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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2019	Nov. 04, 2019
Document and Entity Information
Entity Registrant Name	KALA PHARMACEUTICALS, INC.
Entity Central Index Key	0001479419
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		34,543,759
Entity Shell Company	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash	$ 97,556	$ 170,898
Accounts receivable, net	7,171
Inventory	5,557	4,095
Prepaid expenses and other current assets	2,202	2,035
Total current assets	112,486	177,028
Noncurrent assets:
Property and equipment, net	2,699	2,166
Long-term inventory	3,000
Right-of-use assets	30,248	29,566
Restricted cash	12,580	12,206
Total assets	161,013	220,966
Current liabilities:
Accounts payable	2,162	5,446
Accrued expenses and other current liabilities	14,555	11,101
Current portion of lease liabilities	1,279	463
Total current liabilities	17,996	17,010
Long-term liabilities:
Long-term lease liability - less current portion	29,026	28,752
Long-term debt	70,935	70,226
Total long-term liabilities	99,961	98,978
Total liabilities	117,957	115,988
Commitments and Contingencies (Note 11)
Stockholders' equity:
Common stock, $0.001 par value; 120,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 34,543,759 and 33,863,077 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	35	34
Additional paid-in capital	316,519	306,053
Accumulated deficit	(273,498)	(201,109)
Total stockholders' equity	43,056	104,978
Total liabilities and stockholders' equity	$ 161,013	$ 220,966

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Product revenues, net	$ 1,451		$ 4,894
Costs and expenses:
Cost of product revenues	668		1,261
Selling, general and administrative	15,280	$ 8,469	50,523	$ 21,102
Research and development	7,070	7,027	21,137	20,051
Total costs and expenses	23,018	15,496	72,921	41,153
Loss from operations	(21,567)	(15,496)	(68,027)	(41,153)
Other income (expense):
Interest income	571	325	1,973	848
Interest expense	(2,180)	(432)	(6,335)	(1,214)
Total other expense	(1,609)	(107)	(4,362)	(366)
Net loss	$ (23,176)	$ (15,603)	$ (72,389)	$ (41,519)
Net loss per share—basic and diluted	$ (0.68)	$ (0.63)	$ (2.13)	$ (1.69)
Weighted average shares outstanding—basic and diluted	34,168,282	24,600,080	33,977,477	24,570,081

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance as of beginning of period at Dec. 31, 2017	$ 25	$ 224,025	$ (134,371)	$ 89,679
Balance as of beginning of period (in shares) at Dec. 31, 2017	24,538,309
Stockholders' Equity
Exercise of stock options		291		291
Exercise of stock options (in shares)	107,233
Stock-based compensation expense		6,483		6,483
Net loss			(41,519)	(41,519)
Balance as of end of period at Sep. 30, 2018	$ 25	230,799	(175,890)	54,934
Balance as of end of period (in shares) at Sep. 30, 2018	24,645,542
Balance as of beginning of period at Jun. 30, 2018	$ 25	228,355	(160,287)	68,093
Balance as of beginning of period (in shares) at Jun. 30, 2018	24,592,274
Stockholders' Equity
Exercise of stock options		113		113
Exercise of stock options (in shares)	53,268
Stock-based compensation expense		2,331		2,331
Net loss			(15,603)	(15,603)
Balance as of end of period at Sep. 30, 2018	$ 25	230,799	(175,890)	54,934
Balance as of end of period (in shares) at Sep. 30, 2018	24,645,542
Balance as of beginning of period at Dec. 31, 2018	$ 34	306,053	(201,109)	104,978
Balance as of beginning of period (in shares) at Dec. 31, 2018	33,863,077
Stockholders' Equity
At-the-market offering, net of sales agent commission	$ 1	2,129		2,130
At-the-market offering, net of sales agent commission (in shares)	532,304
Exercise of stock options		42		42
Exercise of stock options (in shares)	24,714
Issuance for employee stock purchase plan		545		545
Issuance for employee stock purchase plan (in shares)	123,664
Stock-based compensation expense		7,750		7,750
Net loss			(72,389)	(72,389)
Balance as of end of period at Sep. 30, 2019	$ 35	316,519	(273,498)	43,056
Balance as of end of period (in shares) at Sep. 30, 2019	34,543,759
Balance as of beginning of period at Jun. 30, 2019	$ 34	311,354	(250,322)	61,066
Balance as of beginning of period (in shares) at Jun. 30, 2019	33,882,967
Stockholders' Equity
At-the-market offering, net of sales agent commission	$ 1	2,129		2,130
At-the-market offering, net of sales agent commission (in shares)	532,304
Exercise of stock options		3		3
Exercise of stock options (in shares)	4,824
Issuance for employee stock purchase plan		545		545
Issuance for employee stock purchase plan (in shares)	123,664
Stock-based compensation expense		2,488		2,488
Net loss			(23,176)	(23,176)
Balance as of end of period at Sep. 30, 2019	$ 35	$ 316,519	$ (273,498)	$ 43,056
Balance as of end of period (in shares) at Sep. 30, 2019	34,543,759

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net loss	$ (72,389)	$ (41,519)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	614	243
Non-cash operating lease cost	1,307	283
Amortization of debt discount and other non-cash interest	709	75
Stock-based compensation	7,666	6,417
Loss on disposal of fixed asset		9
Change in operating assets and liabilities:
Accounts receivable	(7,171)
Prepaid expenses and other current assets	(167)	(3,350)
Inventory	(4,379)	(910)
Accounts payable	(3,284)	(220)
Accrued expenses	3,454	1,143
Lease liabilities and other long-term liabilities	(868)	(303)
Net cash used in operating activities	(74,508)	(38,132)
Cash flows from investing activities:
Purchases of property and equipment	(1,147)	(668)
Net cash used in investing activities	(1,147)	(668)
Cash flows from financing activities:
Proceeds from venture debt, net of debt issuance costs of $50		2,728
Payment of principal and prepayment penalty on venture debt		(1,667)
Payment of principal on finance lease	(30)
Payment of deferred offering costs		(163)
Proceeds from common stock offerings, net of offering cost	2,130
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	587	291
Net cash provided by financing activities	2,687	1,189
Net decrease in cash and restricted cash:	(72,968)	(37,611)
Cash and restricted cash at beginning of period	183,104	114,699
Cash and restricted cash at end of period	110,136	77,088
Reconciliation of cash and restricted cash:
Cash and restricted cash at end of period	183,104	114,699
Non-cash investing and financing activities:
Right-of-use asset obtained in exchange for finance lease obligation	136
Purchases of property and equipment in accounts payable		110
Supplemental disclosure:
Cash paid for interest	5,626	$ 1,138
Right-of-use assets obtained in exchange of operating lease obligations	$ 1,852

Nature of business and basis of presentation	9 Months Ended
Nature of business and basis of presentation	Sep. 30, 2019
Nature of business and basis of presentation
Nature of business and basis of presentation	1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Nature of Business— Kala Pharmaceuticals, Inc. (the “Company”) was incorporated on July 7, 2009, and is a biopharmaceutical company focused on the development and commercialization of therapeutics using its AMPPLIFYTM mucus-penetrating particle (“MPP”) Drug Delivery Technology, with an initial focus on the treatment of eye diseases. The Company has applied the AMPPLIFY technology to loteprednol etabonate (“LE”), a corticosteroid designed for ocular applications, resulting in the U.S. Food and Drug Administration’s (the “FDA”) approval of INVELTYS ® (loteprednol etabonate ophthalmic suspension) 1% as the first and only topical twice-daily ocular corticosteroid for treatment of post-operative inflammation and pain following ocular surgery, and the development of its lead product candidate, KPI-121 0.25%, which we plan to commercialize under the brand name EYSUVISTM (loteprednol etabonate ophthalmic suspension) 0.25%, for the temporary relief of the signs and symptoms of dry eye disease. On October 16, 2018, the Company submitted a New Drug Application (“NDA”) to the FDA for EYSUVIS. On August 8, 2019, the Company announced that it received a complete response letter (“CRL”) from the FDA regarding this NDA. The FDA indicated that efficacy data from an additional clinical trial will be needed to support a resubmission of the NDA. Based upon the previous recommendation of the FDA, the Company initiated an additional Phase 3 clinical trial (“STRIDE 3”) (STRIDE- Short Term Relief In Dry Eye), in the third quarter of 2018, which the Company expects will serve as the basis for its response to the CRL. The Company is targeting topline data for STRIDE 3 in the first quarter of 2020. The Company is evaluating opportunities for MPP nanosuspensions of LE with less frequent daily dosing regimens for the temporary relief of the signs and symptoms of dry eye disease and for potential chronic treatment of dry eye disease. The Company is also evaluating compounds in its receptor Tyrosine Kinase Inhibitor program (the “rTKI program”), that inhibit the vascular endothelial growth factor (“VEGF”), pathway, for the potential treatment of a number of retinal diseases. In January 2019, the Company launched its first commercial product, INVELTYS, in the United States. The Company is currently engaged in the commercialization of INVELTYS, research and development activities, raising capital and recruiting skilled personnel. The Company is subject to a number of risks similar to those of other companies conducting high‑risk, research and development of pharmaceutical product candidates and launching a product for the first time. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies and the technical risks associated with the successful research, development and marketing of its product candidates. The Company’s success is dependent upon its ability to raise additional capital in order to fund ongoing and future research and development, obtain regulatory approval of its product candidates, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations. Liquidity— Since inception, the Company has incurred significant losses from operations and negative cash flows from operations. As of September 30, 2019, the Company had an accumulated deficit of $273.5 million. The Company has generated only limited revenues to date from product sales and has financed operations primarily through proceeds from its initial public offering of common stock (“IPO”), private placements of preferred stock, convertible debt financings, borrowings under credit facilities, warrants, public common stock offerings and sales of its common stock under its at-the-market offering facility. The Company has devoted substantially all of its financial resources and efforts to research and development, including preclinical studies and clinical trials and engaging in activities to launch and commercialize INVELTYS. The Company expects to continue to incur significant expenses and operating losses over the next several years. Net losses may fluctuate significantly from quarter-to-quarter and year-to-year. The Company believes that its existing cash on hand as of September 30, 2019, will enable it to fund its planned operating expenses, debt service obligations and capital expenditure requirements for at least twelve months from the date these condensed consolidated financial statements were issued. This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the condensed consolidated financial statements are issued. As a result, the Company could deplete its available capital resources sooner than it currently expects. Use of Estimates—The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense, and related disclosures. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and assumptions relied upon in preparing these condensed consolidated financial statements relate to, but are not limited to, revenue recognition, inventory, the present value of lease liabilities and the corresponding right-of-use assets, the fair value of warrants, stock compensation, accrued expenses and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Actual results may differ from these estimates under different assumptions or conditions. Net Loss per Share—Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants. Basic and diluted shares outstanding are the same for each period presented as all common stock equivalents would be antidilutive due to the net losses incurred. Unaudited Interim Financial Information—The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. The accompanying condensed consolidated financial statements reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations, statement of stockholders’ equity and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Annual Report”). The unaudited condensed consolidated financial statements include the accounts of Kala Pharmaceuticals, Inc. and its wholly owned subsidiary, Kala Pharmaceuticals Security Corporation. All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies	9 Months Ended
Summary of Significant Accounting Policies	Sep. 30, 2019
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in the Annual Report. There have been no material changes to the significant accounting policies during the period ended September 30, 2019 other than those noted below. Revenue The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services. The Company performs the following five steps to recognize revenue under ASC Topic 606: (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 recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer. Product revenues, net The Company sells INVELTYS to wholesalers and/or specialty distributors in the United States (collectively, “Customers”). These Customers subsequently resell the Company’s products to specialty and other retail pharmacies. In addition to agreements with Customers, the Company enters into arrangements with payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of the Company’s products. The goods promised in the Company’s product sales contracts represent a single performance obligation; as the promise to transfer the individual products to the Customer is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which occurs upon delivery. The transaction price (“net sales price”) that is recognized as revenue for product sales includes the selling price to the Customer and an estimate of variable consideration. Components of variable consideration include prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers where a distinct good or service is not received. Variable consideration is recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer. The Company considers all relevant information when estimating variable consideration such as assessment of its current and anticipated sales and demand forecasts, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that are reasonably available. The Company includes estimated amounts in the net sales price to the extent it is determined probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Product revenues, net for the three months ended September 30, 2019 includes an adjustment to decrease net revenue by $0.6 million as a result of an adjustment to the estimated number of prescriptions reported by our third-party data provider for the first two quarters of 2019, which resulted in a change in the estimated payor mix for INVELTYS. Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a significant financing component in its arrangements. The Company expenses incremental cost of obtaining a contract with a Customer when incurred as the period of benefit is less than one year. Reserves for Variable Consideration: Trade Discounts and Allowances The Company provides its Customers with certain trade discounts and allowances including discounts for prompt payments and fees paid for distribution, data and administrative services. These discounts and fees are based on contractually-determined percentages and are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized. Chargebacks Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Reserves for chargebacks consist of credits the Company expects to issue for units that remain in the distribution channel at the end of each reporting period and that the Company expects will be sold to qualified healthcare providers, as well as chargebacks that Customers have claimed, but for which the Company has not yet issued a credit. Product Returns Consistent with industry practice, the Company has a product returns policy that provides Customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its products that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. Commercial Payor and Medicare Part D Rebates The Company contracts with certain third-party payors, primarily pharmacy benefit managers (“PBMs”) and health plans (“Plans”), for the payment of rebates with respect to utilization of its product. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the PBMs or the Plans with which it contracts. The Company estimates the rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for INVELTYS as well as future rebates that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. The Company also estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. Such estimates 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. Government Rebates The Company is subject to discount obligations under Medicaid and other government programs. For Medicaid, reserves are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Centers for Medicaid and Medicare Services. The Company’s liability for these rebates consists of estimates of claims for the current period and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. 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. Co-pay Assistance Program The Company offers a co-pay assistance program (the “co-pay program”), which is intended to provide financial assistance to patients who may or may not be covered by commercial insurance or who opt out of Medicare Part D programs. The calculation of accruals for the co-pay program is based on actual claims processed during the period as well as an estimate of the number and cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. Allowances for estimated co-pay claims 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. Accounts Receivable, net Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from Customers for product sales. The Company deducts sales discounts for prompt payments and contractual fees for service arrangements from accounts receivable. The Company evaluates the collectability of accounts receivable on a regular basis, by reviewing the financial condition and payment history of Customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible. The Company recorded no allowance for doubtful accounts as of September 30, 2019. The Company recorded an allowance of approximately $1.1 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to wholesalers and distributors as of September 30, 2019. Cost of Product Revenues The cost of product revenues consists primarily of materials, third-party manufacturing costs, freight and distribution costs, royalty expense, allocation of labor, quality control and assurance, spoilage and other manufacturing overhead costs. The Company expenses costs of product revenues related to product candidates as research and development expenses prior to regulatory approval in the respective territory. The Company received U.S. regulatory approval for INVELTYS on August 22, 2018. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 states that an entity should recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB subsequently issued amendments to ASU 2014-09 that had the same effective date of January 1, 2018. Revenue from sales of INVELTYS, as well as any other future revenue arrangements, are and will be recognized under the provisions of ASU 2014-09. While the Company adopted ASU 2014-09 effective January 1, 2018, the Company did not generate any revenue from product sales prior to 2019. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 substantially aligns accounting for share-based payments to employees and non-employees. This ASU became effective for annual periods beginning after December 15, 2018, including interim periods within that period, and early adoption is permitted. The new standard was effective on January 1, 2019 and the adoption of ASU 2018-07 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The Company is evaluating the effect of this new guidance on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software -Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The Company does not expect the adoption of ASU 2018-15 to have a material effect on its condensed consolidated financial statements.

Leases

9 Months Ended

Sep. 30, 2019

Leases

Leases

5. LEASES

Operating leases

The Company entered into a three‑year lease agreement for its former headquarters (the “Waltham Lease”) on September 30, 2013, with a commencement date of February 1, 2014. On June 30, 2016, the lease was amended to extend the term from January 31, 2017 to January 31, 2019. In connection with the lease agreement, the Company issued a letter of credit to the landlord for $0.1 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which was reported as restricted cash as of December 31, 2018. Upon the expiration of the lease term on January 31, 2019, the deposit was returned. With the adoption of ASU 2016-02, Leases, the Company has recorded a right-of-use asset and corresponding lease liability as of December 31, 2018.

On March 15, 2018, the Company entered into a lease agreement with Duffy Associates, LLC for the lease of a portion of the building located at 465 Waverley Oaks Road, Suite 301, Waltham, Massachusetts (the “Waverley Oaks Lease”). The term of the Waverley Oaks Lease was one-year, and as a result, a right-of-use asset and corresponding lease liability was not recorded.

On February 28, 2018, the Company entered into a lease agreement with 480 Arsenal Group LLC for the lease of a portion of the building located at 490 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”) to be used as its new corporate headquarters. The Company recognized the right-of-use asset and corresponding lease liability on November 15, 2018, by calculating the present value of lease payments, discounted at 9.9%, the Company’s estimated incremental borrowing rate, over the 13-year expected term.

In connection with the Watertown Lease, the Company issued a letter of credit to the landlord for $2.0 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which is reported as restricted cash as of September 30, 2019 and December 31, 2018.

For the nine months ended September 30, 2019, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes was $0.9 million. The remaining lease term was 12.1 years as of September 30, 2019.

Vehicle Fleet lease

During the nine months ended September 30, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it currently leases approximately 65 vehicles. In connection with the Vehicle Fleet Lease, the company issued a letter of credit for $0.5 million, which was reported as restricted cash on the balance sheet. The lease has an expected term of three years, which commenced upon the delivery of the vehicles in March 2019. As of September 30, 2019, the remaining lease term was 2.4 years.

The components of lease expense and related cash flows were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease cost
Operating lease cost	$	1,185	$	99	$	3,428	$	296
Short-term lease cost		—		55		—		117
Total lease cost	$	1,185	$	154	$	3,428	$	413

Operating cash outflows from operating leases	$	1,443	$	103	$	3,097	$	307

Future minimum commitments due under the Company’s lease agreements as of September 30, 2019 were as follows (in thousands):


Years Ending December 31,		Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2019 (remaining three months)	$	1,025	$	11	$	1,036
2020		4,141		41		4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
Thereafter		35,415		—		35,415
Present value adjustment		(22,601)		(23)		(22,624)
Present value of lease payments	$	30,194	$	111	$	30,305

(1)

Future minimum lease payments under the Company’s Watertown Lease and its Vehicle Fleet Lease.

(2)

Future minimum lease payments under the Company’s finance lease obligation.

Debt

9 Months Ended

Sep. 30, 2019

Debt

Debt

6. DEBT

2014 Debt Facility

In November 2014, the Company entered into a venture debt facility (“2014 Debt Facility”), which was subsequently amended in October 2016, November 2017 and March 2018. The 2014 Debt Facility, as amended, increased the initial commitment under the debt facility to a total of $20.0 million of funding and extended the interest-only end date for 12 months following the execution of the March 2018 amendment. The maturity date of the 2014 Debt Facility was also extended from October 13, 2020 to March 29, 2022.

The unpaid principal balance under the 2014 Debt Facility was $20.0 million as of September 30, 2018. The unamortized discount was $0.2 million as of September 30, 2018. During the three months ended September 30, 2018, the Company recognized contractual coupon interest expense of $0.4 million. During the nine months ended September 30, 2018, the Company recognized interest expense of $1.2 million which consisted of amortization of the debt discount of $0.1 million and the contractual coupon interest expense of $1.1 million. On October 1, 2018, the Company repaid the outstanding principal balance under the 2014 Debt Facility of $20.0 million. In connection with the repayment of the 2014 Debt Facility, the Company paid a prepayment fee of $0.2 million.

Athyrium Credit Facility

On October 1, 2018, the Company entered into a credit agreement (the “Athyrium Credit Facility”), with Athyrium Opportunities III Acquisition LP (“Athyrium”) for up to $110.0 million. The Athyrium Credit Facility provides for a Term Loan A in the aggregate principal amount of $75.0 million (the “Term Loan A”), and a Term Loan B in the aggregate principal amount of $35.0 million (the “Term Loan B”). On October 1, 2018, the Company borrowed the entire principal amount of the Term Loan A. The Company may draw down the Term Loan B upon either (i) FDA approval of EYSUVIS for a dry eye disease indication or (ii) reaching certain net product revenues for INVELTYS, in each case on or prior to June 30, 2020. The maturity date of the Athyrium Credit Facility is October 1, 2024.

The Term Loan A bears interest at a rate of 9.875% per annum, with quarterly, interest-only payments until the fourth anniversary of the Term Loan A. The unpaid principal amount of the Term Loan A is due and payable in quarterly installments starting on the fourth anniversary of the loan. The Company may make voluntary prepayments, in whole or in part, and subject to certain exceptions, is required to make mandatory prepayments upon the occurrence of certain events of default as defined in the agreement, including but not limited to, the occurrence of a change of control. In addition, upon payment or repayment of any outstanding balance under the Athyrium Credit Facility, the Company will have to pay a 1% exit fee of the total principal payments (whether mandatory, voluntary, or at maturity) made throughout the term. The exit fee of $0.8 million based on the $75.0 million principal amount outstanding, will be accreted to the carrying amount of the debt using the effective interest method over the term of the loan.

All mandatory and voluntary prepayments of the Athyrium Credit Facility are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the second anniversary of the applicable date of issuance, an amount equal to the amount by which (a) the present value of 105% of the principal prepaid plus all interest that would have accrued on such principal through such second anniversary exceeds (b) the amount of principal prepaid, (ii) if prepayment occurs on or after the second anniversary of the applicable date of issuance but prior to the third anniversary of such issuance, an amount equal to 3% of the principal prepaid, and (iii) if prepayment occurs on or after the third anniversary of the applicable date of issuance but prior to the fourth anniversary of such issuance, an amount equal to 2% of the principal prepaid. No prepayment premium is due on any principal prepaid after the fourth anniversary of the applicable date of issuance.

The Athyrium Credit Facility includes features requiring (1) additional interest rate upon an event of default accrued at an additional 3%, or a total interest rate of 12.875%, and (2) the lender’s right to declare all outstanding principal and interest immediately payable upon an event of default. These two features were analyzed and determined to be embedded derivatives to be valued as separate financial instruments. These embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging transactions. The Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimus value as of September 30, 2019. The derivative liability will be remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the consolidated statements of operations.

The Athyrium Credit Facility is secured by a pledge of substantially all of the Company’s assets and contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability to, among other things, incur and prepay additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, change in the nature of business, enter into sale and leaseback transactions, make distributions, and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Athyrium Credit Facility also contains a financial covenant requiring the Company to maintain at least $10.0 million of cash and cash equivalents. As a result of this financial covenant, the Company has recorded $10.0 million as restricted cash as of September 30, 2019 and December 31, 2018.

In connection with the Athyrium Credit Facility, the Company issued a warrant (“Warrant”), to purchase up to 270,835 shares of the Company’s common stock, at an exercise price per share of $12.18456. The Warrant is immediately exercisable as to 184,660 shares and will become exercisable as to the remaining 86,175 shares only upon the Company’s draw of the Term Loan B. The Warrant is exercisable through October 1, 2025 and is classified as an equity instrument. The Company allocated the proceeds from the Term Loan A to the Warrant using the relative fair value method. The fair value of the Warrant of $1.9 million was recognized as equity and a corresponding debt discount.

In addition, the Company paid certain fees to Athyrium and other third-party service providers in the aggregate amount of $3.0 million. These fees paid to Athyrium were recorded as a debt discount while the fees paid to other third-party service providers were recorded as debt issuance cost, respectively, in the aggregate amount of $3.0 million. These costs, along with the fair value of the Warrant of $1.9 million are being amortized using the effective interest method over the term of the Athyrium Credit Facility. The amortization of debt discount and debt issuance cost is included in interest expense within the Condensed Consolidated Statements of Operations. As of September 30, 2019, the effective interest rate was 11.63%, which takes into consideration the non-cash accretion of the exit fee and the amortization of the debt discount and issuance costs. During the three months ended September 30, 2019, the Company recognized interest expense of $2.1 million which consisted of amortization of the debt discount of $0.2 million, and the contractual coupon interest expense of $1.9 million. During the nine months ended September 30, 2019, the Company recognized interest expense of $6.2 million which consisted of amortization of the debt discount of $0.6 million, and the contractual coupon interest expense of $5.6 million.

The components of the carrying value of the debt as of September 30, 2019, and December 31, 2018 are detailed below (in thousands):


	September 30,		December 31,
	2019		2018
Principal loan balance	$	75,000	$	75,000
Unamortized debt discount and issuance cost		(4,211)		(4,806)
Cumulative accretion of exit fee		146		32
Long-term debt, net	$	70,935	$	70,226

The annual principal payments due under the Athyrium Credit Facility as of September 30, 2019 were as follows (in thousands):


Years Ending December 31,
2019 (remaining three months)		—
2020		—
2021		—
2022		16,665
2023		33,330
Thereafter		25,005
Total	$	75,000

Warrants

9 Months Ended

Sep. 30, 2019

Warrants

Warrants

7. WARRANTS

The Company issued warrants in connection with debt transactions that were completed prior to 2017. Upon the completion of the IPO, the Company’s then outstanding warrants to purchase preferred stock converted into warrants to purchase common stock. The Company also issued the Warrant to purchase common stock in connection with the Athyrium Credit Facility, described further in Note 6.

The following table summarizes the common stock warrants outstanding as of September 30, 2019 and December 31, 2018, each exercisable into the number of shares of common stock set forth below as of the specified dates:


					Shares Exercisable at
	Exercise		Expiration	Exercisable	September 30,	December 31,
Issued	Price		Date	From	2019	2018
2013	$	7.50	April 2021	July 2017	82,816	82,816
2014	$	7.50	November 2024	July 2017	16,000	16,000
2016	$	8.27	October 2026	September 2017	14,512	14,512
2018	$	12.18	October 2025	October 2018	184,660	184,660
2018	$	12.18	October 2025	(1)	—	—
					297,988	297,988

(1)

As of September 30, 2019 and December 31, 2018, warrants outstanding to acquire 86,175 shares of common stock are not exercisable and are only exercisable upon draw down of the Term Loan B.

Stock-based Compensation

9 Months Ended

Sep. 30, 2019

Stock-based Compensation

Stock-based Compensation

9. STOCK‑BASED COMPENSATION

Stock Incentive Plans—In December 2009, the Board of Directors (the “Board”) adopted the 2009 Employee, Director and Consultant Equity Incentive Plan (the “2009 Plan”) for the issuance of common stock and stock options to employees, officers, directors, consultants, and advisors.

In July 2017, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective. The 2017 Plan was established to provide equity-based ownership opportunities for employees, officers, directors, consultants, and advisors. As of September 30, 2019, there were 665,522 shares of common stock available for grant under the 2017 Plan. In addition, any shares of common stock subject to awards under the 2009 Plan that expire, are forfeited, or are otherwise surrendered, without having been fully exercised or resulting in any common stock being issued will become available for issuance under the prior plan, up to an additional 2,538,468 shares, which is the number of shares issuable pursuant to outstanding awards granted under the prior plan.

Also approved under the 2017 Plan is an annual increase for each of the years through December 31, 2027, equal to the least of (i) 3,573,766 shares of common stock, (ii) 4% of the shares of common stock outstanding on December 31 of the prior year and (iii) an amount determined by the Board.

Under the plans, the Board determines the number of shares of common stock to be granted pursuant to the awards, as well as the exercise price and terms of such awards. The exercise price of incentive stock options cannot be less than the fair value of the common stock on the date of grant. Stock options awarded under the plans expire 10 years after the grant date, unless the Board sets a shorter term. Options granted under the plans generally vest over a four‑year period. A portion of the unvested stock options will vest upon the sale of all or substantially all of the stock or assets of the Company.

In the past, the Company had granted stock options which contain performance‑based vesting criteria. These criteria were milestone events that were specific to the Company’s corporate goals. Stock‑based compensation expense associated with performance‑based stock options is recognized if the achievement of the performance condition is considered probable using management’s best estimates. As of September 30, 2019, there were no performance-based awards outstanding.

Employee Stock Purchase Plan—In 2017, the Company approved the 2017 Employee Stock Purchase Plan, which was amended and restated in December 2018 (as amended, the “ESPP”). The ESPP reserved an aggregate of 223,341 shares of common stock and provides for an annual increase on the first day of each fiscal year, beginning on January 1, 2019 and ending on December 31, 2029, in an amount equal to the lowest of: (1) 893,441 shares of the Company’s common stock; (2) 1% of the total number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year; and (3) an amount determined by the Company’s board of directors.

The ESPP provides for two six-month offering periods each year; the first offering period begins on the first trading day on or after each January 1; the second offering period begins on the first trading day on or after each July 1. Under the ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85% of the lesser of the closing price of the common stock on (i) the first business day of the plan period or (ii) the exercise date. The fair value of the purchase rights granted under the ESPP was estimated on the date of grant, using the Black-Scholes option-pricing model. The first offering period for 2019 ended on June 30, 2019. In July 2019, employees of the Company purchased an aggregate of 123,664 shares under the ESPP.

Inducement Stock Option Awards—During the three months ended September 30, 2019 and 2018, the Company granted non-statutory stock options to purchase an aggregate of 27,000 shares and 69,500 shares of the Company’s common stock, respectively. During the nine months ended September 30, 2019 and 2018, the Company granted non-statutory stock options to purchase an aggregate of 175,500 shares and 219,500 shares of the Company’s common stock, respectively. These stock options will vest over a four-year period, with 25% of the shares underlying each option award vesting on the one-year anniversary of the applicable employees’ new hire date and the remaining 75% of the shares underlying each award vesting monthly thereafter for three-years. Vesting of each option is subject to such employee’s continued service with the Company through the applicable vesting dates. These stock options were granted outside of the 2017 Plan as an inducement material to each employee’s acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

A summary of option activity for employee and non‑employee awards under the 2009 Plan, the 2017 Plan and inducement grants for the nine months ended September 30, 2019 is as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(Years)		(in thousands)
Outstanding at January 1, 2019	5,111,690	$	8.96	8.0	$	3,771
Granted	2,116,425		5.24
Exercised	(24,714)		1.70
Forfeited	(207,632)		12.64
Outstanding at September 30, 2019	6,995,769	$	7.76	7.8	$	1,429
Vested or expected to vest at September 30, 2019	6,995,769	$	7.76	7.8	$	1,429
Options exercisable at September 30, 2019	3,683,751	$	6.91	6.9	$	1,365

The Company records stock‑based compensation related to stock options granted at fair value. The Company utilizes the Black‑Scholes option‑pricing model to estimate the fair value of stock option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock‑based payment awards represent management’s best estimates.

The assumptions used in determining fair value of the stock options granted and shares purchasable under the ESPP during the nine months ended September 30, 2019 and 2018 are as follows:


	Nine Months Ended September 30,
	2019			2018
Expected volatility	61%	–	82%	80%	–	85%
Risk-free interest rate	1.44%	–	2.58%	2.63%	–	2.96%
Expected dividend yield		0%			0%
Expected term (in years)	0.50	–	6.63	5.27	–	6.13

The Company derived the risk‑free interest rate assumption from the U.S. Treasury rates for U.S. Treasury zero‑coupon bonds with maturities similar to those of the expected term of the awards being valued. The Company based the assumed dividend yield on its expectation of not paying dividends in the foreseeable future. The Company calculated the weighted‑average expected term of options using the simplified method, as the Company lacks relevant historical data due to the Company’s limited operating experience. The estimated volatility is based upon the historical volatility of comparable companies with publicly available share prices. The impact of forfeitures on compensation expense is recorded as they occur.

During the three months ended September 30, 2019 and 2018, the weighted average grant‑date fair value of options granted was $2.82 and $8.83, respectively. During the nine months ended September 30, 2019 and 2018, the weighted average grant‑date fair value of options granted was $3.70 and $9.99, respectively. The fair value is being expensed over the vesting period of the options on a straight‑line basis as the services are being provided. As of September 30, 2019, there was $20.5 million of unrecognized compensation cost related to the stock options granted, which is expected to be expensed over a weighted‑average period of 2.46 years.

Reserved Shares—As of September 30, 2019 and December 31, 2018, the Company had reserved the following shares of common stock issuable upon exercise of rights under equity compensation plans, inducement stock option awards, and warrant rights to acquire common stock:


	September 30,	December 31,
	2019	2018

Warrant rights to acquire Common Stock	384,163	384,163
ESPP	561,971	223,341
Outstanding inducement stock option awards	673,500	498,000
2009 Plan	2,538,468	2,563,072
2017 Plan	4,485,323	3,130,910
Total	8,643,425	6,799,486

Stock-based Compensation Expenses—Stock‑based compensation expense was classified in the statements of operations as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Cost of product revenues	$	60	$	–	$	101	$	–
Research and development		913		684		2,315		2,064
Selling, general and administrative		1,599		1,581		5,250		4,353
Total	$	2,572	$	2,265	$	7,666	$	6,417

Stock-based compensation expense for the Company’s manufacturing employees related to INVELTYS manufactured since the FDA approval of $0.01 million and $0.4 million for the three and nine months ended September 30, 2019, respectively, has been capitalized into inventory as a component of overhead expense. Capitalized stock-based compensation is recognized as cost of product revenues when the related product is sold or expensed to selling, general and administrative expense when the related sample is issued.

Summary of Significant Accounting Policies (Policies)	9 Months Ended
Summary of Significant Accounting Policies (Policies)	Sep. 30, 2019
Summary of Significant Accounting Policies
Revenue	Revenue The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services. The Company performs the following five steps to recognize revenue under ASC Topic 606: (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 recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer. Product revenues, net The Company sells INVELTYS to wholesalers and/or specialty distributors in the United States (collectively, “Customers”). These Customers subsequently resell the Company’s products to specialty and other retail pharmacies. In addition to agreements with Customers, the Company enters into arrangements with payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of the Company’s products. The goods promised in the Company’s product sales contracts represent a single performance obligation; as the promise to transfer the individual products to the Customer is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which occurs upon delivery. The transaction price (“net sales price”) that is recognized as revenue for product sales includes the selling price to the Customer and an estimate of variable consideration. Components of variable consideration include prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers where a distinct good or service is not received. Variable consideration is recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer. The Company considers all relevant information when estimating variable consideration such as assessment of its current and anticipated sales and demand forecasts, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that are reasonably available. The Company includes estimated amounts in the net sales price to the extent it is determined probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Product revenues, net for the three months ended September 30, 2019 includes an adjustment to decrease net revenue by $0.6 million as a result of an adjustment to the estimated number of prescriptions reported by our third-party data provider for the first two quarters of 2019, which resulted in a change in the estimated payor mix for INVELTYS. Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a significant financing component in its arrangements. The Company expenses incremental cost of obtaining a contract with a Customer when incurred as the period of benefit is less than one year. Reserves for Variable Consideration: Trade Discounts and Allowances The Company provides its Customers with certain trade discounts and allowances including discounts for prompt payments and fees paid for distribution, data and administrative services. These discounts and fees are based on contractually-determined percentages and are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized. Chargebacks Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Reserves for chargebacks consist of credits the Company expects to issue for units that remain in the distribution channel at the end of each reporting period and that the Company expects will be sold to qualified healthcare providers, as well as chargebacks that Customers have claimed, but for which the Company has not yet issued a credit. Product Returns Consistent with industry practice, the Company has a product returns policy that provides Customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its products that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. Commercial Payor and Medicare Part D Rebates The Company contracts with certain third-party payors, primarily pharmacy benefit managers (“PBMs”) and health plans (“Plans”), for the payment of rebates with respect to utilization of its product. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the PBMs or the Plans with which it contracts. The Company estimates the rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for INVELTYS as well as future rebates that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. The Company also estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. Such estimates 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. Government Rebates The Company is subject to discount obligations under Medicaid and other government programs. For Medicaid, reserves are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Centers for Medicaid and Medicare Services. The Company’s liability for these rebates consists of estimates of claims for the current period and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. 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. Co-pay Assistance Program The Company offers a co-pay assistance program (the “co-pay program”), which is intended to provide financial assistance to patients who may or may not be covered by commercial insurance or who opt out of Medicare Part D programs. The calculation of accruals for the co-pay program is based on actual claims processed during the period as well as an estimate of the number and cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. Allowances for estimated co-pay claims 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.
Accounts Receivable, net	Accounts Receivable, net Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from Customers for product sales. The Company deducts sales discounts for prompt payments and contractual fees for service arrangements from accounts receivable. The Company evaluates the collectability of accounts receivable on a regular basis, by reviewing the financial condition and payment history of Customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible. The Company recorded no allowance for doubtful accounts as of September 30, 2019. The Company recorded an allowance of approximately $1.1 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to wholesalers and distributors as of September 30, 2019.
Cost of Product Revenues	Cost of Product Revenues The cost of product revenues consists primarily of materials, third-party manufacturing costs, freight and distribution costs, royalty expense, allocation of labor, quality control and assurance, spoilage and other manufacturing overhead costs. The Company expenses costs of product revenues related to product candidates as research and development expenses prior to regulatory approval in the respective territory. The Company received U.S. regulatory approval for INVELTYS on August 22, 2018.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 states that an entity should recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB subsequently issued amendments to ASU 2014-09 that had the same effective date of January 1, 2018. Revenue from sales of INVELTYS, as well as any other future revenue arrangements, are and will be recognized under the provisions of ASU 2014-09. While the Company adopted ASU 2014-09 effective January 1, 2018, the Company did not generate any revenue from product sales prior to 2019. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 substantially aligns accounting for share-based payments to employees and non-employees. This ASU became effective for annual periods beginning after December 15, 2018, including interim periods within that period, and early adoption is permitted. The new standard was effective on January 1, 2019 and the adoption of ASU 2018-07 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The Company is evaluating the effect of this new guidance on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software -Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The Company does not expect the adoption of ASU 2018-15 to have a material effect on its condensed consolidated financial statements.

- Definition

Disclosure of accounting policy for trade and other accounts receivable, and finance, loan and lease receivables, including those classified as held for investment and held for sale. This disclosure may include (1) the basis at which such receivables are carried in the entity's statements of financial position (2) how the level of the valuation allowance for receivables is determined (3) when impairments, charge-offs or recoveries are recognized for such receivables (4) the treatment of origination fees and costs, including the amortization method for net deferred fees or costs (5) the treatment of any premiums or discounts or unearned income (6) the entity's income recognition policies for such receivables, including those that are impaired, past due or placed on nonaccrual status and (7) the treatment of foreclosures or repossessions (8) the nature and amount of any guarantees to repurchase receivables.

+ References + Details

Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2019

Accrued Expenses

Schedule of accrued expenses


	September 30,		December 31,
	2019		2018

Compensation and benefits	$	5,267	$	5,352
Accrued revenue reserves (1)		5,408		—
Development costs		1,286		1,223
Professional services		678		1,019
Commercial cost		749		1,722
Contract manufacturing		704		434
Payable related to construction of facility		—		1,026
Other		463		325
Accrued expenses	$	14,555	$	11,101

(1) As of September 30, 2019, $0.9 million of additional revenue reserves were in accounts payable.

Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases

Schedule of components of lease expense and related cash flows

The components of lease expense and related cash flows were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease cost
Operating lease cost	$	1,185	$	99	$	3,428	$	296
Short-term lease cost		—		55		—		117
Total lease cost	$	1,185	$	154	$	3,428	$	413

Operating cash outflows from operating leases	$	1,443	$	103	$	3,097	$	307

Schedule of maturities of operating lease liability


Years Ending December 31,		Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2019 (remaining three months)	$	1,025	$	11	$	1,036
2020		4,141		41		4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
Thereafter		35,415		—		35,415
Present value adjustment		(22,601)		(23)		(22,624)
Present value of lease payments	$	30,194	$	111	$	30,305

(1)

Future minimum lease payments under the Company’s Watertown Lease and its Vehicle Fleet Lease.

(2)

Future minimum lease payments under the Company’s finance lease obligation.

Schedule of maturities of finance lease liability

Future minimum commitments due under the Company’s lease agreements as of September 30, 2019 were as follows (in thousands):


Years Ending December 31,		Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2019 (remaining three months)	$	1,025	$	11	$	1,036
2020		4,141		41		4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
Thereafter		35,415		—		35,415
Present value adjustment		(22,601)		(23)		(22,624)
Present value of lease payments	$	30,194	$	111	$	30,305

(1)

Future minimum lease payments under the Company’s Watertown Lease and its Vehicle Fleet Lease.

(2)

Future minimum lease payments under the Company’s finance lease obligation.

Debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt

Schedule of carrying value of debt

The components of the carrying value of the debt as of September 30, 2019, and December 31, 2018 are detailed below (in thousands):


	September 30,		December 31,
	2019		2018
Principal loan balance	$	75,000	$	75,000
Unamortized debt discount and issuance cost		(4,211)		(4,806)
Cumulative accretion of exit fee		146		32
Long-term debt, net	$	70,935	$	70,226

Schedule of maturities of long-term debt

The annual principal payments due under the Athyrium Credit Facility as of September 30, 2019 were as follows (in thousands):


Years Ending December 31,
2019 (remaining three months)		—
2020		—
2021		—
2022		16,665
2023		33,330
Thereafter		25,005
Total	$	75,000

Warrants (Tables)

9 Months Ended

Sep. 30, 2019

Warrants

Schedule of outstanding warrants


					Shares Exercisable at
	Exercise		Expiration	Exercisable	September 30,	December 31,
Issued	Price		Date	From	2019	2018
2013	$	7.50	April 2021	July 2017	82,816	82,816
2014	$	7.50	November 2024	July 2017	16,000	16,000
2016	$	8.27	October 2026	September 2017	14,512	14,512
2018	$	12.18	October 2025	October 2018	184,660	184,660
2018	$	12.18	October 2025	(1)	—	—
					297,988	297,988

(1)

As of September 30, 2019 and December 31, 2018, warrants outstanding to acquire 86,175 shares of common stock are not exercisable and are only exercisable upon draw down of the Term Loan B.

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References + Details

Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Stock-based Compensation

Summary of option activity for employee and non employee awards


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(Years)		(in thousands)
Outstanding at January 1, 2019	5,111,690	$	8.96	8.0	$	3,771
Granted	2,116,425		5.24
Exercised	(24,714)		1.70
Forfeited	(207,632)		12.64
Outstanding at September 30, 2019	6,995,769	$	7.76	7.8	$	1,429
Vested or expected to vest at September 30, 2019	6,995,769	$	7.76	7.8	$	1,429
Options exercisable at September 30, 2019	3,683,751	$	6.91	6.9	$	1,365

Schedule of assumptions used in determining fair value of the stock options granted


	Nine Months Ended September 30,
	2019			2018
Expected volatility	61%	–	82%	80%	–	85%
Risk-free interest rate	1.44%	–	2.58%	2.63%	–	2.96%
Expected dividend yield		0%			0%
Expected term (in years)	0.50	–	6.63	5.27	–	6.13

Schedule of reserved common stock shares upon exercise of rights under equity compensation plans


	September 30,	December 31,
	2019	2018

Warrant rights to acquire Common Stock	384,163	384,163
ESPP	561,971	223,341
Outstanding inducement stock option awards	673,500	498,000
2009 Plan	2,538,468	2,563,072
2017 Plan	4,485,323	3,130,910
Total	8,643,425	6,799,486

Schedule of stock based compensation expense

Stock-based Compensation Expenses—Stock‑based compensation expense was classified in the statements of operations as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Cost of product revenues	$	60	$	–	$	101	$	–
Research and development		913		684		2,315		2,064
Selling, general and administrative		1,599		1,581		5,250		4,353
Total	$	2,572	$	2,265	$	7,666	$	6,417

Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Compensation and benefits	$ 5,267	$ 5,352
Accrued revenue reserves	5,408
Development costs	1,286	1,223
Professional services	678	1,019
Commercial cost	749	1,722
Contract manufacturing	704	434
Payable related to construction of facility		1,026
Other	463	325
Accrued expenses	14,555	$ 11,101
Accounts payable
Accrued revenue reserves	$ 900

Leases (Details) $ in Thousands	3 Months Ended		9 Months Ended
Leases (Details) $ in Thousands	Sep. 30, 2019 USD ($) item	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) item	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Nov. 15, 2018	Mar. 15, 2018	Sep. 30, 2013 USD ($)
Leases
Restricted cash	$ 12,580	$ 2,178	$ 12,580	$ 2,178	$ 12,206
Remaining lease term			2 years 4 months 24 days
Number of vehicles leased under a master fleet lease agreement \| item	65		65
Term of vehicle lease			3 years
Amount borrowed	$ 500		$ 500
Lease cost
Operating lease cost	1,185	99	3,428	296
Short-term lease cost		55		117
Total lease cost	1,185	154	3,428	413
Operating cash outflows from operating leases	$ 1,443	$ 103	$ 3,097	$ 307
Watertown Lease
Leases
Lease term	13 years		13 years
Restricted cash	$ 2,000		$ 2,000					$ 100
Discount rate (as a percent)						9.90%
Variable lease cost			$ 900
Remaining lease term			12 years 1 month 6 days
Waltham Lease
Leases
Lease term								3 years
Existence of option to extend			true
Waverley Oaks Lease
Leases
Lease term							1 year

Leases - Future Minimum Commitments Due (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Future minimum commitments due
2019 (remaining three months)	$ 1,025
2020	4,141
2021	4,233
2022	4,021
2023	3,960
Thereafter	35,415
Present value adjustment	(22,601)
Present value of lease payments, operating	30,194
Finance Lease Payments
2019 (remaining three months)	11
2020	41
2021	41
2022	41
Present value adjustment	(23)
Present value of lease payments, financing	111
Operating and Finance Leases Payments
2019 (remaining three months)	1,036
2020	4,182
2021	4,274
2022	4,062
2023	3,960
Thereafter	35,415
Present value adjustment	(22,624)
Present value of lease payments	$ 30,305

Debt (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended		9 Months Ended
Debt (Details) - USD ($) $ in Thousands	Oct. 01, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Debt instruments
Amount borrowed			$ 500		$ 500
Interest expense			$ 2,180	$ 432	$ 6,335	$ 1,214
2014 Debt Facility
Debt instruments
Interest-only end date extension period		12 months
Unpaid principal balance				20,000		20,000
Unamortized discount				200		200
Interest expense				$ 400		1,200
Amortization of debt discount						100
Contractual coupon interest						$ 1,100
Debt repayments	$ 20,000
Prepayment fees paid	$ 200

Debt - Athyrium Credit Facility (Details) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 01, 2018 USD ($) $ / shares shares	Sep. 30, 2019 USD ($) item $ / shares	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) item $ / shares shares	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) shares
Debt instruments
Warrant exercisable \| shares				297,988		297,988
Debt issuance costs			$ 50		$ 50
Interest expense		$ 2,180	$ 432	$ 6,335	$ 1,214
Warrants 2018
Debt instruments
Exercise Price \| $ / shares		$ 12.18		$ 12.18
Warrant exercisable \| shares				184,660		184,660
Remaining warrant exercisable upon condition \| shares				86,175		86,175
Athyrium Credit Facility
Debt instruments
Aggregate principal amount	$ 110,000	$ 75,000		$ 75,000		$ 75,000
Cumulative accretion of exit fee		$ 146		$ 146		32
Present value of prepayments if prepayment occurs prior to the second anniversary (as a percent)	105.00%
Prepayments if prepayment occurs on or after the second anniversary of the applicable date of issuance but prior to the third anniversary (as a percent)	3.00%
Prepayments if prepayment occurs on or after the third anniversary (as a percent)	2.00%
Prepayments if prepayment occurs after the fourth anniversary (as a percent)	0.00%
Additional interest rate upon an event of default accrued (as a percent)	3.00%
Total interest rate (as a percent)	12.875%
Number of features of embedded derivative \| item				2
Number of derivatives \| item		1		1
Financial covenant amount	$ 10,000
Restricted Cash and Cash Equivalents		$ 10,000		$ 10,000		10,000
Fees to service provider	3,000
Debt issuance costs	$ 3,000	$ 4,211		$ 4,211		$ 4,806
Effective interest rate		11.63%		11.63%
Interest expense		$ 2,100		$ 6,200
Amortization of debt discount		200		600
Contractual coupon interest		$ 1,900		$ 5,600
Athyrium Credit Facility \| Warrants 2018
Debt instruments
Warrant to purchase shares of common stock \| shares	270,835
Exercise Price \| $ / shares	$ 12.18456
Warrant exercisable \| shares	184,660
Remaining warrant exercisable upon condition \| shares	86,175
Initial fair value of the Warrant	$ 1,900
Term Loan A
Debt instruments
Aggregate principal amount	$ 75,000
Interest rate (as a percent)	9.875%
Exit fee of the total principal payments (as a percent)	1.00%
Cumulative accretion of exit fee	$ 800
Term Loan B
Debt instruments
Aggregate principal amount	$ 35,000

Stock-based Compensation (Details) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 31, 2019 shares	Sep. 30, 2019 USD ($) $ / shares shares	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2019 USD ($) $ / shares shares	Sep. 30, 2018 USD ($) $ / shares shares	Dec. 31, 2018 period shares
Stock-based compensation
Common stock available for future grant		8,643,425		8,643,425		6,799,486
Weighted average grant date fair value of options granted \| $ / shares		$ 2.82	$ 8.83	$ 3.70	$ 9.99
Stock based compensation expense \| $		$ 2,572	$ 2,265	$ 7,666	$ 6,417
Inventories \| INVELTYS
Stock-based compensation
Stock based compensation expense \| $		$ 10		$ 400
2017 Equity Incentive Plan
Stock-based compensation
Common stock available for future grant		665,522		665,522
2017 Equity Incentive Plan \| Maximum
Stock-based compensation
Common stock available for future grant		2,538,468		2,538,468
2017 Equity Incentive Plan \| Minimum
Stock-based compensation
Common stock available for future grant						3,573,766
Percentage of aggregate number of common shares reserved for future issuance (as a percent)						4.00%
2009 plan
Stock-based compensation
Common stock available for future grant		2,538,468		2,538,468		2,563,072
Number of shares outstanding		6,995,769		6,995,769		5,111,690
Options granted				2,116,425
Unrecognized compensation expense \| $		$ 20,500		$ 20,500
Weighted average expense recognition period				2 years 5 months 16 days
Employee and Non-Employee Stock Options \| 2009 plan
Stock-based compensation
Options Expiry Term				10 years
Vesting Period				4 years
Performance Stock Options
Stock-based compensation
Number of shares outstanding		0		0
ESPP
Stock-based compensation
Common stock available for future grant		561,971		561,971		223,341
Number of offering period \| period						2
Term of offering period						6 months
Closing price of common stock (as percent)						85.00%
Number of share purchased	123,664
Number of common stock issuable upon exercise of rights under equity compensation plans						223,341
ESPP \| Minimum
Stock-based compensation
Common stock available for future grant						893,441
Percentage of aggregate number of common shares reserved for future issuance (as a percent)						1.00%
Non-statutory Stock Options \| Employee
Stock-based compensation
Options Expiry Term				4 years
Vesting Period				3 years
Percentage of vesting of share-based compensation awards on the one year anniversary of the grant date				25.00%
Anniversary of the share-based compensation arrangement				1 year
Percentage of vesting of share-based compensation awards after the year anniversary of the grant date				75.00%
Options granted		27,000	69,500	175,500	219,500

Stock-based Compensation - Stock Options (Details) - 2009 plan $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($) $ / shares shares
Number of Shares
Outstanding at the beginning of the period (in shares) \| shares	5,111,690
Granted (in shares) \| shares	2,116,425
Exercised (in shares) \| shares	(24,714)
Forfeited \| shares	(207,632)
Outstanding at the end of the period (in shares) \| shares	6,995,769	5,111,690
Vested and expected to vest (in shares) \| shares	6,995,769
Options exercisable (in shares) \| shares	3,683,751
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share) \| $ / shares	$ 8.96
Granted (in dollars per share) \| $ / shares	5.24
Exercised (in dollars per share) \| $ / shares	1.70
Forfeited (in dollars per share) \| $ / shares	12.64
Outstanding at the end of the period (in dollars per share) \| $ / shares	7.76	$ 8.96
Vested and expected to vest (in dollars per share ) \| $ / shares	7.76
Options exercisable (in dollars per shares) \| $ / shares	$ 6.91
Weighted Average Remaining Contractual Term
Weighted average period	7 years 9 months 18 days	8 years
Vested and expected to vest	7 years 9 months 18 days
Options exercisable	6 years 10 months 24 days
Aggregate Intrinsic Value
Outstanding at the beginning of the period (in dollars) \| $	$ 3,771
Outstanding at the end of the period (in dollars) \| $	1,429	$ 3,771
Vested and expected to vest (in dollars) \| $	1,429
Options exercisable (in dollars) \| $	$ 1,365

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Parenthetical) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Sales agent commission	$ 0.1	$ 0.1

Equity Financings	9 Months Ended
Equity Financings	Sep. 30, 2019
Equity Financings
Equity Financings	8. EQUITY FINANCINGS On August 9, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on August 27, 2018 (the “Shelf Registration”). Under the Shelf Registration, the Company may offer and sell up to $250.0 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, purchase contracts, purchase units or any combination of such securities during the three-year period that commenced upon the Shelf Registration becoming effective. On October 5, 2018, the Company sold 7,500,000 shares of the Company’s common stock (the “Shares”) in an underwritten offering pursuant to the Shelf Registration at a public offering price of $8.25 per share, before underwriting discounts and commissions. In addition, the underwriters were granted an overallotment option to purchase an additional 1,125,000 shares of the common stock at the same public offering price, less underwriting discounts and commissions (the “Overallotment Shares”). On October 11, 2018, the underwriters exercised in full their option to purchase the Overallotment Shares. The total number of Shares and Overallotment Shares sold by the Company in the offering was 8,625,000 shares, resulting in net proceeds to the Company, after underwriting discounts and offering expenses, of approximately $66.1 million. In connection with the filing of the Shelf Registration, the Company entered into a sales agreement with Jefferies, LLC (the “Sales Agreement”) pursuant to which the Company may issue and sell, from time to time, up to an aggregate of $50.0 million of its common stock in an at-the-market equity offering (“ATM Offering”) through Jefferies, LLC, as sales agent. During the fourth quarter of 2018, the Company issued an aggregate of 518,135 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of $4.6 million. During the third quarter of 2019, the Company issued an aggregate of 532,304 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of $2.1 million. As of September 30, 2019, excluding the funds designated to be offered under the Company’s ATM Offering, there was approximately $128.8 million of securities available to be issued under the Shelf Registration.

Income Taxes	9 Months Ended
Income Taxes	Sep. 30, 2019
Income Taxes
Income Taxes	10. INCOME TAXES The Company did not record a provision or benefit for income taxes during the three and nine months ended September 30, 2019 and 2018. The Company continues to maintain a full valuation allowance for its U.S. federal and state deferred tax assets. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its generation of limited revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income. The Company has determined that ownership changes have occurred as of April 2016, and such changes have not materially impacted the Company’s ability to utilize its net operating loss carryforwards and research and development tax credits to offset future tax liabilities. The Company may be further limited by any changes that may have occurred or may occur subsequent to December 31, 2018. The Company files its corporate income tax returns in the United States and Massachusetts, Alabama, California, Montana, Oklahoma, Illinois, Kentucky, Pennsylvania, New Hampshire, New York, North Carolina and Texas. All tax years since the date of incorporation remain open to examination by the major taxing jurisdictions (state and federal) to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or other authorities if they have or will be used in a future period. The Company is not currently under examination by the IRS or any other jurisdictions for any tax year. As of September 30, 2019 and 2018, the Company had no uncertain tax positions. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the three and nine months ended September 30, 2019 and 2018.

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Sep. 30, 2019
Commitments and Contingencies.
Commitments and Contingencies	11. COMMITMENTS AND CONTINGENCIES License Agreement—In 2009, the Company entered into an exclusive license agreement with The Johns Hopkins University (“JHU”), as amended in November 2012, May 2014, August 2014, October 2014 and June 2018, which licensed to the Company a portfolio of specified patent rights and remains in full force and effect. Pursuant to the terms of the agreement, as amended, the Company agreed to pay an initial license fee, minimum annual payments beginning in 2017, certain development and commercial milestone payments, royalties on product sales and reimburse all or a portion of the costs associated with the preparation, filing, prosecution and maintenance of the agreed‑upon patents and patent applications to JHU. After 2016 and until the first commercial sale of product, which occurred in January 2019, the minimum annual payment was $37,500. Upon the first commercial sale of INVELTYS, the annual minimum payment increased to $0.1 million. The Company is obligated to pay JHU low single‑digit running royalties based upon a percentage of net sales of the licensed products, which is applied to the annual minimum payment. The Company also has an obligation to pay JHU certain one‑time development and commercial milestone payments. During the nine months ended September 30, 2019 the Company paid JHU $0.3 million related to the first commercial sale milestone and royalty. The Company recorded other expenses related to the JHU agreement of $0.1 million for each of the three months ended September 30, 2019 and 2018, respectively. The Company recorded other expenses related to the JHU agreement of $0.2 million and $0.3 million for the nine months ended September 30, 2019 and 2018, respectively. Litigation—The Company is not currently subject to any material legal proceedings. Other Commitments — The Company entered into a commercial supply agreement with Catalent Pharma Solutions, LLC to manufacture commercial supplies of INVELTYS and EYSUVIS, with annual minimum purchase requirements. The Company is only subject to the minimum purchase requirements for EYSUVIS upon receiving FDA approval for the product.

Subsequent Events	9 Months Ended
Subsequent Events	Sep. 30, 2019
Subsequent Events
Subsequent Events	12. SUBSEQUENT EVENTS The Company has evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its condensed consolidated financial statements or disclosures.

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	120,000,000	120,000,000
Common stock, shares issued	34,543,759	33,863,077
Common stock, shares outstanding	34,543,759	33,863,077

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) $ in Thousands	Sep. 30, 2018 USD ($)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Debt issuance costs	$ 50

Summary of Significant Accounting Policies (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)
Adjustment to revenue	$ 668	$ 1,261
Allowance for bad debts	$ 0	$ 0
Maximum
Payment terms	1 year	1 year
Sales discounts and contractual fee for service arrangements
Allowance for bad debts	$ 1,100	$ 1,100

Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventory
Raw Materials	$ 690	$ 350
Work in Progress	5,186	3,357
Finished Goods	2,681	388
Inventory	8,557	$ 4,095
Inventory, Noncurrent	$ 3,000

Debt - Carrying Value (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Oct. 01, 2018	Sep. 30, 2018
Debt instruments
Unamortized debt discount and issuance cost				$ (50)
Long-term debt, net	$ 70,935	$ 70,226
Athyrium Credit Facility
Debt instruments
Principal Loan Balance	75,000	75,000	$ 110,000
Unamortized debt discount and issuance cost	(4,211)	(4,806)	$ (3,000)
Accretion of exit fee	146	32
Long-term debt, net	$ 70,935	$ 70,226

Debt - Future annual principal payments (Details) - Athyrium Credit Facility $ in Thousands	Sep. 30, 2019 USD ($)
Maturities of long-term debt
2022	$ 16,665
2023	33,330
Thereafter	25,005
Total	$ 75,000

Warrants (Details) - $ / shares	9 Months Ended	12 Months Ended
Warrants (Details) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Preferred stock warrants
Shares Exercisable	297,988	297,988
Warrants 2013
Preferred stock warrants
Exercise Price	$ 7.50
Shares Exercisable	82,816	82,816
Warrants 2014
Preferred stock warrants
Exercise Price	$ 7.50
Shares Exercisable	16,000	16,000
Warrants 2016
Preferred stock warrants
Exercise Price	$ 8.27
Shares Exercisable	14,512	14,512
Warrants 2018
Preferred stock warrants
Exercise Price	$ 12.18
Shares Exercisable	184,660	184,660
Shares Exercisable upon condition	86,175	86,175

Equity Financings (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		9 Months Ended
	Oct. 11, 2018	Oct. 05, 2018	Aug. 27, 2018	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2019
Equity Offerings
Net proceeds	$ 66,100					$ 2,130
Underwriter's option
Equity Offerings
Issuance of common stock		1,125,000
Shelf
Equity Offerings
Issuance of common stock		7,500,000
Share price (in dollars per share)		$ 8.25
Registration period			3 years
Shelf \| Maximum
Equity Offerings
Additional authorized value of securities			$ 250,000	$ 128,800		$ 128,800
Overallotment Shares and Shelf Registration
Equity Offerings
Issuance of common stock	8,625,000
ATM
Equity Offerings
Additional authorized value of securities			$ 50,000
Issuance of common stock				532,304	518,135
Net proceeds				$ 2,100	$ 4,600

Stock-based Compensation - Fair Value Assumptions (Details)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Assumptions used in determining fair value of the stock options granted
Expected volatility (minimum)	61.00%	80.00%
Expected volatility (maximum)	82.00%	85.00%
Risk-free interest rate (minimum)	1.44%	2.63%
Risk-free interest rate (maximum)	2.58%	2.96%
Expected dividend yield	0.00%	0.00%
Minimum
Assumptions used in determining fair value of the stock options granted
Expected term (in years)	6 months	5 years 3 months 7 days
Maximum
Assumptions used in determining fair value of the stock options granted
Expected term (in years)	6 years 7 months 17 days	6 years 1 month 17 days

Stock-based Compensation - Reserved Shares (Details) - shares	Sep. 30, 2019	Dec. 31, 2018
Stock-based compensation
Common stock shares reserved for future issuance	8,643,425	6,799,486
2017 Employee Stock Purchase Plan
Stock-based compensation
Common stock shares reserved for future issuance	4,485,323	3,130,910
Stock Options
Stock-based compensation
Common stock shares reserved for future issuance	673,500	498,000
ESPP
Stock-based compensation
Common stock shares reserved for future issuance	561,971	223,341
Warrants
Stock-based compensation
Common stock shares reserved for future issuance	384,163	384,163
2009 plan
Stock-based compensation
Common stock shares reserved for future issuance	2,538,468	2,563,072

Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended
Income Taxes (Details) - USD ($)	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Taxes
Income tax expense	$ 0	$ 0	$ 0	$ 0
Uncertain tax positions	0	0	0	0
Interest or penalties recorded	$ 0	$ 0	$ 0	$ 0