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 ETM 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 ETM. 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®.
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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.
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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.
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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.
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In October 2023, we announced the promotion of George O. Elston, our Chief Financial Officer, to Executive Vice President and Chief Financial Officer.
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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
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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 ETM 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.
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In March 2023, we completed enrollment in the Phase 2 "Durasert ETM 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.
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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.
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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.
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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.
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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 ETM.
•
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
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In January 2024, we announced that the first patient had been dosed in the Phase 2 VERONA clinical trial of EYP-1901 for DME.
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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)
Year Ended December 31, Change
Revenues:
Operating expenses:
Amortization of acquired intangible assets — 2,050 (2,050 ) -100 %
Impairment of acquired intangible assets — 20,699 (20,699 ) -100 %
Other income (expense):
Provision for income taxes $ (83 ) $ — $ (83 )
Net loss per share - basic and diluted $ (1.82 ) $ (2.74 ) $ 0.92 -34 %
Weighted average shares outstanding - basic and diluted 38,904 37,317 1,587 4 %
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):
Year Ended December 31,
Cash flows from operating activities:
Net cash (used in) provided by operating activities $ 1,875 $ (65,005 ) $ 66,880
Net cash (used in) provided by financing activities $ 187,070 $ (690 ) $ 187,760
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item may be found on pages F-1 through F-29 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any control or procedure, no matter how well designed and operated, can provide only reasonable assurance of achieving its desired objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(a)
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The term "internal control over financial reporting," as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:
(1)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
(2)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
73
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on this assessment, our management concluded that, as of such date, our internal control over financial reporting was effective based on those criteria.
(b)
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the last quarter of the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On December 8, 2023, Michael Pine, the Company’s Chief Business Officer, terminated a 10b5-1 trading plan. Mr. Pine’s 10b5-1 plan was originally adopted on June 12, 2023, and was designed to be in effect until June 12, 2024. The aggregate number of shares of common stock to be sold pursuant to Mr. Pine’s 10b5-1 plan was 93,634, including the potential exercise of vested stock options and the associated sale. Mr. Pine’s 10b5-1 plan was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
On December 21, 2023, Michael Pine, the Company’s Chief Business Officer, adopted a 10b5-1 trading plan, which is designed to be in effect until December 21, 2024. The aggregate number of shares of common stock to be sold pursuant to Mr. Pine’s 10b5-1 plan, which provides for the potential exercise of vested stock options and the associated sale, is 40,625. Mr. Pine’s 10b5-1 plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
74
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated herein by reference from our definitive proxy statement relating to our 2024 annual meeting of stockholders, pursuant to Regulation 14A of the Exchange Act of 1934, also referred to in this Annual Report on Form 10-K as our 2024 Proxy Statement, which we expect to file with the SEC no later than April 30, 2024.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Corporate Governance
We have adopted a written Code of Business Conduct that applies to all of our employees, officer,s and directors. This Code of Business Conduct is designed to ensure that our business is conducted with integrity and in compliance with SEC regulations and Nasdaq listing standards. The Code of Business Conduct covers adherence to laws and regulations as well as professional conduct, including employment policies, conflicts of interest, and the protection of confidential information. The Code of Business Conduct is available under “Governance Overview” within the “Investors – Corporate Governance” section of our website at www.eyepointpharma.com.
We intend to disclose any future amendments to, or waivers from, the Code of Business Conduct that affect our directors or senior financial and executive officers within four business days of the amendment or waiver by posting such information on the website address and location specified above.
Other Information
The other information required to be disclosed in Item 10 is hereby incorporated by reference to our 2024 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be disclosed in Item 11 is hereby incorporated by reference to our 2024 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required to be disclosed in Item 12 is hereby incorporated by reference to our 2024 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be disclosed in Item 13 is hereby incorporated by reference to our 2024 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required to be disclosed in Item 14 is hereby incorporated by reference to our 2024 Proxy Statement.
75
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
(a)(1) Financial Statements
The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page F-1.
(a)(2) Financial Statement Schedules
Schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in our Consolidated Financial Statements or Notes thereto.
76
(a)(3) Exhibits
Incorporated by Reference to SEC Filing
Exhibit No. Exhibit Description Form SEC Filing Date Exhibit No.
Articles of Incorporation and By-Laws
3.5 By-Laws of EyePoint Pharmaceuticals, Inc. 10-K 09/18/18 3.5
Instruments Defining the Rights of Security Holders
4.1 Form of Specimen Stock Certificate for Common Stock 8-K12G3 06/19/08 4.1
4.3(a) Description of Securities of EyePoint Pharmaceuticals, Inc.
4.4 Form of Pre-Funded Warrant to Purchase Common Stock 8-K 11/19/21 4.1
Material Contracts - Management Contracts and Compensatory Plans
77
Incorporated by Reference to SEC Filing
Exhibit No. Exhibit Description Form SEC Filing Date Exhibit No.
Material Contracts - Leases
Material Contracts - License and Collaboration Agreements
78
Incorporated by Reference to SEC Filing
Exhibit No. Exhibit Description Form SEC Filing Date Exhibit No.
Material Contracts - Other Agreements
21.1(a) Subsidiaries of EyePoint Pharmaceuticals, Inc.
101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document
# Portions of this exhibit have been omitted in compliance with Item 601 of Regulation S-K.
+ The final versions of documents denoted as “form of” have been omitted pursuant to Rule 12b-31. Such final versions are substantially identical in all material respects to the filed versions of such documents, provided that the name of the investor, and the investor’s and/or the Company’s signatures are included in the final versions.
(a) Filed herewith
(b) Furnished herewith
ITEM 16. FORM 10-K SUMMARY
Not applicable.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EYEPOINT PHARMACEUTICALS, INC.
By: /s/ Jay S. Duker
Jay S. Duker, M.D.
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Name Title Date
/S/ GÖRAN ANDO Chair of the Board of Directors March 8, 2024
Göran Ando, M.D.
/S/ NANCY LURKER Executive Vice Chair of the Board of Directors March 8, 2024
Nancy Lurker
/S/ JAY S. DUKER President, Chief Executive Officer and Director March 8, 2024
Jay S. Duker, M.D. (Principal Executive Officer)
George O. Elston (Principal Financial Officer and Principal Accounting Officer)
/S/ WENDY DICICCO Director March 8, 2024
Wendy DiCicco
/S/ YE LIU Director March 8, 2024
Ye Liu
/S/ JOHN LANDIS Director March 8, 2024
John Landis
/S/ DAVID R. GUYER Director March 8, 2024
David R. Guyer, M.D.
/S/ ANTHONY P. ADAMIS Director March 8, 2024
Anthony P. Adamis, M.D.
/S/ KAREN ZADEREJ Director March 8, 2024
Karen Zaderej
/S/ STUART DUTY Director March 8, 2024
Stuart Duty
80
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Consolidated Balance Sheets F-4
Consolidated Statements of Comprehensive Loss F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of EyePoint Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of EyePoint Pharmaceuticals, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, stockholders' equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Prepaid and Accrued Clinical Trial Expenses — Refer to Notes 2, 4, and 7 to the financial statements
Critical Audit Matter Description
As disclosed in Note 2 to the financial statements, the Company records accrued expenses and prepaid expenses associated with ongoing research and development costs, including costs associated with outsourced agreements for clinical trials with contract research organizations (CROs). Estimates of expenses incurred are determined by analyzing progress of the studies, including phase or completion of events, invoices received, payments made, communication with third-party CROs, and internal tracking of work completed to date. Expenses incurred in excess of amounts invoiced are recorded as accrued expenses. Payments made in excess of expenses incurred are recorded as prepaid costs. As of December 31, 2023, the Company has recorded accrued clinical trial costs of $3.3 million and prepaid clinical trial expenses of $6.3 million.
We identified auditing the estimates of the progress to completion of events performed by CROs as a critical audit matter due to the (i) the level of judgment required by management and (ii) the high degree of auditor judgment, subjectivity, and an increased extent of effort in performing procedures to evaluate the reasonableness of management’s estimates of progress to completion.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to accrued and prepaid clinical trial costs included the following, among others:
•
We tested the design and implementation of relevant controls over the estimation of accrued and prepaid clinical trial costs.
•
For a sample of contracts with third-party CROs performing research and development, we performed the following:
o
Evaluated the appropriateness of the method used by management to develop its estimates of progress to completion of specific events.
F-2
o
Tested the completeness and accuracy of the underlying data used in the estimates of progress to completion through inspection of the terms of contracts and statements of work between the Company the third-party CROs and testing of actual billed expenses under the contracts.
o
Performed corroborating inquiries with Company personnel responsible for overseeing the activities performed by the Company’s contract research service providers, which may include the CROs’ estimate of completed tasks or progress of completion of certain tasks within the arrangement.
License Revenue Recognition – Alimera License Agreement – Refer to Note 2 and 3 to the financial statements
Critical Audit Matter Description
In May 2023, the Company granted an exclusive license and rights to its YUTIQ product to Alimera Sciences, inc. (“Alimera”) for $82.5 million, consisting of a $75.0 million upfront cash payment and an additional $7.5 million payment in equal quarterly installments in 2024. The Company and Alimera also entered into a commercial supply agreement (“supply agreement”), during the term of the product rights agreement the Company agreed to manufacture and exclusively supply to Alimera agreed-upon quantities of YUTIQ necessary for Alimera to commercialize YUTIQ. Referred together herein as “the transaction”.
The Company accounts for the revenue under license and supply arrangements under ASC 606, Revenue from Contracts with Customers, or ASC 606. Management has identified a single, combined performance obligation for the license and supply agreements. The combined performance obligation will be satisfied over the term of the supply agreement using the units delivered output method.
We identified auditing the Company’s accounting treatment for the identification of performance obligations under the Alimera agreement as a critical audit matter due to the (i) the level of judgment required by management and (ii) the high degree of auditor judgment, subjectivity, and an increased extent of effort in performing procedures to evaluate the nature of performance obligations within the agreements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Alimera Agreement included the following, among others:
•
We tested the design and implementation of relevant controls over management’s review of the accounting conclusions for the transaction, including the identification of the performance obligation.
•
We obtained and read the license agreement, the supply agreement and other relevant contracts and documents related to the transaction.
•
We read the Company’s accounting analysis for conclusions reached related to the transaction and performed procedures, including the following:
o
We evaluated the Company’s conclusions regarding the identification of a single performance obligation and considered the relevant authoritative guidance.
o
With the assistance of professionals in our firm having expertise in revenue recognition, we evaluated the conclusion regarding the identification of a single performance obligation.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 8, 2024
We have served as the Company's auditor since 2008.
F-3
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31, December 31,
Assets
Current assets:
Accounts and other receivables, net 805 15,503
Prepaid expenses and other current assets 9,039 9,858
Operating lease right-of-use assets 4,983 6,038
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings — 10,475
Other current liabilities 646 579
Operating lease liabilities – noncurrent 4,906 5,984
Other long-term liabilities — 600
Contingencies (Note 17)
Stockholders' equity:
Accumulated other comprehensive income 864 786
Total liabilities and stockholders' equity $ 355,184 $ 180,356
— —
See notes to consolidated financial statements.
F-4
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands except per share data)
Year Ended Year Ended
December 31, December 31,
Revenues:
License and collaboration agreements 30,797 362
Operating expenses:
Cost of sales, excluding amortization of acquired intangible assets 4,632 8,326
Amortization of acquired intangible assets — 2,050
Impairment of acquired intangible assets — 20,699
Other income (expense):
Interest and other income, net 6,949 2,131
Loss on extinguishment of debt (1,347 ) (1,559 )
Total other income (expense), net 4,355 (2,617 )
Provision for income taxes $ (83 ) $ —
Net loss per share:
Basic and diluted $ (1.82 ) $ (2.74 )
Weighted average common shares outstanding:
Other comprehensive gain (loss):
See notes to consolidated financial statements.
F-5
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands except share data)
Common Stock Additional AccumulatedOther Total
Other comprehensive loss — — — — (55 ) (55 )
Issuance of stock, net of issue costs — — 20 — — 20
Exercise of stock options 4,479 — 41 — — 41
Other comprehensive gain — — — — 78 78
See notes to consolidated financial statements.
F-6
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended Year Ended
December 31, December 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to cash flows used in operating activities:
Amortization of intangible assets — 2,050
Impairment of intangible assets — 20,699
Depreciation of property and equipment 464 396
Loss on extinguishment of debt 1,347 1,559
Provision for excess and obsolete inventory 693 1,949
Deferred income tax 83 —
Changes in operating assets and liabilities:
Accounts receivable and other current assets 14,432 (2,662 )
Accounts payable and accrued expenses 1,519 1,198
Right-of-use assets and operating lease liabilities (39 ) 69
Net cash provided by (used in) operating activities 1,875 (65,005 )
Cash flows from investing activities:
Sales and maturities of marketable securities 55,284 124,000
Purchases of property and equipment (3,483 ) (2,150 )
Net cash used in investing activities (3,315 ) (17,265 )
Cash flows from financing activities:
Proceeds from issuance of stock 226,174 —
Proceeds from issuance of long-term debt — 30,000
Payment of equity and debt issue costs (451 ) (599 )
Payment of extinguishment of debt costs (1,350 ) (2,294 )
Borrowings under revolving facility 5,300 43,875
Repayment under revolving facility (15,775 ) (33,400 )
Net settlement of stock units to satisfy statutory tax withholding (169 ) (295 )
Principal payments on finance lease obligations (36 ) (137 )
Net cash provided by (used in) financing activities 187,070 (690 )
Cash, cash equivalents and restricted cash at beginning of year 95,783 178,743
Cash, cash equivalents and restricted cash at end of year $ 281,413 $ 95,783
Reconciliation of cash, cash equivalents and restricted cash
Total cash, cash equivalents and restricted cash $ 281,413 $ 95,783
Supplemental cash flow information:
Supplemental disclosure of non-cash investing and financing activities:
Accrued term loan exit fee $ — $ 600
Stock issuance costs $ 325 $ —
See notes to consolidated financial statements.
F-7
EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Operations
EyePoint Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, the Company), is a clinical-stage biopharmaceutical company committed to developing and commercializing therapeutics to help improve the lives of patients with serious retina diseases. The Company’s pipeline leverages its proprietary bioerodible DURASERT ETM technology (Durasert ETM) 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 ETM, currently in Phase 2 clinical trials 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 non-proliferative diabetic retinopathy (NPDR), a largely untreated disease due to limitations of available therapies, and diabetic macular edema (DME). The Company is also advancing EYP-2301, a promising TIE-2 agonist, razuprotafib, f/k/a AKB-9778, formulated in Durasert ETM to potentially improve outcomes in serious retinal diseases.
In May 2023, the Company granted an exclusive license and rights to its YUTIQ® (fluocinolone acetonide intravitreal implant 0.18 mg) product to Alimera Sciences, Inc. (Alimera) for $82.5 million, consisting of a $75.0 million upfront cash payment (Upfront Payment) and an additional $7.5 million payment in equal quarterly installments in 2024. In addition, commencing in 2025, the Company 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.
The Company plans to identify and advance additional pipeline product candidates through clinical and regulatory development for its pipeline. This may be accomplished through internal discovery efforts, research collaborations, and/or in-licensing arrangements with partner molecules and potential acquisitions of additional ophthalmic products, product candidates, or technologies.
Liquidity
The Company had cash, cash equivalents and investments in marketable securities of $331.0 million at December 31, 2023. The Company has a history of operating losses and has not had significant recurring cash inflows from revenue. The Company’s operations have been financed primarily from sales of its equity securities, issuance of debt, and a combination of license fees, milestone payments, royalty income and other fees received from its collaboration partners. The Company anticipates that it will continue to incur losses as it continues the research and development of its product candidates, and the Company does not expect revenues from its product sales to generate sufficient funding to sustain its operations in the near-term. The Company expects to continue fulfilling its funding needs through cash inflows from revenues, licensing and research collaboration transactions, additional equity capital raises and other arrangements. The Company believes that its cash, cash equivalents and investments in marketable securities of $331.0 million at December 31, 2023, will enable the Company to fund its current and planned operations for at least the next twelve months from the date these consolidated financial statements were issued. Actual cash requirements could differ from management’s projections due to many factors, the timing and results of the Company’s clinical trials for EYP-1901, additional investments in research and development programs, competing technological and market developments, and the costs of any strategic acquisitions, and/or development of complementary business opportunities.
2.
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented in U.S. dollars in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include the accounts of EyePoint Pharmaceuticals, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported amounts and disclosure of revenues and expenses during the reporting periods. Significant management estimates and assumptions include, among others, those related to reserves for variable consideration related to product sales, revenue recognition for multiple-deliverable arrangements, recognition of expense in outsourced clinical trial agreements, recording of excess or obsolete inventory write-offs and reserves, recoverability of acquired intangible assets, and realization of deferred tax assets, and determining grant date fair value of stock options and other equity awards. Actual results could differ from these and other estimates and there may be changes to the Company’s estimates in future periods.
F-8
Foreign Currency
The functional currency of the Company and each of its subsidiaries is the currency of the primary economic environment in which each such entity operates—the U.S. dollar or the Pound Sterling.
Assets and liabilities of the Company’s foreign subsidiary are translated at period-end exchange rates. Amounts included in the consolidated statements of comprehensive loss and cash flows are translated at the weighted average exchange rates for the period. Gains and losses from currency translation are included in accumulated other comprehensive income as a separate component of stockholders’ equity on the consolidated balance sheets. The balance of accumulated other comprehensive income attributable to foreign currency translation was $0.9 million and $0.8 million at December 31, 2023 and 2022, respectively. Foreign currency gains or losses arising from transactions denominated in foreign currencies, whether realized or unrealized, are recorded in interest and other income, net in the consolidated statements of comprehensive loss and were not material for all periods presented.
Cash Equivalents
Cash equivalents represent highly liquid investments with maturities of three months or less at the date of purchase, principally consisting of institutional money market funds and investment-grade commercial paper and U.S. Treasury securities.
Marketable Securities
Marketable securities consist of investments with an original or remaining maturity of greater than three months but less than one year at the date of purchase. The Company has historically classified its marketable securities as available-for-sale. Accordingly, the Company records these investments at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in accumulated other comprehensive income, which is a component of stockholders’ equity. If the Company determines that a decline of any investment is other-than-temporary, the investment is written down to fair value. Marketable securities consisted of investment-grade commercial paper, U.S. Treasury securities, and U.S. Agency securities at December 31, 2023. Marketable securities consisted of investment-grade commercial paper and U.S. Treasury securities at December 31, 2022. The Company’s investment policy, approved by the Board of Directors, includes guidelines relative to diversification and maturities designed to preserve principal and liquidity.
The fair value of marketable securities is determined based on quoted market prices at the balance sheet date of the same or similar instruments. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts through to the earlier of sale or maturity. Such amortization and accretion amounts are included in interest and other income, net in the consolidated statements of comprehensive loss. The cost of marketable securities sold is determined by the specific identification method.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, investments in marketable securities, and accounts receivable. The Company deposits its cash in financial institutions. At times, such deposits may be in excess of insured limits.
At December 31, 2023, the Company’s interest-bearing cash equivalent balances were concentrated in one institutional money market fund that has investments consisting primarily of Repurchase Agreements, U.S Treasuries, and U.S. Government Agency Debts. At December 31, 2022, the Company’s interest-bearing cash equivalent balances were concentrated in one institutional money market fund that has investments consisting primarily of certificates of deposit, commercial paper, time deposits, Treasury repurchase agreements and investment-grade U.S. Treasury securities. Generally, these investments may be sold upon demand and, therefore, the Company believes they have minimal risk.
The Company’s investment policy, approved by the Company’s Board of Directors, includes guidelines relative to diversification and maturities designed to preserve principal and liquidity.
As of December 31, 2023, accounts receivable from Alimera and Ocumension Therapeutics accounted for 67.8% and 15.7% of total accounts receivable, respectively. For the year ended December 31, 2023, revenues from Alimera and Besse Medical accounted for 73.2% and 17.2% of total revenues, respectively.
As of December 31, 2022, accounts receivable from ASD Specialty Healthcare LLC and McKesson Specialty Care Distribution LLC accounted for 57.1% and 30.2% of total accounts receivable, respectively. For the year ended December 31, 2022, revenues from ASD Specialty Healthcare LLC and McKesson Specialty Care Distribution LLC accounted for 51.1% and 39.5% of total revenues, respectively.
F-9
Fair Value Measurements
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
•
Level 1 – Inputs are quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities.
•
Level 2 – Inputs are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities with insufficient volume or infrequent transaction (less active markets).
•
Level 3 – Inputs are unobservable estimates that are supported by little or no market activity and require the Company to develop its own assumptions about how market participants would price the assets or liabilities.
The Company’s cash equivalents and marketable securities are classified within Level 1 or Level 2 on the basis of valuations using quoted market prices or alternative pricing sources and models utilizing market observable inputs, respectively. The marketable securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security, and have been classified as Level 2.
The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short-term maturity.
Accounts and Other Receivables, Net
Receivables arise primarily from the Company’s products sold in the U.S. The balance in accounts and other receivables, net consists primarily of amounts due from customers, net of applicable revenue reserves. The majority of the Company’s accounts receivable have standard payment terms that require payment within 30-60 days. The Company performs ongoing credit evaluations of its customers’ financial condition and continuously monitor collections and payments from its customers and analyzes accounts that are past due for collectability. The allowance for credit losses is estimated based on the Company’s analysis of trends in overall receivables aging, specific identification of certain receivables that are at risk of not being paid, past collection experience and current economic trends. Given the nature and limited history of collectability of the Company’s accounts receivable, the Company recorded no allowance for credit losses as of December 31, 2023 and 2022.
Inventory
Inventory is stated at the lower of cost or net realizable value, net on a first-in, first-out (FIFO) basis.
Capitalization of inventory costs begins after FDA approval of a product. Prior thereto, inventory costs of products and product candidates are recorded as research and development expense, even if this inventory may later be sold as commercial product.
The Company assesses the recoverability of inventory and writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Write-downs are based on the age of the inventory, lower of cost or market, along with significant management judgments concerning future demands for the inventory. Such impairment charges, should they occur, are recorded within cost of sales, excluding amortization of acquired intangible assets. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than management's projections, additional write-downs of inventory might be recorded in future periods.
Cost of sales, excluding amortization of acquired intangible assets, consists of costs associated with the manufacture of YUTIQ® and DEXYCU®, certain period costs for DEXYCU® product revenue, product shipping, and, as applicable, royalty expense. The inventory costs for YUTIQ® include purchases of various components, the active pharmaceutical ingredient (API) and direct labor and overhead for the product manufactured in the Company’s Watertown, Massachusetts facility. The inventory costs for DEXYCU® include purchased components, the API and third-party manufacturing and assembly. On November 1, 2022, the CMS published in the Federal Register the Calendar Year (CY) 2023 Medicare Hospital Outpatient Prospective Payment System and ASC Payment System Final Rule (Final Rule). The Final Rule terminated the pass-through related separate payment for DEXYCU, which was no longer separately reimbursed by Medicare as of January 1, 2023, when furnished in hospital outpatient departments and ASC settings. In connection with the change in CMS reimbursement rules on November 1, 2022, the Company recorded impairment charge of $0.5
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million and $1.4 million for the years ended December 31, 2023 and 2022, respectively, associated with the write-off of excess DEXYCU® units.
Debt and Equity Instruments
Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives (generally three to five years) using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining non-cancellable lease term or their estimated useful lives. Repair and maintenance costs are expensed as incurred. When assets are retired or sold, the assets and accumulated depreciation are derecognized from the respective accounts and any gain or loss is recognized.
Capitalized Software Development Cost
The Company purchases cloud computing arrangements, such as software business applications that are used in the normal course of business, and as a result, capitalizes certain implementation costs incurred in a cloud computing agreement that is a service contract. Eligible implementation costs associated with cloud computing arrangements are capitalized in accordance with ASC 350, Intangibles – Goodwill and Other, and classified as a prepaid asset on the consolidated balance sheets. These costs are recognized on a straight-line basis on the same line of the consolidated statements of comprehensive loss as the fees for the associated cloud computing arrangement, over the term of the arrangement, plus renewal and termination periods the Company is reasonably certain to exercise.
Leases
The Company is a party to one operating lease for its headquarters in Watertown, Massachusetts, in which it leases office, laboratory, and manufacturing operations facilities. In January 2023, the Company entered into a lease agreement for its new standalone manufacturing facility, including office and lab space located at 600 Commerce Drive, Northbridge, Massachusetts (see Note 8).
The Company determines whether an arrangement is or contains a lease at inception. Leases are recognized on the consolidated balance sheets as ROU assets, current lease liabilities and, if applicable, noncurrent lease liabilities. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected remaining lease term. For this purpose, the Company considers only payments that are fixed and in-substance fixed at lease commencement. ROU assets may also be adjusted for items such as prepayments and lease incentives. The interest rate implicit in a lease contract is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For operating leases, lease expense is recognized on a straight-line basis over the lease term. For finance leases, amortization expense and interest expense are recognized over the lease term.
Impairment of Intangible Assets
The Company assesses potential impairments to its intangible asset when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that the useful life of the asset is no longer appropriate. 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 the Company considers 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, the Company determined that the DEXYCU® intangible asset was not recoverable and recorded a $20.7 million impairment charge.
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), the Company performs 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)
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recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies 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, the Company assesses the goods or services promised within the contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes 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 and May 2023, the Company is no longer commercially selling DEXYCU and YUTIQ, respectively. The Company continues to sell YUTIQ under a commercial supply agreement with Alimera and Ocumension (see Note 3).
Prior to the above dates, the Company sold YUTIQ® and DEXYCU® primarily to a limited number of specialty distributors and specialty pharmacies (collectively the Distributors) in the U.S., with whom the Company had entered into formal agreements, for delivery to physician practices for YUTIQ® and to hospital outpatient departments and ambulatory surgical centers (ASCs) for DEXYCU®. The Company recognized revenue on sales of its products when Distributors obtained control of the products, which occurred at a point in time, typically upon delivery. In addition to agreements with Distributors, the Company 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 the purchase of the Company’s 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 the Company and its Distributors, payors and other contracted purchasers relating to the Company’s 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 the Company’s 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 the Company’s estimates. If actual results in the future vary from the estimates, the Company adjusts product revenue and earnings in the period such variances become known.
Distribution fees — The Company compensated its Distributors for services explicitly stated in the Company’s contracts and were recorded as a reduction of revenue in the period the related product sale was recognized.
Provider chargebacks and discounts — Chargebacks were discounts that represented the estimated obligations resulting from contractual commitments to sell products at prices lower than the list prices charged to the Company’s Distributors. These Distributors charged the Company for the difference between what they paid for the product and the Company’s contracted selling price. These reserves were established in the same period that the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability. Reserves for chargebacks consisted of amounts that the Company expected to pay for units that remained in the distribution channel inventories at each reporting period-end that the Company expected to be sold under a contracted selling price, and chargebacks that Distributors had claimed, but for which the Company had not yet settled.
Government rebates— The Company was subject to discount obligations under state Medicaid programs and Medicare. These reserves were recorded in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability which was included in accrued expenses and other current liabilities on the consolidated balance sheets. The Company’s liability for these rebates consisted of invoices received for claims from prior quarters that had not been paid or for which an invoice had not yet been received, estimates of claims for the current quarter, and estimated future claims that would be made for product that had been recognized as revenue, but which remained in the distribution channel inventories at the end of each reporting period.
Payor rebates — The Company contracted with certain private payor organizations, primarily insurance companies, for the payment of rebates with respect to utilization of its products. The Company estimated these rebates and recorded such estimates in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Co-Payment assistance — The Company offered co-payment assistance to commercially insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance was based on an estimate of claims and the cost per claim that the Company expected to receive associated with product that had been recognized as revenue.
Product returns — The Company generally offered a limited right of return based on its returned goods policy, which included damaged product and remaining shelf life. The Company estimated the amount of its product sales that may be returned and recorded
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this estimate as a reduction of revenue in the period the related product revenue was recognized, as well as reductions to trade receivables, net on the consolidated balance sheets.
License and collaboration agreement revenue — The Company analyzes each element of its license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to the Company of non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes 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, the Company determines 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. The Company determines 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, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
The Company recognizes 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, the Company determines 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, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, the Company 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, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2023 and 2022, respectively, nor during the respective years then ended.
Royalties — The Company recognizes revenue from license arrangements with its 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. The Company’s commercial partners are obligated to report their net product sales and the resulting royalty due to the Company typically within 60-days from the end of each quarter. Based on historical product sales, royalty receipts, and other relevant information, the Company recognizes royalty income each quarter and subsequently determines a true-up when it receives royalty reports and payment from its commercial partners. Historically, these true-up adjustments have been immaterial.
Sale of Future Royalties — The Company has sold its rights to receive certain royalties on product sales. In the circumstance where the Company has sold its rights to future royalties under a royalty purchase agreement (RPA) 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), the Company defers recognition of the proceeds it receives 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 the Company’s 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.
Please refer to Note 3 for further details on the license and collaboration agreements into which the Company has entered and corresponding amounts of revenue recognized during the current and prior year periods.
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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.
Research and Development
Research and development costs are charged to operations as incurred. These costs include all direct costs, including cash and stock-based compensation and benefits for research, clinical development, quality assurance, quality control, operations and medical affairs personnel, amortization of intangible assets, third-party costs and services for clinical trials, clinical materials, pre-clinical programs, regulatory and medical affairs, external consultants, and other operational costs related to the Company’s research and development of its product candidates.
The Company records 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, the Company analyzes 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, management makes its 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 the Company’s estimates.
Stock-Based Compensation
Compensation cost related to share-based payment awards is based on the fair value of the instrument on the grant date and is recognized on a graded vesting basis over the requisite service period for each separately vesting tranche of the awards.
The Company may also grant share-based payment awards that are subject to objectively measurable performance and service criteria. Compensation expense for performance-based awards begins at such time as it becomes probable that the respective performance conditions will be achieved. The Company continues to recognize the grant date fair value of performance-based awards through the vesting date of the respective awards so long as it remains probable that the related performance conditions will be satisfied.
The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model and the fair value of performance stock units, restricted stock units, and deferred stock units based on the observed grant date fair value of the underlying common stock.
Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. For periods in which the Company reports net income, diluted net income per share is determined by adding to the basic weighted average number of common shares outstanding the total number of dilutive common equivalent shares using the treasury stock method, unless the effect is anti-dilutive.
The Company issued 3,272,727 shares of Pre-Funded Warrants (PFW) to purchase common stock, in connection with the November 2021 underwritten public offering. The PFWs were included in the basic and diluted net loss per share calculation during the years ended December 31, 2023 and 2022, respectively.
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Potential common stock equivalents excluded from the calculation of diluted earnings per share because the effect would have been anti-dilutive were as follows:
December 31,
Comprehensive Loss
Comprehensive loss is comprised of net loss, foreign currency translation adjustments and unrealized gains and losses on available-for-sale marketable securities.
Income Tax
The Company accounts for income taxes under the asset and liability method. Deferred income tax assets and liabilities are computed for the expected future impact of differences between the financial reporting and income tax bases of assets and liabilities and for the expected future benefit to be derived from tax credits and loss carry forwards. Such deferred income tax computations are measured based on enacted tax laws and rates applicable to the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is provided against net deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the uncertainty. The Company accounts for interest and penalties related to uncertain tax positions as part of its income tax provision.
Recently Adopted and Recently Issued Accounting Pronouncements
New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (FASB) and are adopted by the Company as of the specified effective dates. Unless otherwise disclosed below, the Company believes that recently issued and adopted pronouncements will not have a material impact on the Company’s financial position, results of operations and cash flows or do not apply to the Company’s operations.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07—Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the standard should be applied retrospectively. ASU 2023-07 will be effective for the Company for the annual period of its fiscal year ending December 31, 2024. The Company does not anticipate the adoption of this ASU will have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU was issued to address investor requests for more transparency about income tax information through improvements to income tax disclosure primarily related to the rate reconciliation and income taxes paid information, and to improve the effectiveness of income tax disclosures. This ASU is effective for public entities for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 will be effective for the Company in the first quarter of its fiscal year ending December 31, 2025. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
3.
Product Revenue Reserves and Allowances
From January 1, 2023 through May 17, 2023 (the date the Company entered into the product rights agreement (PRA) with Alimera), the Company’s product revenues were primarily from sales of YUTIQ® in the U.S. Since the execution of the PRA, the
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Company’s product revenues are primarily from the Company’s commercial supply agreement with Alimera of YUTIQ® in the U.S., pursuant to which, during the term of the PRA, the Company agreed to manufacture and exclusively supply to Alimera agreed-upon quantities of YUTIQ® necessary for Alimera to commercialize YUTIQ®in the United States at certain cost plus amounts. For the year ended December 31, 2022, the Company’s product revenues were primarily from sales of YUTIQ® and DEXYCU® in the U.S.
Net product revenues by product for the years ended December 31, 2023 and 2022 were as follows (in thousands):
Year Ended Year Ended
December 31, December 31,
(A)
Includes approximately $452 and $343 of revenue from YUTIQ® product sales to Ocumension Therapeutics under a supply agreement for the years ended December 31, 2023 and 2022, respectively.
(B)
Includes approximately $82 and $20 of revenue from DEXYCU® product sales to Ocumension Therapeutics under a supply agreement for the years ended December 31, 2023 and 2022, respectively.
The following table summarizes activity in each of the product revenue allowance and reserve categories for the years ended December 31, 2023 and 2022 (in thousands):
Chargebacks,Discountsand Fees Governmentand OtherRebates Returns Total
Provision related to sales in the current year 1,612 — 25 1,637
Adjustments related to prior period sales 65 (55 ) (54 ) (44 )
As of December 31, 2023, returns, chargebacks, discounts and fees, and rebates are recorded as a component of accrued expenses on the consolidated balance sheets (see Note 7)
Chargebacks,Discountsand Fees Governmentand OtherRebates Returns Total
Adjustments related to prior period sales — — — —
As of December 31, 2022, returns are recorded as a reduction of accounts receivable on the consolidated balance sheets. Chargebacks, discounts and fees, and rebates are recorded as a component of accrued expenses on the consolidated balance sheets (see Note 7).
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License and Collaboration Agreements and Royalty Income
Alimera Product Rights Agreement and Commercial Supply Agreement
On May 17, 2023 (the Closing Date), the Company entered into a PRA with Alimera Sciences, Inc. (Alimera). Under the PRA, the Company granted to Alimera an exclusive and sublicensable right and license (the License) under the Company’s and its affiliates’ interest in certain of the Company’s and its affiliates’ intellectual property to develop, manufacture, sell, commercialize, and otherwise exploit certain products, including YUTIQ®, for the treatment and prevention of uveitis in the entire world except Europe, the Middle East and Africa (EMEA). The License also excludes any rights to YUTIQ® for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye the Company granted to Ocumension Therapeutics (Ocumension) under the license agreements and a Memorandum of Understanding for YUTIQ® (the Ocumension Agreement), pursuant to which rights have been exclusively licensed to Ocumension in China and certain other countries and regions in Asia.
Additionally, pursuant to the PRA, the Company transferred and assigned to Alimera certain assets (the Transferred Assets) and certain contracts with third parties related to YUTIQ®, including the new drug application for YUTIQ® (collectively, the Asset Transfer). The Transferred Assets consist primarily of agreements and internally developed intangible assets which had zero carrying value at the date of transfer. Pursuant to the PRA, Alimera paid the Company a $75.0 million upfront payment. Alimera will also make four quarterly payments of $1.875 million to the Company totaling $7.5 million during 2024. Alimera will also pay royalties to the Company from 2025 to 2028 at a percentage of low-to-mid double digits of Alimera’s related U.S. annual net sales of certain products (including YUTIQ®) in excess of certain thresholds, beginning at $70 million in 2025, and increasing annually thereafter. Upon Alimera’s payment of the Upfront Payment and the 2024 quarterly payments, the licenses and rights granted to Alimera will automatically become perpetual and irrevocable. Payments received from Alimera are non-refundable.
On the Closing Date, the Company and Alimera also entered into a commercial supply agreement (CSA), pursuant to which, during the term of the PRA, the Company agreed to manufacture and exclusively supply to Alimera agreed-upon quantities of YUTIQ® necessary for Alimera to commercialize YUTIQ®in the United States at certain cost plus amounts, subject to adjustments set forth in the CSA (the Supply Transaction and together with the License and the Asset Transfer, the Transaction). The initial term of the CSA is two years following the Closing Date, subject to certain changes set forth in the CSA. The CSA shall thereafter automatically renew for successive one (1) year terms; provided, that the term of the CSA automatically terminates upon the successful completion of the transfer of manufacturing for YUTIQ®to Alimera or its designee in accordance with the CSA.
In addition, the Company entered into a transition services agreement (TSA) under which the Company agreed to provide agreed upon transition services to Alimera on a cost-plus pricing arrangement for up to six months following the closing of the Transaction. As part of the TSA, the Company agreed to fulfill Alimera sales orders for YUTIQ® in the United States, to the extent requested by Alimera, during the period up to six months following the Closing Date, to the Company’s third-party customers on behalf of Alimera, including by invoicing for YUTIQ® and receiving payments for such invoiced YUTIQ® for fulfilling Alimera sales orders of YUTIQ® and remit such payments to Alimera (see Note 7) (the Sales Services). The Sales Services were completed during fiscal 2023.
The Company classified the cash proceeds of the $75.0 million Upfront Payment received from Alimera as deferred revenue at the Closing Date, pursuant to the PRA and the CSA because the License and supply units to be delivered under both agreements comprise a single, combined performance obligation as Alimera will not have the right or ability to manufacture YUTIQ® (or have YUTIQ® manufactured by a third-party contract manufacturing organization) over the initial two-year term pursuant to the CSA. The combined performance obligation is satisfied over time using the units delivered output method to measure progress based on initial estimated supply units of YUTIQ® over the two-year term for purposes of recognizing revenue, such that revenue is recognized based on the value transferred in the form of units of product in the satisfaction of a performance obligation. Through this method, the Company compares the actual units delivered to date with the current estimated total to be delivered in the contractual term to measure the satisfaction of the performance obligation and recognize revenue. The Company will monitor its estimate of total units to be delivered to determine if an adjustment is needed to ensure that revenue is recognized proportionally for units delivered to date relative to the total units expected to be delivered for the combined performance obligation. Such estimates of the total delivery will be reassessed on an ongoing basis. If the Company determines that a change in estimate is necessary, it will adjust revenue using a cumulative catch-up method.
During the year ended December 31, 2023, the Company recognized $2.1 million of revenue from sales of product supply to Alimera under the CSA and recorded this amount in product sales, net on the consolidated statements of comprehensive loss. The Company recognized $29.5 million of license and collaboration revenue related to the PRA for the years ended December 31, 2023. Under the TSA, the Company also recognized approximately $1.0 million of license and collaboration revenue related to additional transitional services for the year ended December 31, 2023. As of December 31, 2023, the Company had $37.2 million and $8.3 million as current and non-current deferred revenue recognized under the PRA, respectively.
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SWK Royalty Purchase Agreement
Pursuant to a royalty purchase agreement (RPA) with SWK Funding LLC (SWK), the Company sold its right to receive royalty payments on future sales of products subject to a licensing and development agreement, as amended, with Alimera (the Amended Alimera Agreement) for an upfront cash payment of $16.5 million. The Company classified the proceeds received from SWK as deferred revenue at inception of the RPA and is recognizing revenue as royalty payments are made from Alimera to SWK. The Company recognized $1.0 million and $0.9 million of royalty revenue related to the RPA for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company classified $1.4 million and $12.4 million as current and non-current deferred revenue recognized under the RPA, respectively. As of December 31, 2022, the Company classified $1.2 million and $13.6 million as current and non-current deferred revenue recognized under the RPA, respectively.
Ocumension Therapeutics
Pursuant to the Ocumension Agreement signed with the Company, Ocumension has:
•
An exclusive license for the development and commercialization of its three-year micro insert using the Durasert technology for the treatment of posterior segment uveitis of the eye (YUTIQ® in the U.S.) in Mainland China, Hong Kong, Macau, and Taiwan at its own cost and expense in return for royalties based on sales with the Company supplying products for clinical trials and commercial sale;
•
An exclusive license for the development and commercialization in Mainland China, Hong Kong, Macau and Taiwan of DEXYCU® for the treatment of post-operative inflammation following ocular surgery at its own cost and expense in return for royalties based on sales with the Company supplying product for clinical trials and commercial sale; and
•
Exclusive rights to develop and commercialize YUTIQ® and DEXYCU® products under its own brand names in South Korea and other jurisdictions across Southeast Asia in Brunei, Burma (Myanmar), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, at its own cost and expense in return for royalties based on sales with the Company supplying product for clinical trials and commercial sale.
During the years ended December 31, 2023 and 2022, the Company recognized $0.5 million and $0.4 million, respectively, of revenue from sales of product supply to Ocumension under the supply agreement and recorded this amount in product sales, net on the condensed consolidated statements of operations and comprehensive loss. The Company recognized approximately $0.1 million and $0.2 million, of license and collaboration revenue, respectively, related to additional technical assistance during the years ended December 31, 2023 and 2022. The Company also recorded royalty income of $0 and $0.3 million during the years ended December 31, 2023 and 2022, respectively.
The Chief Executive Officer of Ocumension is a member of the Company's board of directors.
Exclusive License Agreement with Betta Pharmaceuticals, Co., Ltd.
On May 2, 2022, the Company entered into an exclusive license agreement (the Betta License Agreement) with Betta Pharmaceuticals Co., Ltd. (Betta), an affiliate of Equinox Sciences, LLC (Equinox) (see Note 13). Under the Betta License Agreement, the Company granted to Betta an exclusive, sublicensable, royalty-bearing license under certain of the Company’s intellectual property to develop, use (but not make or have made), sell, offer for sale and import the Company’s product candidate, EYP-1901, an investigational sustained delivery treatment for anti-VEGF-mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor (TKI) with Durasert ETM (the Licensed Product), 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). The Company retained rights under the Company’s intellectual property to, among other things, conduct clinical trials on the Licensed Product in the Betta Field in the Betta Territory.
In consideration for the rights granted by the Company, Betta agreed to pay the Company tiered, mid-to-high single-digit royalties based upon annual net sales of Licensed Products in the Betta Territory. The royalties are payable on a Licensed Product-by-Licensed Product and region-by-region basis commencing on the first commercial sale of a Licensed Product in a region and continuing until the later of (i) the date that is twelve (12) years after first commercial sale of such Licensed Product in such region, and (ii) the first day of the month following the month in which a generic product corresponding to such Licensed Product is launched in the relevant region. The royalty rate is subject to reduction under certain circumstances, including when there is no valid claim of a licensed patent that covers a Licensed Product in a particular region.
Betta is responsible for all costs relating to development, registration, manufacturing, marketing, advertising, promotional, launch, and sales activities in connection with the Licensed Products in the Betta Field in the Betta Territory. Betta is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize at least one Licensed Product in the Betta Field in the Betta Territory. The Betta License Agreement also requires Betta to achieve certain diligence milestones relating to
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regulatory filings, patient dosing, and regulatory approval by certain specified deadlines set forth in the Betta License Agreement, subject to certain exceptions and extensions as set forth in the Betta License Agreement. Betta’s development activities will be conducted pursuant to a development plan subject to periodic updates. In the event that the Company conducts a global registrational clinical trial for a Licensed Product in the Betta Field, Betta will have the right to participate in such clinical trial by including clinical trial sites in the Betta Territory in accordance with the terms of the Betta License Agreement. The Company has also agreed to provide certain technology transfer and other support services to Betta subject to certain conditions and limitations set forth in the Betta License Agreement.
The Company recorded no revenue from product sales, license and collaboration revenue, or royalty income for the years ended December 31, 2023 and 2022, related to this agreement.
4.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31, December 31,