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May 6, 2022, 1:46 p.m. EDT

10-Q: EYEPOINT PHARMACEUTICALS, INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward-Looking Statements

Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements give our current expectations or forecasts of future events and are not statements of historical or current facts. These statements include, among others, statements about:

the potential for EYP-1901, as an investigational sustained delivery intravitreal anti-VEGF treatment targeting wet age-related macular degeneration ("wet AMD"), non-proliferative diabetic retinopathy ("NPDR") and diabetic macular edema ("DME");

our expectations regarding the timing and outcome of our planned Phase 2 clinical trials for EYP-1901, for the treatment of wet AMD, NPDR and DME;

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

the extent to which our business, the medical community and the global economy will continue to be materially and adversely impacted by the effects of the COVID-19 pandemic (the "Pandemic"), or by other pandemics, epidemics or outbreaks;

our cash flow expectations from commercial sales of YUTIQ and DEXYCU;

our ability to manufacture YUTIQ and DEXYCU, or any future products or product candidates, in sufficient quantities and quality;

our belief that our cash, cash equivalents, and marketable securities of $190.8 million at March 31, 2022, combined with anticipated net cash inflows from product sales, will fund our operating plans into the second half of 2024, under current expectations regarding the initiation of our Phase 2 clinical trials for EYP-1901;

our ability to obtain additional capital in sufficient amounts and on terms acceptable to us, and the consequences of failing to do so;

our future expenses and capital expenditures;

our expectations regarding our ability to obtain and adequately maintain sufficient intellectual property protection for EYP-1901, YUTIQ, DEXYCU and any future products or product candidates, and to avoid claims of infringement of third-party intellectual property rights;

our expectation that we will continue to incur significant expenses and that our operating losses and our net cash outflows to fund operations will continue for the foreseeable future;

our expectations regarding our expanded commercial alliance with ImprimisRx for the sales and marketing of DEXYCU, and ImprimisRx's ability to execute on sales and marketing activities for the brand; and

the effect of legal and regulatory developments.

Forward-looking statements also include statements other than statements of current or historical fact, including, without limitation, all statements related to any expectations of revenues, expenses, cash flows, earnings or losses from operations, cash required to maintain current and planned operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any plans or expectations with respect to product research, development and commercialization, including regulatory approvals; any other statements of expectations, plans, intentions or beliefs; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by using words or phrases such as "likely", "expect", "intend", "anticipate", "believe", "estimate", "plan", "project", "forecast" and "outlook".

The following are some of the factors that could cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements:

the effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data;

our ability to achieve profitable operations and access to needed capital;

fluctuations in our operating results;

our ability to successfully produce sufficient commercial quantities of YUTIQ and DEXYCU and to successfully commercialize YUTIQ and DEXYCU in the U.S.;

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

consequences of fluocinolone acetonide side effects for YUTIQ;

consequences of dexamethasone side effects for DEXYCU;

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

our dependence on contract research organizations, our commercial alliance partner ImprimisRx, vendors and investigators;

effects of competition and other developments affecting sales of products;

market acceptance of our products;

protection of intellectual property and avoiding intellectual property infringement;

product liability; and

other factors described in our filings with the SEC.

We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.

Our forward-looking statements speak only as of the dates on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized.

Our Business

Overview

We are a pharmaceutical company committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious eye disorders. Our pipeline leverages our proprietary Durasert(R) technology for sustained intraocular drug delivery including EYP-1901, an investigational sustained delivery intravitreal 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.

Recent Developments

RVO) as the third potential indication for EYP-1901, with a Phase 2 clinical trial anticipated in the first quarter of 2023.

Customer demand for YUTIQ in Q1 2022, represented as units purchased by physicians from our distributors, was flat versus Q4 2021, driven by the annual reset of health plan deductibles and out-of-pocket minimums.

Customer demand for DEXYCU in Q1 2022, represented as units purchased by ambulatory surgical centers ("ASCs"), was up approximately 7% over Q4 2021, driven by increases in cataract surgeries and re-opening of ASCs.

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

R&D Highlights

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

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

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates, judgments and assumptions on historical experience, anticipated results and trends, and on various other factors that we believe are reasonable under the circumstances at the time. By their nature, these estimates, judgments and assumptions are subject to an inherent degree of uncertainty. Actual results may differ from our estimates under different assumptions or conditions. In our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we set forth our critical accounting policies and estimates, which included revenue recognition, reserves for variable consideration associated with our commercial revenue and recognition of expense in outsourced clinical trial agreements. See Note 2 of the notes to our unaudited condensed consolidated financial statements contained in this quarterly report on Form 10-Q for a description of our accounting policies and estimates for reserves for variable consideration related to product sales.







        Results of Operations
        Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021:
                                                     Three Months Ended
                                                          March 31,                    Change
                                                     2022          2021         Amounts          %
                                                            (In thousands except percentages)
        Revenues:
        Product sales, net                         $   9,010     $   6,802     $   2,208            32 %
        License and collaboration agreements              59           341          (282 )         (83 )%
        Royalty income                                   225           180            45            25 %
        Total revenues                                 9,294         7,323         1,971            27 %
        Operating expenses:
        Cost of sales, excluding amortization of
        acquired
          intangible assets                            1,777         1,390           387            28 %
        Research and development                       9,945         5,479         4,466            82 %
        Sales and marketing                            6,693         5,659         1,034            18 %
        General and administrative                     8,548         5,115         3,433            67 %
        Amortization of acquired intangible
        assets                                           615           615             -            na
        Total operating expenses                      27,578        18,258         9,320            51 %
        Loss from operations                         (18,284 )     (10,935 )      (7,349 )         (67 )%
        Other income (expense):
        Interest and other income                         61             1            60          6000 %
        Interest expense                              (1,194 )      (1,346 )         152            11 %
        Loss on extinguishment of debt                (1,559 )           -        (1,559 )          na
        Other (expense) income, net                   (2,692 )      (1,345 )      (1,347 )        (100 )%
        Net loss                                   $ (20,976 )   $ (12,280 )   $  (8,696 )         (71 )%
        


Product Sales, net

Product sales, net represents the gross sales of YUTIQ and DEXYCU less provisions for product sales allowances. Product sales, net increased by $2.2 million to $9.0 million for the three months ended March 31, 2022 compared to $6.8 million for the three months ended March 31, 2021. The increase was driven by increases in cataract surgeries and re-opening of ASCs. Customer demand has a direct impact on product orders from our specialty distributors that we record as net product sales. Net product revenue represents product purchased by our distributors whereas customer demand represents purchases of product by physician practices and ASCs from our distributors. The progression of the Pandemic and its effects on our business and operations remain uncertain at this time. Depending on the future developments that are uncertain and difficult to predict, including new information that may emerge concerning the Pandemic, our customer demand may be adversely affected in the future as well.

License and collaboration agreement

License and collaboration agreement revenues decreased by $282,000, or 83%, to $59,000 for the three months ended March 31, 2022 compared to $341,000 for the three months ended March 31, 2021. The decrease was primarily due to the reduction of revenue by $209,000 from Ocumension related to the additional technical assistance during the three months ended March 31, 2022.

Royalty Income

Royalty income increased by $45,000, or 25%, to $225,000 for the three months ended March 31, 2022 compared to $180,000 for the three months ended March 31, 2021. The increase was attributable to higher non-cash Alimera royalties payable to SWK.

Cost of Sales, Excluding Amortization of Acquired Intangible Assets

Cost of sales, excluding amortization of acquired intangible assets, increased by $387,000, or 28%, to $1.8 million for the three months ended March 31, 2022 from $1.4 million for the three months ended March 31, 2021. This increase was primarily attributable to increased costs associated with higher product sales, primarily costs of goods and distribution fees.

Research and Development

Research and development expenses increased by $4.5 million, or 82%, to $9.9 million for the three months ended March 31, 2022 from $5.5 million for the same period in the prior year. This increase was attributable primarily to (i) $3.3 million of personnel related costs for investment in new employees across the research and clinical organizations, including $1.2 million of stock based compensation, and (ii) $1.5 million in increased clinical costs, primarily related to our ongoing EYP-1901 Phase 1 clinical trial and Phase 2 trial preparations, partially offset by a decrease of approximately $250,000 in other development costs.

Sales and Marketing

Sales and marketing expenses increased by $1.0 million, or 18%, to $6.7 million for the three months ended March 31, 2022 from $5.7 million for the same period in the prior year. This increase was primarily attributable to (i) $765,000 increase in commission due to our commercial partner for DEXYCU and (ii) $304,000 in other marketing and related expenses.

General and Administrative

General and administrative expenses increased by $3.4 million, or 67%, to $8.5 million for the three months ended March 31, 2022 from $5.1 million for the same period in the prior year. This increase was attributable primarily to (i) $2.7 million in personnel expense, including $484,000 of stock based compensation, for organizational expansion across executive, Finance, HR, and IT functions and

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets totaled $615,000 for both the three months ended March 31, 2022 as well as the same period in the prior year. This amount was attributable to the DEXYCU product intangible asset that resulted from the Icon Acquisition (see Note 5).

Interest (Expense) Income

Interest expense totaled $1.2 million for the three months ended March 31, 2022. We incurred lower interest expense due to the conversion of debt from the CRG Loan to the SVB Loan, which carries a lower interest rate. Interest expense in the three months ended March 31, 2021 was $1.3 million.

Interest income from amounts invested in an institutional money market fund increased to $61,000 for the three months ended March 31, 2022 compared to $1,000 in the prior year quarter, due primarily to cash invested in marketable securities in the current year.

Liquidity and Capital Resources

We have had a history of operating losses and an absence of significant recurring cash inflows from revenue, and at March 31, 2022 we had a total accumulated deficit of $590.1 million. Our operations have been financed primarily from sales of our equity securities, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from collaboration partners. In the first quarter of 2019, we commenced the U.S. launch of our first two commercial products, YUTIQ and DEXYCU. However, we have not received sufficient revenues from our product sales to fund operations and we do not expect revenues from our product sales to generate sufficient funding to sustain our operations in the near-term.

Financing Activities

During the three months ended March 31, 2021, we recorded net proceeds of $107.9 million from the issuance of shares of our common stock ("Common Stock") in an underwritten public offering (see Note 9). We also sold

shares of our Common Stock under our at-the-market facility during the three months ended March 31, 2021 and recorded net proceeds of approximately $499,000. During the three months ended March 31, 2022, we did not sell any shares of its common stock under the at-the-market facility but the program remains available for use.

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

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

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

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

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

Future Funding Requirements

At March 31, 2022, we had cash, cash equivalents, and marketable securities of $190.8 million. We expect that our cash and cash equivalents combined with anticipated net cash inflows from net product sales will fund our operating plan into the second half of 2024, under current expectations regarding the timing and outcomes of our Phase 2 clinical trials for EYP-1901 for the treatment of wet AMD, NPDR, and DME. Due to the difficulty and uncertainty associated with the design and implementation of clinical trials, we will continue to assess our cash and cash equivalents and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations.

Actual cash requirements could differ from management's projections due to many factors, including cash generation from sales of YUTIQ and DEXYCU, additional investments in research and development programs, clinical trial expenses for EYP-1901, competing technological and market developments and the costs of any strategic acquisitions and/or development of complementary business opportunities. In addition, the Pandemic has had, and may continue to have, a material and adverse impact on our business, including as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable reductions in the demand for our commercial products as customers have shut down their facilities and . . .

May 06, 2022

COMTEX_406800385/2041/2022-05-06T13:45:43

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