which reduced the number of patients for which the Company collected data on with respect to its primary and secondary endpoints. In addition, due to the SARS-CoV-2 virus pandemic, a number of clinical trial sites for ONSET-2 did not feel comfortable putting their staff or subjects into a controlled adverse environment (CAE), which limited the Company's ability to assess the related secondary endpoint for those subjects, which might have contributed to not achieving certain secondary endpoints in ONSET-2. The Company cannot assure that the inability to collect such data would not have an adverse impact on its future clinical trial results. Similarly, the Company's ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to SARS-CoV-2 virus pandemic could be adversely impacted.

~~If the~~ ~~SARS-CoV-2 virus pandemic~~ continues to spread in the United States and elsewhere, the Company may experience disruptions, including those described above, that could severely impact its business, preclinical studies, and clinical trials, including:

•~~delays in receiving approval from local regulatory authorities to initiate planned clinical trials;~~

•~~delays or difficulties in enrolling and retaining patients in clinical trials;~~

•~~delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;~~

•~~delays in clinical sites receiving the supplies and materials needed to conduct clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;~~

•~~changes in local regulations as part of a response to the~~ ~~SARS-CoV-2 virus~~ ~~pandemic which may require the Company to change ways in which clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;~~

•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of clinical trials;

•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;

•~~risk that participants enrolled in the Company's clinical trials will acquire~~ ~~SARS-CoV-2 virus~~ ~~while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;~~

•~~interruptions or delays in preclinical studies due to restricted or limited operations at research and development laboratory facility;~~

•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

•limitations in employee resources that would otherwise be focused on the conduct of clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

•~~refusal of the FDA to accept data from clinical trials in affected geographies;~~

•~~interruption or delays to the Company's sourced discovery and clinical activities;~~

•increased cybersecurity risks due to the Company's reliance on internet technology and the number of its employees that are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities; and

•~~disruption or constraints at manufacturers, which could result in product manufacturing delays.~~

~~Further, the spread of~~ ~~SARS-CoV-2 virus, which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought by and the duration of~~ ~~SARS-CoV-2 virus pandemic~~ may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company's ability to access capital, which could in the future negatively affect its liquidity. In addition, a recession or market correction resulting from the spread of ~~SARS-CoV-2 virus pandemic~~ ~~could materially affect its business and value of Company's common stock.~~

~~The global~~ ~~SARS-CoV-2 virus~~ ~~pandemic continues to rapidly evolve, and the Company will continue to monitor the~~ ~~SARS-CoV-2 virus pandemic~~ ~~situation closely. The ultimate impact of the~~ ~~SARS-CoV-2 virus~~ pandemic or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the potential impacts on its business, clinical trials, healthcare systems or the global economy as a whole.

~~Risks Related to Government Regulation~~

The regulatory approval processes of the FDA, EMA and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If the Company is ultimately unable to obtain regulatory approval for its product candidates, it will be unable to generate product revenue and its business will be substantially harmed.

The time required to obtain approval by the FDA, EMA and other comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends uponnumerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that the Company’s data is insufficient for approval and require additional preclinical, clinical or other data. Even if

the Company eventually completes clinical testing and receives approval of any regulatory filing for its product candidates, the FDA, EMA and other comparable foreign regulatory authorities may approve its product candidates for a more limited indication or a narrower patient population than it originally requested. For example, the fact that OC-01 did not achieve certain secondary endpoints in ONSET-2 could have an adverse effect on the Company’s ability to obtain its desired label for OC-01, if approved. The Company has not submitted for, or obtained, regulatory approval for any product candidate, and it is possible that none of its existing product candidates or any product candidates it may seek to develop in the future will ever obtain regulatory approval.

Further, development of the Company’s product candidates and/or regulatory approval may be delayed for reasons beyond its control. For example, a U.S. federal government shutdown or budget sequestration, such as ones that occurred during 2013, 2018 and 2019, or diversion of resources to currently handle the ~~SARS-CoV-2 virus pandemic~~ public health emergency and pandemic may result in significant reductions to the FDA’s budget, employees and operations, which may lead to slower response times and longer review periods, potentially affecting the Company’s ability to progress development of its product candidates or obtain regulatory approval for its product candidates. In addition, the impact of ~~SARS-CoV-2 virus pandemic~~ may cause the FDA to allocate additional resources to product candidates focused on treating related illnesses, which could lead to longer approval processes for the Company’s product candidates. Moreover, some of the Company’s analyses of the ONSET-2 clinical trial data are post-hoc analyses and, although it believes that these post-hoc analyses can provide additional information regarding results from this clinical trial, retrospective analyses can result in the introduction of bias and may be given less weight by the FDA, including for purposes of determining whether to accept the Company’s NDA for filing or approving its NDA. Finally, the Company’s competitors may file citizens’ petitions with the FDA in an attempt to persuade the FDA that its product candidates, or the clinical trials that support their approval, contain deficiencies. Such actions by its competitors could delay or even prevent the FDA from approving any of the Company’s NDAs.

~~Applications for the Company’s product candidates could fail to receive regulatory approval for many reasons, including the following:~~

•~~the FDA, FMA or other comparable foreign regulatory authorities may disagree with the design, implementation, or results of the Company's clinical trials;~~

•the FDA, EMA or other comparable foreign regulatory authorities may determine that the Company’s product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude the Company’s obtaining marketing approval or prevent or limit commercial use;

•~~the population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in the full population for which the Company seeks approval;~~

•~~the FDA, EMA or other comparable foreign regulatory authorities may disagree with the Company’s interpretation of data from preclinical studies or clinical trials;~~

•the data collected from clinical trials of the Company’s product candidates may not be sufficient to support the submission of an NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;

•~~the Company may be unable to demonstrate to the FDA, EMA or other comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;~~

•the FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which the Company contracts for clinical and commercial supplies; and

•the approval policies or regulations of the FDA, EMA or other comparable foreign regulatory authorities may significantly change in a manner rendering the Company’s clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in the Company failing to obtain regulatory approval to market any of its product candidates, which could materially affect its business, financial condition, results of operations and growth prospects.

The Company may face difficulties from changes to current regulations and future ~~legislation~~legislation.

In the United States, the European Union and other jurisdictions there have been a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect the Company's future results of operations. Existing regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of the product candidates. The Company cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If the Company is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if ~~it's not able~~it is unable to maintain regulatory compliance, it may lose any marketing approval that may have been obtained and the Company may not achieve or sustain profitability.

For example, in March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (or collectively, the ACA), was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and continues to significantly impact the U.S. pharmaceutical industry.

The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the U.S. Department of Health and Human Services (HHS) Secretary as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price (AMP), to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits.

There ~~remain~~have been judicial, Congressional and executive branch challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have passed. On December 22, 2017, President Trump signed into law federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act), which ~~includes~~included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” ~~The 2020 federal spending package permanently eliminated, effective January 1, 2020,~~On June 17, 2021 the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare Part D drug plans. In December 2018, the Centers for Medicare & Medicaid Services (CMS) published a final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On April 27, 2020, the United StatesU.S. Supreme Court ~~reversed~~dismissed a ~~Federal Circuit decision~~challenge on procedural grounds that ~~previously upheld Congress' denial of $12 billion in “risk corridor” funding.~~

~~On December 14, 2018, a Texas U.S. District Court Judge ruled that~~argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by ~~Congress as part~~Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order on January 28, 2021 that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, although it is unclear when the Supreme Court will make a decision. It is also unclear how such litigation and other efforts to repeal and replace the ACABiden administration will impact the ACA and the Company's business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020, designed to provide financial support and resources to individuals and businesses affected by the ~~SARS-CoV-2 virus pandemic~~,However, COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through December 31, ~~2020, and extended the sequester by one year, through 2030.~~2021. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for the Company's product candidates, if approved, and accordingly, the financial operations.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. There has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the Trump ~~administration’s~~administration used several means to propose or implement drug pricing reform, including through federal budget ~~proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative~~ proposals, ~~seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients~~executive orders and ~~increase patient access to lower-cost generic~~policy initiatives. For example, On July 24, 2020 and ~~biosimilar drugs. On March 10,~~September 13, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses and place limits on pharmaceutical price increases. In addition, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out-of-pocket costs of prescription drugs that contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers. The Department of Health and Human Services (HHS) has solicited feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. Further, on July 24, 2020, President

~~Trump~~ announced ~~four~~several executive orders related to prescription drug pricing that ~~attempt~~seek to implement several of the ~~administration’s proposals, including~~administration's proposals. As a ~~policy that would tie certain Medicare Part B drug prices to international drug prices,~~result, the details of which were released on September 13, 2020 and expanded the policy to cover certain Part D drugs; one that directs HHS to finalize the Canadian drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from Canada; one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for plans, pharmacies, and pharmaceutical benefit managers; and one that reduces costs of insulin and epipens to patients of federally qualified health centers. The FDA also ~~recently~~ released a final rule, ~~effective November 30,~~on September 24, 2020 ~~implementing a portion of the importation executive order~~ providing guidance for states to build and submit importation plans for drugs from Canada. ~~While some~~Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed until January 1, 2023. In addition, on November 20, 2020, the Centers for Medicare & Medicaid Services (CMS) issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries. As a result of litigation challenging the Most Favored Nation model, on August 10, 2021, CMS published a proposed rule that seeks to rescind the Most Favored Nation Model interim final rule. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these ~~and other measures may require additional authorization to become effective,~~principles. In addition, Congress ~~and~~is considering drug pricing as part of the ~~Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.~~ budget reconciliation process.

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

The Company expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that the Company receives for any approved product. It is possible that additional governmental action is taken in response to address the SARS-CoV-2 virus ~~pandemic~~. For example, on August 6, 2020, the Trump administration issued another executive order that instructs the federal government to develop a list of “essential” medicines and then buy them and other medical supplies from U.S. manufacturers instead of from companies around the world, including China. The order is meant to reduce regulatory barriers to domestic pharmaceutical manufacturing and catalyze manufacturing technologies needed to keep drug prices low and the production of drug products in the United States.pandemic. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent the Company from being able to generate revenue, attain profitability or commercialize its product candidates.

In the European Union, similar political, economic and regulatory developments may affect the Company's ability to profitably commercialize its product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase the Company's operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those

wishing to develop and market products, this could prevent or delay marketing approval of the Company's product candidates, restrict or regulate post-approval activities and affect its ability to commercialize its product candidates, if approved.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. The Company cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, particularly in light of the recent presidential election, or what the impact of such changes on the marketing approvals of the Company's product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA approval process may significantly delay or prevent marketing approval, as well as subject the Company to more stringent product labeling and post-marketing testing and other requirements.

~~Disruptions at~~If the ~~FDA,~~Company is unable to obtain and maintain patent protection for its technology and products, or if the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operationscope of the ~~Company's business may rely, which could negatively impact its business.~~

~~The ability of~~patent protection obtained is not sufficiently broad, the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of the Securities and Exchange Commission (SEC) and other government agencies on which the Company's operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect the Company's business. For example, in recent years,

including in 2013, 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities.

~~Separately, in response to the global pandemic of~~ ~~SARS-CoV-2 virus pandemic~~, on March 10, 2020, the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020, and subsequently, on March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the ~~SARS-CoV-2 virus~~ pandemic. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process the Company's regulatory submissions, which could have a material adverse effect on its business. Further, in the Company's operations as a public company, future government shutdowns could impact its ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.

~~Changes in U.S. tax law may materially adversely affect the Company's financial condition, results of operations and cash flows.~~

~~On March 27, 2020, the CARES Act was signed into law to address the~~ ~~SARS-CoV-2 virus pandemic~~ crisis. The CARES Act is an approximately $2 trillion emergency economic stimulus package that includes numerous U.S. federal income tax provisions, including the modification of: (i) net operating loss rules, (ii) the alternative minimum tax refund and (iii) business interest deduction limitations under Section 163(j) of the Internal Revenue Code of 1986, as amended (the Code).

The Tax Act also significantly changed the U.S. federal income taxation of U.S. corporations. The Tax Act remains unclear in many respects and has been, and may continue to be, the subject of amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (the IRS), which have lessened or increased certain adverse impacts of the Tax Act and may continue to do so in the future. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. The Company continues to work with its tax advisors to determine the full impact the Tax Act and the CARES Act will have. The Company's investors should consult with their legal and tax advisors with respect to both the Tax Act and the CARES Act and the potential tax consequences of investing in the Company's common stock.

~~The Company’s ability to use its net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.~~

The Company’s net operating loss carryforwards (NOLs) and certain other tax attributes could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. The Company’s NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law. As of December 31, 2019, the Company had U.S. federal NOL carryforward balance of $61.1 million, $4.5 million of which will expire beginning in the year 2035, if unutilized, and $56.6 million which will carry forward indefinitely. As of December 31, 2019, the Company had state NOL carryforward balance of $61.8 million, which will expire beginning in the year 2035, if unutilized.

Under the Tax Act, federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely. Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year of such loss. Due to the Company’s cumulative losses through December 31, 2019, it does not anticipate that such provision of the CARES Act will be relevant to it. The deductibility of federal NOLs, particularly for tax years beginning after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.

In addition, the Company’s NOLs and tax credit carryforwards are subject to review and possible adjustment by the IRS and state tax authorities. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in the Company’s ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. The Company determined in 2019 that no significant limitation would be placed on the utilization of its net operating loss and tax credit carryforwards due to prior ownership changes. The Company may, however, experience ownership changes in the future as a result of equity offerings or subsequent shifts in its stock ownership, some of which are outside its control. If the Company’s ability to utilize those NOLs and tax credit carryforwards becomes limited by an “ownership change” as described above, it may not be able to ~~utilize~~compete effectively in its markets.

The Company relies upon a ~~material portion~~combination of patents, trademarks, trade secret protection, and confidentiality agreements to protect the intellectual property related to its ~~NOLs~~development programs and ~~certain~~product candidates. The Company's success depends in part on its ability to obtain and maintain patent protection in the United States and other ~~tax attributes,~~countries with respect to TYRVAYA Nasal Spray and other product candidates. The Company seeks to protect its proprietary position by filing patent applications in the United States and abroad related to its development programs and product candidates. The patent prosecution process is expensive and time-consuming, and the Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

The patents and patent applications that the Company owns may fail to result in issued patents with claims that protect TYRVAYA Nasal Spray or other product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to the Company's patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application, or be used to invalidate a patent. Even if patents do successfully issue and even if such patents cover TYRVAYA Nasal Spray or other product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to the Company could deprive it of rights necessary for the successful commercialization of any product candidates that it may develop.

The European patent related to varenicline, the active ingredient in TYRVAYA Nasal Spray, has been opposed. There is a risk that the European patent will be invalidated, or have its claims amended, through the opposition process. Invalidation or amendment could have a material impact on our ability to commercialize in Europe and/or a material adverse ~~effect~~impact to deter competition from potential competitors in Europe. There is a risk that we may face additional oppositions in Europe as additional patents are granted.

Further, if the Company encounters delays in regulatory approvals, the period of time during which it could market a product candidate under patent protection could be reduced.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that the Company or any of its potential future collaborators will be successful in protecting its product candidates by obtaining and defending patents. These risks and uncertainties include the following:

•the U.S. Patent and Trademark office, or USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

•patent applications may not result in any patents being issued;

•patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

•the Company's competitors, many of whom have substantially greater resources than the Company does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block the Company's ability to make, use and sell its product candidates;

•there may be significant pressure on ~~its cash flows~~the U.S. government and ~~results~~international governmental bodies to limit the scope of ~~operations.~~patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

•

~~Risks Related~~countries other than the United States may have patent laws less favorable to ~~Reliance on Third Parties~~patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products.

The ~~Company’s business operations~~patent prosecution process is also expensive and ~~current~~time consuming, and the Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that the Company will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. Moreover, if the Company chooses to license certain patent rights in the future from third parties, it may not have the right to control the preparation, filing and prosecution of such patent applications, or to maintain the patents, directed to technology that it licenses from those third parties. The Company may also require the cooperation of its future licensor, if any, in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, any licensed patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of the Company's business. The Company cannot be certain that patent prosecution and maintenance activities by any of its future licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause the Company to lose rights in any applicable intellectual property that it in-licenses, and as a result its ability to develop and commercialize products or product candidates may be adversely affected and it may be unable to prevent competitors from making, using and selling competing products.

If the patent applications the Company holds or may in-license in the future with respect to its development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for TYRVAYA Nasal Spray or other product candidates, it could dissuade other companies from collaborating with the Company to develop product candidates, and threaten its ability to commercialize TYRVAYA Nasal Spray or other product candidates. Any such outcome could have a materially adverse effect on the Company's business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been and will continue to be the subject of litigation and new legislation. In addition, the laws of foreign countries may not protect the Company's rights to the same extent as the laws of the United States. For example, many countries restrict the patentability of methods of treatment of the human body. Publications in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, the Company cannot know with certainty whether it was the first to make the inventions claimed in its own patents or pending patent applications, or that it were the first to file for patent protection of such inventions. As a result of these and other factors, the issuance, scope, validity, enforceability, and commercial value of the Company patent rights are highly uncertain. The Company's pending and future ~~relationships with healthcare professionals, clinical investigators, consultants, patient organizations, customers, CROs~~patent applications may not result in patents being issued which protect its technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and ~~third party payors~~products. Changes in ~~connection with~~either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of the Company patents or narrow the scope of its ~~current and future business activities~~patent protection.

Moreover, the Company may be subject to ~~federal~~a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging its patent rights or the patent rights of others. The costs of defending patents or enforcing its proprietary rights in post-issuance administrative proceedings and ~~state healthcare fraud~~litigation can be substantial and ~~abuse laws, false claims laws, transparency laws, government price reporting,~~the outcome can be uncertain. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, the Company's patent rights, allow third parties to commercialize its technology or products and ~~health information privacy and security laws, which could expose~~compete directly with the Company, without payment to ~~among other things, criminal sanctions, civil penalties, contractual damages, exclusion~~it, or result in its inability to manufacture or commercialize products without infringing third party patent rights. In addition, if the breadth or strength of protection provided by the Company's patents and patent applications is threatened, it could dissuade companies from ~~governmental healthcare programs, reputational harm, administrative burdens and diminished profits and~~collaborating to license, develop or commercialize current or future ~~earnings.~~product candidates.

~~Healthcare providers~~The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and ~~third-party payors play a primary role~~patents in ~~the recommendation and prescription of any product candidates for~~ which the Company obtains marketing approval. The Company’s current and future arrangements with healthcare professionals, including ECPs, clinical investigators, CROs, third-party payors and customers may expose it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which the Company researches, markets, sells and distributes its products for which it obtains marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

•the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral ofhas an ~~individual for, or the purchase, order or recommendation of, any good or service, for which payment~~interest may be ~~made under a federal healthcare program such as Medicare and Medicaid;~~

•the federal civil and criminal false claims, including the civil False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, and civil monetary penalties laws, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

•~~HIPAA prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;~~

•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•~~federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;~~

•~~the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;~~

•the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information regarding payments and other transfers of value to physicians, as defined by such law, and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members. Additionally, beginning in 2022 for payments made, or ownership or investment interests held, in 2021, manufacturers’ reporting requirements will extend to physician assistants, nurse practitioners, and other mid-level practitioners. The information reported is publicly available on a searchable website, with disclosure required annually; and

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

Some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Some state laws require biotechnology companies to report information on the pricing of certain drug products. In addition, certain state and local laws require the registration of pharmaceutical sales representatives. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For instance, the collection and use of health datachallenged in the ~~European Union is governed by~~courts or patent offices in the General Data Protection Regulation (GDPR), which extends the geographical scope of EU data protection law to non-EU entities under certain conditions, tightens existing EU data protection principles, creates new obligations for companiesUnited States and ~~new rights for individuals. Failure to comply with the GDPR~~abroad. Such challenges may result in ~~substantial~~loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit the Company ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of its technology and products. Generally, issued patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, patent term can be adjusted to recapture a portion of delay incurred by the USPTO in examining the patent application (patent term adjustment). The scope of patent protection may also be limited.

~~fines and other administrative penalties. The GDPR may increase~~Without patent protection for the ~~Company’s responsibility and liability in relation to personal data that it processes and~~Company's current or future product candidates, it may be open to competition from generic versions of such products. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, the Company's patent portfolio may not provide it with sufficient rights to ~~put~~exclude others from commercializing products similar or identical to its own.

Depending upon the timing, duration and specifics of FDA marketing approval of TYRVAYA Nasal Spray and other product candidates, one or more of the Company's U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the normal expiration of the patent as compensation for patent term lost during drug development and the FDA regulatory review process, which is limited to the approved indication (or any additional indications approved during the period of extension). This extension is based on the first approved use of a product and is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product. However, the applicable authorities, including the FDA and the USPTO in ~~place additional mechanisms ensuring compliance~~the United States, and any equivalent regulatory authority in other countries, may not agree with the ~~GDPR. This~~Company assessment of whether such extensions are available, and may refuse to grant extensions to its patents, or may grant more limited extensions than the Company requests. The Company may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection afforded could be less than the Company requests. If it is unable to extend the expiration date of its existing patents or obtain new patents with longer expiry dates, the Company's competitors may be ~~onerous~~able to take advantage of its investment in development and ifclinical trials by referencing its clinical and preclinical data to obtain approval of competing products following its patent expiration and launch their product earlier than might otherwise be the case.

The terms of the Company’s ~~efforts~~credit facility place restrictions on the Company’s operating and financial flexibility.

On August 5, 2021, the Company entered into a $125 million term loan credit facility (the Credit Agreement) with OrbiMed Royalty & Credit Opportunities III, LP, as administrative agent and initial lender. The Company’s ability to draw on the second $50 million tranche and third $30 million tranche under the Credit Agreement is subject to conditions, including, for the third tranche, having previously drawn on the second tranche, and the Company may not meet such conditions to draw on the tranches. On October 19, 2021, the Company entered into a waiver and amendment (the Amendment) to the Credit Agreement to waive certain labeling requirements required for, and to permit the availability of, the second $50 million tranche of funding under the Credit Agreement (among other customary funding provisions) and make certain other amendments thereto, subject to the terms and conditions contained therein. Because the label approving TYRVAYA Nasal Spray for the signs and symptoms of dry eye disease did not include eye dryness score data from clinical trials, the Amendment was required in order for the Company to draw the second tranche and to be eligible to draw the third tranche under the Credit Agreement. The Company would also be barred from drawing the second tranche in the event an improper promotional event occurs prior to the funding of the second tranche.

Borrowings under the Credit Agreement are secured by all or substantially all of the Company’s assets, subject to customary exceptions.Additionally, the Credit Agreement contains operating restrictions and covenants that restrict, and any future financing agreements that we may enter into may further restrict, the Company’s ability to finance its operations, engage in business activities or expand or fully pursue its business strategies. For example, the Credit Agreement limits the Company’s ability to, among other things:

•incur additional debt;

•incur liens;

•make investments, acquisitions, loans or advances;

•sell assets;

•make restricted payments, including dividends and distributions on, and redemptions, repurchases or retirement of, the Company’s capital stock;

•enter into fundamental changes, including mergers and consolidations;

•enter into transactions with affiliates;

•change the nature of the Company’s business;

•make prepayments of certain debt;

•modify or terminate material agreements; and

•enter into certain outbound licenses of material intellectual property.

These restrictions are subject to certain exceptions. In addition, the Credit Agreement requires that the Company meet certain reporting and operating covenants, including a minimum liquidity covenant. The Company’s ability to comply with ~~GDPR or other applicable EU laws~~these covenants may be affected by events beyond its control, and ~~regulations are~~the Company may not ~~successful, it could adversely affect the Company’s business in the European Union.~~be able to meet those covenants.

~~Efforts~~The Credit Agreement includes customary events of default, including failure to ~~ensure that the Company’s current~~pay principal, interest or certain other amounts when due; material inaccuracy of representations and ~~future business arrangements with third parties will comply with applicable healthcare laws~~warranties; breach of covenants; specified cross-default to other material indebtedness; certain bankruptcy and ~~regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that the Company’s business practices, including the provision~~insolvency events; certain ERISA events; certain undischarged judgments; material impairment of ~~stock options as compensation for consulting services~~security interests; material adverse change and material regulatory events, in certain cases subject to ~~physicians~~certain thresholds and other healthcare providers, some of whom may be in a position to recommend, purchase and/or prescribe the Company’s product candidates, if approved, may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If the Company’s operations are found to be in violationgrace periods. A breach of any of these ~~laws~~covenants could result in an event of default under the Credit Agreement. In addition, if the Company defaults under the terms of the Credit Agreement, including failure to satisfy the operating covenants, the lender may accelerate all of the Company’s repayment obligations and take control of the secured assets. Any declaration by the lender of an event of default could significantly harm the Company business and prospects and could cause the price of the Company’s common stock to decline.

The pharmaceutical industry in China is highly regulated, and such regulations are subject to change, which may negatively affect the commercialization of our medicines and drug candidates.

On August 5, 2021, the Company entered into a license and collaboration agreement (License Agreement) with Ji Xing, a biotechnology company headquartered in Shanghai and backed by RTW. Pursuant to the License Agreement, the Company has granted Ji Xing an exclusive license to develop and commercialize OC-01 (varenicline solution) and OC-02 (simpinicline), for all prophylactic uses for, and treatment of, ophthalmology diseases or ~~any other governmental regulations that~~disorders in the greater China region, including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan. The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new medicines. In recent years, the regulatory framework in China for pharmaceutical companies has undergone significant changes, which we expect will continue. Any such change may ~~apply~~cause delays in or prevent the successful research, development, manufacturing or commercialization of OC-01 and OC-02 in the greater China region and may reduce the current benefits the Company believes are available to it from licensing such products to be developed, manufactured and sold in the greater China region. In addition, any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China or create other legal risks.

The Company ~~may be subject to significant penalties, including civil, criminal~~has no prior experience in marketing, selling and ~~administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare~~commercializing its products and ~~Medicaid or similar programs in other countries or jurisdictions, integrity oversight~~related services, and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of its operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if the Company is ~~successful~~unable to successfully commercialize TYRVAYA Nasal Spray and related services, its business and operating results will be adversely affected.

The Company has no prior experience marketing and selling its products and related services. Future sales of TYRVAYA Nasal Spray will depend in ~~defending against any such actions that may be brought against it,~~large part on the Company’s ~~business~~ability to effectively market and sell our product and services, successfully manage our sales force, and increase the scope of our marketing efforts. The Company may ~~be impaired. Further, if any of~~also enter into additional distribution arrangements in the ~~physicians or other healthcare providers or entities with whom~~future. Because the Company ~~expects~~has no prior experience in marketing and selling its products, its ability to doforecast demand, the infrastructure required to support such demand and the sales cycle to customers is unproven. If the Company does not build an efficient and effective marketing and sales organization and sales program, its business ~~is found to~~and operating results will be ~~not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.~~adversely affected.

~~Item~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

~~Item~~ITEM 3. Defaults Upon Senior Securities.

None.

~~Item~~ITEM 4. Mine Safety Disclosures.

None.

~~Item~~ITEM 5. Other Information.

None.

~~Item~~ITEM 6. Exhibits.

3941

Exhibit

Number

Exhibit

Number

Description

Form

File No.

Number

Filing Date

Exhibit

Number

Description

Form

File No.

Number

Filing Date

3.1

Amended and Restated Certificate of Incorporation

8-K

001-39112

3.1

November 5, 2019

3.1

Amended and Restated Certificate of Incorporation

8-K

001-39112

3.1

November 5, 2019

3.2

Amended and Restated Bylaws

8-K

001-39112

3.2

November 5, 2019

3.2

Amended and Restated Bylaws

8-K

001-39112

3.2

November 5, 2019

10.1*

Credit Agreement and Guaranty, dated as of August 5, 2021, by and among Oyster Point Pharma, Inc., OrbiMed Royalty & Credit Opportunities III, LP and the other parties thereto, as amended by the Waiver and Amendment, dated as of October 19, 2021, by and among Oyster Point Pharma, Inc., OrbiMed Royalty & Credit Opportunities III, LP. and the other parties thereto.

10.2*†

License and Collaboration Agreement, dated as of August 5, 2021, by and between Oyster Point Pharma, Inc. and Ji Xing Pharmaceuticals Limited.

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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.

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.

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.

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.

101.INS

XBRL Instance Document

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

+ The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the

Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

4043

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.


	OYSTER POINT PHARMA, INC.

Date: November ~~5, 2020~~4, 2021	By:	/s/ Jeffrey Nau
		Jeffrey Nau, Ph.D., M.M.S.
		President, Chief Executive Officer and Director


Date: November ~~5, 2020~~4, 2021	By:	/s/ Daniel Lochner
		Daniel Lochner
		Chief Financial Officer

4144


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2020	0	$	0	21,366,950	$	21	$	221,508	$	(84,231)	$	137,298
Net loss	—	—		—	—		—		(16,519)		(16,519)
Issuance of common stock upon exercise of stock options	—	—		3,530	—		4		—		4
Stock-based compensation expense	—	—			—		1,180		—		1,180
Balance at March 31, 2020	0	$	0	21,370,480	$	21	$	222,692	$	(100,750)	$	121,963
Net loss	—	—		—	—		—		(15,464)		(15,464)
Issuance of common stock upon follow-on equity offering, net of issuance costs of $8,125	—	—		4,312,500	5		112,620		—		112,625
Issuance of common stock upon exercise of stock options	—	—		60,425	—		82		—		82
Stock-based compensation expense	—	—		—	—		1,609		—		1,609
Balance at June 30, 2020	0	$	0	25,743,405	$	26	$	337,003	$	(116,214)	$	220,815
Net loss	—	—		—	—				(16,305)		(16,305)
Issuance of common stock upon exercise of stock options	—	—		87,755	—		173		—		173
Issuance of common stock upon vesting of restricted stock units	—	—		13,601	—		—				—
Stock-based compensation expense	—	—		—	—		1,990		—		1,990
Balance at September 30, 2020	0	$	0	25,844,761	$	26	$	339,166	$	(132,519)	$	206,673


	Fair Value Measurements at December 31, 2019
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Money market funds	$	138,147	$	0	$	0	$	138,147
Total fair value of assets	$	138,147	$	0	$	0	$	138,147


	September 30, 2020	December 31, 2019
Outstanding options under the 2016 Plan	2,590,886	2,748,434
Outstanding options under the 2019 Plan	614,945	29,466
Equity awards available for grant under the 2019 Plan	2,113,001	2,747,047
Unvested restricted stock units (RSUs)	63,929	23,125
Shares reserved for purchase under the ESPP (a)	270,000	270,000
Total	5,652,761	5,818,072


	September 30, 2020		December 31, 2019
Operating lease right-of-use asset	$	739	$	783
Finance lease right-of-use asset	38		14
Total right-of-use asset	$	777	$	797

Operating lease liabilities	$	391	$	290
Finance lease liabilities	18		6
Total lease liabilities	$	409	$	296

Operating lease liabilities, non-current	$	353	$	500
Finance lease liabilities, non-current	23		12
Total lease liabilities, non-current	$	376	$	512


As of September 30, 2020	Finance Leases		Operating Leases		Total
2020 (remainder)	$	5	$	107	$	112
2021	18		432		450
2022	16		254		270
2023	4		0		4
Total undiscounted cash flows	43		793		836
Less: imputed interest	(2)		(49)		(51)
Total lease liability	41		744		785
Less: current portion	(18)		(391)		(409)
Lease liability	$	23	$	353	$	376