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Common and Preferred Stock (Tables)

12 Months Ended

Dec. 31, 2019

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


	December 31,	December 31,
	2019	2018

Warrant rights to acquire Common Stock	384,163	384,163
ESPP	438,307	223,341
Outstanding inducement stock option awards	705,500	498,000
2009 Plan	2,530,586	2,563,072
2017 Plan	4,429,849	3,130,910
Total	8,488,405	6,799,486

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash	$ 85,449	$ 170,898
Accounts receivable, net	11,563
Inventory	4,648	4,095
Prepaid expenses and other current assets	3,824	2,035
Total current assets	105,484	177,028
Non-current assets:
Property and equipment, net	2,698	2,166
Long-term inventory	3,778
Right-of-use assets	29,781	29,566
Restricted cash	12,582	12,206
Total assets	154,323	220,966
Current liabilities:
Accounts payable	2,518	5,446
Accrued expenses and other current liabilities	20,929	11,101
Current portion of lease liabilities	1,327	463
Total current liabilities	24,774	17,010
Long-term liabilities:
Long-term lease liability - less current portion	28,673	28,752
Long-term debt	71,184	70,226
Total long-term liabilities	99,857	98,978
Total liabilities	124,631	115,988
Commitments and Contingencies (Note 14)
Stockholders' equity:
Common stock, $0.001 par value; 120,000,000 shares authorized as of December 31, 2019 and December 31, 2018; 36,086,254 and 33,863,077 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively	36	34
Additional paid-in capital	325,112	306,053
Accumulated deficit	(295,456)	(201,109)
Total stockholders' equity	29,692	104,978
Total liabilities and stockholders' equity	$ 154,323	$ 220,966

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
Common stock offering, net of issuance cost and underwriting fees	$ 9	66,123		66,132
Common stock offering, net of issuance cost and underwriting fees (in shares)	8,625,000
At-the-market offering, net of sales agent commission and fees		4,634		4,634
At-the-market offering, net of sales agent commission and fees (in shares)	518,135
Issuance of equity classified warrants, net of issuance cost		1,900		1,900
Exercise of stock options		530		530
Exercise of stock options (in shares)	181,633
Stock-based compensation expense		8,841		8,841
Net loss			(66,738)	(66,738)
Balance as of end of period at Dec. 31, 2018	$ 34	306,053	(201,109)	104,978
Balance as of end of period (in shares) at Dec. 31, 2018	33,863,077
Stockholders' Equity
At-the-market offering, net of sales agent commission and fees	$ 2	8,423		8,425
At-the-market offering, net of sales agent commission and fees (in shares)	2,074,799
Exercise of stock options		42		42
Exercise of stock options (in shares)	24,714
Issuance under employee stock purchase plan		545		545
Issuance under employee stock purchase plan (in shares)	123,664
Stock-based compensation expense		10,049		10,049
Net loss			(94,347)	(94,347)
Balance as of end of period at Dec. 31, 2019	$ 36	$ 325,112	$ (295,456)	$ 29,692
Balance as of end of period (in shares) at Dec. 31, 2019	36,086,254

Property and Equipment, Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Property and Equipment, net
Property and equipment—at cost	$ 5,214	$ 3,984
Less: Accumulated depreciation	(2,516)	(1,818)
Property and equipment—net	2,698	2,166
Depreciation	843	352
Equipment
Property and Equipment, net
Property and equipment—at cost	2,627	2,400
Leasehold improvements
Property and Equipment, net
Property and equipment—at cost	356	114
Computer hardware and software
Property and Equipment, net
Property and equipment—at cost	892	599
Construction in Progress
Property and Equipment, net
Property and equipment—at cost	195	804
Furniture and office equipment
Property and Equipment, net
Property and equipment—at cost	$ 1,144	$ 67

Income Taxes - Net deferred tax assets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Income Taxes
Net operating loss carryforwards	$ 49,018	$ 46,933
Research and development tax credit carryforwards	6,250	5,070
Stock-based compensation	5,414	3,010
Deferred Tax Assets Tax Deferred Lease Liabilities	9,369	8,280
Other	2,467	1,318
Start-up costs and other	6,733	193
Total deferred tax assets	79,251	64,804
Right-of-use assets	(9,178)	(8,221)
Total deferred tax liabilities	(9,178)	(8,221)
Valuation allowance	$ (70,073)	$ (56,583)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Debt issuance costs		$ 4,806
Venture debt
Debt issuance costs	$ 0	50
Other debt
Debt issuance costs	$ 0	$ 3,073

Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock-based compensation
Weighted average grant date fair value of options granted	$ 3.45		$ 9.05
2009 plan
Stock-based compensation
Unrecognized compensation expense	$ 19.2	$ 21.1
Weighted average expense recognition period	2 years 3 months 22 days	2 years 10 months 2 days

Defined Contribution Plan (Details) - USD ($) $ in Millions	12 Months Ended
Defined Contribution Plan (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Defined Contribution Plan
Matching contribution by employer	$ 0.5	$ 0.2

Summary of Significant Accounting Policies - Impact to Previously Reported Results (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Impacts to Previously Reported Results
Right-of-use assets	$ 29,781	$ 29,566
Accrued expenses	20,929	11,101
Lease liabilities	1,327	463
Accrued expenses and other current liabilities	$ 9,630	$ 3,968

Lease

12 Months Ended

Dec. 31, 2019

Lease

Lease

Note 7: Lease

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.

On February 28, 2018, the Company entered into a lease agreement with 480 Arsenal Group LLC (the “Arsenal Group”) for the lease of a portion of the building located at 490 Arsenal Way Watertown, Massachusetts (the “Watertown Lease”). The initial term of the Watertown Lease is eight years with an option to extend for an additional five years, which are recognized as part of our right of use asset and lease liability. The Company occupied the premises in Watertown in early 2019 as its corporate headquarters and for research and development. The lease commencement date was November 15, 2018 and the Company concluded that it controlled the space, as of the lease commencement date.

The Company identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liability for the Watertown Lease.

Expected lease term - The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods where failure to exercise such options would result in an economic penalty.

Incremental borrowing rate- As the Company’s lease does not provide an implicit rate, the Company estimated the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of the Company’s Athyrium Credit Facility and adjusting it for factors that reflect the profile of secured borrowing over the expected term of the lease.

The Company recognized the right-of-use asset and corresponding lease liability, 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. As of December 31, 2019, the remaining lease term on the Watertown Lease was 11.83 years. Variable lease expense for the Watertown Lease, includes real estate taxes, common area maintenance, and management fees.

In connection with the Watertown Lease, the Company issued a letter of credit to the Arsenal Group 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 on the Consolidated Balance Sheets.

Vehicle Fleet lease

During the year ended December 31, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it currently leases 65 vehicles. In connection with the Vehicle Fleet Lease, the Company issued a letter of credit for $0.5 million, which is reported as restricted cash on the Consolidated Balance Sheet. The Vehicle Fleet Lease has an expected term of three years, which commenced upon the delivery of the vehicles in March 2019. As of December 31, 2019, the remaining lease term was 2.2 years.

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


	Years Ended December 31,
	2019		2018
Lease cost
Operating lease cost	$	4,614	$	1,099
Short-term lease cost		—		183
Variable lease cost		1,766		83
Total lease cost	$	6,380	$	1,365

Operating cash outflows from operating leases	$	5,445	$	988

Maturities of lease liability due under these lease agreements as of December 31, 2019 are as follows (in thousands):


Years Ending December 31,	Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2020	$	4,141	$	41	$	4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
2024		4,079		—		4,079
Thereafter		31,336		—		31,336
Present value adjustment		(21,877)		(16)		(21,893)
Present value of lease payments	$	29,893	$	107	$	30,000

(1)

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

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

(2) Future minimum lease payments under the Company's finance lease obligation.

Stock-based Compensation - Stock Options (Details) - 2009 plan - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Number of Shares
Outstanding at the beginning of the period (in shares)	5,111,690
Granted (in shares)	2,637,175
Exercised (in shares)	(24,714)
Forfeited	(271,075)
Outstanding at the end of the period (in shares)	7,453,076	5,111,690
Vested and expected to vest (in shares)	7,453,076
Options exercisable (in shares)	4,076,113
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 8.96
Granted (in dollars per share)	4.90
Exercised (in dollars per share)	1.70
Forfeited (in dollars per share)	11.33
Outstanding at the end of the period (in dollars per share)	7.46	$ 8.96
Vested and expected to vest (in dollars per share )	7.46
Options exercisable (in dollars per shares)	$ 7.02
Weighted Average Remaining Contractual Term
Weighted average period	7 years 8 months 12 days	8 years
Vested and expected to vest	7 years 8 months 12 days
Options exercisable	6 years 9 months 18 days
Aggregate Intrinsic Value
Outstanding at the beginning of the period (in dollars)	$ 3,771
Outstanding at the end of the period (in dollars)	1,313	$ 3,771
Vested and expected to vest (in dollars)	1,313
Options exercisable (in dollars)	$ 1,170

Accrued Expenses (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Compensation and benefits	$ 6,502	$ 5,352
Accrued revenue reserves	9,482
Development costs	1,600	1,223
Professional services	760	1,019
Commercial cost	930	1,722
Contract manufacturing	630	434
Accrued Construction Costs		1,026
Other	1,025	325
Accrued expenses	20,929	$ 11,101
Accounts payable
Accrued revenue reserves	$ 700

Stock-based Compensation - Compensation expense - INVELTYS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation
Stock based compensation expense	$ 9,991	$ 8,615
Total intrinsic value of options exercised	100	$ 1,300
Inventories \| INVELTYS
Stock-based compensation
Stock based compensation expense	$ 100

Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2019

Selected Quarterly Financial Data (Unaudited)

Selected Quarterly Financial Data (Unaudited)

Note 16: Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data is as follows (in thousands, except per share data):


	Three months ended
	March 31,		June 30,		September 30,		December 31,
	2019		2019		2019		2019
	(in thousands, except per share data)
Product revenues, net	$	1,386	$	2,057	$	1,451	$	1,180
Costs and expenses:		25,436		24,467		23,018		21,377
Total other income (expense)		(1,338)		(1,415)		(1,609)		(1,761)
Net loss attributable to common stockholders	$	(25,388)	$	(23,825)	$	(23,176)	$	(21,958)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.75)	$	(0.70)	$	(0.68)	$	(0.63)

	Three months ended
	March 31,		June 30,		September 30,		December 31,
	2018		2018		2018		2018
	(in thousands, except per share data)
Product revenues, net	$	-	$	-	$	-	$	-
Costs and expenses:		11,139		14,519		15,496		23,567
Total other income (expense)		(158)		(101)		(107)		(1,651)
Net loss attributable to common stockholders	$	(11,297)	$	(14,620)	$	(15,603)	$	(25,218)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.46)	$	(0.60)	$	(0.63)	$	(0.76)

Summary of Significant Accounting Policies - Accounts Receivable, net (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies
Allowance for doubtful accounts	$ 0.0	$ 1.8

Stock-based Compensation - Fair Value Assumptions (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Assumptions used in determining fair value of the stock options granted
Expected volatility (minimum)	81.00%	80.00%
Expected volatility (maximum)	84.00%	115.00%
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)	5 years 3 months 7 days	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

Defined Contribution Plan	12 Months Ended
Defined Contribution Plan	Dec. 31, 2019
Defined Contribution Plan
Defined Contribution Plan	Note 15: Defined Contribution Plan The Company has a 401(k) defined contribution plan (the ‘‘401(k) Plan’’) for substantially all of its employees. Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits. The Company made discretionary matching contributions of $0.5 million and $0.2 million to the 401(k) Plan during for the year ended December 31, 2019 and 2018, respectively.

Inventory (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Inventory
Raw Materials	$ 1,387	$ 350
Work in Progress	4,166	3,357
Finished Goods	2,873	388
Total inventory	8,426	4,095
Inventory	4,648	$ 4,095
Long-term inventory	$ 3,778

Lease - Future Minimum Commitments Due (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Operating and Finance Leases Payments
2020	$ 4,182
2021	4,274
2022	4,062
2023	3,960
2024	4,079
Thereafter	31,336
Present value adjustment	(21,893)
Present value of lease payments	30,000
Operating Lease Obligations
Future minimum commitments due
2020	4,141
2021	4,233
2022	4,021
2023	3,960
2024	4,079
Thereafter	31,336
Present value adjustment	(21,877)
Present value of lease payments, operating	29,893
Short-Term Lease Obligation
Finance Lease Payments
2020	41
2021	41
2022	41
Present value adjustment	(16)
Present value of lease payments, financing	$ 107

Debt (Details) - USD ($) $ in Thousands			12 Months Ended
Debt (Details) - USD ($) $ in Thousands	Oct. 01, 2018	Oct. 13, 2016	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Nov. 30, 2014
Debt instruments
Amount borrowed			$ 500
Term loan				$ 71,927
Interest expense			$ 8,480	3,314
Aggregate principal amount				75,000
2014 Debt Facility
Debt instruments
Total loan commitment						$ 10,000
Additional borrowing capacity		$ 10,000
Interest rate (as a percent)	8.25%
Interest expense				1,200
Amortization of debt discount				$ 100
Contractual coupon interest					$ 1,100
Debt repayments	$ 20,000
Prepayment fees paid	$ 200
2014 Debt Facility \| Prime Rate
Debt instruments
Variable rate of interest		3.00%
Term Loan A
Debt instruments
Total loan commitment		$ 10,000

Summary of Significant Accounting Policies - PPE, Asset Impairment and Tax Incentives (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Impairment of Long-Lived Assets
Long-lived asset impairment	$ 0	$ 0
Laboratory Equipment \| Minimum
Property and Equipment, net
Useful life (in years)	3 years
Laboratory Equipment \| Maximum
Property and Equipment, net
Useful life (in years)	5 years
Office equipment \| Minimum
Property and Equipment, net
Useful life (in years)	3 years
Office equipment \| Maximum
Property and Equipment, net
Useful life (in years)	5 years
Computer hardware and software \| Minimum
Property and Equipment, net
Useful life (in years)	3 years
Computer hardware and software \| Maximum
Property and Equipment, net
Useful life (in years)	5 years

Common and Preferred Stock (Details)	12 Months Ended
Common and Preferred Stock (Details)	Dec. 31, 2019 director Vote $ / shares shares	Dec. 31, 2018 $ / shares shares
Common stock and preferred stock
Common stock, authorized	120,000,000	120,000,000
Common stock, par value \| $ / shares	$ 0.001	$ 0.001
Common stock, shares issued	36,086,254	33,863,077
Common stock, shares outstanding	36,086,254	33,863,077
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, shares outstanding	0	0
Number of votes per common share for each outstanding share \| Vote	1
Number of directors granted \| director	1
Common stock shares reserved for future issuance	8,488,405	6,799,486
Warrant rights to acquire Common Stock
Common stock and preferred stock
Common stock shares reserved for future issuance	384,163	384,163
Employee and Non-Employee Stock Options
Common stock and preferred stock
Common stock shares reserved for future issuance	438,307	223,341
2009 stock option plan
Common stock and preferred stock
Common stock shares reserved for future issuance	2,530,586	2,563,072
2017 stock option plan
Common stock and preferred stock
Common stock shares reserved for future issuance	4,429,849	3,130,910
Stock Options
Common stock and preferred stock
Common stock shares reserved for future issuance	705,500	498,000
Common stock.
Common stock and preferred stock
Number of votes entitled to each share held \| Vote	1
2017 Equity Incentive Plan
Common stock and preferred stock
Common stock shares reserved for future issuance	146,942
2017 Equity Incentive Plan \| Maximum
Common stock and preferred stock
Common stock shares reserved for future issuance	2,530,586
2017 Equity Incentive Plan \| Minimum
Common stock and preferred stock
Common stock shares reserved for future issuance	3,573,766
Percentage of aggregate number of common shares reserved for future issuance (as a percent)	4.00%

Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Income tax expense	$ 0	$ 0
Change in valuation allowance	13,500
Uncertain tax positions	0	0
Interest or penalties recorded	0	0
Federal
Net operating loss carryforwards	168,800	165,000
State
Net operating loss carryforwards	$ 171,800	$ 156,400

Fair Value of Financial Instruments	12 Months Ended
Fair Value of Financial Instruments	Dec. 31, 2019
Fair Value of Financial Instruments
Fair Value of Financial Instruments	Note 10: Fair Value of Financial Instruments The Company classifies fair value based measurements using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1, quoted market prices in active markets for identical assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level 1, such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including estimates and assumptions developed by the Company, reflective of those that a market participant would use, as inputs to certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The carrying value of cash, restricted cash, accounts payable and accrued expenses approximate their fair value due to the short‑term nature of these assets and liabilities. Management believes that the Company’s long‑term debt (See Note 8) bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long‑term debt, also approximates its fair value. The fair value of the outstanding debt was estimated using a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk, which represents a Level 3 measurement. There were no transfers between fair value measurement levels during the year ended December 31, 2019 or December 31, 2018.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Summary of Significant Accounting Policies - Net Loss Per Share (Details) - $ / shares	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies
Weighted average shares outstanding—basic and diluted									34,209,756	26,753,906
Net loss per share—basic and diluted	$ 0.63	$ 0.68	$ 0.70	$ 0.75	$ 0.76	$ 0.63	$ 0.60	$ 0.46	$ 2.76	$ 2.49

Property and Equipment, Net

12 Months Ended

Dec. 31, 2019

Property and Equipment, Net

Property and Equipment, Net

Note 5: Property and Equipment, Net

Property and equipment, net, consists of the following (in thousands):


	December 31,		December 31,
	2019		2018

Equipment	$	2,627	$	2,400
Leasehold improvements		356		114
Computer hardware and software		892		599
Furniture and office equipment		1,144		67
Construction in progress		195		804
Property and equipment—at cost		5,214		3,984
Less: Accumulated depreciation		(2,516)		(1,818)
Property and equipment—net	$	2,698	$	2,166

Depreciation expense for the years ended December 31, 2019 and 2018 was $0.8 million and $0.4 million respectively.

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 13: Income Taxes

The Company has had no income tax expense due to operating losses incurred for the years ended December 31, 2019 and 2018. The Company has also not recorded any income tax benefits for the net operating losses incurred in each period due to its uncertainty of realizing a benefit from those items. All of the Company’s losses before income taxes were generated in the United States.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:


	Year Ended
	December 31,
	2019			2018
Federal statutory income tax rate		21.0	%		21.0	%
Effect of:
Change in valuation allowance		(25.8)			(28.5)
State income taxes, net of federal benefit		4.3			5.9
Research and development tax credits		1.0			2.7
Other		(0.5)			(1.1)
Effective income tax rate		—	%		—	%

Net deferred tax assets as of December 31, 2019 and 2018 consisted of the following (in thousands):


	December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	49,018	$	46,933
Research and development tax credit carryforwards		6,250		5,070
Stock-based compensation		5,414		3,010
Lease liabilities		9,369		8,280
Other		2,467		1,318
Capitalized research and development and start-up expenditures		6,733		193
Total deferred tax assets	$	79,251	$	64,804
Deferred tax liabilities:
Right-of-use assets		(9,178)		(8,221)
Total deferred tax liabilities	$	(9,178)	$	(8,221)
Valuation allowance	$	(70,073)	$	(56,583)
Net 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 has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2019 and 2018. The valuation allowance increased by $13.5 million in 2019 due to an increase in the net operating loss carryforwards and research and development tax credits, partially offset by limitations caused by ownership changes under the provisions of 382. Management reevaluates the positive and negative evidence at each reporting period.

At December 31, 2019 and 2018, the Company had federal net operating loss carryforwards of $168.8 million and $165.0 million, respectively, which may be available to offset future federal tax liabilities and expire at various dates beginning in 2030. At December 31, 2019 and 2018, the Company had state net operating loss carryforwards of $171.8 million and $156.4 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates beginning in 2030. As of December 31, 2019 and 2018, the Company also had federal and state research and development credit carryforwards of approximately $6.3 million and $5.1 million, respectively, which are available to reduce future income taxes, if any, from 2030 through 2039 (federal) and 2025 through 2034 (state).

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, 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 previously determined that an ownership change occurred as of April 2016, and such change did not materially impact the Company’s ability to utilize its net operating loss carryforwards and research and development tax credits as of that date to offset future tax liabilities. The Company recently completed an analysis and determined that an additional ownership change occurred and that such change has materially limited the net operating loss carryforwards and research and development tax credits available to offset future tax liabilities.

The Company files its corporate income tax returns in the United States and various states. 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 December 31, 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 years ended December 31, 2019 and 2018.

Accrued Expenses

12 Months Ended

Dec. 31, 2019

Accrued Expenses

Accrued Expenses

Note 6: Accrued Expenses

Accrued expenses consist of the following (in thousands):


	December 31,		December 31,
	2019		2018

Compensation and benefits	$	6,502	$	5,352
Accrued revenue reserves (1)		9,482		—
Development costs		1,600		1,223
Professional services		760		1,019
Commercial cost		930		1,722
Contract manufacturing		630		434
Payable related to construction of facility		—		1,026
Other		1,025		325
Accrued expenses	$	20,929	$	11,101

(1)

As of December 31, 2019, $0.7 million of additional revenue reserves were in accounts payable.

Commitments and Contingencies - Purchase obligations (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Commitments and Contingencies.
2020	$ 801
2021	1,173
2022	1,173
2023	1,173
2024	880
Thereafter	1,155
Total minimum purchase commitments	$ 6,355

Lease (Details) $ in Thousands		12 Months Ended
Lease (Details) $ in Thousands	Feb. 28, 2018	Dec. 31, 2019 USD ($) item	Dec. 31, 2018 USD ($)	Mar. 31, 2019	Nov. 15, 2018	Sep. 30, 2013 USD ($)
Leases
Lease term				3 years
Restricted cash		$ 12,582	$ 12,206
Variable lease cost		$ 1,766	83
Remaining lease term		2 years 2 months 12 days
Number of vehicles leased under a master fleet lease agreement \| item		65
Amount borrowed		$ 500
Lease cost
Operating lease cost		4,614	1,099
Short-term lease cost			183
Variable Lease, Cost		1,766	83
Total lease cost		6,380	1,365
Operating cash outflows from operating leases		5,445	988
Operating Lease, Right-of-Use Asset		$ 29,781	29,566
Watertown Lease
Leases
Lease term	8 years				13 years
Restricted cash			$ 2,000
Existence of option to extend	true
Renewal term	5 years
Lease cost
Weighted average remaining lease term		11 years 9 months 29 days
Present value of lease payments, discounted					9.90%
Waltham Lease
Leases
Lease term						3 years
Waltham Lease \| Letter of credit
Leases
Amount borrowed						$ 100

Selected Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2019

Selected Quarterly Financial Data (Unaudited)

Quarterly Financial Information

Selected quarterly financial data is as follows (in thousands, except per share data):


	Three months ended
	March 31,		June 30,		September 30,		December 31,
	2019		2019		2019		2019
	(in thousands, except per share data)
Product revenues, net	$	1,386	$	2,057	$	1,451	$	1,180
Costs and expenses:		25,436		24,467		23,018		21,377
Total other income (expense)		(1,338)		(1,415)		(1,609)		(1,761)
Net loss attributable to common stockholders	$	(25,388)	$	(23,825)	$	(23,176)	$	(21,958)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.75)	$	(0.70)	$	(0.68)	$	(0.63)

	Three months ended
	March 31,		June 30,		September 30,		December 31,
	2018		2018		2018		2018
	(in thousands, except per share data)
Product revenues, net	$	-	$	-	$	-	$	-
Costs and expenses:		11,139		14,519		15,496		23,567
Total other income (expense)		(158)		(101)		(107)		(1,651)
Net loss attributable to common stockholders	$	(11,297)	$	(14,620)	$	(15,603)	$	(25,218)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.46)	$	(0.60)	$	(0.63)	$	(0.76)

Warrants (Tables)

12 Months Ended

Dec. 31, 2019

Warrants

Schedule of outstanding warrants


					Shares Exercisable at
	Exercise		Expiration	Exercisable	December 31,	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

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

Summary of Significant Accounting Policies - Basis of Presentation and Stock Split (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies
Net loss attributable to common stockholders	$ (21,958)	$ (23,176)	$ (23,825)	$ (25,388)	$ (25,218)	$ (15,603)	$ (14,620)	$ (11,297)	$ (94,347)	$ (66,738)
Cash used in operations									$ (92,720)	$ (54,121)

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2019	Feb. 10, 2020	Jun. 28, 2019
Document and Entity Information
Entity Registrant Name	KALA PHARMACEUTICALS, INC.
Entity Central Index Key	0001479419
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Interactive Data Current	Yes
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		36,803,874
Entity Shell Company	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Public Float			$ 160.1

Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2019

Accrued Expenses

Schedule of accrued expenses


	December 31,		December 31,
	2019		2018

Compensation and benefits	$	6,502	$	5,352
Accrued revenue reserves (1)		9,482		—
Development costs		1,600		1,223
Professional services		760		1,019
Commercial cost		930		1,722
Contract manufacturing		630		434
Payable related to construction of facility		—		1,026
Other		1,025		325
Accrued expenses	$	20,929	$	11,101

As of December 31, 2019, $0.7 million of additional revenue reserves were in accounts payable.

Stock-based Compensation

12 Months Ended

Dec. 31, 2019

Stock-based Compensation

Stock-based Compensation

Note 12: Stock-based Compensation

Stock Incentive Plans

In December 2009, 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, and as a result no further awards will be made under the 2009 Plan. The 2017 Plan was established to provide equity based ownership opportunities for employees, officers, directors, consultants, and advisors. As of December 31, 2019, there were 146,942 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 2017 Plan, up to an additional 2,530,586 shares, which is the number of shares issuable pursuant to outstanding awards granted under the 2009 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 could not 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.

Inducement Stock Option Awards

During the year ended December 31, 2019, the Company granted non-statutory stock options to purchase an aggregate of 207,500 shares of the Company’s common stock to new employees. 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’ hire date and the remaining 75% of the shares underlying each option 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 awards under the 2009 Plan, the 2017 Plan and inducement grants for the year ended December 31, 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	2,637,175		4.90
Exercised	(24,714)		1.70
Forfeited	(271,075)		11.33
Outstanding at December 31, 2019	7,453,076	$	7.46	7.7	$	1,313
Vested or expected to vest at December 31, 2019	7,453,076	$	7.46	7.7	$	1,313
Options exercisable at December 31, 2019	4,076,113	$	7.02	6.8	$	1,170

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 in the years ended December 31, 2019 and 2018 are as follows:


	Year Ended December 31,
	2019			2018
Expected volatility	81%	–	84%	80%	–	115%
Risk-free interest rate	1.44%	–	2.58%	2.63%	–	2.96%
Expected dividend yield		0%			0%
Expected term (in years)	5.27	–	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 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.

The weighted average grant-date fair value of options granted during the years ended December 31, 2019 and 2018, was $3.45 and $9.05, respectively. The fair value is being recognized over the vesting period of the options on a straight-line basis as the services are being provided. As of December 31, 2019 and 2018, there was $19.2 million and $21.1 million of unrecognized compensation cost related to the stock options granted, which is expected to be recognized over a weighted-average period of 2.31 years and 2.84 years, respectively. Stock-based compensation recognized was classified in the consolidated statements of operations as follows (in thousands):


	Year Ended
	December 31,
	2019		2018

Cost of product revenues	$	268	$	—
Research and development		2,844		2,660
Selling, general and administrative		6,879		5,955
Total	$	9,991	$	8,615

For the year ended December 31, 2019, stock-based compensation expense for the Company’s manufacturing employees related to INVELTYS manufactured since the FDA approval of $0.1 million, has been capitalized into inventory as a component of overhead.

The Company received cash proceeds from the exercise of stock options of $42,000 and $0.5 million during the years ended December 31, 2019 and 2018, respectively. The total intrinsic value of options exercised for the year ended December 31, 2019 and 2018, was $0.1 million and $1.3 million, respectively.

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”), under which 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. During the year ended December 31, 2019, employees of the Company purchased an aggregate of 123,664 shares under the ESPP. The second offering period for 2019 ended on December 31, 2019. In January 2020, employees of the Company purchased an aggregate of 85,553 shares under the ESPP. The Company recorded $0.3 million of stock-based compensation expense related to the ESPP for the year ended December 31, 2019. There were no purchases under the ESPP for the year ended December 31, 2018.

Commitments and Contingencies - Guarantees and Indemnifications (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Indemnification obligations
Indemnification obligations	$ 0	$ 0
Accrued contingencies

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
CONSOLIDATED BALANCE SHEETS
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	120,000,000	120,000,000
Common stock, shares issued	36,086,254	33,863,077
Common stock, shares outstanding	36,086,254	33,863,077

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities:
Net loss	$ (94,347)	$ (66,738)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	843	352
Non-cash operating lease cost	1,773	603
Loss of extinguishment of debt		390
Amortization of debt discount and other non-cash interest	958	274
Stock-based compensation	9,991	8,615
Change in operating assets and liabilities:
Accounts receivable	(11,563)
Prepaid expenses and other current assets	(1,789)	(1,387)
Inventory	(4,271)	(3,868)
Accounts payable	(2,770)	4,088
Accrued expenses and other current liabilities	9,630	3,968
Lease liabilities and other long-term liabilities	(1,175)	(418)
Net cash used in operating activities	(92,720)	(54,121)
Cash flows from investing activities:
Purchases of property and equipment	(1,335)	(1,578)
Net cash used in investing activities	(1,335)	(1,578)
Cash flows from financing activities:
Proceeds from common stock offerings, net of underwriters' discounts and offering cost	8,425	70,766
Proceeds from venture debt, net of debt issuance costs of $0 and $50		2,728
Proceeds from issuance of debt and warrants, net of debt issuance costs of $0 and $3,073		71,927
Payment of principal and prepayment penalty on venture debt		(21,847)
Payment of principal on finance lease	(30)
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	587	530
Net cash provided by financing activities	8,982	124,104
Net decrease in cash and restricted cash:	(85,073)	68,405
Cash and restricted cash at beginning of period	183,104	114,699
Cash and restricted cash at end of period	98,031	183,104
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 accrued expenses	195
Purchases of property and equipment in accounts payable		155
Supplemental disclosure:
Cash paid for interest	7,522	3,041
Right-of-use assets obtained in exchange of operating lease obligations	$ 1,852	$ 29,427

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies.

Schedule of minimum obligations due


Years Ending December 31,
2020	$	113
2021		113
2022		113
2023		113
2024		113
Thereafter		1,012
Total minimum license payments	$	1,577

Schedule of minimum purchase obligations

The Company has the following minimum purchase obligations for INVELTYS (in thousands):


Years Ending December 31,
2020	$	801
2021		1,173
2022		1,173
2023		1,173
2024		880
Thereafter		1,155
Total minimum purchase commitments	$	6,355

Subsequent Events	12 Months Ended
Subsequent Events	Dec. 31, 2019
Subsequent Events
Subsequent Events	Note 17: 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 consolidated financial statements or disclosures.

Debt (Tables)

12 Months Ended

Dec. 31, 2019

Debt

Schedule of carrying value of debt

The components of the carrying value of the debt consist of the following (in thousands):


	December 31,		December 31,
	2019		2018
Principal loan balance	$	75,000	$	75,000
Unamortized debt discount and issuance cost		(3,999)		(4,806)
Cumulative accretion of exit fee		183		32
Long-term debt, net	$	71,184	$	70,226

Schedule of maturities of long-term debt

The future annual principal payments due under the Athyrium Credit Facility as of December 31, 2019 were as follows (in thousands):


Years Ending December 31,
2020	$	—
2021		—
2022		16,665
2023		33,330
2024		25,005
Total	$	75,000

Warrants

12 Months Ended

Dec. 31, 2019

Warrants

Warrants

Note 9: Warrants

The Company has issued warrants in connection with debt transactions that were completed prior to 2017 (see Note 8).

In connection with and in consideration for the commitment of the Athyrium Credit Facility, on October 1, 2018, the Company issued to Athyrium the Warrant as described in Note 8.

The following table summarizes the common stock warrants outstanding as of December 31, 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	December 31,	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 December 31, 2019, warrants outstanding to acquire 86,175 of common stock are not exercisable and are only exercisable upon draw down of Athyrium Term Loan B.

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies

Principles of consolidation

Principles of consolidation—The accompanying consolidated financial statements include the accounts of Kala Pharmaceuticals, Inc. and its wholly owned subsidiary, Kala Pharmaceuticals Security Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities. All intercompany transactions and balances have been eliminated.

Basis of Presentation

Basis of Presentation—The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated only limited revenues to date from product sales and has incurred recurring losses and negative cash flows from operations, including a net loss of $94.3 million and $66.7 million, for the years ended December 31, 2019 and 2018, respectively, and used cash in operations of $92.7 million and $54.1 million, in the years ended December 31, 2019 and 2018, respectively. The Company has financed its operations to date 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 offerings of common stock and sales of its common stock under its ATM 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 for the next several years. Net losses may fluctuate significantly from quarter-to-quarter and year-to-year. The Company also expects that its existing cash on hand as of December 31, 2019, together with anticipated net revenue from sales of INVELTYS, will enable it to fund its planned operations, lease and debt service obligations, and capital expenditure requirements for at least 12 months from the date of these consolidated financial statements. This evaluation is based on the Company’s current operating plan which include projected net revenue from sales of INVELTYS. If the Company does not achieve its projected net revenue, it believes it has the ability to manage spending under its operating plan in order to fund operations for at least 12 months from the date of these consolidated financial statements. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable. As a result, the Company could deplete its available capital resources sooner than it currently expects. The Company has based these estimates on assumptions that may prove to be wrong, and the Company’s operating projections including its projected net revenue, may change as a result of many factors currently unknown.

Reclassifications

Reclassifications— Certain reclassifications, primarily related to gross deferred tax assets and liabilities, have been made to prior period amounts to conform to the current period financial statement presentation.

Use of Estimates

Use of Estimates— The preparation of 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 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.

Product Revenues, Net

Product Revenues, Net— The Company sells INVELTYS, its topical twice-a-day ocular steroid for the treatment of inflammation and pain following ocular surgery, 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 our product.

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.

Performance Obligations

The Company determined that performance obligations are satisfied and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 70 to 90 days after satisfaction of the Company’s performance obligations.

Transaction Price and Variable Consideration

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns. The Company will estimate the amount of variable consideration that should be included in the transaction price. These estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. These provisions reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in net sales only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. In general, performance obligations do not include any estimated amounts of variable consideration that are constrained. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the year ended December 31, 2019:


	Trade Discounts,
	Allowances and				Rebates and
	Chargebacks (1)		Product Returns (2)		Incentives (3)

Balance at January 1, 2019	$	-	$	-		-
Provision related to current period sales		4,031		321		24,812
Credit/payments made		(2,248)		(141)		(14,768)
Balance at December 31, 2019	$	1,783	$	180	$	10,044

(1)

Trade allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks. Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s Consolidated Balance Sheets.

(2)

Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.

(3)

Rebates and incentives includes managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances. Provisions for rebates and discounts are deducted from gross revenues at the time revenues are recognized and are included in accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.

As of December 31, 2019, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.

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, and chargebacks 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 December 31, 2019. The Company recorded an allowance of approximately $1.8 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to wholesalers and distributors as of December 31, 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, reserves for defective inventory, and other manufacturing overhead costs. The Company expenses cost 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.

Cash and Concentration of Credit Risk

Cash and Concentration of Credit Risk—Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Three Customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2019. These Customers comprised 41%, 35% and 23% of the accounts receivable balance, respectively, as of December 31, 2019. To date, the Company has not experienced any losses with respect to the collection of its accounts receivable and believes that its entire accounts receivable balances is collectible as of December 31, 2019. The same three Customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2019. These Customers comprised 39%, 33% and 26% of revenue, respectively. The Company has no financial instruments with off‑balance sheet risk of loss.

Restricted Cash

Restricted Cash—As of December 31, 2019 and 2018, the Company had restricted cash of $12.6 million and $12.2 million, respectively, which represents cash held to satisfy its financial covenant (See Note 8) and serve as collateral for the Company’s vehicle fleet lease, credit cards and its facility lease in Watertown, Massachusetts. This cash is classified as a non-current asset in the accompanying consolidated balance sheets.

Inventory

Inventory—Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out (“FIFO”) method. Costs include amounts related to third party manufacturing, transportation, internal labor and overhead. Capitalization of costs as inventory begins when the product has received regulatory approval. The Company expenses inventory costs related to product candidates as research and development expenses prior to regulatory approval in the respective territory, even if this inventory may later be sold. For INVELTYS, capitalization of costs as inventory began upon U.S. regulatory approval on August 22, 2018. Inventory produced that will be used in a promotional sample program is expensed to selling, general and administrative expense when it is selected for use and shipped as part of a marketing program. Long-term inventory includes inventory with an anticipated sale or consumption beyond one year based on the Company’s forecasted expectations.

Leases

Leases—At the inception of an arrangement the Company determines whether the arrangement is or contains a lease. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one-year or less. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

The components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company’s facilities operating leases have lease and non-lease components which the Company has elected to use the practical expedient and account for each lease component and related non-lease component as one single component. The lease component results in a right-of-use asset being recorded on the balance sheet and amortized as lease expense on a straight-line basis to the statements of operations.

Property and Equipment, net

Property and Equipment, net—Property and equipment are recorded at cost. Depreciation is provided using the straight‑line method over the estimated useful lives of the related assets. Depreciation expense is included in operations. Laboratory equipment and office and computer equipment is depreciated over three to five years. Leasehold improvements are depreciated over the shorter of their useful life or the life of the lease. Major additions and upgrades are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations.

Patent Costs

Patent Costs—Costs to secure and defend patents are expensed as incurred and are classified as selling, general and administrative expenses in the Company’s consolidated statements of operations.

Impairment of Long-Lived Assets

Impairment of Long‑Lived Assets—Long‑lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, the assets are recorded at the lesser of the carrying value or fair value. For the years ended December 31, 2019 and 2018, no impairments were recorded.

Segment Information

Segment Information—Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The CODM is the Company’s Chief Executive Officer. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on the development and commercialization of therapeutics using its proprietary AMPPLIFY technology. All of the Company’s tangible assets are held in the United States. To date, all of the Company’s revenue has been generated in the United States.

Research and Development Costs

Research and Development Costs—Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full‑time research and development employees, an allocation of facilities expenses, overhead expenses, payments to universities under the Company’s license agreements and other outside expenses. Research and development costs are expensed as incurred. Research and development costs that are paid in advance of performance, including nonrefundable prepayments for goods or services, are deferred and capitalized as a prepaid expense. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Accrued Expenses

Accrued Expenses— The Company accrues for variable consideration related to rebates, sales incentives and allowances, distribution service fees, and returns. Such estimates are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of the accrued expense. The Company also accrues expenses related to development activities performed by third parties based on an evaluation of services received and efforts expended pursuant to the terms of the contractual arrangements. Payments under some of these contracts depend on clinical trial milestones. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of expenses. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual or prepaid expense accordingly.

Stock-Based Compensation

Stock‑Based Compensation—The Company accounts for all stock‑based awards granted as compensation expense at fair value. The Company generally issues stock option awards with the measurement date for awards as the date of grant. Stock‑based compensation costs are recognized as expense over the employees’ requisite service period, which is the vesting period, on a straight‑line basis. Stock‑based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided, or capitalized with inventory until related expense is recognized.

The Company recognizes compensation expense for the portion of awards that have vested. After the adoption of Accounting Standards Update (“ASU”) 2016-09, described in further detail below, forfeitures are recorded as they occur.

The fair value of each stock option grant is estimated on the date of grant using the Black‑Scholes option‑pricing model. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates. The Company lacks sufficient company‑specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and will continue to do so until it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain‑vanilla” options. The risk‑free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Common Stock Valuation Prior to the IPO

Common Stock Valuation Prior to the IPO—Through the consummation of the IPO in July 2017, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately‑Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company has considered the estimated fair value of the common stock as of the measurement date. The estimated fair value of the common stock has been determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s‑length sales of the Company’s capital stock (including redeemable convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event. Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition, and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could have resulted in different fair values of common stock at each valuation date.

Income Taxes

Income Taxes—Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the consolidated financial statement carrying amounts and the tax basis of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As a result, reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present.

Net Loss per Share

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 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.

The weighted average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, and warrants. Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti‑dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2019 and 2018.

Comprehensive Loss

Comprehensive Loss—Comprehensive loss is equal to net loss for the periods presented.

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”) effective January 1, 2018. 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 consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company's fiscal year beginning December 1, 2020 and subsequent interim periods. The adoption of this standard is not expected to have a material impact on the Company’s 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 adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

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 adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Debt

12 Months Ended

Dec. 31, 2019

Debt

Debt

Note 8: Debt

2014 Debt Facility

In November 2014, the Company entered into a venture debt facility (“2014 Debt Facility”) for a total loan commitment of $10.0 million. On October 13, 2016, the Company entered into a First Amendment to the 2014 Debt Facility the (''First Amendment''), which reaffirmed the initial commitment to a total of $10.0 million of funding (“Term Loan A”) and increased the Company’s total borrowing capacity by an additional $10.0 million (“Term Loan B” and together with Term Loan A, ''Term Loans'').

In connection with the 2014 Debt Facility, the Company issued warrants that can be exercised into common stock that expire between April 2021 and October 2026 (see Note 9).

Under the terms of the 2014 Debt Facility, the borrowings accrued interest at an annual rate equal to 3.00% above the Prime Rate then in effect. The applicable interest rate for the outstanding principal balance was 8.25% as of the repayment date of October 1, 2018. The Company recognized interest expense of $1.2 million related to the 2014 Debt Facility during the year ended December 31, 2018, which consisted of amortization of the debt discount of $0.1 million, and contractual coupon interest 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 $110.0 million Athyrium Credit Facility with Athyrium. The Athyrium Credit Facility provides for an Athyrium Term Loan A in the aggregate principal amount of $75.0 million, and an Athyrium Term Loan B in the aggregate principal amount of $35.0 million. On October 1, 2018, the Company borrowed the entire principal amount of the Athyrium Term Loan A. The Company may draw down the Athyrium 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; however, the Company does not expect to satisfy either such condition on or prior to June 30, 2020 and, as a result, does not currently expect that it will be eligible to draw down any of the Athyrium Term Loan B funds. The maturity date of the Athyrium Credit Facility is October 1, 2024, the six-year anniversary of the close.

The Athyrium Term Loan A bears interest at a rate of 9.875% per annum, with quarterly, interest-only payments until the fourth anniversary of the Athyrium Term Loan A. The unpaid principal amount of the Athyrium 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 $0.7 million based on the $75 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 two features upon the event of default 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 has a right to declare all outstanding principal and interest immediately payable. 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. The Company determined that, due to the unlikely event of default, the embedded derivatives have a de minimis value as of December 31, 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 of December 31, 2019, the Company was in compliance with the covenants.

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 Athyrium Term Loan B. The Warrant is exercisable through October 1, 2025. The Warrant is considered equity classified and as such, the Company allocated the proceeds from the Athyrium Term Loan A to the Warrant using the relative fair value method. The initial fair value of the Warrant of $1.9 million is recorded in equity and creates a debt discount.

In addition, the Company paid certain fees to Athyrium and another third party service provider in the aggregate amount of $3.0 million. These fees paid Athyrium were recorded as a debt discount while the fees paid to the other third party service provider were recorded as debt issuance cost, respectively, in the aggregate amount of $3.0 million. These costs, along with the fair value of 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 Consolidated Statements of Operations. As of December 31, 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 year ended December 31, 2019, the Company recognized interest expense of $8.3 million which consisted of amortization of the debt discount of $0.8 million, and the contractual coupon interest expense of $7.5 million.

The components of the carrying value of the debt consist of the following (in thousands):


	December 31,		December 31,
	2019		2018
Principal loan balance	$	75,000	$	75,000
Unamortized debt discount and issuance cost		(3,999)		(4,806)
Cumulative accretion of exit fee		183		32
Long-term debt, net	$	71,184	$	70,226

The future annual principal payments due under the Athyrium Credit Facility as of December 31, 2019 were as follows (in thousands):


Years Ending December 31,
2020	$	—
2021		—
2022		16,665
2023		33,330
2024		25,005
Total	$	75,000

Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies.

Commitments and Contingencies

Note 14: 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 launch of INVELTYS, the annual minimum payment increased to $0.1 million. The Company is obligated to pay JHU a tiered royalty rate in the low single-digits on net annual sales of the licensed products. The Company also has an obligation to pay JHU certain one‑time development and commercial milestone payments. During the year ended December 31, 2019, the Company paid JHU $0.4 million related to the first commercial sale milestone and subsequent royalties.

The Company also recorded expenses totaling $0.3 million for each of the years ended December 31, 2019 and 2018, respectively, primarily related to the prosecution and maintenance costs on the JHU patent rights licensed to the Company.

The Company’s minimum obligations due under its license agreements as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,
2020	$	113
2021		113
2022		113
2023		113
2024		113
Thereafter		1,012
Total minimum license payments	$	1,577

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 subject to these minimum purchase requirements upon receiving an approval for commercial sale for the approved product.

The Company has the following minimum purchase obligations for INVELTYS (in thousands):


Years Ending December 31,
2020	$	801
2021		1,173
2022		1,173
2023		1,173
2024		880
Thereafter		1,155
Total minimum purchase commitments	$	6,355

Litigation—The Company is not currently subject to any material legal proceedings.

Guarantees and Indemnifications—The Company’s Certificate of Incorporation authorizes the Company to indemnify and advance expenses to its officers and directors and agents to the fullest extent permitted by law. The Company leases office space under a non-cancelable operating lease, pursuant to which the Company is required to indemnify the landlord against claims, actions, or damages incurred in connection with, among other items, the Company’s occupancy and use of the premises.

The Company’s equity agreements and certain other arrangements include standard indemnifications against claims, actions, or other matters that may arise in connection with these arrangements.

As of December 31, 2019 and 2018, the Company had not experienced any losses related to these indemnification obligations, and no claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and has no amount accrued related to these contingencies. The Company does not expect these indemnifications to have a material adverse effect on these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
CONSOLIDATED STATEMENTS OF OPERATIONS
Product revenues, net	$ 6,074
Costs and expenses:
Cost of product revenues	2,008
Selling, general and administrative	65,015	$ 35,431
Research and development	27,275	29,290
Total costs and expenses	94,298	64,721
Loss from operations	(88,224)	(64,721)
Other income (expense):
Interest income	2,357	1,687
Interest expense	(8,480)	(3,314)
Loss on extinguishment of debt		(390)
Total other expense	(6,123)	(2,017)
Net loss	$ (94,347)	$ (66,738)
Net loss per share—basic and diluted	$ (2.76)	$ (2.49)
Weighted average shares outstanding—basic and diluted	34,209,756	26,753,906

Debt - Carrying Value (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Oct. 01, 2018
Debt instruments
Principal Loan Balance		$ 75,000
Unamortized debt discount and issuance cost		(4,806)
Accretion of exit fee		32
Long-term debt, net	$ 71,184	$ 70,226
Athyrium \| Athyrium Credit Facility
Debt instruments
Principal Loan Balance	75,000		$ 110,000
Unamortized debt discount and issuance cost	(3,999)
Accretion of exit fee	183
Long-term debt, net	$ 71,184

Commitments and Contingencies - Future minimum obligations (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Minimum obligations due under its license agreements
2020	$ 113
2021	113
2022	113
2023	113
2024	113
Thereafter	1,012
Total minimum license payments	$ 1,577

Stock-based Compensation - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Jan. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation
Stock-based compensation expense		$ 10,049	$ 8,841
2017 Employee Stock Purchase Plan
Stock-based compensation
Employee basic pay holding period		6 months
Percentage of market value at which employee may purchase stock	85.00%	85.00%
Stock-based compensation expense		$ 300
Issuance under employee stock purchase plan (in shares)	85,553	123,664	0

Common and Preferred Stock

12 Months Ended

Dec. 31, 2019

Common and Preferred Stock

Common and Preferred Stock

Note 11: Common and Preferred Stock

Preferred Stock

The Company was authorized to issue up to 5,000,000 shares of preferred stock as of December 31, 2019 and 2018. There was no preferred stock outstanding as of December 31, 2019 and 2018.

Common Stock

The Company was authorized to issue up to 120,000,000 shares of common stock with a $0.001 par value per share as of December 31, 2019 and 2018. The Company had 36,086,254 and 33,863,077 shares of common stock issued and outstanding as of December 31, 2019 and 2018, respectively.

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Each election of directors by our stockholders will be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our Board, subject to any preferential dividend rights of outstanding preferred stock that we may issue in the future.

In the event of our liquidation or dissolution, the holders of our common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any of our outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

Voting, dividend and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers and preferences of the holders of preferred stock that we may issue in the future.

Voting

Each holder of outstanding shares of common stock shall be entitled to one vote in respect of each share. The holders of outstanding shares of common stock, voting together as a single class, shall be entitled to elect one director. The number of authorized shares of common stock may be increased or decreased by the affirmative vote of a majority of the outstanding shares of common stock and preferred stock voting together as a single class.

Dividends

Subject to the payment in full of all preferential dividends to which the holders of preferred stock may be entitled, the holders of common stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board may determine in its sole discretion, with holders of preferred stock and common stock sharing pari passu in such dividends.

Liquidation Rights

Upon any liquidation, after the payment or provision for payment of all debts and liabilities of the Company and all preferential amounts to which the holders of preferred stock may be entitled with respect to the distribution of assets in liquidation, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

Reserved Shares

As of December 31, 2019 and 2018, the Company has reserved shares of common stock for issuance upon exercise of rights under warrants, under the Amended and Restated 2017 Employee Stock Purchase Plan (as amended, the “ESPP”) and upon the exercise of stock options as follows (see Note 12):


	December 31,	December 31,
	2019	2018

Warrant rights to acquire Common Stock	384,163	384,163
ESPP	438,307	223,341
Outstanding inducement stock option awards	705,500	498,000
2009 Plan	2,530,586	2,563,072
2017 Plan	4,429,849	3,130,910
Total	8,488,405	6,799,486

Warrants (Details) - $ / shares	12 Months Ended
Warrants (Details) - $ / shares	Dec. 31, 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
Athyrium
Preferred stock warrants
Shares Exercisable upon condition	86,175
Athyrium \| Warrants 2018
Preferred stock warrants
Exercise Price	$ 12.18

Inventory (Tables)

12 Months Ended

Dec. 31, 2019

Inventory

Schedule of Inventory

Current and long-term inventory consist of the following (in thousands):


	December 31,		December 31,
	2019		2018

Raw materials	$	1,387	$	350
Work in progress		4,166		3,357
Finished goods		2,873		388
Total inventory	$	8,426	$	4,095

Nature of business	12 Months Ended
Nature of business	Dec. 31, 2019
Nature of business
Nature of business	Note 1: Nature of business Nature of Business— Kala Pharmaceuticals, Inc. (the “Company”) was incorporated on July 7, 2009, and is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies for diseases of the eye. The Company has applied its AMPPLIFY® mucus-penetrating particle (“MPP”) Drug Delivery 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 if approved it plans 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. In October 2018, the Company submitted a New Drug Application (“NDA”) to the FDA for EYSUVIS. In August 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 and resubmission of the NDA in the second 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 and novel next-generation anti-inflammatories designed to exhibit steroid-like anti-inflammatory action with the goal of eliminating the risk of IOP increase and cataract formation. 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. October 2018 and Subsequent 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. As of December 31, 2019, the Company issued 2,592,934 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of approximately $13.1 million. In the period beginning January 1, 2020 through the issuance date of these consolidated financial statements, the Company issued and sold an additional 583,411 shares of its common stock under the ATM Offering, resulting in net proceeds to the Company of approximately $2.2 million. As of December 31, 2019, there was approximately $36.4 million shares of common stock remaining under the ATM Offering that the Company may issue and sell in the future and, excluding the funds designated to be offered under the ATM Offering, there was approximately $128.8 million of securities available to be issued under the Shelf Registration. On October 1, 2018, the Company entered into a credit agreement (the “Athyrium Credit Facility”), with Athyrium Opportunities III Acquisition LP (“Athyrium”). The Athyrium Credit Facility provides for a Term Loan A in the aggregate principal amount of $75.0 million (the “Athyrium Term Loan A”), and a Term Loan B in the aggregate principal amount of $35.0 million (the “Athyrium Term Loan B”). On October 1, 2018, the Company borrowed the entire principal amount of the Athyrium Term A Loan. The Company may draw down the Athyrium 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; however, the Company does not expect to satisfy either such condition on or prior to June 30, 2020 and, as a result, does not currently expect that it will be eligible to draw down any of the Athyrium Term Loan B funds.

Inventory

12 Months Ended

Dec. 31, 2019

Inventory

Inventory

Note 3: Inventory

Current and long-term inventory consist of the following (in thousands):


	December 31,		December 31,
	2019		2018

Raw materials	$	1,387	$	350
Work in progress		4,166		3,357
Finished goods		2,873		388
Total inventory	$	8,426	$	4,095

As of December 31, 2019, the Company had $4.6 million of current inventory and $3.8 million of long-term inventory. As of December 31, 2018, the Company had $4.1 million of current inventory and no long-term inventory.

Debt - Future annual principal payments (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Maturities of long-term debt
2022	$ 16,665
2023	33,330
2024	25,005
Total	$ 75,000

Summary of Significant Accounting Policies - Cash, Concentration of Credit Risk and Restricted Cash (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) Counterparty	Dec. 31, 2018 USD ($)
Cash and Concentration of Credit Risk
Number of counterparties \| Counterparty	3
Restricted Cash
Restricted cash \| $	$ 12,582	$ 12,206
First Customer
Cash and Concentration of Credit Risk
Percent of total accounts receivable	41.00%
Percent of total revenue	39.00%
Second Customer
Cash and Concentration of Credit Risk
Percent of total accounts receivable	35.00%
Percent of total revenue	33.00%
Third Customer
Cash and Concentration of Credit Risk
Percent of total accounts receivable	23.00%
Percent of total revenue	26.00%

Prepaid Expenses and Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2019

Prepaid Expenses and Other Current Assets

Schedule of prepaid expenses and other current assets

Prepaid Expenses and Other Current Assets, consists of the following (in thousands):


	December 31,		December 31,
	2019		2018

Insurance	$	906	$	532
Deposits		699		—
Non-trade receivables		1,535
Receivable for construction related to facility		—		1,026
Other		684		477
Prepaid expenses and other current assets	$	3,824	$	2,035

Debt - Athyrium Credit Facility (Details) $ / shares in Units, $ in Thousands		12 Months Ended
	Oct. 01, 2018 USD ($) item $ / shares shares	Dec. 31, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($) shares
Debt instruments
Aggregate principal amount			$ 75,000
Cumulative accretion of exit fee			$ 32
Number of features of embedded derivative \| item	2
Number of derivatives \| item	1
Warrant exercisable \| shares		297,988	297,988
Debt issuance costs			$ 4,806
Interest expense		$ 8,480	$ 3,314
Warrants 2018
Debt instruments
Exercise Price \| $ / shares		$ 12.18
Warrant exercisable \| shares		184,660	184,660
Athyrium Credit Facility
Debt instruments
Interest expense		$ 8,300
Amortization of debt discount		800
Contractual coupon interest		$ 7,500
Athyrium
Debt instruments
Remaining warrant exercisable upon condition \| shares		86,175
Athyrium \| Warrants 2018
Debt instruments
Exercise Price \| $ / shares		$ 12.18
Athyrium \| Athyrium Credit Facility
Debt instruments
Aggregate principal amount	$ 110,000	$ 75,000
Debt term (in years)	6 years
Cumulative accretion of exit fee		183
Fees to service provider	$ 3,000
Debt issuance costs		$ 3,999
Effective interest rate		11.63%
Athyrium \| 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
Athyrium \| Term Loan A
Debt instruments
Aggregate principal amount	$ 75,000
Line of Credit Facility, Interest Rate During Period	9.875%
Exit fee of the total principal payments (as a percent)	1.00%
Cumulative accretion of exit fee	$ 700
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%
Financial covenant amount	$ 10,000
Athyrium \| Term Loan B
Debt instruments
Aggregate principal amount	$ 35,000

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies

Schedule of co-pay assistance program


	Trade Discounts,
	Allowances and				Rebates and
	Chargebacks (1)		Product Returns (2)		Incentives (3)

Balance at January 1, 2019	$	-	$	-		-
Provision related to current period sales		4,031		321		24,812
Credit/payments made		(2,248)		(141)		(14,768)
Balance at December 31, 2019	$	1,783	$	180	$	10,044

(1)

(2)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Underwriters discount and offering costs		$ 5.0
Sales agent commission	$ 0.3	$ 0.1

Nature of business (Details) - USD ($) $ / shares in Units, $ in Thousands					12 Months Ended
	Feb. 12, 2020	Oct. 11, 2018	Oct. 05, 2018	Aug. 09, 2018	Dec. 31, 2019	Dec. 31, 2018	Oct. 01, 2018
Equity Offerings
Common stock, par value					$ 0.001	$ 0.001
Net proceeds					$ 8,425	$ 70,766
Underwriters discount and offering costs						5,000
Accumulated deficit					(295,456)	(201,109)
Aggregate principal amount						$ 75,000
Underwriter's option
Equity Offerings
Common stock offering, net of issuance cost and underwriting fees (in shares)			1,125,000
Shelf
Equity Offerings
Common stock offering, net of issuance cost and underwriting fees (in shares)		8,625,000	7,500,000
Net proceeds		$ 66,100
Share authorized value (shelf)				$ 250,000	$ 128,800
Registration period				3 years
Sales agreement			$ 50,000
Price per share			$ 8.25
ATM
Equity Offerings
Common stock offering, net of issuance cost and underwriting fees (in shares)	583,411				2,592,934
Net proceeds	$ 2,200				$ 13,100
Share authorized value (ATM)					$ 36,400
Athyrium \| Term Loan A
Equity Offerings
Aggregate principal amount							$ 75,000
Athyrium \| Term Loan B
Equity Offerings
Aggregate principal amount							$ 35,000
Common Stock
Equity Offerings
Common stock offering, net of issuance cost and underwriting fees (in shares)						8,625,000

Lease (Tables)

12 Months Ended

Dec. 31, 2019

Lease

Schedule of components of lease expense and related cash flows

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


	Years Ended December 31,
	2019		2018
Lease cost
Operating lease cost	$	4,614	$	1,099
Short-term lease cost		—		183
Variable lease cost		1,766		83
Total lease cost	$	6,380	$	1,365

Operating cash outflows from operating leases	$	5,445	$	988

Schedule of maturities of finance lease liability

Maturities of lease liability due under these lease agreements as of December 31, 2019 are as follows (in thousands):


Years Ending December 31,	Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2020	$	4,141	$	41	$	4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
2024		4,079		—		4,079
Thereafter		31,336		—		31,336
Present value adjustment		(21,877)		(16)		(21,893)
Present value of lease payments	$	29,893	$	107	$	30,000

(1)

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

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

(2) Future minimum lease payments under the Company's finance lease obligation.

Summary of Significant Accounting Policies - Performance Obligations (Details)	12 Months Ended
	Dec. 31, 2019
Summary of Significant Accounting Policies
Minimum period in which payment is typically received	70 days
Maximum period in which payment is typically received	90 days

Selected Quarterly Financial Data (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Selected Quarterly Financial Data (Unaudited)
Product revenues, net	$ 1,180	$ 1,451	$ 2,057	$ 1,386					$ 6,074
Total operating expenses	21,377	23,018	24,467	25,436	$ 23,567	$ 15,496	$ 14,519	$ 11,139	94,298	$ 64,721
Total other income (expense)	(1,761)	(1,609)	(1,415)	(1,338)	(1,651)	(107)	(101)	(158)	(6,123)	(2,017)
Net loss	$ (21,958)	$ (23,176)	$ (23,825)	$ (25,388)	$ (25,218)	$ (15,603)	$ (14,620)	$ (11,297)	$ (94,347)	$ (66,738)
Net loss per share attributable to common stockholders—basic and diluted	$ (0.63)	$ (0.68)	$ (0.70)	$ (0.75)	$ (0.76)	$ (0.63)	$ (0.60)	$ (0.46)	$ (2.76)	$ (2.49)

Stock-based Compensation - Inducement Stock Option Awards (Details) - shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation
Anniversary of the share-based compensation arrangement	1 year
Employee \| Non-statutory Stock Options
Stock-based compensation
Options Expiry Term	4 years
Vesting Period	3 years
Number of common stock issuable upon exercise of rights under equity compensation plans		207,500
Percentage of vesting of share-based compensation awards on the one year anniversary of the grant date	25.00%
Percentage of vesting of share-based compensation awards after the year anniversary of the grant date	75.00%

Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 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	2,637,175		4.90
Exercised	(24,714)		1.70
Forfeited	(271,075)		11.33
Outstanding at December 31, 2019	7,453,076	$	7.46	7.7	$	1,313
Vested or expected to vest at December 31, 2019	7,453,076	$	7.46	7.7	$	1,313
Options exercisable at December 31, 2019	4,076,113	$	7.02	6.8	$	1,170

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


	Year Ended December 31,
	2019			2018
Expected volatility	81%	–	84%	80%	–	115%
Risk-free interest rate	1.44%	–	2.58%	2.63%	–	2.96%
Expected dividend yield		0%			0%
Expected term (in years)	5.27	–	6.63	5.27	–	6.13

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


	December 31,	December 31,
	2019	2018

Warrant rights to acquire Common Stock	384,163	384,163
ESPP	438,307	223,341
Outstanding inducement stock option awards	705,500	498,000
2009 Plan	2,530,586	2,563,072
2017 Plan	4,429,849	3,130,910
Total	8,488,405	6,799,486

Schedule of stock based compensation expense

Stock-based compensation recognized was classified in the consolidated statements of operations as follows (in thousands):


	Year Ended
	December 31,
	2019		2018

Cost of product revenues	$	268	$	—
Research and development		2,844		2,660
Selling, general and administrative		6,879		5,955
Total	$	9,991	$	8,615

Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Prepaid Expenses and Other Current Assets
Insurance	$ 906	$ 532
Deposits	699
Nontrade Receivables, Current	1,535
Receivable for construction related to facility		1,026
Other	684	477
Prepaid expenses and other current assets	$ 3,824	$ 2,035

Fair Value of Financial Instruments - Fair value measurement levels (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair Value of Financial Instruments
Transfer from level 1 to level 2, Assets	$ 0	$ 0
Transfer from level 2 to level 1, Assets	0	0
Transfer from level 1 to level 2, Liabilities	0	0
Transfer from level 2 to level 1, Liabilities	0	0
Transfer into level 3, Assets	0	0
Transfer out of level 3, Assets	0	0
Transfer into level 3, Liability	0	0
Transfer out of level 3, Liability	$ 0	$ 0

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2: Summary of Significant Accounting Policies

Performance Obligations

Transaction Price and Variable Consideration

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the year ended December 31, 2019:


	Trade Discounts,
	Allowances and				Rebates and
	Chargebacks (1)		Product Returns (2)		Incentives (3)

Balance at January 1, 2019	$	-	$	-		-
Provision related to current period sales		4,031		321		24,812
Credit/payments made		(2,248)		(141)		(14,768)
Balance at December 31, 2019	$	1,783	$	180	$	10,044

(1)

(2)

(3)

Patent Costs—Costs to secure and defend patents are expensed as incurred and are classified as selling, general and administrative expenses in the Company’s consolidated statements of operations.

Comprehensive Loss—Comprehensive loss is equal to net loss for the periods presented.

Recent Accounting Pronouncements

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Taxes

Schedule of income tax reconciliation based on federal statutory rate


	Year Ended
	December 31,
	2019			2018
Federal statutory income tax rate		21.0	%		21.0	%
Effect of:
Change in valuation allowance		(25.8)			(28.5)
State income taxes, net of federal benefit		4.3			5.9
Research and development tax credits		1.0			2.7
Other		(0.5)			(1.1)
Effective income tax rate		—	%		—	%

Schedule of net deferred tax assets


	December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	49,018	$	46,933
Research and development tax credit carryforwards		6,250		5,070
Stock-based compensation		5,414		3,010
Lease liabilities		9,369		8,280
Other		2,467		1,318
Capitalized research and development and start-up expenditures		6,733		193
Total deferred tax assets	$	79,251	$	64,804
Deferred tax liabilities:
Right-of-use assets		(9,178)		(8,221)
Total deferred tax liabilities	$	(9,178)	$	(8,221)
Valuation allowance	$	(70,073)	$	(56,583)
Net deferred tax assets	$	—	$	—

Stock-based Compensation - Stock-based compensation expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation
Stock based compensation expense	$ 9,991	$ 8,615
Cost of product revenues
Stock-based compensation
Stock based compensation expense	268
Research and development
Stock-based compensation
Stock based compensation expense	2,844	2,660
Selling, general and administrative
Stock-based compensation
Stock based compensation expense	$ 6,879	$ 5,955

Stock-based Compensation - Narrative (Details) - shares	12 Months Ended
Stock-based Compensation - Narrative (Details) - shares	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation
Common stock available for future grant	8,488,405	6,799,486
2017 Equity Incentive Plan
Stock-based compensation
Common stock available for future grant	146,942
2017 Equity Incentive Plan \| Maximum
Stock-based compensation
Common stock available for future grant	2,530,586
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%
Employee and Non-Employee Stock Options
Stock-based compensation
Common stock available for future grant	438,307	223,341
Employee and Non-Employee Stock Options \| 2009 plan
Stock-based compensation
Options Expiry Term	10 years
Vesting Period	4 years

Property and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2019

Property and Equipment, Net

Schedule of property and equipment, net

Property and equipment, net, consists of the following (in thousands):


	December 31,		December 31,
	2019		2018

Equipment	$	2,627	$	2,400
Leasehold improvements		356		114
Computer hardware and software		892		599
Furniture and office equipment		1,144		67
Construction in progress		195		804
Property and equipment—at cost		5,214		3,984
Less: Accumulated depreciation		(2,516)		(1,818)
Property and equipment—net	$	2,698	$	2,166

Prepaid Expenses and Other Current Assets

12 Months Ended

Dec. 31, 2019

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

Note 4: Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets, consists of the following (in thousands):


	December 31,		December 31,
	2019		2018

Insurance	$	906	$	532
Deposits		699		—
Non-trade receivables		1,535
Receivable for construction related to facility		—		1,026
Other		684		477
Prepaid expenses and other current assets	$	3,824	$	2,035

Summary of Significant Accounting Policies - Co-pay Assistance Program (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Trade Discounts, Allowances and Chargebacks
Provision related to current period sales	$ 4,031
Credit/payments made	(2,248)
Ending balance	1,783
Product Returns
Provision related to current period sales	321
Credit/payments made	(141)
Ending balance	180
Rebates And Incentives
Provision related to current period sales	24,812
Credit/payments made	(14,768)
Ending balance	$ 10,044

Commitments and Contingencies - License Agreement (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Contingencies
Minimum annual payment	$ 37,500
License fee, if the company achieves the first commercial sale	100,000
Research and development expenses	27,275,000	$ 29,290,000
The Johns Hopkins University (“JHU”)
Contingencies
First commercial sale milestone	400,000
Research and development expenses	$ 300,000

Income Taxes - Reconciliation of the U.S. federal statutory income tax rate (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Taxes
Federal statutory income tax rate	21.00%	21.00%
Change in valuation allowance	(25.80%)	(28.50%)
State income taxes, net of federal benefit	4.30%	5.90%
Research and development tax credits	1.00%	2.70%
Other	(0.50%)	(1.10%)