Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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The accompanying condensed consolidated financial statements of EyePoint Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, the Company), as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 are unaudited. Certain information in the footnote disclosures of these financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2023, and include all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair presentation of the Company's financial position, results of operations, and cash flows for the periods indicated. The preparation of financial statements in accordance with United States (U.S.) generally accepted accounting principles requires management to make assumptions and estimates that affect, among other things, (i) reported amounts of assets and liabilities; (ii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the entire 2024 fiscal year or any future period.

The Company is committed to developing and commercializing innovative therapeutics to help improve the lives of patients with serious retinal diseases. The Company's pipeline leverages its proprietary bioerodible Durasert E™technology (Durasert E™) for sustained intraocular drug delivery. The Company's lead product candidate, DURAVYU™, f/k/a EYP-1901, is an investigational sustained delivery treatment for anti-vascular endothelial growth factor (anti-VEGF) mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor with Durasert E™. DURAVYU™is currently in Phase 3 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 a Phase 2 clinical trial for diabetic macular edema (DME). The Company is also advancing EYP-2301, a promising TIE-2 agonist, razuprotafib, formulated in Durasert E™to potentially improve outcomes in serious retinal diseases.

The Company plans to identify and advance additional 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 and potential acquisitions of additional products, product candidates or technologies.

Liquidity

The Company had cash, cash equivalents and investments in marketable securities of $253.8million at September 30, 2024. 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 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 $253.8million at September 30, 2024 will enable the Company to fund its current and planned operations for at least the next twelve months from the date these condensed consolidated financial statements were issued. Actual cash requirements could differ from management's projections due to many factors, including the timing and results of the Company's clinical trials for DURAVYU™, 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.

The Company's significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto, which are included in the Company's Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or the SEC, on March 8, 2024, or the 2023 Form 10-K. Since the date of those financial statements, there have been no material changes to the Company's significant accounting policies.

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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) 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, commercial sales of DEXYCU®were no longer supported by the Company, remaining available only through specialty distributors. Effective May 2023, YUTIQ®has been and continues to be sold under commercial supply agreements with Alimera Sciences, Inc. (Alimera) and Ocumension Therapeutics (Ocumension). On September 16, 2024, ANI Pharmaceuticals, Inc. (ANI) announced the completion of the acquisition of Alimera. The acquisition does not impact the terms of the commercial supply agreements (see Note 3).

Prior to the above dates, the Company sold YUTIQ®and DEXYCU®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 their 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 these estimates, which would affect 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.

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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.

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 September 30, 2024.

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.

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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.

Research Collaborations - The Company recognizes 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 the Company has entered and corresponding amounts of revenue recognized during the current and prior year periods.

Cost of sales - Cost of sales consist 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.

For the three and nine months ended September 30, 2024 and 2023, DEXYCU® product revenue-based royalty expense as a component of cost of sales was immaterial.

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 ANI (formerly Alimera), pursuant to which the Company granted an exclusive license and rights to its YUTIQ®(fluocinolone acetonide intravitreal implant) 0.18 mg (YUTIQ®) product to ANI, the Company's product revenues were primarily from sales of YUTIQ®in the U.S.

For the three and nine months ended September 30, 2024, the Company's product revenues were primarily from the Company's existing commercial supply agreements with ANI and Ocumension. For the three and nine months ended September 30, 2024, the Company's product revenues were made up of $0.7million and $2.4million, respectively, from the sales of YUTIQ®.For the three and nine months ended September 30, 2023, the Company's product revenues were made up of $0.8million and $13.4million, respectively, from the sales of YUTIQ®. Sales of DEXYCU®for the three and nine months ended September 30, 2024 and 2023 were immaterial.

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Chargebacks, discounts and fees and rebates are recorded as a component of accrued expenses on the condensed consolidated balance sheets (See Note 6).

License and Collaboration Agreements and Royalty Income

Eyebiotech Limited

On May 17, 2024, the Company entered into a license agreement (the Eyebio License Agreement) with Eyebiotech Limited (Eyebio). Under this agreement, the Company granted Eyebio a non-exclusive, sublicensable, assignable license to certain patent rights to make, have made, use, offer to sell, sell, import, and export licensed products for therapeutic ophthalmological uses worldwide.

In consideration for the rights granted, Eyebio made a one-time upfront payment of $0.5million to the Company upon execution of the Eyebio License Agreement. Additionally, Eyebio agreed to pay certain milestone payments and tiered royalties based on the achievement of development and regulatory milestones and the annual net sales of licensed products, respectively.

The Company classified the cash proceeds of the $0.5million upfront payment received from Eyebio as license and collaboration revenue upon the execution of the Eyebio License Agreement, as this was the only performance obligation identified. This amount is not an advance payment for the provision of future goods or services and is included in the current transaction price. The non-exclusive, sublicensable, assignable license is a functional, right-to-use license, and, therefore, any consideration associated with it is recognized at a point in time.

During the nine months ended September 30, 2024, the Company recorded $0.5million in license and collaboration revenue related to the upfront payment.

On July 12, 2024, Merck & Co., Inc. announced the completion of the acquisition of Eyebio. Eyebio is now a wholly-owned subsidiary of Merck & Co., Inc. The acquisition does not materially impact the terms of the Eyebio License Agreement.

ANI Product Rights Agreement and Commercial Supply Agreement

On May 17, 2023(the Closing Date), the Company entered into a PRA with ANI (formerly Alimera). Under the PRA, the Company granted to ANI 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).

Additionally, pursuant to the PRA, the Company transferred and assigned to ANI certain assets (the Transferred Assets) and certain contracts with third parties related to YUTIQ®, including the new drug application for YUTIQ®(collectively, the Asset

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Transfer). Pursuant to the PRA, ANI paid the Company a $75.0million upfront payment. ANI will also make four quarterly payments of $1.875million to the Company totaling $7.5million during 2024. ANI will also pay royalties to the Company from 2025to 2028at a percentage of low-to-mid double digits of ANI's related U.S. annual net sales of certain products (including YUTIQ®) in excess of certain thresholds, beginning at $70million in 2025, and increasing annually thereafter. Upon ANI's payment of the Upfront Payment and the 2024 quarterly payments, the licenses and rights granted to ANI will automatically become perpetual and irrevocable. Payments received from ANI are non-refundable.

On the Closing Date, the Company and ANI 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 ANI agreed-upon quantities of YUTIQ®necessary for ANI to commercialize YUTIQ®in the United States at certain cost plus amounts, subject to adjustments and potential extensions and terminations set forth in the CSA (the Supply Transaction and together with the License and the Asset Transfer, the Transaction).

The Company classified the cash proceeds of the $75.0million Upfront Payment received from ANI 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 ANI 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-yearterm 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.

Revenue from sales of product supply to ANI under the CSA was $0.7million and $1.9million during the three and nine months ended September 30, 2024, respectively, and $1.0million and $1.2million during the three and nine months ended September 30, 2023, respectively. License and Collaboration revenue related to the PRA was $9.4million and $26.8million during the three and nine months ended September 30, 2024, respectively and $13.6million and $16.8million during the three and nine months ended September 30, 2023, respectively. License and collaboration revenue, related to additional transitional services was $0.2million and $0.5million for the three and nine months ended September 30, 2024, respectively and $0.4million and $0.8million during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, the Company had $24.3million and $0as current and non-current deferred revenue recognized under the PRA.

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 ANI (the Amended ANI Agreement) for an upfront cash payment of $16.5million. 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 ANI to SWK. The Company recognized $0.3million and $0.9million of royalty revenue related to the RPA for the three and nine months ended September 30, 2024, respectively, and $0.3million and $0.7million of royalty revenue related to the RPA for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, the Company had $1.7million and $11.2million as current and non-current deferred revenue recognized under the RPA, respectively. As of December 31, 2023, the Company classified $1.4million and $12.4million as current and non-current deferred revenue recognized under the RPA, respectively.

Ocumension Therapeutics

Pursuant to license agreements and Memorandum of Understanding signed with the Company, Ocumension has:

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During the nine months ended September 30, 2024 and 2023, the Company recognized $0.5million 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. Noamounts were recorded during the three months ended September 30, 2024 and 2023from sales of product supply to Ocumension under the supply agreement. Royalty income of $0and $0.5million was recorded for the three and nine months ended September 30, 2024. Noroyalty income was recorded for the three and nine months ended September 30, 2023. License and collaboration revenue related to additional technical assistance during the three and nine months ended September 30, 2024 and 2023 was immaterial.

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 10). 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, DURAVYU™, an investigational sustained delivery treatment for anti-VEGF-mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor (TKI) with Durasert E™(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 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.

Revenue from license and collaboration revenue or royalty income for the three and nine months ended September 30, 2024 and 2023related to this agreement was immaterial.

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On January 23, 2023, the Company entered into a lease agreement (Northbridge Lease) for its new standalone commercial manufacturing facility, including office and lab space located at 600 Commerce Drive, Northbridge, Massachusetts. The new 41,141square-foot manufacturing facility will be Current Good Manufacturing Practice (cGMP) compliant to meet U.S. FDA and European Medicines Agency (EMA) standards and will support DURAVYU™clinical supply and commercial readiness upon regulatory approval. In addition, the building will have the capacity and capabilities for pipeline expansion. The lease includes a non-cancellable lease term of fifteen years and four months, with two options to extendthe lease term for two additional terms of either five yearsor ten yearsat 95% of the then-prevailing fair market rent. The lease term, under ASC 842, commenced during the second quarter of 2024. The Company entered into an amendment to the Northbridge Lease, effective September 30, 2024. Pursuant to the amendment, the Company's obligation to pay base rent will begin March 1, 2025. The Company is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises. The Company recognized an initial increase of $17.7million to its lease liabilities and $17.9million to its right-of-use (ROU) assets resulting from the Northbridge Lease during the second quarter of 2024.

Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the respective lease components. The expected lease terms include non-cancellable lease periods. Renewal option periods have not been included in the determination of the lease terms as they are not deemed reasonably certain of exercise. Variable lease payments, such as common area maintenance, real estate taxes, and property insurance are not included in the determination of the lease's ROU asset or lease liability.

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As of September 30, 2024the weighted average remaining term of the Company's operating leases was 12.4years and the weighted average discount rate was 11.6%.

Cash paid for amounts included in the measurement of operating lease liabilities was $0.5million and $0.6million for the nine months ended September 30, 2024 and 2023.

ATM Facility

In August 2020, the Company entered into an at-the-market facility (the ATM Facility) with Cantor Fitzgerald & Co (Cantor). Pursuant to the ATM Facility, the Company may, at its option, offer and sell shares of its common stock from time to time, through or to Cantor, acting as sales agent. The Company will pay Cantor a commission of 3.0% of the gross proceeds from any future sales of such shares.

During the three and nine months ended September 30, 2024, the Company sold 1,299,506shares of its common stock under the ATM facility at a weighted average price of $9.36per share for gross proceeds of approximately $12.2million. Share issue costs, including sales agent commissions, totaled approximately $0.4million.

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Warrants to Purchase Common Shares

Pursuant to a credit agreement, the Company issued a warrant to SWK to purchase (i) 40,910shares of the Company's common stock on March 28, 2018 at an exercise price of $11.00per share with a seven-yearterm and (ii) 7,773shares of the Company's common stock on June 26, 2018 at an exercise price of $19.30per share with a seven-yearterm.

In January 2024, SWK exercised their warrants in full via cashless exercise resulting in the net share issuance of 25,666shares.

The Company issued 3,272,727shares of Pre-Funded Warrants (PFW) to purchase common stock, in connection with the November 2021 underwritten public offering. On April 18, 2024, 2,181,818PFWs were exercised in full as a cashless exercise, resulting in a net issuance of 2,180,776shares of common stock.

As of September 30, 2024, 1,090,909PFWs were outstanding. The PFWs were included in the basic and diluted net loss per share calculation during the three and nine months ended September 30, 2024.

Equity Incentive Plan

Prior to June 20, 2024, the Company had authorized the issuance of 9,400,000shares of the Company's common stock under the 2016 Long-Term Incentive Plan (the 2016 Plan), of which 373,256shares remained available for future grants.

The 2023 Long-Term Incentive Plan (the "2023 Plan"), approved by the Company's stockholders on June 20, 2023(the "Adoption Date"), originally provided for the issuance of up to 3,500,000shares of the Company's common stock reserved for issuance under the 2023 Plan plus any additional shares of the Company's common stock that were available for grant under the 2008 and the 2016 Incentive Plan (the "2008 & 2016 Plan") at the Adoption Date or would otherwise become available for grant under the 2008 Plan as a result of subsequent termination or forfeiture of awards under the 2008 or 2016 Plan. At the Company's Annual Meeting of Stockholders held on June 20, 2024, the Company's stockholders approved an amendment to the 2023 Plan to increase the number of shares authorized for issuance by 4,000,000shares. At September 30, 2024, a total of approximately 4,311,535shares were available for new awards under the 2023 Plan.

Starting March 2022, the Company granted non-statutory stock options to new employees as inducement awards to enter into employment with the Company. The grants were approved by the Compensation Committee of the Board of Directors and awarded in accordance with Nasdaq Listing Rule 5635(c)(4). Although not awarded under any equity incentive plans, the grants are subject to and governed by the terms and conditions of the applicable plan in effect at the time of the grant.

Stock Options

The Company's stock options generally vest over four yearswith 25% vesting after one year of service followed by ratable monthly vesting over the remaining three years. Nonemployee awards are granted similar to the Company's employee awards. All option grants have a 10-year term. Options to purchase a total of 1,836,170shares of the Company's common stock vested during the nine months ended September 30, 2024.

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Time-Vested Restricted Stock Units

Time-vested restricted stock units (RSUs) issued to date under the 2016 Plan and the 2023 Plan generally vest on a ratable annual basis over 3years. The related stock-based compensation expense is recorded over the requisite service period, which is the vesting period. The fair value of all time-vested RSUs is based on the closing share price of the Company's common stock on the date of grant.

At September 30, 2024, the weighted average remaining vesting term of the RSUs was 1.5years.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the ESPP) allows qualified participants to purchase the Company's common stock twice a year at 85% of the lesser of the average of the high and low sales price of the Company's common stock on (i) the first trading day of the relevant offering period and (ii) the last trading day of the relevant offering period. The number of shares of the Company's common stock each employee may purchase under this plan, when combined with all other employee stock purchase plans, is limited to the lower of an aggregate fair market value of $25,000during each calendar year, or 5,000shares of the Company's common stock in any one offering period. The Company has maintained consecutive six-month offering periods since August 1, 2019. During the three and nine months ended September 30, 2024, 24,881and 49,896shares of the Company's common stock were issued pursuant to the ESPP.

The Company estimated the fair value of the option component of the ESPP shares at the date of grant using a Black-Scholes valuation model. During the three and nine months ended September 30, 2024, the compensation expense from ESPP shares was approximately $0.1million and $0.2million. During the three and nine months ended September 30, 2023, the compensation expense from ESPP shares was immaterial.

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Stock-Based Compensation Expense

During the three and nine months ended September 30, 2024, the Company modified certain stock options and restricted stock awards in connection with the resignation of board members and terminations of executives resulting in a reduction of expense of $0.5million and incremental expense of $5.2million, respectively.

At September 30, 2024, there was approximately $30.2million of unrecognized compensation expense related to outstanding equity awards under the 2023 Plan, the 2016 Plan, the inducement awards and the ESPP that is expected to be recognized as expense over a weighted average period of approximately 1.7years.

Equinox Science, LLC

In February 2020, the Company entered into an Exclusive License Agreement (the Equinox License Agreement) with Equinox, pursuant to which Equinox granted the Company an exclusive, sublicensable, royalty-bearing right and license to certain patents and other Equinox intellectual property to research, develop, make, have made, use, sell, offer for sale, and import the compound vorolanib and any pharmaceutical products comprising the compound for local delivery to the eye for the prevention or treatment of age-related macular degeneration, diabetic retinopathy, and retinal vein occlusion using the Company's proprietary localized delivery technologies (the Original Field), in each case, throughout the world except China, Hong Kong, Taiwan, and Macau (the Company Territory).

In consideration for the rights granted by Equinox, the Company (i) made a one time, non-refundable, non-creditable upfront cash payment of $1.0million to Equinox in February 2020, and (ii) agreed to pay milestone payments totaling up to $50million upon the achievement of certain development and regulatory milestones, consisting of (a) completion of a Phase 2 clinical trial for the compound or a licensed product, (b) the filing of a new drug application or foreign equivalent for the compound or a licensed product in the United States, European Union, or United Kingdom, and (c) regulatory approval of the compound or a licensed product in the United States, European Union or United Kingdom.

The Company also agreed to pay Equinox tiered royalties based upon annual net sales of licensed products in the Company Territory. The royalties are payable with respect to a licensed product in a particular country in the Company Territory on a country-by-country and licensed product-by-licensed product basis until the later of (i) twelve years after the first commercial sale of such licensed product in such country and (ii) the first day of the month following the month in which a generic product corresponding to such licensed product is launched in such country. The royalty rates range from the high-single digits to low-double digits depending on the level of annual net sales. The royalty rates are subject to reduction during certain periods when there is no valid patent claim that covers a licensed product in a particular country.

On May 2, 2022, concurrent with the Company entering into the Betta License Agreement (see Note 3), the Company entered into Amendment #1 to the Equinox License Agreement, pursuant to which the Original Field was expanded to cover the prevention or treatment of ophthalmology indications using the Company's proprietary localized delivery technologies and certain conforming changes were made to the Equinox License Agreement in connection therewith.

For the three and nine months ended September 30, 2024, the Company recorded $0and $5.0million of R&D expenses in connection with the milestone payment for completion of a Phase 2 clinical trial for the compound or a licensed product under the Equinox License Agreement. NoR&D expense was recorded for the three and nine months ended September 30, 2023related to the Equinox License Agreement.

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