UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

or

◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                      

Commission file number 001-36554

Ocular Therapeutix, Inc.

(Exact name of registrant as specified in its charter)

(781) 357-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ◻  Yes    ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ◻  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ◻  No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ◻  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ◻  Yes    ☒  No

As of June 28, 2019, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $169 million. The number of shares outstanding of the registrant’s class of common stock, as of March 2, 2020: 52,576,940.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report incorporates by reference information from the definitive Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2019.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

local pPART I

Item  1.Business

Overview of Ocular Therapeutix

We are a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using our proprietary, bioresorbable hydrogel platform technology. We use this technology to tailor duration and amount of delivery of a range of therapeutic agents of varying duration in our product candidates.

We are pursuing three overall strategic goals:

We currently incorporate therapeutic agents that have previously received regulatory approval from the U.S. Food and Drug Administration, or FDA, including small molecules and proteins, into our hydrogel technology with the goal of providing local programmed-release of drug to the eye. We believe that our local programmed-release drug delivery technology has the potential to treat conditions and diseases of both the front and the back of the eye and can be administered through a range of different modalities including intracanalicular inserts, intracameral implants and intravitreal implants. We have products and product candidates in early commercial, clinical and preclinical development applying this technology to treat post-surgical ocular inflammation and pain, ocular itching associated with allergic conjunctivitis, dry eye disease, glaucoma and ocular hypertension, and wet age-related macular degeneration, or wet AMD, among other conditions.

In November 2018, the FDA approved our new drug application, or NDA, for DEXTENZA® (dexamethasone ophthalmic insert) 0.4mg for intracanalicular use for the treatment of ocular pain following ophthalmic surgery.  In June 2019, the FDA approved our supplemental new drug application, or sNDA, for DEXTENZA to treat post-surgical ocular inflammation. On July 1, 2019, we commercially launched DEXTENZA in the United States for the treatment of post-surgical ocular inflammation and pain. DEXTENZA is the first FDA-approved intracanalicular insert delivering dexamethasone to treat post-surgical ocular inflammation and pain for up to 30 days with a single administration.  We have enrolled 96 patients in a pivotal Phase 3 clinical trial evaluating DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis.

In May 2019, we announced the results of the Phase 3 clinical trial of our product candidate OTX-TP (intracanalicular travoprost insert) for the reduction of intraocular pressure, or IOP, in patients with glaucoma and ocular hypertension. Both DEXTENZA and OTX-TP are local programmed-release, drug-eluting, preservative-free intracanalicular inserts that are placed into the canaliculus through a natural opening called the punctum located in the portion of the lower eyelid near the nose. In October 2019, we announced that we had met with the FDA who determined that the results did not achieve clinical meaningfulness for OTX-TP.  As a result, we informed the market that we did not intend to advance OTX-TP without a partner.

Our earlier stage assets include two development programs that have initiated clinical trials: OTX-TIC, an intracameral travoprost implant for the reduction of IOP in patients with glaucoma and ocular hypertension when greater IOP reduction is needed, and OTX-TKI, an intravitreal injection by fine gauge needle of a hydrogel, anti-angiogenic formulation of a tyrosine kinase inhibitor, or TKI, for the treatment of wet AMD. We also have a collaboration with Regeneron Pharmaceuticals, Inc., or Regeneron, for the development and potential commercialization of products containing our local programmed-release hydrogel in combination with Regeneron’s VEGF inhibitor, aflibercept, currently marketed under the brand name Eylea.  We delivered an initial formulation to Regeneron in December 2017 that was subsequently determined to not achieve the goals of the program.  We are currently negotiating an amendment to the initial collaboration to deliver additional formulations going forward.

In addition to our ongoing drug product development, we currently market ReSure® Sealant, a hydrogel ophthalmic wound sealant approved by the FDA to seal corneal incisions following cataract surgery.  ReSure Sealant is the first and only surgical sealant to be approved by the FDA for ophthalmic use.  We are also assessing the potential use of our hydrogel platform technology in other areas of the body.

Front-of-the-Eye Programs: Intracanalicular Inserts

Poor patient compliance with eye drop regimens and the need for frequent administration of eye drops at high drug concentrations due to rapid washout by the tears can create challenges in the successful management of ocular diseases and conditions. For example, poor patient compliance can lead to diminished efficacy and disease progression and high drug concentrations can create side effects. We are developing therapies to replace standard of care eye drop regimens with our innovative local programmed-release, drug-eluting intracanalicular inserts. The goal for our intracanalicular insert product candidates is to replace the management of many front-of-the-eye diseases and conditions using frequent, pulsed eye drop therapy, characterized by significant variations in drug concentration over time, with longer term, local programmed-release hydrogel-based therapeutic agents to improve patient outcomes.

DEXTENZA ® (dexamethasone ophthalmic insert)

DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as an active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert. In November 2018, the FDA approved our NDA for DEXTENZA for the treatment of post-surgical ocular pain. In June 2019, the FDA approved our sNDA, for DEXTENZA to treat post-surgical ocular inflammation. In connection with our July 1, 2019 commercial launch of DEXTENZA for post-surgical ocular inflammation and pain, we have built our own highly targeted, key account manager, or KAM, sales force that focuses on the ambulatory surgical centers, or ASCs, responsible for the largest volumes of cataract surgery.  Since the commercial launch of DEXTENZA, we have expanded our field sales team to a total of 30 KAMs.  DEXTENZA is now available through a network of distributors.  Our initial commercial efforts are focused on the two million cataract procedures performed annually under Medicare Part B.  Following our receipt of FDA approval on November 30, 2018, we submitted an application for a C-code for transitional pass-through payment status.  On May 29, 2019, we received formal notification from the Centers for Medicare and Medicaid Services, or CMS, that it had approved transitional pass-through payment status and established a new reimbursement code for DEXTENZA. The code, C9048, became effective on July 1, 2019.  On December 28, 2018, we submitted an application for a J-Code for permanent payment status.  In July 2019, we subsequently received a specific and permanent J-Code, J1096, that became effective October 1, 2019.  A J-Code is a permanent code used to report drugs that ordinarily cannot be self-administered. With the effectiveness of our permanent J-Code as of October 1, 2019, our C-code is no longer in effect. 

We have completed three Phase 3 clinical trials of DEXTENZA for the treatment of post-surgical ocular inflammation and pain. The data from two of these three completed Phase 3 clinical trials and a prior Phase 2 clinical trial were used to support our NDA for post-surgical ocular pain; data from a subsequent Phase 3 clinical trial was used to support our subsequent sNDA for post-surgical ocular inflammation.

We have completed two Phase 3 clinical trials of DEXTENZA for the treatment of allergic conjunctivitis and are currently conducting a third Phase 3 clinical trial.  In October 2015, we announced topline results of our first Phase 3 clinical trial for the treatment of ocular itching and conjunctival redness associated with allergic conjunctivitis.  In June 2016 we announced topline results of our second Phase 3 clinical trial for the treatment of ocular itching associated with allergic conjunctivitis.  In the first Phase 3 clinical trial, DEXTENZA achieved the co-primary endpoint of improvement in ocular itching compared with placebo but failed to achieve on the co-primary endpoint of improvement in conjunctival redness compared with placebo, in each case, at certain prespecified timepoints.  For the second Phase 3 trial, DEXTENZA failed to achieve the primary endpoint of improvement in ocular itching compared with placebo, at certain prespecified timepoints.  In the third quarter of 2019, we began dosing patients in pivotal Phase 3 clinical trial evaluating DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis.  A total of 96 patients were enrolled in this Phase 3 clinical trial, which is a U.S.-based, multi-center, 1:1 randomized, double-masked, placebo-controlled trial testing the safety and efficacy of DEXTENZA (dexamethasone ophthalmic insert) 0.4 mg versus a placebo vehicle punctum plug using the Ophthalmic Research Associates’ modified Conjunctival Allergen Challenge (Ora-Cac®) Model for the treatment of ocular itching associated with allergic conjunctivitis. The trial is designed to assess the effect of DEXTENZA compared with a placebo on allergic reactions using a series of successive allergen challenges over a 30-day period. The primary efficacy endpoint being evaluated in the study is ocular itching one week following the insertion of DEXTENZA. DEXTENZA is administered by a physician as a bioresorbable intracanalicular

insert and designed for drug release to the ocular surface for up to 30 days.  If this trial is successful, we plan to submit a supplemental NDA to the FDA for the indication of ocular itching associated with allergic conjunctivitis. We recently completed enrollment and topline results from this trial are anticipated to be reported in the second quarter of 2020.

We are also planning to evaluate DEXTENZA in pediatric subjects that are 0 to 3 years of age undergoing cataract surgery beginning in the fourth quarter of 2020.  The planned pediatric trial is a post-approval commitment to the FDA.  Additionally, we have initiated several investigator-initiated trials evaluating DEXTENZA in different clinical situations.  

We have also completed a small proof-of-concept Phase 2 clinical trial of DEXTENZA for the treatment of episodic dry eye disease which suggests that DEXTENZA may have benefit in treating ocular surface disease.

OTX-TP (intracanalicular travoprost insert)

Our product candidate OTX-TP is an intracanalicular insert that delivers a preservative-free formulation of the drug travoprost, an FDA approved prostaglandin analog, for the reduction of intraocular pressure, or IOP, in patients with primary open-angle glaucoma or ocular hypertension. OTX-TP is designed to lower IOP for up to 90 days and to address the poor adherence associated with chronic, daily eye drop regimens, the current standard of care. 

On May 20, 2019, we reported topline results of a Phase 3 randomized, double blind, placebo-controlled clinical trial that was conducted across more than 50 sites and enrolled 554 subjects with open-angle glaucoma or ocular hypertension in the full analysis set, or FAS, population. The trial’s primary efficacy endpoint was an assessment of mean IOP at nine different time points, three diurnal time points (8:00 a.m., 10:00 a.m., and 4:00 p.m.) at each of 2, 6, and 12 weeks following insertion. The secondary endpoints included an evaluation of whether OTX-TP demonstrated a statistically superior mean reduction of IOP from baseline for OTX-TP treated subjects compared with placebo insert treated subjects (Table 1) compared with placebo insert treated subjects at the same nine time points.  Topline results show that the trial did not achieve its endpoint of statistically significant superiority in mean reduction of IOP compared with placebo at all nine time points.  

OTX-TP was generally well tolerated and no ocular serious adverse events were observed. The most common ocular adverse events seen in the study eye were dacryocanaliculitis (approximately 7.0% in OTX-TP vs. 3.0% in placebo) and lacrimal structure disorder (approximately 6.0% in OTX-TP vs. 4.0% in placebo).

We have met with the FDA to discuss data we reported in May 2019 from our completed Phase 3 trial.  Our conversation with the FDA was productive and involved a discussion around the importance of compliance and how a product like OTX-TP could address the issue of non-compliance by delivering a prostaglandin analog formulated with our local programmed-release hydrogel to lower intraocular pressure for up to 12 weeks with a single insert.  While the FDA did not feel that the data from this clinical trial met the standard of clinical meaningfulness in the population studied, there were constructive discussions about potential pathways forward in specific patient populations for whom drops are problematic. Based on the feedback following these discussions with the FDA, we do not intend to initiate a second Phase 3 clinical trial at this time without the assistance of a collaborative partner.    We believe that if we were to find a partner for our OTX-TP program, we or such partner could decide to conduct additional Phase 2 clinical trials to address feedback from the FDA prior to another Phase 3 clinical trial.  Given the potential use of OTX-TP as a chronic therapy, however, we have decided to continue an ongoing open-label, one-year safety extension study, generating six-month and one-year safety data for a limited number of subjects to support a potential future product registration.  We anticipate data from this safety study including pharmacokinetic data later this year.

Front-of-the-Eye Programs: Implants for Intracameral Injection

OTX-TIC (travoprost implant for intracameral injection)

OTX-TIC is our product candidate for glaucoma patients in need of a more significant reduction in IOP. OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by a physician as an intracameral injection with an initial target duration of drug release of four to six months. Preclinical studies to date have demonstrated reduction of IOP and pharmacokinetics in the aqueous humor that suggest a pharmacodynamic response of IOP reduction in humans. Our investigational new drug application, or IND, for our U.S. trial became effective in the first quarter of 2018, and we dosed the first patient in May 2018. This clinical trial is a multi-center, open-label, dose-

escalation, proof-of-concept study designed to evaluate the safety, biological activity, durability, and tolerability of OTX-TIC in patients with primary open-angle glaucoma or ocular hypertension. We presented initial results from the first cohort, comprised of five patients, in this clinical trial at the Association of Research and Vision of Ophthalmology (ARVO) meeting in April 2019 and the American Society of Cataract and Refractive Surgery annual meeting in May 2019.  We subsequently presented results from the second cohort, comprised of four patients, at the Glaucoma 360 conference in February 2020.  These data demonstrated that, with a single implant, subjects were able to achieve IOP lowering from baseline for up to eighteen months. In addition, the hydrogel carrier, as designed, biodegraded in approximately five to seven months. There were no clinically meaningful changes in corneal health as measured by endothelial cell evaluation and corneal pachymetry. Several subjects reported low grade inflammation and peripheral anterior synechiae that we believe may be addressable with modifications to the implants. 

We are currently collecting additional data from the first two cohorts and have begun enrolling a third and fourth cohort to assess the impact of a faster degrading implant with the same therapeutic dose as administered in cohort one and a fourth cohort to assess an additional formulation with a smaller implant of OTX-TIC.  We expect to provide topline data for the third and fourth cohorts in the second half of 2020.

Back-of-the-Eye Programs

We are engaged in the development of formulations of our hydrogel administered via intravitreal injection to address the large and growing markets for diseases and conditions of the back of the eye. Our initial development efforts are focused on the use of our extended-delivery hydrogel in combination with anti-angiogenic drugs, such as protein-based anti-VEGF drugs, or small molecule drugs, such as TKIs, for the treatment of retinal diseases such as wet AMD, retinal vein occlusion and diabetic macular edema. Our initial goal for these programs is to provide extended delivery over a four to nine-month period thereby reducing the frequency of the current monthly or bi-monthly immediate release intravitreal injection regimen for wet AMD and other retinal diseases.

OTX-TKI (tyrosine kinase inhibitor intravitreal implant containing axitinib)

OTX-TKI is a preformed, bioresorbable hydrogel fiber incorporating axitinib, a small molecule TKI with anti-angiogenic properties delivered by intravitreal injection. TKIs have shown promise in the treatment of wet AMD. In May 2017, we reported data from preclinical studies evaluating the efficacy, tolerability and pharmacokinetics of OTX-TKI. In this study, OTX-TKI was well-tolerated, and high levels of drug were maintained in the tissue for up to twelve months in Dutch belted rabbits. In the first quarter of 2019, we began dosing patients in a Phase 1 clinical trial in Australia. This clinical trial is a multi-center, open-label, dose escalation study designed to evaluate the safety, durability  and tolerability of OTX-TKI. We also plan to evaluate biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography.  Two cohorts of six subjects each have been enrolled, a lower dose cohort of 200 μg and a higher dose cohort of 400 μg. In these cohorts, OTX-TKI was generally well tolerated and observed to have a favorable safety profile with no ocular serious adverse events noted. In the higher dose cohort, OTX-TKI showed a decrease in central subfield retinal thickness as measured by mean changes in central subfield thickness values by decreases in intraretinal and/or subretinal fluid in some subjects. We plan to continue long-term evaluation of these cohorts. We plan to amend our current clinical trial protocol to enroll a third, higher-dose cohort.  This Phase 1 clinical trial is not powered to measure any efficacy endpoints with statistical significance.

OTX-IVT (intravitreal aflibercept implant) in Collaboration with Regeneron 

In October 2016, we entered into a strategic collaboration, option and license agreement, or Collaboration Agreement, with Regeneron for the development and potential commercialization of products using our hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases, with the initial focus on the VEGF trap aflibercept, currently marketed under the brand name Eylea. Under the terms of the agreement, we granted Regeneron an option, or the Option, to enter into an exclusive, worldwide license under our intellectual property to develop and commercialize products using our hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds, or Licensed Products. The Collaboration Agreement does not cover the development of any products that deliver small molecule drugs, including TKIs, for any target including VEGF, or any products that deliver large molecule drugs other than those that target VEGF proteins. Under the terms of the Collaboration Agreement, we and Regeneron have agreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept that is suitable for advancement into clinical development.   We refer to the formulation we are developing with Regeneron as OTX-IVT.

Under the terms of the Collaboration Agreement, Regeneron is responsible for funding an initial preclinical tolerability study.  If the Option is exercised, Regeneron will conduct further preclinical development and an initial clinical trial under a collaboration plan. We are obligated to reimburse Regeneron for certain development costs during the period through the completion of the initial clinical trial, subject to a cap of $25 million, which cap may be increased by up to $5 million under certain circumstances. We do not expect our funding requirements under the collaboration to be material over the next twelve months. If Regeneron elects to proceed with further development beyond the initial clinical trial, it will be solely responsible for conducting and funding further development and commercialization of product candidates. If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least one Licensed Product. Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.

Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of the Option.  We are also eligible to receive up to $145 million per Licensed Product upon the achievement of specified development and regulatory milestones, including successful results from the first-in-human clinical trial, $100 million per Licensed Product upon first commercial sale of such Licensed Product and up to $50 million based on the achievement of specified sales milestones for all Licensed Products.  In addition, we are entitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net sales of Licensed Products.

In December 2017, we delivered to Regeneron a proposed final formulation for the initial preclinical tolerability study.  Regeneron initiated an initial preclinical tolerability study in early 2018.  We and Regeneron have subsequently reached an understanding that the proposed formulation did not meet the goals of the program, was not final and have therefore ceased development of it.  We are currently in discussions with Regeneron, in accordance with the terms of the Collaboration Agreement, regarding the development of an alternative formulation.

ReSure® Sealant

We commercially launched this product in the United States in 2014. ReSure Sealant is approved to seal corneal incisions following cataract surgery. In the pivotal clinical trials that formed the basis for FDA approval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure.

The FDA required two post-approval studies as a condition for approval of our premarket approval, or PMA, application for ReSure Sealant. The first post-approval study, identified as the Clinical PAS, was to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of the most prevalent adverse ocular events identified in our pivotal study in eyes treated with ReSure Sealant.  We submitted the final study report to the FDA in June 2016, and the FDA has confirmed the Clinical PAS has been completed. The second post-approval study, identified as the Device Exposure Registry Study, is intended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 days following cataract surgery and application of ReSure Sealant. The Device Exposure Registry Study is required to include at least 4,857 patients. Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we have been unable to enroll trial sites and patients, collect patient data and report study data to the FDA. We have provided regular periodic reports to the FDA on the progress of this post-approval study.

We received a warning letter from the FDA in October 2018 relating to our compliance with data collection and information reporting obligations in the Device Exposure Registry Study. The FDA warning letter refers to a lack of progress with the enrollment and related data collection and information reporting obligations for a required post-approval trial. In November 2018, we appealed this warning letter.  In December 2018, the FDA rejected our appeal. Failure by us to conduct the required post-approval trial for ReSure Sealant to the FDA’s satisfaction may result in withdrawal of the FDA’s approval of ReSure Sealant or other regulatory action. 

A teleconference was held with the FDA in January 2019 resulting in tentative agreement on a proposed retrospective registry study of endophthalmitis rates to satisfy the Device Exposure Registry Study requirements.  In a letter dated June 7, 2019 from the FDA, the agency acknowledged receipt of a letter dated March 29, 2019 from us in which we proposed conducting the proposed retrospective analysis of the IRIS Registry, comparing endophthalmitis rates from sites that purchased ReSure versus those sites that did not purchase ReSure.  If the rates are no different, the FDA has indicated that it will consider the post-approval requirement to have been fulfilled.  If there is a statistically significant increase in endophthalmitis rates at sites purchasing ReSure compared with those not purchasing ReSure, a

prospective study will be required.  The FDA has indicated it will consider our response to the warning letter adequate once it approves the study protocol for the retrospective analysis of the IRIS Registry and the outline of the prospective study.  In December 2019, we submitted the protocol for the agreed upon retrospective study and prospective study outline, as required per the terms of the warning letter.  We received feedback from the FDA in February 2020 and  responded to the FDA in March 2020.  We expect a response from the FDA in the middle of 2020.

ReSure Sealant currently remains commercially available in the United States, though there is no sales support provided to the product at this time.  We have received only limited revenues from ReSure Sealant to date and anticipate only limited sales for 2020.

Additional Potential Areas for Growth

We continue to leverage the potential of our hydrogel platform to explore areas for growth with our focus on formulating, developing and commercializing innovative therapies for diseases and conditions of the eye. 

We are also assessing the potential use of our hydrogel platform technology in other areas of the body and are studying several localized delivery platforms including via wound inlays; sinus and ear inserts; and subcutaneous, peripheral, and intra-articular injections.  In September 2018, we entered into a second amended and restated license agreement, or Second Amended Agreement, with Incept LLC, an intellectual property holding company, or Incept. The Second Amended Agreement expands the scope of our intellectual property license to include products delivered for the treatment of acute post-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions.

Market Background

Our clinical stage product candidates and our marketed product are based on a proprietary bioresorbable hydrogel technology platform that uses polyethylene glycol, or PEG, as a key component. Bioresorbable materials gradually break down in the body into non-toxic, water soluble compounds that are cleared by normal biological processes. PEG is used in many pharmaceutical products and is widely considered to be safe and biocompatible. Our technology platform allows us to tailor the physical properties, drug release profiles and bioresorption rates of our hydrogels to meet the needs of specific clinical indications. We have used this platform to engineer each of our intracanalicular insert product candidates, our intracameral product candidates, our intravitreal implant product candidates, and ReSure Sealant. Our technical capabilities include a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the specialized manufacturing processes required to achieve a reliable, preservative-free and high purity product.

Our product candidates target large and growing markets. Grand View Research estimates that the global ophthalmic drugs market size was valued at approximately $30 billion in 2018 and is expected to grow at a CAGR of 4.5% from 2018 to 2026. Increased funding by public and private bodies for conducting research on ocular disorders along with the presence of strong emerging pipeline drugs are among the key factors responsible for the growth of this market.

We have in-licensed a significant portion of the patent rights and the technology for ReSure Sealant and our hydrogel platform technology product candidates from Incept, LLC, or Incept, an intellectual property holding company. Amarpreet Sawhney, our former President and Chief Executive Officer and former Chairman of the Board of Directors, is a general partner of Incept and has a 50% ownership stake in Incept.

Our founders and management team have significant experience in developing and commercializing medical products for other companies using bioresorbable hydrogel technology, including FDA-approved and currently marketed medical products such as SpaceOAR (marketed by Boston Scientific, Inc.), a hydrogel spacer used to reduce a common and debilitating side effect that men may experience after receiving prostate cancer radiotherapy; DuraSeal Dural Sealant® (marketed by Integra Lifesciences, Inc.), a sealant for cranial and spine surgery; and Mynx® (marketed by Cardinal Health, Inc.), a sealant for femoral artery punctures after angiography and angioplasty.

Product Pipeline

The following table summarizes the status of our key product development programs and our marketed product. We hold worldwide exclusive commercial rights to the core technology underlying all of our products in development

and have not granted commercial rights to any marketing partners other than the Option on commercial rights we granted to Regeneron for the delivery of protein-based anti-VEGF drugs in our hydrogel depot for the treatment of retinal diseases.  

Our Strategy

We are pursuing three overall strategic goals: to make prescription eye drops obsolete; to make immediate release back-of-the-eye injections obsolete; and to extend our hydrogel platform technology for use beyond the eye to other areas of the body.  The key tactics of our strategy to achieve these goals are:

Wet AMD

We currently have a number of preclinical programs that we have positioned for further development including OTX-CSI for episodic dry eye, for which we filed an IND in the United States in December 2019 and intend to initiate a Phase 1 clinical trial in the middle of 2020; OTX-BPI for acute ocular pain; and OTX-BDI for post-operative inflammation, pain and bacterial infection. 

Eye Disease

The front of the human eye consists of the cornea on the surface of the eye, the lens and the aqueous humor, which is a transparent fluid that fills the anterior chamber between the lens and the cornea. The tissue surrounding the eye also serves important functions. There is a natural opening, called a punctum, located in the inner portion of each upper and lower eyelid near the nose. The puncta open into nasolacrimal ducts, which collect and drain tears. The conjunctiva is the membrane covering the inside of the eyelids and the white part of the eye, known as the sclera. It helps to protect the eye from microbes and to lubricate the eye. The back of the eye contains the retina, which is the light sensing layer of tissue, the vitreous humor, which is a transparent gel that fills the vitreous chamber between the lens and the retina, and the optic nerve, which transmits visual information from the retina to the brain. Eye disease can be caused by many factors and can affect both the front and back of the eye. Diseases and conditions affecting the front of the eye are generally treated either with surgery or with medications delivered to the ocular surface by eye drops. Intravitreal injections or oral pills are typically used to deliver medications to the back of the eye.

Front-of-the-Eye Diseases and Conditions

Ocular Inflammation and Pain

Ocular inflammation and pain are common conditions caused by a variety of factors, including ophthalmic surgery, allergic conjunctivitis and dry eye disease.

Post-Surgical Ocular Inflammation and Pain 

Ocular inflammation and pain are common side effects following ophthalmic surgery. Frequently performed ophthalmic surgeries include cataract, refractive, vitreoretinal, cornea, and glaucoma procedures. Physicians prescribe anti-inflammatory drugs, such as corticosteroids, which are typically administered through eye drops multiple times per

day, following ocular surgery as the standard of care. These drugs improve patient comfort and also accelerate recovery through disruption of the inflammatory cascade resulting in decreased inflammation and reduced activity of the immune system. Physicians also frequently prescribe non-steroidal anti-inflammatory drugs, or NSAIDs, as adjunctive or combination therapy to supplement the use of corticosteroids. If left untreated, inflammation of the eye may result in further ocular complications, including pain, scarring and vision loss. Market Scope has estimated that approximately 6.1 million ocular surgeries were to be performed in the United States in 2019.

Allergic Conjunctivitis

Allergic conjunctivitis is an inflammatory disease of the conjunctiva resulting primarily from a reaction to allergy- causing substances such as pollen or pet dander. The primary sign of this inflammation is redness and the primary symptom is acute itching. Allergic conjunctivitis ranges in clinical severity from relatively mild, common forms to more severe forms that can cause impaired vision. According to a study on the management of seasonal allergic conjunctivitis published in 2012 in the peer-reviewed journal Acta Ophthalmologica, allergic conjunctivitis affects 15% to 40% of the U.S. population. The first line of defense against allergic conjunctivitis is avoidance of the allergen. If this is not successful, physicians typically prescribe a combination of a topical mast cell stabilizer and anti-histamine. These treatments act to reduce the signs and symptoms of the early phase allergic reaction. For the subset of patients with chronic or more severe forms of allergic conjunctivitis, anti-histamines and mast cell stabilizers are often not sufficient to treat their signs and symptoms. These refractory patients are frequently treated with topical corticosteroids administered by prescription eye drops.

Dry Eye Disease

Dry eye disease affects the ocular surface and is characterized by dryness, inflammation, pain, discomfort and irritation. The current standard of care for moderate to severe dry eye disease is the use of artificial tears and topical anti- inflammatory and immune modulating drugs administered by prescription eye drops. The anti-inflammatory and immune modulating prescription drug market for the treatment of moderate to severe dry eye disease consists of Restasis®, for increasing tear production, marketed by Allergan; Cequa™ for increasing tear production, marketed by Sun Ophthalmics in the United States; lifitegrast, for the treatment of the signs and symptoms of dry eye disease, marketed by Novartis under the brand name Xiidra®;  and off-label use of corticosteroids. Based on our review of industry sources, we estimate that approximately 20 million people in the United States have dry eye disease, including approximately five million people who suffer from moderate to severe dry eye disease.

Dry eye disease is a chronic, multifactorial disease affecting the tears and ocular surface that can result in tear film instability, inflammation, discomfort, visual disturbance and ocular surface damage. Dry eye disease can have a significant impact on quality of life and can potentially cause long‑term damage to the ocular surface. Due to the impact of dry eye disease on tear film dynamics, the condition can affect performance of common vision‑related activities such as reading, using a computer and driving, and can lead to complications associated with visual impairment. In addition, the vast majority of dry eye patients experience acute episodic exacerbations of their symptoms, which are commonly referred to as flares, at various times throughout the year. These flares can be triggered by numerous factors, including exposure to allergens, pollution, wind and low humidity, intense visual concentration such as watching television and working at a computer, hormonal changes, contact lens wear, smoking and sleep deprivation, which cause ocular surface inflammation and impact tear production and/or tear film stability.

Based on third‑party academic research, we believe dry eye disease results in approximately $55 billion in direct and indirect costs in the United States each year, of which approximately $3.8 billion are direct medical costs. The exact prevalence of dry eye disease is unknown due to the difficulty in defining the disease and the lack of a single diagnostic test to confirm its presence. The Beaver Dam Offspring Study, a major epidemiological study published in 2014 in the American Journal of Ophthalmology, reported that in a cohort of over 3,000 patients, dry eye disease was self‑reported by 14.5% of the patients. The prevalence of dry eye disease increases with age, and we expect that the number of dry eye disease cases will increase as the U.S. population continues to age.

The most commonly used treatments for dry eye disease in the United States are over‑the‑counter eye drops, often referred to as “artificial tears,” and three prescription pharmaceutical products, Restasis®  Xiidra®  and Cequa™. Artificial tears are intended to be palliative in nature to supplement insufficient tear production or improve tear film instability, but do not treat the underlying inflammation in dry eye disease. Restasis increases tear production and Xiidra treats the signs and symptoms of dry eye disease, however, both Restasis and Xiidra are typically used chronically for dry eye patients

who have continuous symptoms. Restasis had sales in 2018 of approximately $1.2 billion in the United States. Xiidra, which was commercially launched in the United States in August 2016, had sales of approximately $255.1 million for the nine-month period ended September 30, 2018. As each of Restasis and Xiidra have a relatively long onset of action, they are not generally used for the short‑term treatment of episodic dry eye flares.  In addition, they have significant issues with stinging and burning.

Market Data

According to IMS Health data, approximately 20.0 million prescriptions were filled in the United States in 2019 for anti-inflammatory drugs administered by prescription eye drops for ocular diseases and conditions, resulting in sales of approximately $4.5 billion. These prescriptions consisted of approximately 8.3 million prescriptions and $752 million in sales for single-agent corticosteroids, 3.2 million prescriptions and $366 million in sales for NSAIDs, 4.6 million prescriptions and $294 million in sales for corticosteroid and antibiotic combination products and approximately 3.8 million prescriptions and $2.9 billion in sales of Restasis and Xiidra for dry eye disease. According to IMS Health data, approximately 7.0 million anti-allergy eye drop prescriptions were filled in the United States in 2019, resulting in sales of approximately $487 million. The steroid market for eye drops to treat ocular diseases and conditions consists of both branded and generic products. Branded steroids include Lotemax and Alrex (loteprednol etabonate) marketed by Bausch & Lomb, and Durezol (difluprednate) marketed by Alcon. Commonly used generic steroids include prednisolone, dexamethasone and fluorometholone.  In addition, an injectable suspension of dexamethasone, Dexycu, is commercially available and approved for treatment of post-operative ocular inflammation.

Glaucoma

Glaucoma is a large market and a disease that is estimated to impact more than 2.7 million people age 40 or older in the United States.  The primary goal of glaucoma treatment is to slow the progression of this chronic disease by reducing intraocular pressure, and many medications can accomplish this.  Importantly, however, adherence to current topical glaucoma therapies is known to be particularly poor with reported rates of non-adherence from 30% to 80%. These low compliance rates may be associated with disease progression and loss of vision, and may be part of the reason that glaucoma is a leading cause of blindness in people over 60 years of age. 

Glaucoma is a progressive and highly individualized disease in which elevated levels of IOP are associated with damage to the optic nerve, which results in irreversible vision loss. According to the World Health Organization, glaucoma is the second leading cause of blindness in the world. Ocular hypertension is characterized by elevated levels of IOP without any optic nerve damage. Patients with ocular hypertension are at high risk of developing glaucoma.

In a healthy eye, fluid is continuously produced and drained to maintain pressure equilibrium and provide nutrients to the ocular tissue. Excess fluid production or insufficient drainage of fluid in the front of the eye or a combination of these problems causes increased IOP. The increased IOP associated with uncontrolled glaucoma results in degeneration of the optic nerve in the back of the eye and loss of peripheral vision. Once glaucoma develops, it is a chronic condition that requires life-long treatment.

Prostaglandins are the most commonly used class of medications to treat patients with glaucoma and are administered via daily eye drops as the current standard of care.  The ability of patients to use and place daily eye drops is challenging. The products that we are developing are designed to address the issue of compliance by delivering a prostaglandin analog formulated with our programmed release hydrogel to lower intraocular pressure for several months with a single insert.

Market Data

According to IMS Health data, approximately 35.6 million prescriptions were filled in the United States in 2019 for drugs administered by eye drops for the treatment of glaucoma, resulting in sales of approximately $3.3 billion. A typical prescription provides approximately one month of treatment. We expect prescription volume to grow, in large part as a result of the aging population. According to IMS Health, PGAs accounted for approximately half of the prescription volume in the glaucoma market in 2019. The market for drugs administered by eye drops for the treatment of glaucoma consists of both branded and generic products. Branded products have maintained premium pricing and significant market share. These products include Travatan Z (travoprost) marketed by Alcon and Lumigan (bimatoprost)

marketed by Allergan. The relevant patents covering travoprost expired in December 2014. Commonly used generic drugs include latanoprost and timolol.

The Use of Eye Drops and their Limitations

Eye drops are widely used to deliver medications directly to the ocular surface and to intraocular tissue in the front of the eye. Eye drops are administrable by the patient or care provider, inexpensive to produce and treat the local tissue. However, eye drops have significant limitations, especially when used for chronic diseases or when requiring frequent administration, including:

As a result of these limitations, eye drops are often suboptimal as a therapeutic option for the treatment of many diseases and conditions of the front of the eye.

Back-of-the-Eye Diseases and Conditions

There are a range of back-of-the-eye diseases and conditions that adversely affect vision. One of the principal back-of-the-eye conditions is wet AMD, a serious disease of the central portion of the retina, known as the macula that is responsible for detailed central vision and color perception. Wet AMD is characterized by abnormal new blood vessel formation, referred to as neovascularization, which results in blood vessel leakage and retinal distortion. If untreated, neovascularization in wet AMD patients typically results in formation of a scar under the macular region of the retina. The current standard of care for wet AMD are drugs that target VEGF, one of several proteins involved in neovascularization.

Wet AMD is the leading cause of blindness in people over the age of 55 in the United States and the European Union. According to a study on the burden of AMD published in 2006 in the peer-reviewed journal Current Opinion in Ophthalmology, approximately 1.2 million people in the United States suffer from wet AMD. In addition, AMD Alliance International reported that approximately 200,000 new cases of wet AMD arise each year in the United States. The incidence of wet AMD increases substantially with age, and we expect that the number of cases of wet AMD will

increase with growth of the elderly population in the United States. The anti-VEGF market for the treatment of wet AMD consists predominantly of three drugs that are approved for marketing and primarily prescribed for the treatment of wet AMD; Lucentis marketed in the United States by Genentech; Eylea marketed in the United States by Regeneron; Beovu marketed in the United States by Novartis; Avastin, a cancer treatment drug, marketed by Genetech, is also used off-label for wet AMD. In 2019, sales of Lucentis and Eylea totaled approximately $6.5 billion in the United States and $11.4 billion globally.

Because eye drops are unable to carry effective drug concentrations to the back-of-the-eye, intravitreal injections or oral medications are used to deliver medications to this location. However, the frequency of intravitreal injection can be a significant burden on patients, caregivers and clinicians. For example, the current treatment protocol for wet AMD involves monthly or bi-monthly injections. Intravitreal injections can lead to patient discomfort, a transient increase in IOP, and ocular inflammation and infection. Although serious adverse event rates after treatment with anti-VEGF compounds are low, intravitreal injections can result in severe complications and damage to the retina and other structures of the eye, such as ocular hemorrhage and tears in the retinal pigment epithelium.

Ocular Wound Closure

According to the World Health Organization, cataracts are the leading cause of visual impairment eventually progressing to blindness. According to the American Academy of Ophthalmology Cataract and Anterior Segment Panel’s 2011 Preferred Practice Pattern Guidelines, cataract extraction is the most commonly performed eye surgery in the United States. Market Scope has estimated that in 2019 there were to be approximately 4.3 million cataract extractions performed in the United States.

A cataract is a clouding of the lens inside the front of the eye. During cataract surgery, a patient’s cloudy natural lens is removed and replaced with a prosthetic intraocular lens. Clear corneal incision that allows entry to the eye is the typical method for performing cataract surgery. The most common post-surgical approach is to allow the incisions to self-seal, or close, through normal biological processes. However, self-sealing incisions can open spontaneously, especially within 12 to 24 hours following surgery, when IOP fluctuates or as a result of the application of external pressure or manipulation. In addition, incisions that are left to self-seal may leak, which can sometimes result in complications. Complications from fluid leakage include the development of hypotony, or low IOP, which can lead to corneal decompensation and vision loss, as well as the potential for infection. The implanted intraocular lens also may shift in position due to hypotony, leading to reduced visual outcomes following surgery.

Sutures are the most widely used alternative method of wound closure. However, sutures do not completely prevent fluid leakage, are time-consuming to place and have been associated with patient discomfort, corneal distortion, and shallowing of the interior chamber. An additional visit may be required to remove sutures, thus adding time, inconvenience and expense to the surgical process. Sutures may also lead to astigmatism, a distortion of the cornea. These shortcomings limit the use of sutures in ophthalmic surgery. In a 2012 survey of ophthalmologists in the United States conducted by Lachman Consulting LLC, a healthcare consulting firm, respondents indicated that they use sutures in approximately 14% of cataract surgeries.

The Ocular Therapeutix Approach

Our Hydrogel Technology Platform

We apply our expertise with an established bioresorbable hydrogel technology to the development of products for local programmed-release of known, FDA-approved therapeutic agents for a variety of ophthalmic diseases and conditions and to ophthalmic wound closure. Our founders used this same hydrogel technology to develop FDA-approved and currently marketed medical products for other companies such as SpaceOAR (marketed by Boston Scientific, Inc.), a hydrogel spacer used to reduce a common and debilitating side effect that men may experience after receiving prostate cancer radiotherapy; DuraSeal Dural Sealant® (marketed by Integra Lifesciences, Inc.), a sealant for cranial and spine surgery, and Mynx® (marketed by Cardinal Health), a sealant for femoral artery punctures after angiography and angioplasty.

Our bioresorbable hydrogel technology is based on the use of a proprietary form of PEG. Our technical capabilities include a deep understanding of the polymer chemistry of PEG-based hydrogels and the design of the highly specialized manufacturing processes required to achieve a reliable, preservative free and pure product. We tailor the

hydrogel to act as a vehicle for local programmed-release drug delivery to the eye and as an ocular tissue sealant. We have used bioresorbable hydrogels to engineer each of our intracanalicular insert product candidates, our intracameral implant product candidates, ReSure Sealant and our intravitreal implant product candidates.

We create our hydrogels by cross-linking PEG molecules to form a network that resembles a three-dimensional mesh on a molecular level. Our PEG molecules are branched, with four to eight branches or arms. Each arm bears a reactive site on its end. Our cross-linking chemistry uses a second molecule with four arms, bearing complimentary reactive sites on each end, such that when combined with the PEG molecules, a network spontaneously forms. When swollen with water, this molecular network forms a hydrogel. We design these hydrogels to slowly degrade in the presence of water, a process called hydrolysis, by inserting a biodegradable linkage between the PEG molecule and the cross-linked molecule. By appropriately selecting the number of arms of the PEG molecule and the biodegradable linkage, we can design hydrogels with varying mechanical properties and bioresorption rates. Because the body has an abundance of water at a constant temperature and pH level, hydrolysis provides a predictable and reproducible degradation rate. Our technology enables us to make hydrogels that can bioresorb over days, weeks or several months. The figure below depicts the formation and bioresorption of the hydrogel for ReSure Sealant.

Intracanalicular Insert-Based Local Programmed-Release Therapies for Front-of-the-Eye Diseases and Conditions

A punctum is a natural opening located in the inner portion of the eyelid near the nose. There is a punctum in each of the lower eyelids and the upper eyelids. The puncta open into nasolacrimal ducts, which collect and drain tears produced by the eyes’ lacrimal glands. Tears produced in the lacrimal glands sweep across the eye surface and drain through the puncta to the nasal cavity. The section of the nasolacrimal duct immediately beyond the puncta is called the vertical canaliculus. Intracanalicular inserts that do not contain an active drug are commonly used for treatment of dry eye disease by physically blocking tear drainage. Because intracanalicular inserts stay in contact with the tear film, they are well suited for local programmed-release of drug to the eye.

Intracanalicular insert shown positioned in the vertical canaliculus

Our intracanalicular inserts utilize our proprietary hydrogel technology and are embedded with an active drug. Following insertion through the punctum, our inserts swell in tear fluid to fill the vertical canaliculus, which secures the inserts in place. We design our inserts to release drug in a programmed fashion, tailored to each disease state, back through the punctum to the surface of the eye. Over time the inserts liquefy and are cleared through the nasolacrimal duct. If necessary due to excessive tearing, discomfort or improper placement, a healthcare professional can remove an intracanalicular insert by a process of pushing the soft insert back through the punctum.

Our inserts allow incorporation of a variety of drugs with a controllable range of delivery durations and delivery rates. For acute conditions, such as post-surgical ocular inflammation and pain and ocular itching associated with allergic conjunctivitis, we have designed our intracanalicular inserts to provide a local programmed-release of therapeutic levels of drug for the duration of treatment. For chronic diseases, such as glaucoma, we have designed our intracanalicular inserts for repeat administration with extended dosing periods. We are concentrating our initial development efforts on intracanalicular inserts incorporating active pharmaceutical ingredients that are approved by the FDA for the targeted indication and that satisfy other specific selection criteria that we have developed.

We manufacture our intracanalicular inserts from dried PEG-based hydrogel formed into tiny rods that hold an active pharmaceutical ingredient in a preservative-free formulation. We embed the active pharmaceutical ingredient in the pre-hydrogel liquid formulation, which then solidifies to form a hydrogel containing the drug within. The relative size of one of our intracanalicular inserts is shown in the figure below.

We provide the intracanalicular insert as a thin dry rod to facilitate insertion through the narrow punctal opening. Upon hydration with tear fluid, the insert swells, softens, and conforms to roughly the size and shape of the vertical

canaliculus, to secure it in place. We incorporate the active pharmaceutical ingredient in the form of micronized particles embedded directly in the hydrogel or as bioresorbable microspheres.

We have included a fluorescent label, or marker, in our intracanalicular insert hydrogel to serve as a visualization aid for the healthcare professional to confirm the insert’s presence. The viewer applies a blue handheld  light and a clear yellow filter aid to see the insert in the eyelid as shown in the figure below.

Because intracanalicular inserts stay in contact with the tear film, other companies have pursued the development of intracanalicular punctum plugs containing active drugs for local programmed release to the ocular surface. However, these earlier product designs had significant limitations with respect to drug capacity, drug release kinetics and patient comfort and used non-degradable punctum plugs with a clear silicone hard rubber shell containing only a core with active drug. These plugs typically extended outside of the punctal opening and secured themselves in place with an external cap. The external cap was in constant contact with the surface of the eye, which may cause irritation and discomfort in some cases. In addition, some prior designs resorted to plugging both the upper and lower puncta, which could cause excessive tearing and patient discomfort. These designs did not incorporate a visualization agent to allow the patient and physician to assess the presence of the plug.

In contrast to these prior approaches, we have designed our intracanalicular inserts to:

We select the active pharmaceutical ingredients for our local programmed-release drug delivery product candidates, including our intracanalicular inserts, based on criteria we have developed through our extensive experience with hydrogel insert systems. Our active pharmaceutical ingredient selection criteria include:

Anticipated Benefits of Our Intracanalicular Inserts, Intracameral Implants and Intravitreal Implant Compared to Eye Drops

We believe our intracanalicular insert, intracameral implants and intravitreal implant product candidates may offer a range of favorable attributes as compared to eye drops, including:

Intravitreal Implants for Back-of-the-Eye Diseases and Conditions

We are engaged in the clinical development of our hydrogel administered via intravitreal injection to address the large and growing markets for diseases and conditions of the back of the eye. Our initial development efforts are focused on the use of our programmed-release hydrogel in combination with anti-angiogenic drugs such as protein-based anti-VEGF drugs or small molecule drugs, such as TKIs for the treatment of retinal diseases, including wet AMD, retinal

vein occlusion and diabetic macular edema. Our initial goal for these programs is to provide extended delivery of a protein-based large molecule or small molecule TKI drug targeting VEGF and other targets over a four to six month period following administration of a bioresorbable hydrogel incorporating the drug by an injection into the vitreous humor, thereby reducing the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD and other retinal diseases and potentially providing a more consistent, uniform release of drug over the treatment period. 

We are pursuing a multi-pronged strategy to seek to maximize the potential of this technology.

Our intravitreal implant consists of a PEG-based hydrogel suspension, which contains embedded micronized protein particles of an anti-angiogenic compound. We designed the intravitreal implant to be injected and retained in the vitreous humor, as depicted in the figure below, to provide local programmed-release intravitreal delivery of anti-VEGF compounds.

We have designed our intravitreal implant for delivery using typically available syringes and fine gauge needles compatible with the current standard of care. Once in the vitreous humor, the hydrogel is designed to retain properties of TKI and anti-VEGF compounds until they are released. We have designed the hydrogel to liquefy, dissolve and be

cleared from the eye through hydrolysis over time. We design our hydrogels to control the hydrogel biodegradation rate and, as a result, the timing of TKI and anti-VEGF compound release.

ReSure Sealant for Ocular Wound Closure

ReSure Sealant is our bioresorbable hydrogel product for wound closure following cataract surgery. A surgeon applies ReSure Sealant as a liquid painted onto the corneal incision. Within about 15 seconds, the sealant cross-links and transforms into a smooth, lubricious hydrogel that seals the wound. ReSure Sealant dissipates as healing progresses and does not require removal. In the pivotal clinical trials that formed the basis for FDA approval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure.

We commercially launched ReSure Sealant in February 2014 on a region-by-region basis in the United States through a network of independent distributors. In early 2017, we terminated these distributors and hired a contract sales force of four representatives to sell ReSure Sealant. In July 2017, in connection with a broader reduction in force, we terminated these representatives.  At this time, we have no sales support provided to ReSure Sealant.  In the future we may have our currently deployed Key Account Managers carry the product along with DEXTENZA.  We also believe that the market opportunity for a surgical sealant following cataract surgery may be modest because sutures are used in a minority of cataract surgeries and, currently, there is no direct reimbursement for ReSure Sealant. As a result, we do not expect to generate meaningful levels of revenue from the sale of ReSure in 2020.

Development Pipeline and Marketed Products

The following table summarizes important information about our key product development programs and our marketed products, DEXTENZA and ReSure Sealant. We hold worldwide commercial rights to each of our product candidates, DEXTENZA and ReSure Sealant.

DEXTENZA ® (dexamethasone ophthalmic insert)

DEXTENZA incorporates the FDA-approved corticosteroid dexamethasone as an active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert. We are commercializing DEXTENZA for the treatment of post-surgical ocular inflammation and pain and are developing it for additional indications including ocular itching associated with allergic conjunctivitis. We have designed DEXTENZA to deliver therapeutic levels of dexamethasone over a period of approximately 30 days. The FDA approved the NDA for DEXTENZA for the treatment of post-surgical ocular pain in November 2019 and subsequently the sNDA for inflammation in June 2019.  We have also completed two Phase 3 clinical trials for the treatment of allergic conjunctivitis with topline data reported out in 2015 and 2016, respectively.  In the first Phase 3 clinical trial, DEXTENZA achieved the co-primary endpoint of improvement in ocular itching compared with placebo but failed to achieve on the co-primary endpoint of improvement in conjunctival redness compared with placebo, in each case, at certain prespecified timepoints.  For the second Phase 3 trial, DEXTENZA failed to achieve the primary endpoint of improvement in ocular itching compared with placebo, at certain prespecified timepoints.  We commenced a third Phase 3 trial for the treatment of ocular itching associated with allergic conjunctivitis in the second half of 2019.  We have completed enrollment with topline results expected to be reported in the second quarter of 2020.

We selected dexamethasone as the active pharmaceutical ingredient for DEXTENZA because it:

Embedded within our DEXTENZA intracanalicular insert are dexamethasone drug particles that gradually erode and release the drug in a programmed fashion until the drug is depleted. As the dexamethasone drug particles erode and the hydrogel degrades by hydrolysis, the intracanalicular insert softens, liquefies and is cleared through the nasolacrimal duct. We provide the DEXTENZA drug product in a preservative-free formulation in a sterile, single use package.

The standard regimen for dexamethasone eye drops following cataract surgery is an initial administration of four times daily for one week, with a gradual tapering in the number of eye drops over a four week period. Such a regimen is often confusing to patients as they must remember to taper the number of times per day they administer the steroid, while also taking multiple drops of other drugs, such as antibiotics and NSAIDs. We believe that local programmed-release of drug to the eye may result in better control of ocular inflammation and pain as compared to prescription eye

drops and that a low dose amount may provide enhanced safety by eliminating spikes in IOP associated with high dose steroid eye drops.

Although dexamethasone is clinically effective in the treatment of late-phase inflammatory allergic reactions, the safety limitations associated with eye drop administration, including the potential to generate spikes in IOP due to the high levels of drug, have limited its widespread adoption as a treatment for the treatment of allergic conjunctivitis. These spikes in IOP can lead to drug induced glaucoma, although the incidence is low. Further, use of oral anti-histamine medications as well as anti-histamine eye drops for allergic conjunctivitis may dry out the eye and exacerbate the discomfort to some patients. We believe, based on our clinical trial results to date, that periodic use of the DEXTENZA for allergic conjunctivitis could create a low, tapered, consistent dose of dexamethasone, potentially minimizing or eliminating side effects associated with the eye drop formulation, while retaining the drug’s anti-inflammatory effects.

One of the causes of dry eye disease is inflammation. Topical anti-inflammatory drugs are used as one of several therapies to treat dry eye disease and are administered by eye drops. As the understanding of dry eye disease, specifically the inflammatory components of dry eye disease, has evolved, the use of corticosteroids has become a standard to offer short-term relief of signs and symptoms of the disease. Physicians typically prescribe a topical corticosteroid for a period of two to four weeks, tapered over the course of delivery as the inflammation and symptoms subside. As with allergic conjunctivitis, there are safety limitations associated with the use of corticosteroids for dry eye disease that have limited wide spread adoption. We believe that DEXTENZA has potential as a short-term therapy for more severe cases of episodic dry eye caused by inflammation, followed by the delivery of an immunosuppressant drug such as cyclosporine after the inflammation has been reduced.

Overview of DEXTENZA Clinical Development

We are conducting clinical development of DEXTENZA for the treatment of post-surgical ocular inflammation and pain and ocular itching associated with allergic conjunctivitis. The following summarizes our clinical development to date for DEXTENZA.

Clinical Trials for Post-Surgical Ocular Inflammation and Pain

Completed Phase 2 Clinical Trial

In 2013, we completed a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked Phase 2 clinical trial evaluating the safety and efficacy of DEXTENZA for the treatment of ocular inflammation and pain following cataract surgery. We conducted this trial in 60 patients at four sites in the United States pursuant to an effective IND. We randomized patients in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. One patient randomized into the DEXTENZA group was excluded from the trial because the investigator was unable to insert the insert, resulting in 29 patients in the DEXTENZA group and 30 patients in the vehicle control group. We evaluated patients in this trial at days 1, 4, 8, 11, 14 and 30 following surgery.

One of our goals for this trial was to determine the appropriate primary endpoints for a subsequent Phase 3 clinical development program. The two primary efficacy measures in this trial were absence of inflammatory cells in the anterior chamber of the study eye and absence of pain in the study eye. When viewed with a slit lamp biomicroscope, these inflammatory cells, referred to as cells in a slit lamp examination, appear like dust specks floating in a projected light beam. The presence of these cells in the anterior chamber indicates inflammation. In this trial, absence of pain was based on a patient reported score of zero on a scale from zero to ten of ocular pain assessment. The first primary efficacy endpoint was the difference in the proportion of patients in each treatment group with absence of cells in the anterior chamber of the study eye at day 8 following surgery. The second primary efficacy endpoint was the difference in the proportion of patients in each treatment group with absence of pain in the study eye at day 8 following surgery.

We evaluated as secondary measures the absence of flare in the anterior chamber of the study eye at each evaluation date, absence of inflammatory cells in the anterior chamber of the study eye and absence of pain in the study eye at each evaluation date other than day 8 and insert retention and visualization. Flare is a scattering of light in the aqueous humor when viewed during a slit lamp biomicroscopic examination. Flare occurs when the protein content of the aqueous humor increases due to intraocular inflammation.

We enrolled patients in this trial who were at least 21 years of age undergoing unilateral clear corneal cataract surgery. We excluded patients from the trial if, among other reasons, they had intraocular inflammation or ocular pain in the study eye at screening or had glaucoma or ocular hypertension.

Efficacy: In this trial, DEXTENZA met the primary efficacy endpoint with statistical significance for absence of pain compared to the vehicle control at day 8 (p<0.0001). We determined statistical significance based on a widely used, conventional statistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less represents statistical significance. The differences between DEXTENZA and the vehicle control for absence of pain also were statistically significant at each other evaluation date (p<0.0002). These results are shown in the graph below. In this

graph and other graphs appearing further below, we use the abbreviation “N” to reference the number of patients in each group.

In this trial, DEXTENZA did not meet the primary efficacy endpoint with statistical significance for absence of cells in the anterior chamber compared to the vehicle control at day 8. However, there was a trend of improved absence of anterior chamber cells at each evaluation date, with statistical significance at day 14 (p<0.0027) and day 30 (p< 0.0002). These results are shown in the graph below.

Based on post hoc analysis, DEXTENZA showed statistical significance for absence of flare compared to vehicle control at each evaluation date. These results are shown in the graph below.

Safety: In this trial, there were three serious adverse events, none of which was considered related to the study treatment. The trial investigator determined the relatedness of the serious adverse events to study treatment based on his or her professional medical judgment and in accordance with the study protocol, which required the investigator to determine that a reasonable possibility did not exist that the study treatment caused the adverse event. None of the three serious adverse events: syncope, intracranial hemorrhage and cellulitis of the arm, were ocular in nature. In addition, there were a variety of adverse events in both the DEXTENZA group and the vehicle control group, with the adverse events in the vehicle control group outnumbering the adverse events in the DEXTENZA group. In the DEXTENZA group, the only adverse event that occurred more than once was reduced visual acuity, which occurred twice. The most common adverse events in the vehicle control group were reduced visual acuity, conjunctival hyperemia and corneal edema. Overall, 19 adverse events were noted in the DEXTENZA group and 30 adverse events were noted in the vehicle control group. All adverse events were transient in nature and completely resolved by the end of the trial.

Completed Phase 3 Clinical Trials

In 2014, we initiated a pivotal clinical trial program that consisted of two prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked Phase 3 clinical trials evaluating the safety and efficacy of DEXTENZA for the treatment of ocular inflammation and pain following cataract surgery. We initiated the first of these Phase 3 clinical trials in February 2014 and the second trial in April 2014. Patient enrollment was completed in September 2014, and the topline efficacy data from these clinical trials was reported in March and April 2015. We initiated a third Phase 3 clinical trial in the October 2015.  Patient enrollment in the third Phase 3 clinical trial was completed in May 2016 and the topline efficacy data was reported in November 2016.

We enrolled 247 patients at 16 sites in the first Phase 3 clinical trial, 241 patients at 16 sites in the second Phase 3 clinical trial and 438 patients at 21 sites in the third Phase 3 clinical trial in the United States pursuant to our effective IND. We randomized patients in a 2:1 ratio in the first two Phase 3 clinical trials and in a 1:1 ratio in the third Phase 3 clinical trial to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. We evaluated patients at days 2, 4, 8, 14, 30 and 60 following surgery in the first two Phase 3 trials and at days 2, 4, 8, 14, and 30 in the third Phase 3 clinical trial.

The two primary efficacy measures in these trials were absence of inflammatory cells in the anterior chamber of the study eye when measured with a slit lamp biomicroscope and absence of pain in the study eye. To meet the efficacy end point for absence of inflammatory cells, there needed to be a complete absence of inflammatory cells. In these trials,

absence of pain was based on a patient reported score of zero on a scale from zero to ten of ocular pain assessment. The first primary efficacy endpoint for these trials was the difference in the proportion of patients in each treatment group with absence of inflammatory cells in the anterior chamber of the study eye at day 14 following surgery. Pivotal clinical trials for other ophthalmic steroid drugs approved by the FDA for marketing in the United States also have evaluated this endpoint at day 14. The second primary efficacy endpoint for these trials was the difference in the proportion of patients in each treatment group with absence of pain in the study eye at day 8 following surgery.  For clarification of the endpoints, the day of surgery and insertion of DEXTENZA or the placebo is considered to be day 1.

We evaluated as secondary efficacy measures the level of flare, an indicator of inflammation in the anterior chamber of the study eye at each evaluation date until day 30 and absence of inflammatory cells in the anterior chamber of the study eye and absence of pain in the study eye at each evaluation date other than the day used for the primary efficacy measure until day 30. The secondary analyses on primary endpoints were intended to be exploratory assessments that can be used to support the results from the primary endpoints. We enrolled patients in these two trials who were at least 18 years of age undergoing unilateral clear corneal cataract surgery. We excluded patients from these trials if, among other reasons, they had intraocular inflammation or ocular pain in the study eye at screening or had glaucoma or ocular hypertension.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity and IOP, along with any adverse events.

Efficacy: In the first Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint with statistical significance for the absence of cells in the anterior chamber compared to the vehicle control at day 14. 33.1% of DEXTENZA treated patients showed an absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug product insertion, compared to 14.5% of those receiving placebo vehicle control intracanalicular inserts (p=0.0018). DEXTENZA also met the primary efficacy endpoint with statistical significance for absence of pain compared to the vehicle control at day 8. 80.4% of patients receiving DEXTENZA reported absence of pain in the study eye on day 8 following insertion of the drug product, compared to 43.4% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001).

In the second Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint for absence of pain at day 8 with statistical significance but did not meet the primary efficacy endpoint for absence of inflammatory cells at day 14. In the second Phase 3 clinical trial, 77.5% of patients receiving DEXTENZA reported an absence of pain in the study eye on day 8 following insertion of the drug product, compared to 58.8% of those receiving placebo vehicle control intracanalicular inserts, a difference which was statistically significant (p=0.0025). However, 39.4% of DEXTENZA treated patients showed an absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug product insertion, compared to 31.3% of those receiving placebo vehicle control intracanalicular inserts, a difference which was not statistically significant (p=0.2182).

In the third Phase 3 clinical trial, DEXTENZA met the primary efficacy endpoint with statistical significance for the absence of cells in the anterior chamber compared to the vehicle control at day 14. 52.1% of DEXTENZA treated patients showed an absence of inflammatory cells in the anterior chamber of the study eye on day 14 following drug product insertion compared to 31.2% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001). DEXTENZA also met the primary efficacy endpoint with statistical significance for absence of pain compared to the vehicle control at day 8. 79.3% of patients receiving DEXTENZA reported absence of pain in the study eye on day 8 following insertion of the drug product, compared to 61.3% of those receiving placebo vehicle control intracanalicular inserts (p< 0.0001).

Secondary analyses on primary endpoints for the three Phase 3 clinical trials were also completed. In the first Phase 3 clinical trial, statistically significant differences were seen for absence of pain at all time points (days 2, 4, 8, 14, 30 and 60) in the DEXTENZA treatment group compared to the vehicle control group. Statistically significant differences were seen for the absence of inflammatory cells at day 30 in the DEXTENZA treatment group compared to the vehicle control group, and there were no statistically significant differences seen at the other time points. Statistically significant differences between the DEXTENZA treatment group and the vehicle control group were seen for flare at days 8, 14 and 30.

In the second Phase 3 clinical trial, statistically significant differences were seen for absence of pain at days 2, 4, 14 and 30 in the DEXTENZA treatment group compared to the vehicle control group. A similar proportion of patients in

the DEXTENZA treatment group and the vehicle control group were observed to have an absence of inflammatory cells at days 2, 4, 8, and 30. A statistically significant difference between treatment groups was not seen for the absence of inflammatory cells until the day 60 visit, at which time a greater proportion of patients in the DEXTENZA treatment group compared to the vehicle control group were observed to have an absence of inflammatory cells at day 60 (p=0.0012). Statistically significant differences between the DEXTENZA treatment group and the vehicle control group were seen for flare at days 14, 30 and 60.

In the third Phase 3 clinical trial, statistically significant differences were seen for absence of pain at all time points (days 2,4, 14, and 30) in the DEXTENZA treatment group compared to the vehicle control group. Statistically significant differences were seen for the absence of inflammatory cells at days 4, 8, and 30 but not seen at day 2.  Statistically significant differences between the DEXTENZA treatment group and the vehicle control group were seen for flare at all measured time points (days 2, 4, 8, 14, and 30).

Safety: There were no ocular or treatment-related serious adverse events in the DEXTENZA treatment group in either of the first two completed Phase 3 clinical trials. There was one ocular serious adverse event in the vehicle control group in the first two completed Phase 3 clinical trials: hypopyon, or inflammatory cells in the anterior chamber. There were two patients with three serious adverse events in the DEXTENZA treatment group in the first Phase 3 clinical trial (1.2% incidence), compared with two patients with four serious adverse events in the vehicle control group (2.4% incidence). There were two serious adverse events in the DEXTENZA treatment group in the second Phase 3 clinical trial (1.3% incidence), compared with three serious adverse events in the vehicle control group (3.8% incidence). There were three serious adverse events in the DEXTENZA treatment group in the third Phase 3 clinical trial (1.4% incidence), compared with two serious adverse events in the vehicle control group (0.9% incidence).  One serious adverse event in the DEXTENZA group was ocular in nature (retinal detachment).  None of the serious adverse events in either group were deemed to be treatment-related. 

Patients were randomized in a 2:1 ratio in the first two Phase 3 clinical trials and in a 1:1 ratio in the third Phase 3 clinical trial between the treatment group and the vehicle control group. In the first Phase 3 clinical trial, 98 adverse events were noted in the DEXTENZA group and 59 adverse events were noted in the vehicle control group. In the second Phase 3 clinical trial, 74 adverse events were noted in the DEXTENZA group and 47 adverse events were noted in the vehicle control group. In the third Phase 3 clinical trial, 91 adverse events were noted in the DEXTENZA group and 109 adverse events were noted in the vehicle control group. All adverse events were either resolved or considered chronic/stable at the time of subject exit from the study. We expect to be able to use the safety data from these Phase 3 trials to support our other DEXTENZA clinical development programs, including for allergic conjunctivitis.

Regulatory Pathway

In September 2015, we submitted to the FDA an NDA for DEXTENZA for the treatment of post-surgical ocular pain. In July 2016, we received a CRL from the FDA regarding our NDA for DEXTENZA pertaining to deficiencies in manufacturing process and controls identified during a pre-NDA approval inspection.  We resubmitted our NDA to the FDA in January 2017. Following a re-inspection of manufacturing operations by the FDA which was completed in May 2017, we received an FDA Form 483 containing inspectional observations focused on manufacturing processes and analytical testing related to the manufacture of drug product for commercial production.  In July 2017, we received a CRL from the FDA regarding our NDA for DEXTENZA for the treatment of post-surgical ocular pain, which states that the FDA has determined that it cannot approve the NDA in its present form.  In May 2017, we submitted our initial response to the Form 483 and, in November 2017, we submitted our responses to the FDA’s remaining inspectional observations in an effort to close out the items identified in the Form 483. 

We resubmitted our NDA for DEXTENZA for the treatment of post-surgical ocular pain in June 2018.  In November 2018, we received FDA approval for DEXTENZA for the pain indication.  In January 2019, we submitted a sNDA for DEXTENZA for the treatment of post-surgical ocular inflammation.  In June 2019, we received FDA approval for DEXTENZA for the inflammation indication.  Although we conducted our Phase 3 clinical trials of DEXTENZA in patients who have undergone cataract surgery, these trials were intended to support, and DEXTENZA ultimately received, a label for patients who have undergone any ocular surgery.

Clinical Trials for Allergic Conjunctivitis

Completed Phase 2 Clinical Trial

In November 2014, we completed a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked Phase 2 clinical trial evaluating the safety and efficacy of DEXTENZA for the treatment of allergic conjunctivitis. We conducted this trial using a modified version of a controlled exposure model commonly used to assess anti-allergy medications known as the Conjunctival Allergen Challenge model, or CACTM, which is a proprietary model owned by ORA, Inc., the clinical research organization we used to manage the trial. The modified CAC achieves a very high transient dose exposure by placing allergen directly into the space between the eyelid and the surface of the eye of the patient. We initially exposed patients to specified allergens to determine which allergens resulted in an allergic response for the patients. If patient was responsive to a particular allergen, we continued to expose the patient to that same allergen prior to each evaluation.

We enrolled 68 patients at two sites in the United States. We randomized patients in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. We evaluated patients using three allergen challenges in series for each of the two efficacy measures at 14, 28 and 42 days following placement of the intracanalicular insert.

The primary efficacy measures for this trial were ocular itching graded by the patient and conjunctival redness graded by the trial investigator, in each case based on a five point scale from zero to four. The primary efficacy measures were differences between treatment groups of at least 0.5 units on the five point scale on day 14 for all three time points measured in a day for both ocular itching and conjunctival redness and differences between treatment groups of at least 1.0 unit for the majority of the three time points measured on 14 days post insertion for both ocular itching and conjunctival redness. The secondary endpoints for this trial were similar to the primary efficacy endpoints, except that each variable was assessed at 28 days and 42 days following placement of the intracanalicular insert.

We enrolled patients in this trial who were at least 18 years of age with a positive history of ocular allergies and a positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among other reasons, they had an active ocular infection or itching or conjunctival redness at screening.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity and IOP, along with any adverse events.

Efficacy: In this trial, there was a statistically significant mean difference (p<0.05) between the DEXTENZA treatment group and the vehicle group for both ocular itching and conjunctival redness at all three time points measured on 14, 28, and 42 days following placement of the intracanalicular insert. DEXTENZA met one of the two primary efficacy endpoints. The DEXTENZA treatment group achieved a mean difference compared to the vehicle control group of more than 0.5 units on a five point scale at 14 days post insertion for all three time points measured in a day for both ocular itching and conjunctival redness. The DEXTENZA group did not achieve a mean difference compared to the vehicle control group of 1.0 unit for the majority of the three time points measured on 14 days post insertion for either ocular itching or conjunctival redness. However, in a pre-specified analysis group of a second site in the clinical trial, in which DEXTENZA intracanalicular inserts were placed 48 to 72 hours following exposure to the allergen, rather than on the same day, we observed a mean difference in ocular itching between the DEXTENZA group and the vehicle control group of approximately 1.0 unit for the majority of three time points measured on 14 days.

The results of this trial for each of the three time points on day 14 following the insertion of the intracanalicular insert for the DEXTENZA group and the vehicle control group are shown in the table below:

Safety: In this trial, there was one serious adverse event in the treatment arm, which was depression. This event was not suspected to be related to treatment. The serious adverse event was not ocular in nature. In addition, there were a variety of adverse events in both the DEXTENZA group and the vehicle control group, with nine ocular adverse events and two non-ocular related adverse events in the DEXTENZA group and eight ocular adverse events and two non-ocular adverse events in the vehicle control group. In the DEXTENZA group, the only adverse events that occurred more than once were reduction in visual acuity and increased IOP, both of which occurred twice. The most common adverse events in the vehicle control group were erythema of the eyelid, discharge from the eye and an increase in lacrimation, all of which occurred twice. All adverse events were transient in nature and completely resolved by the end of the trial.

Phase 3 Clinical Program

We met with the FDA in December 2014 to review the Phase 2 clinical trial results of DEXTENZA for the treatment of allergic conjunctivitis and to discuss our planned Phase 3 clinical development program. Based on these discussions, we have completed two Phase 3 clinical trials and initiated a third Phase 3 clinical trial in August 2019.  Our first Phase 3 clinical trial assessed both ocular itching and conjunctival redness associated with allergic conjunctivitis.  Our second and third Phase 3 clinical trials have focused on the ocular itching indication. 

First Phase 3 Clinical Trial

We initiated our first planned Phase 3 clinical trials in June 2015, and we reported topline efficacy results in October 2015. This first Phase 3 clinical trial was a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked trial. A total of 73 patients were enrolled in this trial and were randomized in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. This trial was conducted using the modified CAC model. We evaluated patients using three allergen challenges in series for each of two efficacy measures at days 7, 14 and 28 following placement of intracanalicular insert as described below. In this Phase 3 clinical trial, we placed the intracanalicular inserts 48 to 72 hours after exposure to the allergen. In our completed Phase 2 clinical trial, we obtained better efficacy results with this design protocol as noted in the description of the Phase 2 efficacy results above.

The primary efficacy measures for this trial were ocular itching graded by the patient and conjunctival redness graded by the trial investigator, in each case based on a five point scale from zero to four. The primary efficacy endpoints were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale measured on 7 days post-insertion of the intracanalicular insert for all three time points measured for both ocular itching and conjunctival redness and differences of at least 1.0 unit for the majority of the three time points measured on 7 days post-insertion of the intracanalicular insert for both ocular itching and conjunctival redness. The secondary endpoints were similar to the primary efficacy endpoints except that each variable was assessed at day 14 and day 28 following insertion of the intracanalicular insert. The primary efficacy measure of conjunctival redness is typically included in Phase 3 trials for allergic conjunctivitis but has not been required for FDA approval of drugs for allergic

conjunctivitis. Most commercially available prescription medications for the treatment of allergic conjunctivitis have an ocular itching indication only. As described below, ocular itching was the only primary efficacy endpoint in the second Phase 3 trial of DEXTENZA for the treatment of allergic conjunctivitis, with conjunctival redness being moved to a secondary efficacy endpoint.

We enrolled patients in this trial who were at least 18 years of age with a positive history of ocular allergies and a positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among other reasons, they had an active ocular infection or itching or conjunctival redness at screening.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity and IOP, along with any adverse events.

Efficacy: In this trial, there was a statistically significant mean difference (p<0.0001) between the DEXTENZA treatment group and the placebo vehicle group for ocular itching at all three time points measured on 7 days post-placement of the intracanalicular insert. DEXTENZA also met the primary efficacy endpoint for ocular itching. The DEXTENZA treatment group achieved a mean difference compared to the vehicle group of greater than 0.5 units on a five point scale on 7 days post-insertion at each time point and greater than 1.0 unit at a majority of the time points on 7 days post-insertion for ocular itching. There was a statistically significant mean difference (p=0.01 or less) between the DEXTENZA treatment group and the placebo vehicle group for conjunctival redness at all three time points measured on 7 days post-placement of the intracanalicular insert. However, the DEXTENZA group did not achieve the pre-specified primary efficacy endpoints on 7 days post-insertion with respect to conjunctival redness.

The results of this trial for each of the three time points on day 7 following placement of the intracanalicular insert for the DEXTENZA group and the vehicle control group are shown in the table below:

Safety: There were no serious adverse events reported in this trial.  There were a variety of adverse events in both the DEXTENZA group and the vehicle control group, with three patients in the DEXTENZA treatment group with a total of three ocular adverse events and one non-ocular adverse event and four patients in the vehicle control group with a total of six ocular adverse events and one non-ocular adverse events. The most common ocular adverse event was increased lacrimation, which was experienced by one patient in the DEXTENZA group and two patients in the vehicle control group. Other treatment-related ocular adverse events included increased IOP in the DEXTENZA group, and blepharospasm in the vehicle control group.

Second Phase 3 Clinical Trial

We initiated our second Phase 3 clinical trial of DEXTENZA for the treatment of allergic conjunctivitis in November 2015, and we reported topline efficacy results in June 2016. This second Phase 3 clinical trial was a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked trial. A total of 72 patients were enrolled in this trial and randomized in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. This trial was conducted using the modified CAC model. Patients were evaluated using three allergen challenges in series for each of two efficacy measures at days 7, 14 and 28 following

insertion of the intracanalicular insert. In this Phase 3 clinical trial, we placed the intracanalicular inserts 48 to 72 hours after exposure to the allergen.

The single primary efficacy measure for this trial was ocular itching graded by the patient based on a five point scale from zero to four. The primary efficacy endpoints were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points measured for ocular itching and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertion of the intracanalicular insert for ocular itching. The secondary endpoints for ocular itching were similar to the primary efficacy endpoints except that each variable was assessed at day 14 and day 28 following placement of the intracanalicular insert. The secondary endpoints for conjunctival redness were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points measured and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertion of the intracanalicular insert.

We enrolled patients in this trial who are at least 18 years of age with a positive history of ocular allergies and a positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among other reasons, they had an active ocular infection or itching or conjunctival redness at screening.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity and IOP, along with any adverse events.

Efficacy: In this trial, DEXTENZA did not meet the primary efficacy endpoint of ocular itching at the three time points measured on day 7  post-placement of the intracanalicular insert. The mean difference in ocular itching in the DEXTENZA treatment group compared to the placebo group measured 7 days following insertion of the inserts, at 3, 5, and 7 minutes was -0.18, -0.29, and -0.29 units, respectively, on a five point scale and did not achieve statistical significance. In addition, the trial did not achieve the requirement of at least a 0.5 unit difference at all three time points 7 days following insertion of the inserts and at least a 1.0 unit difference at a majority of the three time points between the treatment group and the placebo group 7 days following insertion of the inserts.

The trial also assessed conjunctival redness as a secondary endpoint. The differences in the mean scores in conjunctival redness between the DEXTENZA treatment group and the placebo group 7 days following insertion of the inserts at 7, 15 and 20 minutes were -0.35, -0.39 and -0.42, respectively.

The results of this trial for each of the three time points on day 7 following placement of the intracanalicular insert for the DEXTENZA group and the vehicle control group are shown in the table below:

Safety:  There were no serious adverse events reported in this trial.  There were a variety of adverse events in both the DEXTENZA group and the vehicle control group, with six patients in the DEXTENZA treatment group with a total of six ocular and one non-ocular adverse events and 11 patients in the vehicle control group with a total of nine ocular and eight non-ocular adverse events. The lower rate of ocular adverse events in the DEXTENZA group could potentially be due to the presence of an anti-inflammatory active pharmaceutical ingredient. Ocular adverse events reported more than one patient in either treatment group included increased IOP, which was experienced by two patients in the DEXTENZA group, as well as dacryostenosis acquired and dacryocanaliculitis, each experienced by two patients in the vehicle control group. Both cases of IOP increased were considered treatment related, as were both cases of dacrycanaliculitis and a single case of dacryostenosis. All other ocular adverse events were reported by single patients in either the DEXTENZA or vehicle control group, with most in the PV group considered treatment related.

Third Phase 3 Clinical Trial - Ongoing

We initiated our third Phase 3 clinical trial of DEXTENZA for the treatment of allergic conjunctivitis in August 2019.  We recently completed enrollment and expect to report topline efficacy results in the second quarter of 2020. This third Phase 3 clinical trial is a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, double-masked trial. A total of 96 patients were enrolled in this trial and randomized in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug. This trial was conducted using the modified CAC model. Patients were evaluated using three allergen challenges in series for each of two efficacy measures at days 7 and 14 following insertion of the intracanalicular insert.

The single primary efficacy measure for this trial was ocular itching graded by the patient based on a five point scale from zero to four. The primary efficacy endpoints were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points measured for ocular itching and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertion of the intracanalicular insert for ocular itching. The secondary endpoints for ocular itching were similar to the primary efficacy endpoints except that each variable was assessed at day 14 following placement of the intracanalicular insert. The secondary endpoints for conjunctival redness were the differences between the treatment group and the vehicle group of at least 0.5 units on the five point scale 7 days post-insertion of the intracanalicular insert for all three time points measured and differences of at least 1.0 unit for the majority of the three time points measured 7 days post-insertion of the intracanalicular insert.

We enrolled patients in this trial who are at least 18 years of age with a positive history of ocular allergies and a positive skin test reaction to a perennial allergen and a seasonal allergen. We excluded patients from this trial if, among other reasons, they had an active ocular infection or itching or conjunctival redness at screening.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity and IOP, along with any adverse events.

Regulatory Pathway

We have completed two Phase 3 clinical trials evaluating DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis and we are conducting a third Phase 3 clinical trial that commenced in the third quarter of 2019.  Subject to obtaining favorable results from this third Phase 3 clinical trial, we plan to submit an sNDA to the FDA for DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis. We expect that we would submit this sNDA under Section 505(b)(2) of the FDCA. See “—Government Regulation—Section 505(b)(2) NDAs” for additional information. Based on discussions with the FDA, we expect to use safety results from our Phase 3 clinical trials of DEXTENZA for the treatment of post-surgical ocular inflammation and pain to support the sNDA for DEXTENZA for the ocular itching indication.

Clinical Trial for Dry Eye

Phase 2 Clinical Trial

In January 2015, we initiated a prospective, randomized, parallel-arm, vehicle-controlled, multicenter, bilateral, double-masked Phase 2 feasibility study evaluating the safety and efficacy of DEXTENZA for the treatment of episodic dry eye disease. We enrolled 43 patients and evaluated 86 eyes at two sites in the United States pursuant to our effective IND. The clinical trial was not powered for statistical significance. We randomized patients in a 1:1 ratio to receive either DEXTENZA or a placebo vehicle control intracanalicular insert without active drug.

Designed as an exploratory study, patients were initially administered a placebo vehicle control intracanalicular insert for 45 days to establish a baseline for the investigational drug treatment. Patients who responded to the placebo insert in treatment of their dry eye disease were excluded from the trial. Patients who continued to exhibit symptoms of dry eye disease during the initial 45 days, as indicated by a minimum threshold of signs of corneal staining, were qualified for enrollment in the treatment phase of the trial. Qualified patients were then randomized to receive either DEXTENZA or a placebo vehicle control intracanalicular insert. Primary efficacy measures included corneal and conjunctival staining, tear osmolarity, tear film break-up time, presence of the insert, ease of product use and

visualization, and resorption of the insert following therapy. We reported topline results for this clinical trial in December 2015.

In this exploratory Phase 2 clinical trial, patients were selected for a minimum threshold of signs of corneal staining and were randomized to either treatment with DEXTENZA or a placebo vehicle insert. Patients were stratified into groups based on the level of National Eye Institute aggregate corneal fluorescein staining score improvement and were then randomized into the treatment or placebo vehicle insert group per a pre-determined randomization list to maintain masking. DEXTENZA treated patients showed clinically meaningful benefits compared to patients receiving a placebo vehicle control intracanalicular insert, with improvement in total and inferior corneal staining as well as conjunctival staining. Total corneal staining at day 30 following randomization was significantly decreased from baseline in the DEXTENZA group (-3.14) compared to placebo (-1.10) (p=0.018). Inferior staining showed clinically significant differences in the change from baseline in the DEXTENZA treatment group compared to the placebo group (-0.44 and -0.45 at day 15 and day 30, respectively). Corneal staining is a primary endpoint that has been used in recent Phase 3 dry eye clinical trials for dry eye disease conducted by other ophthalmology companies. Supportive analyses of lissamine green staining also demonstrated a clinically significant change in favor of DEXTENZA, where total staining was more than 1 point improved for the DEXTENZA group compared to the placebo group.

This clinical trial was designed to evaluate a range of objective and subjective measures (signs and symptoms, respectively) for DEXTENZA and was intended to explore which measures would be appropriate to include in the design of future clinical trials of DEXTENZA or other molecules in a sustained-release product as a potential therapy for dry eye disease. Our long term strategy for the treatment of dry eye may be to use DEXTENZA as a mode of therapy to reduce inflammation in patients with acute dry eye conditions and pursue the development of an intracanalicular insert containing an immunosuppressant drug such as cyclosporine to treat dry eye disease.

There was one serious adverse event in the DEXTENZA treatment group, myocardial infarction, that was not deemed to be treatment related.  There were 17 adverse events in the DEXTENZA group and 11 adverse events in the vehicle control group. Eight patients in the DEXTENZA group reported 12 ocular related adverse events, and 4 patients in the vehicle control group reported 5 ocular related adverse events. Four patients in the DEXTENZA group reported 5 non-ocular related adverse events, and 5 subjects in the vehicle control group reported 6 non-ocular related adverse events. The most frequently reported ocular treatment related ocular adverse event was increased lacrimation, which was reported in 4 patients in the DEXTENZA group and 1 subject in the vehicle control group. Three patients, all from the DEXTENZA group, had a mild reduction in best corrected visual acuity, of which 2 were considered treatment related and 1 of these was not resolved during the trial.

Regulatory Pathway

We are not currently pursuing DEXTENZA for the treatment of episodic dry eye disease but have identified clinical and regulatory pathways for the program’s potential advancement.  If we were to advance the program, we would expect to initiate a Phase 2 clinical trial to evaluate DEXTENZA for the treatment of flares due to dry eye, which we refer to as episodic dry eye disease. We would then be required to successfully complete two well-controlled Phase 3 clinical trials conducted under an IND to obtain marketing approval from the FDA.  If we were to obtain favorable results from these two pivotal clinical trials, we would expect to submit an sNDA under Section 505(b)(2) of the FDCA. See “—Government Regulation—Section 505(b)(2) NDAs” for additional information.

Clinical Trial for DEXTENZA in Pediatric Subjects

We are also planning to evaluate DEXTENZA in pediatric subjects that are 0 to 3 years of age undergoing cataract surgery beginning in the second half of 2020.  The planned pediatric trial is a post-approval commitment to the FDA. 

Travoprost Intracanalicular Insert (OTX-TP)

Our OTX-TP product candidate incorporates the PGA travoprost as an active pharmaceutical ingredient in our proprietary intracanalicular insert. We are developing OTX-TP for the treatment of glaucoma and ocular hypertension. We have completed Phase 2a and Phase 2b clinical trials of OTX-TP, and we reported topline efficacy results of a Phase 3 trial in May 2019.

Travoprost is a synthetic PGA that reduces IOP by enhancing the clearance and drainage of ocular fluid.

We selected travoprost as the active pharmaceutical ingredient for OTX-TP because it:

We have designed OTX-TP to deliver therapeutic levels of travoprost for up to three months. We have tested versions of OTX-TP that are capable of local programmed-release over a one-month, a two-month and a three-month period. The retention time of our intracanalicular inserts varies from patient-to-patient due to various physiological and anatomical factors to which the intracanalicular inserts may be subjected. We have conducted a series of non-significant risk, or NSR, investigational device exemption, or IDE, studies with improved product designs and placement procedures with the goal of achieving higher retention rates. We have achieved successive improvements in retention, with as high as a 92% retention rate at day 90 in one of these NSR studies. Our completed pilot studies evaluated one-month and two-month versions of OTX-TP. In our Phase 2a clinical trial, we evaluated two-month and three-month versions of OTX-TP. In our Phase 2b clinical trial, we evaluated an improved three-month version of OTX-TP. In our pilot studies, the OTX-TP inserts we evaluated were violet to provide a visual assessment of insert position. In our subsequent Phase 2 clinical trials, we switched to a fluorescent yellow color to improve visibility and are using this same fluorescent marker in our Phase 2b clinical trial.

In addition to the PEG-based hydrogel, OTX-TP contains bioresorbable microparticles which contain encapsulated travoprost. We designed OTX-TP to deliver travoprost at therapeutic levels for the duration of therapy as the microparticles degrade. We provide OTX-TP in a sterile, single use package without any added preservatives.

Overview of OTX-TP Clinical Development

We are conducting clinical development of OTX-TP for glaucoma and ocular hypertension. Because OTX-TP incorporates an active pharmaceutical ingredient already approved by the FDA for the treatment of glaucoma and ocular hypertension, we did not need to conduct Phase 1 clinical trials for this product candidate. However, we did conduct two pilot studies to assess safety and to obtain initial efficacy data. The following summarizes our clinical development to date for OTX-TP.

The trial design for the initial Phase 3 clinical trial includes an OTX-TP treatment arm and a placebo-controlled comparator arm using a non-drug-eluting insert. No timolol comparator or validation arm will be required in the study design and no eye drops, placebo or active, are being administered in either arm. We expect that the FDA will require that OTX-TP show both a statistically superior reduction of IOP, when compared to the placebo, as a primary efficacy endpoint, and a clinically meaningful reduction of IOP in the absolute. The primary efficacy endpoint will be evaluated at 2 weeks, 6 weeks and 12 weeks at 8:00 a.m., 10:00 a.m. and 4:00 p.m. at each of the three timepoints.

Clinical Trials for Glaucoma and Ocular Hypertension

Completed Singapore Pilot Study

In 2012, we completed a prospective, single arm, open-label pilot study evaluating the initial safety and efficacy of the one-month version of OTX-TP for the treatment of glaucoma and ocular hypertension. We conducted this trial in 17 patients, and in 26 eyes, at two sites in Singapore.

We enrolled patients in this trial who were at least 21 years of age with a documented diagnosis of ocular hypertension or open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye. The trial protocol provided that if the participant’s IOP was high despite treatment with OTX-TP, rescue medication would be made available to the patient. For patients who were currently under treatment for ocular hypertension or glaucoma, we required a drug washout period for these medications between screening and first visit.

We evaluated patients at days 3, 10, 20 and 30 following insertion of the insert and made the following assessments:

We assessed IOP at multiple time points on each evaluation date because IOP naturally varies over the course of the day.

For patients who are affected bilaterally, if both eyes met all eligibility criteria, both eyes were treated, but only the eye with the higher mean IOP at baseline was included in the efficacy analysis.

Efficacy: On day 10, 100% of the inserts were visualized, on day 20, 88% of the inserts were visualized, and on day 30, 79% of the inserts were visualized.

We observed a clinically meaningful reduction in mean IOP over the 30 day trial period. For eyes that retained the insert, from a mean baseline IOP of 27.2 mmHg, the mean IOP during treatment was maintained at or below 22 mmHg at each evaluation date and time point. The mean reduction in IOP from baseline ranged from 5.3 mmHg (20%) to 8.2 mmHg (30%) across all evaluation dates and time points. In studies conducted by third parties, a sustained 5.0 mmHg reduction in IOP reduced risk of disease progression by approximately 50%. The results for change in mean IOP from baseline at 8:00 a.m. on each evaluation date are set forth in the graph below.

Safety: In this trial, there were no serious adverse events or unanticipated adverse events. There was only one adverse event, bilateral epiphora, or excess tearing of both eyes, which was transient in nature and completely resolved after insert removal. There were no significant changes in hyperemia scores from baseline through day 30. There were no notable observations of clinical relevance among the slit lamp biomicroscopy assessments.

Completed South Africa Pilot Study

In 2012, we completed a prospective, single arm, open-label pilot study evaluating the initial safety and efficacy of the two-month version of OTX-TP for the treatment of glaucoma and ocular hypertension. We conducted this trial in 20 patients, and in 36 eyes, at two sites in South Africa.

Enrollment criteria were comparable to our Phase 1 Singapore trial described above, except that the minimum patient age was 18.

We evaluated patients at days 3, 15, 30, 45 and 60 following insertion of the insert and made the same assessments with respect to mean IOP, change in mean IOP from baseline and retention of the insert in the canaliculus at each evaluation date following day 3 as in our Phase 1 Singapore trial described above.

Efficacy: On day 15, 97% of the inserts were retained, on day 30, 92% of the inserts were visualized, on day 45, 78% of the inserts were retained, and on day 60, 59% of the inserts were retained. Because of the limitations of the visualization of the violet color through pigmented eyelids, it is possible that intracanalicular inserts identified as not being retained were in fact retained but not visible, particularly given the sustained reduction in IOP through day 60 described below. We have since eliminated the violet colorant in favor of a fluorescent PEG hydrogel, resulting in greatly improved visualization.

We observed a clinically meaningful reduction in mean IOP over the 60 day trial period. For eyes that retained the insert, from a mean baseline IOP of 28.7 mmHg, the mean IOP during treatment was maintained at or below 22.0 mmHg beginning on day 15 and at all subsequent evaluation dates. The mean reduction in IOP from baseline ranged from 5.0 mmHg (18%) to 7.1 mmHg (25%) across all evaluation dates and time points. The results for change in mean IOP from baseline at 8:00 a.m. on each evaluation date are set forth in the graph below for patients who retained the insert on such date.

There were only two cases in which IOP remained high even though the insert was confirmed to be present. In each of these cases, the investigator prescribed rescue medication at the end of the visit. It is possible that this elevated IOP was the result of the participants not responding to travoprost.

Safety: In this trial, there were no serious adverse events or unanticipated adverse events. The most common adverse event was inflammatory reaction, which was noted in three patients. All adverse events were transient in nature and completely resolved by the end of the trial. There were no significant changes in hyperemia scores from baseline through day 60. There were no notable observations of clinical relevance among the slit lamp biomicroscopy assessments.

Completed South Africa Phase 2a Clinical Trial

In May 2014, we completed a prospective, randomized, multi-arm, active-controlled, multicenter, double masked Phase 2 clinical trial evaluating the safety and efficacy of two versions of OTX-TP for the treatment of glaucoma and ocular hypertension. The OTX-TPa version was intended to release travoprost over a two-month period, and the OTX-TPb version was intended to release travoprost at a slower rate over a three-month period. Based on in vitro testing, the OTX-TPa version had an average daily drug delivery rate of 3.5 micrograms per day and the OTX-TPb version had an average daily drug delivery rate of 2.8 micrograms per day. We conducted this trial in 41 patients at four sites in South Africa. In this trial, we randomized 11 patients for treatment with OTX-TPa and placebo eye drops, 17 patients for treatment with OTX-TPb and placebo eye drops and 13 patients for treatment with a placebo vehicle control intracanalicular insert without active drug and timolol eye drops. One patient randomized into the timolol group was excluded from the trial because the investigator was unable to insert the insert. We randomized more patients in the OTX-TPb group than in the OTX-TPa group because we ceased enrolling patients in the OTX-TPa group during the trial based on an amendment to our trial protocol intended to facilitate the completion of the trial and to allow us to evaluate a larger number of patients being treated with a three-month version of the insert. Timolol is the most commonly prescribed non-PGA drug for the treatment of glaucoma and has been used as a comparator drug in pivotal clinical trials for other approval glaucoma products.

The primary efficacy endpoints in this trial are differences between treatment groups in:

We designed our Phase 2a clinical trial to assess clinically meaningful response to treatment, and did not power the trial to measure any efficacy endpoints with statistical significance. We also evaluated retention of the insert as a secondary endpoint.

We enrolled patients in this trial who were at least 18 years of age with a documented diagnosis of ocular hypertension or open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye. We excluded patients from this trial if, among other reasons, they had a history of inadequate response to treatment with prostaglandins or beta-blockers. For patients who were currently under treatment for ocular hypertension or glaucoma, we required a drug washout period for these medications between screening and first visit.

We evaluated patients at days 3, 15, 30, 45, 60, 75 and 90 following insertion of the insert and made the following assessments:

For patients who are affected bilaterally, if both eyes met all eligibility criteria, both eyes were treated, but only the eye with the higher mean IOP at baseline was included in the primary efficacy analysis.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity, along with any adverse events.

Efficacy: In the timolol group, for eyes that retained the insert, from a mean baseline IOP of 26.1 mmHg, the mean IOP during treatment was maintained at or below 21.4 mmHg beginning on day 15 and at all subsequent evaluation dates and time points. The mean reduction in IOP from baseline ranged from 3.2 mmHg (13%) to 6.4 mmHg (25%) across all evaluation dates and time points through day 75.

In the OTX-TPa group, for eyes that retained the insert, from a mean baseline IOP of 25.8 mmHg, the mean IOP during treatment was maintained at or below 21.0 mmHg beginning on day 15 and at all subsequent evaluation dates and time points through day 75. The OTX-TPa formulation, originally intended to deliver drug over a two-month period, exceeded our expectations, delivering drug for 75 days. The mean reduction in IOP from baseline ranged from 3.2 mmHg (14%) to 6.0 mmHg (24%) across all evaluation dates and time points through day 75.

In OTX-TPb group, for eyes that retained the insert, from a mean baseline IOP of 26.4 mmHg, the mean IOP during treatment was maintained at or below 22.2 mmHg beginning on day 15 and at all subsequent evaluation dates and time points. The mean reduction in IOP from baseline ranged from 2.0 mmHg (9%) to 5.4 mmHg (20%) across all evaluation dates and time points.

The results for change in mean IOP for patients in the OTX-TPa group, for patients in the OTX-TPb group and for patients in the timolol group from baseline at 8:00 a.m. on each applicable evaluation date are set forth in the graph below, in each case for patients who retained the insert on such date. We believe that the lower average daily drug delivery rate in the OTX-TPb group may have resulted in less reduction of mean IOP in this group as compared to the OTX-TPa group. As discussed below, we evaluated an improved three-month version of OTX-TP in our Phase 2b clinical trial.

Safety: In this trial, there were no serious adverse events. The most common adverse event was inflammatory reaction, which was noted in five patients. All adverse events were transient in nature and resolved by the end of the trial. There were no significant changes in hyperemia scores from baseline through day 90. There were no notable observations of clinical relevance among the slit lamp biomicroscopy assessments.

Completed U.S. Phase 2b Clinical Trial

In November 2014, we initiated a prospective, randomized, parallel-arm, active-controlled, multicenter, double-masked Phase 2b clinical trial to evaluate the safety and efficacy of OTX-TP for the treatment of glaucoma and ocular hypertension after submitting an IND to the FDA for this indication. We treated 73 patients at 11 sites in the United States pursuant to our effective IND. We randomized patients in a 1:1 ratio to receive either OTX-TP and placebo eye drops or a placebo vehicle control intracanalicular insert without active drug and eye drops containing timolol. Patients were instructed to use the placebo drops or timolol drops twice daily for the duration of the trial. Based on the results of our completed Phase 2a clinical trial, we designed the OTX-TP insert for use in our Phase 2b clinical trial to deliver drug over a 90 day period at the same daily rate as the OTX-TPa insert used in the Phase 2a clinical trial. To achieve this, we modified the design of the OTX-TP insert to enlarge it in order to enable the insert to carry a greater amount of drug. These structural changes were previously evaluated in NSR studies that we describe below.

The primary efficacy endpoint in this trial was the difference between treatment groups in the mean change in IOP from baseline at day 60 following insertion of the intracanalicular insert, calculated by averaging the change from baseline across the three time points at the assessment date, which is known as diurnal IOP. The secondary efficacy endpoints in this trial were the difference between treatment groups in the mean change from baseline in average diurnal IOP at day 90, the difference between treatment groups in the mean change from baseline in IOP at each individual time point at day 60 and day 90, the difference between treatment groups in the mean change in average diurnal IOP and IOP at each individual time point at day 60 and day 90, and the difference between treatment groups in the mean percent change from baseline in average diurnal IOP and IOP at each individual time point at day 60 and 90. We designed our Phase 2b clinical trial to assess clinically meaningful response to treatment, and did not power the trial to measure any efficacy endpoints with statistical significance.

We enrolled patients in this trial who are at least 18 years of age with a documented diagnosis of ocular hypertension or open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye. We excluded patients from this trial if, among other reasons, they had a history of inadequate

response to treatment with prostaglandins or beta-blockers. For patients under treatment for ocular hypertension or glaucoma, we required a drug washout period for these medications between screening and first visit. We also evaluated the effect of a four week versus a five week washout duration on the change in 8:00 a.m. IOP in both groups.

We evaluated patients at days 3, 15, 30, 45, 60, 75 and 90 (with insertion of the insert on day 1) and made the following assessments:

We also collected data on intracanalicular insert presence along with visualization of the insert by both the study patient and the investigator. The patients were instructed to assess insert presence on a daily basis and report the absence of an insert immediately. This data has provided a method for us to assess the accuracy of patient self-examination for insert presence, and we expect that this will maximize the consistency of dosing.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity, along with any adverse events.

Efficacy:

In this trial, the mean change from baseline IOP at 8:00 a.m. on day 30, 60, and 90 in the OTX-TP group was a decrease of 4.5, 4.7, and 5.1 mm Hg, respectively.

In this trial, on day 60, the OTX-TP group experienced a mean diurnal IOP lowering effect of 3.3 mmHg compared to baseline, versus mean diurnal IOP lowering of 5.9 mmHg compared to baseline for the timolol group. On day 90, the OTX-TP group experienced a mean diurnal IOP lowering effect of 3.6 mmHg compared to baseline, versus mean diurnal IOP lowering of 6.3 mmHg compared to baseline for the timolol group.

On day 60, the OTX-TP group experienced a mean IOP lowering effect compared to baseline of 4.7 mmHg at 8:00 a.m., 2.3 mmHg at 12:00 p.m. and 2.8 mmHg at 4:00 p.m., versus mean IOP lowering compared to baseline of 6.4 mmHg at 8:00 a.m., 6.1 mmHg at 12:00 p.m. and 5.6 mmHg at 4:00 p.m. for the timolol group. On day 90, the OTX-TP group experienced a mean IOP lowering effect compared to baseline of 5.1 mmHg at 8:00 a.m., 2.5 mmHg at 12:00 p.m. and 3.0 mmHg at 4:00 p.m., versus a mean IOP lowering effect compared to baseline of 7.2 mmHg at 8:00 a.m., 6.1 mmHg at 12:00 p.m. and 5.5 mmHg at 4:00 p.m. for the timolol group.

The mean IOP in the OTX-TP treatment group on day 60 was 21.73 mmHG at 8:00 a.m., 22.27 mmHg at 12:00 p.m. and 21.42 mmHg at 4:00 p.m. In the timolol group, the mean IOP on day 60 was 20.74 mmHg at 8:00 a.m., 19.05 mmHg at 12:00 p.m. and 18.85 mmHg at 4:00 p.m. The mean IOP in the OTX-TP treatment group on day 90 was 21.33 mmHg at 8:00 a.m., 22.09 mmHg at 12:00 p.m. and 21.18 mmHg at 4:00 p.m. In the timolol group, the mean IOP on day 90 was 19.87 mmHg at 8:00 a.m., 19.08 mmHg at 12:00 p.m. and 18.95 mmHg at 4:00 p.m.

The mean diurnal IOP in the OTX-TP treatment group on day 60 was 21.81 mmHg. The mean diurnal IOP in the timolol treatment group on day 60 was 19.54 mmHg.

The mean diurnal IOP in the OTX-TP treatment group on day 90 was 21.53 mmHg. The mean diurnal IOP in the timolol treatment group on day 90 was 19.3 mmHg.

This Phase 2b glaucoma clinical trial was designed to evaluate the non-inferiority of OTX-TP compared to timolol and to inform the further clinical development for OTX-TP. This trial was not powered to show statistical significance between treatment groups. The OTX-TP treatment group included placebo eye drops that may have reduced the efficacy measures for OTX-TP, by washing out drug eluted from the insert from the ocular surface, whereas the timolol group included a placebo insert that may have improved the efficacy of timolol through occlusion of the punctum thereby prolonging its retention on the ocular surface. Several peer-reviewed medical journals have reported studies in which an additional IOP lowering effect of 1.32 to 1.80 mmHg was observed in patients taking timolol eye drops in combination with a non-drug eluting punctum plug compared to those patients only taking timolol eye drops. These include studies

reported in September 2011 in Clinical and Experimental Optometry, February 1989 in the American Journal of Ophthalmology and August 1996 in Acta Ophthalmologica Scandinavica. The expected design for our Phase 3 clinical trials of OTX-TP for the treatment of glaucoma and ocular hypertension is addressed below under “—Regulatory Pathway”.

In the timolol group, the mean IOP at day 30, 60 and 90 at all time points ranged from 18.9 mmHg to 20.7 mmHg. The mean reduction in IOP from baseline at day 30, 60 and 90 at all time points ranged from 5.3 mmHg to 7.3mmHg.

In the OTX-TP group, the mean IOP at day 30, 60 and 90 at all time points ranged from 21.0 mmHg to 22.3 mmHg. The mean reduction in IOP from baseline at day 30, 60 and 90 at all time points ranged from 2.3 mmHg to 5.2 mmHg.

In our completed South Africa Phase 2a clinical trial in which OTX-TP intracanalicular inserts were inserted in 36 eyes in 20 patients with no placebo eye drops used, on day 30 we observed a reduction in IOP of 6.1 mmHg at 8:00 a.m., 5.1 mmHg at 12:00 p.m. and 5.6 mmHg at 4:00 p.m. following insertion of the intracanalicular insert. In this trial, on day 60 we observed a reduction in IOP of 6.7 mmHg at 8:00 a.m., 5.1 mmHg at 12:00 p.m. and 4.3 mmHg at 4:00 p.m. following insertion of the intracanalicular insert. The diurnal averages of the reduction in the IOP were 5.6 mmHg at day 30 and 5.4 mmHg at day 60 in this trial. We believe that the higher IOP reduction observed in this trial may be due in part to the lack of placebo eye drops.

We performed additional post-hoc analyses that were not pre-specified in the trial protocol for the Phase 2b glaucoma clinical trial to provide further insight on the performance of OTX-TP. Although post-hoc analyses performed using an unlocked clinical trial database can result in the introduction of bias, we believe that these analyses provide important information regarding our OTX-TP product candidate and are helpful in determining the study population and inclusion and exclusion criteria for future clinical trials. When we excluded patients on more than one glaucoma medication and used the baseline of five weeks of washout for comparisons of the OTX-TP group and the timolol group, the differences in mean reduction in IOP between the OTX-TP treatment group and the timolol group at the 8:00 a.m. time point on day 30, 60 and 90 narrowed to an average of 1.1 mmHg from an average of 2.2 mmHg based on the pre-specified criteria. These results are shown in the table below:

In this trial, inserts were found to be retained in 91% of patients at day 60, 88% of patients at day 75 and 48% of patients at day 90, reflecting the corresponding absorption and clearance of the inserts with the duration of drug release.

Safety: In this trial, there were no serious adverse events. Adverse events noted to date including punctal stenosis, punctal trauma and canaliculitis. The most common adverse event was inflammatory reaction of the lacrimal punctum and/or canaliculus, which was noted in five patients. These adverse events were transient in nature and resolved by the end of the trial. There were no significant changes in hyperemia scores from baseline through day 90 and there were no hyperemia related adverse events. There were no notable observations of clinical relevance among the slit lamp biomicroscopy assessments.

Non-Significant Risk Retention Studies

We conduct medical device NSR IDE studies on an ongoing basis for the purpose of refining our intracanalicular insert product and placement procedure. We conduct these NSR studies under FDA IDE regulations, although no specific FDA approval is required. We are able to conduct NSR studies because intracanalicular inserts without active drug are well established ophthalmic medical devices. The NSR study process allows us to make relatively quick evaluations of our intracanalicular insert design and placement procedure in human subjects.

In a series of completed NSR studies, we have effected compositional and dimensional adjustments to our intracanalicular insert to optimize retention. We have also used these studies to evaluate intracanalicular insert placement, as well as removal and repeat placements and have seen a range of results in NSR studies to date, with the most recent study achieving a retention rate of approximately 85-90% at day 90.

We are using an intracanalicular insert design in our Phase 3 clinical trials of OTX-TP for the treatment of glaucoma and ocular hypertension that is slightly smaller than the plug design used in the Phase 2b clinical trial. We also plan to use an intracanalicular insert design in these trials that has a rapidly dissolvable tip that enables greater ease of insertion of the insert.

We believe that with the current level of retention with our intracanalicular insert design and given the ability of patients to assess the presence of the insert as a result of the fluorescent label, our current product design offers a potentially significant improvement over the current standard of care with patients receiving PGAs. The compliance rate with PGA eye drops has been shown to be only approximately 50% after six months of therapy due to the challenges of administration and side effects including hyperemia, or red eye.

Completed U.S. Phase 3 Clinical Trial

We initiated a randomized, double blind, placebo-controlled Phase 3 clinical trial in September 2016 based on feedback following discussions with the FDA in the second quarter of 2016, using a protocol design that focused on a comparison of the OTX-TP arm against a vehicle placebo arm.  Patients were randomized in a 3:2 ratio to receive either OTX-TP or a placebo vehicle control intracanalicular insert without active drug. No timolol comparator or validation arm was required in the study design and no eye drops, placebo or active, were administered in either arm. In May 2019, we reported topline results of the Phase 3 clinical trial that was conducted at 49 sites and enrolled 554 subjects with open-angle glaucoma or ocular hypertension in the full analysis set, or FAS, population.

The trial’s primary efficacy endpoint was an assessment of mean IOP at nine different time points: three diurnal time points (8:00 a.m., 10:00 a.m., and 4:00 p.m.) at each of 2, 6, and 12 weeks following insertion. The secondary endpoints included an evaluation of whether OTX-TP demonstrated a statistically superior mean reduction of IOP from baseline for OTX-TP treated-subjects compared with placebo insert-treated subjects (Table 1) at the same nine time points.  Topline results show that the trial did not achieve its endpoint of statistically significant superiority in mean reduction of IOP compared with placebo at all nine time points.  

We enrolled patients in this trial who are at least 18 years of age with a documented diagnosis of ocular hypertension or open-angle glaucoma, baseline IOP within a specified range and a specified minimum level of visual acuity in each eye. We excluded patients from this trial if, among other reasons, they had a history of inadequate response to treatment with prostaglandins or beta-blockers. For patients under treatment for ocular hypertension or glaucoma, we required a drug washout period for these medications between screening and first visit.

We evaluated patients at weeks 2, 4, 6, 8, 10 and 12 (with insertion of the insert on day 1) and made the following assessments:

We also collected data on intracanalicular insert presence along with visualization of the insert by both the study patient and the investigator.

We evaluated safety in all patients at each study visit with an assessment of general eye conditions, including visual acuity, along with any adverse events.

Efficacy:    Topline results show that the trial did not achieve its endpoint of statistically significant superiority in mean reduction of IOP compared with placebo at all nine time points. OTX-TP treated subjects did have a greater reduction in IOP from baseline relative to placebo insert at all nine time points (Table 2), and these differences were statistically significant (p value < 0.05) for eight of the nine time points (Tables 2 and 3). The reductions from baseline

for OTX-TP treated subjects in this trial ranged from 3.27-5.72 millimeters of mercury (mm Hg) across the nine time points with higher levels of intraocular pressure reduction seen at the earlier time points in this trial (Table 3).

Safety: OTX-TP was generally well tolerated and no ocular serious adverse events were observed. The most common ocular adverse events seen in the study eye were dacryocanaliculitis (approximately 7.0% in OTX-TP vs. 3.0% in placebo) and lacrimal structure disorder (approximately 6.0% in OTX-TP vs. 4.0% in placebo).

Regulatory Pathway

In October 2019, we met with the FDA to discuss the topline data we reported from our completed Phase 3 trial.  Our conversation with the FDA was productive and involved a discussion around the importance of compliance and how a product like OTX-TP could address the issue of non-compliance by delivering a prostaglandin analog formulated with our programmed release hydrogel to lower intraocular pressure for up to 12 weeks with a single insert.  While the FDA did not feel that the data from this clinical trial met the standard of clinical meaningfulness in the population studied, there were constructive discussions about potential pathways forward in specific patient populations for whom drops are problematic.

Based on feedback following discussions with the FDA in the fourth quarter of 2019, we do not intend to initiate the second Phase 3 clinical trial at this time without the assistance of a collaborative partner.  We believe that if we were to find a partner for our OTX-TP program, we or such partner could decide to conduct additional Phase 2 clinical trials to address feedback from the FDA prior to another Phase 3 clinical trial.  Given the potential use of OTX-TP as a chronic therapy, however, we have decided to continue an ongoing open-label, one-year safety extension study, generating six-month and one-year safety data for a limited number of subjects to support a potential future product registration.  We anticipate data from this safety study including pharmacokinetic data later this year.

If we were to obtain favorable results from future Phase 3 clinical trials, we would plan to submit an NDA to the FDA for marketing approval of OTX-TP for the treatment of glaucoma and ocular hypertension. We expect that we

would submit this NDA under Section 505(b)(2) of the FDCA. See “—Governmental Regulation—Section 505(b)(2) NDAs” for additional information.

Intracameral Glaucoma (OTX-TIC) Product Candidate

We are conducting an open-label, proof-of-concept Phase 1 clinical trial of OTX-TIC that we initiated in the second quarter of 2018 for the treatment of patients with moderate to severe glaucoma and ocular hypertension. OTX-TIC (extended-delivery travoprost) is a bioresorbable hydrogel implant incorporating travoprost that is designed to be an intracameral injection into the anterior chamber of the eye with an initial target duration of drug release of four to six months. Preclinical studies to date have demonstrated clinically meaningful IOP lowering and good pharmacokinetics in the aqueous humor.  We initiated a pilot clinical study outside the United States in the third quarter of 2017 to assess safety and obtain initial efficacy data, but did not enroll any patients in this clinical trial and determined to close this trial.  We submitted an IND in the first quarter of 2018 and initiated a second Phase 1 trial in the United States in the second quarter of 2018. The study is a prospective, multi-center, open-label, dose escalation study to evaluate the safety, biological activity, durability and tolerability of OTX-TIC compared to topical travoprost (eye drops) in patients with open-angle glaucoma or ocular hypertension.  We presented initial results from the first cohort, comprised of five patients, in this clinical trial at the Association of Research and Vision of Ophthalmology (ARVO) meeting in April 2019 and the American Society of Cataract and Refractive Surgery annual meeting in May 2019.  This data demonstrated that, with a single implant, subjects were able to achieve IOP lowering for up to thirteen months at a level least as good as standard of care topical eye drop that was placed in each subject’s non-study eye. In addition, the hydrogel carrier, as designed, biodegraded in five to seven months. There were no clinically meaningful changes in corneal health as measured by endothelial cell evaluation and corneal pachymetry. Several subjects reported low grade inflammation and peripheral anterior synechiae that we believe may be addressable with modifications to the implants.

At the Glaucoma 360 meeting in February of 2020, we presented results from the first two of four patient cohorts in the Phase 1 clinical trial.  Data from the first two fully-enrolled cohorts (cohort 1 = 5 subjects, cohort 2 = 4 subjects) shows a clinically meaningful reduction from baseline in mean IOP values at the 8 a.m. timepoint in patients treated with a single insertion of OTX-TIC throughout the six-month study period.  The data also shows that the mean IOP values at the 8 a.m. timepoint remained decreased from the baseline values beyond the study period and, in one patient, for up to eighteen months at the time of assessment. 

Cohort 1:  Mean IOP Change from Baseline at 8:00 a.m.

Cohort 2:  Mean IOP Change from Baseline at 8:00 a.m.

Overall, OTX-TIC was generally well-tolerated and observed to have a favorable safety profile, and no serious adverse events were reported. No changes in corneal health were noted as measured by slit lamp examination, corneal

pachymetry and endothelial cell count evaluation. Eight ocular adverse events were reported, with the most frequent being iritis.  The implant biodegraded consistently in approximately five to seven months. 

We continue to collect additional data from the first two cohorts and have begun enrollment in the third and fourth cohort to assess the impact of a faster degrading implant with the same therapeutic dose as administered in cohort one.  We have also developed an additional formulation to test a smaller implant of OTX-TIC and expect to evaluate this formulation in a fourth cohort of this clinical trial in the future.

We are currently collecting additional data from the first two cohorts and have begun enrolling a third cohort to assess the impact of a faster degrading implant with the same therapeutic dose as administered in cohort one. We have developed an additional formulation to test a smaller implant of OTX-TIC and expect to evaluate this formulation in a fourth cohort of this clinical trial in the future.

Regulatory Pathway

We anticipate that our ongoing Phase 1 clinical trial of OTX-TIC will provide important information to inform the design of later stage clinical trials of this product candidate.  If our Phase 1 clinical trial were successful, we would expect to initiate a Phase 2 clinical trial to evaluate OTX-TIC for the treatment of open-angle glaucoma and ocular hypertension.  We would then be required to successfully complete two well controlled Phase 3 clinical trials conducted under an IND to obtain marketing approval from the FDA. If we were to obtain favorable results from these two pivotal clinical trials, we would plan to submit an NDA to the FDA for marketing approval of OTX-TIC for such indication. We expect that we would submit this NDA under Section 505(b)(2) of the FDCA. See “—Government Regulation—Section 505(b)(2) NDAs.”

Intravitreal Implants for the Treatment of Back-of-the-Eye Diseases

We are engaged in a preclinical development program of our sustained-release hydrogel administered via intravitreal injection to address the large and growing markets for diseases and conditions of the back of the eye. Our current development efforts are focused on the use of our sustained-release hydrogel in combination with anti-angiogenic compounds, including anti-VEGF compounds, for the treatment of wet AMD. Our initial implants have delivered both small and large molecule anti-VEGF compounds in vitro over our targeted four to six month period, which we believe could make it possible to reduce the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD. In addition, our preclinical studies have demonstrated a sustained pharmacodynamic effect in vivo of up to six months with a small molecule tyrosine kinase inhibitor (TKI). The two strategies being pursued are as follows:

In December 2017, we delivered to Regeneron a proposed final formulation for the initial preclinical tolerability study.  Regeneron initiated the preclinical study in early 2018.  We and Regeneron have subsequently reached an understanding that the proposed formulation was not final and have ceased development of it.  We are currently in discussions with Regeneron, in accordance with the terms of the Collaboration Agreement, regarding the development of an alternative formulation.

In Vitro and Preclinical results

To date, in in vitro tests and preclinical studies, we have been able to incorporate antibody anti-VEGF drugs within our hydrogels, and our collaborators have been testing release rates and the integrity and activity of their compounds. We have achieved in vitro release over a four to six month duration. The released proteins have been stable, with no chemical or functional changes observed.

Our hydrogel implants have shown initial tolerability and acceptable pharmacokinetics. We conducted an in vivo study to measure ocular tissue concentrations of bevacizumab after injection with and without our sustained-release hydrogel. The injection of a bevacizumab formulation without our hydrogel resulted in a first-order rate of drug clearance, as expected.  In addition, bevacizumab concentrations decreased in the ocular tissues with distance from the intravitreal injection site. The injection of our hydrogel implant containing bevacizumab showed the same decrease of tissue concentration of bevacizumab in successively distant tissues. However, the injection of our hydrogel implant containing bevacizumab resulted in a sustained level of drug over the course of the 30 day study. Further,  after injection of our hydrogel implant containing bevacizumab, we observed levels of drug in ocular tissues over the course of the study that were consistent with our in vitro release data. After two weeks, the drug concentrations of the implant exceeded those of bevacizumab injected without our hydrogel. More recently, we have conducted a pharmacodynamic study in a rabbit model, achieving activity against an intravitreal VEGF challenge injection after study duration of four months, compared to less than six weeks for a 1.25 mg (human dose) bevacizumab intravitreal injection. Tolerability of bevacizumab-loaded implants in rabbit eyes has been demonstrated through four months.  In addition, there were no anti-drug antibodies detected in these rabbits, even though bevacizumab is a recombinant humanized monoclonal antibody and therefore might be expected to elicit an immune response in rabbits.  This early feasibility study has provided us with initial encouraging data for our sustained-release hydrogel implant with bevacizumab and its potential capability of delivering active drug to ocular tissues in a local programmed-release fashion and informs the additional preclinical activities we plan to pursue. Although these results have been encouraging, we will need to further optimize our hydrogels for aflibercept in our collaboration with Regeneron. We believe we have demonstrated initial feasibility sufficient to support the continuing preclinical development of this program and, if we obtain additional favorable preclinical results, advancement into Phase 1 clinical trials.

We have conducted in vivo pharmacokinetic and pharmacodynamic studies with hydrogels loaded with a small molecule anti-angiogenic TKI compound injected intravitreally. Pharmacokinetic data showed retinal tissue drug concentrations in excess of 3,000 times published IC50 after six months and pharmacodynamic results show sustained efficacy for six months. 

We also continue to conduct our own internal preclinical development program using TKIs. We also believe there are other opportunities for targets beyond VEGF-related targets to utilize our hydrogel for back-of-the-eye diseases, and we may pursue opportunities through internal research or in partnership with pharmaceutical companies.

Intravitreal wet AMD (OTX-TKI) Product Candidate

We are conducting an open-label, proof-of-concept Phase 1 clinical trial of OTX-TKI that was initiated in the second quarter of 2018 for the treatment of patients with neovascular age related macular degeneration (wet AMD).  OTX-TKI (sustained-release tyrosine kinase inhibitor) is a bioresorbable hydrogel implant incorporating axitinib that is designed to be an intravitreal injection into the inferior hemisphere of the vitreous humor of the eye with an initial target duration of drug release for approximately 6-9 months.  Preclinical studies to date have demonstrated suppression of vascular leakage and good pharmacokinetics in the relevant ocular tissues.  The Phase 1 study was submitted to Therapeutic Goods Administration (TGA) in July 2018. The study is a prospective, multi-center study to evaluate the safety, biological activity, durability and tolerability of OTX-TKI. 

In the first quarter of 2019, we began dosing patients in a Phase 1 clinical trial in Australia. This clinical trial is a multi-center, open-label, does escalation study designed to evaluate the safety, durability, tolerability, and biological

activty of OTX-TKI. We are evaluating biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography.  The independent Data Safety and Monitoring Committee met to review the safety from the first cohort of subjects in the Phase 1 clinical trial and recommended moving to a higher dose of OTX-TKI for the next cohort of subjects to be treated, as the first cohort of subjects reported no safety concerns.  Two cohorts of six subjects each have been enrolled, a lower dose cohort of 200 μg and a higher dose cohort of 400 μg. In the first two fully enrolled cohorts, OTX-TKI was generally well tolerated and observed to have a favorable safety profile with no ocular serious adverse events noted. In the higher dose cohort, OTX-TKI showed a decrease in central subfield retinal thickness as measured by mean change in central subfield thickness values by decreases in intraretinal and/or subretinal fluid in some subjects. We plan to continue long-term evaluation of the first two cohorts. We plan to amend our current clinical trial protocol to enroll a third, higher-dose cohort.  This Phase 1 clinical trial is not powered to measure any efficacy endpoints with statistical significance.

Interim results from the Phase 1 trial were presented at the 40th Annual Cowen Health Care Conference on March 3, 2020.  Slides covering Mean Change in Central Subfield Thickness Values by Cohort, Individual Subject Durability Assessment and Safety Overview for Cohorts 1 & 2 are included below. 

Regulatory Pathway

In the second quarter of 2018 we initiated a Phase 1 clinical trial for the treatment of patients with neovascular age-related macular degeneration (wet AMD) in Australia.  If successful, we would plan for one Phase 2 clinical trial and two Phase 3 clinical trials for the treatment of patients with neovascular age-related macular degeneration (wet AMD).  If successful, we would plan to submit an NDA under Section 505(b)(2) of the FDCA. See “—Government Regulation—Section 505(b)(2) NDAs” for additional information.

ReSure Sealant

ReSure Sealant is a topical liquid hydrogel that creates a temporary, adherent, soft and lubricious sealant to prevent post-surgical leakage from clear corneal incisions that are made during cataract surgery. The main components of ReSure hydrogel are water and PEG. ReSure hydrogel is completely synthetic, with no animal or human derived components. The FDA granted marketing approval for ReSure Sealant in January 2014. We commercially launched ReSure Sealant in the United States in February 2014.

Product Design

A surgeon forms ReSure Sealant hydrogel by combining three components: PEG, a cross-linker and a diluent buffer solution. The cross-linker interacts with the PEG molecules to form a molecular network that comprises the hydrogel. The components are mixed to initiate the cross-linking reaction to form a biocompatible, resorbable hydrogel. The hydrogel is approximately 90% water and is blue in color to help the surgeon visualize the sealant during application. The surgeon applies the sealant to the corneal incision as a liquid using a soft foam-tipped applicator. The sealant forms a conformal coating that adheres to the ocular tissue through mechanical interlocking of the hydrogel with

the tissue surfaces. The blue color fades within a few hours following surgery. The soft, pliable hydrogel remains on the corneal surface during the critical wound healing period of one to three days and provides a barrier to fluid leakage. ReSure Sealant softens over time, detaches and is sloughed off in the tears as a liquid or extremely soft gel pieces. ReSure Sealant is designed to completely liquefy over a five to seven day duration. Complete epithelial healing takes place over this time period, providing long-term wound closure.

We provide ReSure Sealant in a sterile, single patient use package. The package contains a tray with two elongated mixing wells. Each well contains dried deposits of reactants, separated within the well. The package also contains one plastic dropper bottle filled with diluent solution and two applicators. The device is stored at room temperature for easy access.

ReSure Sealant Clinical Development

We conducted a pivotal clinical trial evaluating the safety and effectiveness of ReSure Sealant compared to sutures for preventing incision leakage from clear corneal incisions. In connection with FDA approval of ReSure Sealant in January 2014, we have agreed to conduct two post-approval studies. The first post-approval registry study was designed to confirm whether ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of pre-specified adverse ocular events in eyes treated with ReSure Sealant. The second post-approval study is designed to ascertain the incidence of endophthalmitis in patients treated with ReSure Sealant.

Pivotal Clinical Trial

In 2013, we completed a prospective, randomized, parallel-arm, controlled, multicenter, subject-masked pivotal clinical trial evaluating the safety and effectiveness of ReSure Sealant. In this trial, we enrolled 488 patients at 24 sites across the United States. One patient was excluded prior to treatment because the surgeon was unable to achieve a dry ocular surface for application of ReSure Sealant. As a result, we randomized 304 patients for treatment with ReSure Sealant and 183 patients for treatment with sutures. Based on the trial protocol, 295 patients treated with ReSure Sealant and 176 patients treated with sutures completed study follow-up without a significant protocol deviation that directly affected the primary efficacy endpoint.

The primary efficacy endpoint was non-inferiority of ReSure Sealant to sutures for preventing incision leakage from clear corneal incisions within the first seven days following cataract surgery. A non-inferiority determination requires that the test product is not worse than the comparator by more than a small pre-specified margin. The non-inferiority margin for the ReSure Sealant pivotal clinical trial was a percentage difference in leak rates between ReSure Sealant and sutures of 5%.

We randomized patients in a 5:3 ratio to receive either ReSure Sealant or sutures. All patients received a standardized self-sealing incision.

Surgeons assessed incision leakage during the operation and during follow-up visits on days 1, 3, 7 and 28 after the procedure. During the pre-randomization intraoperative evaluation, the surgeons assessed whether there was any leakage based on a standard test called a Seidel test in conjunction with an application of force near the incision using a standardized tool and technique. The surgeon slowly applied force using the standardized tool that we provided until a leak was observed or until a pre-specified maximum force of one ounce of force was reached. In the assessments

conducted during the operation, approximately 50% of leaks occurred spontaneously without application of force and 76% of leaks occurred with the application of 0.25 ounces of force or less.

Based on assessments conducted immediately following surgery, using the same standardized leak testing tool and technique, eyes receiving sutures leaked more frequently than eyes sealed with ReSure Sealant by a statistically significant margin of more than 8 to 1 (p<0.0001). In this trial, ReSure Sealant demonstrated both non-inferiority and superiority relative to the suture control based on the proportion of eyes with leakage within the first seven days after surgery. These results are shown in the figures below.

ReSure Sealant treated patients had significantly lower adverse event and device-related adverse event rates than patients treated with suture wound closure. We determined statistical significance based on a widely used, conventional statistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less represents statistical significance. In adverse events related to the study device, ReSure Sealant had a lower occurrence rate by a statistically significant margin of 1.6% for ReSure Sealant compared to 30.6% for sutures (p<0.0001). There were no significant or clinically relevant differences in the other safety endpoints, including slit lamp examination findings, between ReSure Sealant and suture patients, thus indicating that ReSure Sealant is well tolerated. Only one ReSure Sealant treated patient out of 299 (0.3%) had a wound healing assessment characterized as outside of normal limits at the day 7 assessment due to the presence of mild stromal edema. No ReSure Sealant treated subjects were outside of normal limits at the day 28 assessment. In this trial, surgeons rated ReSure Sealant as “easy” or “very easy” to use for 94.1% of patients treated with ReSure Sealant.

Post-Approval Studies

ReSure Sealant is classified in the United States as a class III medical device subject to the rules and regulation of premarket approval by the FDA. Following our submission of a PMA application to the FDA for review and during the review process, the FDA completed compliance audits of our manufacturing facility and several of our pivotal clinical

trial sites. Before granting approval of the PMA application, the FDA sought input from the Ophthalmic Devices Advisory Committee, a panel of physicians charged with reviewing results from our pivotal clinical trial. The FDA approved our PMA application for ReSure Sealant in January 2014. The FDA included two post-approval studies as a condition of the PMA application approval.

The first post-approval study, identified as the Clinical PAS, is to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence in eyes treated with ReSure Sealant of the most prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSure Sealant. The FDA has approved the protocol for the Clinical PAS, and we initiated enrollment in December 2014.  Enrollment was completed in December 2015 with 626 patients in 22 sites.  We submitted the final study report to the FDA in June 2016, and the FDA has subsequently confirmed the Clinical PAS has been completed.

The second post-approval study, identified as the Device Exposure Registry Study, is intended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 days following cataract surgery and application of ReSure Sealant. We initiated enrollment in this study in December 2016 and submitted our first progress report to FDA in January 2017. The Device Exposure Registry Study is required to include at least 4,857 patients. Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we have been unable to enroll trial sites and patients, collect patient data and report study data to the FDA. We have provided regular periodic reports to the FDA on the progress of this post-approval study.

We received a warning letter from the FDA in October 2018 relating to our compliance with data collection and information reporting obligations in the Device Exposure Registry Study. The FDA warning letter refers to a lack of progress with the enrollment and related data collection and information reporting obligations for a required post-approval trial. Failure by us to conduct the required post-approval trial for ReSure Sealant to the FDA’s satisfaction may result in withdrawal of the FDA’s approval of ReSure Sealant or other regulatory action. 

In November 2018, we appealed this warning letter.  In December 2018, the FDA rejected our appeal. A teleconference was held with the FDA in January 2019 resulting in tentative agreement on a proposed retrospective registry study of endophthalmitis rates to satisfy the Device Exposure Registry Study requirements.  In a letter dated June 7, 2019 from the FDA, the agency acknowledged receipt of a letter dated March 29, 2019 from us in which we proposed conducting the proposed retrospective analysis of the IRIS Registry, comparing endophthalmitis rates from sites that purchased ReSure versus those sites that did not purchase ReSure.  If the rates are no different, the FDA has indicated that it will consider the post-approval requirement to have been fulfilled.  If there is a statistically significant increase in endophthalmitis rates at sites purchasing ReSure compared with those not purchasing ReSure, a prospective study will be required.  The FDA has indicated it will consider our response to the warning letter adequate once it approves the study protocol for the retrospective analysis of the IRIS Registry and the outline of the prospective study.  We submitted the protocol for the agreed upon retrospective study and the prospective study outline, as required per the terms of the warning letter in December 2019.  We received feedback from the FDA in February 2020 and responded to the FDA in March 2020.  We expect a response from the FDA in the middle of 2020.

ReSure Sealant currently remains commercially available in the United States, though there is no sales support provided to the product at this time.  We have received only limited revenues from ReSure Sealant to date and anticipate receiving only limited revenues from the program in 2020.

Foreign Approvals

Outside the United States, we plan to assess whether to seek regulatory approval for ReSure Sealant in markets such as the European Union, Australia and Japan based on the market opportunity, particularly pricing, and the requirements for marketing approval. Given our prioritization of the clinical development of our sustained-release product candidates and our planned commercialization efforts for our initial intracanalicular insert product candidates in the United States, we do not currently plan to seek CE Mark approval to commercialize ReSure Sealant in the European Union. Outside of the United States and the European Union, we will need to engage a third party to assist us in the approval process. If we obtain regulatory approval to market and sell ReSure Sealant in international markets, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize ReSure Sealant. See “—Government Regulation—Review and Approval of Medical Devices in the European Union” for additional information.

Commercial Strategy

Our goals for ReSure Sealant are to provide a novel means of definitive wound closure in situations in which the surgeon would otherwise use sutures and to increase the number of procedures in which surgeons close the wound following cataract surgery, instead of leaving the wound to self-seal. The market opportunity for a surgical sealant following cataract surgery may be modest. However, we believe ReSure Sealant offers important benefits over sutures, including superior wound closure, a better safety profile and less follow-up. While ReSure Sealant remains commercially available in the United States, there is no current sales support provided to the product at this time. 

Sales, Marketing and Distribution

We plan to prioritize our commercialization efforts in the United States. We generally expect to retain commercial rights in the United States to any of our local programmed-release drug delivery product candidates for front-of-the-eye diseases and conditions for which we may receive marketing approvals and which we believe we can successfully commercialize.

We commercially launched ReSure Sealant in the United States in February 2014. We initially sold ReSure Sealant through a network of independent distributors across the United States. While ReSure Sealant remains commercially available in the United States, there is no sales support provided to the product at this time.  However, with the approval of DEXTENZA, we expect to be able to sell ReSure Sealant with DEXTENZA with the current sales force if we choose to do so in the future.  Although we do not actively promote ReSure Sealant in terms of territory sales representatives, we continue to sell it in the United States, and will resume a promotional presence for ReSure Sealant in the ophthalmic marketplace at industry conventions, such as the American Society of Cataract and Refractive Surgery and the American Academy of Ophthalmology, among others.

With the approval of DEXTENZA in November of 2018 for ocular pain, and in June 2019 for ocular inflammation, we have built a highly targeted, key account sales force that focuses on the ambulatory surgical centers responsible for the largest volumes of cataract surgery.  Following our receipt of FDA approval on November 30, 2018, we submitted an application for a C-code for transitional pass-through payment status.  On May 29, 2019, we received formal notification from the Centers for Medicare and Medicaid Services, or CMS, that it had approved transitional pass-through payment status and established a new reimbursement code for DEXTENZA. The code, C9048, became effective on July 1, 2019.  On December 28, 2018, we submitted an application for a J-Code for permanent payment status.  In July 2019, we subsequently received a specific and permanent J-Code, J1096, that became effective October 1, 2019.  A J-Code is a permanent code used to report drugs that ordinarily cannot be self-administered. With the effectiveness of our permanent J-Code as of October 1, 2019, our C-code is no longer in effect.  J-Codes are familiar to both medical practices and their billing staffs, as well as Medicare (Part B and Part C) and commercial insurers. As a result, J-Codes allow for a simpler and more convenient reimbursement process. 

In connection with our July 1, 2019 commercial launch of DEXTENZA, we have built our own highly targeted, key account manager, or KAM, sales force that focuses on the ambulatory surgical centers, or ASCs, responsible for the largest volumes of cataract surgery.  Since the commercial launch of DEXTENZA, we have expanded our field sales team by 50% to a total of 30 KAMs.  DEXTENZA is now available through a network of distributors.  Our initial commercial efforts are focused on the two million cataract procedures performed annually under Medicare Part B. 

If we receive approval to market any of our product candidates in the United States, we plan to then evaluate the regulatory approval requirements and commercial potential for any such product candidate in Europe, Japan and other selected geographies. If we decide to commercialize our products outside of the United States, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize any product of ours that receives marketing approval. These may include independent distributors, pharmaceutical companies or our own direct sales organization.

We have entered into a strategic collaboration with Regeneron for the commercialization of our intravitreal implant for the delivery of protein-based anti-VEGF drugs for the treatment of back-of-the-eye diseases, including wet AMD.  In December 2017, we delivered to Regeneron a proposed final formulation for the initial preclinical tolerability study.  Regeneron initiated the preclinical study in early 2018.  We and Regeneron have subsequently reached an understanding that the proposed formulation was not final and have ceased development of it.  We are currently in

discussions with Regeneron, in accordance with the terms of the Collaboration Agreement, regarding the development of an alternative formulation.

Manufacturing

We fabricate devices and drug products for use in our clinical trials, research and development and commercial efforts for all of our therapeutic product candidates using current Good Manufacturing Practices, or cGMP, at our facility located in Bedford, Massachusetts.  In June 2016, we entered into a new lease agreement for approximately 71,000 square feet of a new facility in Bedford, Massachusetts that will include additional manufacturing space. We are evaluating the potential relocation of our manufacturing operations to the new leased premises.  We plan to maintain our existing manufacturing space of approximately 20,000 square feet and extended the operating lease until June 2023.  We have a one-time option to terminate the manufacturing space lease on July 2021, upon the delivery to the landlord on or before July 2020 a termination notice and the payment to the landlord of a termination fee. 

We purchase active pharmaceutical ingredient drug substance from independent suppliers on a purchase order basis for incorporation into our drug product candidates. We purchase our PEG and other raw materials from different vendors on a purchase order basis according to our specifications. Multiple vendors are available for each component we purchase. We qualify vendors according to our quality system requirements. We do not have any long term supply agreements in place for any raw materials or drug substances. We do not license any technology or pay any royalties to any of our drug or raw material vendors for the front-of-the-eye products.

We believe that our strategic investment in manufacturing capabilities allows us to advance product candidates at a more rapid pace and with more flexibility than a contract manufacturer, although we will continue to evaluate outsourcing unit operations for cost advantages. Our manufacturing capability also enables us to produce products in a cost-effective manner while retaining control over the process and prioritize the timing of internal programs.

Our manufacturing capabilities encompass the full manufacturing process through quality control and quality assurance and are integrated with our project teams from discovery through development and commercial release. This structure enables us to efficiently transfer research stage product concepts into manufacturing. We have designed our manufacturing facility and processes to provide flexibility for the manufacture of different product candidates. We outsource sterilization services for our products.

We believe that we can scale our manufacturing processes to support DEXTENZA and ReSure Sealant sales as well as development of our drug product candidates and the potential commercialization of such product candidates.

Intellectual Property

Our success depends in part on our ability to obtain and maintain proprietary protection for our products, product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We rely on patent protection, trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

We have in-licensed a significant portion of our patent rights from Incept. The license from Incept is limited to the fields of human ophthalmic diseases and conditions, acute post-surgical pain and ear, nose and/or throat diseases or conditions. As of March 2, 2020, we have licensed from Incept a total of 20 U.S. patents, 8 U.S. patent applications and foreign counterparts of some of these patents and patent applications.  Our license from Incept includes the following:

Intracanalicular Insert and Intracameral Implant Product Candidates

We have six U.S. patents that cover our intracanalicular insert and intracameral implant product candidates. Two patents which have issued in the U.S. and Japan, and are pending in the European Union and elsewhere, which are expected to expire in 2030 and cover compositions and methods of use of intracanalicular inserts.  These patents are licensed exclusively to us in the field of ophthalmology. Two U.S. patents which are expected to expire in 2020 and cover the hydrogel composition of the intracanalicular inserts and methods of making and using hydrogel implants. These patents are licensed exclusively to us in the field of ophthalmology. A U.S. patent which is expected to expire in 2024 that covers the process of making the hydrogel composition of OTX-TP and OTX-MP and are non-exclusively

licensed to us.  A pending U.S. patent application that covers the hydrogel composition of DEXTENZA that, if granted, is expected to expire in 2027.

ReSure Sealant

We have two U.S. patents that cover ReSure Sealant. A U.S. patent which is expected to expire in 2024 and which covers the process of making and using hydrogel compositions.  A U.S. patent which is expected to expire in 2032 and which covers certain features of the ReSure Sealant package.

Intravitreal Injection

We have two U.S. patents that cover intravitreal injection product candidates. A U.S. patent that is expected to expire in 2027 and patent applications which are pending in the European Union covering certain drug-release features of the hydrogel implant in combination with its hydrogel composition and other proprietary technology relating to intravitreal injections, and which, if granted, are expected to expire in 2027. A granted U.S. patent which is expected to expire in 2033 and pending patent applications in the European Union, Japan, U.S. and certain other jurisdictions covering the process of making the hydrogel implant with its drug release features and the resultant compositions and other proprietary technology that, if granted are expected to expire in 2032.

We have pending patent applications in the United States, European Union, and Japan directed to a drug delivery vehicle and other proprietary technology that, if granted, are expected to expire in 2040.  

The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended.

Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us.

We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data.

Licenses

Incept, LLC

In January 2012, we entered into an amended and restated license agreement, which we refer to as either the Prior Agreement or Original License, with Incept under which we hold an exclusive, worldwide, perpetual, irrevocable license under specified patents and technology owned or controlled by Incept to make, have made, use, offer for sale, sell, sublicense, have sublicensed, offer for sublicense and import, products delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to all human ophthalmic diseases or conditions. This license covers a significant portion of the patent rights and the technology for ReSure Sealant and our hydrogel platform technology product candidates. The agreement supersedes an April 2007 license agreement between us and Incept. Amar

Sawhney, our former President and Chief Executive Officer and former Executive Chairman of the Board of Directors, is a general partner of Incept.

On September 13, 2018, or the Effective Date, we entered into a second amended and restated license agreement, or the Second Amended Agreement, with Incept.  The Second Amended Agreement amends and restates in full the Prior Agreement, to expand the scope of our intellectual property license and modify future intellectual property ownership and other rights thereunder.

License Rights; Ownership of Intellectual Property.    We and Incept have agreed to expand the field of use of the exclusive, worldwide, perpetual, irrevocable license held by us under the Prior Agreement to include specified intellectual property rights and technology owned or controlled by Incept to make, have made, use, offer for sale, sell, sublicense, have sublicensed, offer for sublicense and import, (i) consistent with the Prior Agreement, products delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to all human ophthalmic diseases or conditions, or the Ophthalmic Field of Use, and (ii) as a result of the expansion of the scope of the Original License, products delivered for the treatment of acute post-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions, or the Additional Field of Use.  We and Incept have further agreed to expand the field of use of the Original License for certain patents, patent applications and other rights pertaining to shape-changing hydrogel formulations thereunder, or the Shape-Changing IP, to include all fields except those involving the nerves and associated tissues specified in the Second Amended Agreement.

We will solely own, without a license to Incept, all intellectual property rights conceived solely by one or more individuals from our company, or the Company Individuals, after the Effective Date, subject to exceptions specified therein.  Subject to certain exceptions specified in the Second Amended Agreement, Incept will own and license to the us (i) all intellectual property rights included in the Original License, or the Original IP,  in the Ophthalmic Field of Use and the Additional Field of Use, (ii) intellectual property rights in the field of drug delivery conceived solely by the Company Individuals on or before the Effective Date, or Incept IP, and (iii) intellectual property rights in the field of drug delivery conceived by one or more Company Individuals jointly with one or more individuals from Incept, including Dr. Sawhney, or the Incept Individuals, after the Effective Date.  These intellectual property rights are referred to as Joint IP, and, collectively with the Original IP and the Incept IP, as the Licensed IP.

Financial Terms.  We and any of our sublicensees are obligated to pay Incept royalties as follows under the Agreement: (i) consistent with the Prior Agreement, a royalty equal to a low single-digit percentage of net sales by the us or our affiliates of products, devices, materials, or components thereof, or Licensed Products, including or covered by Original IP, excluding the Shape-Changing IP, in the Ophthalmic Field of Use; (ii) a royalty equal to a mid-single-digit percentage of net sales by us or our affiliates of Licensed Products including or covered by Original IP, excluding the Shape-Changing IP, in the Additional Field of Use; and (iii) a royalty equal to a low single-digit percentage of net sales by us or our affiliates of Licensed Products including or covered by Incept IP or Joint IP in the field of drug delivery.  Royalty obligations under the Second Amended Agreement commence with the first commercial sale of a Licensed Product described above and terminate upon the expiration of the last-to-expire patents included in the Licensed IP, as applicable.  Any sublicensee of us also will be obligated to pay Incept royalties on net sales of Licensed Products made by it and will be bound by the terms of the Second Amended Agreement to the same extent as us. Additionally, at its sole discretion, Incept may require, as a condition of any sublicense by us in the Additional Field of Use and in exchange for a reduction in the royalties owed on net sales of Licensed Products described above, payments equal to a mid-teen percentage of any upfront payment and, subject to certain conditions, other payments received by us from the sublicensee.

Patent Prosecution and Litigation.  Incept will continue to have sole control and responsibility for ongoing prosecution of patents included in the Original IP, and we will have sole control and responsibility for ongoing prosecution of patents and patent applications included in or arising under the Incept IP or Joint IP.  The parties have agreed to work together in good faith to enter into a separate agreement under which, subject to certain limitations, we would assume control of the prosecution of patents and patent applications included in or arising under the Shape-Changing IP.  We have the right, subject to certain conditions, to bring suit against third parties who infringe the patents included in the Original IP in the Ophthalmic Field of Use or the Additional Field of Use, patents included in the Incept IP in the drug delivery filed, patents included in the Joint IP in the drug delivery field, and patents included in the Shape-Changing IP in all fields except as described above.  We have also agreed, if requested by Incept, to enter into a joint defense and prosecution agreement for the purpose of allowing the parties to share confidential and attorney-client

privileged information regarding the possible infringement of one or more patents covered by the Second Amended Agreement. We are responsible for all costs incurred in prosecuting any infringement action it brings.

Term and Termination.  The Second Amended Agreement will expire on the later of (i) the expiration or disclaimer by us of the last valid claim of an issued and unexpired patent included in the Licensed IP or (ii) the final unappealable rejection or abandonment of the last pending patent application arising under the Licensed IP.  Either party may terminate the Second Amended Agreement in the event of the other party’s insolvency, bankruptcy or comparable proceedings, or if the other party materially breaches the agreement and does not cure such breach during a specified cure period.

Regeneron Collaboration

In October 2016, we entered into the Collaboration Agreement with Regeneron for the development and commercialization of products using our sustained-release hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds to address conditions of the eye. 

Under the terms of the Collaboration Agreement, we and Regeneron have agreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept that is suitable for advancement into clinical development. We have granted Regeneron the Option to enter into an exclusive, worldwide license, with the right to sublicense, under our intellectual property to develop and commercialize the Licensed Products. The Option is exclusive until 12 months after Regeneron has received a product candidate in accordance with a collaboration plan, subject to certain conditions, and non-exclusive for an additional six months following the end of the exclusive period. The field of this license is limited to Licensed Products delivered by local administration to or around the eye for diagnostic, therapeutic or prophylactic purposes relating to ophthalmic diseases or conditions. The Collaboration Agreement does not cover the development of any products that deliver small molecule drugs, including TKIs, or deliver large molecule drugs other than those that target certain specified VEGF proteins or their receptors.  Under the terms of the Collaboration Agreement, Regeneron is responsible for funding an initial preclinical tolerability study.

If the Option is exercised, Regeneron is to use commercially reasonable efforts to conduct further preclinical development and an initial clinical trial under a collaboration plan. We are obligated to reimburse Regeneron for certain development costs incurred by Regeneron under the collaboration plan during the period through the completion of the initial clinical trial, subject to a cap of $25 million, which cap may be increased by up to $5 million under certain circumstances. We are also responsible for paying our own costs associated with the activities conducted by us under the collaboration plan. If Regeneron elects to proceed with further development following the completion of the collaboration plan, it will be solely responsible for conducting and funding, and is to use commercially reasonable efforts with respect to, further development and commercialization of product candidates.

Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of the Option. We are also eligible to receive up to $145 million per Licensed Product upon the achievement of specified development and regulatory milestones, $100 million per Licensed Product upon first commercial sale of such Licensed Product and up to $50 million based on the achievement of specified sales milestones for all Licensed Products. In addition, we are entitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net sales of Licensed Products, which royalties are subject to potential reductions in certain circumstances, subject to a minimum royalty.

If Regeneron has not exercised the Option during the designated option period, the Collaboration Agreement will expire. If Regeneron exercises the Option, the Collaboration Agreement will expire on a Licensed Product-by-Licensed Product and country-by-by country basis upon the expiration of the later of 10 years from the date of first commercial sale in such country or the expiration of all patent rights covering the Licensed Product in such country.  Following expiration, Regeneron will have a fully paid-up, non-exclusive license to continue to develop and commercialize Licensed Products.  The Collaboration Agreement may be terminated by Regeneron at any time after exercise of the Option upon 60 days’ prior written notice.  Either party may, subject to a cure period, terminate the Collaboration Agreement in the event of the other party’s uncured material breach, in addition to other specified termination rights.

In December 2017, we delivered to Regeneron the final formulation for Regeneron’s initial preclinical tolerability study.  Regeneron initiated the preclinical study in early 2018.  We and Regeneron have subsequently reached an understanding that the proposed formulation was not final and have ceased development of it.  We are currently in

discussions with Regeneron, in accordance with the terms of the Collaboration Agreement, regarding the development of an alternative formulation.  

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, and compounding pharmacies. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of our potential competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of each of our product candidates, if approved for marketing, are likely to be efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of coverage and adequate reimbursement from government and other third-party payors.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors’ establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.

Our product candidates target markets that are already served by a variety of competing products based on a number of active pharmaceutical ingredients. Many of these existing products have achieved widespread acceptance among physicians, patients and payors for the treatment of ophthalmic diseases and conditions. In addition, many of these products are available on a generic basis, and our product candidates may not demonstrate sufficient additional clinical benefits to physicians, patients or payors to justify a higher price compared to generic products. In many cases, insurers or other third-party payors, particularly Medicare, seek to encourage the use of generic products. Given that we are developing products based on FDA-approved therapeutic agents, our product candidates, if approved, will face competition from generic, branded and compounded versions of existing drugs based on the same active pharmaceutical ingredients that are administered in a different manner, typically through eye drops.

Because the active pharmaceutical ingredients in our product candidates are available on a generic basis, or are soon to be available on a generic basis, competitors will be able to offer and sell products with the same active pharmaceutical ingredient as our products so long as these competitors do not infringe the patents that we license. For example, our licensed patents related to our intracanalicular insert product candidates largely relate to the hydrogel composition of the intracanalicular inserts and certain drug-release features of the intracanalicular inserts. As such, if a third party were able to design around the formulation and process patents that we license and create a different formulation using a different production process not covered by our licensed patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing its product.

Competitors of our Intracanalicular Insert Product Candidates

Several competitors are developing sustained drug release products for the same ophthalmic indications as our intracanalicular insert product candidates, as set forth below.

Competitors of DEXTENZA

Icon Biosciences, Inc. received FDA approval of DEXYCU in February 2018.  DEXYCU is an injection of dexamethasone at the time of surgery into the posterior chamber of the eye (behind the iris) to treat inflammation associated with cataract surgery.  Icon Biosciences Inc. was subsequently bought by pSvidia Corporation in March 2018 and, at the same time, the new entity was renamed Eyepoint Pharmaceuticals, Inc., or Eyepoint.  In January 2019, Eyepoint announced that DEXYCU’s J-Code became effective and Eyepoint launched DEXYCU commercially in the first quarter of 2019.

Competitors of OTX-TIC

Allergan PLC, now owned by Abbvie, Inc., received approval in March 2020 of DURYSTA™, a biodegradable intracameral implant consisting of a PGA and a biodegradable polymer matrix for the reduction of IOP in patients with open-angle glaucoma or ocular hypertension. Allergan purchased ForSight VISION5 who was conducting a Phase 2 clinical development of the Helios insert, a sustained-release ocular insert placed below the eyelid that delivers bimatoprost for the treatment of glaucoma. In addition, several other companies have announced their intention to develop products for treatment of glaucoma using sustained-release therapy, although each of these is at an early stage of development. Mati Therapeutics has conducted a Phase 2 clinical development of an intracanalicular insert for the treatment of glaucoma.

Competitors of our Intravitreal Implants

Our intravitreal implant for the treatment of wet AMD will compete with anti-VEGF compounds administered in their current formulation and prescribed for the treatment of wet AMD as these agents can in some instances deliver one to two months or more of therapeutic effect. They include Lucentis, Eylea, Beovu and off-label use of the cancer therapy Avastin. Multiple companies, although all in early stages of development are exploring ways to deliver anti-VEGF products in a sustained-release fashion, including Graybug Vision, Inc. which is pursuing a sustained-release microparticle depot formulation to extend therapeutic drug levels in ocular tissue for up to six months.

Competitors of ReSure Sealant

ReSure Sealant is the first and only surgical sealant approved for ophthalmic use in the United States. Outside the United States, Beaver Visitec is commercializing its product OcuSeal, which is designed to provide a protective hydrogel film barrier to stabilize ocular wounds. This product has received a CE Mark in Europe but is not approved for use in the United States. Sutures are the primary alternative for closing ophthalmic wounds. In addition, a technique called stromal hydration, which involves the localized injection of a balanced salt solution at the wound edges, is often used to facilitate the self-sealing of a wound.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, clearance, approval, pricing, sales, reimbursement, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products and medical devices. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs and Biologics in the United States

In the United States, the FDA approves and regulates drugs under the FDCA and related regulations. Drugs are also subject to other federal, state and local statutes and regulations. Biological products are licensed for marketing under

the Public Health Service Act, or PHSA, and subject to regulation under the FDCA and related regulations, and other federal, state and local statutes and regulations. 

An applicant seeking approval to market and distribute a new drug or biological product in the United States must typically undertake the following:

Preclinical Studies

Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated product, as well as in vitro and animal studies to assess the safety and activity of the investigational product for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND.

Companies usually must complete some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and must also develop additional information about the chemistry and physical characteristics of the investigational product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the candidate product and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the candidate product does not undergo unacceptable deterioration over its shelf life.

The IND and IRB Processes

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their voluntary informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.

An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational drug to humans.  Such authorization must be secured prior to interstate shipment and administration of any new drug or biologic that is not the subject of an approved NDA or BLA.  In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.  In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND.  The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin.  This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks.  At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.  For our intracanalicular insert product candidates, we have typically conducted our initial and earlier stage clinical trials outside the United States. We generally plan to conduct our later stage and pivotal clinical trials of our intracanalicular insert product candidates in the United States.

In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

The FDA’s primary objectives in reviewing an IND are to assure the safety and rights of patients and to help assure that the quality of the investigation will be adequate to permit an evaluation of the drug’s effectiveness and safety and of the biological product’s safety, purity and potency. The decision to terminate development of an investigational drug or biological product may be made by either a health authority body such as the FDA, an IRB or ethics committee, or by us for various reasons. Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.

Information about clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on its ClinicalTrials.gov website.   Similar requirements for posting clinical trial information are present in the European Union (EudraCT) website: https://eudract.ema.europa.eu/ and other countries, as well. 

Expanded Access to an Investigational Drug for Treatment Use

Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended to improve access to investigational drugs for patients who may benefit from investigational therapies. FDA regulations allow access to investigational drugs under an IND by the company or the treating physician for treatment

purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the drug under a treatment protocol or Treatment IND Application.

When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.

On December 13, 2016, the 21st Century Cures Act established (and the 2017 Food and Drug Administration Reauthorization Act later amended) a requirement that sponsors of one or more investigational drugs for the treatment of a serious disease(s) or condition(s) make publicly available their policy for evaluating and responding to requests for expanded access for individual patients. Although these requirements were rolled out over time, they have now come into full effect.  This provision requires drug and biologic companies to make publicly available their policies for expanded access for individual patient access to products intended for serious diseases. Sponsors are required to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study; or 15 days after the drug or biologic receives designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy. 

In addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.

Human Clinical Studies in Support of an NDA or BLA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial.  Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.

A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the trial complies with certain regulatory requirements of the FDA in order to use the trial as support for an IND or application for marketing approval. Specifically, the FDA requires such trials to be conducted in accordance with GCP, including review and approval by an independent ethics committee and informed consent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical trials. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical trials, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign trials are conducted in a manner comparable to that required for IND trials.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Phase 3 clinical trials are commonly referred to as “pivotal” trials, which typically denotes a trial which presents the data that the FDA or other relevant regulatory agency will use to determine whether to approve a drug.

Progress reports detailing the safety results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.  In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product candidate; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.  The FDA or the sponsor or the data monitoring committee may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.  The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

Review of an NDA or BLA by the FDA

In order to obtain approval to market a drug or biological product in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the proposed drug product for the proposed indication, and the safety, purity and potency of the biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product and the safety, purity and potency of the biological product to the satisfaction of the FDA.

The NDA and BLA are thus the vehicles through which applicants formally propose that the FDA approve a new product for marketing and sale in the United States for one or more indications.  Every new product candidate must be the subject of an approved NDA or BLA before it may be commercialized in the United States.  Under federal law, the submission of most applications is subject to an application user fee, which for federal fiscal year 2020 is $2,943,965 for an application requiring clinical data. The sponsor of an approved application is also subject to an annual program fee, which for fiscal year 2020 is $325,424. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for product candidates with orphan designation and a waiver for certain small businesses.

Following submission of an NDA or BLA, the FDA conducts a preliminary review of the application generally within 60 calendar days of its receipt and strives to inform the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review.  The FDA may request additional information rather than accept the application for filing.  In this event, the application must be resubmitted with the additional information.  The resubmitted application is also subject to review before the FDA accepts it for filing.  Once the submission is accepted for filing, the FDA begins an in-depth substantive review.  The

FDA has agreed to specified performance goals in the review process of NDAs and BLAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the application for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of products that are not NMEs, the ten-month and six-month review periods run from the date that FDA receives the application. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured.  These pre-approval inspections may cover all facilities associated with an NDA or BLA submission, including drug component manufacturing (e.g., active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories.  The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.  Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS.  REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks.  To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. 

The FDA may refer an application for a novel product to an advisory committee or explain why such referral was not made.  Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions.  The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Accelerated Approval Pathway

The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the

drug’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.

The FDA’s Decision on an Application

On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the application, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post‑approval studies, including Phase 4 clinical trials, be conducted to further assess the product candidate’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post‑market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Regulation

Drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product.  After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of pharmaceutical products.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously

unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states.  The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.

Section 505(b)(2) NDAs

NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”

Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

If we obtain favorable results in our clinical trials, we plan to submit NDAs for our intracanalicular insert product candidates under Section 505(b)(2).

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD.

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. An NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically makes decisions about awards of data exclusivity shortly before a product is approved.

The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug application within eight months for a drug that has three or fewer approved drugs listed in the Orange Book and is no longer protected by any patent or regulatory exclusivities, or is on the FDA’s drug shortage list. The FDA is also authorized to expedite review of “competitor generic therapies” or drugs with inadequate generic competition, including holding meetings with or providing advice to the drug sponsor prior to submission of the application.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application to the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the

Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

Specifically, the applicant must certify with respect to each patent that:

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA applicant or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant.

To the extent that the Section 505(b)(2) applicant is relying on trials conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Biosimilars

The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, or ACA, included a subtitle called the Biologics Price Competition and Innovation Act of 2009 or BPCIA. That Act established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. As of January 1, 2020, the FDA has approved 26 biosimilar products for use in the United States.  No interchangeable biosimilars, however, have been approved.  The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.  Additional guidance is expected to be finalized by FDA in the near term.

Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and for products administered multiple times that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product

eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA.  In addition, products that have received orphan designation are exempt from the requirements of the Pediatric Research Equity Act.   

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.  With regard to patents, the six‑month pediatric exclusivity period will not attach to any patents for which an ANDA or 505(b)(2) applicant submitted a paragraph IV patent certification, unless the NDA sponsor or patent owner first obtains a court determination that the patent is valid and infringed by the proposed product.

Patent Term Restoration and Extension

A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

Review and Approval of Medical Devices in the United States

Medical devices in the United States are strictly regulated by the FDA. Under the FDCA, a medical device is defined as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is, among other things: intended for use in the diagnosis

of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes. This definition provides a clear distinction between a medical device and other FDA regulated products such as drugs. If the primary intended use of the product is achieved through chemical action or by being metabolized by the body, the product is usually a drug. If not, it is generally a medical device.

Unless an exemption applies, a new medical device may not be marketed in the United States unless and until it has been cleared through filing of a 510(k) premarket notification, or 510(k), or approved by the FDA pursuant to a PMA application. The information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness.

Class I devices are low risk devices for which reasonable assurance of safety and effectiveness can be provided by adherence to the FDA’s general controls for medical devices, which include applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events and malfunctions and appropriate, truthful and non-misleading labeling, advertising and promotional materials. Many Class I devices are exempt from premarket regulation; however, some Class I devices require premarket clearance by the FDA through the 510(k) premarket notification process.

Class II devices are moderate risk devices and are subject to the FDA’s general controls, and any other special controls, such as performance standards, post-market surveillance, and FDA guidelines, deemed necessary by the FDA to provide reasonable assurance of the devices’ safety and effectiveness. Premarket review and clearance by the FDA for Class II devices are accomplished through the 510(k) premarket notification procedure, although some Class II devices are exempt from the 510(k) requirements. Premarket notifications are subject to user fees, unless a specific exemption applies.

Class III devices are deemed by the FDA to pose the greatest risk, such as those for which reasonable assurance of the device’s safety and effectiveness cannot be assured solely by the general controls and special controls described above and that are life-sustaining or life-supporting. A PMA application must provide valid scientific evidence, typically extensive preclinical and clinical trial data and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications (and supplemental PMA applications) are subject to significantly higher user fees than are 510(k) premarket notifications.

510(k) Premarket Notification

To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the proposed device is “substantially equivalent” to a predicate device, which is a previously cleared 510(k) device or a pre-amendment device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for the submission of a PMA application. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the application is submitted and filed with the FDA, but it can take significantly longer and clearance is never assured. The FDA has issued guidance documents meant to expedite review of a 510(k) and facilitate interactions between applicants and the agency. To demonstrate substantial equivalence, a manufacturer must show that the device has the same intended use as a predicate device and the same technological characteristics, or the same intended use and different technological characteristics and does not raise new questions of safety and effectiveness than the predicate device.

Most 510(k)s do not require clinical data for clearance, but the FDA may request such data.

The FDA seeks to review and act on a 510(k) within 90 days of submission, but it may take longer if the agency finds that it requires more information to review the 510(k). If the FDA determines that the device is substantially equivalent to a predicate device, the subject device may be marketed. However, if the FDA concludes that a new device is not substantially equivalent to a predicate device, the new device will be classified in Class III and the manufacturer will be required to submit a PMA application to market the product. Devices of a new type that the FDA has not previously classified based on risk are automatically classified into Class III by operation of section 513(f)(1) of the