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March 14, 2022, 6:29 a.m. EDT


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

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


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

Fiscal 2021 Overview and COVID-19 Impact

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

In February 2021, we sold 10,465,000 shares of common stock in an underwritten public offering at a price of $11.00 per share, including the exercise in full by the underwriters of their option to purchase up to 1,365,000 additional shares of our common stock. The gross proceeds of the offering are approximately $115.1 million. Underwriter discounts and commissions and other share issue costs totaled approximately $7.2 million.

In a press release dated April 7, 2021, our Asia partner, Ocumension, announced that the new drug application ("NDA") for OT-401 (YUTIQ) had been accepted by the National Medical Products Administration of the People's Republic of China ("NMPA"). Ocumension reported that YUTIQ is its first ophthalmic drug for which an NDA has been accepted by the NMPA and is also the first sustained-release micro-insert submitted for NDA approval in mainland China that has a controlled release rate for up to 36 months. Ocumension's press release also announced that this is the first time the NMPA has accepted an NDA based on real world study data.

In June 2021, we received notification from Silicon Valley Bank ("SVB") that the Paycheck Protection Program Loan ("PPP Loan") of $2.0 million has been fully forgiven by the U.S. Small Business Administration ("SBA"), and that payment and all accrued interest thereon were remitted by the SBA to SVB on June 16, 2021.

In June 2021, we announced that we had joined the Russell 2000(R) and the Russell 3000(R) indices.

In July 2021, we announced that the American Medical Association created a new Category III Current Procedural Terminology (CPT(R)) Code to describe the injection of medicines like DEXYCU(R). The code, OX78T, is for the administration of a drug into the posterior chamber of the anterior segment of the eye and became effective January 1, 2022. The new CPT code, as implemented, adds DEXYCU administration to the reimbursement bundle for cataract surgery, in addition to the pass-through payment for the drug itself.

In July 2021, we announced that we expect to receive a nine month extension of separate payment for DEXYCU, which would otherwise expire on March 31, 2022, with the end of the drug's pass-through status. The announcement was based on the fiscal year (FY) 2022 Medicare Hospital Outpatient Prospective Payment System (OPPS) proposed rule. The rule includes a proposal to extend the period of separate payment for select pass-through drugs and devices that have their pass-through status scheduled to expire between December 31, 2021 and September 30, 2022, including DEXYCU. CMS proposes to extend the period of separate payment for these therapies beyond the expiration of pass-through status in light of the COVID-19 public health emergency. The proposal is subject to a public comment period and may be either adopted as proposed, modified, or withdrawn in the FY 2022 OPPS final rule, which is anticipated to be released in November 2021.

In August 2021, we announced the establishment of our Executive Scientific Advisory Board with prestigious members made up of some of the leading retinal surgeons in the world and chaired by Dr. Carl Regillo MD, FACS, Chief of the Retina Service at Wills Eye Hospital.

On November 1, 2021, we appointed Jay S. Duker, M.D. as our Chief Operating Officer. In his new role, Dr. Duker will be responsible for overseeing all clinical development, research, product development and manufacturing. Dr. Duker joined EyePoint as Chief Strategic Scientific Officer on a part-time basis in 2020, after serving as an independent member of our Board of Directors since 2016. Dr. Duker has spent over 30 years in academic ophthalmology, and for the past 21 years served as Chair of the Department of Ophthalmology at Tufts Medical Center and the Tufts University School of Medicine, a position he relinquished to join EyePoint full time.

In November 2021, we sold 5,122,273 shares of Common Stock, which included the exercise in full by the underwriters of their option to purchase an additional 1,095,000 shares of common stock, and pre-funded warrants to purchase up to an aggregate of 3,272,727 shares of common stock. The shares of common stock were sold at a public offering price of $13.75 per share, and the pre-funded warrants were sold at a purchase price of $13.74 per pre-funded warrants, for aggregate gross proceeds of approximately $115.4 million. Underwriter discounts and commissions and other share issue costs totaled approximately $7.2 million.

In December, we announced the expansion of our commercial alliance in which ImprimisRx will assume responsibility for U.S. sales and marketing activities for DEXYCU 9% for the treatment of post-operative inflammation following ocular surgery in the U.S. The amended agreement expands the commercial alliance previously established in August 2020 between EyePoint and ImprimisRx. Under terms of the expanded alliance, ImprimisRx absorbed the majority of EyePoint's DEXYCU commercial organization. EyePoint will continue to recognize net product revenue and maintain manufacturing and distribution responsibilities for DEXYCU along with non-sales related regulatory compliance. EyePoint will pay ImprimisRx a commission based on net sales of DEXYCU and will retain all commercial rights for DEXYCU. The amended agreement became effective on January 1, 2022.

R&D Highlights

In January 2021, we dosed our first patient in our Phase 1 DAVIO clinical trial for EYP-1901.

In May 2021, studies of DEXYCU were presented in two separate poster sessions at the Association for Research in Vision and Ophthalmology ("ARVO") Annual meeting.

In May 2021, we announced the completion of enrollment in our Phase 1 DAVIO clinical trial of EYP-1901 for the potential treatment of Wet AMD.

In July 2021, we reported positive 30-day safety results for all cohorts from the DAVIO clinical trial. Key safety observations through at least 30-Day post-dosing follow-up for all patients include: (i) No serious adverse events (SAEs), ocular or systemic, (ii) no reported adverse events (AEs) related to significant intraocular inflammation, best-corrected visual acuity (BCVA) reduction, or elevation of intraocular pressure (IOP) and

In July 2021, DEXYCU was presented in three separate oral presentations, one poster session and a video symposium at the American Society of Cataract and Refractive Surgery (ASCRS) Annual Meeting.

In September 2021, we announced that a late-breaking abstract highlighting topline data for the Phase 1 DAVIO trial of EYP-1901 in wet AMD was selected for presentation at the American Academy of Ophthalmology (AAO) 2021 Annual Meeting.

In October 2021, we reported positive 3-month safety data for all dose levels from our ongoing DAVIO trial of EYP-1901 for the potential treatment of wet AMD at the American Society of Retina Specialists (ASRS) Annual Meeting.

In October 2021, we reported preliminary data from our ongoing YUTIQ(R) CALM real-world registry study at Retina Society and ASRS.

In November, 2021 we reported positive safety and efficacy from our ongoing Phase 1 DAVIO trial of EYP-1901 at the American Academy of Ophthalmology (AAO) 2021 Annual Meeting Retina Subspecialty Day.

Recent Developments

Customer demand for DEXYCU in Q4, represented as units purchased by ambulatory surgical centers, was up 5% over Q3, driven by increases in cataract surgeries and some re-opening of ASC's.

On January 10, 2022, we appointed Michael C. Pine Chief Corporate Development and Strategy Officer. Mr. Pine brings over 20 years of business and corporate development expertise, leveraging experience from various roles at small and large pharmaceutical companies.

On March 7, 2022, we appointed Isabelle Lefebvre as Chief Regulatory Officer. Ms. Lefebvre brings over 30 years of global regulatory affairs experience across all phases of drug development including ophthalmic and ocular conditions. Ms. Lefebvre is succeeding John Weet, Ph.D., who be leaving his role as Senior Vice President, Regulatory, following a transition period.

On March 9, 2022, we entered into a loan agreement for senior secured credit facilities in the aggregate amount of $45 million with Silicon Valley Bank to replace our existing credit facility with CRG Services LLC. Under the terms of the new agreement, a $30 million term loan facility and an asset-based revolving credit facility of up to $15 million will be utilized to replace the existing approximately $40.5 million of obligations under the existing CRG credit facility.

Summary of Critical Accounting Policies and Estimates

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

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

Revenue Recognition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Deferred Revenue

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

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

Recognition of Expense in Outsourced Clinical Trial Agreements

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

Mar 14, 2022


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