EyePoint, Inc. (EYPT)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related Notes beginning on page F-1 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors, including, but not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in this report.

The following Management’s Discussion and Analysis (MD&A) provides a narrative of our results of operations for the year ended December 31, 2024, and the comparable period ended December 31, 2023, respectively, and our financial position as of December 31, 2024 and 2023, respectively. The MD&A should be read together with our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

Overview

We are a company committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious retinal diseases. Our pipeline leverages our proprietary bioerodible Durasert E™ technology for sustained intraocular drug delivery. The Company’s lead product candidate, DURAVYU™, is an investigational sustained delivery treatment for anti-vascular endothelial growth factor (anti-VEGF) mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor with bioerodible Durasert E™. DURAVYU™ is presently in Phase 3 clinical trials as a sustained delivery treatment for wet age-related macular degeneration (wet AMD), the leading cause of vision loss among people 50 years of age and older in the United States, and in Phase 2 clinical trial for diabetic macular edema (DME).

Fiscal 2024 Overview

The fiscal year ended December 31, 2024, was highlighted by the following events:

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In March 2024, we announced the appointment of Ramiro Ribeiro, M.D., Ph.D. as Chief Medical Officer. Dr. Ribeiro is a trained retinal specialist and joins EyePoint from Apellis Pharmaceuticals, where he served as Vice President, Head of Clinical Development.

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On April 23, 2024, an end of Phase 2 meeting was held with the Food and Drug Administration (FDA) to discuss our proposed phase 3 (pivotal) clinical program for wet AMD indication.

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On June 26, 2024, we hosted an R&D Day in New York City, featuring presentations from EyePoint’s management team as well as key opinion leader (KOL) guest speakers.

R&D day highlights included:

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Phase 3 plans for DURAVYU™ in wet AMD, including key design elements of the Phase 3 LUGANO and LUCIA pivotal trials

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Positive twelve-month safety and efficacy data from the Phase 2 DAVIO 2 clinical trial evaluating DURAVYU™ for the treatment of wet AMD

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The VERONA trial, a Phase 2 trial of DURAVYU™ in DME patients has completed enrollment with 27 patients

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In July 2024, Marcia Sellos-Moura, formerly SVP, Program Leadership, assumed a new position as SVP, Head of Development and Program Management, continuing to report to Dr. Jay S. Duker, President and CEO of the Company. In her expanded role, Dr. Sellos-Moura will manage both the R&D and Product Development teams in addition to Program Management.

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On September 3, 2024, we announced the appointment of esteemed industry leader Fred Hassan to our Board of Directors.

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On October 31, 2024, we completed an underwritten public offering with gross proceeds of $161.0 million. We sold 14,636,363 shares of our common stock, which included the exercise in full by the underwriters of their option to purchase an additional 1,909,090 shares of common stock. The shares of common stock were sold at a public offering price of $11.00 per share.

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In October 2024, we announced the grand opening of our Northbridge, MA manufacturing facility. The 40,000 square foot Good Manufacturing Process (cGMP) compliant commercial manufacturing facility was built to meet U.S. FDA and

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European Medicines Agency (EMA) and will support global manufacturing across our portfolio, including lead pipeline asset, DURAVYU™ upon potential regulatory approval.

R&D Highlights

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In February 2024, we announced results from new subgroup analyses from the Phase 2 DAVIO 2 clinical trial of DURAVYU™. The presented analyses of the data reveal: in the sub-group of patients who were supplement-free up to 6 months, the DURAVYU™ groups demonstrated numerical superiority in change in BCVA along with strong anatomic control compared to the aflibercept control group. This result confirms that the positive topline data from the Phase 2 DAVIO 2 trial were driven by DURAVYU™ and not by study eyes requiring supplemental injection; visual and anatomical outcomes were not meaningfully influenced by differences in patient baseline BCVA, duration of wet AMD diagnosis, or historical treatment burden; and DURAVYU™ outcomes are consistent and durable in a range of wet AMD patient types.

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In May 2024, we announced topline results of our Phase 2 PAVIA clinical trial evaluating DURAVYU™ (vorolanib intravitreal insert), previously known as EYP-1901, in patients with non-proliferative diabetic retinopathy (NPDR). The data demonstrated that DURAVYU™ has a biologic effect in patients with NPDR with a favorable safety and tolerability profile, however the trial did not meet the pre-specified primary endpoint. The Company has no plans to further advance DURAVYU™ in NPDR.

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In May 2024, we completed enrollment in the VERONA trial, a Phase 2 trial of DURAVYU™ in DME patients. The trial enrolled 27 patients with topline data anticipated in the first quarter of 2025.

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In June 2024, we announced alignment on pathway to approval with U.S. Food and Drug Administration (FDA) based on positive End of Phase 2 meeting in April 2024 for two non-inferiority trials, 6-month redosing of DURAVYU™ and sham for masking with a one-year endpoint. Each trial is expected to enroll approximately 400 patients with active wet AMD, including previously treated and treatment naïve patients, randomly assigned to either a 2.7mg dose of DURAVYU™ or an on-label aflibercept control. All patients to receive three monthly loading doses of aflibercept prior to DURAVYU™ with randomization occurring on Day 1. The LUGANO (US) trial remains on track to randomize patients for inclusion in 2024 with LUCIA (US/ex-US) to follow.

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In June 2024, we announced positive twelve-month safety and efficacy data from the Phase 2 DAVIO 2 clinical trial evaluating DURAVYU™ for the treatment of wet AMD.

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In August 2024, we presented on sustained-release vorolanib highlighting selective pan-VEGF receptor inhibition and anti-angiogenic effects in VEGF-mediated ocular diseases at the American Retina Forum (ARF) 2024 National Meeting demonstrating the durable efficacy, reliable safety and reduced injection burden of treatment with DURAVYU™.

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In September 2024, we presented a comparison of tyrosine kinase inhibitors being developed for intravitreal delivery at the Retina Society 57th Annual Meeting, demonstrating the differentiation of DURAVYU™ with immediate bioavailability and controlled release via zero-order kinetics for at least six months.

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In October 2024, we announced positive interim 16-week data for the ongoing open label Phase 2 VERONA clinical trial of DURAVYU™ for DME. DURAVYU™ 2.7mg demonstrated an early, sustained, and clinically meaningful improvement in BCVA and anatomical control as measured by optical coherence tomography (OCT) versus the aflibercept control arm. Notably, both DURAVYU™ doses showed an immediate benefit over aflibercept control in both BCVA and CST demonstrating the differentiated drug release profile of DURAVYU™ with immediate bioavailability. Additionally, a favorable safety and tolerability profile continued for both DURAVYU™ arms.

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In October 2024, we announced first patient dosed in the Phase 3 LUGANO clinical trial of DURAVYU™ in wet AMD. Subsequently, in December 2024, we announced the first patient dosed in the second Phase 3 LUCIA clinical trial of DURAVYU™ in wet AMD. The LUGANO and LUCIA clinical trials are designed for potential global regulatory and commercial success with every six-month re-dosing in both trials. With over 160 trial sites committed and robust DAVIO 2 data the company anticipates rapid enrollment of both trials with topline data anticipated in 2026.

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In October 2024, we presented DAVIO 2 twelve-month data at the American Academy of Ophthalmology (AAO) 2024 Subspecialty Day, at the 24th EURetina Congress in September and the Retina Society 57th Annual Meeting in September.

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In February 2025, we announced positive six-month results for the ongoing Phase 2 VERONA clinical trial evaluating DURAVYU™. The clinical trial met its primary endpoint with extended time to first supplemental injection compared to aflibercept control for both DURAVYU™ doses. The trial also demonstrated clinically meaningful outcomes including continued safety with no DURAVYU™ related ocular or systemic serious adverse events (SAEs) and an early and sustained improvement in vision and anatomical control. DURAVYU™ 2.7mg demonstrated a +7.1 letter BCVA gain and

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76-micron CST reduction at week 24, with a supplement-free rate of 73% versus 50% for eyes treated with aflibercept. These positive Phase 2 VERONA results add to a robust dataset across another key indication demonstrating the best-in-class potential for DURAVYU™ in serious retinal diseases.

Recent Developments

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On January 8, 2025, we announced the appointment of renowned retina specialist and industry pioneer Reginald J. Sanders, M.D., FASRS to the Company’s Board of Directors.

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In February 2023, we entered into a research collaboration with RallyBio Corporation to evaluate sustained delivery of their inhibitor of complement component 5 (C5) using our proprietary Durasert E™ technology for sustained intraocular drug delivery. The Company and Rally Bio terminated their research collaboration in Q1 of 2025.

Summary of Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, (U.S. GAAP). The preparation of these financial statements requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, anticipated results and trends and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. By their nature, these estimates, judgments and assumptions are subject to an inherent degree of uncertainty, and management evaluates them on an ongoing basis for changes in facts and circumstances. Changes in estimates are recorded in the period in which they become known. Actual results may differ from our estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 in the accompanying Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

Product sales, net — Effective January 2023, commercial sales of DEXYCU® were no longer supported by the Company, remaining available only through specialty distributors. Effective May 2023, YUTIQ® has been and continues to be sold under commercial supply agreements with Alimera Sciences, Inc. (Alimera) and Ocumension Therapeutics (Ocumension). On September 16, 2024, ANI Pharmaceuticals, Inc. (ANI) announced the completion of the acquisition of Alimera. The acquisition does not impact the terms of the commercial supply agreements (see Note 3). The current supply agreement between the Company and ANI for the supply of YUTIQ® will not renew and, effective June 1, 2025, the Company will no longer be responsible for manufacturing of YUTIQ® for the U.S. market.

Reserves for variable consideration — Product sales were recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration included trade discounts and allowances, provider chargebacks and discounts, payor rebates, product returns, and other allowances that were offered within contracts between us and our Distributors, payors, and other contracted purchasers relating to our product sales. These reserves were based on the amounts earned, or to be

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claimed on the related sales, and were classified either as reductions of product revenue and accounts receivable or a current liability, depending on how the amount was to be settled. Overall, these reserves reflected our best estimates of the amount of consideration to which it was entitled based on the terms of the respective underlying contracts. The actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from the estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

License and collaboration agreement revenue — We analyze each element of our license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For licenses that are combined with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time, when (or as) the associated performance obligation in the contract is satisfied.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

We recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, we determine that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, we assess each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, we will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. None of our contracts contained a significant financing component as of December 31, 2024.

Reimbursement of costs — We may provide research and development services and incur maintenance costs of licensed patents under collaboration arrangements to assist in advancing the development of licensed products. We act primarily as a principal in these transactions and, accordingly, reimbursement amounts received are classified as a component of revenue to be recognized consistent with the revenue recognition policy summarized above. We record the expenses incurred and reimbursed on a gross basis.

Royalties — We recognize revenue from license arrangements with our commercial partners’ net sales of products. Such revenues are included as royalty income. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. Our commercial partners are obligated to report their net product sales and the resulting royalty due to us typically within 60 days from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, we recognize royalty income each quarter and subsequently determine a true-up when we receive royalty reports and payment from our commercial partners. Historically, these true-up adjustments have been immaterial.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized during the current and prior year periods.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue on the accompanying consolidated balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as non-current deferred revenue.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized for the years ended December 31, 2024 and 2023.

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Recognition of Expense in Outsourced Clinical Trial Agreements

We record accruals for estimated ongoing research and development costs, including costs with respect to outsourced agreements for clinical trials with contract research organizations (CROs). When recording these prepaid and accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received, payments made, contracted costs, communications with third-party vendors, and internal tracking of the work performed to date. Judgments and estimates are made in determining the prepaid and accrued balances at the end of any reporting period. Payments made in advance of services provided are recorded as prepaid research and development costs and recognized as expense in the period the expense is incurred. In determining the prepaid and accrued balances, we make assessments of the services performed based on various factors, including reporting from third-party CROs and internal tracking of work performed during the period, which are subject to management’s judgment. Actual results could differ from our estimates.

Results of Operations

Years Ended December 31, 2024 and 2023 (in thousands except percentages)

Product Sales, net

Product sales, net represents the gross sales of YUTIQ®. Product sales, net decreased by $11.1 million, or 78%, to $3.2 million for 2024 compared to $14.2 million for 2023. This decrease was driven by the agreement to license YUTIQ® product rights to ANI in May 2023. During the year ended December 31, 2024, the Company recognized $2.6 million of revenue from sales of product supply to ANI under the commercial supply agreement (CSA).

Customer demand had a direct impact on product orders from our specialty distributors that we recorded as net product sales. Net product revenue represented product purchased by our distributors whereas customer demand represented purchases of product by physician practices and ASCs from our specialty distributors.

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License and collaboration agreement

License and collaboration agreement revenues increased by $7.7 million, to $38.5 million in 2024 compared to $30.8 million for 2023. This increase was driven by a full year of revenue recognized as the combined performance obligations under the ANI license and supply agreement are fulfilled, compared to eight months of recognition in the prior year.

Royalty Income

Royalty income increased by $0.6 million, or 63%, to $1.6 million in 2024 compared to $1.0 million for 2023. The increase was primarily attributable to increased Ocumension Therapeutics royalties from YUTIQ® product sales in China.

Cost of Sales

Cost of sales decreased by $0.9 million to $3.7 million for 2024 from $4.6 million for 2023. This decrease was primarily due to lower commercial product sales year over year.

Research and Development

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023:

Research and development expenses increased by $68.3 million, or 106%, to $132.9 million for 2024 from $64.7 million in the prior year. This increase was attributable primarily to (i) $26.6 million in increased clinical trial costs, related to the ongoing Phase 2 DAVIO2, PAVIA, and VERONA clinical trials of DURAVYU™ and initiation of Phase 3 LUGANO and LUCIA trials of DURAVYU™, (ii) $21.4 million of increased personnel related costs across the research and clinical organizations, including a $13.8 million increase of stock-based compensation due mainly to increased share price of grants, (iii) $11.7 million in increased spend related to non clinical trial development of DURAVYU™, and (iv) a $5.0 million milestone payment made in connection with the completion of a Phase 2 clinical trial.

Sales and Marketing

Sales and marketing expenses decreased by $11.6 million, or 99%, to $0.1 million for 2024 from $11.7 million for 2023. This decrease was primarily driven by discontinuation of YUTIQ® commercialization activities due to the agreement that granted the license and rights to YUTIQ® to ANI in May 2023.

General and Administrative

General and administrative expenses increased by $12.3 million, or 31%, to $52.4 million for 2024 from $40.1 million for 2023. This increase was attributable primarily to a (i) $13.6 million increase in personnel and related expenses, including a $11.2 million increase of stock-based compensation due mainly to increased share price of grants. This increase was partially offset by $1.3 million reduction in professional fees in 2024 compared to 2023.

Interest (Expense) Income

Interest income from investments in marketable securities and institutional money market funds increased by $8.1 million, to $15.1 million for 2024 compared to $6.9 million for 2023. This increase was due primarily to an increase in cash invested in

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marketable securities. We anticipate a decrease in interest income in immediate future periods due to lower interest earned on our cash and investment balances due to a general decrease in market interest rates.

Interest expense decreased by $1.2 million, or 99%, to $0.0 million for 2024, compared to $1.2 million for 2023. We incurred lower interest expense due to the repayment of the SVB Loan (as the term is defined below) on May 17, 2023.

Loss on Extinguishment of Debt

Loss on extinguishment of debt in 2023 was for the early repayment of the loan made to the Company by Silicon Valley Bank (SVB) on March 9, 2022 (SVB Loan) resulting in a $1.3 million non-cash write-off of the remaining balance of unamortized debt discount.

Recently Adopted and Recently Issued Accounting Pronouncements

For a full discussion of recently adopted and recently issued accounting pronouncements, see Note 2, "Significant Accounting Policies" to the Consolidated Financial Statements included under Item 15, "Exhibits and Financial Statement Schedules."

Liquidity and Capital Resources

We have had a history of operating losses and an absence of significant recurring cash inflows from revenue, and at December 31, 2024, we had a total accumulated deficit of $873.0 million. Our operations have been financed primarily from public and private offerings of our common stock, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from collaboration partners.

Financing Activities

Also during the year ended December 31, 2024, we completed an underwritten public offering with gross proceeds of $161.0 million. The Company sold 14,636,363 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase an additional 1,909,090 shares of common stock. The shares of common stock were sold at a public offering price of $11.00 per share.

During the year ended December 31, 2024, we sold 1,299,506 shares of our common stock under the ATM facility at a weighted average price of $9.36 per share for gross proceeds of approximately $12.2 million. Share issue costs, including sales agent commissions, totaled approximately $0.4 million.

During the year ended December 31, 2023, we sold 15,294,116 shares in the December 2023 underwritten stock offering for gross proceeds of $230.0 million, and we sold 902,769 shares of our Common Stock utilizing our at-the-market facility (ATM) at a weighted average price of $11.05 per share for gross proceeds of approximately $10.0 million.

On May 17, 2023, we utilized a portion of the Upfront Payment from the ANI PRA (see Note 3) and repaid in full all outstanding amounts under the SVB Loan Agreement. The SVB Loan Agreement was then terminated, and all security interests and other liens granted to or held by the Lender were terminated and released.

Future Funding Requirements

At December 31, 2024, we had cash, cash equivalents, and investments in marketable securities of $370.9 million. We expect that our cash and investments in marketable securities will enable us to fund our operations into 2027. Due to the difficulty and uncertainty associated with the design and implementation of clinical trials, we will continue to assess our cash and cash equivalents, investments in marketable securities, and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations.

Actual cash requirements could differ from management’s projections due to many factors including additional investments in research and development programs, clinical trial expenses for DURAVYU™ and potentially EYP-2301, competing technological and market developments and the costs of any strategic acquisitions and/or development of complementary business opportunities.

The amount of additional capital we will require will be influenced by many factors, including, but not limited to:

1.
the scope, progress, results, and costs of clinical trials of DURAVYU™, as a sustained delivery intravitreal treatment for wet AMD and DME;

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2.
our expectations regarding the timing and clinical development of our product candidates, including DURAVYU™ and EYP-2301;

3.
the duration, scope, and outcome of the DOJ Subpoena and its impact on our financial condition, results of operations, or cash flows;

4.
whether and to what extent we internally fund, whether and when we initiate, and how we conduct additional pipeline product development programs;

5.
payments we receive under any new collaboration agreements or payments expected from existing agreements;

6.
whether and when we are able to enter into strategic arrangements for our products or product candidates and the nature of those arrangements;

7.
the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing any patent claims;

8.
the costs and timing to implement corrective and preventive actions required by the Warning Letter to the satisfaction of the FDA;

9.
changes in our operating plan, resulting in increases or decreases in our need for capital; and

10.
our views on the availability, timing, and desirability of raising capital.

We do not know if additional capital will be available when needed or on terms favorable to us or our stockholders. Collaboration, licensing, or other agreements may not be available on favorable terms, or at all. If we seek to sell our equity securities, we do not know whether and to what extent we will be able to do so, or on what terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and dilute our existing stockholders’ equity, and funding through collaboration, licensing, or other commercial agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may delay, reduce the scope of, or eliminate research or development programs, or other new products, if any, postpone or cancel the pursuit of product candidates, or otherwise significantly curtail our operations to reduce our capital requirements and extend our cash runway.

Our consolidated statements of historical cash flows are summarized as follows (in thousands):

Operating cash outflows for the year ended December 31, 2024, totaled $126.2 million, primarily due to our net loss of $130.9 million offset by $32.4 million of non-cash expenses, which included $36.7 million of stock-based compensation. This was further offset by changes in working capital of $27.8 million, including $30.6 million of deferred revenue related to the agreement to license YUTIQ® product rights to ANI offset by $2.9 million of other working capital changes.

Operating cash inflows for the year ended December 31, 2023, totaled $1.9 million, primarily due to our net loss of $70.8 million reduced by $13.8 million of non-cash expenses, which included $12.1 million of stock-based compensation, $1.3 million of loss on extinguishment of debt, and $0.7 million for the provision of excess and obsolete inventory. This was further offset by changes in working capital of $58.9 million, including $44.5 million of deferred revenue related to the agreement to license YUTIQ® product rights to ANI, and $14.4 million of other working capital changes.

Net cash used in investing activities for the year ended December 31, 2024, consisted of $215.3 million of net cash purchases of marketable securities and $4.1 million for the purchase of property and equipment.

Net cash used in investing activities for the year ended December 31, 2023, consisted of $3.5 million for the purchase of property and equipment, partially offset by $0.2 million of net cash provided by the sale of marketable securities.

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Net cash provided by financing activities for the year ended December 31, 2024 totaled $164.0 million and consisted of the following:

(i)
$163.3 million of net proceeds from the issuance of 14,636,363 shares of our common stock in follow on offering and issuance of 1,299,506 shares of our common stock sold utilizing our ATM; and

(ii)
$1.5 million of proceeds from exercise of employee stock options and stock issued under our employee stock purchase plan

Net cash provided by financing activities for fiscal 2023 totaled $187.1 million and consisted of the following:

(i)
$215.9 million of net proceeds from the issuance of 15,294,116 shares of our common stock;

(ii)
$40.5 million used to pay off the SVB loan;

(iii)
$1.4 million used to pay debt extinguishment costs related to the SVB loan;

(iv)
$9.6 million of net proceeds from the issuance of 902,769 shares of our common stock sold utilizing our ATM; and

(v)
$3.4 million of proceeds from exercise of employee stock options and stock issued under our employee stock purchase plan

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be material to investors.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related Notes beginning on page F-1 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors, including, but not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in this report.

The following Management’s Discussion and Analysis (MD&A) provides a narrative of our results of operations for the year ended December 31, 2023, and the comparable period ended December 31, 2022, respectively, and our financial position as of December 31, 2023 and 2022, respectively. The MD&A should be read together with our consolidated financial statements and related notes included on pages F-1 through F-29 of this Annual Report on Form 10-K.

Overview

We are a company committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious retinal diseases. Our pipeline leverages our proprietary Durasert E™ technology for sustained intraocular drug delivery. The Company’s lead product candidate, EYP-1901, is an investigational sustained delivery treatment for anti-vascular endothelial growth factor (anti-VEGF) -mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor with Durasert E™. EYP-1901 is presently in Phase 2 clinical trials as a sustained delivery treatment for wet age-related macular degeneration (wet AMD), the leading cause of vision loss among people 50 years of age and older in the United States, non-proliferative diabetic retinopathy (NPDR), and diabetic macular edema (DME). We expect to initiate pivotal Phase 3 clinical trials in wet AMD in the second half of 2024.

Fiscal 2023 Overview

The fiscal year ended December 31, 2023, was highlighted by the following events:

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In January 2023, we announced that Jay S. Duker, M.D., who served as the Company’s Chief Operating Officer (COO) since November 2021, had been promoted to the additional role of President. In addition to continuing to oversee his duties as COO, in his expanded role, Dr. Duker has also been overseeing regulatory affairs.

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In January 2023, we entered into a lease agreement to design and construct a 40,000-square-foot manufacturing facility in Northbridge, Massachusetts to support the global manufacturing of programs, including EYP-1901 and YUTIQ®.

•
In May 2023, we entered into a definitive agreement pursuant to which we granted an exclusive license and rights to YUTIQ® to Alimera Sciences, Inc. (Alimera). Under the terms of the agreement, Alimera received global rights to YUTIQ® outside of China, Hong Kong, Taiwan, Macau and Southeast Asia, where YUTIQ® is exclusively licensed to Ocumension Therapeutics (Ocumension) and we will continue to receive royalties from Ocumension for its YUTIQ® sales. In exchange for the rights granted to Alimera under the agreement, we received a $75 million upfront cash payment at closing and will receive an additional $7.5 million in equal $1.875 million quarterly installments in 2024. In addition, commencing in 2025, we will receive a low to mid double-digit royalty on Alimera’s related U.S. net sales above defined thresholds for the calendar years 2025-2028.

•
In May 2023, we received confirmation from the FDA that the September 2021 inspection of our Watertown, MA facility had been classified as Voluntary Action Indicated (VAI) and was no longer considered Official Action Indicated. A VAI classification means that the agency is not prepared to take or recommend further regulatory action.

•
In July 2023, we announced the appointment of Jay S. Duker, M.D. as President and Chief Executive Officer (CEO). Dr. Duker transitioned from his most recent role as President and Chief Operating Officer (COO). Dr. Duker was also appointed to the Board of Directors of the Company (Board), effective July 10, 2023. Nancy S. Lurker transitioned to the role of Executive Vice Chair from the position of CEO.

•
In October 2023, we announced the promotion of George O. Elston, our Chief Financial Officer, to Executive Vice President and Chief Financial Officer.

•
In October 2023, we announced the appointment of Stuart Duty to the Company’s Board of Directors. Mr. Duty is an experienced financial executive with over 30 years of experience in finance and investment banking. Mr. Duty has focused primarily on biotechnology and specialty pharmaceuticals clients for much of his career, advising senior executives and boards on a range of financing activities and strategic transactions.

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•
On December 8, 2023, we announced the closing of an underwritten public offering of 13,529,411 shares of our common stock, which included the exercise in full by the underwriters of their option to purchase an additional 1,764,705 shares of common stock, at the public offering price of $17.00 per share. Gross proceeds to the Company in the offering, before underwriting discounts and estimated expenses of the offering, were approximately $230.0 million.

R&D Highlights

•
In February 2023, we entered into a research collaboration with Rallybio Corporation to evaluate sustained delivery of their inhibitor of complement component 5 (C5) using our proprietary Durasert E™ technology for sustained intraocular drug delivery. The initial focus will be on geographic atrophy, an advanced form of age-related macular degeneration that leads to irreversible vision loss.

•
In March 2023, we completed enrollment in the Phase 2 "Durasert E™ and Vorolanib in Ophthalmology 2" (DAVIO 2) clinical trial evaluating EYP-1901 as a potential six-month maintenance treatment for wet AMD. The trial enrolled a total of 160 patients. All patients were previously treated with a standard-of-care anti-VEGF therapy and were randomly assigned to one of two doses of EYP-1901 or to an aflibercept on-label control.

•
In June 2023, we completed enrollment in the Phase 2 clinical trial evaluating EYP-1901 as a potential nine-month treatment for moderately severe to severe NPDR. The trial enrolled 77 patients randomly assigned to one of two doses of EYP-1901 (approximately 2 mg or 3 mg), or to the control group receiving a sham injection. EYP-1901 is delivered with a single intravitreal injection at the physician's office. The primary efficacy endpoint of the trial is improvement of at least two diabetic retinopathy severity scale (DRSS) levels as of week 36 after the EYP-1901 injection. Secondary endpoints include reduction in vision-threatening complications, occurrence of diabetic macular edema and/or proliferative disease, retinal ischemia/nonperfusion and safety.

•
In July 2023 we presented the interim safety and patient demographics of the DAVIO 2 clinical trial in wet AMD at the OIS Retina Innovation Summit. As of July 1, 2023, there were no reported drug related ocular serious adverse events (SAEs) or drug related systemic SAEs. An analysis of the reported patient demographics suggests that Phase 2 DAVIO 2 patients have, on average, better starting visual acuity and less central subfield thickness than the Phase 1 DAVIO cohort.

•
In September 2023 we announced positive interim masked safety data for our lead product candidate EYP-1901 from the ongoing Phase 2 PAVIA trial evaluating EYP-1901 as a potential nine-month treatment for moderately severe to severe NPDR, and DAVIO 2 trial as a potential six-month maintenance treatment for wet AMD. All treatment arms in the PAVIA trial have reached at least three-months post-dosing follow-up as of September 1, 2023. Approximately 170 patients have received EYP-1901 with a minimum of three months of follow-up post injection from the ongoing Phase 2 PAVIA and DAVIO 2 clinical trials and the completed DAVIO 1 trial with no reported drug-related ocular severe adverse events (SAEs) and no reported drug-related systemic SAEs.

•
In September 2023, we disclosed the advancement of pipeline program EYP-2301 into pre-clinical development. EYP-2301 delivers razuprotafib, a small molecule inhibitor of vascular endothelial protein tyrosine phosphatase (VE-PTP) with potential vasculature stabilizing activity, utilizing Durasert E™.

•
On December 4, 2023, we announced positive topline data for our lead product candidate, EYP-1901, from our Phase 2 DAVIO 2 clinical trial in wet age-related macular degeneration. Data from the DAVIO 2 clinical trial demonstrated that EYP-1901 achieved all primary and secondary endpoints.

Recent Developments

•
In January 2024, we announced that the first patient had been dosed in the Phase 2 VERONA clinical trial of EYP-1901 for DME.

•
In February 2024, we announced two presentations of topline data with additional subgroup analyses from the Phase 2 DAVIO 2 clinical trial of EYP-1901 for the treatment of wet age-related macular degeneration.

•
In March 2024, we announced the appointment of Ramiro Ribeiro, M.D., Ph.D. as Chief Medical Officer to succeed Dario Paggiarino, M.D. who has served as EyePoint’s Chief Medical Officer since 2016. Dr. Ribeiro is a trained retinal specialist and joins EyePoint from Apellis Pharmaceuticals, where he served as Vice President, Head of Clinical Development.

Summary of Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, (U.S. GAAP). The preparation of these financial statements requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, anticipated results and trends and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. By their nature, these estimates, judgments and assumptions are subject

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to an inherent degree of uncertainty, and management evaluates them on an ongoing basis for changes in facts and circumstances. Changes in estimates are recorded in the period in which they become known. Actual results may differ from our estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 in the accompanying Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

Product sales, net — We sold YUTIQ® and DEXYCU® to a limited number of specialty distributors and specialty pharmacies (collectively the Distributors) in the U.S., with whom we had entered into formal agreements, for delivery to physician practices for YUTIQ® and to hospital outpatient departments and ambulatory surgical centers (ASCs) for DEXYCU®. We recognized revenue on sales of our products when Distributors obtained control of the products, which occurred at a point in time, typically upon delivery. In addition to agreements with Distributors, we also entered into arrangements with healthcare providers, ASCs, and payors that provided for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to their purchase of our products from Distributors.

Reserves for variable consideration — Product sales were recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration included trade discounts and allowances, provider chargebacks and discounts, payor rebates, product returns, and other allowances that were offered within contracts between us and our Distributors, payors, and other contracted purchasers relating to our product sales. These reserves were based on the amounts earned, or to be claimed on the related sales, and were classified either as reductions of product revenue and accounts receivable or a current liability, depending on how the amount was to be settled. Overall, these reserves reflected our best estimates of the amount of consideration to which it was entitled based on the terms of the respective underlying contracts. The actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from the estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

License and collaboration agreement revenue — We analyze each element of our license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For licenses that are combined with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time, when (or as) the associated performance obligation in the contract is satisfied.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

We recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, we determine that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, we assess each milestone to determine the

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probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, we will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. None of our contracts contained a significant financing component as of December 31, 2023.

Reimbursement of costs — We may provide research and development services and incur maintenance costs of licensed patents under collaboration arrangements to assist in advancing the development of licensed products. We act primarily as a principal in these transactions and, accordingly, reimbursement amounts received are classified as a component of revenue to be recognized consistent with the revenue recognition policy summarized above. We record the expenses incurred and reimbursed on a gross basis.

Royalties — We recognize revenue from license arrangements with our commercial partners’ net sales of products. Such revenues are included as royalty income. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. Our commercial partners are obligated to report their net product sales and the resulting royalty due to us typically within 60 days from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, we recognize royalty income each quarter and subsequently determine a true-up when we receive royalty reports and payment from our commercial partners. Historically, these true-up adjustments have been immaterial.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized during the current and prior year periods.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue on the accompanying consolidated balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as non-current deferred revenue.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized for the years ended December 31, 2023 and 2022.

Recognition of Expense in Outsourced Clinical Trial Agreements

We recognize research and development expense with respect to outsourced agreements for clinical trials with contract research organizations (CROs) as the services are provided, based on information provided by CROs and our assessment of the services performed. We make our assessments of the services performed based on various factors, including reporting from third-party CROs and internal tracking of work performed during the period, which are subject to management’s judgment. Our financial obligations under the agreements are determined by the services that we request from time to time under the agreements. The actual amounts owed under the agreements and the timing of those obligations will depend on various factors, including changes to the protocols and/or services requested, the number of patients to be enrolled and the rate of patient enrollment, achievement of pre-defined direct cost milestone events, and other factors relating to the clinical trials. We can terminate the agreements at any time without penalty, and if terminated, we would be liable only for services through the termination date plus non-cancellable CRO obligations to third parties.

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Results of Operations

Years Ended December 31, 2023 and 2022 (in thousands except percentages)

Product Sales, net

Product sales, net represents the gross sales of YUTIQ® and DEXYCU® less provisions for product sales allowances. Product sales, net decreased by $25.7 million, or 64%, to $14.2 million for 2023 compared to $39.9 million for the prior year. This decrease was driven by license and rights for YUTIQ® to Alimera in May 2023 and de minimis DEXYCU® sales in 2023 due to the loss of pass-through reimbursement as of January 1, 2023. During the year ended December 31, 2023, the Company recognized $2.1 million of revenue from sales of product supply to Alimera under the commercial supply agreement (CSA).

Customer demand had a direct impact on product orders from our specialty distributors that we recorded as net product sales. Net product revenue represented product purchased by our distributors whereas customer demand represented purchases of product by physician practices and ASCs from our specialty distributors.

License and collaboration agreement

License and collaboration agreement revenues increased by $30.4 million, to $30.8 million in 2023 compared to $0.4 million in 2022. This increase was driven by revenue recognized as the combined performance obligations under the Alimera license and supply agreement are fulfilled.

Royalty Income

Royalty income decreased by $0.1 million, or 13%, to $1.0 million in 2023 compared to $1.1 million in 2022. The decrease was primarily attributable to Ocumension Royalties.

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Cost of Sales, Excluding Amortization of Acquired Intangible Assets

Cost of sales, excluding amortization of acquired intangible assets, decreased by $3.7 million to $4.6 million for fiscal 2023 from $8.3 million in the prior year. This decrease was primarily attributable to reduced revenue driven by a significant reduction in DEXYCU® units shipped due to the loss of pass-through reimbursement as of January 1, 2023, as well as the license and rights for YUTIQ® to Alimera on May 17, 2023, and associated costs for costs of goods, royalties, and distribution fees, partially offset by a $0.5 million inventory reserve for DEXYCU® finished goods and components. These decreases were partially offset by additional distribution costs passed back to Alimera as part of the transition services agreement. Revenue related to these costs passed back to Alimera are included in license and collaboration revenues.

Research and Development

Research and development expenses increased by $15.0 million, or 30%, to $64.7 million for 2023 from $49.6 million in the prior year. This increase was attributable primarily to (i) $11.8 million in increased clinical trial costs, related to the ongoing Phase 2 DAVIO2 and PAVIA clinical trials, and (ii) $3.5 million of increased personnel related costs for investment in new employees across the research and clinical organizations. These increases were partially offset by a $0.2 million decrease in other administrative costs.

Sales and Marketing

Sales and marketing expenses decreased by $13.8 million, or 54%, to $11.7 million for 2023 from $25.5 million in the prior year. This decrease was primarily driven by (i) $10.5 million related to the discontinuation of YUTIQ® commercialization activities due to the agreement that granted the license and rights to YUTIQ® to Alimera in May 2023, (ii) discontinuation of promotional activities for DEXYCU® in 2023 of $3.9 million, and (iii) $0.4 million of other marketing activities. These reductions were offset by a restructuring charge in the second quarter 2023 of $0.9 million for restructuring resulting from the license of the YUTIQ® franchise.

General and Administrative

General and administrative expenses increased by $5.3 million, or 16%, to $40.1 million for 2023 from $34.8 million in the prior year. This increase was attributable primarily to a (i) $3.4 million increase in personnel and related expenses, including a $0.7 million increase of stock-based compensation, and a (ii) $2.2 million increase in professional fees. These increases were partially offset by a $0.3 million decrease in other administrative costs.

Amortization and Impairment of Acquired Intangible Assets

Impairment of acquired intangible assets was $20.7 million for 2022. This amount was attributable to the impairment of the DEXYCU® product intangible asset that resulted from impairment test related to the termination of pass-through payment by CMS on November 1, 2022 (see Note 6). Amortization of acquired intangible assets totaled $2.1 million for 2022. This amount was attributable to the DEXYCU® product intangible asset that resulted from our acquisition of Icon Bioscience, Inc. (Icon) in March 2018 (the Icon Acquisition). There was no amortization or impairment of acquired intangible assets for 2023 due to the write-off of the DEXYCU® intangible asset in the fourth quarter of 2022.

Interest (Expense) Income

Interest income from investments in marketable securities and institutional money market funds increased $4.8 million, to $6.9 million for 2023 compared to $2.1 million for the prior year. This increase was due primarily to an increase in cash invested in marketable securities and higher interest rates in 2023.

Interest expense decreased $1.9 million, or 61%, to $1.2 million for 2023, compared to $3.2 million in the prior year. We incurred lower interest expense due to the repayment of the SVB Loan (as the term is defined below) on May 17, 2023.

Loss on Extinguishment of Debt

Loss on extinguishment of debt in 2023 was for the early repayment of the loan made to the Company by Silicon Valley Bank (SVB) on March 9, 2022 (SVB Loan) resulting in a $1.3 million non-cash write-off of the remaining balance of unamortized debt discount.

Loss on extinguishment of debt in 2022 was for the early repayment of the loan made to the Company by CRG Servicing LLC on February 13, 2019 (CRG Loan) resulting in a $1.6 million non-cash write-off of the remaining balance of unamortized debt discount.

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Recently Adopted and Recently Issued Accounting Pronouncements

For a full discussion of recently adopted and recently issued accounting pronouncements, see Note 2, "Significant Accounting Policies" to the Consolidated Financial Statements included under Item 15, "Exhibits and Financial Statement Schedules."

Liquidity and Capital Resources

We have had a history of operating losses and an absence of significant recurring cash inflows from revenue, and at December 31, 2023, we had a total accumulated deficit of $742.1 million. Our operations have been financed primarily from public and private offerings of our common stock, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from collaboration partners.

Financing Activities

On March 9, 2022, we entered into a loan and security agreement (the SVB Loan) among us, as borrower, and Silicon Valley Bank, as lender (SVB), providing for (i) a senior secured term loan facility of $30 million (the Term Facility) and (ii) a senior secured revolving credit facility of up to $15.0 million (the Revolving Facility). The SVB Loan under an agreement (the SVB Loan Agreement) with First Citizens BancShares, as successor to Silicon Valley Bank (SVB), as lender (the Lender) was originally due and payable on January 1, 2027. On May 17, 2023, we utilized a portion of the Upfront Payment from the Alimera PRA (see Note 3) to repay in full all outstanding amounts under the SVB Loan Agreement. The SVB Loan Agreement was terminated, and all security interests and other liens granted to or held by the Lender were terminated and released. This payment included (i) the remaining $30.0 million principal portion of the SVB Loan, (ii) a $0.6 million prepayment fee equal to 2.00% of the aggregate principal amount of the Term Facility, (iii) a $0.6 million exit fee, (iv) accrued and unpaid interest of $0.1 million through the pay-off date, and (v) $0.2 million of other related fees. As a result of the early repayment of the SVB Loan, we recorded a loss on extinguishment of debt of $1.4 million related to the write-off of the remaining balance of unamortized debt discount. At December 31, 2023, there are no remaining obligations relating to the SVB Loan.

During the fiscal year ended December 31, 2023, we sold 15,294,116 shares in the December 2023 underwritten stock offering for gross proceeds of $230.0 million, and we sold 902,769 shares of our Common Stock utilizing our at-the-market facility (ATM) at a weighted average price of $11.05 per share for gross proceeds of approximately $10.0 million.

Future Funding Requirements

At December 31, 2023, we had cash, cash equivalents, and investments in marketable securities of $331.0 million. We expect that our cash and investments in marketable securities will fund our operating plan through topline data for the planned Phase 3 wet AMD pivotal trials into 2026. Due to the difficulty and uncertainty associated with the design and implementation of clinical trials, we will continue to assess our cash and cash equivalents, investments in marketable securities, and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations.

Actual cash requirements could differ from management’s projections due to many factors including additional investments in research and development programs, clinical trial expenses for EYP-1901and potentially EYP-2301, competing technological and market developments and the costs of any strategic acquisitions and/or development of complementary business opportunities.

The amount of additional capital we will require will be influenced by many factors, including, but not limited to:

1.
the scope, progress, results, and costs of clinical trials of EYP-1901, as a sustained delivery intravitreal VEGF treatment for wet AMD, NPDR, and DME

2.
our expectations regarding the timing and clinical development of our product candidates, including EYP-1901 and EYP-2301;

3.
the duration, scope and outcome of the DOJ Subpoena and its impact on our financial condition, results of operations, or cash flows;

4.
whether and to what extent we internally fund, whether and when we initiate, and how we conduct additional pipeline product development programs;

5.
payments we receive under any new collaboration agreements or payments expected from existing agreements;

6.
whether and when we are able to enter into strategic arrangements for our products or product candidates and the nature of those arrangements;

7.
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims;

8.
changes in our operating plan, resulting in increases or decreases in our need for capital; and

9.
our views on the availability, timing, and desirability of raising capital.

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We do not know if additional capital will be available when needed or on terms favorable to us or our stockholders. Collaboration, licensing, or other agreements may not be available on favorable terms, or at all. If we seek to sell our equity securities, we do not know whether and to what extent we will be able to do so, or on what terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and dilute our existing stockholders’ equity, and funding through collaboration, licensing, or other commercial agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may delay, reduce the scope of, or eliminate research or development programs, or other new products, if any, postpone or cancel the pursuit of product candidates, or otherwise significantly curtail our operations to reduce our capital requirements and extend our cash runway.

Our consolidated statements of historical cash flows are summarized as follows (in thousands):

Operating cash inflows for the year ended December 31, 2023, totaled $1.9 million, primarily due to our net loss of $70.8 million reduced by $13.8 million of non-cash expenses, which included $12.1 million of stock-based compensation, $1.3 million of loss on extinguishment of debt, and $0.7 million for the provision of excess and obsolete inventory. This was further offset by changes in working capital of $58.9 million, including $44.5 million of deferred revenue related to the agreement to license YUTIQ® product rights to Alimera, and $14.4 million of other working capital changes.

Operating cash outflows for the year ended December 31, 2022 totaled $65.0 million, primarily due to our net loss of $102.3 million, reduced by $40.3 million of non-cash expenses, which included $20.7 million of impairment of the DEXYCU® finite-lived intangible asset, $14.2 million of stock-based compensation, $2.1 million of amortization of intangible assets, $1.9 million of provision for excess and obsolete inventory, and $1.6 million of loss on extinguishment of debt. This was partially offset by increases of $3.0 million in changes in operating assets and liabilities, primarily in accounts receivable and other current assets.

Net cash used in investing activities for the year ended December 31, 2023, consisted of $3.5 million for the purchase of property and equipment, partially offset by $0.2 million of net cash provided by the sale of marketable securities.

Net cash used in investing activities for the year ended December 31, 2022, consisted of $15.1 million of net cash used to purchase marketable securities, as well as $2.2 million for the purchase of property and equipment.

Net cash provided by financing activities for fiscal 2023 totaled $187.1 million and consisted of the following:

(i)
$215.9 million of net proceeds from the issuance of 15,294,116 shares of our common stock;

(ii)
$40.5 million used to pay off the SVB loan;

(iii)
$1.4 million used to pay debt extinguishment costs related to the SVB loan;

(iv)
$9.6 million of net proceeds from the issuance of 902,769 shares of our common stock sold utilizing our ATM

(v)
$3.4 million of proceeds from exercise of employee stock options and stock issued under our employee stock purchase plan

Net cash used in financing activities for fiscal 2022 totaled $0.7 million and consisted of the following:

(i)
$38.2 million used to pay off the CRG loan;

(ii)
$2.3 million used to pay debt extinguishment costs related to the CRG loan;

(iii)
$30.0 million of proceeds from the issuance for long-term debt related to the SVB loan; and

(iv)
$10.5 million of net proceeds from the revolving facility.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be material to investors.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related Notes beginning on page F-1 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors, including, but not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in this report.

The following Management’s Discussion and Analysis (MD&A) provides a narrative of our results of operations for the year ended December 31, 2022 and the comparable period ended December 31, 2021, respectively, and our financial position as of December 31, 2022 and 2021, respectively. The MD&A should be read together with our consolidated financial statements and related notes included on pages F-1 through F-33 of this Annual Report on Form 10-K.

Overview

We are a company committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious eye disorders. Our pipeline leverages our proprietary Durasert® technology for sustained intraocular drug delivery including EYP-1901, an investigational sustained delivery intravitreal anti-VEGF treatment currently in Phase 2 clinical trials for wet AMD, the leading cause of vision loss among people 50 years of age and older in the United States, and NPDR. We also have two commercial products: YUTIQ®, a once every three-year treatment for posterior segment uveitis, and DEXYCU®, a single dose treatment for postoperative inflammation following ocular surgery.

Fiscal 2022 Overview

The fiscal year ended December 31, 2022 was highlighted by the following events:

•
The ongoing Pandemic has had a material and adverse impact on the Company’s business pursuant to a reduction in physician office visits impacting YUTIQ, specifically in early 2022. The emergence of new variants of the coronavirus may continue to cause intermittent or prolonged periods of reduced patient services at our customers’ facilities, which may negatively affect customer demand. The future progression of the Pandemic and its effects on our business and operations are uncertain at this time. Although the U.S. government has announced its intention to terminate the public health crisis associated with the Pandemic as of May 2023, there remains uncertainty about the potential future impact of the Pandemic on the Company’s business. Depending on future developments that are uncertain and difficult to predict, including new information that may emerge concerning the Pandemic, our customer demand may be adversely affected in the future as well. During the Pandemic, our sales organization has continued to call on physician offices, though at a reduced frequency. There have been no disruptions to the supply chains for YUTIQ and DEXYCU during the Pandemic and we continue to produce finished product for commercial sale.

•
In March 2022, we entered into a loan agreement for senior secured credit facilities in the aggregate amount of $45 million with Silicon Valley Bank to replace our existing credit facility with CRG.

•
In May 2022, we entered into an Exclusive License Agreement (the Betta License Agreement) with Betta Pharmaceuticals Co., Ltd. (Betta). Under the Betta License Agreement, we granted to Betta an exclusive, sublicensable, royalty-bearing license to develop, use (but not make or have made), sell, offer for sale and import EYP-1901 in the field of ophthalmology (the Betta Field) in the Greater Area of China, including China, the Hong Kong Special Administrative Region, the Macau Special Administrative Region, and Taiwan (the Betta Territory). Under the terms of the Betta License Agreement, we retained all ophthalmic rights to EYP-1901 outside of the Betta Territory and to, among other things, conduct clinical trials on EYP-1901 in the Betta Field in the Betta Territory.

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Concurrently with the execution of the Betta License Agreement, we entered into Amendment #1 (the First Amendment) to that certain Exclusive License Agreement, dated February 3, 2020, with Equinox Sciences, LLC (Equinox), regarding our exclusive, sublicensable, royalty-bearing right and license to certain patents and other Equinox intellectual property to research, develop, make, have made, use, sell, offer for sale and import the compound vorolanib and any pharmaceutical products comprising the compound for local delivery to the eye for the prevention or treatment of wet AMD, DR and RVO using our proprietary localized delivery technologies (the Original Field), in each case, throughout the world except China, Hong Kong, Taiwan and Macau. Pursuant to the First Amendment, the Original Field was expanded to cover the prevention or treatment of all ophthalmology indications, using our proprietary localized delivery technologies.

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In June 2022, China's Center for Drug Evaluation (CDE) of the National Medical Products Administration (NMPA) approved YUTIQ 0.18mg for the treatment of posterior segment uveitis of the eye.

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In June 2022, we announced the appointment of Anthony (Tony) Adamis, M.D. to our Board of Directors. Dr. Adamis is a highly accomplished ophthalmology executive with more than 30 years or research and development experience in the biopharmaceutical industry.

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In July 2022, we announced the appointment of Karen Zaderej to our Board of Directors. Ms. Zaderej is currently the President, Chief Executive Officer, and Chair of the Board at AxoGen Corporation, and brings more than 35 years of biopharmaceutical and medical device experience to the role.

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In August 2022, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts seeking production of documents related to sales, marketing and promotional practices, including as pertain to DEXYCU®. If the DOJ commences an action against us, the action could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, we have expended and expect to continue to expend significant financial and managerial resources responding to the DOJ subpoena, which could also have a material adverse effect on our business, financial condition, results of operations and cash flows.

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In October 2022, we entered into a Mutual Termination Agreement (the Termination Agreement) with ImprimisRx, pursuant to which we and ImprimisRx agreed (a) that ImprimisRx would continue to support the sales and marketing of DEXYCU through the fourth quarter of 2022, consistent with ImprimisRx’s level of effort during the January through June 2022 period, (b) decrease the required minimum quarterly sales levels based on DEXYCU unit demand for the fourth quarter of 2022, and (c) terminate the previously entered into Commercial Alliance Agreement, made effective as of August 1, 2020, as modified by the Letter Agreement dated November 12, 2020 and the Letter Agreement dated December 6, 2021, effective January 1, 2023 due to the loss of pass-through related separate payment of DEXYCU.

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In November 2022, CMS announced in the Final Rule it would not provide further extension of pass-through related separate payment for certain drugs, including DEXYCU. DEXYCU lost eligibility for pass-through related separate payment on December 31, 2022, and effective January 1, 2023, payment is instead packaged into reimbursement for the underlying procedure. The loss of pass-through status will have a material negative impact to DEXYCU revenue and the value of the net intangible asset related to DEXYCU.

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In January 2023, we announced that Jay S. Duker, M.D., who has served as the company’s Chief Operating Officer (COO) since November 2021, has been promoted to the additional role of President. In addition to continuing to oversee his duties as COO, in his expanded role, Dr. Duker will also oversee regulatory affairs.

R&D Highlights

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In January 2022, we announced that we completed a positive Type C meeting with the U.S. Food and Drug Administration (FDA) and expect to initiate a Phase 2 trial of EYP-1901 for wet AMD in Q3 2022 and in NPDR in the second half of 2022 with initial top-line data for the wet AMD trial anticipated in the second half of 2023.

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In February 2022, we announced updated positive interim safety and efficacy data from the ongoing Phase 1 DAVIO clinical trial evaluating EYP-1901 for the treatment of wet AMD. We presented eight-month data from the DAVIO Phase 1 clinical trial of EYP-1901 for wet AMD at the Angiogenesis, Exudation, and Degeneration 2022 virtual meeting. The data showed no dose limiting toxicities, no reports of ocular serious adverse events (SAEs) and no drug-related systemic SAEs, consistent with the six-month data presented in November 2021. The DAVIO data has also shown that following a single dose of EYP-1901, 53% and 41% of patients did not require a supplemental anti-VEGF treatment up to six and nine months, respectively. The treatment burden was reduced by 79% and 75% at six months and eight months respectively compared to prior to dosing with EYP-1901. Additionally, the eight-month data confirmed continued stable and sustained best corrected visual acuity (BCVA) (-3.0 ETDRS letters) and central subfield thickness (CST) on optical coherence tomography (OCT) (+13 μm).

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The FDA has recently updated the regulatory requirements for combination drug/device products such as YUTIQ 50. Based on updated guidance from the FDA, these regulatory changes will require us to conduct additional clinical trials for YUTIQ 50 beyond what was originally contemplated for the efficacy supplement of our NDA, resulting in a significant increase in the program’s anticipated cost. Accordingly, we have decided to pause enrollment for the YUTIQ 50 clinical trial and evaluate if there is a viable path for resumption of the program.

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In July 2022, we announced positive 12-month safety and efficacy data from the DAVIO Phase 1 clinical trial evaluating EYP-1901 for the treatment of wet AMD. The final twelve-month data presented from the Phase 1 DAVIO clinical trial showed no reports of ocular SAEs or drug-related systemic SAEs. There were no reported events of vitreous floaters, endophthalmitis, retinal detachment, implant migration in the anterior chamber, retinal vasculitis, posterior segment inflammation, or retinal vascular occlusive events. Additionally, updated data from the twelve-month follow-up confirm stable BCVA (-4.12 ETDRS letters), CST/OCT (-2.76 μm), and an expected late increase in supplemental anti-VEGF therapy given the insert's expected drug depletion, with 53% supplement free up to six months and 35% of eyes supplement free up to twelve months. Additionally, there was positive treatment burden reduction of 75% at six months and 73% at twelve months.

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In July 2022, we announced that the first patient was dosed in the Phase 2 DAVIO2 clinical trial of EYP-1901 for the potential treatment of wet AMD. The twelve-month, randomized, controlled DAVIO2 trial is expected to enroll approximately 144 patients previously treated with a standard-of-care anti-VEGF therapy, and top-line data is expected in the fourth quarter of 2023.

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In September 2022, we announced that the first patient was dosed in the Phase 2 PAVIA clinical trial of EYP-1901 for the potential treatment of NPDR. The twelve-month, randomized, controlled PAVIA trial is expected to enroll approximately 105 patients randomly assigned to one of two doses of EYP-1901 (approximately 2 mg or 3 mg), or to the control group receiving a sham injection.

Recent Developments

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Customer demand for YUTIQ in Q4, represented as units purchased by physicians from our distributors, was up 11% over Q3, driven by underlying growth.

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Customer demand for DEXYCU in Q4, represented as units purchased by ambulatory surgical centers, was down 70% compared to Q3, driven by loss of pass-through coverage by CMS.

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In January 2023, we entered into a lease agreement to design and construct a 40,000-square-foot manufacturing facility in Northbridge, Massachusetts to support the global manufacturing of programs, including EYP-1901 and YUTIQ.

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In February 2023, we entered into a research collaboration with Rallybio to evaluate sustained delivery of their inhibitor of complement component 5 (C5) using EyePoint’s proprietary Durasert technology for sustained intraocular drug delivery. The initial focus will be on geographic atrophy, an advanced form of age-related macular degeneration that leads to irreversible vision loss.

Summary of Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, (U.S. GAAP). The preparation of these financial statements requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, anticipated results and trends and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. By their nature, these estimates, judgments and assumptions are subject to an inherent degree of uncertainty, and management evaluates them on an ongoing basis for changes in facts and circumstances. Changes in estimates are recorded in the period in which they become known. Actual results may differ from our estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 in the accompanying Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

Product sales, net — We sell YUTIQ and DEXYCU to a limited number of specialty distributors and specialty pharmacies (collectively the Distributors) in the U.S., with whom we have entered into formal agreements, for delivery to physician practices for YUTIQ and to hospital outpatient departments and ambulatory surgical centers (ASCs) for DEXYCU. We recognize revenue on sales of our products when Distributors obtain control of the products, which occurs at a point in time, typically upon delivery. In addition to agreements with Distributors, we also enter into arrangements with healthcare providers, ASCs, and payors that provide for

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government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to their purchase of our products from Distributors.

Reserves for variable consideration — Product sales are recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration include trade discounts and allowances, provider chargebacks and discounts, payor rebates, product returns, and other allowances that are offered within contracts between us and our Distributors, payors, and other contracted purchasers relating to our product sales. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified either as reductions of product revenue and accounts receivable or a current liability, depending on how the amount is to be settled. Overall, these reserves reflect our best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from the estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

Distribution fees — We compensate our Distributors for services explicitly stated in our contracts and they are recorded as a reduction of revenue in the period the related product sale is recognized.

Provider chargebacks and discounts — Chargebacks are discounts that represent the estimated obligations resulting from contractual commitments to sell products at prices lower than the list prices charged to our Distributors. These Distributors charge us for the difference between what they pay for the product and our contracted selling price. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Reserves for chargebacks consist of amounts that we expect to pay for units that remain in the distribution channel inventories at each reporting period-end that we expect will be sold under a contracted selling price, and chargebacks that Distributors have claimed, but for which we have not yet settled.

Government rebates — We are subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the consolidated balance sheets. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Payor rebates — We contract with certain private payor organizations, primarily insurance companies, for the payment of rebates with respect to utilization of our products. We estimate these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Co-Payment assistance — We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue.

Product returns — We generally offer a limited right of return based on our returned goods policy, which includes damaged product and remaining shelf life. We estimate the amount of our product sales that may be returned and record this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to trade receivables, net on the consolidated balance sheets.

License and collaboration agreement revenue — We analyze each element of our license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

We recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, we determine that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, we assess each milestone to determine the

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probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, we will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. None of our contracts contained a significant financing component as of December 31, 2022.

Reimbursement of costs — We may provide research and development services and incur maintenance costs of licensed patents under collaboration arrangements to assist in advancing the development of licensed products. We act primarily as a principal in these transactions and, accordingly, reimbursement amounts received are classified as a component of revenue to be recognized consistent with the revenue recognition policy summarized above. We record the expenses incurred and reimbursed on a gross basis.

Royalties — We recognize revenue from license arrangements with our commercial partners’ net sales of products. Such revenues are included as royalty income. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. Our commercial partners are obligated to report their net product sales and the resulting royalty due to us typically within 60 days from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, we recognize royalty income each quarter and subsequently determine a true-up when we receive royalty reports and payment from our commercial partners. Historically, these true-up adjustments have been immaterial.

Sale of Future Royalties — We have sold our rights to receive certain royalties on product sales. In the circumstance where we have sold our rights to future royalties under a royalty purchase agreement and also maintains limited continuing involvement in the arrangement (but not significant continuing involvement in the generation of the cash flows that are due to the purchaser), we defer recognition of the proceeds we receive for the sale of royalty streams and recognizes such unearned revenue as revenue under the units-of-revenue method over the life of the underlying license agreement. Under the units-of-revenue method, amortization for a reporting period is calculated by computing a ratio of the proceeds received from the purchaser to the total payments expected to be made to the purchaser over the term of the agreement, and then applying that ratio to the period’s cash payment.

Estimating the total payments expected to be received by the purchaser over the term of such arrangements requires management to use subjective estimates and assumptions. Changes to our estimate of the payments expected to be made to the purchaser over the term of such arrangements could have a material effect on the amount of revenues recognized in any particular period.

Research Collaborations — We recognize revenue over the term of the statements of work under any funded research collaborations. Revenue recognition for consideration, if any, related to a license option right is assessed based on the terms of any such future license agreement or is otherwise recognized at the completion of the research collaborations. Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized during the current and prior year periods.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue on the accompanying consolidated balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as non-current deferred revenue.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized for the years ended December 31, 2022 and 2021.

Recognition of Expense in Outsourced Clinical Trial Agreements

We recognize research and development expense with respect to outsourced agreements for clinical trials with contract research organizations (CROs) as the services are provided, based on our assessment of the services performed. We make our assessments of the services performed based on various factors, including evaluation by the third-party CROs and our own internal review of the work performed during the period, measurements of progress by us or by the third-party CROs, data analysis with respect to work completed and our management’s judgment. Our financial obligations under the agreements are determined by the services that we request from time to time under the agreements. The actual amounts owed under the agreements and the timing of those obligations will depend on various factors, including changes to the protocols and/or services requested, the number of patients to be enrolled and the rate of patient enrollment, achievement of pre-defined direct cost milestone events and other factors relating to the clinical trials.

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We can terminate the agreements at any time without penalty, and if terminated, we would be liable only for services through the termination date plus non-cancellable CRO obligations to third parties.

Valuation of Intangible Assets

Our finite-lived intangible asset consisted of the DEXYCU product (utilizing the Verisome technology) following the March 2018 acquisition of Icon. The DEXYCU intangible asset was being amortized on a straight-line basis over its estimated useful life of 13 years. The intangible asset life was determined based on the anticipated period that we would derive future cash flows from the intangible asset, considering the effects of legal, regulatory, contractual, competitive and other economic factors. We continually monitor whether events or circumstances have occurred that indicate that the remaining estimated useful life of our intangible asset may warrant revision. We assess potential impairments to our intangible asset when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the future undiscounted net cash flows expected to result from the use of an asset are less than its carrying value. If we consider an asset to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying value of the asset exceeds its estimated fair value. In connection with a change in CMS reimbursement rules on November 1, 2022, we determined that the DEXYCU intangible asset was not recoverable and recorded a $20.7 million impairment charge in the fourth quarter of fiscal 2022, related to the acquired technology in connection with the acquisition of DEXYCU, and was included in amortization and impairment of acquired intangible assets in our statement of comprehensive loss. The aggregate amount of the intangible assets related to DEXYCU was zero as of December 31, 2022 (see Note 6).

Results of Operations

Years Ended December 31, 2022 and 2021 (in thousands except percentages)

Product Sales, net

Product sales, net represents the gross sales of YUTIQ and DEXYCU less provisions for product sales allowances. Product sales, net increased by $4.6 million to $39.9 million for 2022 compared to $35.3 million in the prior year. The increase was driven by a return of customer demand for both products as patient procedures at physician offices and ambulatory service centers resumed due to facility closures driven by the Pandemic. Customer demand has a direct impact on product orders from our specialty distributors that we record as net product sales. Net product revenue represents product purchased by our distributors whereas customer demand represents purchases of product by physician practices and ASCs from our distributors. The progression of the Pandemic and its effects on our business and operations remain uncertain at this time. Depending on the future developments that are uncertain and

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difficult to predict, including new information that may emerge concerning the Pandemic, our customer demand may be adversely affected in the future as well.

License and collaboration agreement

License and collaboration agreement revenues decreased by $394,000, or 52%, to $362,000 in 2022 compared to $756,000 in 2021. The decrease was primarily due to the reduction of revenue from Ocumension for technical assistance by $352,000 in the current year period.

Royalty Income

Royalty income increased by $266,000, or 31%, to $1.1 million in 2022 compared to $871,000 in 2021. The increase was attributable to Ocumension Royalties of $269,000 in 2022. There were no Ocumension royalties in 2021.

Cost of Sales, Excluding Amortization of Acquired Intangible Assets

Cost of sales, excluding amortization of acquired intangible assets, increased by $149,000 to $8.3 million for fiscal 2022 from $8.2 million in the prior year. This increase was primarily attributable to a $758,000 increase in YUTIQ product cost related to higher U.S. sales, a $419,000 increase in YUTIQ product cost related to Ocumension sales, a $200,000 increase in DEXYCU inventory reserves related to the loss of passthrough coverage, partially offset by a $1.2 million decrease in DEXYCU product cost and royalties from lower volumes related to the loss of passthrough coverage.

Research and Development

Research and development expenses increased by $21.1 million, or 74%, to $49.6 million for 2022 from $28.5 million for the same period in the prior year. This increase was attributable primarily to (i) $10.0 million of personnel related costs for investment in new employees across the research and clinical organizations, including $3.8 million of stock-based compensation, and (ii) $8.5 million in increased clinical costs, primarily related to the completion of our EYP-1901 Phase 1 DAVIO clinical trial and initiation of Phase 2 DAVIO2 and PAVIA clinical trials, (iii) $1.8 million of increased facilities cost associated with laboratory and personnel expansion, and (iv) $782,000 of other research and development activities.

Sales and Marketing

Sales and marketing expenses decreased by $2.0 million, or 7%, to $25.5 million for 2022 from $27.5 million in the prior year. This decrease was primarily attributable to lower DEXYCU promotional activities related to the transition to our commercial partner, ImprimisRx, including (i) a $1.7 million decrease in DEXYCU marketing expense, and (ii) a $835,000 decrease in DEXYCU personnel expense. These decreases were partially offset by (i) a $551,000 increase in commission due to our commercial partner for higher DEXYCU sales, and (ii) a $29,000 increase in other expenses.

General and Administrative

General and administrative expenses increased by $9.2 million, or 36%, to $34.8 million for 2022 from $25.6 million for the prior year. This increase was attributable primarily to (i) $7.0 million in personnel expense, including $2.4 million of stock-based compensation, for organizational expansion across Executive, Finance, Corporate Development, HR, and IT functions, (ii) $2.0 million in consulting, legal, and other professional services, and (iii) $443,000 in facilities and IT expenses. These increases were partially offset by a $232,000 decrease in other expenses.

Amortization and Impairment of Acquired Intangible Assets

Amortization and impairment of acquired intangible assets increased by $20.3 million for 2022 from $2.5 million for the prior year. This amount was attributable to the impairment of the DEXYCU product intangible asset that resulted from impairment test related to the termination of pass-through payment by CMS on November 1, 2022 (see Note 6).

Interest (Expense) Income

Interest expense totaled $3.2 million for 2022. We incurred lower interest expense due to the conversion of debt from the CRG Loan to the SVB Loan, which carries a lower interest rate. Interest expense in 2021 was $5.5 million.

Interest income from investments in marketable securities and institutional money market funds increased to $2.1 million for fiscal 2022 compared to $292,000 in the prior year, due primarily to higher cash balances invested in marketable securities in the current year.

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Gain on Extinguishment of Debt

Loss on extinguishment of debt in 2022 was for the early repayment of the CRG Loan resulting in a $1.6 million non-cash write-off of the remaining balance of unamortized debt discount.

Gain on extinguishment of debt in 2021 was for forgiveness by the SBA of our PPP Loan, which consisted of approximately (i) $2.0 million of principal and (ii) $24,000 of interest.

Recently Adopted and Recently Issued Accounting Pronouncements

For a full discussion of recently adopted and recently issued accounting pronouncements, see Note 2, "Significant Accounting Policies" to the Consolidated Financial Statements included under Item 15, "Exhibits and Financial Statement Schedules."

Liquidity and Capital Resources

We have had a history of operating losses and an absence of significant recurring cash inflows from revenue, and at December 31, 2022 we had a total accumulated deficit of $671.3 million. Our operations have been financed primarily from sales of our equity securities, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from collaboration partners. In the first quarter of 2019, we commenced the U.S. launch of our first two commercial products, YUTIQ and DEXYCU. However, we have not received sufficient revenues from our product sales to fund operations and we do not expect revenues from our product sales to generate sufficient funding to sustain our operations in the near-term. In January 2023, we entered into a lease agreement to design and construct a manufacturing facility in Northbridge, Massachusetts to support global manufacturing programs, including EYP-1901 and YUTIQ. The agreement requires only a modest financial upfront requirement, as rent obligations do not begin until we occupy the facility in the second half of 2024.

Financing Activities

Our operations for fiscal 2022 were financed primarily from $211.6 million of cash and cash equivalents as of December 31, 2021. During 2022, we did not sell any shares of our common stock under the at-the-market facility but the program remains available for use.

On March 9, 2022 (the SVB Closing Date), we entered into a loan and security agreement (the SVB Loan Agreement) with Silicon Valley Bank (SVB) providing for (i) a senior secured term loan facility of $30.0 million (the Term Facility) and (ii) a senior secured revolving credit facility of up to $15.0 million (the Revolving Facility and together with the Term Facility, the Credit Facilities). The maximum amount available for borrowing at any time under the Revolving Facility is limited to a borrowing base valuation of our eligible accounts receivable. On the SVB Closing Date, $30.0 million of the Term Facility and $11.5 million of the Revolving Facility, were advanced, to pay off the CRG Loan, including the accrued interest through that date. We utilized the proceeds from the Credit Facilities, together with cash on hand, for the repayment in full of all outstanding obligations under our term loan agreement with CRG Servicing LLC.

The loans under the Credit Facilities are due and payable on January 1, 2027 (the SVB Maturity Date). The Credit Facilities bear interest that is payable monthly in arrears at a per annum rate (subject to increase during an event of default) equal to (i) with respect to the Term Facility, the greater of (x) the Wall Street Journal prime rate plus 2.25% and (y) 5.50% and (ii) with respect to the Revolving Facility, the Wall Street Journal Prime Rate. An unused commitment fee of 0.25% per annum applies to unutilized borrowing capacity under the Revolving Facility. Commencing on February 1, 2024, we are required to repay the principal of the Term Facility in 36 consecutive equal monthly installments. At maturity or if earlier prepaid, we will also be required to pay an exit fee equal to 2.00% of the aggregate principal amount of the Term Facility.

The repayment of all unpaid principal and accrued interest under the Credit Facilities may be accelerated upon consummation of a specified change of control transaction or the occurrence of certain other events of default (as specified in the SVB Loan Agreement). Subject to certain exceptions, we are also required to make mandatory prepayments of outstanding loans under the Credit Facilities with the proceeds of asset sales and insurance proceeds, which amounts in the case of the Revolving Facility, subject to the conditions set forth in the SVB Loan Agreement, may be re-borrowed. In addition, we may make a voluntary prepayment of the SVB Loan, in whole but not in part, at any time. All mandatory and voluntary prepayments of the Term Facility are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on or prior to March 9, 2023, 3% of the aggregate outstanding principal amount of the Term Facility being prepaid, (ii) if prepayment occurs after March 9, 2023 but on or prior to March 9, 2024, an amount equal to 2% of the aggregate outstanding principal amount of the Term Facility being prepaid, (iii) if prepayment occurs after March 9, 2024 but on or prior to March 9, 2025, an amount equal to 1% of the aggregate outstanding principal amount of the Term Facility being prepaid, and (iv) if prepayment occurs after March 9, 2025 but prior to January 1, 2027, an amount equal to 0.5% of the aggregate outstanding principal amount of the Term Facility being prepaid. The prepayment of the Term Facility in full is also subject

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to the payment of an exit fee of $600,000. We may voluntarily terminate the Revolving Facility at any time, subject to the payment of a termination fee as follows: (i) if such termination occurs on or prior to March 9, 2023, an amount equal to 3.0% of the Revolving Facility and (ii) if such termination occurs after March 9, 2023, 1.0% of the Revolving Facility.

Certain of our future subsidiaries will be required to become co-borrowers under the SVB Loan Agreement or guarantee the obligations of ours under the SVB Loan Agreement. Our obligations under the SVB Loan Agreement and the guarantee of such obligations are secured by a pledge of substantially all of our and such subsidiaries’ assets, excluding intellectual property.

The SVB Loan Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and our subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, enter into affiliate transactions and change our line of business, in each case, subject to certain exceptions. On March 7, 2023, the Company and SVB entered into an amendment to the SVB Loan Agreement, modifying the quarterly financial covenants of the agreement. Pursuant to the amendment, commencing upon December 31, 2022, the Company is required to maintain, at all times, unrestricted and unencumbered cash and cash equivalents in an amount equal to the greater of (i) $50,000,000 and (ii) the Company’s six-month Cash Burn (as defined in the SVB Loan Agreement).

Future Funding Requirements

At December 31, 2022, we had cash, cash equivalents, and investments in marketable securities of $144.6 million. We expect that our cash, cash equivalents, results from investments in marketable securities and anticipated net cash inflows from product sales will fund our operating plan into the second half of 2024, under current expectations regarding the timing and outcomes of our Phase 2 clinical trials for EYP-1901. Due to the difficulty and uncertainty associated with the design and implementation of clinical trials, we will continue to assess our cash and cash equivalents, results from investments in marketable securities and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations.

Actual cash requirements could differ from management’s projections due to many factors, including cash generation from sales of YUTIQ and DEXYCU, additional investments in research and development programs, clinical trial expenses for EYP-1901, competing technological and market developments and the costs of any strategic acquisitions and/or development of complementary business opportunities. In addition, the Pandemic has had, and may continue to have, a material and adverse impact on our business, including as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Due to these impacts and measures, we have experienced and will likely continue to experience significant and unpredictable reductions in the demand for our commercial products as customers have shut down their facilities and non-essential surgical procedures have been postponed in an effort to promote social distancing and to redirect medical resources and priorities towards the treatment of COVID-19.

The amount of additional capital we will require will be influenced by many factors, including, but not limited to:

1.
the potential for EYP-1901, as a sustained delivery intravitreal anti-VEGF treatment for wet AMD, NPDR, and DME

2.
our expectations regarding the timing and clinical development of our product candidates, including EYP-1901;

3.
the duration, scope and outcome of the DOJ Investigation and its impact on our financial condition, results of operations or cash flows;

4.
our ability to sustain and enhance an effective commercial infrastructure and enter into and maintain commercial agreements for the commercialization of YUTIQ;

5.
the cost of commercialization activities for YUTIQ and DEXYCU, including product manufacturing, marketing, sales and distribution;

6.
the December 31, 2022 expiration of pass-through related separate payment under which DEXYCU is reimbursed for Medicare Part B patients treated in hospital outpatient department and ASC settings of care;

7.
whether and to what extent we internally fund, whether and when we initiate, and how we conduct additional pipeline product development programs;

8.
payments we receive under any new collaboration agreements;

9.
the effectiveness of current and future license and collaboration agreements, including our agreements with Ocumension Therapeutics (Ocumension), Equinox Science, LLC (Equinox), and Betta Pharmaceuticals Co., LTD. (Betta);

10.
whether and when we are able to enter into strategic arrangements for our products or product candidates and the nature of those arrangements;

11.
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims;

12.
changes in our operating plan, resulting in increases or decreases in our need for capital;

13.
our views on the availability, timing and desirability of raising capital; and

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14.
the extent to which our business could be adversely impacted by the effects of the Pandemic or by other pandemics, epidemics or outbreaks.

We do not know if additional capital will be available when needed or on terms favorable to us or our stockholders. Collaboration, licensing or other agreements may not be available on favorable terms, or at all. We do not know the extent to which we will receive funds from the commercialization of YUTIQ or DEXYCU. If we seek to sell our equity securities, we do not know whether and to what extent we will be able to do so, or on what terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and dilute our existing stockholders’ equity, and funding through collaboration, licensing or other commercial agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may delay, reduce the scope of, or eliminate research or development programs, independent commercialization of YUTIQ and DEXYCU, or other new products, if any, postpone or cancel the pursuit of product candidates, or otherwise significantly curtail our operations to reduce our cash requirements and extend our capital.

Our consolidated statements of historical cash flows are summarized as follows (in thousands):

Operating cash outflows for the year ended December 31, 2022 totaled $65.0 million, primarily due to our net loss of $102.3 million, reduced by $40.3 million of non-cash expenses, which included $20.7 million of impairment of the DEXYCU finite-lived intangible asset, $14.2 million of stock-based compensation, $2.1 million of amortization of intangible assets, $1.9 million of provision for excess and obsolete inventory, $1.6 million of loss on extinguishment of debt, partially offset by $162,000 of other non-cash gains. This was partially offset by increases of $3.0 million in changes in operating assets and liabilities, primarily in accounts receivable and other current assets.

Operating cash outflows for the year ended December 31, 2021 totaled $50.1 million, primarily due to our net loss of $58.4 million, reduced by $10.1 million of non-cash expenses, which included $7.5 million of stock-based compensation and $2.5 million of amortization of the DEXYCU finite-lived intangible asset, $628,000 of amortization of debt discount and a $2.1 million gain on extinguishment of debt from the forgiveness of our PPP Loan.

Net cash used in investing activities for the year ended December 31, 2022 consisted of $15.1 million of net cash used to purchase marketable securities, as well as $2.2 million for the purchase of property and equipment. Net cash used in investing activities for the year ended December 31, 2021 consisted of the purchase of $33.0 million of marketable securities, and purchases of property and equipment of $155,000.

Net cash used in financing activities for fiscal 2022 totaled $690,000 and consisted of the following:

(i)
$38.2 million used to pay off the CRG loan;

(ii)
$2.3 million used to extinguish debt costs related to the CRG loan;

(iii)
$30.0 million of proceeds from the issuance for long-term debt related to the SVB loan; and

(iv)
$10.5 million of net proceeds from the revolving facility.

Net cash provided by financing activities for fiscal 2021 totaled $216.9 million and consisted of the following:

(i)
$108.2 million of net proceeds from the issuance of 5,122,273 shares of our common stock and 3,272,727 pre-funded warrants;

(ii)
$107.9 million of net proceeds from the issuance of 10,465,000 shares of our common stock;

(iii)
$499,000 of net proceeds from the issuance of 48,538 shares of our common stock sold utilizing our ATM; and

(iv)
$273,000 of proceeds from stock issued under our employee stock purchase plan.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related Notes beginning on page F-1 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors, including, but not limited to, those set forth under Item 1A, “Risk Factors”, and elsewhere in this report.

The following Management’s Discussion and Analysis (“MD&A”) provides a narrative of our results of operations for the year ended December 31, 2021 and the comparable period ended December 31, 2020, respectively, and our financial position as of December 31, 2021 and 2020, respectively. The MD&A should be read together with our consolidated financial statements and related notes included on pages F-1 through F-33 of this Annual Report on Form 10-K.

Overview

We are a pharmaceutical company committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious eye disorders. Our pipeline leverages our proprietary Durasert® technology for sustained intraocular drug delivery including EYP-1901, a potential six-month anti-VEGF treatment initially targeting wet age-related macular degeneration (“wet AMD”), the leading cause of vision loss among people 50 years of age and older in the United States. We also have two commercial products: YUTIQ®, a once every three-year treatment for chronic non-infectious uveitis affecting the posterior segment of the eye, and DEXYCU®, a single dose treatment for postoperative inflammation following ocular surgery. We are also advancing YUTIQ 50, a potential six-month treatment for non-infectious uveitis affecting the posterior segment of the eye, one of the leading causes of blindness under a supplemental New Drug Application (sNDA) strategy.

Fiscal 2021 Overview and COVID-19 Impact

The fiscal year ended December 31, 2021 was highlighted by the following events:

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R&D Highlights

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Recent Developments

Summary of Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, (“U.S. GAAP”). The preparation of these financial statements requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, anticipated results and trends and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. By their nature, these estimates, judgments and assumptions are subject to an inherent degree of uncertainty, and management evaluates them on an ongoing basis for changes in facts and circumstances. Changes in estimates are recorded in the period in which they become known. Actual results may differ from our estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 in the accompanying Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

Product sales, net — We sell YUTIQ and DEXYCU to a limited number of specialty distributors and specialty pharmacies (collectively the “Distributors”) in the U.S., with whom we have entered into formal agreements, for delivery to physician practices for YUTIQ and to hospital outpatient departments and ambulatory surgical centers for DEXYCU. We recognize revenue on sales of our products when Distributors obtain control of the products, which occurs at a point in time, typically upon delivery. In addition to agreements with Distributors, we also enter into arrangements with healthcare providers, ambulatory surgical centers, and payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to their purchase of our products from Distributors.

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Reserves for variable consideration — Product sales are recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration include trade discounts and allowances, provider chargebacks and discounts, payor rebates, product returns, and other allowances that are offered within contracts between us and our Distributors, payors, and other contracted purchasers relating to our product sales. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified either as reductions of product revenue and accounts receivable or a current liability, depending on how the amount is to be settled. Overall, these reserves reflect our best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.  Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from the estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

Distribution fees — We compensate our Distributors for services explicitly stated in our contracts and they are recorded as a reduction of revenue in the period the related product sale is recognized.

Provider chargebacks and discounts — Chargebacks are discounts that represent the estimated obligations resulting from contractual commitments to sell products at prices lower than the list prices charged to our Distributors. These Distributors charge us for the difference between what they pay for the product and our contracted selling price. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.  Reserves for chargebacks consist of amounts that we expect to pay for units that remain in the distribution channel inventories at each reporting period-end that we expect will be sold under a contracted selling price, and chargebacks that Distributors have claimed, but for which we have not yet settled.

Government rebates — We are subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Payor rebates — We contract with certain private payor organizations, primarily insurance companies, for the payment of rebates with respect to utilization of our products. We estimate these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Co-Payment assistance — We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue.

Product returns — We generally offer a limited right of return based on our returned goods policy, which includes damaged product and remaining shelf life. We estimate the amount of our product sales that may be returned and record this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to trade receivables, net on the condensed consolidated balance sheets.

License and collaboration agreement revenue — We analyze each element of our license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

We recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, we determine that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, we assess each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, we will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

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When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. None of our contracts contained a significant financing component as of December 31, 2021.

Reimbursement of costs — We may provide research and development services and incur maintenance costs of licensed patents under collaboration arrangements to assist in advancing the development of licensed products. We act primarily as a principal in these transactions and, accordingly, reimbursement amounts received are classified as a component of revenue to be recognized consistent with the revenue recognition policy summarized above. We record the expenses incurred and reimbursed on a gross basis.

Royalties — We recognize revenue from license arrangements with our commercial partners’ net sales of products. Such revenues are included as royalty income. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. Our commercial partners are obligated to report their net product sales and the resulting royalty due to us typically within 60 days from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, we recognize royalty income each quarter and subsequently determine a true-up when we receive royalty reports and payment from our commercial partners. Historically, these true-up adjustments have been immaterial.

Sale of Future Royalties — We have sold our rights to receive certain royalties on product sales. In the circumstance where we have sold our rights to future royalties under a royalty purchase agreement and also maintains limited continuing involvement in the arrangement (but not significant continuing involvement in the generation of the cash flows that are due to the purchaser), we defer recognition of the proceeds we receive for the sale of royalty streams and recognizes such unearned revenue as revenue under the units-of-revenue method over the life of the underlying license agreement. Under the units-of-revenue method, amortization for a reporting period is calculated by computing a ratio of the proceeds received from the purchaser to the total payments expected to be made to the purchaser over the term of the agreement, and then applying that ratio to the period’s cash payment.

Estimating the total payments expected to be received by the purchaser over the term of such arrangements requires management to use subjective estimates and assumptions. Changes to our estimate of the payments expected to be made to the purchaser over the term of such arrangements could have a material effect on the amount of revenues recognized in any particular period.

Research Collaborations — We recognize revenue over the term of the statements of work under any funded research collaborations. Revenue recognition for consideration, if any, related to a license option right is assessed based on the terms of any such future license agreement or is otherwise recognized at the completion of the research collaborations. Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized during the current and prior year periods.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as non-current deferred revenue.

Please refer to Note 3 for further details on the license and collaboration agreements into which we have entered and corresponding amounts of revenue recognized for the years ended December 31, 2021 and 2020.

Recognition of Expense in Outsourced Clinical Trial Agreements

We recognize research and development expense with respect to outsourced agreements for clinical trials with contract research organizations (“CROs”) as the services are provided, based on our assessment of the services performed. We make our assessments of the services performed based on various factors, including evaluation by the third-party CROs and our own internal review of the work performed during the period, measurements of progress by us or by the third-party CROs, data analysis with respect to work completed and our management’s judgment. Our financial obligations under the agreements are determined by the services that we request from time to time under the agreements. The actual amounts owed under the agreements and the timing of those obligations will depend on various factors, including changes to the protocols and/or services requested, the number of patients to be enrolled and the rate of patient enrollment, achievement of pre-defined direct cost milestone events and other factors relating to the clinical trials. We can terminate the agreements at any time without penalty, and if terminated, we would be liable only for services through the termination date plus non-cancellable CRO obligations to third parties.

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Results of Operations

Years Ended December 31, 2021 and 2020

Product Sales, net

Product sales, net represents the gross sales of YUTIQ and DEXYCU less provisions for product sales allowances. Product sales, net increased by $14.5 million to $35.3 million for 2021 compared to $20.8 million in the prior year. The increase was driven by a return of customer demand for both products as patient procedures at physician offices and ambulatory service centers resumed due to facility closures driven by the Pandemic. Customer demand has a direct impact on product orders from our specialty distributors that we record as net product sales. Net product revenue represents product purchased by our distributors whereas customer demand represents purchases of product by physician practices and ASCs from our distributors. The progression of the Pandemic and its effects on our business and operations remain uncertain at this time. Depending on the future developments that are uncertain and difficult to predict, including new information that may emerge concerning the Pandemic, our customer demand may be adversely affected in the future as well.

License and collaboration agreement

License and collaboration agreement revenues decreased by $11.2 million to $0.8 million in 2021 compared to $11.9 million in 2020. This decrease was attributable primarily to (i) the recognition in the prior year period of $9.5 million under our Ocumension 2020 MOU entered into in August 2020 (see Note 3) and (ii) the recognition of approximately $2.0 million from Ocumension upon signing a license agreement for DEXYCU in China also during the prior year period, partially offset by other collaboration revenue in the current year period.

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Royalty Income

Royalty income decreased by $793,000 to $0.9 million for fiscal 2021 from $1.7 million in the prior year. The decrease was attributable to the impact of the royalty monetization agreement with SWK Holdings that grants to SWK all future royalty payments under the Amended Alimera Agreement beginning with Q4 2020 for a one-time payment of $16.5 million. Due to the accounting treatment for this agreement (see Revenue Recognition section), we recognize a non-cash portion of deferred revenue as Alimera pays royalties to SWK beginning in the first quarter of 2021 (see Note 3).

Cost of Sales, Excluding Amortization of Acquired Intangible Assets

Cost of sales, excluding amortization of acquired intangible assets, increased by $2.4 million to $8.2 million for fiscal 2021 from $5.8 million in the prior year. This increase was primarily attributable to costs associated with higher product sales, primarily costs of goods and royalties, and due to higher DEXYCU product mix, as well as a $1.3 million provision for anticipated DEXYCU inventory expiration.

Research and Development

Research and development expenses increased by $11.1 million to $28.5 million for 2021 from $17.4 million in the prior year. This increase was attributable primarily to (i) $5.2 million in personnel expense, including stock based compensation, due to expansion of our clinical and research organizations, (ii) $3.5 million in clinical costs, primarily related to our EYP-1901 Phase 1 clinical trial and YUTIQ 50 Phase 3 clinical trial, (iii) $1.8 million in research in additional formulations and injector technologies, and (iv) $581,000 in medical affairs and pharmacovigilance costs. The first quarter of 2020 also included a one-time $1.0 million payment for the licensing of vorolanib for EYP-1901 and the current year periods include a one-time payment of $0.5 million under the Asset Purchase Agreement with Aerpio (see Note 12).

We anticipate that our research and development expenses will increase for the year ending December 31, 2022 as compared to the year ended December 31, 2021 as a result of the expansion of our research and development organization to support additional clinical and development work, initiation of our EYP-1901 phase 2 clinical trial for wAMD, new formulation and injector development, and studies for additional indications for EYP-1901.

Sales and Marketing

Sales and marketing expenses increased by approximately $2.2 million to $27.5 million for fiscal 2021 from $25.3 million in the prior year.  This increase was primarily attributable to (i) $1.7 million in sales and promotional expense, including commissions due to our commercial partner for DEXYCU, and (ii) $582,000 in other communications and marketing programs.

General and Administrative

General and administrative expenses increased by $4.9 million to $25.6 million for 2021 from $20.7 million in the prior year. This increase was attributable primarily to (i) $2.2 million in personnel expense, including stock based compensation, for executive, Finance, HR, and IT functions, (ii) $2.1 million in consulting, investor relations, and other spending initiatives, and (iii) $414,000 in D&O insurance expense.

We anticipate that our general and administrative expenses will increase for the year ending December 31, 2022 as compared to the year ended December 31, 2021 as a result of additional Human Resources, Information Technology, and Finance personnel to support organizational growth.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets totaled $2.5 million for both 2021 as well as the same period in the prior year. This amount was attributable to the DEXYCU product intangible asset that resulted from the Icon Acquisition (see Note 5).

Interest (Expense) Income

Interest expense totaled $5.5 million for 2021.  We incurred lower interest expense in 2021 due to the $13.7 million partial principal paydown in Q4 2020 on the CRG term loan. Interest expense in 2020 was $7.3 million, which included $745,000 of amortization of debt discount and $977,000 of non-cash payment-in-kind interest expense all related to the CRG Debt.

Interest income from amounts invested in an institutional money market fund increased to $292,000 for fiscal 2021 compared to $58,000, due primarily to increased interest-bearing assets versus 2020 driven by the 2021 equity financings.

Gain on Extinguishment of Debt

Forgiveness by the SBA of our PPP Loan resulted in a gain on extinguishment of debt, which consisted of approximately (i) $2.0 million of principal and (ii) $24,000 of interest in 2021.

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Recently Adopted and Recently Issued Accounting Pronouncements

For a full discussion of recently adopted and recently issued accounting pronouncements, see Note 2, "Significant Accounting Policies" to the Consolidated Financial Statements included under Item 15, "Exhibits and Financial Statement Schedules."

Liquidity and Capital Resources

We have had a history of operating losses and an absence of significant recurring cash inflows from revenue, and at December 31, 2021 we had a total accumulated deficit of $569.1 million. Our operations have been financed primarily from sales of our equity securities, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from collaboration partners. In the first quarter of 2019, we commenced the U.S. launch of our first two commercial products, YUTIQ and DEXYCU. However, we have not received sufficient revenues from our product sales to fund operations and we do not expect revenues from our product sales to generate sufficient funding to sustain our operations in the near-term.

Financing Activities

Our operations for fiscal 2021 were financed primarily from $44.9 million of cash and cash equivalents at December 31, 2020, approximately $108.2 million of net proceeds from the November 2021 underwritten stock offering and approximately $107.9 million of net proceeds from the February 2021 underwritten stock offering. We also sold shares of our common stock under our at-the-market facility in Q1 2021 and recorded net proceeds of approximately $499,000.

The Credit Facilities are due and payable on January 1, 2027 (the “Maturity Date”). The Term Facility bears interest at a per annum rate (subject to increase during an event of default) equal to the higher of 5.5% and the Prime Rate plus 2.25%. The Revolving Facility bears interest at a per annum rate equal to the Prime Rate. We are required to make interest only payments on a monthly basis until the Maturity Date. In addition, we may make a voluntary prepayment of the SVB Loan, in whole or in part, at any time. All mandatory and voluntary prepayments of the SVB Loan are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on or prior to March 9, 2023, 3% of the aggregate outstanding principal amount of the SVB Loan being prepaid, (ii) if prepayment occurs after March 9, 2023 but on or prior to March 9, 2024, an amount equal to 2% of the aggregate outstanding principal amount of the SVB Loan being prepaid, (iii) if prepayment occurs after March 9, 2024 but on or prior to March 9, 2025, an amount equal to 1% of the aggregate outstanding principal amount of the SVB Loan being prepaid, and (iv) if prepayment occurs after March 9, 2025 but prior to the Term Loan Maturity Date, an amount equal to 0.5% of the aggregate outstanding principal amount of the SVB Loan being prepaid. No prepayment premium is due on any principal prepaid after December 31, 2021.

Certain of our future subsidiaries will be required to guarantee the obligations of ours under the Loan Agreement. Our obligations under the Loan Agreement and the guarantee of such obligations are secured by a pledge of substantially all of our and such subsidiaries’ assets.

The SVB Loan Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and our subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Loan Agreement contains the following quarterly financial covenants requiring the Borrowers to maintain either:

Future Funding Requirements

At December 31, 2021, we had cash, cash equivalents, and investments in marketable securities of $211.6 million. We expect that our cash and cash equivalents and anticipated net cash inflows from product sales will fund our operating plan into the second half of 2024, under current expectations regarding the timing and outcomes of our Phase 2 clinical trials for EYP-1901. Due to the difficulty and uncertainty associated with the design and implementation of clinical trials, we will continue to assess our cash and cash equivalents and future funding requirements.  However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations.

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Actual cash requirements could differ from management’s projections due to many factors, including cash generation from sales of YUTIQ and DEXYCU, additional investments in research and development programs, clinical trial expenses for EYP-1901, competing technological and market developments and the costs of any strategic acquisitions and/or development of complementary business opportunities. In addition, the Pandemic has had, and will likely continue to have, a material and adverse impact on our business, including as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Due to these impacts and measures, we have experienced and will likely continue to experience significant and unpredictable reductions in the demand for our commercial products as customers have shut down their facilities and non-essential surgical procedures have been postponed in an effort to promote social distancing and to redirect medical resources and priorities towards the treatment of COVID-19.

The amount of additional capital we will require will be influenced by many factors, including, but not limited to:

We do not know if additional capital will be available when needed or on terms favorable to us or our stockholders. Collaboration, licensing or other agreements may not be available on favorable terms, or at all. We do not know the extent to which we will receive funds from the commercialization of YUTIQ or DEXYCU. If we seek to sell our equity securities, we do not know whether and to what extent we will be able to do so, or on what terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and dilute our existing stockholders’ equity, and funding through collaboration, licensing or other commercial agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may delay, reduce the scope of, or eliminate research or development programs, independent commercialization of YUTIQ and DEXYCU, or other new products, if any, postpone or cancel the pursuit of product candidates, or otherwise significantly curtail our operations to reduce our cash requirements and extend our capital.

Our consolidated statements of historical cash flows are summarized as follows (in thousands):

74

Operating cash outflows for the year ended December 31, 2021 totaled $50.1 million, primarily due to our net loss of $58.4 million, reduced by $10.1 million of non-cash expenses, which included $7.5 million of stock-based compensation and $2.5 million of amortization of the DEXYCU finite-lived intangible asset, $628,000 of amortization of debt discount and a $2.1 million gain on extinguishment of debt from the forgiveness of our PPP Loan..

Operating cash outflows for the year ended December 31, 2020 totaled $14.4 million, primarily due to our net loss of $45.4 million, reduced by $10.8 million of non-cash expenses, which included $5.5 million of stock-based compensation and $2.5 million of amortization of the DEXYCU finite-lived intangible asset. Further adjustments of cash in operating activities resulted from an increase of $16.5 million in deferred revenue primarily related to the SWK Royalty Payment Agreement and a $1.9 million decrease in accounts receivable from product sales.

Net cash used in investing activities for the year ended December 31, 2021 consisted of the purchase of $33.0 million of marketable securities, and purchases of property and equipment of $155,000.  Net cash used in the year ended December 31, 2020 consisted of purchases of property and equipment totaling $362,000.

Net cash provided by financing activities for fiscal 2021 totaled $216.9 million and consisted of the following:

Net cash provided by financing activities for fiscal 2020 totaled $37.50 million and consisted of the following:

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.