EyePoint Pharmaceuticals(EYPT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements The company reported an improved net loss for Q3 and YTD 2023, with revenues up 52% due to the Alimera deal, and $136.0 million in liquidity funding operations into 2025 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Assets: | | | | Cash and cash equivalents | $133,035 | $95,633 | | Marketable securities | $2,977 | $48,928 | | Accounts and other receivables, net | $483 | $15,503 | | Inventory | $4,577 | $2,886 | | Total current assets | $150,163 | $172,808 | | Total assets | $160,043 | $180,356 | | Liabilities: | | | | Accounts payable | $9,580 | $5,919 | | Accrued expenses | $13,417 | $16,359 | | Deferred revenue | $39,841 | $1,205 | | Short-term borrowings | $0 | $10,475 | | Total current liabilities | $63,896 | $34,537 | | Long-term debt | $0 | $29,310 | | Total liabilities | $101,422 | $83,988 | | Stockholders' Equity: | | | | Additional paid-in capital | $785,792 | $766,899 | | Accumulated deficit | $(728,047) | $(671,351) | | Total stockholders' equity | $58,621 | $96,368 | | Total liabilities and stockholders' equity | $160,043 | $180,356 | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: | | | | | | Product sales, net | $816 | $9,720 | $13,483 | $30,048 | | License and collaboration agreements | $14,137 | $52 | $17,768 | $160 | | Royalty income | $249 | $240 | $739 | $663 | | Total revenues | $15,202 | $10,012 | $31,990 | $30,871 | | Operating expenses: | | | | | | Cost of sales | $1,202 | $1,405 | $3,634 | $4,916 | | Research and development | $17,363 | $11,162 | $46,711 | $34,099 | | Sales and marketing | $479 | $6,016 | $11,504 | $19,592 | | General and administrative | $10,556 | $9,212 | $28,854 | $26,321 | | Amortization of acquired intangible assets | $0 | $615 | $0 | $1,845 | | Total operating expenses | $29,600 | $28,410 | $90,703 | $86,773 | | Loss from operations | $(14,398) | $(18,398) | $(58,713) | $(55,902) | | Other income (expense): | | | | | | Interest and other income, net | $1,786 | $640 | $4,611 | $1,067 | | Interest expense | $0 | $(662) | $(1,247) | $(2,408) | | Loss on extinguishment of debt | $0 | $0 | $(1,347) | $(1,559) | | Net loss | $(12,612) | $(18,420) | $(56,696) | $(58,802) | | Net loss per share – basic and diluted | $(0.33) | $(0.49) | $(1.50) | $(1.58) | | Weighted average shares outstanding | 38,341 | 37,338 | 37,804 | 37,305 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (Nine Months Ended Sep 30, in thousands, except share data) | Metric | Jan 1, 2023 | Sep 30, 2023 | | :------------------------------------------ | :---------- | :----------- | | Common Stock (Number of Shares) | 34,082,934 | 35,309,432 | | Common Stock (Par Value Amount) | $34 | $35 | | Additional Paid-In Capital | $766,899 | $785,792 | | Accumulated Deficit | $(671,351) | $(728,047) | | Accumulated Other Comprehensive Income | $786 | $841 | | Total Stockholders' Equity | $96,368 | $58,621 | Key Changes (Nine Months Ended Sep 30, 2023) * Net loss: $(56,696) thousand * Issuance of stock, net of issue costs: $9,540 thousand * Employee stock purchase plan: $422 thousand * Exercise of stock options: $634 thousand * Stock-based compensation: $8,467 thousand Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $24,984 | $(52,417) | | Net cash provided by (used in) investing activities | $43,833 | $(50,182) | | Net cash used in financing activities | $(31,415) | $(632) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $37,402 | $(103,231) | | Cash, cash equivalents and restricted cash at beginning of period | $95,783 | $178,743 | | Cash, cash equivalents and restricted cash at end of period | $133,185 | $75,512 | Notes to Condensed Consolidated Financial Statements 1. Operations - The company is committed to developing and commercializing therapeutics for serious eye disorders, leveraging its proprietary erodible DURASERT E™ technology for sustained intraocular drug delivery[20] - The pipeline includes EYP-1901, an investigational intravitreal treatment delivering vorolanib, currently in Phase 2 clinical trials for wet age-related macular degeneration (wet AMD) and non-proliferative diabetic retinopathy (NPDR). EYP-2301 is advancing into pre-clinical development for diabetic eye diseases[20] - In May 2023, the company granted an exclusive license and rights to its YUTIQ® product to Alimera Sciences, Inc. for $82.5 million, consisting of a $75.0 million upfront cash payment and an additional $7.5 million in equal quarterly installments in 2024. 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 2025-2028[21] - The company had cash, cash equivalents, and investments in marketable securities of $136.0 million at September 30, 2023, which is expected to fund current and planned operations for at least the next twelve months[23] - The company has a history of operating losses and anticipates continued losses as it advances product candidates through research and development[23] 2. Summary of Significant Accounting Policies - Revenue is recognized in accordance with ASC 606, when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received[25] - Product sales, net, primarily from YUTIQ and DEXYCU, were recognized at the point in time when Distributors obtained control of the products, net of applicable reserves for variable consideration (e.g., trade discounts, chargebacks, rebates, product returns)[26][27] - License and collaboration agreement revenue from upfront payments is recognized upon fulfilling the delivery of associated intellectual property. For combined performance obligations, revenue is satisfied over time using the units delivered output method[34][52] - Royalties are recognized when the subsequent sale of the commercial partner's products occurs[38] - Proceeds from the sale of future royalties are deferred and recognized as revenue over the life of the underlying license agreement using the units-of-revenue method[39] - Cost of sales includes manufacturing costs for YUTIQ and DEXYCU, product shipping, and royalty expense[43] 3. Revenue Product Revenue Allowance and Reserve Categories (in thousands) | Category | Beginning Balance (Jan 1, 2023) | Provision (Current Year) | Adjustments (Prior Period) | Deductions/Payments | Ending Balance (Sep 30, 2023) | | :-------------------------------- | :------------------------------ | :----------------------- | :------------------------- | :------------------------- | :------------------------------ | | Chargebacks, Discounts and Fees | $859 | $1,561 | $40 | $(2,279) | $181 | | Government and Other Rebates | $158 | $0 | $(55) | $(103) | $0 | | Returns | $871 | $0 | $(154) | $(156) | $561 | | Total | $1,888 | $1,561 | $(169) | $(2,538) | $742 | - On May 17, 2023, the company entered into a product rights agreement (PRA) with Alimera Sciences, Inc., granting an exclusive license for YUTIQ® outside EMEA and certain Asian territories. Alimera paid a $75.0 million upfront payment and will make four quarterly payments totaling $7.5 million in 2024. Royalties will be paid from 2025 to 2028 on U.S. net sales above defined thresholds[48][49] - For the three months ended September 30, 2023, the company recognized $1.0 million in product sales, net, from product supply to Alimera under the commercial supply agreement (CSA), and $13.6 million in license and collaboration revenue related to the PRA and CSA. An additional $394,000 in license and collaboration revenue was recognized for transitional services[53] - As of September 30, 2023, current and non-current deferred revenue recognized under the PRA totaled $38.5 million and $19.6 million, respectively[53] - Royalty revenue related to the SWK Royalty Purchase Agreement was $249,000 for the three months ended September 30, 2023, and $737,000 for the nine months ended September 30, 2023[54] - For the nine months ended September 30, 2023, the company recognized $471,000 of product sales and $65,000 of license and collaboration revenue from Ocumension Therapeutics[56] 4. Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------ | :----------- | :----------- | | Prepaid expenses | $1,610 | $2,723 | | Prepaid clinical trials | $6,932 | $6,353 | | Other | $549 | $782 | | Total prepaid expenses and other current assets | $9,091 | $9,858 | 5. Inventory Inventory (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :-------------- | :----------- | :----------- | | Raw materials | $1,271 | $1,410 | | Work in process | $1,864 | $1,078 | | Finished goods | $1,442 | $398 | | Total inventory | $4,577 | $2,886 | 6. Accrued Expenses Accrued Expenses (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Personnel costs | $8,470 | $9,515 | | Clinical trial costs | $2,067 | $3,308 | | Due to Alimera | $1,579 | $0 | | Professional fees | $937 | $761 | | Sales chargebacks, rebates and other revenue reserves | $181 | $1,017 | | Other | $183 | $1,758 | | Total accrued expenses | $13,417 | $16,359 | 7. Leases - The company amended its headquarters lease in March 2022, extending the term to May 31, 2028, for laboratory and manufacturing space and adding 11,999 square feet of office space[64] - In January 2023, the company entered into a lease agreement for a new standalone manufacturing facility (approximately 40,000 square feet) in Northbridge, Massachusetts, with a non-cancellable term of fifteen years and four months. Lease commencement is expected in the second half of 2024[67] - As of September 30, 2023, the weighted average remaining term of the company's operating leases was 4.5 years, and the weighted average discount rate was 5.84%[70] Operating Lease Liabilities (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Other current liabilities – operating lease current portion | $1,058 | $543 | | Operating lease liabilities – noncurrent portion | $5,185 | $5,984 | | Total operating lease liabilities | $6,243 | $6,527 | Operating Lease Expense (in thousands) | Period | ROU Assets | Variable Lease Costs | R&D Expense | S&M Expense | G&A Expense | | :-------------------------------- | :--------- | :----------------- | :---------- | :---------- | :---------- | | Three Months Ended Sep 30, 2023 | $356 | $47 | $291 | $0 | $65 | | Three Months Ended Sep 30, 2022 | $263 | $2 | $240 | $0 | $23 | | Nine Months Ended Sep 30, 2023 | $1,067 | $106 | $873 | $0 | $194 | | Nine Months Ended Sep 30, 2022 | $781 | $8 | $637 | $53 | $91 | Future Minimum Lease Payments (in thousands) | Year | Operating Leases | | :---------------- | :--------------- | | Remainder of 2023 | $346 | | 2024 | $1,392 | | 2025 | $1,494 | | 2026 | $1,589 | | 2027 | $1,637 | | Thereafter | $693 | | Total lease payments | $7,151 | | Less imputed interest | $(908) | | Total | $6,243 | 8. Loan Agreements - The company fully repaid all outstanding amounts under the SVB Loan Agreement on May 17, 2023, utilizing a portion of the upfront payment from the Alimera PRA[73] - The repayment included $30.0 million principal, a $600,000 prepayment fee, a $600,000 exit fee, $139,000 in accrued interest, and $155,000 in other fees[73] - A loss on extinguishment of debt of $1.4 million was recorded for the nine months ended September 30, 2023, due to the write-off of the remaining balance of unamortized debt discount[73] 9. Stockholders' Equity - During the three and nine months ended September 30, 2023, the company sold 902,769 shares of common stock through its at-the-market (ATM) facility at a weighted average price of $11.05 per share, generating gross proceeds of approximately $10.0 million[75] - Share issue costs, including sales agent commissions, totaled approximately $434,000 during the reporting periods[75] - As of September 30, 2023, there were 48,683 warrants outstanding to purchase common shares, with a weighted average exercise price of $12.33 per share and a remaining life of approximately 1.53 years[76] 10. Share-Based Payment Awards - The 2023 Long Term Incentive Plan was approved on June 20, 2023, reserving 3,500,000 shares plus remaining shares from prior plans. Approximately 2,400,000 shares were available for new awards at September 30, 2023[78] Stock Option Activity (Nine Months Ended Sep 30, 2023) | Category | Number of Options | Weighted Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Outstanding at Jan 1, 2023 | 4,082,555 | $13.79 | | Granted | 2,739,861 | $4.28 | | Exercised | (56,090) | $11.31 | | Forfeited | (373,911) | $7.01 | | Expired | (51,753) | $25.98 | | Outstanding at Sep 30, 2023 | 6,340,662 | $10.00 | | Exercisable at Sep 30, 2023 | 2,354,229 | $15.69 | - The weighted average remaining contractual life of outstanding options was 8.07 years, with an aggregate intrinsic value of $10,437 thousand at September 30, 2023[80] Time-Vested Restricted Stock Units (RSUs) Activity (Nine Months Ended Sep 30, 2023) | Category | Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | | :------------------------------- | :------------------------------- | :------------------------------------- | | Nonvested at Jan 1, 2023 | 509,170 | $10.81 | | Granted | 1,071,354 | $3.92 | | Vested | (201,414) | $11.04 | | Forfeited | (45,368) | $8.63 | | Nonvested at Sep 30, 2023 | 1,333,742 | $5.31 | - The weighted average remaining vesting term of RSUs was 1.45 years at September 30, 2023[83] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $1,263 | $1,277 | $3,405 | $4,762 | | Sales and marketing | $60 | $290 | $290 | $1,195 | | General and administrative | $2,306 | $1,632 | $4,772 | $4,859 | | Total | $3,629 | $3,199 | $8,467 | $10,816 | - Approximately $13.0 million of unrecognized compensation expense related to outstanding equity awards is expected to be recognized over a weighted average period of approximately 1.58 years[86] 11. License and Asset Purchase Agreements - The Equinox License Agreement (February 2020) grants the company an exclusive license for vorolanib for local eye delivery (wet AMD, diabetic retinopathy, retinal vein occlusion) globally, excluding China, Hong Kong, Taiwan, and Macau[87] - Consideration for the Equinox license included a $1.0 million upfront payment, up to $50 million in development and regulatory milestones, and tiered royalties (high-single to low-double digits) on annual net sales[88][89] - Amendment 1 to the Equinox License Agreement (May 2022) expanded the original field to cover all ophthalmology indications[90] - No R&D expense was recorded for the three and nine months ended September 30, 2023, or 2022, related to the Equinox License Agreement, as no milestones were achieved[91] 12. Restructuring Charges - On May 17, 2023, the company executed a restructuring plan related to its commercial operations, primarily downsizing its YUTIQ sales force and supporting commercial operations due to the PRA with Alimera[92] - The company recorded approximately $1.4 million in YUTIQ sales force personnel and employee severance charges for the nine months ended September 30, 2023[92] - These charges were allocated as $300,000 to research and development expense, $940,000 to sales and marketing expense, and $165,000 to general and administrative expense[92] Restructuring Activities (Nine Months Ended Sep 30, 2023, in thousands) | Category | Employee Severance and Benefits | Total | | :-------------------------- | :------------------------------ | :------ | | Beginning balance at Jan 1, 2023 | $0 | $0 | | Restructuring charges | $1,405 | $1,405 | | Cash payments | $(1,062) | $(1,062) | | Ending balance at Sep 30, 2023 | $343 | $343 | 13. Fair Value Measurements Assets at Fair Value (September 30, 2023, in thousands) | Category | Carrying Value | Fair Value | Cash Equivalents | Marketable Securities | | :---------------- | :------------- | :--------- | :--------------- | :-------------------- | | Level 1: | | | | | | Money market funds | $126,234 | $126,234 | $126,234 | $0 | | Level 2: | | | | | | U.S. Treasury securities | $2,977 | $2,977 | $0 | $2,977 | | Total | $129,211 | $129,211 | $126,234 | $2,977 | Assets at Fair Value (December 31, 2022, in thousands) | Category | Carrying Value | Fair Value | Cash Equivalents | Marketable Securities | | :---------------- | :------------- | :--------- | :--------------- | :-------------------- | | Level 1: | | | | | | Money market funds | $77,191 | $77,191 | $77,191 | $0 | | Level 2: | | | | | | Commercial paper | $18,701 | $18,701 | $0 | $18,701 | | U.S. Treasury securities | $35,266 | $35,211 | $4,984 | $30,227 | | Total | $131,158 | $131,103 | $82,175 | $48,928 | - Marketable securities decreased from $48.9 million at December 31, 2022, to $3.0 million at September 30, 2023[97] 14. Contingencies - The company is subject to various routine legal proceedings and claims incidental to its business, which management believes will not have a material effect on the company's financial position, results of operations, or cash flows[101] - In August 2022, the company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts seeking documents related to sales, marketing, and promotional practices for DEXYCU®. The company is cooperating fully, but the duration, scope, or outcome and potential material impact are currently unpredictable[102] 15. Net Loss per Share - Potentially dilutive common stock equivalents were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, as their inclusion would have been anti-dilutive[103] Potential Common Stock Equivalents Excluded from Diluted EPS (September 30) | Category | 2023 | 2022 | | :-------------------- | :--------- | :--------- | | Stock options | 6,340,662 | 4,031,665 | | ESPP | 8,522 | 12,849 | | Warrants | 48,683 | 48,683 | | Restricted stock units | 1,333,742 | 529,678 | | Total | 7,731,609 | 4,622,875 | 16. Related Party Transactions - The company conducts business with Altasciences, an entity whose board includes the company's former CEO and current Executive Vice Chair[105] R&D Expense for Preclinical/Analytical Services from Altasciences (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $413 | $237 | | Nine Months Ended Sep 30 | $1,300 | $1,500 | Accounts Payable and Prepaid Expenses related to Altasciences (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :---------------- | :----------- | :----------- | | Accounts payable | $469 | $201 | | Prepaid expenses | $610 | $752 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 and YTD 2023 financial performance was significantly impacted by the YUTIQ divestiture, increasing license revenue and liquidity, while R&D expenses rose for EYP-1901 trials Note Regarding Forward-Looking Statements - The report contains forward-looking statements regarding future activities, events, or developments, including expectations for revenues, expenses, cash flows, R&D, regulatory approvals, and commercialization[106][107] - Factors that could cause actual results to differ materially include the potential for EYP-1901, timing and outcome of clinical trials, manufacturing ability, access to capital, outcome of the DOJ investigation, intellectual property protection, and success of collaboration agreements[108][109] - The company does not undertake any obligation to publicly update or revise its forward-looking statements[111] Our Business - The company is committed to developing and commercializing innovative therapeutics for serious eye disorders, leveraging its proprietary bioerodible DURASERT E™ technology for sustained intraocular drug delivery[113] - The pipeline includes EYP-1901, an investigational treatment delivering vorolanib, currently in Phase 2 clinical trials for wet AMD and NPDR, and EYP-2301, advancing into pre-clinical development for diabetic eye diseases[113] Recent Developments - In October 2023, Stuart Duty was appointed to the Board of Directors, and George Elston (CFO) was promoted to Executive Vice President[116] - In July 2023, Jay S. Duker, M.D. was appointed President and CEO, and Nancy S. Lurker transitioned to Executive Vice Chair[116] - In May 2023, the company entered into a definitive agreement granting an exclusive license and rights to YUTIQ to Alimera, receiving a $75 million upfront cash payment and an additional $7.5 million in 2024, plus future royalties[118] - In May 2023, the FDA classified the September 2021 inspection of the Watertown, MA facility as Voluntary Action Indicated (VAI), no longer Official Action Indicated (OAI)[118] - In September 2023, the company disclosed the advancement of pipeline program EYP-2301 into pre-clinical development[118] - In September 2023, positive interim masked safety data for EYP-1901 from Phase 2 PAVIA (NPDR) and DAVIO 2 (wet AMD) trials were announced, with no reported drug-related ocular or systemic severe adverse events (SAEs) in approximately 170 patients[118] - Enrollment in the Phase 2 PAVIA clinical trial (NPDR) was completed in June 2023, and enrollment in the Phase 2 DAVIO 2 clinical trial (wet AMD) was completed in March 2023[118] - In February 2023, the company entered into a research collaboration with Rallybio to evaluate sustained delivery of their C5 inhibitor using Durasert technology for geographic atrophy[118] R&D Highlights Critical Accounting Policies and Estimates - The preparation of consolidated financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses[118] - Critical accounting policies and estimates include revenue recognition, reserves for variable consideration associated with commercial revenue, and recognition of expense in outsourced clinical trial agreements[118] Results of Operations Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 Consolidated Statements of Operations (Three Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Change Amount | Change % | | :------------------------------------------ | :----- | :----- | :------------ | :------- | | Product sales, net | $816 | $9,720 | $(8,904) | -92% | | License and collaboration agreements | $14,137 | $52 | $14,085 | 27087% | | Royalty income | $249 | $240 | $9 | 4% | | Total revenues | $15,202 | $10,012 | $5,190 | 52% | | Cost of sales | $1,202 | $1,405 | $(203) | -14% | | Research and development | $17,363 | $11,162 | $6,201 | 56% | | Sales and marketing | $479 | $6,016 | $(5,537) | -92% | | General and administrative | $10,556 | $9,212 | $1,344 | 15% | | Amortization of acquired intangible assets | $0 | $615 | $(615) | -100% | | Total operating expenses | $29,600 | $28,410 | $1,190 | 4% | | Loss from operations | $(14,398) | $(18,398) | $4,000 | -22% | | Interest and other income, net | $1,786 | $640 | $1,146 | 179% | | Interest expense | $0 | $(662) | $662 | -100% | | Net loss | $(12,612) | $(18,420) | $5,808 | -32% | | Net loss per share - basic and diluted | $(0.33) | $(0.49) | $0.16 | -33% | - Product sales, net, decreased by $8.9 million (92%) primarily due to the YUTIQ license agreement with Alimera and de minimis DEXYCU sales following the loss of pass-through reimbursement[120] - License and collaboration agreement revenues increased by $14.1 million, driven by the recognition of deferred revenue related to the Alimera YUTIQ product rights agreement and transition services[122] - Research and development expenses increased by $6.2 million (56%) due to higher clinical trial costs for the ongoing Phase 2 DAVIO2 and PAVIA trials for EYP-1901, and increased personnel expenses[125] - Sales and marketing expenses decreased by $5.5 million (92%) due to reduced YUTIQ promotion following the Alimera agreement and the discontinuation of DEXYCU promotional activities[126] - There was no amortization of acquired intangible assets in Q3 2023 due to the impairment of the DEXYCU intangible asset in Q4 2022[128] - Interest income increased by $1.1 million (179%) due to a larger cash investment in marketable securities and higher interest rates[129] - No interest expense was incurred in Q3 2023 following the repayment of the SVB loan on May 17, 2023[130] Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 Consolidated Statements of Operations (Nine Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Change Amount | Change % | | :------------------------------------------ | :----- | :----- | :------------ | :------- | | Product sales, net | $13,483 | $30,048 | $(16,565) | -55% | | License and collaboration agreements | $17,768 | $160 | $17,608 | 11005% | | Royalty income | $739 | $663 | $76 | 11% | | Total revenues | $31,990 | $30,871 | $1,119 | 4% | | Cost of sales | $3,634 | $4,916 | $(1,282) | -26% | | Research and development | $46,711 | $34,099 | $12,612 | 37% | | Sales and marketing | $11,504 | $19,592 | $(8,088) | -41% | | General and administrative | $28,854 | $26,321 | $2,533 | 10% | | Amortization of acquired intangible assets | $0 | $1,845 | $(1,845) | -100% | | Total operating expenses | $90,703 | $86,773 | $3,930 | 5% | | Loss from operations | $(58,713) | $(55,902) | $(2,811) | 5% | | Interest and other income, net | $4,611 | $1,067 | $3,544 | 332% | | Interest expense | $(1,247) | $(2,408) | $1,161 | -48% | | Loss on extinguishment of debt | $(1,347) | $(1,559) | $212 | -14% | | Net loss | $(56,696) | $(58,802) | $2,106 | -4% | | Net loss per share - basic and diluted | $(1.50) | $(1.58) | $0.08 | -5% | - Product sales, net, decreased by $16.6 million (55%) due to the YUTIQ license agreement with Alimera and de minimis DEXYCU sales[133] - License and collaboration agreement revenues increased by $17.6 million, driven by deferred revenue recognition from the Alimera supply agreement[135] - Cost of sales decreased by $1.3 million (26%) due to reduced revenue from DEXYCU and YUTIQ, partially offset by a $533,000 inventory reserve for DEXYCU finished goods and components[137] - Research and development expenses increased by $12.6 million (37%) due to increased clinical trial costs for EYP-1901 (DAVIO2 and PAVIA), personnel costs, and facility costs, partially offset by a decrease in clinical manufacturing costs[138] - Sales and marketing expenses decreased by $8.1 million (41%) due to reduced YUTIQ activities and discontinuation of DEXYCU promotional activities, offset by a one-time restructuring charge of $940,000[139] - Interest income increased by $3.5 million (332%) due to increased cash invested in marketable securities and higher interest rates[142] - Interest expense decreased by $1.2 million (48%) due to the repayment of the SVB loan on May 17, 2023[143] Liquidity and Capital Resources Financing Activities - The company fully repaid all outstanding amounts under the SVB Loan Agreement on May 17, 2023, using a portion of the upfront payment from the Alimera PRA[147] - The repayment included $30.0 million principal, a $600,000 prepayment fee, a $600,000 exit fee, $139,000 accrued interest, and $155,000 in other fees, resulting in a $1.4 million loss on extinguishment of debt[147] - During the three and nine months ended September 30, 2023, the company sold 902,769 shares of common stock through its at-the-market (ATM) facility for net proceeds of approximately $9.6 million[148] Cash Flows from Operating, Investing, and Financing Activities (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Net cash provided by (used in) operating activities | $24,984 | $(52,417) | $77,401 | | Net cash provided by (used in) investing activities | $43,833 | $(50,182) | $94,015 | | Net cash used in financing activities | $(31,415) | $(632) | $(30,783) | - Operating cash inflows for the nine months ended September 30, 2023, totaled $25.0 million, primarily driven by $57.4 million of deferred revenue related to the Alimera YUTIQ license and $13.7 million of other working capital changes, offset by the net loss and non-cash expenses[153] - Investing activities for the nine months ended September 30, 2023, provided $46.4 million net cash from sales of marketable securities, while $2.6 million was used for property and equipment purchases[155] - Net cash used in financing activities for the nine months ended September 30, 2023, totaled $31.4 million, including $40.5 million to pay off the SVB loan, $1.4 million for debt extinguishment costs, and $9.6 million net proceeds from stock issuance[156] Future Funding Requirements - At September 30, 2023, the company had $136.0 million in cash, cash equivalents, and marketable securities, which is expected to fund its operating plan into 2025[149] - The company anticipates incurring substantial additional operating losses for at least the next several years as it continues to develop product candidates and seek marketing approval[149] - Future capital requirements are influenced by factors such as additional investments in R&D programs, clinical trial expenses for EYP-1901 and EYP-2301, competing technological and market developments, and the costs of strategic acquisitions[150][151] - The ability to raise additional capital in future periods is not assured, and potential equity financing may be dilutive to stockholders, while debt financing may involve restrictive covenants[152] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[159] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - Management, with the participation of the principal executive officer and principal financial officer, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023[160] - Based on the evaluation, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level[161] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[162] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company faces routine legal proceedings and is cooperating with a DOJ subpoena regarding DEXYCU® sales practices, with unpredictable outcomes and financial impacts - The company is subject to various routine legal proceedings and claims incidental to its business, which management believes will not have a material effect on its financial position, results of operations, or cash flows[165] - In August 2022, the company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts seeking documents related to sales, marketing, and promotional practices for DEXYCU®. The company is cooperating fully, but the duration, scope, or outcome and potential material impact are currently unpredictable[166] Item 1A. Risk Factors Updated risk factors include limited credit access, dependency on Alimera's YUTIQ sales, EYP-1901 development uncertainties, and challenges in retaining key personnel post-YUTIQ divestiture - This section augments and updates certain risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[167] - The company's ability to access credit on favorable terms for funding operations and capital projects may be limited due to changes in credit markets[168] - The company's receipt of maximum consideration from the sale of YUTIQ® to Alimera Sciences, Inc. is dependent on Alimera's effective sale and distribution of YUTIQ® outside of China, Hong Kong, Taiwan, Macau, and Southeast Asia[169] - The company may not be able to realize the anticipated benefits from the sale of its YUTIQ franchise to Alimera, including utilizing proceeds for EYP-1901 development and maximizing stockholder value, due to potential adverse clinical developments or difficulties in development[170][171] - Uncertainty among current and prospective employees following the Alimera sale and workforce reduction may adversely affect the company's ability to attract or retain key management personnel or other key employees[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds were reported[173] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[174] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures during the period - No mine safety disclosures were reported[175] Item 5. Other Information No other information was reported in this section - No other information was reported[176] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements, corporate governance documents, and executive officer certifications - The exhibits include the Product Rights Agreement with Alimera Sciences, Inc., Certificate of Incorporation, By-Laws, Warrants to Purchase Common Stock, Registration Rights Agreements, Form of Pre-Funded Warrant, Employment Agreements, and Certifications of Principal Executive and Financial Officers[178][179] Certifications The report includes certifications from the Principal Executive and Financial Officers, affirming the accuracy and completeness of financial statements and disclosures per Sarbanes-Oxley Act requirements - The report includes Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act (Sarbanes-Oxley Act Section 302) and 18 U.S.C. Section 1350 (Sarbanes-Oxley Act Section 906)[178][179] Signatures The report was officially signed by the President and CEO, Jay S. Duker, M.D., and the EVP and CFO, George O. Elston, on November 3, 2023 - The report was signed by Jay S. Duker, M.D., President and Chief Executive Officer, and George O. Elston, Executive Vice President and Chief Financial Officer, on November 3, 2023[183]