We believe that we have certain know-how and trade secrets relating to our technology and product candidates. We rely on trade secrets to protect certain aspects of our technology related to our current and future product candidates. However, trade secrets can be difficult to protect. We seek to protect our trade secrets, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, service providers, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

Licenses

~~On October 18, 2019, we entered into~~The Company is party to a non-exclusive patent license agreement (the License Agreement) with Pfizer. Pursuant to the License Agreement, Pfizer granted usthe Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate and related salts thereof, including U.S. Patent Nos.: 7,265,119 and 6,890,927 to develop, manufacture, and commercialize ~~our~~ OC-01 varenicline product candidate for the treatment of any ophthalmic disease or condition via nasal administration in the United States.

Under the ~~terms of~~License Agreement, the ~~agreement, we made an~~Company was obligated to make upfront payment to Pfizer, as well as potentially additional milestone payments and royalties upon achievement of ~~$5.0 million. If we successfully commercialize OC-01, we may be required~~certain milestones. For further discussion, refer to pay to Pfizer a single milestone payment in the very low double-digit millions if we achieve a specified level of annual aggregate net sales of OC-01 within a specified timeframe. We will also be required to pay Pfizer tiered royalties on net sales of OC-01 by us, our affiliates, or sublicensees, at percentages ranging from the mid-single digits to the mid-teens. Our royalty obligation to Pfizer will commence upon first commercial sale of OC-01Item 15— Note 9, Commitments and will expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents.

Contingencies.

The License Agreement will terminate when all claims in all the licensed patents expire or are irretrievably abandoned, which we expect to be no later than August 2022. The License Agreement may be terminated earlier by us for any reason, or by Pfizer upon 60 days’ written notice for our uncured material breach (30 days in the case of non-payment), or immediately upon our insolvency.

Regulatory Pathway

Varenicline tartrate is currently marketed by Pfizer in the United States under the trade name Chantix as an aid to smoking cessation treatment. We have filed an Investigational New Drug Application (IND) with the FDA to study varenicline for the

treatment of the signs and symptoms of dry eye disease and intend to submit a 505(b)(2) NDA, relying in part upon certain FDA conclusions regarding the safety of varenicline from the Agency’s review of the Chantix NDA.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

U.S. Drug Regulation

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA) and its implementing regulations. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. Drugs also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or post-marketing may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary or mandatory product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal fines or penalties. ~~Any agency or judicial enforcement action could have a material adverse effect on our business, market acceptance of our products, and our reputation.~~

~~Our~~The Company's product candidates are considered small molecule drugs and must be approved by the FDA through the NDA process before they may be legally marketed in the United States. The process generally involves the following:


			•						completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice (GLP) requirements;

•submission to the FDA of an investigational new drug application (IND), which must become effective before human clinical trials may begin and must be updated annually or when significant changes are made;


			•approval by an independent institutional review board (IRB) or independent ethics committee at each clinical trial site before each trial may be initiated;						submission to the FDA of an investigational new drug application (IND), which must become effective before human clinical trials may begin and must be updated annually or when significant changes are made;

•performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice (GCP) requirements and other clinical trial-related regulations to establish substantial evidence of the safety and efficacy of the investigational product for each proposed indication;


			•payment of user fees for FDA review of the NDA;						~~approval by an independent institutional review board (IRB) or independent ethics committee at each clinical trial site before each trial may be initiated;~~

•submission to the FDA of an NDA;


			•a determination by the FDA within 60 days of its receipt of an NDA to accept the filing for review;						performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice (GCP) requirements and other clinical trial-related regulations to establish substantial evidence of the safety and efficacy of the investigational product for each proposed indication;

•satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug will be produced to assess compliance with current good manufacturing practice (cGMP) requirements, and of selected clinical investigational sites to assess compliance with GCD;


			•potential FDA audit of the preclinical study and/or clinical trial sites that generated the data in support of the NDA filing;						~~submission to the FDA of an NDA;~~

•FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States; and


			•compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy (REMS), and the potential requirement to conduct post-approval studies.						~~a determination by the FDA within 60 days of its receipt of an NDA to accept the filing for review;~~


			•						satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug will be produced to assess compliance with current good manufacturing practice (cGMP) requirements, and of selected clinical investigational sites to assess compliance with GCD;


			•						~~potential FDA audit of the preclinical study and/or clinical trial sites that generated the data in support of the NDA filing;~~


			•						~~payment of user fees for FDA review of the NDA;~~


			•						~~FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States; and~~

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			•						compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy (REMS), and the potential requirement to conduct post-approval studies.

The data required to support an NDA are generated in two distinct developmental stages: preclinical and clinical. The preclinical and clinical testing and approval process can take many years and the actual time required to obtain approval, if any, may vary substantially based upon the type, complexity and novelty of the product or condition being treated.

Preclinical Studies and IND Submission

Before testing any drug product candidate in humans, the product candidate must undergo rigorous preclinical testing. The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin.

An IND sponsor must submit 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, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development along with any subsequent changes to the investigational plan.

Clinical Trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries, including the website maintained by the U.S. National Institutes of Health, ClinicalTrials.gov.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements and the FDA is able to validate the data through an onsite inspection, if deemed necessary, and the practice of medicine in the foreign country is consistent with the United States.

Clinical trials in the United States generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3. Although the phases are usually conducted sequentially, they may overlap or be combined.

•Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, tolerability and safety of the drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.

•Phase 2 clinical trials generally involve studies in disease-affected patients to determine the dose and dosing schedule required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.


			•						Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, tolerability and safety of the drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.
			•						Phase 2 clinical trials generally involve studies in disease-affected patients to determine the dose and dosing schedule required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.
			•						Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the safety and effectiveness of the product for its intended use and to establish the overall benefit/risk relationship of the product to provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check-points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal safety studies and also must 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 our product candidates. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that our product candidates do not undergo unacceptable deterioration over their labeled shelf life.

NDA Review

Following completion of clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling, chemistry and manufacturing information in a request for approval to market the drug for one or more specified indications. The application must include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use 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 efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA must be obtained before a drug may be marketed in the United States.

Under the Prescription Drug User Fee Act (PDUFA), as amended, each NDA must be accompanied by an application user fee. FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for each marketed human drug. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a qualifying small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA reviews all submitted NDAs before it accepts them for filing to determine if they are sufficiently complete to permit a substantive review, and the FDA may request additional information rather than accepting the NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the

FDA begins an in-depth review of the NDA. Under PDUFA, the FDA has agreed to certain performance goals in the review of NDAs through a two-tiered classification system, standard review and priority review. According to PDUFA performance goals, the FDA endeavors to review applications subject to standard review within ten to twelve months, whereas the FDA’s goal is to review priority review applications within six to eight months, depending on whether the drug is a new molecular entity. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often extended by FDA requests for additional information or clarification.

Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product 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. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA also closely analyzes the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data, including the potential

requirement to conduct additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, or to conduct additional preclinical studies or manufacturing changes. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than ~~we interpret~~the Company interprets the same data.

Section 505(b)(2) New Drug Applications

Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy conducted by or on behalf of the applicant. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigations that 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. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application.

505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations, new routes of administration, or new uses of previously approved products. If the Section 505(b)(2) applicant can establish that reliance on the FDA’s prior findings of safety and/or effectiveness is scientifically appropriate, it 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 product candidate for all, or some, of the indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on the FDA’s prior findings of safety or effectiveness for an already approved product, the applicant is required to provide a certification to the FDA concerning each patent listed for the approved product in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). Depending on the type of certification, approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, listed in the Orange Book for the reference product, such as the 5 years of exclusivity for obtaining approval of a new chemical entity has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit brought by the holder of the listed patent, 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.

Post-Approval Requirements

Following approval of a new product, the product is subject to continuing regulation by the FDA, including, among other things, requirements relating to facility registration and drug listing monitoring and record-keeping adverse event and other periodic reporting, product sampling and distribution, and product promotion and advertising including restrictions on promoting

drugs for unapproved uses or patient populations, known as “off-label use,” and limitations on industry-sponsored scientific and educational activities. The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use or first publication. Further, if there are any modifications to the drug, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the development of additional data or preclinical studies and clinical trials.

The FDA may also place other conditions on approvals including the requirement for REMS, to assure the safe use of the product. If the FDA concludes that a REMS is needed, the NDA sponsor must submit a proposed REMS. The FDA will not approve the ~~FDA~~NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP regulations. ~~We rely,~~The Company relies, and ~~expect~~expects to continue to rely, on third parties for the production of clinical and commercial quantities of ~~our~~its products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation, and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, its manufacturer or the NDA holder, including recalls.

The FDA may withdraw approval of a product if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay drug distribution and require significant time and financial expenditures. 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 studies to assess new safety risks or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:


			•restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market, or product recalls; •fines, warning letters, or holds on post-approval clinical trials; •refusal of the FDA to approve pending applications or supplements to approved applications; •suspension or revocation of product approvals; •product seizure or detention, or refusal to permit the import or export of products; or •						~~restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market, or product recalls;~~


			•						~~fines, warning letters, or holds on post-approval clinical trials;~~


			•						~~refusal of the FDA to approve pending applications or supplements to approved applications;~~


			•						~~suspension or revocation of product approvals;~~


			•						~~product seizure or detention, or refusal to permit the import or export of products; or~~


			•						injunctions or the imposition of civil or criminal penalties.

Other Regulatory Matters

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Manufacturing, sales, promotion and other activities following product approval are subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including CMS, other divisions of the Department of Health and Human Services, the Department of Justice, the

Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, and state and local governments.

For example, in the United States, sales, marketing and scientific and educational programs also must comply with state and federal fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws. These laws include the following:


			•						the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Moreover, the ACA•the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Moreover, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA) provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

			•						the federal civil and criminal false claims and civil monetary penalties laws, including the civil False Claims Act that can be enforced by private citizens through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

			•						the Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

•the federal civil and criminal false claims laws, including the civil False Claims Act that can be enforced by private citizens through civil whistleblower or qui tam actions and civil monetary penalties laws, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;


			•the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;						HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;


			•						~~federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;~~

biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws that require biotechnology companies to report information on the pricing of certain drug products, state and local laws that require the registration of pharmaceutical sales representatives;

•the Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;


			•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;						~~the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;~~

•the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information regarding payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding their payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiology assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year; and


			•						the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information regarding payments and other transfers of value to physicians and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members; and

•


			•						HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, on “covered entities,” including certain healthcare providers, health plans, healthcare clearinghouses, and their respective “business associates,” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, as well as analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, state laws that require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws that require biotechnology companies to report information on the pricing of certain drug products, and state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Pricing and rebate programs must also comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The failure to comply with any of these laws or regulatory requirements subjects ~~firms~~pharmaceutical companies, among others, to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative penalties, including damages, fines, disgorgement, ~~individual~~ imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts.

U.S. Patent-Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of any future product candidates, some of ~~our~~the Company's U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term restoration period is generally one-half the time between the effective date of an IND or the issue date of the patent, whichever is later, and the submission date of an NDA plus the time between the submission date of an NDA or the issue date of the patent, whichever is later, and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, wethe Company may apply for restoration of patent term for ~~our~~its currently owned or licensed patents to add

patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA) or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

European Union Drug Development

Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the European Union Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority (NCA) and one or more Ethics Committees (ECs). Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation is currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. ~~Recently enacted~~These changes will primarily be introduced under the Clinical Trials Regulation EU No 536/2014, ~~ensures that~~which also aims to harmonize the rules for conducting clinical trials inacross the ~~EU will be identical.~~EU. In the meantime, Clinical Trials Directive 2001/20/EC, and national implementing legislation, continues to govern all clinical trials performed in the EU.

European Union Drug Review and Approval

In the European Economic Area (EEA), which is comprised of the 27 Member States of the European Union (including Norway and excluding Croatia), Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization (MA). There are two types of marketing ~~authorizations.~~authorizations:


			•						The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use (CHMP) of the EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union.

•National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the European Union, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant


			•						National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the European Union, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant 24 as the Reference Member State (RMS). The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics (SPC), and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, EMA or the competent authorities of the Member States of the European Union make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Similar to the U.S. patent term-restoration, Supplementary Protection Certificates (SPCs) serve as an extension to a patent right in Europe for up to five years. SPCs apply to specific pharmaceutical products to offset the loss of patent protection due to the lengthy testing and clinical trials these products require prior to obtaining regulatory marketing approval.

Coverage and Reimbursement

Sales of ~~our~~the Company's products will depend, in part, on the extent to which ~~our~~its products will be covered by ~~third-party~~third party payors, such as government health programs, commercial insurance, and managed healthcare organizations. There is significant uncertainty related to ~~third-party~~third party payor coverage and reimbursement of newly approved products. In the United States, for example, principal decisions about reimbursement for new products are typically made by CMS. CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and private ~~third-party~~third party payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, no uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of ~~our~~the Company's products will be made on a payor-by-payor basis.

Increasingly, ~~third-party~~third party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. ~~Third-party~~Third party payors may limit coverage to specific product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. WeThe Company may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of ~~our~~its products. As a result, the coverage determination process is often a time-consuming and costly process that will require usthe Company to provide scientific and clinical support for the use of ~~our~~its products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

32Moreover, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which the Company receives marketing approval. However, any negotiated prices for the Company's products covered by a Part D prescription drug plan likely will be lower than the prices it might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private third party payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.

In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of ~~our~~the Company's products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

Healthcare Reform

The United States government, state legislatures, and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price-controls, restrictions on reimbursement, and requirements for substitution of generic products for branded prescription drugs. For example, in March 2010, the ~~Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA),~~ACA was passed which substantially changed the way healthcare is financed by both the government and private insurers, and continues to significantly ~~impacts~~impact the U.S. pharmaceutical industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the HHS Secretary as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price (AMP), to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. Effective April 1, 2020, Medicaid rebate liability will be expanded to include the territories of the United States as well. Additionally, for a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer.

~~Some of the provisions of the ACA have yet to be implemented, and there have been~~There remain judicial, Congressional and executive branch challenges to certain aspects of the ACA, as well as ~~recent~~ efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed ~~two~~several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, ~~two~~several bills affecting the implementation of certain taxes under the ACA have passed. On December 22, 2017, President Trump signed into law ~~new~~ federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act) which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” OnIn addition, the 2020 federal spending package permanently eliminated, effective January ~~22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed~~1, 2020, the ~~implementation of certain~~ ACA-mandated ~~fees, including the so-called~~ “Cadillac” tax on ~~certain high cost~~high-cost employer-sponsored ~~insurance plans, the annual fee imposed on certain~~ health ~~insurance providers based on market share,~~coverage and ~~the~~ medical device ~~excise~~ tax ~~on non-exempt medical devices. The Bipartisan Budget Act of 2018, among other things, amended the ACA,~~and, effective January 1, ~~2019, to close~~2021, also eliminates the ~~coverage gap in most Medicare Part D drug plans. In July 2018, CMS published a final rule permitting further collections and payments to and from certain ACA-qualified~~ health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case to the District Court to determine whether the remaining provisions of the ACA are invalid. ~~While the Texas U.S. District~~The United States Supreme Court ~~Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision,~~is currently reviewing this case, although it is unclear when the Supreme Court will make a decision. Although the United States Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is also unclear how ~~this decision, subsequent appeals, and~~such litigation, other efforts to repeal and replace the ACA and the healthcare reform measures of the Biden administration will impact the ~~ACA.~~ACA and the Company's business.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through ~~2027~~2030 unless additional Congressional action is taken. However, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other SARS-CoV-2 relief legislation have suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These ~~new~~ laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for ~~our~~the Company's drugs, if approved, and accordingly, ~~our~~the Company's financial operations.

Additionally, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For

example, at the federal level, the Trump administration’s budget proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses and place limits on pharmaceutical price increases. In addition, the Trump administration previously released a “Blueprint” to lower prescription drug prices and reduce out-of-pocket costs of drugs that ~~contains additional~~contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers. ~~Additionally,~~On July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration's proposals. As a result, the FDA also released a final rule on ~~January 31, 2019,~~September 24, 2020 providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS ~~Office of Inspector General (OIG) issued proposed modifications~~finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to ~~federal Anti-Kickback Statute safe harbors which, among other things, may affect rebates paid by manufactures to Medicare~~plan sponsors under Part D, ~~plan sponsors, Medicaid managed care organizations, and those entities’~~either directly or through pharmacy benefit managers, unless the ~~purpose of which~~price reduction is ~~to further reduce~~required by law. The rule also creates a new safe harbor for price reductions reflected at the ~~cost of drug products to consumers. On October 9, 2019, HHS, OIG~~point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. In addition, on November 20, 2020, CMS issued ~~two proposed rules that set forth modifications~~an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the ~~Federal Anti-Kickback Statute, Civil Monetary Penalties Law and Physician Self-Referral Law (or~~lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the ~~Stark Law) regulations~~United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. It is unclear whether the Biden administration will work to ~~promote value-based and coordinated care arrangements.~~reverse these measures or pursue similar policy initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

~~Moreover,~~The Company expects that additional healthcare reform measures may be adopted in the ~~Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established~~future, particularly in response to the ~~Medicare Part D program~~recent presidential election. Further, it is possible that additional governmental action is taken in response to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private third-party payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.SARS-CoV-2 pandemic.

R~~esearch~~Research and Development

WeThe Company recognized ~~$33.6~~$39.8 million and ~~$13.8~~$33.6 million of research and development expenses induring the years ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~Financial Information about Segments~~

We operate and manage our business as one reportable operating segment. Our Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. See "Note 1- Organization and Summary of Significant Accounting Policies" in the notes to the financial~~statements included elsewhere in this Annual Report on Form 10-K.~~

~~Employees~~Human Capital Management

As of December 31, ~~2019, we~~2020, the Company had 3062 full-time employees ~~17 of whom were engaged~~based in ~~research~~the United States, building key capabilities by adding 35 employees since 2019. This talent was hired to support and ~~development activities.~~extend the Company's clinical and preclinical pipeline, as well as develop organizational strength and infrastructure in CMC, selling, general and administrative functions. None of ~~our~~the Company's employees are represented by a labor union or are covered under a collective bargaining agreement.

In response to the SARS-CoV-2 virus pandemic, the Company implemented changes that it determined to be in the best interest of its employees, as well as the communities in which the Company operates, and which comply with government regulations. The implemented changes included having employees work remotely while management monitored and implemented additional safety measures on-site in preparation for an eventual return to the office.

The Company expects to continue to grow its organizational footprint in 2021 with a focus on expanding its sales force in connection with the anticipated commercial launch of its main candidate OC-01 (varenicline) nasal spray in the fourth quarter of 2021, if approved by the FDA. In anticipation of the FDA PDUFA date, the Company projects hiring approximately 150 to 200 sales representatives, in addition to bolstering management and support functions. The Company will continue to evaluate the business needs and market opportunities, balancing in house expertise and core competencies with outsourced capacity. Currently, the Company outsources much of its preclinical and clinical development, as well as manufacturing to contract manufacturers and third party providers.

Drug development and commercialization requires deep expertise across a broad array of disciplines. Pharmaceutical companies of all sizes compete for a limited number of qualified applicants to fill specialized positions. To attract qualified candidates, the Company offers an attractive total rewards package, consisting of base salary, cash bonus, a comprehensive benefit package, equity compensation, and 401(k) plan. Bonus opportunities and equity compensation increase as a percentage of total compensation based on level of responsibility, and actual bonus awards are based on performance.

Corporate Information

We were incorporated in Delaware in June 2015. We were spun out from Oculeve, Inc., a Delaware corporation focused on the treatment of dry eye disease, prior to its acquisition by Allergan. Our principal executive offices are located at 202 Carnegie Center, Suite 109, Princeton, New Jersey 08540. Our telephone number is (609) 382-9032. Our website address is www.oysterpointrx.com. We also use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.

~~We file~~The Company files electronically with the SEC ~~our~~its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. ~~We make~~The Company makes available on ~~our~~its website at ~~www. oysterpointrx.com,~~www.oysterpointrx.com, free of charge, copies of these reports, as soon as reasonably practicable after wesuch reports are filed electronically ~~file such material~~ with, or ~~furnish it~~furnished to, the SEC. The public may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements,Company also routinely posts press releases, presentations, webcasts, and other information regarding ~~issuers that file electronically with~~ the ~~SEC.~~Company on its website. The ~~address of that~~information posted on the Company's website is ~~www.sec.gov. The information in or accessible through the SEC and our website or social media sites does~~ not ~~constitute~~a part of this Annual Report on Form ~~10-K or any other report or document we file with the SEC, and any references to our website and social media sites are intended to be inactive textual references only.~~10-K.

Oyster Point, the Oyster Point logo and ~~our~~its other registered or common law trademarks appearing in this periodic report are the property of Oyster Point Pharma, Inc. This periodic report contains references to ~~our~~the Company's trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this periodic report, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that wethe Company will not assert, to the fullest extent under applicable law, ~~our~~its rights or the rights of the applicable licensor to these trademarks and trade names. ~~We do~~The Company does not intend ~~our~~its use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of usthe Company by, any other entity.

ITEM 1A. RISK FACTORS

Investing in ~~our~~the Company's common stock involves a high degree of risk. Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report on Form 10-K and in other documents that ~~we have~~were filed and will ~~file~~be filed with the SEC, in evaluating ~~our company~~the Company and ~~our~~its business. Additional risks and uncertainties not presently known to us or that weare currently ~~see~~seen as immaterial may also harm ~~our~~Company's business. If any of these risks occur, ~~our~~ business, growth prospects, operating results and financial condition could be materially and adversely affected, the trading price of ~~our~~the Company's common stock could decline and ~~you~~investors could lose part or all of ~~your~~their investment.

SummaryRisk Factors

•The Company is a clinical stage biopharmaceutical company with limited operating history and significant losses and negative cash flow, which may make it difficult for investors to evaluate its current business and predict its future success and viability.

•The Company's business depends entirely on the successful development and commercialization of its product candidates, and is highly dependent on success of its main lead candidate OC-01 (varenicline) nasal spray for the treatment of dry eye disease.

•The Company's lead product candidate OC-01 (varenicline) nasal spray is based on API that is already on the market, which exposes the Company to additional risks. In addition, OC-01 (varenicline) nasal spray uses a novel and unproven therapeutic approach and mechanism of action, and therefore its efficacy and safety are difficult to predict, and there is no guarantee that OC-01 (varenicline) nasal spray or any other product candidates will be approved by the FDA.

•Drug development is a highly uncertain undertaking and involves a substantial degree of risk; in addition, clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. The outcome of preclinical testing and earlier clinical trials may not be predictive of the success of later clinical trials, and interim, topline and preliminary data from clinical trials may change as more data becomes available.

•If the Company experiences delays or difficulties in the enrollment of subjects in clinical trials, its receipt of necessary regulatory approvals could be delayed or prevented, the Company may be unable to obtain required regulatory approvals, and therefore be unable to commercialize its product candidates on a timely basis or at all.

•The Company's business, operations and clinical development timelines and plans could be adversely affected by the effects of health epidemics, including the SARS-CoV-2 virus pandemic.

•If the Company engages in acquisitions, in-licensing or strategic partnerships, this may increase its capital requirements, dilute stockholders, cause it to incur debt or assume contingent liabilities and subject the Company to other risks.

•The Company is subject to government regulation and contractual obligations related to privacy, security, and data protection, and its actual or perceived failure to comply with such obligations could harm its business. Additionally, cyber-attacks or information security breaches that could compromise the Company’s computer systems and data, or those of its third party partners, contractors or consultants, could expose the Company to liability, affect its reputation and otherwise harm the business.

•Changes in U.S. tax law may materially adversely affect the Company's financial condition, results of operations and cash flows.

•The commercial success of the Company's products is subject to a number of risks, including risks associated with scaling up manufacturing to commercial scale, marketing the Company's product candidates internationally and the availability and sufficiency of third party payor coverage and reimbursement.

•Even if the Company obtains regulatory approval for any of its product candidates, it may be subject to ongoing regulatory obligations or post-marketing commitments as specified by the FDA or other regulatory authorities, which may result in additional costs associated with those commitments.

•The Company faces significant competition, and the Company's product candidates may, if approved, compete with existing branded, generic and off-label products.

•The Company is subject to risks of litigation, including securities litigation. Further, if product liability lawsuits are brought against the Company, it may incur substantial liabilities and may be required to limit commercialization of its products.

•If the Company is unable to obtain and maintain patent protection for its technology and products for any reason, or if the scope of the patent protection obtained in any market is not sufficiently broad, the Company may not be able to compete effectively in its markets.

•Third party claims or litigation alleging infringement of patents or other proprietary rights, or seeking to invalidate the Company's patents or other proprietary rights, may delay or prevent the development and commercialization of OC-01 (varenicline) nasal spray and other product candidates.

•The Company may become involved in lawsuits to protect or enforce its patents, the patents of any licensors or its other intellectual property rights, which could be expensive or even cost-prohibitive, time consuming, and unsuccessful given the uncertainty of litigation.

•The Company's future reliance on third parties may require the Company to share its trade secrets, which increases the possibility that a competitor will discover them or that the Company's trade secrets will be misappropriated or disclosed.

•The Company may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties.

•Intellectual property rights do not necessarily address all potential threats to its competitive advantage.

•If the Company's future trademarks and trade names are not adequately protected, then it may not be able to build name recognition in markets of interest and its business may be adversely affected.

•If the Company fails to comply with its obligations under any license, collaboration or other agreements, such agreements may be terminated, the Company may be required to pay damages and it could lose intellectual property rights that are necessary for developing and protecting its product candidates; in addition, collaboration or partnership arrangements that the Company may enter into in the future may not be successful.

•If the FDA does not conclude that OC-01 (varenicline) nasal spray satisfies the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act (FFDCA), or if the requirements for such product candidates under Section 505(b)(2) are not as the Company expects, the approval pathway for those product candidates may take longer, cost more or entail greater complications and risks than anticipated, and may not be successful.

•The regulatory approval processes of the FDA, EMA and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If the Company is ultimately unable to obtain regulatory approval for its product candidates, it will be unable to generate product revenue and its business will be substantially harmed.

•The Company's employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

•If the Company fails to comply with environmental, health and safety laws and regulations, it could become subject to fines or penalties or incur costs that could have a material adverse effect on its business.

•Obtaining and maintaining regulatory approval of the Company's product candidates in one jurisdiction does not mean that the Company will be successful in obtaining regulatory approval of its product candidates in other jurisdictions.

•The Company's business activities are subject to the FCPA and similar anti-bribery and anti-corruption laws of other countries in which it operates, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations.

•Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could prevent new products and services from being developed or commercialized in a timely manner.

•The Company relies on third parties to conduct its clinical trials and for the production of its product candidates. Failure of those third parties to perform satisfactorily or to produce sufficient quantities of its product candidate, could delay, prevent or impair the completion of such trials or the development or commercialization of such product.

•If the Company decides to pursue collaborations with third parties for the development or commercialization of its product candidates, but is not able to establish collaborations on commercially reasonable terms, it may have to alter its development and commercialization plans. If it does enter into collaborations that are not successful, it may not be able to capitalize on the market potential of these product candidates.

•The Company's business operations and current and future relationships with healthcare professionals, clinical investigators, consultants, patient organizations, customers, CROs and third party payors in connection with its current and future business activities may be subject to various federal and state healthcare, fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose the Company to various sanctions, penalties, contractual damages or diminished profits and future earnings.

•The Company will need substantial additional funding in the future. If it is unable to raise capital when needed, or on acceptable terms, it may be forced to delay, reduce and/or eliminate one or more of its research and development programs or its future commercialization efforts.

•A number of internal and external factors could impact the stock price and trading volume of the Company’s stock, and investors could lose all or part of their investment.

•The Company has been incurring increased costs as a result of operating as a public company, and its management is required to devote substantial time to compliance initiatives and corporate governance practices. Additionally, if the Company fails to maintain proper and effective internal control over financial reporting, its ability to produce accurate financial statements on a timely basis could be impaired.

•The Company disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Risks Related to ~~Our~~the Company's Business

~~We are~~The Company is a clinical stage biopharmaceutical company with limited operating history. ~~We have~~It has incurred significant losses and negative cash flows from operations since ~~our~~its formation and ~~we anticipate that we~~ will continue to incur losses for the foreseeable future. ~~We have~~Company has no products approved for commercial sale, which may make it difficult for ~~you~~investors to evaluate ~~our~~its current business and predict ~~our~~its future success and viability.

~~We are~~The Company is a clinical stage biopharmaceutical company with a limited operating history. ~~Our operations~~Operations to date have been limited to organizing ~~our company,~~the Company, raising capital and developing ~~our~~ product candidates. ~~Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.~~ In addition, as a new business, wethe Company may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. WeThe Company will need to transition from a company with a clinical development focus to a company capable of supporting commercial activities. ~~We have~~It has not yet demonstrated ~~our~~its ability to successfully obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on ~~our~~its behalf, or conduct sales and marketing activities necessary for successful product commercialization, and we may not be successful in such a transition.

~~We do~~The Company does not have any products approved for sale, ~~we have~~has not generated any revenue and ~~have~~has incurred net losses in each reporting period since ~~our company’s~~its formation. ~~We have~~The Company has funded ~~our~~its operations primarily from the sale and issuance of ~~our~~its securities. ~~Our net losses were $45.7 million and $16.5 million for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $84.2 million.~~ Additionally, the net losses ~~we incur~~the Company incurs may fluctuate significantly from quarter to quarter such that a period-to-period comparison of ~~our~~its results of operations may not be a good indicator of ~~our~~the Company's future performance. The size of ~~our~~the Company future net losses will depend, in part, on the rate of future growth of ~~our~~its expenses and ~~our~~its ability to generate revenue.

~~We expect~~The Company expects to continue incurring significant expenses and increasing operating losses for the foreseeable future. ~~We expect~~The Company expects that ~~our~~its expenses will increase substantially if and as ~~we:~~it:

•~~initiate~~initiates additional preclinical, clinical and other studies for ~~our~~its product candidates or ~~expand~~expands or ~~modify~~modifies existing studies or currently planned studies;

•~~change~~changes or ~~add~~adds additional manufacturers or suppliers, some of which may require additional permits or other governmental approvals;

•~~create~~creates additional infrastructure to support ~~our~~its operations as a public company and ~~our~~its product development and planned future commercialization efforts;

•~~seek~~seeks marketing approvals and reimbursement for ~~our~~its product candidates;

•~~establish~~establishes a sales, marketing, and distribution infrastructure to commercialize any products for which weit may obtain marketing approval;

•~~seek~~seeks to identify and develop additional product candidates;

•~~acquire~~acquires or ~~in-license~~in-licenses other product candidates and technologies;

•~~make~~makes milestone or other payments in connection with the development or approval of ~~our~~its product candidates;

•~~maintain, protect,~~maintains, protects, and ~~expand our~~expands its intellectual property portfolio; and

•~~experience~~experiences any delays or ~~encounter~~encounters issues with any of the above.

~~Our~~The Company's prior losses and expected future losses have had and will continue to have an adverse effect on ~~our~~ working capital and ~~our~~ ability to achieve and maintain profitability.

~~We are~~The Company is highly dependent on the success of ~~our~~its lead product candidate OC-01 (varenicline) nasal spray for the treatment of dry eye disease. If ~~we are~~it is unable to successfully ~~complete our clinical development program for OC-01 and~~ obtain the marketing approvals necessary to commercialize OC-01 (varenicline) nasal spray or ~~experience~~experiences significant delays in doing so, or if after obtaining marketing approvals, ~~we fail~~the Company fails to successfully commercialize this product candidate, ~~our~~its business will be materially harmed.

~~We have~~The Company has devoted a significant portion of ~~our~~its financial resources and business efforts to the development of OC-01 (varenicline) nasal spray for the treatment of dry eye ~~disease (DED).~~disease. Although ~~we are~~it is also developing OC-01 (varenicline) nasal spray for other indications and ~~a second product candidate OC-02, we do~~is exploring other potential products, the Company does not anticipate receiving marketing approvals for any product candidates other than OC-01 (varenicline) nasal spray in the next several years. ~~Our~~The Company's ability to generate revenues from product sales will depend on ~~our~~its obtaining marketing approval for and commercializing OC-01 (varenicline) nasal spray , and weit cannot accurately predict when or if OC-01 ~~will be proven to be effective or safe in humans or whether it~~(varenicline) nasal spray will receive marketing approval for ~~DED~~dry eye disease or a secondary indication. Because ~~we have~~the Company has focused ~~our~~its resources and efforts on developing OC-01 (varenicline) nasal spray for ~~DED, we have~~dry eye disease, it has limited resources and may fail to commit adequate resources to, or delay the pursuit of opportunities for, other indications or other product candidates that may have ~~greater~~ commercial potential, and ~~our~~its resource allocation decisions may cause usthe Company to fail to capitalize on viable product candidates and profitable market opportunities. If ~~we fail~~the Company fails to successfully develop OC-01 (varenicline) nasal spray for ~~DED, we~~dry eye disease, it may not be able to identify, assess and develop OC-01 (varenicline) nasal spray for other indications ~~or OC-02 or a second lead product candidate~~ or other product candidates on a timely basis, which could materially affect ~~our~~Company's business, financial condition, results of operations and growth prospects.

~~Our~~The Company's business depends entirely on the successful ~~discovery,~~ development and commercialization of OC-01 ~~OC-02~~(varenicline) nasal spray and other future product candidates. WeIt currently ~~generate~~generates no revenues from sales of any products and may never generate revenue or be profitable.

~~We have~~The Company has no products approved for commercial sale and dodoes not anticipate generating any revenue until either ~~OC-01~~OC-01(varenicline) nasal spray or another product candidate receives the regulatory and marketing approvals necessary for commercialization. ~~Our~~Even though the Company has submitted an NDA for OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry eye disease, it cannot be certain that OC-01 (varenicline) nasal spray will receive regulatory approval, or be successfully commercialized even if the Company receives regulatory approval. The Company's ability to generate revenue and achieve profitability depends significantly on ~~our~~its ability, or any future collaborator’s ability, to achieve a number of objectives, including:

•successful and timely completion of preclinical and clinical development of ~~our~~its product candidates, including OC-01 ~~OC-02~~(varenicline) nasal spray and ~~any~~ other future product candidates;

•establishing and maintaining relationships with ~~contract research organizations (CROs)~~key scientists, CROs and clinical sites for the clinical development, both in the United States and internationally, of ~~our~~its product candidates, including OC-01 ~~OC-02~~(varenicline) nasal spray and ~~any~~ other future product candidates;

•timely receipt of marketing approvals from applicable regulatory authorities for any product candidates for which wethe Company successfully ~~complete~~completes clinical development;

•~~making~~complying with any required post-marketing approval commitments to applicable regulatory authorities;

•establishing and maintaining commercially viable supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and meet the market demand for product candidates that ~~we develop,~~the Company develops, if approved;

•successful commercial launch following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators;

•a continued acceptable safety profile both prior to and following any marketing approval of ~~our~~its product candidates;

•commercial acceptance of ~~our~~the Company's product candidates by patients, the medical community and ~~third-party~~third party payors;

•identifying, assessing and developing new product candidates;

•protecting Company's rights in its intellectual property portfolio, including, obtaining, maintaining and expanding patent protection, trade secret protection and regulatory exclusivity, both in the United States and ~~internationally;~~

•~~protecting our rights in our intellectual property portfolio;~~

internationally, and;

•defending against ~~third-party~~third party interference or infringement claims, if any;

•obtaining favorable terms in any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize ~~our~~its existing or acquired product candidates;

•obtaining coverage and adequate reimbursement by ~~hospitals,~~ government and ~~third-party~~third party payors for product candidates that ~~we develop;~~

the Company develops;

•addressing any competing therapies and technological and market developments; and

•attracting, hiring and retaining qualified personnel.

WeThe Company may never be successful in achieving ~~our~~its objectives and, even if ~~we do,~~it does, may never generate revenue that is significant or large enough to achieve profitability, or comparable to the revenues of existing therapies, including Restasis® and ~~Xiidra.~~Xiidra®. If ~~we do~~it does achieve profitability, weit may not be able to sustain or increase profitability on a quarterly or annual basis. ~~Our~~The Company's failure to become and remain profitable would decrease ~~the~~its value ~~of our company~~ and could impair ~~our~~its ability to maintain or further ~~our~~its research and development efforts, raise necessary additional ~~necessary~~ capital, grow ~~our~~ business, retain key employees and continue ~~our~~its operations.

~~Our~~The Company's lead product candidate OC-01 (varenicline) nasal spray is based on an ~~active pharmaceutical ingredient (API)~~API that is already on the market, which exposes usthe Company to additional risks.

The API in OC-01, varenicline (in the form of varenicline tartrate), has been previously approved by the FDA and the EMA as an oral tablet under the trade name Chantix ®, indicated as an aid to smoking cessation treatment, and is available in more than 80 countries throughout the world. From 2009 to 2016, the FDA required Chantix® to carry a boxed warning advising consumers of potential serious mental health side effects from Chantix. Although the FDA removed this box warning from Chantix in 2016 in response to the EAGLES study sponsored by Pfizer, regulatory authorities may identify other adverse side effects related to varenicline in the future or may add back the warning. Additionally, ~~we anticipate~~the Company anticipates that manufacturers will begin selling varenicline in generic form in the future, which could lead to increased use of varenicline by patients and increase the possibility that patients experience adverse side effects related to varenicline. Any adverse side effects that arise from the use of any form of varenicline, whether Chantix, generic varenicline or ~~our~~the Company product candidate, or reporting thereof could prevent or inhibit the commercialization of OC-01 (varenicline) nasal spray and seriously harm ~~our~~Company's business. Furthermore, if manufacturer demand for varenicline increases in the future, particularly as a result of generic forms of varenicline becoming available, wethe Company may not be able to continue to obtain varenicline on commercially reasonable terms, which would seriously harm ~~our~~Company's business.

OC-01 (varenicline) nasal spray uses a novel and unproven therapeutic approach and mechanism of action to treat ~~DED and therefore its efficacy and safety are difficult to predict,~~dry eye disease and there is no guarantee that OC-01 (varenicline) nasal spray or any other product candidates will be approved by the FDA.

~~We are~~The Company is developing OC-01 (varenicline) nasal spray as a preservative-free, aqueous nasal spray that will stimulate the lacrimal functional unit (LFU) to produce natural tear film. To ~~our~~the Company’s knowledge, OC-01 (varenicline) nasal spray represents the first pharmacological treatment approach for ~~DED~~dry eye disease that is aimed at stimulating the LFU. Other than with respect to data from the studies and trials of OC-01 and OC-02, there is limited or no clinical evidence showing that natural tear film can be produced through the stimulation of the LFU. ~~For instance,~~Moreover, even though ~~OC-01 has shown promising results in~~ preclinical studies and ~~prior~~ clinical trials weof OC-01 (varenicline) nasal spray have supported the submission of a 505(b)(2) NDA for the treatment of dry eye disease, the Company may not succeed in demonstrating safety and efficacy of OC-01 ~~in larger-scale clinical trials, including ONSET-2, our ongoing Phase 3 clinical trial, or~~(varenicline) nasal spray for other indications, including NK, which is the disease being studied in OLYMPIA, ~~our~~the Company’s upcoming Phase 2 clinical ~~trial for neurotrophic keratitis (NK).~~

trial. Advancing OC-01 (varenicline) nasal spray as a novel product creates significant challenges for ~~us,~~the Company, including:

•obtaining marketing approval;

•educating medical personnel, including ~~eye care practitioners (ECPs),~~ECPs, and patients regarding the potential efficacy and safety benefits, as well as the challenges, of incorporating ~~our~~the Company’s product candidates, if approved, into treatment regimens; and

•establishing the necessary sales and marketing capabilities upon obtaining any marketing approvals to gain market acceptance.

WeThe Company cannot guarantee that OC-01 (varenicline) nasal spray or any of ~~our~~its other future product candidates will be approved by the FDA. Product candidates in later-stage clinical trials often fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA, EMA and other comparable foreign regulatory authorities despite having successfully progressed through preclinical studies and other clinical trials. In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants.

For example, although ~~we expect~~OC-01 (varenicline) nasal spray met the primary endpoint in ONSET-2 in both the 1.2 mg/ml and 0.6 mg/ml dose groups, OC-01 (varenicline) nasal spray did not meet the secondary endpoint for patient-reported symptoms of eye dryness in a Controlled Adverse Environment (CAE®) and other secondary endpoints in either dose group. Following completion of ONSET-2, the Company conducted additional analyses on a post-hoc basis of the data from its ONSET-2 study to ~~enroll a subject population with similar eligibility criteria, OC-01~~support its NDA submission. The Company may also conduct additional post-hoc analyses on the results of clinical trials in the future. Post-hoc analyses performed after unmasking trial results can result in the introduction of bias, may not ~~demonstrate~~be predictive of success in any future clinical trials and are given less weight by regulatory authorities than pre-specified analyses. Additionally, the same or similar statistically significant results in ONSET-2 as it demonstrated in ONSET-1, our Phase 2b clinical trial, MYSTIC, our Phase 2 long-term chronic efficacy study, ZEN, our comparative pharmacokinetic “bridge” trial, or our other clinical trials. Additionally, weCompany cannot guarantee that the safety profile of OC-01 (varenicline) nasal spray in healthy volunteers and patients with ~~DED~~dry eye disease will be replicated in trials and studies for other indications, such as NK. Assessments of efficacy can vary widely for a particular participant, and from participant to participant and site to site within a clinical trial. This subjectivity can increase the uncertainty of, and adversely impact, ~~our~~the Company’s clinical trial outcomes. In addition, participants treated with OC-01 (varenicline) nasal spray may also be treated with other investigational drugs, prescription drugs or even over-the-counter treatments following the treatment period of ~~our~~the Company’s OC-01 studies, any of which can cause side effects or adverse events that are unrelated to ~~our~~the Company’s product candidate, but which are observed during the long-term safety follow-up for OC-01. The occurrence of such side effects or adverse events could have a negative impact on ~~OC-01’s~~OC-01 (varenicline) nasal spray’s safety profile.

The Company may experience delays with respect to FDA’s review of the OC-01 (varenicline) nasal spray NDA as the pandemic-related workload at the agency may require diversion of personnel away from review of products that are not used to treat or prevent SARS-CoV-2 and travel restrictions may delay or prevent the inspection of clinical sites or manufacturing operations that are necessary to support approval decisions.

Drug development is a highly uncertain undertaking and involves a substantial degree of risk. The outcome of preclinical testing and earlier clinical trials may not be predictive of the success of later clinical trials. The results of ~~our~~the Company's clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities, and wethe Company may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

Research and development of biopharmaceutical products is inherently risky. WeThe Company cannot give any assurance that any of ~~our~~its product candidates will receive regulatory, including marketing, approval, which is necessary before they can be commercialized. Before obtaining regulatory approvals for the commercial sale of any of ~~our~~the Company's product candidates, wethe Company must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that ~~our~~its product candidates are both safe and effective for use in each target indication. Product candidates in later stages of clinical trials may fail to show the desired safety, efficacy and durability profile despite having progressed through preclinical studies and initial clinical

trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical and clinical studies of ~~our~~the Company's product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of ~~our~~the Company's product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of subjects may not be predictive of those obtained in another. In some instances, there can be significant variability in safety, efficacy or durability results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants.

WeThe Company may also experience issues in implementing ~~our~~its clinical trials that would delay or prevent usit from satisfying the applicable requirements of the FDA and other regulatory authorities, including:

•the number of participants required for clinical trials of ~~our~~its product candidates may be larger than ~~we anticipate,~~it anticipates, enrollment in these clinical trials may be slower than ~~we anticipate~~the Company anticipates or participants may drop out of these clinical trials at a higher rate than ~~we anticipate;~~

the Company anticipates;

•~~our third-party~~the Company's third party contractors may fail to comply with regulatory requirements or meet their obligations to usthe Company in a timely manner, or at all;

•other regulators or institutional review boards may not authorize usthe Company or ~~our~~its investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; and

•wethe Company may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites.

WeThe Company may be unable to design and execute clinical trials that support marketing approval. WeIt cannot be certain that ~~our planned clinical trials or~~ any ~~other~~of its future clinical trials will be successful. For example, use of OC-01 (varenicline) nasal spray requires the patient to follow a prescribed technique to administer the nasal spray. Failure to properly administer the nasal spray by the patient or inappropriate technique demonstration by the ECP, may adversely affect the outcome of OC-01 (varenicline) nasal spray in demonstrating efficacy in ~~one or more~~future clinical ~~trials.~~trials, such as the OLYMPIA trial in NK. Additionally, any safety concerns observed in any one of ~~our~~the Company's clinical trials in ~~our~~its targeted indications could limit the prospects for regulatory approval of ~~our~~its product candidates in ~~those~~NK and potentially other indications, which could materially affect ~~our~~the Company's business, financial condition, results of operations and growth prospects.

In addition, even if such clinical trials are successfully completed, wethe Company cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as ~~we do,~~the Company does, and more trials could be required before ~~we submit our~~it submits its product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, wethe Company may be required to expend significant resources, which may not be available to ~~us,~~it, to conduct additional trials in support of potential approval of ~~our~~its product candidates. Even if regulatory approval is secured for any of ~~our~~the Company's product candidates, the terms of such approval may limit the scope and use of ~~our~~its product candidate, which may also limit its commercial potential.

If ~~we experience~~the Company experiences delays or difficulties in the enrollment of subjects in clinical trials, ~~our~~its receipt of necessary regulatory approvals could be delayed or prevented.

WeThe Company may not be able to initiate or continue clinical trials for ~~our~~its product candidates if ~~we are~~it is unable to locate and enroll a sufficient number of subjects to participate in these trials to such trial’s conclusion as required by the FDA, EMA or other comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. Any difficulties ~~we experience~~the Company experiences relating to ~~enrollment~~the initiation or completion of patient visits in ~~ONSET-2~~clinical trials, including as impacted by the SARS-CoV-2 virus, could delay regulatory approval for ~~OC-01.~~

its product candidates.

Patient enrollment may be affected if ~~our~~the Company’s competitors have ongoing clinical trials for product candidates that are under development for the same indications as ~~our~~its product candidates, and subjects who would otherwise be eligible for ~~our~~ clinical trials instead enroll in clinical trials of ~~our~~the Company’s competitors’ product candidates. Patient enrollment for any of ~~our~~the Company’s future clinical trials may be affected by other factors, including:

•size and nature of the patient population;

•severity of the disease under investigation;

•availability and efficacy of approved drugs for the disease under investigation;

•participant eligibility criteria for the trial in question as defined in the protocol;

•ECPs' and participants' perceived risks and benefits of the product candidate under ~~study;~~

•~~ECPs’ and participants’ perceptions as to the potential advantages of the product candidate being studied~~study in relation to

other available therapies, including any new products that may be approved for the indications ~~we are investigating;~~the Company is

investigating;

•efforts to facilitate timely enrollment in clinical trials;

•participant referral practices of ECPs;

•the ability to monitor participants adequately during and after treatment;

•proximity and availability of clinical trial sites for prospective trial subjects;

•continued enrollment of prospective subjects by clinical trial sites; ~~and~~

•the risk that subjects enrolled in clinical trials will drop out of the trials before ~~completion.~~completion; and

•disruptions or difficulties, or other restrictions, in initiating, enrolling, conducting or completing trials due to the SARS-CoV-2 virus outbreak.

~~Our~~The Company’s inability to enroll a sufficient number of subjects for ~~our~~its clinical trials would result in significant delays or may require usit to abandon one or more clinical trials altogether. Enrollment delays in ~~our~~the Company’s clinical trials may result in increased development costs for ~~our~~its product candidates and jeopardize ~~our~~its ability to obtain marketing approval for the sale of ~~our~~its product candidates. Furthermore, even if ~~we are~~the Company is able to enroll a sufficient number of subjects for ~~our~~its clinical trials, wethe Company may have difficulty maintaining enrollment of such subjects in ~~our~~its clinical trials.

The Company may also face challenges in collecting data from follow up visits related to its enrolled clinical trials. For example, due to the SARS-CoV-2 virus outbreak, select clinical trial sites in the Company’s ONSET-2 clinical trial were closed and subjects were unable to attend visits per the trial protocol, which reduced the amount of data the Company was able to collect for subjects at these affected centers with respect to primary and secondary endpoints. The Company believes that this inability to collect data had an adverse impact on the statistical powering of certain of its secondary endpoints in ONSET-2 and may impact its future clinical trial results.

~~Our~~The Company's current or future product candidates may cause or reveal significant adverse events, toxicities or other undesirable side effects which may delay or prevent marketing approval. In addition, if ~~we obtain~~the Company obtains approval for any of ~~our~~its product candidates, significant adverse events, toxicities or other undesirable side effects may be identified during post-marketing surveillance, which could result in regulatory action or negatively affect ~~our~~Company's ability to market the product.

Adverse events or other undesirable side effects caused by or associated with treatment by ~~our~~the Company's product candidates could cause usit or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or other comparable foreign regulatory authorities.

During the conduct of clinical trials, subjects report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. It is possible that as ~~we test our~~the Company tests its product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were not observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. Many times, side effects are only detectable after investigational products are tested in large-scale, Phase 3 clinical trials or, in some cases, after they are made available to subjects on a commercial scale after approval.

The most commonly reported adverse events in ONSET-2, ONSET-1, ZEN and MYSTIC were non-ocular in nature, which were sneezing and coughing. If approved, ~~we expect~~the Company expects that OC-01 (varenicline) nasal spray will be used chronically over a prolonged period of time. However, ~~we have~~the Company has no clinical safety data on patients treated with OC-01 (varenicline) nasal spray for longer than 84 days and these adverse events are subjective and based on subjects' self-report, which may not accurately reflect the actual number of adverse events. ~~Our~~The Company's understanding of the relationship between ~~our~~its product candidates and these adverse events may change as ~~we gather~~it gathers more information, and additional unexpected adverse events may occur. If additional clinical experience indicates that OC-01 (varenicline) nasal spray or any other product candidate has side effects or causes serious or ~~life- threatening~~life-threatening side effects, participant recruitment for studies and the ability of enrolled subjects to complete studies could be negatively impacted, and the development of the product candidate may fail or be delayed, which would severely harm ~~our~~the Company's business, growth prospects, operating results and financial condition.

Additionally, if one or more of ~~our~~the Company's product candidates receives marketing approval, and weit or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result, including but not limited to:

•regulatory authorities may withdraw approvals of such product or require additional warnings on the label;

•weit may be required to change the way the product is administered or conduct additional clinical trials or post-approval studies;

•weit may be required to create a Risk Evaluation and Mitigation Strategy (REMS) plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, including ECPs, and/or other elements to assure safe use;

•weit could be sued and held liable for harm caused to patients; and

•~~our~~its reputation may suffer.

Any of these events could prevent usthe Company from achieving or maintaining market acceptance of the particular product candidate, if approved, and could materially affect ~~our~~its business, financial condition, results of operations, and growth prospects.

Interim, topline and preliminary data from ~~our~~the Company's clinical trials that ~~we announce~~it announces or ~~publish~~publishes from time to time may change as more patient data become available and ~~are~~is subject to audit and verification procedures that could result in material changes in the final data.

From time to time, wethe Company may publicly disclose preliminary, interim or topline data from ~~our~~its clinical trials. These interim updates are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. WeThe Company also ~~make~~makes assumptions, estimations, calculations and conclusions as part of ~~our~~its analyses of data, and weit may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that ~~we report~~the Company reports may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data wethe Company previously published. As a result, topline data should be viewed with caution until the final data are available. In addition, wethe Company may report interim analyses of only certain endpoints rather than all endpoints. Interim data from clinical trials that wethe Company may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse changes between interim data and final data could materially affect ~~our~~the Company's business, financial condition, results of operations and growth prospects. Further, additional disclosure of interim data by usthe Company or by ~~our~~its competitors in the future could result in volatility in the price of ~~our~~the Company common stock. Further, others, including regulatory agencies, may not accept or agree with ~~our~~the Company assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and ~~our company~~the Company in general. In addition, the information ~~we choose~~the Company chooses to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information. ~~You or others~~Investors may not agree with what ~~we determine~~it determines is the material or otherwise appropriate information to include in ~~our~~its disclosure, and any information ~~we determine~~it determines not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or ~~our~~the Company's business. If the preliminary or topline data that ~~we report~~the Company reports differ from late, final or actual results, or if others, including regulatory authorities, disagree with the conclusions reached, ~~our~~its ability to obtain approval for, and commercialize ~~our~~the Company product candidates may be harmed, which could materially affect ~~our~~its business, financial condition, results of operations and growth prospects.

~~Our~~The Company's success is highly dependent on ~~our~~its ability to attract and retain highly skilled executive officers and employees.

To succeed, wethe Company must recruit, retain, manage and motivate qualified executives as ~~we build~~it builds out the management team, and ~~we face~~the Company faces significant competition for experienced personnel. ~~We are~~The Company is highly dependent on the principal members of ~~our~~its management and ~~need~~needs to continue to add executives with operational and commercialization experience as ~~we plan~~it plans for commercialization of ~~our~~its product candidates and ~~build~~builds out a leadership team that can manage ~~our~~its operations as a public company. If ~~we do~~the Company does not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect ~~our~~its ability to execute ~~our~~the Company's business plan and harm ~~our~~its operating results. In particular, the loss of one or more of ~~our~~its executive officers could be detrimental ~~to us~~ if ~~we cannot recruit~~no suitable ~~replacements~~replacement is recruited in a timely manner. The competition for qualified personnel in the biotechnology field is intense and as a result, wethe Company may be unable to continue to attract and retain qualified personnel necessary for the future success of ~~our~~its business. WeThe Company could in the future have difficulty attracting experienced personnel ~~to our company~~ and may be required to expend significant financial resources in ~~our~~its employee recruitment and retention efforts.

Many of the other biotechnology companies that ~~we compete~~the Company competes against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the ~~industry than we do.~~industry. They also may provide more diverse opportunities and better prospects for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what ~~we have~~the Company has to offer. If ~~we are~~the Company is unable to continue to attract and retain high-quality personnel,

the rate and success at which weit can discover, develop and commercialize ~~our~~its product candidates will be limited and the potential for successfully growing ~~our~~its business will be harmed.

If ~~we engage~~the Company engages in acquisitions, in-licensing or strategic partnerships, this may increase ~~our~~its capital requirements, dilute ~~our~~ stockholders, cause usit to incur debt or assume contingent liabilities and subject usthe Company to other risks.

WeThe Company may engage in various acquisitions and strategic partnerships in the future, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any acquisition or strategic partnership may entail numerous risks, including:

•increased operating expenses and cash requirements;

•the assumption of indebtedness or contingent liabilities;

•the issuance of ~~our~~ equity securities which would result in dilution to ~~our~~the Company's stockholders;

•assimilation of operations, intellectual property, products and product candidates of an acquired company, including difficulties associated with integrating new personnel;

•the diversion of ~~our~~ management’s attention from ~~our~~the Company's existing product candidates and initiatives in pursuing such an acquisition or strategic partnership;

•retention of key employees, the loss of key personnel, and uncertainties in ~~our~~its ability to maintain key business relationships;

•risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and

•~~our~~the Company's inability to generate revenue from acquired intellectual property, technology and/or products sufficient to meet ~~our~~its objectives or even to offset the associated transaction and maintenance costs.

~~In addition, if we undertake such a transaction, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.~~

We expect to significantly expand our organization, including building sales and marketing capability and creating additional infrastructure to support our operations as a public company, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of sales and marketing and finance and accounting. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert or stretch our management and business development resources in a way that we may not anticipate. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

~~Our business and operations would suffer in the event of security breaches, system failures and other disruptions.~~

Despite the implementation of security measures, our computer systems, as well as those of our contractors and consultants, are vulnerable to damage from computer viruses, unauthorized access, natural disasters (including hurricanes), terrorism, war and telecommunication and electrical failures. The application and data we possess contain critical information, including research and development information, commercial information, personal information about our employees and consultants, and business and financial information. Protecting this critical information includes risks, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of being unable to adequately monitor our internal controls to prevent security breaches, system failures and other cybersecurity disruptions.

If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product candidate development programs. For example, the loss of preclinical study or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

~~The secure processing, storage, maintenance and transmission of this information is critical to our operations. Despite our security measures, our~~Company’s information technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors, or breached due to employee error, a technical vulnerability, malfeasance or other disruptions. Although, to our knowledge, we have not experienced any such material security breach to date, any such breach could compromise our networks and the

information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, significant regulatory penalties, and such an event could disrupt our operations, damage our reputation, and cause a loss of confidence in us and our ability to conduct clinical trials, which could adversely affect our reputation and delay clinical development of our product candidates.

Furthermore, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.

~~Internal computer~~ systems, or those used by ~~our third-party~~the Company’s third party research institution collaborators, CROs, ~~or other~~ contractors or consultants, may fail or suffer other breakdowns, cyber-attacks or information security breaches that could compromise ~~the confidentiality, integrity, and availability of~~ such systems and data, expose usthe Company to liability, affect its reputation and ~~affect our reputation.~~otherwise harm its business.

~~We are~~The Company is increasingly dependent upon information technology systems, infrastructure, and data to operate ~~our business. We~~its business, particularly during the SARS-CoV-2 virus pandemic. The Company also ~~rely~~relies on third party vendors and their information technology systems. Despite the implementation of security measures, ~~our internal~~the Company’s computer systems and those of ~~our~~its CROs, ~~and other~~third-party vendors, contractors and consultants may be vulnerable to ~~damage~~compromise from traditional computer hackers; malicious code (such as computer viruses or ~~unauthorized access,~~worms); employee error, theft or ~~breached due to operator error, malfeasance~~misuse; denial-of-service attacks; cyber-attacks by sophisticated nation-state and nation-state supported actors; or other system disruptions. As the cyber-threat landscape evolves, these attacks are growing in frequency, sophistication and intensity, and are becoming increasingly difficult to detect. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to a state-sponsored attack. Cyber-threats may be generic, or they may be custom-crafted against our information systems. Over the past few years, cyber-attacks have become more prevalent, intense, sophisticated and much harder to detect and defend against. Such attacks could include the use of key loggers or other harmful and virulent malware, including ransomware or other denials of service, and can be deployed through malicious websites, the use of social engineering and/or other means. We and our third party vendors may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources. Although to our knowledge we and our vendors have not experienced any such material system failure or security breach to date, if a breakdown, cyber-attack or other information security breach were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations , whether due to a loss of trade secrets or other proprietary information or other similar disruption and we could incur liability and reputational damage. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party research institution collaborators for research and development of our product candidates and other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.

Cyber-attacks, breaches, interruptions or other data security incidents could result in legal claims or proceedings, liability under federal or state laws that protect the privacy of personal information, regulatory penalties, significant remediation costs, disrupt key business operations and divert attention of management and key information technology resources. In the United States, notice of breaches must be made to affected individuals, the U.S. Secretary of the Department of Health and Human Services, or HHS, and for extensive breaches, notice may need to be made to the media or U.S. state attorneys general. Such a notice could harm our reputation and our ability to compete. The HHS has the discretion to impose penalties without attempting to resolve violations through informal means. In addition, U.S. state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. There can be no assurance that ~~we, our~~the Company, its collaborators, CROs, third-party vendors, contractors and ~~any other business counterparties~~consultants will be successful in efforts to detect, prevent, protect against or fully recover systems or data from all break-downs, service interruptions, attacks or breaches of systems.

As the cyber-threat landscape evolves, these attacks will grow in frequency, sophistication and intensity and will become increasingly difficult to detect. Cyber-threats may be generic, or they may be targeted against the Company’s information systems. The Company and its third-party vendors may not be able to anticipate all types of security threats, and the Company may not be able to implement effective preventive measures against all such security threats. As a result of the SARS-CoV-2 virus pandemic, the Company may face increased cybersecurity risks due to its reliance on internet technology and the number of its employees that are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.

The costs to respond to a security breach and/or to mitigate any identified security vulnerabilities could be significant, the Company’s efforts to address these issues may not be successful, and these issues could result in interruptions, delays, negative publicity, loss of customer trust, diminished purchase or use of our products, and other harms to the Company’s business and competitive position. Remediation of any potential security breach may involve significant time, resources, and expenses. Any security breach may result in regulatory inquiries, litigation or other investigations, and could negatively impact the Company’s financial and operational condition. The Company could be required to fundamentally change its business activities and practices in response to a security breach and our systems or networks may be perceived as less desirable, which could negatively affect our business and damage our reputation.

If a breakdown, cyber-attack or other information security breach were to occur, it could result in a material disruption of the Company’s development programs and business operations, whether due to a loss of trade secrets or other proprietary information. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in the Company’s regulatory approval efforts and significantly increase its costs to recover or reproduce the data. Likewise, the Company relies on its third-party research institution collaborators for research and development of its product candidates and

other third parties for the manufacture of its product candidates and to conduct clinical trials, and similar events relating to their information systems could also have a material adverse effect on the Company’s business.

The Company receives, generates and stores significant and increasing volumes of sensitive, confidential and/or proprietary information, including personal data (such as health information), research and development information, and commercial information (such as business and financial information). While the Company has security measures in place that are designed to protect such information and prevent security breaches, there can be no assurance that the Company’s security measures or those of the Company’s third-party service providers that store or otherwise process the Company’s information on our behalf will be effective.

The Company is required to comply with laws, rules, regulations and other obligations that require it to maintain the security of personal information. It may have contractual and other legal obligations to notify relevant stakeholders of security breaches. Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities, and others of security breaches involving personal information. For example. in the United States, notice of breaches of protected health information as defined under the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA) may need to be disclosed to affected individuals, the U.S. Secretary of the Department of Health and Human Services (HHS), and others.

A security breach may cause the Company to breach its contracts. The Company's agreements with relevant stakeholders such as collaborators may require the Company to use legally required, industry-standard or reasonable measures to safeguard personal information. A security breach could lead to claims by relevant stakeholders that the Company has failed to comply with such contractual obligations. In addition, ~~we do~~any non-compliance with the Company’s data privacy obligations in its contracts or the Company’s inability to flow down such obligations from relevant stakeholders to the Company’s vendors may cause the Company to breach its contracts. As a result, the Company could be subject to legal action or the relevant stakeholders could end their relationships with it. There can be no assurance that the limitations of liability in the Company’s contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.

The Company does not maintain standalone cyber-security insurance and ~~have~~has limited insurance coverage in the event of any breach or disruption of ~~our~~its or ~~our~~its collaborators’, CROs’, or vendors’ systems, including any unauthorized access or loss of any personal data that wethe Company may collect, store or otherwise process. The costs related to significant security breaches, disruptions or ~~disruptions~~data breaches could be material and exceed the limits of any insurance coverage wethe Company may have. In addition, the Company cannot be sure that its existing insurance coverage will continue to be available on acceptable terms or that its insurers will not deny coverage as to any future claim. To the extent ~~that~~ any disruption, data breach or security breach were to result in a loss of, or damage to, ~~our~~the Company’s data or systems, or inappropriate disclosure of confidential or proprietary information, including personal data, ~~related to our personnel, we~~the Company could incur liability and the further development and commercialization of ~~our~~its product candidates could be delayed and ~~our~~its business and operations could be adversely affected and/or could result in the loss or disclosure of critical or sensitive data, which could result in financial, legal, business or reputational harm to ~~us.~~the Company.

The Company is subject to stringent and evolving laws, regulations, rules, contractual obligations, and policies related to data privacy and security, and its actual or perceived failure to comply with such obligations could harm its business.

~~Our~~The Company’s business is subject to ~~complex~~stringent and evolving U.S. and foreign laws, rules, and regulations, ~~information security policies~~ and contractual obligations relating to data privacy and ~~data protection,~~security, including the use, processing, and cross-border transfer of personal ~~information. These laws~~data. Data privacy has become a significant issue in the United States, countries in the European Union, or EU, and ~~regulations are subject to change and uncertain interpretation, and could result~~ in ~~claims, changes to our business practices, or monetary penalties, and otherwise~~many other countries in which it may ~~harm our business.~~

We receive, generate and store significant and increasing volumes of sensitive information and business-critical information, including employee and personal data (including protected health information), research and development information, commercial information, and business and financial information. We heavily rely on external security and infrastructure vendors to manage our information technology systems and data centers. We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of our being unable to adequately monitor, audit and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data.

~~A wide variety of provincial, state, national, and international laws~~, ~~and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These data protection and privacy-related laws and regulations~~operate. The regulatory frameworks for privacy issues are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and ~~sanctions.~~sanctions, including monetary penalties and personal data processing penalties that could require us to change our business practices. Interpretation of these frameworks is likely to remain uncertain and potentially inconsistent for the foreseeable future. This evolution may create uncertainty in our business, affect our or our collaborators’, service providers’ and contractors’ ability to operate in certain jurisdictions or to collect, store, transfer, use or share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. Despite the Company's efforts to bring practices into compliance with these obligations, it may not be successful in its efforts to achieve compliance either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Noncompliance could result in proceedings against the Company by governmental and regulatory entities, collaborators, data subjects or others.

In the U.S., these include rules and regulations promulgated under the authority of the Federal Trade Commission and the following laws and regulations: the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the California Consumer Privacy Act of 2018, or the CCPA, and other state and federal laws relating to data privacy and security. For example, the ~~collection~~CCPA, which became effective on January 1, 2020, establishes a privacy framework for covered businesses, including an expansive definition of personal information and data privacy rights for California residents. The CCPA, among other things, requires covered businesses to provide disclosures to California residents and afford such individuals data protection rights, including the ability to opt-out of the sale of personal information. The CCPA provides a private right of action and statutory damages for violations, including for data breaches. Although the CCPA exempts certain data regarding clinical trials,

the CCPA, to the extent applicable to the Company’s business and operations, may increase the Company’s compliance costs and potential liability with respect to other personal information the Company maintains about California residents. In addition, California voters recently approved the California Privacy Rights Act of 2020, or CPRA, that goes into effect on January 1, 2023. It is expected that the CPRA would, among other things, give California residents the ability to limit the use of their sensitive information, provide for penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the law. These laws reflect our Company’s vulnerability to the evolving regulatory environment related to personal information.

Internationally, the Company’s operations may be subject to increased scrutiny or attention from foreign data protection authorities. The Company’s clinical trial programs and research collaborations outside the United States may implicate foreign data protection laws, including in Europe. Many jurisdictions have established, or are in the process of establishing, privacy and data security legal frameworks with which we, the Company’s collaborators, service providers, including the Company’s CROs, and contractors must comply. For example, European ~~Union are governed by~~data protection laws, including, without limitation, the ~~European Union~~EU’s General Data Protection Regulation, ~~("GDPR"), which became fully effective on May 25, 2018. The~~or GDPR, ~~imposes~~impose stringent data protection requirements ~~including,~~ for processing the personally identifiable information of individuals residing in the European Economic Area, Switzerland, and United Kingdom. For example, ~~more~~these laws impose robust ~~disclosures~~disclosure requirements to individuals and a strengthened individual data rights regime, ~~shortened~~strict timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of data, such as health data, and additional obligations when ~~we contract~~the Company contracts with third-party processors in connection with the processing of the personal data. The GDPR ~~also imposes strict rules on~~increases the ~~transfer~~Company’s obligations with respect to clinical trials conducted in the EU by expanding the definition of personal data ~~out of the European Union~~ to ~~the United States~~include coded data and ~~other third countries and in the context of clinical trials, we currently rely on patient~~requiring changes to informed consent ~~as the legal basis~~practices and more detailed notices for ~~such transfers. In addition, the GDPR provides that European Union member states may make their own further laws~~clinical trial participants and ~~regulations limiting the processing of personal data, including genetic, biometric or health data.~~investigators. The GDPR provides for ~~penalties~~fines for noncompliance of up to ~~the greater of~~ €20 million or four percent of worldwide annual ~~revenues.~~ revenues, whichever is greater. In addition, the GDPR authorizes penalties for non-compliance and civil litigation claims.

The GDPR applies extraterritorially, and wethe Company may be subject to the GDPR because of ~~our~~its data processing activities that involve the personal data of individuals located in the European Union, such as in connection with any European Union clinical trials. GDPR regulations may impose additional responsibility and liability in relation to the personal data that ~~we process,~~the Company processes, and weit may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. This may be onerous and may interrupt or delay ~~our~~the Company’s development activities, and adversely affect ~~our business, financial condition, results of operations and growth prospects.~~

Further, various states, such as California and Massachusetts, have implemented similar privacy laws and regulations that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. These laws and regulations are not necessarily preempted by HIPAA, particularly if a state affords greater protection to individuals than HIPAA. Where state laws are more protective, we have to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. For example, California recently enacted legislation, the California Consumer Privacy Act ("CCPA"), that will, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, that became effective on January 1, 2020. The CCPA was amended several times throughout 2018 and 2019, and it is unclear whether further modifications will be made to this legislation or how it will be interpreted. In addition, the CCPA requires covered companies to provide new disclosures to individuals and consumers in California, and afford such individuals and consumers new data protection rights, including the ability to opt-out of certain sales of personal information. The GDPR, CCPA and many other laws and regulations relating to privacy and data protection are still being tested in courts, and they are subject to new and differing interpretations by courts and regulatory officials. Additionally, the interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and data we receive, use and share, potentially exposing us to additional expense, adverse publicity and liability. We are working to comply with the GDPR, CCPA and other privacy and data protection laws and regulations that apply to us, and we anticipate needing to devote significant additional resources to complying with these laws and regulations.

It is possible that the GDPR, CCPA or other laws and regulations relating to privacy and data protection may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with our current policies and practices and compliance with such laws and regulations could require us to change our business practices and compliance procedures in a manner adverse to our business. We cannot guarantee that we are in compliance with all such applicable data protection laws and regulations and we cannot be sure how these regulations will be interpreted, enforced or applied to our operations. Furthermore, other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules, and regulations, which could increase our compliance costs and the risks associated with noncompliance. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. We cannot guarantee that we or our vendors may be in compliance with all applicable international laws and regulations as they are enforced now or as they evolve. For example, our privacy policies may be insufficient to protect any personal information we collect or may not comply with applicable laws. Our non-compliance could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies,

~~procedures and systems. In addition, if we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts.~~

Our actual or perceived failure to adequately comply with applicable laws and regulations relating to privacy and data protection, or to protect personal data and other data we process or maintain, could result in regulatory enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, other lawsuits or reputational and damage, all of which could materially affect ourits business, financial condition, results of operations and growth prospects.

European data protection laws, including the GDPR, generally restrict the transfer of personal information from Europe, including the European Economic Area, United Kingdom, and Switzerland (collectively, Europe) to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information. One of the primary safeguards used for transfers of personal data from Europe to the United States, namely, the Privacy Shield administered by the U.S. Department of Commerce, was invalidated by a decision of Court of Justice of the European Union (CJEU). Subsequently, the Swiss Federal Data Protection and Information Commissioner also opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the U.S. The CJEU also cast doubt on our ability to use one of the primary alternatives to the Privacy Shield, namely the European Commission’s Standard Contractual Clauses, to transfer lawfully personal data from Europe to the United States and most other countries. Further, the European Commission recently proposed updates to the Standard Contractual Clauses. At present, there are few if any viable alternatives to the Standard Contractual Clauses and, therefore, there is uncertainty regarding how to ensure that transfers of personal information from Europe to the U.S. and other countries comply with European data protection laws. As such, any transfers by the Company, or the Company’s third party vendors, of personal data from Europe may not comply with European data protection laws; may increase the Company’s exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions, and may restrict our clinical trial activities in Europe, limit our ability to collaborate with CROs, service providers and other companies subject to European data protection laws. Loss of the Company’s ability to transfer personal data from Europe may also require us to increase the Company’s data processing capabilities in those jurisdictions at significant expense.

Further, the United Kingdom’s decision to leave the EU, often referred to as Brexit, created uncertainty with regard to data protection regulation in the United Kingdom. Following December 31, 2020, the GDPR’s data protection obligations continue to apply to the United Kingdom in substantially unvaried form under the so called “UK GDPR” or more explicitly, the GDPR continues to form part of the laws in the United Kingdom by virtue of section 3 of the European Union (Withdrawal) Act 2018, as amended (including by the various Data Protection, Privacy and Electronic Communications (EU Exit) Regulations), which potentially exposes us to two parallel data protection regimes, each of which authorizes fines and the potential for divergent enforcement actions. In addition, it is still unclear whether the transfer of personal data from the EU to the United Kingdom will in the future continue to remain lawful under the GDPR. For example, pursuant to a post-Brexit agreement between the United Kingdom and the EU, the European Commission will continue to treat the United Kingdom as if it remained a member state of the EU in relation to transfers of personal data from the EEA to the United Kingdom, meaning such transfers may be made without a need for additional safeguards, for four months from January 1, 2021, with a potential additional two month extension. This

“transition” period, however, will end if and when the European Commission adopts an adequacy decision in respect of the United Kingdom or the United Kingdom amends certain UK data protection laws, or relevant aspects thereof, without the EU’s consent (unless those amendments are made simply to align those UK data protection laws with the EU’s data protection regime). If the European Commission does not adopt an adequacy decision with regard to personal data transfers to the United Kingdom before the expiration of the transition period, from that point onwards, the United Kingdom will be a “third country” under the GDPR and such transfers will need to be made subject to GDPR-compliant safeguards (for example, the Standard Contractual Clauses).

Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, and strict requirements and limitations for processing personal information, which could increase the cost and complexity of delivering our services and operating our business. For example, Brazil enacted the General Data Protection Law, New Zealand enacted the New Zealand Privacy Act, China released its draft Personal Information Protection Law, and Canada introduced the Digital Charter Implementation Act. As with the GDPR, these laws are broad and may increase our compliance burdens, including by mandating potentially burdensome documentation requirements and granting certain rights to individuals to control how the Company collects, uses, discloses, retains, and processes personal information about them.

The Company publishes privacy policies and other documentation regarding the Company’s collection, processing, use and disclosure of personal information. Although the Company endeavors to comply with the Company’s published policies and other documentation, the Company may at times fail to do so or may be perceived to have failed to do so. Moreover, despite the Company’s efforts, the Company may not be successful in achieving compliance if the Company’s employees or third-party vendors fail to comply with the Company’s published policies and documentation. Such failures can subject the Company to potential foreign, local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of the Company’s actual practices. Moreover, subjects about whom the Company or the Company’s partners obtain information, as well as the providers who share this information with us, may contractually limit the Company’s ability to use and disclose the information. Claims that the Company has violated individuals’ privacy rights or failed to comply with data protection laws or applicable privacy notices even if the Company is not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm the Company’s business.

Changes in U.S. tax law may materially adversely affect the Company's financial condition, results of operations and cash flows.

On March 27, 2020, the CARES Act was signed into law to address the SARS-CoV-2 virus pandemic crisis. The CARES Act is an approximately $2 trillion emergency economic stimulus package that includes numerous U.S. federal income tax provisions, including the modification of: (i) net operating loss rules, (ii) the alternative minimum tax refund and (iii) business interest deduction limitations under Section 163(j) of the Internal Revenue Code of 1986, as amended (the Code). ). On Dec. 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (H.R. 133), an appropriations and stimulus package that includes many U.S. federal income tax provisions generally favorable to taxpayers such as (i) retroactive changes to and extensions of items contained in The CARES Act, and (ii) extensions of dozens of expiring tax provisions including the employer tax credit for paid family and medical leave.

The Tax Act also significantly changed the U.S. federal income taxation of U.S. corporations. The Tax Act remains unclear in many respects and has been, and may continue to be, the subject of amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (the IRS), which have lessened or increased certain adverse impacts of the Tax Act and may continue to do so in the future. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. The Company continues to work with its tax advisors to determine the full impact the Tax Act, the CARES Act, and H.R. 133 will have. The Company's investors should consult with their legal and tax advisors with respect to both the Tax Act and the CARES Act and the potential tax consequences of investing in the Company's common stock.

The Company’s ability to use its net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.

The Company’s net operating loss carryforwards (NOLs) and certain other tax attributes could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. The Company’s NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law. As of December 31, 2020, the Company had a U.S. federal NOL carryforward balance of $120.6 million, $4.5 million of which will expire beginning in the year 2035, if unutilized, and $116.1 million of which will carry forward indefinitely. As of December 31, 2020, the Company had a state NOL carryforward balance of $123.9 million, which will expire beginning in the year 2035, if unutilized.

Under the Tax Act, federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely. Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year of such loss. Due to the Company’s cumulative losses through December 31, 2020, it does not anticipate that such provision of the CARES Act will be relevant to it. The deductibility of federal NOLs, particularly for tax years beginning after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.

In addition, the Company’s NOLs and tax credit carryforwards are subject to review and possible adjustment by the IRS and state tax authorities. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in the Company’s ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. The Company determined that no significant limitation would be placed on the utilization of its net operating loss and tax credit carryforwards due to prior ownership changes. The Company may, however, experience ownership changes in the future as a result of equity offerings or subsequent shifts in its stock ownership, some of which are outside its control. If the Company’s ability to utilize those NOLs and tax credit carryforwards becomes limited by an “ownership change” as described above, it may not be able to utilize a material portion of its NOLs and certain other tax attributes, which could have a material adverse effect on its cash flows and results of operations.

Risks Related to Development and Commercialization of ~~Our~~the Company’s Product Candidates

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results. If clinical trials of ~~our~~the Company’s product candidates, particularly OC-01 (varenicline) nasal spray, are prolonged or delayed, wethe Company may be unable to obtain required regulatory approvals, and therefore be unable to commercialize ~~our~~its product candidates on a timely basis or at all.

Before obtaining marketing approval from regulatory authorities for the sale of ~~our~~its product candidates, wethe Company must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. To date, ~~we have~~the Company has focused substantially all of ~~our~~its efforts and financial resources on identifying, acquiring, and developing ~~our~~its product candidates, including conducting preclinical studies and ~~initial~~ clinical trials. Clinical testing is expensive and can take many years to complete, and wethe Company cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. ~~Our~~The Company’s inability to successfully complete preclinical and clinical development could result in additional costs to usit and negatively impact ~~our~~its ability to generate revenue. ~~Our~~The Company’s future success is dependent on ~~our~~its ability to successfully develop, obtain regulatory approval for, and then successfully commercialize product candidates. WeThe Company currently does not generate noany revenues from sales of any products, and weit may never be able to develop or commercialize a marketable product.

Each of ~~our~~the Company’s product candidates ~~will~~may require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, achieving and maintaining commercial-scale supply, building of a commercial organization, substantial investment and significant marketing efforts before ~~we generate~~the Company generates any revenues from product sales. ~~We are~~The Company is not permitted to market or promote any of ~~our~~its product candidates before ~~we receive~~it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and weit may never receive such regulatory approval for any of ~~our~~its product candidates. WeThe Company may experience delays in ~~our~~its ongoing clinical trials and ~~we do~~it does not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all.

WeThe Company may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent ~~our~~its ability to receive marketing approval or commercialize OC-01 or(varenicline) nasal spray and any other product candidates that weit may develop, including:

•wethe Company may experience delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial ~~sites;~~

sites

•wethe Company may fail to obtain sufficient enrollment in ~~our~~its clinical trials or participants may fail to complete ~~our~~its clinical trials;

•clinical trials of ~~our~~its product candidates may produce negative or inconclusive results, and weit may decide, or regulators may require ~~us,~~the Company, to conduct additional clinical trials or abandon product development programs;

•wethe Company may decide, or regulators or institutional review boards may require ~~us,~~it, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

•regulators or institutional review boards may require usthe Company to perform additional or unanticipated clinical trials to obtain approval or weit may be subject to additional post-marketing testing requirements to maintain regulatory approval;

•regulators may revise the requirements for approving ~~our~~its product candidates, or such requirements may not be as ~~we anticipate;~~

it anticipates;

•the cost of clinical trials of ~~our~~its product candidates may be greater than ~~we anticipate,~~it anticipates, and wethe Company may need to delay or suspend one or more trials until ~~we complete~~it completes additional financing transactions or otherwise receive adequate funding;

•the supply or quality of ~~our~~its product candidates or other materials necessary to conduct clinical trials of ~~our~~its product candidates may be insufficient or inadequate or may be delayed;

•~~our~~the Company’s product candidates may have undesirable side effects or other unexpected characteristics, causing usit or ~~our~~its investigators, regulators or institutional review boards to suspend or terminate trials; ~~and~~

•regulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its ~~distribution.~~distribution;

•the Company may experience delays due to the SARS-CoV-2 virus pandemic, including with respect to the receipt of product candidates or other materials, submission of NDAs, filing of Investigational New Drug Application, or INDs and starting any clinical trials for other indications or programs;

•the Company may experience delays with respect to FDA’s review of the OC-01 (varenicline) nasal spray NDA as the pandemic-related workload

at the agency may require diversion of personnel away from review of non-pandemic products and travel restrictions may delay or prevent the inspection of clinical sites or manufacturing operations that are necessary to support approval

decisions; and

•the Company may experience manufacturing delays due to the SARS-CoV-2 virus pandemic in its supply chain caused by a shortage of raw materials, a lack of employees on site at its suppliers due to illness, or a lack of productivity at its suppliers due to local or national government quarantine restrictions on coming to the workplace.

~~We do~~For example, due to the SARS-CoV-2 virus pandemic, the Company experienced an impact at select clinical trial sites during the month of March 2020 where ophthalmology practices were closed or subjects were unable to attend visits or where clinical trial sites did not feel comfortable putting their staff or subjects into a CAE®, which limited the Company’s ability to assess the related secondary endpoint in its ONSET-2 study for those subjects. The Company does not know whether any of ~~our~~its preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. If ~~we experience~~the Company experiences delays in the completion of, or termination of, any clinical trial of ~~our~~its product candidates, or is unable to achieve clinical endpoints due to unforeseen events, such as the SARS-CoV-2 virus pandemic, the commercial prospects of ~~our~~its product candidates will be harmed, and ~~our~~its ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing ~~our~~its clinical trials will increase ~~our~~the Company’s costs, slow down ~~our~~its product candidate development and approval process and jeopardize ~~our~~its ability to commence product sales and generate revenues. Significant clinical trial delays could also allow ~~our~~the Company’s competitors to bring products to market before ~~we do~~it does or shorten any periods during which ~~we have~~the Company has the exclusive right to commercialize ~~our~~its product candidates and impair ~~our~~its ability to commercialize ~~our~~its product candidates and may harm ~~our~~its business and results of operations.

We are in the process of validating our manufacturing process and to date, do not have the stability and microbiology data on our product registration batches necessary for regulatory approval for OC-01.

We are still currently collecting stability and microbiology data on our product registration batches to support NDA approval and to date we do not yet have data to support an NDA filing. We expect to report top-line results for ONSET-2 by the end of the second quarter 2020 and if results are considered approvable, we plan to submit an NDA to the FDA in the second half of 2020. However, we manufactured our FDA registration batches of 0.6 mg/ml and 1.2 mg/ml OC-01 (varenicline) nasal spray ~~July~~ and ~~August 2019, and as~~ the FDA requires 12 months stability data to support NDA filing, the data will not be available until after August 2020. Stability data is collected after subjecting our batches to various conditions, such as refrigeration, room temperature, and high temperatures, and it is possible that impurities, particulates, leachables, microbiology, and/or degradation of the active pharmaceutical ingredient, varenicline, or OC-01 nasal spray could occur or other issues could be detected. If the stability data is not acceptable, we may need to change our manufacturing process, which could result in a delay of the NDA submission or impact the approval of the product or both, which could materially affect our business, financial condition, results of operations and growth prospects. The FDA may also impose specific conditions, such as requiring the final product to be shipped and stored under refrigerated conditions. Any additional requirements could result in an increase in the overall cost of the product and complicate the supply chain, which could also materially affect our business, financial condition, results of operations and growth prospects.

~~OC-01 and our~~Company's other product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale.

To date, ~~our third-party~~the Company's third party manufacturer has only manufactured ~~our~~ OC-01 (varenicline) nasal spray in limited quantities in batch sizes appropriate for ~~our~~the Company's clinical trials and registration batches to support the NDA submission, for which batch sizes are a fraction of the size ~~we expect~~the Company expects will be necessary for commercialization. The manufacturing processes for commercial scale are still being developed and have not been tested and the process validation requirement has not yet been satisfied. Although ~~we plan~~the Company plans to manufacture commercial scale batches of OC-01 (varenicline) nasal spray on the same manufacturing line as the registration batches, with the same equipment, only at higher scale, there are risks associated with scaling up manufacturing to commercial volumes including, among others, cost overruns, technical or other problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. There is no assurance that ~~our~~the Company's manufacturer will be successful in establishing a larger-scale commercial manufacturing process for

OC-01 (varenicline) nasal spray that achieves ~~our~~its objectives for manufacturing capacity and cost of goods, in a timely manner or at all. In addition, there is no assurance that ~~our~~the Company manufacturers will be able to manufacture OC-01 (varenicline) nasal spray to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of OC-01 (varenicline) nasal spray or to meet potential future demand. If ~~our~~the manufacturers are unable to produce sufficient quantities of approved products for commercialization, either on a timely basis or at all, and in a cost-effective manner, ~~our~~the Company's commercialization efforts would be impaired, including impacting the launch of OC-01 (varenicline) nasal spray or inventory levels, which could materially affect ~~our~~Company's business, financial condition, results of operations and growth prospects.

The commercial success of the Company's products depends on the availability and sufficiency of third party payor coverage and reimbursement.

~~If we are unable~~Patients in the United States and elsewhere generally rely on third party payors to ~~establish sales~~reimburse part or all of the costs associated with their prescription drugs. Accordingly, market acceptance of the Company's products is dependent on the extent to which third party coverage and ~~marketing capabilities or enter into agreements~~reimbursement is available from third party payors, including government health administration authorities (including in connection with ~~third parties~~government healthcare programs, such as Medicare and Medicaid), private healthcare insurers and other healthcare funding organizations.

Significant uncertainty exists as to ~~sell~~the coverage and ~~market our product candidates on acceptable terms, we~~reimbursement status of any products for which the Company may ~~be unable to successfully commercialize our product candidates that~~ obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives are already available. Even if the Company obtains coverage for a given product, the associated reimbursement rate may not be adequate to cover its costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require copayments that patients find unacceptably high. Patients are unlikely to use the Company's products unless reimbursement is adequate to cover all or a significant portion of the cost of its products.

Coverage and reimbursement policies for products can differ significantly from payor to payor as there is no uniform policy of coverage and reimbursement for products among third party payors in the United States. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time consuming and costly which will require the Company to provide scientific and clinical support for the use of its products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained.

In addition, the Company expects that the increased emphasis on managed care and cost containment measures in the United States by third party payors and government authorities to continue and will place pressure on pharmaceutical pricing and coverage. Coverage policies and third party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which the Company receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

If the Company is unable to obtain and maintain sufficient third party coverage and adequate reimbursement for its products, the commercial success of these products may be greatly hindered and the Company's financial condition and results of operations may be materially and adversely affected.

The Company's business, operations and clinical development timelines and plans could be adversely affected by the effects of health epidemics, including the SARS-CoV-2 virus pandemic.

~~We currently do not~~The Company's business, operations and clinical development timelines and plans could be adversely affected by health epidemics in regions where it has concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of third party contractors upon which it relies. In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19, to be a global pandemic. The pandemic and government measures taken in response have ~~and have never~~ had a ~~marketing or sales team.~~significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services has fallen.

The President of the United States declared the SARS-CoV-2 virus pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response and powers under the Defense Production Act, the legislation that facilitates the production of goods and services necessary for national security and for other purposes. In addition, in response to the SARS-CoV-2 virus pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to ~~commercialize any product candidates, if approved, we~~control the spread of the disease. Such orders or restrictions, and the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt the Company's business and operations. For example, the Company's headquarters and certain of its trial sites are located in New Jersey, and in March 2020, the Governor of New Jersey announced that all businesses, excluding essential services, must ~~build marketing, sales, distribution, managerial~~decrease their in-office workforce by 100%. While some of these governmental restrictions have been lifted, the timing and ~~other non-technical capabilities or make arrangements~~extent to which

4643

~~with third parties to perform these services for each of the territories in which we may have approval to sell~~such orders and ~~market our product candidates. We may not be successful in accomplishing these required tasks.~~

~~Establishing an internal sales and marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates~~restrictions will be ~~expensive~~removed remains uncertain. The Company has implemented a work-from-home policy for all employees, and ~~time-consuming,~~it continues evaluating the situation as more information about the virus becomes available. Moreover, the Company's clinical development timelines and ~~will require significant attention~~plans could be affected by the SARS-CoV-2 virus pandemic. Site initiation and patient enrollment could be delayed or suspended due to prioritization of ~~our executive officers to manage. Any failure or delay in~~hospital resources toward the development of our internal sales, marketing and distribution capabilities could adversely impact the commercialization of any of our product candidates that we obtain approval to market, if we do not have arrangements in place with third parties to provide such services on our behalf. Alternatively, if we choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems, we will be required to negotiate and enter into arrangements with such third parties relating to the proposed collaboration. If we are unable to enter into such arrangements when needed, on acceptable terms, or at all, weSARS-CoV-2 virus pandemic. In addition, some patients may not be able to ~~successfully commercialize any of our product candidates that receive regulatory approval~~comply with clinical trial protocols and the ability to conduct follow up visits with treated patients may be limited if quarantines impede patient movement or ~~any such commercialization may experience delays or limitations. If we are~~interrupt healthcare services. For example, due to the SARS-CoV-2 virus pandemic, select clinical trial sites in ONSET-2 clinical trial were closed and subjects were unable to ~~successfully commercialize our approved product candidates, either~~attend visits per the trial protocol, which reduced the number of patients for which the Company collected data on ~~our own or through collaborations~~ with ~~one or more third parties, our future product revenue will suffer~~respect to its primary and ~~we may incur significant additional losses.~~

Furthermore, we believe that approximately 26% of prescribing ECPs account for 80% of the volume of DED prescription treatments. If we are unable to obtain access to these ECPs or persuade adequate numbers of ECPs to prescribe our products, if and when approved, our efforts to commercialize such products will be severely inhibited, which would have a material adverse effect on our business.

Even if OC-01 or any other product candidate receives marketing approval, they may fail to achieve market acceptance by ECPs and patients, or adequate formulary coverage, pricing or reimbursement by third-party payors and others in the medical community, and the market opportunity for these products may be smaller than we estimate.

If OC-01 or any other product candidate that we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by ECPs, patients, third-party payors and others in the medical community. Current treatments that are commonly used in the United States for DED include over-the-counter eye drops, often referred to as “artificial tears”, Restasis, Xiidra and off-label use of corticosteroids. In particular, existing prescription therapies, notably Restasis and Xiidra, are marketed by much larger biopharmaceutical companies with established brand recognition. As a result, even if OC-01 demonstrates promising or superior clinical results, including the treatment of both signs and symptoms of DED, it is possible that ECPs may continue to rely on these treatments rather than OC-01 or any other product candidate, if and when approved for marketing by the FDA.secondary endpoints. In addition, ~~if generic versions of any products that compete with any of our product candidates are approved for marketing by~~due to the FDA, they would likely be offered at a substantially lower price than we expect to offer for our product candidates, if approved. As a result, ECPs, patients and third-party payors may choose to rely on such products rather than our product candidates.

If OC-01 or any other product candidate does not achieve an adequate level of acceptance, formulary coverage, pricing or reimbursement we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of OC-01 or any other product candidate that we develop, if approved for commercial sale, will depend onSARS-CoV-2 virus pandemic, a number of ~~factors, including:~~

clinical trial sites for ONSET-2 did not feel comfortable putting their staff or subjects into the required CAE
®, which limited the Company's ability to assess the related secondary endpoint for those subjects, which might have contributed to not achieving certain secondary endpoints in ONSET-2. The Company cannot assure that the inability to collect such data would not also have an adverse impact on its future clinical trial results. Similarly, the Company's ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to SARS-CoV-2 virus pandemic could be adversely impacted.

•The continued spread of the SARS-CoV-2 virus pandemic could severely impact the ~~efficacy~~Company's business, preclinical studies, and ~~potential advantages of our product candidates compared to alternative treatments, including the existing standard of care;~~clinical trials, including:

•~~our ability~~delays in receiving approval from local regulatory authorities to ~~offer our products for sale at competitive prices, particularly in light of the lower cost of alternative treatments;~~

initiate planned clinical trials;

•~~the~~delays or difficulties in enrolling and retaining patients in clinical ~~indications for which the product is approved;~~

trials;

•~~the convenience~~delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and ~~ease of administration compared to alternative treatments;~~

clinical site staff;

•delays in clinical sites receiving the ~~willingness~~supplies and materials needed to conduct clinical trials, including interruption in global shipping that may affect the transport of ~~the target patient population to try new therapies and of ECPs to prescribe these therapies;~~

clinical trial materials;

•changes in local regulations as part of a response to the ~~strength of our marketing and distribution support;~~

SARS-CoV-2 virus pandemic which may require the Company to change ways in which clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

•~~publicity concerning our products or competing products~~diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and ~~treatments;~~

•hospital staff supporting the ~~timing~~conduct of ~~market introduction of competitive products;~~

clinical trials;

•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the ~~potential for our competitors to limit our access to~~occurrence of which could affect the ~~market through anti-competitive contracts or other arrangements;~~

integrity of clinical trial data;

•risk that patient recruitment in the ~~availability of third-party formulary coverage and adequate reimbursement, particularly by Medicare in light of the prevalence of DED in persons over age 55;~~

Company’s clinical trials will be impacted due to pandemic-related lockdowns or stay-at-home advisories;

•risk that participants enrolled in the ~~prevalence and severity~~Company's clinical trials will acquire SARS-CoV-2 virus while the clinical trial is ongoing, which could impact the results of ~~any side effects; and~~

the clinical trial, including by increasing the number of observed adverse events;

•~~any restrictions~~interruptions or delays in preclinical studies due to restricted or limited operations at research and development laboratory facility;

•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

•limitations in employee resources that would otherwise be focused on the ~~use~~conduct of ~~our products together~~clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with ~~other medications.~~large groups of people;

•refusal of the FDA to accept data from clinical trials in affected geographies;

~~Our assessment~~•interruption or delays to the Company's sourced discovery and clinical activities;

•increased cybersecurity risks due to the Company's reliance on internet technology and the number of its employees that are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities; and

•disruption or constraints at manufacturers, which could result in product manufacturing delays.

It is highly uncertain and difficult to predict the full extent of the economic impact brought by and the duration of SARS-CoV-2 virus pandemic; the pandemic could still result in significant disruption of global financial markets, reducing the Company's ability to access capital, which could in the future negatively affect its liquidity. In addition, a recession or market correction resulting from the spread of SARS-CoV-2 virus pandemic could materially affect its business and value of Company's common stock.

The global SARS-CoV-2 virus pandemic continues to rapidly evolve, and the Company will continue to monitor the SARS-CoV-2 virus pandemic situation closely. The ultimate impact of the SARS-CoV-2 virus pandemic or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the potential ~~market opportunity for OC-01 and other product candidates is based~~impacts on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, some of which we commissioned. Industry publications and third- party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guaranteeits business, clinical trials, healthcare systems or the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. Similarly, although the studies we have commissioned are based on information that we believe to be complete and reliable, we cannot guarantee that such information is accurate or complete. The potential market opportunity for the treatment of DED in particular is difficult to precisely estimate. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and fail to accurately reflect market opportunities. Further, we have commissioned a number of market studies that are specific to us and to our product candidates and used the results of these studies to help assess our market opportunity. While we believe that our internal assumptions and the bases of our commissioned studies are reasonable, no independent source has verified such assumptions or bases. If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for OC-01 or any of our other product candidates may be smaller than we expect, andglobal economy as a ~~result our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.~~whole.

Even if ~~we obtain~~the Company obtains regulatory approval for any of ~~our~~its product candidates, weit may be subject to ongoing regulatory obligations or post-marketing commitments as specified by the FDA or other regulatory authorities, which may result in additional costs associated with those commitments.

If ~~we obtain~~the Company obtains regulatory approval for OC-01 (varenicline) nasal spray or any other product candidate, such approved products will be subject to continual regulatory review by the FDA and/or non-U.S. regulatory authorities. Additionally, any product candidates, if approved, will be subject to extensive and ongoing regulatory requirements, including labeling and other restrictions and market withdrawal and wethe Company may be subject to penalties if ~~we fail~~it fails to comply with regulatory requirements or ~~experience~~experiences unanticipated problems with such products.

If FDA or a comparable foreign regulatory authority approves any of ~~our~~the Company's product candidates, including OC-01 (varenicline) nasal spray, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practices (cGMP), as well as Good Clinical Practice (GCP) for any clinical trials that ~~we conduct~~the Company conducts post-approval, all of which may result in significant expense and limit ~~our~~its ability to successfully commercialize such products. In addition, any regulatory approvals that ~~we receive~~the Company receives for ~~our~~its product candidates may also be subject to limitations on the approved indications or conditions of use for which the product may be marketed or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product.

~~Later~~Any later discovery of previously unknown problems with ~~our~~the Company product candidates, including adverse events of unanticipated severity or frequency, or problems with ~~our third-party~~its third party manufacturers’ processes, or failure to comply with regulatory requirements, may result in, among other things:

•restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

•fines, warning letters or holds on clinical trials;

•refusal by the FDA to approve pending applications or supplements to approved applications filed by ~~us,~~the Company, or suspension or revocation of product license approvals;

•product seizure or detention, or refusal to permit the import or export of products; and

•injunctions or the imposition of civil or criminal penalties.

~~Our~~The Company's ongoing regulatory requirements may also change from time to time, potentially harming or making costlier ~~our~~its commercialization efforts. WeIt cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or other countries. If ~~we are~~the Company is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if ~~we are~~it's not able to maintain regulatory compliance, weit may lose any marketing approval that weit may have obtained and weit may not achieve or sustain profitability, which would adversely affect ~~our~~its business.

~~We face~~The Company faces significant competition, and if ~~our~~its competitors develop and market technologies or products more rapidly than ~~we do~~the Company does or that are more effective, safer or less expensive than the product candidates ~~we develop, our~~the Company develops, its commercial opportunities will be negatively impacted. ~~Our~~The Company's product candidates will, if approved, also compete with existing branded, generic and off-label products.

The development and commercialization of new drug products is highly competitive. ~~We face~~The Company faces competition with respect to OC-01 (varenicline) nasal spray for the treatment of ~~DED,~~dry eye disease, and will face competition with respect to OC-01 (varenicline) nasal spray for other indications and any other product candidates that weit may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. 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.

The ~~DED~~dry eye disease market is already served by a variety of competing products. Many of these existing products have achieved widespread acceptance among ECPs, patients and payors. In addition, certain of these products are available, or may become available, on aan over-the-counter or generic basis, and ~~our~~the Company product candidates may not demonstrate sufficient additional clinical benefits to ECPs, patients or payors to justify a higher price compared to ~~generic~~such products. In many cases, insurers or other ~~third-party~~third party payors, particularly Medicare, seek to encourage the use of generic products.

~~Our~~The Company's commercial opportunity could be reduced or eliminated if ~~our~~its 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 ~~our~~the

Company's products. ~~Our~~The competitors also may obtain FDA or other regulatory approval for their products more rapidly than wethe Company may obtain approval for ~~ours,~~its candidates, which could result in ~~our~~ competitors establishing a strong market position before ~~we are~~the Company is able to enter the market.

In addition, ~~our~~the Company's ability to compete may be affected in many cases by insurers or other ~~third-party~~third party payors, particularly Medicare, seeking to encourage the use of generic products. Generic products are currently being used for certain of the indications that ~~we are~~it is pursuing, and additional products are expected to become available on a generic basis over the coming years.

Many of the companies against which ~~we are~~the Company is competing or against which weit may compete in the future 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.~~it does. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of ~~our~~the Company's competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with usthe Company in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, ~~our~~the Company's programs.

If product liability lawsuits are brought against ~~us, we~~the Company, it may incur substantial liabilities and may be required to limit commercialization of ~~our~~its products.

~~Our~~The Company's business exposes usit to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of ~~our~~the Company's development programs. If ~~our~~ product candidates are approved for marketing, such claims could still result in an FDA, EMA or other regulatory authority investigation of the safety and effectiveness of such products, ~~our~~the Company's manufacturing processes and facilities or ~~our~~its marketing programs. These investigations could potentially lead to a recall of ~~our~~its products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or

eventual outcome, liability claims may also result in injury to ~~our~~the Company's reputation, withdrawal of clinical trial participants, costs to defend the related litigation, a diversion of management’s time and ~~our~~its resources, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize ~~our~~the Company's product candidates and decreased demand for ~~our~~its product candidates, if approved for commercial sale. WeThe Company currently ~~have~~has product liability insurance that ~~we believe~~it believes is appropriate for ~~our~~its stage of development and may need to obtain higher levels prior to marketing any of ~~our~~its product candidates, if approved. Any insurance weit have or may obtain may not provide sufficient coverage against potential liabilities and, if judgments exceed ~~our~~the Company's insurance coverage, could adversely affect ~~our~~its results of operations and business and cause ~~our~~the stock price to decline. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, wethe Company may be unable to maintain or obtain insurance coverage at a reasonable cost or in sufficient amounts to protect usit against losses, including those caused by product liability claims.

A variety of risks associated with marketing ~~our~~the Company's product candidates internationally could materially adversely affect ~~our~~its business.

~~We plan~~The Company plans to seek regulatory approval of ~~our~~its product candidates outside of the United States and, accordingly, ~~we expect~~it expects that weit will be subject to additional risks related to operating in foreign countries if ~~we obtain~~it obtains the necessary approvals, including:

•differing regulatory requirements and reimbursement regimes in foreign countries;

•unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

•economic weakness, including inflation, or political instability in particular foreign economies and markets;

•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

•foreign taxes, including withholding of payroll taxes;

•foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

•difficulties staffing and managing foreign operations;

•differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;

•workforce uncertainty in countries where labor unrest is more common than in the United States;

•potential liability under the U.S. Foreign Corrupt Practices Act (FCPA) or comparable foreign regulations;

•challenges enforcing ~~our~~the Company's contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

•business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks associated with ~~our~~ international operations may materially adversely affect ~~our~~the Company's ability to attain or maintain profitable operations.

~~Following~~Pursuant to the United Kingdom’s departure from the EU on January 31, 2020, commonly referred to as "Brexit", there is a “transition period” ending December 31, 2020 during which the United Kingdom will essentially be treated as a Member State of the EU and the regulatory regime will remain the same across the United Kingdom and the EU. The Withdrawal Agreement allows for this “transition period” to be extended by one or two years, but the U.K. government is currently legislating to require the transition period to end on December 31, 2020 without the possibility to extend further. In that scenario, the trading relationshipformal withdrawal arrangements agreed between the United Kingdom and the ~~EU will be governed by whatever agreement~~European Union, the ~~two parties can reach in~~United Kingdom withdrew from the ~~course of~~European Union, commonly referred to as “Brexit”, effective December 31, 2020. On ~~that short timetable~~December 24, 2020, the United Kingdom and ~~EU are likely to focus on ensuring tariff-free trade but it is unclear whether there would be any formal regulatory alignment between United Kingdom~~European Union entered into a Trade and ~~EU rules after January 1, 2021. In the unlikely event that the United Kingdom leaves the EU without an~~Cooperation Agreement. The agreement ~~so called “hard Brexit,” the United Kingdom will be completely separated from a regulatory perspective from the EU immediately upon the exit date.~~

~~Since the regulatory framework~~sets out certain procedures for ~~pharmaceutical~~approval and recognition of medical products in each jurisdiction. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of the ~~United Kingdom relating to quality, safety~~Trade and ~~efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived~~Cooperation Agreement or otherwise, could prevent us from ~~EU directives and regulations, Brexit will materially impact the future regulatory regime which applies to products~~

~~and the approval of~~commercializing any product candidates in the United ~~Kingdom. In~~Kingdom and/or the ~~first instance, a separate United Kingdom authorization from~~European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any ~~centralized authorization for~~of these outcomes occur, the ~~EU would need~~Company may be forced to ~~be applied for~~restrict or delay efforts to seek regulatory approval in advance of a hard Brexit or before the end of any agreed transition period. In the immediately foreseeable future, the process is likely to remain very similar to that applicable in the EU, albeit that the processes for applications will be separate. Longer term, the United Kingdom ~~is likely to develop its own legislation that diverges from that in the EU.~~

and/or European Union for any product candidates, which could significantly and materially harm our business.

Risks Related to Intellectual Property

If ~~we are~~the Company is unable to obtain and maintain patent protection for ~~our~~its technology and products, or if the scope of the patent protection obtained is not sufficiently broad, wethe Company may not be able to compete effectively in ~~our~~its markets.

~~We rely~~The Company relies upon a combination of patents, trademarks, trade secret protection, and confidentiality agreements to protect the intellectual property related to ~~our~~its development programs and product candidates. ~~Our~~The Company's success depends in part on ~~our~~its ability to obtain and maintain patent protection in the United States and other countries with respect to OC-01 ~~OC-02,~~(varenicline) nasal spray and ~~any future~~other product candidates. ~~We seek~~The Company seeks to protect ~~our~~its proprietary position by filing patent applications in the United States and abroad related to ~~our~~its development programs and product candidates. The patent prosecution process is expensive and time-consuming, and wethe Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

The patents and patent applications that ~~we own~~the Company owns may fail to result in issued patents with claims that protect OC-01 ~~OC-02~~(varenicline) nasal spray or ~~any future~~other product ~~candidate~~candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to ~~our~~the Company's patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application, or be used to invalidate a patent. Even if patents do successfully issue and even if such patents cover OC-01 ~~OC-02~~(varenicline) nasal spray or ~~any future~~other product ~~candidate,~~candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to usthe Company could deprive usit of rights necessary for the successful commercialization of any product candidates that weit may develop. Further, if ~~we encounter~~the Company encounters delays in regulatory approvals, the period of time during which weit could market a product candidate under patent protection could be reduced.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that wethe Company or any of ~~our~~its potential future collaborators will be successful in protecting ~~our~~its product candidates by obtaining and defending patents. These risks and uncertainties include the following:

•the U.S. Patent and Trademark office, or USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

•patent applications may not result in any patents being issued;

•patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

•~~our~~the Company's competitors, many of whom have substantially greater resources than ~~we do~~the Company does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block ~~our~~the Company's ability to make, use and sell ~~our~~its product candidates;

•there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

•countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products.

The patent prosecution process is also expensive and time consuming, and wethe Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that wethe Company will fail to identify patentable aspects of ~~our~~its research and development output before it is too late to obtain patent protection. Moreover, if ~~we choose~~the Company chooses to license

certain patent rights in the future from third parties, weit may not have the right to control the preparation, filing and prosecution of such patent applications, or to

maintain the patents, directed to technology that ~~we license~~it licenses from those third parties. WeThe Company may also require the cooperation of ~~our~~its future licensor, if any, in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, any licensed patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of ~~our~~the Company's business. WeThe Company cannot be certain that patent prosecution and maintenance activities by any of ~~our~~its future licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause usthe Company to lose rights in any applicable intellectual property that ~~we in-license,~~it in-licenses, and as a result ~~our~~its ability to develop and commercialize products or product candidates may be adversely affected and weit may be unable to prevent competitors from making, using and selling competing products.

If the patent applications ~~we hold~~the Company holds or may in-license in the future with respect to ~~our~~its development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for OC-01 ~~OC-02~~(varenicline) nasal spray or ~~any future~~other product ~~candidate,~~candidates, it could dissuade other companies from collaborating with usthe Company to develop product candidates, and threaten ~~our~~its ability to commercialize OC-01 ~~OC-02~~(varenicline) nasal spray or ~~future~~other product candidates. Any such outcome could have a materially adverse effect on ~~our~~the Company's business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been and will continue to be the subject of litigation and new legislation. In addition, the laws of foreign countries may not protect ~~our~~the Company's rights to the same extent as the laws of the United States. For example, many countries restrict the patentability of methods of treatment of the human body. Publications in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, wethe Company cannot know with certainty whether ~~we were~~it was the first to make the inventions claimed in ~~our~~its own patents or pending patent applications, or that weit were the first to file for patent protection of such inventions. As a result of these and other factors, the issuance, scope, validity, enforceability, and commercial value of ~~our~~the Company patent rights are highly uncertain. ~~Our~~The Company's pending and future patent applications may not result in patents being issued which protect ~~our~~its technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of ~~our~~the Company patents or narrow the scope of ~~our~~its patent protection.

Moreover, wethe Company may be subject to a ~~third-party~~third party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging ~~our~~its patent rights or the patent rights of others. The costs of defending ~~our~~ patents or enforcing ~~our~~its proprietary rights in post-issuance administrative proceedings and litigation can be substantial and the outcome can be uncertain. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, ~~our~~the Company's patent rights, allow third parties to commercialize ~~our~~its technology or products and compete directly with ~~us,~~the Company, without payment to ~~us,~~it, or result in ~~our~~its inability to manufacture or commercialize products without infringing ~~third-party~~third party patent rights. In addition, if the breadth or strength of protection provided by ~~our~~the Company's patents and patent applications is threatened, it could dissuade companies from collaborating ~~with us~~ to license, develop or commercialize current or future product candidates.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and patents in which ~~we have~~the Company has an interest may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit ~~our~~the Company ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of ~~our~~its technology and products. Generally, issued patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, patent term can be adjusted to recapture a portion of delay incurred by the USPTO in examining the patent application (patent term adjustment). The scope of patent protection may also be limited.

Without patent protection for ~~our~~the Company's current or future product candidates, weit may be open to competition from generic versions of such products. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, ~~our~~the Company's patent portfolio may not provide usit with sufficient rights to exclude others from commercializing products similar or identical to ~~ours.~~

its own.

Depending upon the timing, duration and specifics of FDA marketing approval of ~~OC-02~~OC-01 (varenicline) nasal spray and ~~future~~other product candidates, one or more of ~~our~~the Company's U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the normal expiration of the patent as compensation for patent term lost during drug development and the FDA regulatory review process, which is limited to the approved indication (or any additional indications approved during the period of extension). This extension is based on the first

approved use of a product and is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other

countries, may not agree with ~~our~~the Company assessment of whether such extensions are available, and may refuse to grant extensions to ~~our~~its patents, or may grant more limited extensions than ~~we request. We~~the Company requests. The Company may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection afforded could be less than ~~we request.~~the Company requests. If ~~we are~~it is unable to extend the expiration date of ~~our~~its existing patents or obtain new patents with longer expiry dates, ~~our~~the Company's competitors may be able to take advantage of ~~our~~its investment in development and clinical trials by referencing ~~our~~its clinical and preclinical data to obtain approval of competing products following ~~our~~its patent expiration and launch their product earlier than might otherwise be the case.

Obtaining and maintaining ~~our~~ patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and ~~our~~the Company's patent protection could be reduced or eliminated for noncompliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and other foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on ~~our~~the Company's international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If wethe Company or any of ~~our~~its licensors fail to maintain the patents and patent applications covering OC-01 ~~OC-02~~(varenicline) nasal spray, or ~~any future~~other product ~~candidate, our~~candidates, the Company's competitors may be able to enter the market, which would have an adverse effect on ~~our~~its business.

WeThe Company may not identify relevant ~~third-party~~third party patents or may incorrectly interpret the relevance, scope or expiration of a ~~third-party~~third party patent, which might adversely affect ~~our~~its ability to develop and market ~~our~~its products.

WeThe Company cannot guarantee that any of ~~our~~its patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can weit be certain that ~~we have~~it has identified each and every ~~third-party~~third party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of ~~our~~its current and future product candidates in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. ~~Our~~The Company's interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact ~~our~~its ability to market ~~our~~its products. WeThe Company may incorrectly determine that ~~our~~its products are not covered by a ~~third-party~~third party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. ~~Our~~The Company's determination of the expiration date of any patent in the United States or abroad that ~~we consider~~it considers relevant may be incorrect, and ~~our~~its failure to identify and correctly interpret relevant patents may negatively impact ~~our~~its ability to develop and market ~~our~~its products.

~~Third-party~~Third party claims or litigation alleging infringement of patents or other proprietary rights, or seeking to invalidate ~~our~~the Company's patents or other proprietary rights, may delay or prevent the development and commercialization of OC-01 ~~OC-02,~~(varenicline) nasal spray and any ~~future~~other product ~~candidate.~~

candidates.

~~Our~~The commercial success depends in part on ~~our~~the Company avoiding infringement and other violations of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation, and administrative law proceedings, inter partes review, and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which wethe Company and ~~our~~its collaborators are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as ~~we gain~~the Company gains greater visibility and market exposure as a public company, the risk increases that ~~our~~the Company product candidates or other business activities may be subject to claims of infringement of the patent and other proprietary rights of third parties. Third parties may assert that ~~we are~~the Company is infringing their patents or employing their proprietary technology without authorization.

Also, there may be ~~third-party~~third party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of ~~our~~the Company's current and future product candidates.

Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that ~~our~~ current or future product candidates may infringe.

~~We are~~The Company is aware of ~~three~~two issued U.S. patents owned by Pfizer (U.S. Pat. No.: 7,265,119 (the ‘119), and 6,890,927 (the ‘927) ~~and 6,410,550 (the ‘550))~~ that Pfizer has listed in the Orange Book as covering its varenicline tartrate product, which is marketed as Chantix as an aid to smoking cessation treatment. Certain claims of these three patents are directed toward the compound varenicline tartrate and related salts thereof, and therefore may be relevant to ~~our~~the Company's candidate ~~OC-01.~~OC-01 (varenicline) nasal spray. Of the ~~three~~two issued patents, ~~we anticipate~~the Company anticipates that ~~only the ‘119 and the ‘927~~both will be in force at the time that weit could expect to receive FDA approval of OC-01 (varenicline) nasal spray and on October 18, 2019, wethe Company entered into a non-exclusive patent license for these patents. The ‘550 is listed in the Orange Book as expiring May 10, 2020, with pediatric exclusivity expiring November 10, 2020, and based on our current development plans, we anticipate that both the patent and pediatric exclusivity associated with the ‘550 will no longer be in force at the time of our expected FDA approval. However, even with the aforementioned license, wethe Company cannot provide assurances that third parties won’t allege infringement, which could delay or prevent the development and commercialization of OC-01 (varenicline) nasal spray or other product candidates.

In addition, third parties may obtain patent rights in the future and claim that use of ~~our~~the Company technologies infringes upon their rights. If any ~~third-party~~third party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of ~~our~~the Company's product candidates, any molecules formed during the manufacturing process, methods of treating certain diseases or conditions that ~~we are~~it is pursuing with ~~our~~its product candidates, ~~our~~its formulations including combination therapies, or any final product itself, the holders of any such patents may be able to block ~~our~~its ability to commercialize such product candidate unless wethe Company obtained a license under the applicable patents, or until such patents expire. Such a license may not be available on commercially reasonable terms or at all. In addition, wethe Company may be subject to claims that ~~we are~~it is infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others, and to the extent that ~~our~~the Company's employees, consultants or contractors use intellectual property or proprietary information owned by others in their work for ~~us,~~the Company, disputes may arise as to the rights in related or resulting know-how and inventions.

Parties making claims against usthe Company may obtain injunctive or other equitable relief, which could effectively block ~~our~~its ability to further develop and commercialize one or more of ~~our~~its current and future product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from ~~our~~the Company's business. In the event of a successful infringement or other intellectual property claim against ~~us, we~~the Company, it may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign ~~our~~its affected products, which may be impossible or require substantial time and monetary expenditure. Wethe Company cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, wethe Company may need to obtain licenses from third parties to advance ~~our~~its research or allow commercialization of ~~our~~its product candidates, and ~~we have~~it has done so from time to time. WeIt may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, wethe Company would be unable to further develop and commercialize one or more of ~~our~~its product candidates, which could harm ~~our~~its business significantly. WeIt cannot provide any assurances that ~~third-party~~third party patents do not exist which might be enforced against ~~our~~its product candidates, resulting in either an injunction prohibiting ~~our~~its sales, or, with respect to ~~our~~its sales, an obligation on ~~our~~its part to pay royalties or other forms of compensation to third parties.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of ~~our~~the Company's existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of ~~our~~the Company's common stock may decline. Such announcements could also harm ~~our~~its reputation or the market for ~~our~~ future products, which could have a material adverse effect on ~~our~~the Company's business.

WeThe Company may become involved in lawsuits to protect or enforce ~~our~~its patents, the patents of any licensors or ~~our~~its other intellectual property rights, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe or otherwise violate ~~our~~its patents, the patents of ~~our~~its licensors or ~~our~~its other intellectual property rights. To counter infringement or unauthorized use or misappropriations, wethe Company may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more patent of ~~ours~~the Company or any of ~~our~~its current or future licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that ~~our~~the Company's patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of ~~our~~the Company's patents at risk of being invalidated or interpreted narrowly and could put ~~our~~its patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against usthe Company such as claims asserting that ~~our~~its patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information

from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex

parte reexaminations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. WeThe Company cannot be certain that there is no invalidating prior art, of which weit and the patent examiner were unaware during prosecution. For any patents and patent applications that ~~we license~~it licenses from third parties, wethe Company may have limited or no right to participate in the defense of such licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, weit would lose at least part, and perhaps all, of the patent protection on ~~our~~its current or future product candidates. Such a loss of patent protection could harm ~~our~~its business.

WeThe Company may not be able to prevent, alone or with ~~our~~its licensors, misappropriation of ~~our~~its intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United ~~States Our~~States. The Company's business could be harmed if in litigation the prevailing party does not offer usit a license on commercially reasonable terms. Any litigation or other proceedings to enforce ~~our~~its intellectual property rights may fail, and even if successful, may result in substantial costs and distract ~~our~~the management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ~~our~~the Company's confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of ~~our~~the Company's common shares.

Because of the expense and uncertainty of litigation, wethe Company may not be in a position to enforce ~~our~~its intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, weit may conclude that even if a third party is infringing ~~our~~its in-licensed patents, any patents that may be issued as a result of ~~our~~its future patent applications, or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of ~~our company~~the Company or ~~our~~its stockholders. In such cases, wethe Company may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

Changes in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing ~~our~~the Company's ability to protect ~~our~~its products.

The United States has enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to ~~our~~the Company ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken ~~our~~the Company's ability to obtain new patents or to enforce patents that ~~we have~~the Company has licensed or that weit might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken ~~our~~the Company's ability to obtain new patents or to enforce patents that ~~we have~~the Company has licensed or that weit may obtain in the future.

WeThe Company may not be able to protect ~~our~~its intellectual property rights throughout the world, which could impair ~~our~~its business.

Filing, prosecuting, and defending patents covering OC-01 (varenicline) nasal spray, OC-02 and any future product candidate throughout the world would be prohibitively expensive. Competitors may use ~~our~~the Company's technologies in jurisdictions where ~~we have~~it has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where weit may have or obtain patent protection, but where patent enforcement is not as strong as that in the United States. These unauthorized products may compete with ~~our~~the Company's products in such jurisdictions and take away ~~our~~the Company's market share where ~~we do~~it does not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

~~Our~~The Company's future reliance on third parties may require usthe Company to share ~~our~~its trade secrets, which increases the possibility that a competitor will discover them or that ~~our~~the Company's trade secrets will be misappropriated or disclosed.

Because ~~we expect~~the Company expects to rely on third parties to manufacture OC-01 ~~OC-02~~(varenicline) nasal spray and any ~~future~~other product candidates, and ~~we expect~~it expects to collaborate with third parties on the continuing development of OC-01 ~~OC-02~~(varenicline) nasal spray and any ~~future~~other product candidates, weit must, at times, share trade secrets with them. WeThe Company also ~~expect~~expects to conduct R&D programs that may require usit to share trade secrets under the terms of ~~our~~its partnerships or agreements with CROs. ~~We seek~~The

Company seeks to protect ~~our~~its proprietary technology in part by entering into agreements containing confidentiality and use restrictions and obligations, including material transfer agreements, consulting agreements, manufacturing and supply agreements, confidentiality agreements or other similar agreements with ~~our~~its advisors,

employees, contractors, CMOs, CROs, other service providers and consultants prior to disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose ~~our~~the Company's confidential information, including ~~our~~its trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by ~~our~~the Company's competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that ~~our~~the Company's proprietary position is based, in part, on ~~our~~its know-how and trade secrets, a competitor’s discovery of ~~our~~the Company's trade secrets or other unauthorized use or disclosure would impair ~~our~~its competitive position and may have an adverse effect on ~~our~~ business and results of operations.

In addition, these agreements typically restrict the ability of ~~our~~the Company's advisors, employees, ~~third-party~~third party contractors CMOs, CROs, other service providers and consultants to publish data potentially relating to ~~our~~ trade secrets, although ~~our~~the agreements may contain certain limited publication rights. Despite ~~our~~the Company's efforts to protect ~~our~~its trade secrets, ~~our~~the Company's competitors may discover ~~our~~its trade secrets, either through breach of ~~our~~ agreements with third parties, independent development or publication of information by any of ~~our third-party~~the third party collaborators. A competitor’s discovery of ~~our~~the Company's trade secrets would impair ~~our~~its competitive position and have an adverse impact on ~~our~~ business.

WeThe Company may be subject to claims that ~~our~~its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties.

~~We employ~~The Company employs individuals who were previously employed at other biotechnology or pharmaceutical companies, or at research institutions. Although ~~we seek~~the Company seeks to protect ~~our~~its ownership of intellectual property rights by ensuring that ~~our~~its agreements with ~~our~~ employees, collaborators, and other third parties with whom ~~we do~~it does business include provisions requiring such parties to assign rights in inventions to ~~us, we~~the Company, it may be subject to claims that weit or ~~our~~its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of ~~our~~its employees’ former employers or other third parties. WeIt may also be subject to claims that former employers or other third parties have an ownership interest in ~~our~~the Company's patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if ~~we fail~~the Company fails in defending any such claims, in addition to paying monetary damages, weit may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if ~~we are~~the Company is successful, litigation could result in substantial cost and be a distraction to ~~our~~its management and other employees.

Intellectual property rights do not necessarily address all potential threats to ~~our~~its competitive advantage.

The degree of future protection afforded by ~~our~~its intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect ~~our~~its business, or permit usthe Company to maintain ~~our~~its competitive advantage. The following examples are illustrative:

•others may be able to make formulations or compositions that are the same as or similar to ~~our~~the Company's current and future product candidates, but that are not covered by the claims of the patents that ~~we own;~~

it owns;

•others may be able to make product that is similar to ~~our~~the Company's current and future product candidates ~~we intend~~it intends to commercialize that is not covered by the patents that wethe Company exclusively licensed and ~~have~~has the right to enforce;

•~~we,~~the Company, any of ~~our~~its future licensors or collaborators might not have been the first to make the inventions covered by the issued patents or pending patent applications that ~~we own;~~

it owns;

•wethe Company or any of ~~our~~its future licensor might not have been the first to file patent applications covering certain of ~~our~~its inventions;

•others may independently develop similar or alternative technologies or duplicate any of ~~our~~the Company's technologies without infringing ~~our~~its intellectual property rights;

•it is possible that ~~our~~the Company's future patent applications will not lead to issued patents;

•issued patents that ~~we own~~the Company owns may not provide usit with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;

•~~our~~the Company's competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where ~~we do~~it does not have patent rights, and then use the information learned from such activities to develop competitive products for sale in ~~our~~the Company's major commercial markets; and

•wethe Company may not develop additional proprietary technologies that are patentable.

Any collaboration or partnership arrangements that wethe Company may enter into in the future may not be successful, which could adversely affect ~~our~~its ability to develop and commercialize ~~our~~its products.

Any future collaborations that ~~we enter~~the Company enters into may not be successful. The success of ~~our~~its collaboration arrangements will depend heavily on the efforts and activities of ~~our~~its collaborators. Collaborations are subject to numerous risks, which may include that:

•collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations;

•collaborators may not pursue development and commercialization of ~~our~~the Company's products or may elect not to continue or renew development or commercialization programs based on trial or test results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

•collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with ~~our~~the Company's current and future product candidates;

•a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

•wethe Company could grant exclusive rights to ~~our~~its collaborators that would prevent usit from collaborating with others;

•collaborators may not properly maintain or defend ~~our~~its intellectual property rights or may use ~~our~~its intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate ~~our~~its intellectual property or proprietary information or expose usthe Company to potential liability;

•disputes may arise between usthe Company and a collaborator that causes the delay or termination of the research, development or commercialization of ~~our~~its current or future products or that results in costly litigation or arbitration that diverts management attention and resources;

•collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products;

•collaborators may own or co-own intellectual property covering ~~our~~the Company's products that results from ~~our~~its collaborating with them, and in such cases, weit would not have the exclusive right to develop or commercialize such intellectual property; and

•a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

If ~~our~~the Company's future trademarks and trade names are not adequately protected, then weit may not be able to build name recognition in ~~our~~ markets of interest and ~~our~~its business may be adversely affected.

~~We intend~~The Company intends to use registered or unregistered trademarks or trade names to brand and market ~~ourselves~~itself and ~~our~~its products. ~~Our~~The Company's trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. WeThe Company may not be able to protect ~~our~~its rights to these trademarks and trade names, which ~~we need~~it needs to build name recognition among potential partners or customers in ~~our~~the markets of interest. At times, competitors may adopt trade names or trademarks similar to ~~ours,~~the Company's, thereby impeding ~~our~~its ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of ~~our~~the Company's registered or unregistered trademarks or trade names. Over the long term, if ~~we are~~the Company is unable to establish name recognition based on ~~our~~its trademarks and trade names, then weit may not be able to compete effectively and ~~our~~its business may be adversely affected. WeThe Company may license ~~our~~its trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how ~~our~~ trademarks and trade names may be used, a breach of these agreements or misuse of ~~our~~such trademarks and tradenames by ~~our~~the Company's licensees may jeopardize ~~our~~its rights in or diminish the goodwill associated with ~~our~~its trademarks and trade names. ~~Our~~The Company efforts to enforce or protect ~~our~~its proprietary rights related to trademarks,

trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect ~~our~~its business, growth prospects, operating results and financial condition.

If ~~we fail~~the Company fails to comply with ~~our~~its obligations under any license, collaboration or other agreements, including ~~our~~its license agreement with Pfizer, such agreements may be terminated, wethe Company may be required to pay damages and weit could lose intellectual property rights that are necessary for developing and protecting ~~our~~its product candidates.

WeThe Company currently and may in the future license from third parties certain intellectual property relating to current and future product candidates. If ~~we breach~~the Company breaches any material obligations, or ~~use~~uses the intellectual property licensed to usit in an unauthorized manner, weit may be required to pay damages and the licensor may have the right to terminate the license, which could result in usit being unable to develop, manufacture, and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. Specifically, ~~our~~the Company's license agreement with Pfizer can be terminated by Pfizer upon 60 days’ written notice for ~~our~~the Company's uncured material breach or 30 days following non-payment or immediately upon ~~our~~the Company's insolvency.

Disputes may arise between usthe Company and ~~our~~its licensors regarding intellectual property subject to a license agreement, including:

•the scope of rights granted under the license agreement and other interpretation-related issues;

•whether and the extent to which ~~our~~the Company's technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

•~~our~~the Company's right to sublicense patents and other rights to third parties;

•~~our~~the Company's diligence obligations with respect to the use of the licensed technology in relation to ~~our~~its development and commercialization of ~~our~~its product candidates, and what activities satisfy those diligence obligations;

•~~our~~its right to transfer or assign the license; and

•the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by any of ~~our~~the Company's licensors and usthe Company and ~~our~~its partners.

If disputes over intellectual property that ~~we license prevent~~the Company licenses prevents or ~~impair our~~impairs its ability to maintain ~~our~~its licensing arrangements on acceptable terms, weit may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse effect on ~~our~~the Company's business.

In addition, certain of ~~our~~the Company's current or future agreements with third parties may limit or delay ~~our~~its ability to consummate certain transactions, may impact the value of those transactions, or may limit ~~our~~its ability to pursue certain activities.

Further, wethe Company or ~~our~~its current or future licensors, if any, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, weit may miss potential opportunities to strengthen ~~our~~its patent position. It is possible that defects of form in the preparation or filing of ~~our~~the Company's patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If wethe Company or ~~our~~its current or future licensors fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If ~~our~~the Company's current or future licensors are not fully cooperative or disagree with usit as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of ~~our~~the Company's patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair ~~our~~the Company's ability to prevent competition from third parties, which may have an adverse impact on ~~our~~its business.

In addition, even where ~~we have~~the Company has the right to control patent prosecution of patents and patent applications under a license from third parties, weit may still be adversely affected or prejudiced by actions or inactions of ~~our~~its predecessors or licensors and their counsel that took place prior to usthe Company assuming control over patent prosecution.

~~Our~~The Company's acquired technologies and current or future licensed technology may be subject to retained rights. ~~Our~~The Company's predecessors or licensors may retain certain rights under their agreements with ~~us,~~the Company, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether

~~our~~ the Company's predecessors or future licensors limit their use of the technology to these uses, and weit could incur substantial expenses to enforce ~~our~~its rights to ~~our~~the Company's licensed technology in the event of misuse.

If ~~we are~~the Company is limited in ~~our~~its ability to utilize acquired technologies or current or future licensed technologies, or if ~~we lose our~~it loses its rights to critical acquired or in-licensed technology, weit may be unable to successfully develop, out-license, market and sell ~~our~~its products, which could prevent or delay new product introductions. ~~Our~~the Company's business strategy depends on the successful development of acquired technologies, and current or future licensed technology, into commercial products. Therefore, any limitations on ~~our~~the Company's ability to utilize these technologies may impair ~~our~~its ability to develop, out-license or market and sell ~~our~~its product candidates.

Risks Related to Government Regulation

If the FDA does not conclude that OC-01(varenicline) nasal spray satisfies the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act (FFDCA), or if the requirements for such product candidates under Section 505(b)(2) are not as ~~we expect,~~the Company expects, the approval pathway for those product candidates may take longer, cost more or entail greater complications and risks than anticipated, and may not be successful.

~~We intend to seek~~The Company submitted an NDA for OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry eye disease in December 2020. The Company is seeking FDA approval through the Section 505(b)(2) regulatory pathway for ~~OC-01.~~OC-01 (varenicline) nasal spray. Section 505(b)(2) of the FFDCA permits the submission of a New Drug Application (NDA) where some or all of the data required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. ~~Our~~The Company's ability to rely on certain of the FDA’s findings of safety and effectiveness in

approval of another NDA or on studies published in the scientific literature will depend on ~~our~~its ability to demonstrate the relevance to ~~OC-01.~~OC-01 (varenicline) nasal spray.

In particular, wethe Company conducted ZEN, a comparative pharmacokinetic "bridge" trial, to evaluate the relative bioavailability of varenicline administered as a nasal spray (OC-01) compared to varenicline administered orally ~~(Chantix)~~(Chantix®) in order to reference certain FDA conclusions regarding the safety of varenicline from the Agency’s review of the Chantix NDA. If the FDA does not accept or disagrees with ~~our~~the Company's conclusions from ZEN or the data required for approval of ~~our~~its Section 505(b)(2) NDA are different than anticipated, wethe Company may be required to conduct additional development activities or studies or provide additional data and information to pursue the 505(b)(2) regulatory pathway on ~~our~~its proposed timeline. Such delays could result in new competitive products reaching the market faster than OC-01 (varenicline) nasal spray, which could materially adversely impact ~~our~~the Company's competitive position and growth prospects.

The regulatory approval processes of the FDA, EMA and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If ~~we are~~the Company is ultimately unable to obtain regulatory approval for ~~our~~its product candidates, weit will be unable to generate product revenue and ~~our~~its business will be substantially harmed.

The time required to obtain approval by the FDA, EMA and other comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends uponnumerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that ~~our~~the Company’s data ~~are~~is insufficient for approval and require additional preclinical, clinical or other data. Even if wethe Company eventually ~~complete~~completes clinical testing and ~~receive~~receives approval of any regulatory filing for ~~our~~its product candidates, the FDA, EMA and other comparable foreign regulatory authorities may approve ~~our~~its product candidates for a more limited indication or a narrower patient population than weit originally requested. WeFor example, the fact that OC-01 (varenicline) nasal spray did not achieve certain secondary endpoints in ONSET-2 could have an adverse effect on the Company’s ability to obtain its desired label for OC-01 (varenicline) nasal spray, if approved. The Company has not submitted for, or obtained, regulatory approval for any product candidate, and it is possible that none of ~~our~~its existing product candidates or any product candidates weit may seek to develop in the future will ever obtain regulatory approval.

Further, development of ~~our~~the Company’s product candidates and/or regulatory approval may be delayed for reasons beyond ~~our~~its control. For example, a U.S. federal government shutdown or budget sequestration, such as ones that occurred during 2013, 2018 and 2019, or diversion of resources to currently handle the SARS-CoV-2 virus pandemic public health emergency and pandemic may result in significant reductions to the FDA’s budget, employees and operations, which may lead to slower response times and longer review periods, potentially affecting ~~our~~the Company’s ability to progress development of ~~our~~its product candidates or obtain regulatory approval for ~~our~~its product candidates. In addition, ~~our~~the impact of SARS-CoV-2 virus pandemic may cause the FDA to allocate additional resources to product candidates focused on treating related illnesses, which could lead to longer approval processes for the Company’s product candidates. Moreover, some of the Company’s analyses of the ONSET-2 clinical trial data are post-hoc analyses and, although it believes that these post-hoc analyses can provide additional information regarding results from this clinical trial, retrospective analyses can result in the introduction of bias and may be given less weight by the FDA, including for purposes of determining whether to accept the Company’s NDA for filing or approving its NDA. Finally, the Company’s competitors may file citizens’ petitions with the FDA in an attempt to persuade the FDA that ~~our~~its product candidates, or the clinical trials that support their approval, contain deficiencies. Such actions by ~~our~~its competitors could delay or even prevent the FDA from approving any of ~~our~~the Company’s NDAs.

Applications for ~~our~~the Company’s product candidates could fail to receive regulatory approval for many reasons, including the following:

•the FDA, EMA or other comparable foreign regulatory authorities may disagree with the design, implementation, or results of ~~our~~the Company's clinical trials;

•the FDA, EMA or other comparable foreign regulatory authorities may determine that ~~our~~the Company’s product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude ~~our~~the Company’s obtaining marketing approval or prevent or limit commercial use;

•the population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in the full population for which ~~we seek~~the Company seeks approval;

•the FDA, EMA or other comparable foreign regulatory authorities may disagree with ~~our~~the Company’s interpretation of data from preclinical studies or clinical trials;

•the data collected from clinical trials of ~~our~~the Company’s product candidates may not be sufficient to support the submission of an NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;

•wethe Company may be unable to demonstrate to the FDA, EMA or other comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

•the FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of ~~third-party~~third party manufacturers with which ~~we contract~~the Company contracts for clinical and commercial supplies; and

•the approval policies or regulations of the FDA, EMA or other comparable foreign regulatory authorities may significantly change in a manner rendering ~~our~~the Company’s clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in ~~our~~the Company failing to obtain regulatory approval to market any of ~~our~~its product candidates, which could materially affect ~~our~~its business, financial condition, results of operations and growth prospects.

WeThe Company may face difficulties from changes to current regulations and future legislation.

In the United States, the European Union and other jurisdictions there have been ~~and we expect there will continue to be,~~ a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect ~~our~~the Company's future results of operations. Existing regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of ~~our~~the product candidates. WeThe Company cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If ~~we are~~the Company is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if ~~we are not able~~it is unable to maintain regulatory compliance, weit may lose any marketing approval that we may have been obtained and wethe Company may not achieve or sustain profitability.

For example, in March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 ~~(collectively,~~(or collectively, the ACA), was passed, which substantially ~~changes~~changed the way healthcare is financed by both the government and private insurers, and continues to significantly ~~impacts~~impact the U.S. pharmaceutical industry. ~~Some~~

The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the ~~provisions~~HHS Secretary as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price (AMP), to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA ~~have yet~~also expanded the universe of Medicaid utilization subject to ~~be implemented,~~drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and ~~there have been~~by enlarging the population potentially eligible for Medicaid drug benefits.

There remain judicial, Congressional and executive branch challenges to certain aspects of the ACA, as well as ~~recent~~ efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed ~~two~~several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, ~~two~~several bills affecting the implementation of certain taxes under the ACA have passed. On December 22, 2017, President Trump signed into law federal tax legislation commonly referred to as the Tax Cuts and Jobs Act ~~(Tax~~(the Tax Act), which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” OnThe 2020 federal spending package permanently eliminated, effective January ~~22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed~~1, 2020, the ~~implementation of certain~~ ACA-mandated ~~fees, including the so-called~~ “Cadillac” tax on ~~certain high cost~~high-cost employer-sponsored ~~insurance plans, the annual fee imposed on certain~~ health ~~insurance providers based on market share,~~coverage and ~~the~~ medical device ~~excise~~ tax ~~on non-exempt medical devices. The Bipartisan Budget Act of 2018, among other things, amended the ACA,~~and, effective January 1, ~~2019, to close~~2021, also eliminates the coverage gap in most Medicare Part D drug plans. In July 2018, the Centers for Medicare and Medicaid Services (CMS) published a final rule permitting further collections and payments to and from certain ACA-qualified health ~~plans and health insurance issuers under the ACA risk adjustment~~

~~program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.~~

insurer tax.

On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. ~~While~~Additionally, on December 18, 2019, the ~~Texas~~ U.S. Court of Appeals for the 5th Circuit upheld the District Court ~~Judge, as well as the Trump administration and CMS, have stated~~ruling that the ~~ruling will have no immediate effect pending appeal~~individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ~~decision,~~ACA are invalid as well. The United States Supreme Court is currently reviewing this case, although it is unclear when the Supreme Court will make a decision. Although the United States Supreme Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to

review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is also unclear how ~~this decision, subsequent appeals,~~such litigation and other efforts to repeal and replace the ACA and the healthcare reform measures of the Biden administration will impact the ACA and ~~our~~the Company's business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through ~~2027~~2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for ~~our~~the Company's product candidates, if approved, and accordingly, ~~our~~the financial operations.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. There has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the Trump administration’s budget proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses and place limits on pharmaceutical price increases. In addition, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out-of-pocket costs of prescription drugs that ~~contains additional~~contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers. ~~Additionally,~~On July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration's proposals. As a result, the FDA also released a final rule, on ~~January 31, 2019,~~September 24, 2020 providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS ~~Office of Inspector General proposed modifications~~finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to ~~federal Anti-Kickback Statute safe harbors which, among other things, may affect rebates paid by manufactures to Medicare~~plan sponsors under Part D, ~~plan sponsors, Medicaid managed care organizations, and those entities’~~either directly or through pharmacy benefit managers, unless the ~~purpose~~price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. In addition, on November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of ~~which~~the interim final rule. It is unclear whether the Biden administration will work to ~~further reduce the cost of drug products to consumers.~~ reverse these measures or pursue similar policy initiatives.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

~~We expect~~The Company expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that ~~we receive~~the Company receives for any approved product. It is possible that additional governmental action is taken in response to address the SARS-CoV-2 virus pandemic. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent usthe Company from being able to generate revenue, attain profitability or commercialize ~~our~~its product candidates.

In the European Union, similar political, economic and regulatory developments may affect ~~our~~the Company's ability to profitably commercialize ~~our~~its product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase ~~our~~the Company's operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and

approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ~~ever- increasing~~ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of ~~our~~the Company's product candidates, restrict or regulate post-approval activities and affect ~~our~~its ability to commercialize ~~our~~its product candidates, if approved.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. WeThe Company cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, particularly in light of the recent presidential election, or what the impact of such changes on the marketing approvals of ~~our~~the Company's product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA approval process may significantly delay or prevent marketing approval, as well as subject usthe Company to more stringent product labeling and post-marketing testing and other requirements.

~~Our~~The Company's employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

~~We are~~The Company is exposed to the risk that ~~our~~its employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities. Misconduct by these parties could include failures to comply with FDA regulations, provide accurate information to the FDA, comply with federal and state health care fraud and abuse laws and regulations, comply with data privacy and security laws and accurately report financial information or data or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to ~~our~~the Company's reputation. Although ~~we have~~the Company has adopted a code of business conduct and ethics with respect to ~~our~~its employees, agents and contractors, it is not always possible to identify and deter misconduct by these parties, and the precautions ~~we take~~the Company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting usit from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, ~~we are~~the Company is a subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against ~~us,~~the Company, and ~~we are~~it is not successful in defending ~~ourselves~~itself or asserting ~~our~~its rights, those actions could have a significant impact on ~~our~~ business, including the imposition of significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of ~~our~~its operations.

If ~~we fail~~the Company fails to comply with environmental, health and safety laws and regulations, weit could become subject to fines or penalties or incur costs that could have a material adverse effect on ~~our~~its business.

WeThe Company and any contract manufacturers and suppliers ~~we engage~~it engages are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. ~~Our~~Its operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. ~~Our~~Its operations also produce hazardous waste. WeThe Company generally ~~contract~~contracts with third parties for the disposal of these materials and wastes. WeIt cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from ~~our~~the Company's use of hazardous materials, weit could be held liable for any resulting damages, and any liability could exceed ~~our~~its resources. Under certain environmental laws, weit could be held responsible for costs relating to any contamination at ~~our~~the Company's current or past facilities and at ~~third-party~~third party facilities. WeIt also could incur significant costs associated with civil or criminal fines and penalties.

Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair ~~our~~the Company's research, product development and manufacturing efforts. In addition, weit cannot entirely eliminate the risk of accidental injury or contamination from these materials or ~~waste~~waste. Although ~~we maintain~~the Company maintains workers’ compensation insurance to cover usit for costs and expenses weit may incur due to injuries to ~~our~~its employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. ~~We do~~It does not currently maintain insurance for environmental liability or toxic tort claims that may be asserted against usthe Company in connection with ~~our~~ storage or disposal of hazardous and flammable materials, including chemicals and biological materials. Accordingly, in the event of contamination or injury, weit could be held liable for damages or be penalized with fines in an amount exceeding ~~our~~its resources,

and ~~our~~its clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on ~~our~~ business, financial condition, results of operations and growth prospects.

In addition, wethe Company may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair ~~our~~ research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Obtaining and maintaining regulatory approval of ~~our~~the Company's product candidates in one jurisdiction does not mean that weit will be successful in obtaining regulatory approval of ~~our~~its product candidates in other jurisdictions. The FDA, EMA and other comparable foreign regulatory authorities may not accept data from trials conducted in locations outside of their jurisdiction.

Obtaining and maintaining regulatory approval of ~~our~~the Company's product candidates in one jurisdiction does not guarantee that weit will be able to obtain or maintain regulatory approval in any other jurisdiction. For example, even if the FDA or EMA grants

marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of the product candidate in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that ~~we intend~~the Company intends to charge for ~~our~~its products is also subject to approval.

Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for usthe Company and could delay or prevent the introduction of ~~our~~its products in certain countries. If wethe Company or any future collaborator fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, ~~our~~its target market will be reduced and ~~our~~ ability to realize the full market potential of ~~our~~its product candidates will be harmed.

In addition, wethe Company may choose to conduct international clinical trials. The acceptance of study data by the FDA, EMA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (1) the data are applicable to the U.S. population and U.S. medical practice; (2) the trials are performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (3) audits by regulatory authorities of the clinical data do not identify significant data integrity issues. Additionally, the FDA’s clinical trial requirements, including the adequacy of the patient population studied and statistical powering, must be met. In addition, such foreign trials are subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, EMA or any applicable foreign regulatory authority will accept data from trials conducted outside of its applicable jurisdiction. If the FDA, EMA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of ~~our~~the Company's business plan, and which may result in ~~our~~its product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.

~~Our~~The Company's business activities ~~may be~~are subject to the FCPA and similar anti-bribery and anti-corruption laws of other countries in which ~~we operate,~~it operates, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit ~~our~~the Company's ability to compete in foreign markets and subject usit to liability if ~~we violate~~it violates them.

WeThe Company recently completed a trial and may plan to initiate additional trials in countries other than the United States. ~~Our~~The Company's business activities ~~may be~~are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which ~~we operate.~~it operates. The FCPA generally prohibits offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. ~~Our~~The Company's business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the healthcare providers, including ECPs, who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, ~~our~~its dealings with these prescribers and purchasers are subject to regulation under the FCPA. ~~Recently the~~The SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of ~~our~~the Company's employees, agents or contractors, or those of ~~our~~its affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against ~~us, our~~the Company, its officers or ~~our~~its employees, the closing down of ~~our~~its facilities,

requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of ~~our~~the Company's business. Any such violations could include prohibitions on ~~our~~the Company's ability to offer ~~our~~its products in one or more countries and could materially damage ~~our~~its reputation, ~~our~~its brand, ~~our~~ international activities, ~~our~~its ability to attract and retain employees and ~~our~~its business, growth prospects, operating results and financial condition.

In addition, ~~our~~the Company's products may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of ~~our~~its products, or ~~our~~its failure to obtain any required import or export authorization for ~~our~~the Company's products, when applicable, could harm ~~our~~its international sales and adversely affect ~~our~~its revenue. Compliance with applicable regulatory requirements regarding the export of ~~our~~the Company's products may create delays in the introduction of ~~our~~its products in international markets or, in some cases, prevent the export of ~~our~~its products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If ~~we fail~~the Company fails to comply with export and import regulations and such economic sanctions, weit may

be fined or other penalties could be imposed, including a denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or technologies targeted by such regulations, could result in decreased use of ~~our~~its products by, or in ~~our~~its decreased ability to export ~~our~~ products to existing or potential customers with international operations. Any decreased use of ~~our~~the Company's products or limitation on ~~our~~its ability to export or sell access to ~~our~~its products would likely adversely affect ~~our~~the Company's business.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

If any of ~~our~~the Company's product candidates are approved and ~~we are~~the Company is found to have improperly promoted off-label uses of those products, weit may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as ~~our~~the Company's product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. For example, if ~~we receive~~the Company receives marketing approval for OC-01 (varenicline) nasal spray as a treatment for the signs and symptoms of ~~DED,~~dry eye disease, physicians may nevertheless use ~~our~~the product for their patients in a manner that is inconsistent with the approved label. If ~~we are~~the Company is found to have promoted such off-label uses, weit may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If wethe Company cannot successfully manage the promotion of ~~our~~its product candidates, if approved, weit could become subject to significant liability, which would materially adversely affect ~~our~~ business, growth prospects, operating results and financial condition.

~~Inadequate funding for~~Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of ~~our~~the Company's business may rely, which could negatively impact ~~our~~its business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy ~~changes.~~changes, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of the ~~Securities and Exchange Commission (SEC)~~SEC and other government agencies on which ~~our~~the Company's operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect ~~our~~the Company's business. For example, in recent years, including in 2013, 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities.

Separately, in response to the SARS-CoV-2 virus pandemic, in March 2020, the FDA announced its intention to postpone most domestic and foreign inspections of manufacturing facilities and products and only restarted domestic inspections on a risk-based basis in July 2020. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the SARS-CoV-2 virus pandemic. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process ~~our~~the Company's regulatory submissions, which could have a material adverse effect on ~~our~~its business. Further, in ~~our~~the Company's operations as a public company, future government shutdowns could impact ~~our~~its ability to access the public markets and obtain necessary capital in order to properly capitalize and continue ~~our~~its operations.

Business disruptions could seriously harm ~~our~~the Company's future revenue and financial condition and increase ~~our~~its costs and expenses.

~~Our~~Company's operations, and those of ~~our~~its CROs, CMOs, suppliers, and other contractors and consultants, could be subject to wildfires, earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war (including trade wars), political instability or other conflict, and other natural or man-made disasters or other events outside of ~~our~~the Company's control that can disrupt business. The occurrence of any of these business disruptions could seriously harm ~~our~~the Company's operations and financial condition and increase ~~our~~its costs and expenses. For example, ~~we rely~~the Company relies on ~~third-party~~third party manufacturers to produce and process ~~our~~its product candidates. ~~Our~~The Company's ability to obtain supplies of ~~our~~its product candidates or other necessary supplies could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. All of ~~our~~the Company's operations including ~~our~~its corporate headquarters are located in a single location in Princeton, New Jersey. Damage or extended periods of interruption to ~~our~~its corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause usthe Company to cease or delay development of some or all of ~~our~~its product candidates. Although ~~we maintain~~the Company maintains property damage and business interruption insurance coverage on these facilities, ~~our~~the insurance might not cover all losses under such circumstances and ~~our~~Company's business may be seriously harmed by such delays and interruption.

Risks Related to Reliance on Third Parties

~~We rely~~The Company relies on third parties to conduct ~~our~~its clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research and studies.

~~We do~~The Company does not have the ability to independently conduct ~~our~~its clinical trials. WeThe Company currently ~~rely~~relies on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct ~~our~~its current and ~~planned~~potential future clinical trials of OC-01 (varenicline) nasal spray and ~~OC-02,~~other product candidates, and ~~we expect~~the Company expects to continue to rely upon third parties to conduct additional clinical trials of OC-01 ~~OC-02~~(varenicline) nasal spray and ~~potential future~~other product candidates. Third parties have a significant role in the conduct of ~~our~~its clinical trials and the subsequent collection and analysis of data. These third parties are not ~~our~~the Company's employees, and except for remedies available to usthe Company under ~~our~~its agreements with such third party, ~~we have~~it has limited ability to control the amount or timing of resources that any such third party will devote to ~~our~~the Company's clinical trials. Some of these third parties may terminate their engagements with usthe Company at any time. If ~~we need~~it needs to enter into alternative arrangements with a third party, it would delay ~~our~~the Company's development activities.

~~Our~~The Company's reliance on these third parties for such development activities will reduce ~~our~~its control over these activities but will not relieve usit of ~~our~~its regulatory responsibilities. For example, wethe Company will remain responsible for ensuring that each of ~~our~~its clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires usthe Company to comply with GCP standards, regulations for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The EMA also requires usthe Company to comply with similar standards. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If wethe Company or any of ~~our~~its CROs fail to comply with applicable GCP requirements, the clinical data generated in ~~our~~the clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require usthe Company to perform additional clinical trials before approving ~~our~~its marketing applications. WeThe Company cannot ~~assure you~~provide assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of ~~our~~its clinical trials comply with GCP regulations. In addition, ~~our~~the clinical trials must be conducted with product produced under current cGMP regulations. ~~Our~~The Company's failure to comply with these regulations may require usit to repeat clinical trials, which would delay the marketing approval process. WeThe Company also ~~are~~is required to register certain ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

The third parties ~~we rely~~the Company relies on for these services may also have relationships with other entities, some of which may be ~~our~~its competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct ~~our~~the Company's clinical trials in accordance with regulatory requirements or ~~our~~the Company's stated protocols, weit will not be able to obtain, or may be delayed in obtaining, marketing approvals for ~~our~~its product candidates and will not be able to, or may be delayed in ~~our~~its efforts to, successfully commercialize ~~our~~its product candidates.

~~We contract~~The Company contracts with third parties for the production of ~~our~~its product candidates for preclinical studies and ~~our~~ ongoing clinical trials, and ~~expect~~expects to continue to do so for additional clinical trials and ultimately for commercialization. This reliance on third parties increases the risk that wethe Company will not have sufficient quantities of ~~our~~its product candidates or such quantities at an acceptable cost, which could delay, prevent or impair ~~our~~its development or commercialization efforts.

~~We do~~The Company does not currently have the infrastructure or internal capability to manufacture supplies of ~~our~~its product candidates for use in development and commercialization. ~~We rely,~~It relies, and ~~expect~~expects to continue to rely, on ~~third-party~~third party manufacturers

for the production of ~~our~~its product candidates for preclinical studies and clinical trials under the guidance of members of ~~our~~its organization. ~~We do~~The Company does not have long-term supply agreements. If weit were to experience an unexpected loss of supply of OC-01 ~~OC-02 or any of our future~~(varenicline) nasal spray and other product candidates for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, wethe Company could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials.

~~We expect~~The Company expects to continue to rely on ~~third-party~~third party manufacturers for the commercial supply of any of ~~our~~its product candidates for which ~~we obtain~~it obtains marketing approval. WeIt may be unable to maintain or establish required agreements with ~~third-party~~third party manufacturers or to do so on acceptable terms. Even if ~~we are~~it is able to establish agreements with ~~third-party~~third party manufacturers, reliance on ~~third-party~~third party manufacturers entails additional risks, including:

•the failure of the third party to manufacture ~~our~~the Company's product candidates according to ~~our~~its schedule, or at all, including if ~~our third-party~~its third party contractors give greater priority to the supply of other products over ~~our~~its product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between usthe Company and them;

•the termination or nonrenewal of arrangements or agreements by ~~our third-party~~the Company's third party contractors at a time that is costly or inconvenient for ~~us;~~

the Company;

•the breach by the ~~third-party~~third party contractors of ~~our~~the Company's agreements with them;

•the failure of ~~third-party~~third party contractors to comply with applicable regulatory requirements, including manufacturing drug supply pursuant to strictly enforced cGMPs;

•the failure of the third party to manufacture ~~our~~the Company's product candidates according to ~~our~~its specifications;

•the mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;

•clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and

•the misappropriation of ~~our~~the Company's proprietary information, including ~~our~~its trade secrets and know-how.

~~We do~~The Company does not have complete control over all aspects of the manufacturing process of, and ~~are~~is dependent on, ~~our~~ contract manufacturing partners for compliance with cGMP regulations for manufacturing both active drug substances and finished drug products. ~~Third-party~~Third party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If ~~our~~ contract manufacturers cannot successfully manufacture material that conforms to ~~our~~the Company's specifications and the strict regulatory requirements of the FDA, EMA or others, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, ~~we do~~the Company does not have control over the ability of ~~our~~its contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, EMA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of ~~our~~its product candidates or if it withdraws any such approval in the future, wethe Company may need to find alternative manufacturing facilities, which would significantly impact ~~our~~its ability to develop, obtain marketing approval for or market ~~our~~its product candidates, if approved. ~~Our~~The Company's failure, or the failure of ~~our third-party~~its third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of ~~our~~the Company's product candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of ~~our~~the Company's product candidates and harm ~~our~~its business and results of operations.

WeThe Company currently ~~rely~~relies on single source manufacturers and suppliers for ~~the supply of~~ OC-01 ~~and OC-02.~~(varenicline) nasal spray. If ~~we decide~~it decides to move to different or add additional manufacturers and suppliers in the future, any such transition or addition would require significant efforts in testing and validating the manufacturing and formulation process and could result in delays or other issues, which could have an adverse effect on the supply of ~~our~~the Company's product candidates.

~~Our~~The Company's current and anticipated future dependence upon others for the manufacture of ~~our~~its product candidates may adversely affect ~~our~~its future profit margins and ~~our~~its ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

WeThe Company may pursue collaborations with third parties for the development or commercialization of ~~our~~its product candidates. If ~~we decide~~it decides to pursue collaborations, but ~~are~~is not able to establish those collaborations on commercially reasonable terms, weit may have to alter ~~our~~its development and commercialization plans. If ~~we do~~it does enter into collaborations that are not successful, weit may not be able to capitalize on the market potential of these product candidates.

~~Our~~The Company's development programs and the potential commercialization of ~~our~~its product candidates will require substantial additional cash to fund expenses. WeIt may seek to selectively form collaborations to expand ~~our~~its capabilities, potentially accelerate research and development activities and provide for commercialization activities by third parties. Any of these

relationships may require usthe Company to incur non-recurring and other charges, increase ~~our~~its near and ~~long- term~~long-term expenditures, issue securities that dilute ~~our~~its existing stockholders, or disrupt ~~our~~ management and business.

WeThe Company would face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Whether ~~we reach~~it reaches a definitive agreement for a collaboration will depend, among other things, upon ~~our~~the Company's assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, EMA or comparable foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to ~~our~~the Company's ownership of intellectual property and industry and market conditions generally. The potential collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with usthe Company for ~~our~~its product candidate. Further, wethe Company may not be successful in ~~our~~its efforts to establish a collaboration or other alternative arrangements for future product

candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view them as having the requisite potential to demonstrate safety and efficacy.

In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Even if ~~we are~~the Company is successful in entering into a collaboration, the terms and conditions of that collaboration may restrict usit from entering into future agreements on certain terms with potential collaborators.

If and when ~~we seek~~the Company seeks to enter into collaborations, weit may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If ~~we are~~the Company is unable to do so, weit may have to curtail the development of a product candidate, reduce or delay its development program or one or more of ~~our~~its other development programs, delay its potential commercialization or reduce the scope of any sales and marketing activities, or increase ~~our~~ expenditures and undertake development or commercialization activities at ~~our~~its own expense. If ~~we elect~~the Company elects to increase ~~our~~its expenditures to fund development or commercialization activities on ~~our~~its own, weit may need to obtain additional capital, which may not be available to usthe Company on acceptable terms or at all. If ~~we do~~the Company does not have sufficient funds, weit may not be able to further develop ~~our~~its product candidates or bring them to market and generate product revenue.

~~Our~~The Company's business operations and current and future relationships with healthcare professionals, clinical investigators, consultants, patient organizations, customers, CROs and third party payors in connection with ~~our~~its current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose usthe Company to, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers and ~~third-party~~third party payors play a primary role in the recommendation and prescription of any product candidates for which ~~we obtain~~the Company obtains marketing approval. ~~Our~~The Company's current and future arrangements with healthcare professionals, including ECPs, clinical investigators, CROs, ~~third-party~~third party payors and customers may expose usit to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which ~~we market, sell~~the Company markets, sells and ~~distribute our~~distributes its products for which ~~we obtain~~it obtains marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

•the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and ~~Medicaid;~~

Medicaid. Moreover, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA) provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

•the federal civil and criminal false claims, ~~and civil monetary penalties laws,~~ including the civil False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, and civil monetary penalties laws prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

•the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

•analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws whichmay apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state laws that require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physiciansand other healthcare providers or marketing expenditures, state laws that require biotechnology companies to report information on the pricing of certain drug products, state and local laws that require the registration of pharmaceutical sales representatives;

•the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

•~~the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;~~

physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members. ~~The~~Beginning in 2022, applicable manufacturers also will be required to report such information ~~reported is publicly available on a searchable website, with disclosure required annually;~~regarding their payments and

other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiology assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year; and

•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, on “covered entities,” including certain healthcare providers, health plans, healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, as well as analogous state and foreign laws that govern the privacy and ~~regulations, such as state anti-kickback~~security of health information in some circumstances, many of which differ from each other in significant ways and ~~false claims laws, may apply to sales and marketing arrangements and claims involving healthcare items or services reimbursed~~often are not preempted by ~~non-governmental third-party payors, including private insurers.~~

HIPAA, thus complicating compliance efforts.

Some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Some state laws require biotechnology companies to report information on the pricing of certain drug products. Certain state and local jurisdictions require the registration of pharmaceutical sales representatives. State, federal and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For instance, the collection and use of health data in the ~~European Union~~EU is governed by the General Data Protection Regulation (GDPR), which extends the geographical scope of EU data protection law to non-EU entities under certain conditions, tightens existing EU data protection principles, creates new obligations for companies and new rights for individuals. Failure to comply with the GDPR may result in substantial fines and other administrative penalties. The GDPR may increase ~~our~~the Company's responsibility and liability in relation to personal data that ~~we process~~it processes and weit may be required to put in place additional mechanisms ensuring compliance with the GDPR. This may be onerous and if ~~our~~the Company's efforts to comply with GDPR or other applicable EU laws and regulations are not successful, it could adversely affect ~~our~~its business in the ~~European Union.~~

EU.

Efforts to ensure that ~~our~~the Company's current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that ~~our~~the Company's business practices, including the provision of stock options as compensation for consulting services to physicians and other healthcare providers, some of whom may be in a position to recommend, purchase and/or prescribe ~~our~~the Company's product candidates, if approved, may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If ~~our~~the Company's operations are found to be in violation of any of these laws or any other governmental regulations that may apply to ~~us, we~~it, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, ~~individual~~ imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of ~~our~~the Company's operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if ~~we are~~the Company is successful in defending against

any such actions that may be brought against ~~us, our~~it, its business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom ~~we expect~~the Company expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Risks Related to Ownership of Common Stock

WeThe Company will need substantial additional funding in the future. If ~~we are~~it is unable to raise capital when needed, or on acceptable terms, weit may be forced to delay, reduce and/or eliminate one or more of ~~our~~its research and development programs or future commercialization efforts.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. ~~Our~~The Company's operations have consumed significant amounts of cash since inception, and ~~we expect our~~it expects its expenses to increase in connection with ~~our~~ ongoing activities, particularly as ~~we continue~~it continues to conduct clinical trials of, and seek marketing approval for, OC-01 ~~OC-02~~(varenicline) nasal spray and ~~any~~ other ~~future~~ product candidates. Even if one or more of the product candidates that ~~we develop~~the Company develops is approved for commercial sale, ~~we anticipate~~including OC-01 (varenicline) nasal spray, it anticipates incurring significant costs associated with commercializing any approved product candidate. ~~Our~~The Company's expenses could increase beyond expectations if ~~we are~~the Company is required by the FDA, the EMA or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that weit currently ~~anticipate.~~anticipates. Other unanticipated costs may also arise. In addition, if we obtain marketing approval for any of our product candidates, including OC-01, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Because the design and outcome of ~~our~~its planned and anticipated clinical trials are highly uncertain, weit cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop. In addition, we have incurred and will continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in order to maintain our continuing operations.

it develops.

As of December 31, ~~2019, we~~2020, the Company had ~~$139.1~~$192.6 million in cash and cash equivalents. Although ~~we believe~~the Company believes that ~~our~~its available cash and cash equivalents will be sufficient to fund ~~our~~its planned operations for at least 12 months following the date of this Annual Report on Form 10-K, this belief is based on assumptions that may prove to be wrong, and wethe Company could use ~~our~~its available capital resources sooner than weit currently ~~expect.~~expects. Changing circumstances, some of which may be beyond ~~our~~its control, could cause usthe Company to consume capital significantly faster than weit currently ~~anticipate,~~anticipates, and weit may need to seek additional funds sooner than planned.

Advancing the development of OC-01 ~~OC-02~~(varenicline) nasal spray and ~~any~~ other ~~future~~ product candidates will require a significant amount of capital. ~~Our~~The Company's existing cash and cash equivalents may not be sufficient to fund all of the activities that are necessary to complete the development of OC-01 ~~OC-02~~(varenicline) nasal spray and ~~any~~ other ~~future~~ product candidates. WeIt will continue to require additional capital to develop ~~our~~its product candidates and fund operations for the foreseeable future. WeThe Company may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing, which may dilute ~~our~~ stockholders or restrict ~~our~~ operating activities. The amount of additional capital wethe Company will need to raise will depend on many factors, including:

•the scope, timing, rate of progress and costs of ~~our~~the Company's drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for ~~our~~its product candidates;

•the number and scope of clinical programs ~~we decide~~the Company decides to pursue;

•the cost, timing and outcome of preparing for and undergoing regulatory review of ~~our~~its product candidates;

•the scope and costs of development and commercial manufacturing activities;

•the cost and timing associated with commercializing ~~our~~of the Company's product candidates, if they receive marketing approval;

•the extent to which ~~we acquire~~the Company acquires or ~~in-license~~in-licenses other product candidates and technologies;

•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing ~~our~~the Company's intellectual property rights and defending intellectual property-related claims;

•~~our~~the Company's ability to establish and maintain collaborations on favorable terms, if at all;

•~~our~~the Company's efforts to enhance operational systems and ~~our~~its ability to attract, hire and retain qualified personnel, including personnel to support the development of ~~our~~its product candidates and, ultimately, the sale of ~~our~~its products, following FDA approval;

•~~our~~the Company implementation of operational, financial and management systems; and

•any current or future potential effects of the SARS-CoV-2 virus pandemic on the Company's business, operations, preclinical and clinical development and commercialization timelines and plans; and

•the costs associated with being a public company.

~~We do~~The Company does not have any committed external source of funds. Adequate additional financing may not be available ~~to us~~ on acceptable terms, or at all. ~~Our~~The Company's failure to raise capital as and when needed or on acceptable terms would have a negative impact on ~~our~~the Company's business, growth prospects, operating results and financial condition and ~~our~~its ability to

pursue ~~our~~ business strategy, and wethe Company may have to delay, reduce the scope of, suspend or eliminate one or more of ~~our~~its research-stage programs, clinical trials or future commercialization efforts.

An active trading market for ~~our~~the Company's common stock may not be sustained.

~~Prior to~~Although the ~~closing of our IPO in November 2019, there was no public trading market for our common stock. Although our~~Company's common stock is listed on the NASDAQ Global Select Market, the market for ~~our~~the Company's shares has demonstrated varying levels of trading activity. WeThe Company cannot predict the prices at which ~~our~~its common stock will trade or whether an active trading market will be sustained in the future. The lack of an active market may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the market value of their shares and may impair ~~our~~the Company's ability to raise capital.

If securities or industry analysts do not continue to publish research or reports, or if they publish adverse or misleading research or reports, regarding us, our business or our market, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us, our business or our market. If no additional securities or industry analysts commence coverage of us, our stock price could be negatively impacted. If any of the analysts who cover us issue adverse or misleading research or reports regarding us, our business model, our intellectual property, our stock performance or our market, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

The price of ~~our~~the Company's stock may be volatile, and ~~you~~investors could lose all or part of ~~your~~their investment.

The trading price of ~~our~~the Company's common stock may be highly volatile and subject to wide fluctuations in response to various factors, some of which weit cannot control. The stock market in general, and pharmaceutical and biotechnology companies in particular, ~~have~~has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors, including the potential impacts of the SARS-CoV-2 virus pandemic, may negatively affect the market price of ~~our~~the Company's common stock, regardless of ~~our~~its actual operating performance. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, these factors include:

•the timing and results of preclinical studies and clinical trials of ~~our~~the Company's product candidates or those of ~~our~~its competitors;

•the success of competitive products or announcements by potential competitors of their product development efforts;

•regulatory actions with respect to ~~our~~the Company's products or ~~our~~its competitors’ products;

•actual or anticipated changes in ~~our~~the Company's growth rate relative to ~~our~~its competitors;

•regulatory or legal developments in the United States and other countries;

•developments or disputes concerning patent applications, issued patents or other proprietary rights;

•the recruitment or departure of key personnel;

•announcements by usthe Company or ~~our~~its competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;

•actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

•fluctuations in the valuation of companies perceived by investors to be comparable to ~~us;~~

the Company;

•market conditions in the pharmaceutical and biotechnology sector;

•changes in the structure of healthcare payment systems;

•changes or expected changes to government and such implications for the health care industry;

•share price and volume fluctuations attributable to inconsistent trading volume levels of ~~our~~the Company's shares;

•announcement or expectation of additional financing efforts;

•sales of ~~our~~the Company's common stock by ~~us, our~~the Company, its insiders or ~~our~~ other stockholders;

•expiration of market stand-off or lock-up agreements; and

•general economic, industry and market conditions.

The realization of any of the ~~above~~ risks described in this “Risk Factors” section or any of a broad range of other risks, ~~including those described in this “Risk Factors” section,~~ could have a dramatic and adverse impact on the market price of ~~our~~the Company's common stock.

Sales of a substantial number of shares of ~~our~~the Company's common stock in the public market could cause ~~our~~its stock price to fall.

Holders of an aggregate of 14,193,281 shares of the Company's common stock have rights, subject to certain conditions, to require it to file registration statements covering their shares or to include their shares in registration statements that the Company may file for itself or other stockholders. Sales of a substantial number of shares of ~~our~~the Company’s common stock in the public market, ~~could occur at any time. These sales,~~ or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of ~~our~~the Company’s common stock. As of February 21, 2020, we had 21,366,950 shares of common stock outstanding. Of these shares, approximately 3,278,800 shares sold in our IPO may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, 17,865,320 shares of our common stock are currently restricted as a result of securities laws or lock-up agreements, but will be able to be sold in the public market as early as April 28, 2020, which is 180 days following the date of our final prospectus filed with the SEC on October 31, 2019 pursuant to Rule 424(b) under the Securities Act of 1933, as amended, as further described below. Moreover, holders of an aggregate of 14,193,281 shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. In addition, ~~on October 31, 2019, we~~the Company has filed a registration statement on Form S-8 registering 5,822,484 shares of common stock that weit may issue under ~~our~~its equity incentive plans. As a result, shares registered under this registration statement on Form S-8 can be freely sold in the public market subject to the satisfaction of vesting arrangements and the exercise of such options and volume limitations applicable to ~~affiliates and the lock-up agreements described below.~~

We and our executive officers, directors and the holders of substantially all of our common stock have entered into market stand-off agreements with us and lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell, directly or indirectly, any shares of common stock without the permission of J.P. Morgan Securities LLC, Cowen and Company, LLC, and Piper Jaffray & Co. through April 27, 2020. We refer to such period as the lock-up period. When the lock-up period expires, we and our securityholders subject to a lock-up agreement or market stand-off agreement could sell our shares in the public market, which could cause our stock price to fall. In addition, J.P. Morgan Securities LLC, Cowen and Company, LLC, and Piper Jaffray & Co. may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason prior to April 28, 2020. Sales of a substantial number of such shares upon expiration of the lock-up and market stand-off agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

affiliates.

Raising additional capital may cause dilution to ~~our~~the Company's existing stockholders, restrict ~~our~~its operations or require usthe Company to relinquish rights to ~~our~~its product candidates on unfavorable terms to ~~us.~~the Company.

WeThe Company may seek additional capital through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that ~~we raise~~it raises additional capital through the sale of equity or convertible debt or equity securities, ~~your~~investors' ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect ~~your~~their rights as a stockholder. Such financing may result in dilution to stockholders, imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect ~~our~~the Company's business. If ~~we raise~~the Company raises additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, weit may have to relinquish valuable rights to ~~our~~its product candidates or grant licenses on terms that are not favorable to ~~us.~~it. In addition, wethe Company may seek additional capital due to favorable market conditions or strategic considerations even if ~~we believe we have~~it believes it has sufficient funds for ~~our~~its current or future operating plans.

~~Our~~The Company's principal stockholders and management own a significant percentage of ~~our~~Company's stock and will be able to exert significant control over matters subject to stockholder approval.

As of December 31, ~~2019, our~~2020, the Company's executive officers, directors, holders of 5% or more of ~~our~~the Company's capital stock and their respective affiliates beneficially owned approximately ~~72%~~73% of ~~our~~its voting stock. As a result, this group of stockholders will have the ability to control all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of ~~our~~the Company's organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for ~~our~~the Company's common stock that ~~you~~investors may feel are in ~~your~~their best interest as one of ~~our~~the Company's stockholders. The interests of this group of stockholders may not always coincide with ~~your~~other stockholders' interests ~~or the interests of other stockholders~~ and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for ~~our~~the Company's common stock.

~~We are~~The Company is an “emerging growth company,” and weit cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make ~~our~~the Company's common stock less attractive to investors.

~~We are~~The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). For as long as ~~we continue~~it continues to be an emerging growth company, ~~we intend~~it intends to take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

•being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in ~~our~~the Company's periodic reports;

•not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

•not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

•reduced disclosure obligations regarding executive compensation in ~~our~~the Company's periodic reports and proxy statements; and

•exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

WeThe Company cannot predict if investors will find ~~our~~its common stock less attractive because wethe Company may rely on these exemptions. If some investors find ~~our~~the Company's common stock less attractive as a result, there may be a less active trading market for ~~our~~ common stock and ~~our~~the Company's stock price may be more volatile.

WeThe Company will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which ~~we have~~it has more than $1.07 billion in annual revenue; (2) the date ~~we qualify~~it qualifies as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which ~~we have~~it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of ~~our~~its initial public offering.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. ~~We have~~The Company has irrevocably elected not to avail ~~ourselves~~itself of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in ~~our~~the Company's business could significantly affect ~~our~~its financial position and results of operations.

We have identified material weaknesses in our internal control over financial reporting and, if our remediation of the material weaknesses is not effected in a timely manner or it is not effective or if we identify additional material weaknesses in the future, we may not be able to accurately or timely report our financial results, or prevent fraud, and investor confidence in our company and the market price of our shares may be adversely affected.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act), requires that we evaluate and determine the effectiveness of our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

During 2019, in connection with the audits of our financial statements as of and for the years ended December 31, 2018 and 2017, we identified two material weaknesses in our control over financial reporting.

First, we did not design or maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lack a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to an additional material weakness in that we did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations and journal entries.

7267

material. Additionally, each of the above material weaknesses could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

~~We have started to take some of the following steps to address the internal control deficiencies that contributed to the material weakness:~~

•hiring of additional finance and accounting personnel with prior experience working for finance departments of public companies and technical accounting experience, supplemented by third-party resources;

•~~documenting and formally assessing our accounting and financial reporting policies and procedures; and~~

•assessing significant accounting transactions and other technical accounting and financial reporting issues, preparing accounting memoranda addressing these issues and maintaining these memoranda in our corporate records.

However, our efforts are still preliminary and our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were not ineffective due to the material weaknesses in our control environment and formal accounting policies.

While we believe that these efforts, including working to formalize and implement our accounting policies and internal controls and the related documentation, will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weaknesses in a timely manner, we will be unable to conclude that we maintain effective internal controls over financial reporting. Accordingly, there could continue to be a reasonable possibility that these deficiencies or others could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.

~~We will incur~~The Company has been incurring increased costs as a result of operating as a public company, and ~~our~~its management ~~will be~~is required to devote substantial time to ~~new~~ compliance initiatives and corporate governance practices. Additionally, if ~~we fail~~the Company fails to maintain proper and effective internal ~~controls, our~~control over financial reporting, its ability to produce accurate financial statements on a timely basis could be impaired.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an “emerging growth company.” We areThe Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and Nasdaq. ~~Our~~Company's management and other personnel have devoted and will continue to devote a substantial amount of time to these compliance initiatives. Moreover, to comply with these rules and regulations, ~~have~~the Company has incurred and will continue to ~~substantially increase our~~incur legal, accounting and financial compliance costs, and ~~to make some activities~~these expenses may increase even more time-consuming and costly, which will increase our operating expenses. We cannot accurately predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also makeafter it ~~more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.~~

is no longer an "emerging growth company".

In addition, ~~as a public company we~~the Company has been and will be required to incur ~~additional~~ costs and obligations in order to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act. Under these rules, beginning with ~~our second annual report on Form 10-K after we become a public company, we will be~~this Annual Report, the Company is required to make a formal assessment of the effectiveness of ~~our~~the Company's internal control over financial reporting, and once ~~we cease~~it ceases to be an emerging growth company, weit will be required to include an attestation report on internal control over financial reporting issued by ~~our~~the Company's independent registered public accounting firm. ~~To achieve compliance with Section 404 within~~As disclosed in the ~~prescribed period, we will be engaging~~annual report on Form 10-K for the year ended December 31, 2019, the Company identified two material weaknesses in ~~a process~~its internal control over financial reporting. Management identified certain measures necessary to ~~document and evaluate our~~strengthen the internal control over financial reporting ~~which is~~and to address the material weaknesses, and implemented them in the fourth quarter of 2019 and throughout 2020. The Company has remediated the material weaknesses and management has determined that, as of December 31, 2020, the internal controls were designed and operating effectively and have been operating effectively for a sufficient period for management to conclude that the material weaknesses have been remediated. These efforts to document, evaluate, remediate and maintain the Company's internal control over financial reporting, has been and will continue to be both costly and challenging. In this regard, weit will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of ~~our~~its internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are designed and operating effectively, and implement a continuous reporting and improvement process for internal control over financial reporting.

~~The rules governing~~If the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. Our internal control over financial reporting will not prevent or

detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

~~If we are~~Company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, ~~in a timely manner,~~ or if ~~we are~~it is unable to maintain proper and effective internal ~~controls, we~~control over financial reporting, it may not be able to produce timely and accurate financial statements. If that were to happen, the market price of ~~our~~the Company's stock could decline and weit could be subject to sanctions or investigations by the stock exchange on which ~~our~~the common stock is listed, the SEC or other regulatory authorities.

The Company does not intend to pay dividends on its common stock so any returns will be limited to the value of the stock.

The Company has never declared or paid any cash dividends on its common stock. The Company currently anticipates that it will retain future earnings for the development, operation and expansion of its business and does not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to any appreciation in the value of their stock.

Provisions in the Company's restated certificate of incorporation and restated bylaws and Delaware law might discourage, delay or prevent a change in control of the Company or changes in its management and, therefore, depress the market price of its common stock.

The Company's restated certificate of incorporation and restated bylaws contain provisions that could depress the market price of its common stock by acting to discourage, delay or prevent a change in control of the Company or changes in its management that the stockholders of the Company may deem advantageous. These provisions, among other things:

~~Our~~•establish a classified board of directors so that not all members of the Company's board are elected at one time;

•permit only the board of directors to establish the number of directors and fill vacancies on the board;

•provide that directors may only be removed “for cause” and only with the approval of two-thirds of the Company's stockholders;

•authorize the issuance of “blank check” preferred stock that the board could use to implement a stockholder rights plan (also known as a poison pill);

•eliminate the ability of the stockholders to call special meetings of stockholders;

•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of the stockholders;

•prohibit cumulative voting;

•authorize the board of directors to amend the bylaws;

•establish advance notice requirements for nominations for election to the Company's board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; and

•require a super-majority vote of stockholders to amend some provisions described above.

In addition, Section 203 of the General Corporation Law of the State of Delaware (DGCL) prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of Company's voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Any provision of the Company's amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of the Company's capital stock and could also affect the price that some investors are willing to pay for Company's common stock.

The Company's amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between the Company and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers or employees.

The Company's amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for:

•any derivative action or proceeding brought on the Company's behalf;

•any action asserting a claim of breach of fiduciary duty;

•any action asserting a claim against the Company arising under the DGCL, its amended and restated certificate of incorporation or its amended and restated bylaws; and

•any action asserting a claim against the Company that is governed by the internal-affairs doctrine.

This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage lawsuits against the Company and its directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of the Company's securities shall be deemed to have notice of and consented to this provision. If a court were to find this exclusive-forum provision in the Company's amended and restated bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm its business. Nothing in the Company's amended and restated bylaws, including the exclusive-forum provision, precludes stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law.

General Risk Factors

If securities or industry analysts do not continue to publish research or reports, or if they publish adverse or misleading research or reports, regarding the Company, its business or its market, the stock price and trading volume could decline.

The trading market for the Company's common stock will be influenced by the research and reports that securities or industry analysts publish about it, its business or the Company's market. If no additional securities or industry analysts commence coverage of the Company, the Company's stock price could be negatively impacted. If any of the analysts who cover the Company issue adverse or misleading research or reports regarding it, its business model, intellectual property, stock performance or its market, or if the Company's operating results fail to meet the expectations of analysts, its stock price would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on it regularly, the Company could lose visibility in the financial markets, which in turn could cause its stock price or trading volume to decline.

The Company may be subject to securities litigation, which is expensive and could divert management attention.

The market price of the Company's common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. The Company may be the target of this type of litigation in the future. Securities litigation against the Company could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm Company's business.

The Company disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

~~We are subject to the periodic reporting requirements of the Exchange Act. We have~~The Company has designed ~~our~~its disclosure controls and procedures to reasonably assure that information weit must disclose in reports ~~we file~~it files or ~~submit~~submits under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. ~~We believe~~The Company believes that any

disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in ~~our~~the Company's control system, misstatements due to error or fraud may occur and not be detected.

~~We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.~~

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to any appreciation in the value of their stock.

Provisions in our restated certificate of incorporation and restated bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.

Our restated certificate of incorporation and restated bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:

•~~establish a classified board of directors so that not all members of our board are elected at one time;~~

•~~permit only the board of directors to establish the number of directors and fill vacancies on the board;~~

•~~provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;~~

•~~authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a poison pill);~~

•~~eliminate the ability of our stockholders to call special meetings of stockholders;~~

•~~prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;~~

•~~prohibit cumulative voting;~~

•~~authorize our board of directors to amend the bylaws;~~

•~~establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; and~~

7470

•~~require a super-majority vote of stockholders to amend some provisions described above.~~

In addition, Section 203 of the General Corporation Law of the State of Delaware (DGCL) prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

~~Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for:~~

•~~any derivative action or proceeding brought on our behalf;~~

•~~any action asserting a claim of breach of fiduciary duty;~~

•~~any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; and~~

•~~any action asserting a claim against us that is governed by the internal-affairs doctrine.~~

This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. If a court were to find this exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. Nothing in our amended and restated bylaws, including the exclusive-forum provision, precludes stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law.

~~Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.~~

Our net operating loss carryforwards (NOLs) could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law. Under the Tax Act, our federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning after December 31, 2017 is limited. It is uncertain if and to what extent various states will conform to the Tax Act. As of December 31, 2019, we had U.S. federal and state NOLs of $59.1 million, and $60.7 million, respectively, which will expire beginning in the year 2035.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an “ownership change” (generally defined as a cumulative change in our ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control. We have determined that no significant limitation would be placed on the utilization of our net operating loss and tax credit carryforwards due to prior ownership change. Our ability to utilize those NOLs could be limited by an “ownership change” as described above and consequently, we may not be able to utilize a material portion of our NOLs and certain other tax attributes, which could have a material adverse effect on our cash flows and results of operations.

~~We may be subject to securities litigation, which is expensive and could divert management attention.~~

The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

~~Our~~The Company's corporate headquarters are currently located in Princeton, New Jersey, where ~~we lease~~it leases 12,007 square feet of office space pursuant to an amended lease agreement that expires on June 30, 2022. In ~~January 2020, we amended our corporate headquarter~~February 2021, the Company entered into a lease ~~to increase the~~agreement for laboratory and office space ~~from 8,607 square feet to 12,007 square feet. We believe that our existing facilities~~in New Jersey for a three-year term beginning on March 1, 2021 and ending on February 29, 2024. Total future minimum lease payments under this agreement are adequate for our near-term needs, but expect to need additional space as we grow. We believe that suitable additional or alternative space would be available as required in the future on commercially reasonable terms.$0.4 million.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Our~~The Company's common stock has been listed on the NASDAQ Global Select Market under the symbol “OYST” since October 31, 2019. Prior to this date, there was no public market for ~~our~~the Company's common stock.

Holders of Common Stock

As of ~~February 21, 2020,~~January 31, 2021, there were approximately 8070 holders of record of ~~our~~the Company's common stock. The approximate number of holders is based upon the actual number of holders registered in ~~our~~the Company's records at such date and excludes holders in “street name” or persons, partnerships, associations, corporations, or other entities identified in security positions listings maintained by depository trust companies.

Dividend Policy

~~We have~~The Company has never declared or paid any cash dividends on ~~our~~its common stock and dodoes not anticipate paying cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

During the year ended December 31, 2019, we granted stock options to purchase an aggregate of 1,417,351 shares of common stock to our directors, officers, employees, consultants and other service providers under our 2016 Equity Incentive Plan (the 2016 Plan) at exercise prices per share ranging from $5.33 to $14.28. During the same period, we issued and sold to our directors, officers, employees, consultants and other service providers an aggregate of 7,291 shares of common stock upon the exercise of options under our 2016 Plan at an exercise price per share of $1.02, for an aggregate exercise price of $7,437.

Also during the year ended December 31, 2019, we issued and sold an aggregate of 6,581,590 shares of our Series B preferred stock at a purchase price of $14.13 per share for aggregate proceeds of $93.0 million.

~~We believe that the offers, sales and issuances of the securities described above were exempt from registration under the Securities Act under either (1)~~ Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering or (2) Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions.

~~Use of Proceeds from Initial Public Offering~~

~~On October 30, 2019, the U.S. Securities and Exchange Commission declared effective our registration statement on Form S-1 (File No.~~ ~~333-234104~~), as amended, filed in connection with our initial public offering (“IPO”). The IPO closed on November 4, 2019. In connection with the IPO, we issued and sold an aggregate of 5,750,000 shares of our common stock, including 750,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a price to the public of $16.00 per share. The aggregate offering price for shares sold in the offering was $92.0 million. J.P. Morgan Securities LLC, Cowen and Company, LLC and Piper Jaffray & Co. acted as the joint book-running managers of the offering. After deducting underwriting discounts, commissions and offering expenses paid or payable by us, the net proceeds from the IPO were $82.1 million. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities or to any of our affiliates.

There has been no material change in our planned use of the net proceeds from our IPO as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 31, 2019.

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

None.

~~None.~~

ITEM 6. SELECTED FINANCIAL DATA

~~You should read the~~The selected historical financial data below should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected financial data set forth below is derived from ~~our~~the Company's audited financial statements and may not be indicative of future operating results.


	Year Ended December 31,
	2020		2019
	(in thousands, except per share data)
Statements of Operations and Comprehensive Loss Data:
Operating expenses:
Research and development	$	39,811	$	33,628
Selling, general and administrative	31,178		13,673
Total operating expenses	70,989		47,301
Loss from operations	(70,989)		(47,301)
Other income, net	469		1,590
Net loss and comprehensive loss	$	(70,520)	$	(45,711)
Net loss per share, basic and diluted	$	(2.92)	$	(9.97)

	As of December 31,
	2020		2019
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	192,585	$	139,147
Working capital (1)	185,385		136,781
Total assets	197,910		143,209
Total liabilities	11,251		5,911
Total stockholders' equity	$	186,659	$	137,298

Year Ended December 31,
2019 2018
(in thousands, except per share data)
Statements of Operations and Comprehensive Loss Data:
Operating expenses
Research and development $ 33,628 $ 13,755
General and administrative 13,673 2,981
Total operating expenses 47,301 16,736
Loss from operations (47,301) (16,736)
Interest income 1,590 233
Related party interest expense — —
Net loss and comprehensive loss $ (45,711) $ (16,503)
Net loss attributable to common stockholders $ (45,711) $ (16,503)
Net loss per share attributable to common stockholders, basic and diluted $ (9.97) $ (11.69)
As of December 31,
2019 2018
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 139,147 $ 5,228
Working capital ⁽¹⁾
136,781 4,678
Total assets 143,209 5,704
Total liabilities 5,911 946
Redeemable convertible preferred stock — 43,001
Accumulated deficit (84,231) (38,520)
Total stockholders' equity (deficit) 137,298 (38,243)

(1) ~~We define working~~ Working capital is defined as current assets less current liabilities.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of ~~our~~the Company's financial condition and results of operations should be read in conjunction with ~~our~~the Company's financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to ~~our~~the Company's plans and strategy for ~~our~~its business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, ~~our~~the Company's actual results could differ materially from the results described in or implied, by these forward-looking statements. Please also see the section of this Annual Report on Form 10-K titled “Special Note Regarding Forward-Looking Statements.”

The discussion and analysis below has been organized as follows:

•Executive Summary, including a description of the business and significant events that are important to understanding the results of operations and financial condition;

•Results of operations, including an explanation of significant differences between the periods in the specific line items of the statements of operations;

•Financial condition addressing the Company's liquidity position, sources and uses of cash, capital resources and requirements, commitments, and off-balance sheet arrangements; and

•Critical accounting policies which are most important to both the portrayal of the Company's financial condition and results of operations.

Executive Summary

Introduction and Overview

~~We are~~Oyster Point Pharma, Inc. is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class pharmaceutical therapies to treat ocular surface diseases. ~~Our~~The Company's lead product candidate OC-01 (varenicline), nasal spray, a highly selective nicotinic acetylcholine receptor (nAChR) agonist, is being developed as a nasal spray to treat the signs and symptoms of dry eye disease (DED). OC-01’s novel mechanism of action is designed to re-establish tear film homeostasis by activating the trigeminal parasympathetic pathway and stimulating the glands and cells responsible for natural tear film production. In our Phase 2b clinical trial (ONSET-1) in 182 subjects, OC-01 demonstrated statistically significant improvements (as compared to placebo) in both signs and symptoms of DED.disease. Based on ~~OC-01’s~~OC-01 (varenicline) nasal spray’s clinical trial results and its ~~rapid onset~~novel mechanism of action, ~~we believe~~the Company believes OC-01 (varenicline) nasal spray, if approved by the FDA, has the potential to become the new standard of care and redefine how ~~DED~~dry eye disease is treated for millions of patients. ~~We initiated a~~

Phase 3 clinical trial (ONSET-2) in July 2019 and expect to report top-line results by the end of the second quarter 2020. Based on the results from this second registrational trial, we plan to submit a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) in the second half of 2020. We believe that targeting the parasympathetic nervous system through the use of locally administered cholinergic agonists has the potential to treat a wide range of diseases and disorders. We have identified several indications, including several outside of ophthalmology, where we believe this approach could provide a meaningful benefit to patients.

The Company has no products approved for sale and has not generated revenue since its inception in 2015. The Company expects to finance its operations through private and public equity or debt financing, collaborative or other arrangements with corporate sources or through other sources of financing.

Since ~~our~~its formation in June 2015, ~~we have~~the Company has devoted substantially all of ~~our~~its resources to developing ~~our~~its product candidates. ~~We have~~The Company has incurred significant operating losses to date. ~~Our~~The Company’s net losses were ~~$45.7~~$70.5 million and ~~$16.5~~$45.7 million for the ~~years~~year ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. As of December 31, ~~2019, we~~2020, the Company had an accumulated deficit of ~~$84.2 million. We expect~~$154.8 million. The Company expects that ~~our~~its operating expenses will increase ~~significantly~~ as ~~we advance our~~it advances its product candidates through preclinical and clinical development, ~~seek~~seeks regulatory approval, and ~~prepare~~prepares for and, if approved, ~~proceed~~proceeds to commercialization; ~~acquire, discover, validate~~acquires, discovers, validates and ~~develop~~develops additional product candidates; ~~obtain, maintain, protect~~obtains, maintains, protects and ~~enforce our~~enforces its intellectual property portfolio; and ~~hire~~hires additional personnel. In addition, ~~we have~~the Company has incurred and will continue to incur additional costs associated with operating as a public company.

We do not have any products approved for sale and have not generated any revenue since inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

~~We plan~~The Company plans to continue to use ~~third-party~~third party service providers, including ~~clinical research organizations (CROs)~~CROs and ~~contract manufacturing organization (CMOs),~~CMOs, to carry out ~~our~~its preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of ~~our~~its product candidates. ~~We do not currently have~~

Recent Events

Submission of the NDA for OC-01 (varenicline) nasal spray to FDA

On December 17, 2020, the Company submitted a ~~sales force. If~~505(b)(2) NDA to the FDA for OC-01 ~~is approved~~(varenicline) nasal spray for the treatment of ~~the~~ signs and symptoms of ~~DED, we intend~~dry eye disease. The MYSTIC, ONSET-1 and ONSET-2 clinical trials showed statistically significant improvements in Schirmer’s Score (an objective, reproducible, and quantifiable measure of natural tear film production), as compared to ~~deploy a specialty sales force~~control, which was the primary endpoint in all studies. Key secondary endpoints in ONSET-1 and ONSET-2 included change from baseline in symptoms as assessed by eye dryness score. In both of these pivotal studies, there was statistically or nominally statistically significant improvement in symptom scores at ~~launch of approximately 150~~Day 28, and in ONSET-2 as early as Day 14, as compared to ~~200 field representatives.~~control.All doses studied in the clinical trial program were well-tolerated with no serious drug related adverse events.

~~Prior to our initial public offering (IPO), we funded our operations primarily from~~Submission of the sale and issuance of redeemable convertible preferred stock and convertible promissory notes. In February and April 2019, we raised net proceeds of $92.9 million from the sale of Series B redeemable convertible preferred stock.

In October 2019, we entered into a non-exclusive patent license agreement with Pfizer, pursuant to which we made an upfront payment of $5.0 million. If we successfully commercialize OC-01, we may be required to pay a single milestone payment in the very low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digitsPhase 2 clinical trial protocol for Neurotrophic Keratopathy (NK) to the ~~mid-teens.~~FDA

On November ~~4, 2019, we completed our IPO selling 5,750,000~~30, 2020, the Company submitted to the FDA a protocol to initiate a clinical study in adult patients with NK, a degenerative disease characterized by decreased corneal sensitivity and poor corneal healing. The submission was made to the Company’s IND application for OC-01 (varenicline) nasal spray in dry eye disease. NK is the second of a number of important potential indications the Company is evaluating for OC-01 (varenicline) nasal spray, illustrating the Company's commitment to treating unmet needs related to ocular surface diseases. Enrollment of the first patient in the OLYMPIA Phase 2 study in NK is planned for the first half of 2021.

Entry into $100 million At-the-Market Sales Agreement (ATM) with Cowen and Company, LLC

On November 5, 2020, the Company entered into an at-the-market sales agreement (or ATM) with Cowen and Company, LLC, pursuant to which the Company may offer and sell shares of ~~our~~the Company's common stock ~~at $16.00 per share. Proceeds from our IPO, net~~having an aggregate offering price of ~~underwriting discounts~~up to $100 million. The ATM was entered into by the Company concurrently with a registration statement on Form S-3. Under the registration statement, the Company may offer and ~~commissions and other offering expenses, were $82.1 million. In connection with the completion~~sell, in one or more offerings, up to an aggregate of ~~our IPO on November 4, 2019, all then outstanding shares~~$300 million of ~~redeemable convertible preferred stock converted into 14,193,281~~any combination of securities registered thereunder, consisting of shares of common ~~stock.~~and preferred stock, debt securities and warrants.

The Impact of the SARS-CoV-2 Virus Pandemic

AsIn March 2020, the World Health Organization declared the SARS-CoV-2 virus outbreak to be a pandemic. Also, in March of ~~December 31, 2019, we had cash and cash equivalents~~2020, due to the SARS-CoV-2 virus pandemic, the Company experienced an impact at select clinical trial sites where ophthalmology practices were closed, or subjects were unable to attend visits, or where clinical trial sites did not feel comfortable putting their staff or subjects into a Controlled Adverse Environment (CAE®), which limited the Company's ability to assess the related secondary endpoint in its ONSET-2 study for those subjects. The Company then conducted a further post-hoc analysis on the data, which led to the discovery of ~~$139.1 million. We believe~~additional treatment benefits in the 1.2 mg/ml dose group that ~~those cash and cash equivalents will be sufficient to fund our projected operations~~were not captured with the statistical method used for ~~at least 12 months from~~analysis of the ~~issuance date of our financial statements as of and for~~secondary endpoint.

During the year ended December 31, ~~2019.~~2020, financial results of the Company were not significantly affected by the SARS-CoV-2 virus pandemic. However, the extent to which the SARS-CoV-2 virus outbreak affects the Company’s future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak, and current or future domestic and international actions to contain it and treat it. The Company continues to evaluate the impact of the SARS-CoV-2 virus pandemic on its trials, expected timelines and costs, as well as potential supply-chain challenges as it prepares itself for commercialization of the OC-01 (varenicline) nasal spray candidate and as it continues to learn more about the impact of the SARS-CoV-2 virus pandemic on the industry.

The Company continues to evaluate and develop pipeline candidates for the potential treatment of various medical indications. The ongoing SARS-CoV-2 virus pandemic may impact access to supplies necessary to conduct preclinical studies, cause delay to the timelines to initiate or complete in vitro or in vivo animal studies, or indirectly impact the operation of contract organizations that are necessary for the Company to advance preclinical projects. If the SARS-CoV-2 virus pandemic continues and persists for an extended period of time, the Company could experience significant disruptions to its clinical development timelines, which could adversely affect its business, financial condition and results of operations.

The ultimate impact of the SARS-CoV-2 virus pandemic or a similar health epidemic is highly uncertain and subject to change. The Company has taken a variety of measures in an effort to ensure the availability and functioning of the Company's

critical infrastructure and to promote the safety and security of its employees. These measures include requiring remote working arrangements for employees, which will continue through at least the second quarter of 2021 and investing in personal protective equipment for the future return to the office. In addition, Company management is continuously evaluating and developing an implementation plan for employees’ safe return to the office once that option becomes feasible. The Company will continue to actively monitor the evolving situation related to the SARS-CoV-2 virus pandemic and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees, partners and other third-parties with whom the Company does business. At this point, the full extent to which the SARS-CoV-2 virus pandemic may affect the Company’s business, operations, preclinical and clinical development and commercialization timelines and plans, including the resulting impact on its expenditures and capital needs, remains uncertain.

For further discussion of the risks that the Company faces as a result of the SARS-CoV-2 virus pandemic refer to Part II, Item 1A, Risk Factors, of this Annual Report on Form 10-K.

Components of Operating Results

Revenue

~~We have~~The Company did not ~~generated~~generate any revenue from product sales ~~and do not expect to do so~~ in ~~the near future.~~2020 or 2019.

Operating Expenses

Research and Development Expenses

~~Substantially all of our~~The Company’s research and development expenses consist of expenses incurred in connection with the development of ~~our~~its product candidates. These expenses ~~include~~ consist primarily of:

•fees paid to third parties to conduct certain research and development activities on ~~our~~the Company’s behalf and consulting ~~costs, costs for laboratory supplies, product acquisition and license costs,~~ costs;

•certain ~~payroll and personnel-related~~payroll-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation ~~expenses~~expense for employees dedicated to ~~our~~the Company’s research and product development (payroll-related expense);

•costs related to acquiring and ~~allocated overhead~~manufacturing clinical trial materials and costs for manufacturing of pre-approval inventory of the product candidates under development;

•costs for laboratory supplies, product acquisition and license costs; and

•costs related to regulatory compliance requirements.

The Company expenses ~~including rent, equipment, depreciation, information technology costs and utilities. We expense~~ both internal and external research and development expenses as they are incurred.

~~We do~~The Company does not allocate ~~our~~its costs by product candidate, as a significant amount of research and development expenses ~~include~~includes internal costs, such as payroll and other personnel expenses, laboratory supplies, ~~and allocated overhead expenses,~~ and external costs, such as fees paid to third parties to conduct research and development activities on ~~our behalf, are not tracked by product candidate. In particular, with respect to internal costs, several~~the Company's behalf. Several of ~~our~~the Company's departments support multiple product candidate research and development programs, and therefore the costs cannot be allocated to a particular product candidate or development program. The ~~following table shows our~~Company tracks its research and development expenses by type of ~~activity (in thousands):~~activity: clinical and preclinical, chemistry, manufacturing and controls (CMC), and other costs.

Year EndedDecember 31,
2019 2018
Clinical and preclinical $ 12,470

$ 9,302
Chemistry, Manufacturing and Controls (CMC) 12,148

2,885
License costs 5,000 —
Regulatory and other costs 4,010

1,568
Total research and development expenses $ 33,628

$ 13,755

~~We are~~The Company is focusing substantially all of ~~our~~its resources on the development of ~~our~~its product candidates, particularly ~~OC-01. We expect our~~OC-01 (varenicline) nasal spray. The Company expects its research and development expenses to increase ~~substantially~~ for at least the next few years, as ~~we seek~~it seeks to initiate additional clinical trials for ~~our~~its product candidates, complete ~~our~~its clinical programs, ~~pursue regulatory approval of our product candidates~~ and prepare for the ~~possible commercialization~~potential regulatory approval of these product candidates. Predicting the timing or cost to complete ~~our~~the Company’s clinical programs or validation of ~~our~~its commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of ~~our~~the Company’s control. For example, if the FDA or other regulatory authorities were to require usthe Company to conduct clinical trials beyond those that weit currently ~~anticipate, we~~anticipates, the Company could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, ~~we are~~the Company is unable to predict when or if ~~our~~its product candidates will receive regulatory approval with any certainty.

Selling, General and Administrative Expenses

~~General~~Selling, general and administrative expenses consist ~~principally~~primarily of ~~payroll and personnel~~the following:

•certain payroll-related expenses, including salaries, ~~and~~ bonuses, employee benefits and stock-based compensation ~~expenses,~~ expense (payroll-related expense);

•professional fees for legal, consulting, accounting and tax services, ~~allocated overhead~~as well as insurance expense;

•commercial planning expenses, ~~including~~ marketing and promotional expense;

•rent, office equipment, ~~depreciation,~~ and utilities;

•information technology ~~costs~~costs; and ~~utilities,~~

•and other general operating expenses not otherwise classified as research and development expenses.

~~We anticipate~~The Company anticipates that ~~our~~its selling, general and administrative expenses will increase as a result of increased personnel costs, commercial planning expenses, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable stock exchange and ~~Securities and Exchange Commission (SEC)~~SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company.

~~Interest~~Other Income, Net

~~Interest~~Other income, net consists primarily of interest income earned on ~~our~~money market funds, which are included in cash and cash ~~equivalents.~~equivalents on the Company's balance sheets.

Results of Operations

Comparison of the Years Ended December 31, ~~2019~~2020 and ~~2018~~2019

The following table summarizes ~~our~~the Company's results of operations for the periods indicated (in thousands, except percentages):

Year Ended December 31,
2019 2018 Change %
Operating expenses:
Research and development $ 33,628 $ 13,755 $ 19,873 144 %
General and administrative 13,673 2,981 10,692 359 %
Loss from operations (47,301) (16,736) (30,565) 183 %
Interest income 1,590 233 1,357 582 %
Net loss $ (45,711) $ (16,503) $ (29,208) 177 %


	Year Ended December 31,
	2020		2019		$ Change		% Change
Research and development:
Clinical, preclinical	$	12,265	$	13,550	$	(1,285)	(9)	%
Chemistry, manufacturing and controls (CMC)	19,476		13,145		6,331		48	%
Other	8,070		6,933		1,137		16	%
Total research and development	39,811		33,628		6,183		18	%
Selling, general and administrative	31,178		13,673		17,505		128	%
Loss from operations	(70,989)		(47,301)		(23,688)		50	%
Other income, net	469		1,590		(1,121)		(71)	%
Net loss	$	(70,520)	$	(45,711)	$	(24,809)	54	%

Research and Development Expenses

Research and development expenses increased by ~~$19.9~~ $6.2 million ~~or 144%, from~~during the year ended December 31, ~~2018~~2020 compared to the year ended December 31, 2019. The Company's clinical, preclinical expense was $1.3 million lower in 2020 primarily due to the completion of the ONSET-2 Phase 3 clinical trial in May 2020. The Company incurred higher CMC expense in the amount of $6.3 million primarily due to the continued advancement of OC-01 (varenicline) nasal spray, as well as higher employee headcount, which resulted in an increase in payroll-related expenses. Other research and development expense increased by $1.1 million. The increase was due to higher costs primarily related to data management and regulatory costs in connection with the advancement of the OC-01 (varenicline) nasal spray and NDA submission in the amount of $3.2 million, as well as a $2.9 million fee paid to the FDA in connection with the NDA submission in December of 2020. This increase was partially offset by the $5 million license payment to Pfizer in 2019, as further described inNote 9, Commitments and Contingencies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $17.5 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase ~~in research and development expenses~~ was primarily driven by additional payroll-related expenses of $9.0 million due to ~~our advancement of OC-01 and reflected~~ an increase in ~~fees due to CROs and CMO~~headcounts ~~of $12.5 million, an increase of $5.0 million related to the license acquisition payment made to Pfizer and an increase in payroll and personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense, of~~ ~~$2.4~~ million. We expect that our research and development expenses will continue to increase as we continue to add personnel to support our research and development activities and incur further expenses for CROs and CMOs in order to continue the advancement of our product candidates.

~~General and Administrative Expenses~~

~~General and administrative expenses increased by $10.7 million, or 359%~~, from the year ended December 31, 2018 to the year ended December 31, 2019. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase in payroll and personnel-related expenses, including salaries, benefits and stock-based compensation expense, of $4.4 million, an increase in professional services and other expenses incurred in relation to our IPO readiness of $3.5 million, an increase in marketing expenses, of $1.5 million, an increase in facilities expenses, consisting primarily of rent and depreciation, of $0.3 million; and an increase inhigher other general and administrative expenses of ~~$1.0 million.~~$5.5 million due to expansion of the Company's organization, as well as additional costs incurred by the Company due to operating as a publicly traded company. The Company incurred higher commercial planning expenses of $3.1 million in anticipation of a U.S. launch of OC-01 (varenicline) nasal spray, if approved by the FDA, in the fourth quarter of 2021.

~~Interest~~Other Income, Net

~~Interest~~Other income, ~~increased~~net decreased by ~~$1.4~~$1.1 million ~~or 582%, from~~during the year ended December 31, ~~2018~~2020 compared to the year ended December 31, 2019, primarily due to ~~an increase in cash and cash equivalents as~~ a ~~result~~lower rate of return on money market funds earned during the ~~IPO in November 2019 and the sale of Series B redeemable convertible preferred stock in February and April 2019.~~

period.

Liquidity and Capital Resources

Sources of Liquidity

~~Since our formation in 2015 through~~ ~~December 31, 2019~~, we have funded our operations with an aggregate of $213.4 million in gross cash proceeds from the sale of redeemable convertible preferred stock and convertible promissory notes and the gross cash proceeds from our IPO. In February and April 2019, we received net cash proceeds of $84.9 million and $8.0 million, respectively, from the sale of Series B redeemable convertible preferred stock. On November 4, 2019, we received $82.1 million of net proceeds upon completion of our IPO.

As of December 31, ~~2019~~2020~~, we~~ and December 31, 2019, the Company had cash and cash equivalents of $192.6 million and $139.1 million, respectively..

On November 5, 2020, the Company entered into an at-the-market sales agreement (or ATM) with Cowen and Company, LLC, pursuant to which the Company may offer and sell shares of the Company's common stock having an aggregate offering price of up to $100 million. The ATM was entered into by the Company concurrently with a registration statement on Form S-3. Under the registration statement, the Company may offer and sell, in one or more offerings, up to an aggregate of $300 million of any combination of securities registered thereunder, consisting of shares of common and preferred stock, debt securities and warrants.

On May 19, 2020, the Company completed a follow-on public offering selling 4,312,500 shares of common stock at a price to the public of $28.00 per share. The net proceeds from the offering were $112.6 million.

Future Funding Requirements

~~We have incurred net losses since our inception. For~~Based on the ~~years ended~~ ~~December 31, 2019 and 2018,~~ ~~we had net losses of $45.7 million and $16.5 million, respectively. As of~~ ~~December 31, 2019, we had an accumulated deficit of $84.2 million. We believe~~current business plan, management believes that ~~our existing~~its available cash and cash equivalents ~~in the amount of $139.1 million~~ will be sufficient to fund ~~our projected~~the Company's planned operations for at least 12 months from the ~~issuance~~filing date of ~~our financial statements as of and for the year ended~~ ~~December 31, 2019~~.this Annual Report on Form 10-K.

~~To date, we have not~~On December 17, 2020, the Company submitted a 505(b)(2) NDA to the FDA for its first lead product candidate, OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry eye disease. The Company expects to incur sales and marketing expenses with the commercialization of OC-01 (varenicline) nasal spray, if approved for sale, as well as increased research and development expenses as it develops additional product candidates. Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company generated ~~any revenue. We do~~net losses of $70.5 million and $45.7 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of 154.8 million as of December 31, 2020. The Company has historically financed its operations primarily through the sale and issuance of its securities. In addition, the Company has incurred and will continue to incur additional costs associated with operating as a public company. The Company does not expect to generate any meaningful revenue unless and until ~~we obtain~~it obtains regulatory approval of and ~~commercialize~~commercializes any of ~~our~~its product candidates or decides to enter into collaborative agreements with third ~~parties,~~

and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We areparties. The Company is subject to all of the risks typically related to the development of new product candidates, and weit may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect ~~our~~its business.

We The Company will continue to require additional capital to ~~develop our~~continue developing its product candidates and fund operations for the foreseeable future. WeThe Company may seek to raise capital through private or public equity or debt financings, collaborative or other ~~arrangements~~arrangement with corporate sources, or through other sources of financing. ~~We anticipate~~The Company anticipates that weit will need to raise substantial additional capital, the requirements for which will depend on many factors, including:

•the number and scope of clinical programs ~~we decide~~the Company decides to pursue;

•the cost, timing and outcome of preparing for and undergoing regulatory review of ~~our~~the Company's product candidates;

•the scope and costs of development and commercial manufacturing activities;

•the cost and timing associated with commercializing ~~our~~of the Company's product candidates, if they receive marketing approval;

•the extent to which ~~we acquire~~the Company acquires or ~~in-license~~in-licenses other product candidates and technologies;

•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing ~~our~~the Company's intellectual property rights and defending intellectual property-related claims;

•~~our~~the Company's ability to establish and maintain collaborations on favorable terms, if at all;

•~~our~~its efforts to enhance operational systems and ~~our~~the Company's ability to attract, hire and retain qualified personnel, including personnel to support the development of ~~our~~the Company's product candidates and, ultimately, the sale of ~~our~~the Company's products, following FDA approval;

•~~our~~the Company's implementation of operational, financial and management systems; and

•any current or future potential effects of the SARS-CoV-2 virus pandemic on the Company's business, operations, preclinical and clinical development and commercialization timelines and plans; and

•the costs associated with being a public company.

A change in the outcome of any of these or other variables with respect to the development of any of ~~our~~the Company's product candidates could significantly change the costs and timing associated with the development of that product candidate.

Furthermore, ~~our~~the Company's operating plans may change in the future, and weit will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If ~~we raise~~ additional funds are raised by issuing equity securities, ~~our~~the Company's stockholders may experience dilution. Any future debt financing into which wethe Company might enter may impose upon usit additional covenants that restrict ~~our~~the Company's operations, including limitations on ~~our~~its ability to incur liens or additional debt, pay dividends, repurchase ~~our~~its common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that ~~we raise~~it raises may contain terms that are not favorable to usthe Company or ~~our~~its stockholders.

Adequate funding may not be available to usthe Company on acceptable terms or at ~~all. Our~~all, and any uncertainty and volatility in capital markets caused by the SARS-CoV-2 virus pandemic may negatively impact the availability and cost of capital. The Company's failure to raise capital as and when needed could have a negative impact on ~~our~~its financial condition and ~~our~~ ability to pursue ~~our~~its business strategies. If ~~we are~~the Company is unable to raise additional funds when needed, weit may be required to delay, reduce, or terminate some or all of ~~our~~its development programs and clinical trials or we may also be required to sell or license to others rights to ~~our product~~its product candidates in certain territories or indications that weit would prefer to develop and commercialize ~~ourselves.~~itself. If ~~we are~~the Company is required to enter into collaborations and other arrangements to supplement ~~our~~its funds, weit may have to give up certain rights that limit ~~our~~its ability to develop and commercialize ~~our~~the product candidates or may have other terms that are not favorable to usthe Company or ~~our~~its stockholders, which could materially affect ~~our~~its business and financial condition.

See the section of this Annual Report on Form 10-K titled “Risk Factors” for additional risks associated with ~~our~~the Company's substantial capital requirements.

~~Summary Statement of~~ Cash ~~Flows~~Flow Discussion

The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below:

Year Ended
December 31,
2019 2018
Net cash (used in) provided by:
Operating activities $ (40,815) $ (17,083)
Investing activities (200) —
Financing activities 174,985 —
Net increase (decrease) in cash, cash equivalents and restricted cash 133,970 (17,083)


	Year Ended December 31,
	2020		2019		$ Change
Net cash (used in) provided by:
Operating activities	$	(58,399)	$	(40,815)	$	(17,584)
Investing activities	(700)		(200)		(500)
Financing activities	112,547		174,985		(62,438)
Net increase in cash, cash equivalents and restricted cash	$	53,448	$	133,970	$	(80,522)

Cash Flows ~~from~~Used in Operating Activities

Net cash used in operating activities ~~was $40.8~~increased by $17.6 million for the year ended December 31, 2020 compared to the year ended December 31, ~~2019. Cash used in operating activities was primarily~~2019, due to ~~the use of funds in our operations to develop our product candidates resulting in a~~higher net loss ~~of $45.7 million,~~ adjusted byfor non-cash stock-based compensation expense of $3.3 million and by a decrease in changes in assets and liabilities of $1.6 million. Decrease in changes in assets and liabilities included an increase in prepaid expenses and other current assets of $2.6 million due to change in prepayments made to CROs and CMOs,items, partially offset by an increase in ~~accrued liabilities~~working capital of ~~$4.2~~$3.2 million ~~due to an increase in accrued research and development expenses and professional fees.~~

~~Net cash used in operating activities was $17.1 million for~~driven primarily by the ~~year ended December 31, 2018. Cash used in operating activities was primarily due~~timing of payments to the ~~use~~Company's service providers. The Company's higher net loss was driven by the continued development of ~~funds in our operations to develop our~~the Company's product candidates, ~~resulting~~as well as costs incurred in ~~a net loss of $16.5 million, increased by a decrease~~connection with the NDA submission for OC-01 (varenicline) nasal spray in accrued liabilities of $1.2 million primarily due to a decrease in accrued research and development and accrued compensation expenses, and partially offset decrease in prepaid expenses and other current assets of $0.5 million.December 2020.

Cash Flows ~~used~~Used in Investing Activities

Net cash used in investing activities ~~was $0.2~~increased by $0.5 million for the year ended December 31, 2020 compared to the year ended December 31, 2019,~~, which~~ primarily related to ~~the purchase of property and equipment. Net cash~~payments for equipment to be used in ~~investing activities was zero for~~ the ~~year ended December 31, 2018.~~manufacturing of OC-01 (varenicline) nasal spray.

Cash Flows ~~from~~Provided by Financing Activities

Net cash provided by financing activities ~~was $175.0~~decreased by $62.4 million for the year endedDecember 31, 2020 compared to the year ended December 31, 2019,. The decrease was primarily due to the lower net proceeds generated from the ~~sale~~Company's follow-on equity offering in May 2020 compared to the net proceeds received from the Company's IPO in November 2019 and from the issuance of ~~Series B~~ redeemable ~~convertible~~ preferred stock ~~of $92.9 million~~in February and ~~net proceeds from the IPO of $82.1 million.~~April 2019.

~~We did not undertake any financing activities in the year ended December 31, 2018.~~

Contractual Obligations and Commitments

The following table summarizes ~~our~~the Company's contractual obligations as of December 31, ~~2019:~~2020 (in thousands):

Payments Due by Period (in thousands)
Less than 1 year 1 to 3 years Total
Operating lease obligations (1) $ 319 $ 502 $ 821


	Payments Due by Period
	Less than 1 year		1 to 3 years		Total
Operating lease obligations (1)	$	432	$	255	$	687
Finance lease obligations (2)	$	18	$	20	$	38

___________________

(1) ~~We lease our~~ The Company leases office facilities in Princeton, New Jersey under two non-cancellable operating leases with an expiration ~~dates of March 15, 2020 and~~date July 31, 2022. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

(2) The Company leases certain office equipment under finance leases with expiration dates in August 2022 and August 2023.

In ~~January 2020 we amended one~~February 2021, the Company entered into a lease ~~of our~~agreement for laboratory and office ~~facilities~~space in ~~Princeton,~~ New Jersey ~~to include additional office space, with an expiration date of July 31, 2022.~~for a three-year term beginning on March 1, 2021 and ending on February 29, 2024. Total future minimum lease payments under this ~~amendment~~agreement are $0.4 million.

We enter into contracts in the normal course of business with third-party contract organizations for preclinical and clinical studies and testing, manufacture and supply of our preclinical materials and other services and products used for operating purposes. These contracts generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

In October 2016, we entered into an asset purchase agreement pursuant to which we acquired the compound OC-02. Under this agreement we are obligated to make milestone payments of up to an aggregate of $37.0 million upon achievement of certain development and regulatory milestone events. In March 2018, we made a payment of $1.5 million upon completion of the first of these milestones. We accrued such amount as of December 31, 2017 as we concluded that it was probable that such payment would be made. Under the asset purchase agreement, we are also obligated to make royalty payments at a mid-single digit percentage rates on net worldwide sales of the covered products. In addition, we are required to pay 15% of any (i) licensing revenue we receive that is related to OC-02 and (ii) revenue received from the sale of OC-02, up to a maximum aggregate amount of $10.0 million. These commitments are not included in the table above due to uncertainty of timing of any such payments.

In October 2019, wethe Company entered into a non-exclusive patent license agreement ~~(the License Agreement)~~ with Pfizer (License Agreement), which granted usthe Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate to develop, manufacture, and commercialize ~~our~~the Company's OC-01 ~~varenicline~~(varenicline) nasal spray product candidate. Under the terms of the

License Agreement, wethe Company made an upfront payment to Pfizer of $5.0 million. If wethe Company successfully ~~commercialize~~commercializes OC-01 we(varenicline) nasal spray, it may be required to pay a single milestone payment in ~~the very~~ low double-digit millions and tiered royalties on net sales of OC-01 (varenicline) nasal spray at percentages ranging from the mid-single digits to the mid-teens. The royalty obligation to Pfizer will commence upon first commercial sale of OC-01 (varenicline) nasal spray and will expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents. These commitments are not included in the table above due to uncertainty of timing of any such payments.

Critical Accounting Policies, Significant Judgments and Use of Estimates

~~Our~~The Company's financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires ~~us to make~~the application of appropriate technical accounting rules and guidance as well as the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. ~~Our~~These estimates are based on ~~our~~the Company's historical experience and on various other factors that ~~we believe~~it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. ~~We believe that the~~The Company's significant accounting policies ~~discussed below~~ are ~~critical to understanding our historical~~summarized in Item 15 — Note 1, Nature of Business, Basis of Presentation and ~~future performance, as these policies relate~~ Significant Accounting Policies, to the ~~more significant areas involving management’s judgments and estimates. For more detail on our~~Financial Statements. The Company identifies its most critical accounting policies ~~refer~~as those that are the most pervasive and important to ~~Note 1 "Organization~~the portrayal of the Company's financial position and ~~Summary~~results of ~~Significant Accounting Policies"~~operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The future effects of the SARS-CoV-2 virus pandemic on the Company's results of operations, cash flows, and financial position are unclear, however the Company believes it has used reasonable estimates and assumptions in preparing the interim condensed financial statements. The Company's critical accounting policies include stock-based compensation, accrued research and development expense, and income taxes.

Stock-Based Compensation

Prior to ~~our audited~~the IPO, the fair value of the Company’s common stock underlying the stock options was determined by the BOD with assistance from management and, in part, on input from an independent third-party valuation firm. The BOD determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial ~~statements included elsewhere~~performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the IPO, the fair value of the Company’s common stock is based on the closing quoted market price of its common stock as reported by the NASDAQ Global Select Market on the date of grant.

In determining fair value of the stock options granted, the Company uses the Black-Scholes model, which requires the input of several assumptions. These assumptions include: estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of the Company’s common stock price over the expected term (expected volatility), risk-free interest rate and expected dividend rate. Changes in ~~this Annual Report on Form 10-K.~~the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized.

Expected term. The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the mid-point between the vesting date and the end of the contractual term.

Expected volatility. As the Company has a limited trading history of its common stock, the expected volatility is estimated based on the third quartile of the range of the observed volatilities for comparable publicly traded biotechnology and pharmaceutical related companies over a period equal to the expected term of the stock option grants. The comparable companies are chosen based on industry, stage of development, size and financial leverage of potential comparable companies.

Risk-free interest rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock award.

Expected dividend rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

Accrued Research and Development Expense

~~We have entered into~~The Company is a party to various agreements with CMOs and CROs. ~~Our research~~Research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, wethe Company will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. ~~To date, our estimated accruals have not differed materially~~Actual results could differ from ~~the actual costs.~~

~~Stock-Based Compensation~~

We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and stock awards. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. We account for forfeitures as they occur. In determining fair value of the stock options granted, we use the Black–Scholes model, which requires the input of subjective assumptions. These assumptions include: estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term (expected volatility), risk-free interest rate and expected dividends. Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in our statement of

~~operations and comprehensive loss during the period the related services are rendered. There are several assumptions that are required in the Black Scholes model.~~

•~~Expected Term~~ – The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

•~~Expected Volatility~~ – We use an average historical stock price volatility of a peer group of comparable publicly traded companies in biotechnology and pharmaceutical related industries to be representative of its expected future stock price volatility, as we do not have any trading history for our common stock. For purposes of identifying these peer companies, we consider the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, we measure historical volatility over a period equivalent to the expected term.

•~~Expected Dividend Rate~~ ~~– We have not paid and do not anticipate paying any dividends in the near future. Accordingly, we estimate the dividend yield to be zero.~~

•~~Risk-Free Interest Rate~~ ~~– The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock award.~~

~~Common Stock Valuations prior to our IPO~~

Prior to our IPO, the estimated fair value of the common stock underlying our stock options and stock awards was determined at each grant date by our board of directors, with input from management. All options to purchase shares of our common stock were intended to be exercisable at a price per share not less than the per-share fair value of our common stock underlying those options on the date of grant.

Prior to the IPO, on each grant date, we developed an estimate of the fair value of our common stock based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock, and valuations from an independent third-party valuation firm.

Prior to the IPO our valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

~~The assumptions used to determine the estimated fair value of our common stock prior to the IPO were based on numerous objective and subjective factors, combined with management judgment, including:~~

•~~external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry;~~

•~~our stage of development and business strategy;~~

•~~the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;~~

•~~the prices at which we sold shares of our redeemable convertible preferred stock;~~

•~~our financial condition and operating results, including our levels of available capital resources;~~

•~~the progress of our research and development efforts;~~

•~~equity market conditions affecting comparable public companies; and~~

•~~general U.S. market conditions and the lack of marketability of our common stock.~~

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

•~~Option Pricing Method.~~ Under the option pricing method, or OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these

•~~Probability-Weighted Expected Return Method.~~ The probability-weighted expected return method, or PWERM, is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

Based on our early stage of development and other relevant factors, we determined that OPM method as well as a hybrid approach of the OPM and the PWERM methods were the most appropriate methods for allocating our enterprise value to determine the estimated fair value of our common stock. In valuing the equity prior to the IPO, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity. The estimated fair value of our common stock at each grant date prior to our IPO reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

~~Common Stock Valuations following our IPO~~

~~Subsequent to the IPO, the fair value of our common stock is based on the closing quoted market price of our common stock as reported by the NASDAQ Global Select Market on the date of grant.~~estimates.

Income Taxes

~~We provide~~The Company accounts for income taxes ~~under~~in accordance with ASC 740, using the asset and liability ~~method. Current income~~method whereby deferred tax ~~expense or benefit represents~~asset and liability amounts are determined based on the ~~amount~~differences between the financial reporting and tax bases of ~~income taxes expected to be payable or refundable for the current year. Deferred income tax~~ assets and ~~liabilities arise due to~~liabilities. The differences between when assets or liabilities are recognized for tax purposes and when they are recognized for financial reporting purposes. Net operating losses and credit carryforwards are also deferred tax assets. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that ~~will be~~are in effect ~~when such items~~for the year in which they are expected to ~~reverse. Deferred income~~affect taxable income. Valuation allowances are established where necessary to reduce deferred tax assets ~~are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of~~to the ~~tax benefits will not~~amounts expected to be realized.

~~We assess~~The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination that the position meets the more-likely-than-not threshold and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and wethe Company will determine whether the factors underlying the more-likely-than-not threshold assertion have changed and the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. ~~Our~~The Company's policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Net operating loss carryforwards and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percentage points as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We have determined that no significant limitation would be placed on the utilization of our net operating loss and tax credit carryforwards due to prior ownership changes. Subsequent ownership changes may affect the limitation in future years.

~~As of~~ ~~December 31, 2019, and~~ ~~2018,~~ we had unrecognized tax benefits, all of which would affect income tax expense if recognized, before consideration of our valuation allowance. We do not expect that our uncertain tax positions will materially change in the next 12 months.

Off-Balance Sheet Arrangements

Since ~~our~~the Company's inception, ~~we have~~the Company has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

~~Indemnification Agreements~~

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to our technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

We have also agreed to indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not specified in the agreements; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012 (JOBS Act) permits an “emerging growth company” such as usOyster Point Pharma, Inc. to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, ~~we have~~the Company has chosen to irrevocably “opt out” of such extended transition period, and as a result, weit will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. ~~We intend~~The Company intends to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

WeThe Company will remain an emerging growth company until the earliest to occur of: (1) the last day of ~~our~~its first fiscal year in which ~~we have~~it has total annual revenues of more than $1.07 billion; (2) the date ~~we qualify~~it qualifies as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which ~~we have~~it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of ~~our~~its initial public offering.

Recent Accounting Pronouncements

~~See~~For a summary of recently issued accounting guidance applicable to the ~~section titled “Organization~~Company, see Item 15 — Note 1, Nature of Business, Basis of Presentation and ~~Summary of~~ Significant Accounting ~~Policies” in Note 1~~ Policies, to ~~our financial statements included elsewhere in this Annual Report in~~ the ~~Form 10-K for additional information.~~Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

The market risk inherent in ~~our~~the Company's financial instruments and in ~~our~~its financial position represents the potential loss arising from adverse changes in interest rates or exchange rates. As of December 31, ~~2019, we~~2020, the Company had cash equivalents of ~~$138.1~~$192.6 million, consisting of interest-bearing money market funds for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of ~~our~~the Company's cash equivalents, an immediate 10% relative change in interest rates would not have a material effect on the fair value of our cash equivalents or on ~~our~~the Company's future interest income.

~~We do~~The Company does not believe that inflation, interest rate changes or foreign currency exchange rate fluctuations have had a significant impact on ~~our~~its results of operations for any periods presented herein.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item may be found in Part IV, Item 15 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, ~~2019,~~2020, management, with the participation of ~~our~~the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of ~~our~~the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. ~~Our disclosure controls and procedures are designed to ensure that information required to be disclosed in~~Based on this evaluation, the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ~~our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.~~

~~Based on this evaluation, our Chief Executive Officer and our~~ Chief Financial Officer concluded that ~~as of December 31, 2019, our~~the Company's disclosure controls and procedures were ~~not~~ effective ~~due~~ toas of the ~~material weaknesses described below.~~

~~Notwithstanding~~end of the ~~identified material weaknesses, management, including our Chief Executive Officer and our Chief Financial Officer, believes the financial statements included in~~period covered by this Annual Report on Form ~~10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.~~10-K.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assuranceRemediation of ~~achieving~~Material Weaknesses as disclosed in the ~~desired control objectives. In addition,~~Form 10-K for the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.year ended December 31, 2019

~~Material Weaknesses~~As disclosed in ~~Internal Control over Financial Reporting~~

~~During 2019, in connection with~~ the ~~audits of our financial statements as of and~~annual report on Form 10-K for the ~~years~~year ended December 31, ~~2018 and 2017, we~~2019, the Company identified two material weaknesses in ~~our~~its internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

The first material weakness we identified iswas that wethe Company did not design or maintain an effective control environment commensurate with ~~our~~the financial reporting requirements. Specifically, wethe Company lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to an additional material weakness in that wethe Company did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations and journal entries.

These material weaknesses resulted in an audit adjustment to decrease operating expenses and accounts payable in the year ended December 31, 2018, and audit adjustments to the income tax footnote in the year ended December 31, 2019, that were not material. Additionally, each of the above material weaknesses could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to our annual or interim financial statements that would not be prevented or detected.

~~Remediation Plan~~

~~We have taken or are in the process of taking the following actions to begin to address the material weaknesses described above:~~

•~~we hired a full-time Chief Financial Officer and Controller in July 2019 and October 2019, respectively, and replaced part-time contractors used in these positions previously;~~

•~~we have hired~~Management identified the people and ~~are continuing~~processes necessary to ~~actively seek to hire additional accounting and finance staff members to augment our current staff and to improve~~strengthen the ~~effectiveness of our closing and financial reporting processes;~~

•we proactively assessed significant accounting transactions and other technical accounting and financial reporting issues, and used technical accounting consultants to prepare accounting memoranda addressing these issues;

•~~we have strengthened our financial statements review procedures and the supervisory reviews by our management that are performed during the financial close process; and~~

•~~we are continuing to formalize and implement our accounting policies and internal controls and the related documentation.~~

While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and ~~take steps~~ to ~~remediate~~address the ~~known~~material weaknesses. The Company began implementing certain of these measures in the fourth quarter of 2019 and continued to develop remediation plans and implemented additional measures throughout 2020. The Company has remediated the material weaknesses ~~expeditiously.~~through the following actions:

•Hired additional accounting and finance personnel with an appropriate level of accounting knowledge and experience to ensure proper analysis, recording and disclosure of accounting matters in an accurate and timely manner;

•Evaluated and designed controls to address the preparation and review of account reconciliations and journal entries;

•Designed and implemented month-end processes, accounting policies, procedures, and controls to assist in the preparation and review of complete, accurate and timely financial accounting, reporting and disclosures; and

•Implemented and adopted formal accounting policies and procedures.

Management has completed its design, testing and evaluation of the enhanced and newly implementedinternal controls and determined that as of December 31, 2020, the controls were designed and operating effectively and have been operating effectively for a sufficient period for management to conclude that the material weaknesses have been remediated.

Changes in Internal Control over Financial Reporting

~~We are taking~~Other than the actions taken to ~~remediate~~improve the ~~material weaknesses relating to our~~Company’s internal ~~controls~~control over financial reporting as ~~described~~summarized above, ~~in the remediation plan. Except as otherwise disclosed herein,~~ there have been no changes in ~~our~~the internal control over financial reporting during ~~year~~the quarter ended December 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

~~Inherent~~ Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well ~~conceived~~designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.occur. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of ~~the~~its inherent limitations, ~~in a cost-effective control system,~~ misstatements due to error or fraud may occur and not be detected.

Management’s Report on Internal Control over Financial Reporting

~~This Annual Report on Form 10-K does not include a report of management’s assessment regarding~~The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, oras such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Company conducted an ~~attestation report~~evaluation of ~~our independent registered public accounting firm due to a transition period established~~the effectiveness of its internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control — Integrated Framework (2013) issued by the ~~rules~~Committee of Sponsoring Organizations of the ~~SEC for newly public companies.~~

Treadway Commission. Based on that evaluation under the framework in Internal Control — Integrated Framework (2013), the Company's management concluded that its internal control over financial reporting was effective as of December 31, 2020.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be contained in ~~our~~the Company's definitive proxy statement to be filed with the SEC in connection with the Annual Meeting of Stockholders within 120 days after December 31, ~~2019~~2020 (the Proxy Statement), and is incorporated in this Annual Report on Form 10-K by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The information required by this item will be contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item will be contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

PART IV

Item 15. ~~EXHIBITS,~~ FINANCIAL ~~STATEMENT~~STATEMENTS, SCHEDULES, EXHIBITS

(a) ~~The following documents are filed as part of this report:~~

(1) Financial ~~Statements:~~Statements


Report of Independent Register Public Accounting Firm			~~F-2~~
Balance Sheets			~~F-3~~
Statements of Operations and Comprehensive Loss			~~F-4~~
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)			~~F-5~~
Statements of Cash Flows			~~F-6~~
Notes to Financial Statements			~~F-7~~

(2) Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable or the amounts

are immaterial or the required information is presented in the financial statements and

notes thereto.

(3) Exhibits: see Exhibit Index submitted as a separate section of this report

(b) Exhibits

See Exhibit Index submitted as a separate section of this report

(c ) Not applicable

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Oyster Point Pharma, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Oyster Point Pharma, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders' equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

February 18, 2021

We have served as the Company’s auditor since 2017.

OYSTER POINT PHARMA, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)


	December 31, 2020		December 31, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	192,585	$	139,147
Prepaid expenses and other current assets	3,782		3,033
Total current assets	196,367		142,180
Property and equipment, net	804		181
Restricted cash	61		51
Right-of-use assets, net	678		797
Total assets	$	197,910	$	143,209
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	2,279	$	507
Accrued expenses and other current liabilities	8,285		4,596
Lease liabilities	418		296
Total current liabilities	10,982		5,399
Lease liabilities, non-current	269		512
Total Liabilities	11,251		5,911
Commitments and Contingencies (Note 9)	0		0
Stockholders’ Equity
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; NaN outstanding	0		0
Common stock, $0.001 par value per share; 1,000,000,000 shares authorized, 25,890,490 and 21,366,950 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively	26		21
Additional paid-in capital	341,384		221,508
Accumulated deficit	(154,751)		(84,231)
Total Stockholders’ Equity	186,659		137,298
Total Liabilities and Stockholders’ Equity	$	197,910	$	143,209

The ~~following is a list of the exhibits filed as~~accompanying notes are an integral part of ~~this report.~~these financial statements.

Exhibit
Number
Description Form File No. Number Filing Date
3.1
Amended and Restated Certificate of Incorporation of the Registrant. 8-K 001-39112 3.1 November 5, 2019
3.2
Amended and Restated Bylaws of the Registrant. 8-K 001-39112 3.2 November 5, 2019
4.1*
Description of Securities of the Registrant.
4.2
Form of Common Stock Certificate. S-1/A 333-234104 4.2 October 15, 2019
4.3
Amended and Restated Investor Rights Agreement among the Registrant and certain of its stockholders, dated February 15, 2019. S-1 333-234104 4.1 October 4, 2019
10.1^
Form of Indemnification Agreement between the Registrant and each of its directors and executive officers. S-1 333-234104 10.1 October 4, 2019
10.2^
2016 Equity Incentive Plan, as amended, and forms of agreement thereunder. S-1 333-234104 10.2 October 4, 2019
10.3^
2019 Equity Incentive Plan and forms of agreements thereunder. S-1/A 333-234104 10.3 October 21, 2019
10.4^
2019 Employee Stock Purchase Plan. S-1/A 333-234104 10.4 October 21, 2019
10.5^
Employment Offer Letter between the Registrant and Jeffrey Nau, Ph.D., M.M.S. S-1 333-234104 10.5 October 4, 2019
10.6^
Employment Offer Letter between the Registrant and Daniel Lochner. S-1 333-234104 10.6 October 4, 2019
OYSTER POINT PHARMA, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)


	Year Ended December 31,
	2020		2019
Operating expenses:
Research and development	$	39,811	$	33,628
Selling, general and administrative	31,178		13,673
Total operating expenses	70,989		47,301
Loss from operations	(70,989)		(47,301)
Other income, net	469		1,590
Net loss and comprehensive loss	$	(70,520)	$	(45,711)
Net loss per share, basic and diluted	$	(2.92)	$	(9.97)
Weighted average shares outstanding, basic and diluted	24,128,603		4,585,146

The accompanying notes are an integral part of these financial statements.

OYSTER POINT PHARMA, INC.

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2019	7,611,691	$	43,001	1,411,966	$	1	$	276	$	(38,520)	$	(38,243)
Net loss	—	—		—	—		—		(45,711)		(45,711)
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $146	6,581,590	$	92,852	—	—		—		—		—
Issuance of common stock upon initial public offering, net of issuance cost of $9,898	—	—		5,750,000	6		82,096		—		82,102
Conversion of redeemable convertible preferred stock into common stock upon initial public offering	(14,193,281)	(135,853)		14,193,281	14		135,839		—		135,853
Issuance of common stock upon exercise of stock options	—	—		11,703	—		31		—		31
Stock-based compensation	—	$	—	—	$	—	$	3,266	$	—	$	3,266
Balance at December 31, 2019	0	0		21,366,950	21		221,508		(84,231)		137,298
Net loss				—	—		—		(70,520)		(70,520)
Issuance of common stock upon follow-on equity offering, net of issuance costs of $8,125	—	—		4,312,500	5		112,620		—		112,625
Issuance of common stock upon exercise of stock options	—	—		175,030	—		283		—		283
Issuance of common stock upon vesting of restricted stock units (RSUs)				36,010	—		—		—		—
Stock-based compensation expense	—	—			—		6,973		—		6,973
Balance at December 31, 2020	0	$	0	25,890,490	$	26	$	341,384	$	(154,751)	$	186,659

The accompanying notes are an integral part of these financial statements.

OYSTER POINT PHARMA, INC.

STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,
	2020		2019
Cash flows from operating activities
Net loss	$	(70,520)	$	(45,711)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	6,973		3,266
Depreciation	77		19
Reduction in the carrying amount of the right-of-use assets	384		166
Changes in assets and liabilities:
Prepaid expenses and other assets	(381)		(2,623)
Accounts payable	1,773		38
Change in lease liabilities	(382)		(151)
Accrued expenses and other current liabilities	3,677		4,181
Net cash used in operating activities	(58,399)		(40,815)
Cash flows from investing activities
Capital expenditures	(700)		(200)
Net cash used in investing activities	(700)		(200)
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs	0		92,852
Proceeds from initial public offering, net of issuance costs	0		82,102
Proceeds from follow-on equity offering, net of issuance costs	112,625		0
Payments of deferred offering costs	(361)		0
Proceeds from the issuance of common stock upon exercise of stock options	283		31
Net cash provided by financing activities	112,547		174,985
Net increase in cash, cash equivalents and restricted cash	53,448		133,970
Cash, cash equivalents and restricted cash at the beginning of the period	$	139,198	$	5,228
Cash, cash equivalents and restricted cash at the end of the period	$	192,646	$	139,198

Supplemental cash flow information
Right-of-use for office space and office equipment acquired through leases	$	320	$	897
Conversion of redeemable convertible preferred stock to common stock upon closing of the initial public offering	$	0	$	(135,853)

The accompanying notes are an integral part of these financial statements.

OYSTER POINT PHARMA, INC.

Notes to Financial Statements

(in thousands, except share and per share data)

1. Nature of Business, Basis of Presentation and Significant Accounting Policies

Description of the Business

Oyster Point Pharma, Inc. (the Company) is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of pharmaceutical therapies to treat ocular surface diseases. The Company’s principal office is located in Princeton, New Jersey. From inception through December 31, 2020, the Company has been primarily engaged in business planning, research, clinical development of its therapeutic product candidates, recruiting and raising capital.

On December 17, 2020, the Company submitted a 505(b)(2) NDA to the FDA for its first lead product candidate, OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry disease. The Company expects to incur increased sales and marketing expenses with the commercialization of OC-01 (varenicline) nasal spray, if approved for sale, as well as increased research and development expenses as it develops additional product candidates. Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company generated net losses of $70.5 million and $45.7 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of $154.8 million as of December 31, 2020. The Company has historically financed its operations primarily through the sale and issuance of its securities.

The Company completed its initial public offering (IPO) in November 2019 selling 5,750,000 shares of common stock raising aggregate net proceeds from the offering in the amount of $82.1 million. On May 19, 2020, the Company completed a follow-on equity offering selling 4,312,500 shares of common stock at a price of $28.00 per share. The net proceeds from the offering were $112.6 million. For further discussion on changes in the Company's capital structure, see Note 5, Stockholders' Equity.

The Company had cash and cash equivalents of $192.6 million as of December 31, 2020. Management believes that the Company’s current cash and cash equivalents will be sufficient to fund its planned operations for at least 12 months from the filing date of this Annual Report on Form 10-K.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses in the financial statements and accompanying notes as of the date of the financial statements. On an ongoing basis, management evaluates its estimates, including those related to the valuation of stock awards, income taxes and certain research and development accruals. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.

Risks and Uncertainties

The Company operates in a dynamic and highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies and industry standards; results of clinical trials; regulatory approval and market acceptance of the Company’s products; development of sales channels; certain strategic relationships; litigation or claims against the Company related to intellectual property, product, regulatory, or other matters; and the Company’s ability to attract and retain employees necessary to support its growth.

Product candidates developed by the Company will require approvals from the FDA or other international regulatory agencies prior to commercial sales. There can be no assurance that the product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approval, it could have a materially adverse impact on the Company.

with its current financial resources and there can be no assurance that the Company will be able to secure such additional financing on a timely basis, if at all, that will be sufficient to meet these needs. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay, reduce the scope of or eliminate one or more of its research or development programs which would materially and adversely affect its business, financial condition and operations.

The Company relies on single source manufacturers and suppliers for the supply of its product candidates. Disruption from these manufacturers or suppliers would have a negative impact on the Company’s business, financial position and results of operations. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. As of December 31, 2020 and 2019, cash and cash equivalents consisted of cash on deposit with a bank denominated in U.S. dollars and investment in money market funds.

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows (in thousands):


	Year ended December 31,
	2020		2019
Cash and cash equivalents	$	192,585	$	139,147
Restricted cash (a)	61		51
Cash, cash equivalents and restricted cash shown in the statements of cash flows	$	192,646	$	139,198

(a) — Held in a separate bank account to support a letter of credit agreement related to the Company’s office leases, which expire in 2022.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Construction-in-progress reflects amounts incurred for property and equipment construction or improvements that have not yet been placed in service and are not depreciated or amortized. Repairs and maintenance are expensed when incurred. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of net loss.

Estimated useful lives by major asset category are as follows:


Office equipment			5 years
Furniture and fixtures			7 years
Leasehold improvements			Shorter of lease term or estimated useful life

Long-lived assets are tested for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable.

Leases

The Company determines if an arrangement is or contains a lease and the classification of that lease at inception of a contract. The Company’s operating and finance lease assets are included in right-of-use assets, net, and the current and non-current portions of the finance and operating lease liabilities are included in lease liabilities, and lease liabilities, non-current, respectively, on the balance sheets.

Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Right-of-use assets are based on the corresponding lease liability adjusted for

(i) payments made at or before the commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives under the lease. The Company does not account for renewals or early terminations unless it is reasonably certain to exercise these options at commencement. Operating lease expense is recognized on a straight-line basis over the lease term. For finance leases, right of use assets are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the leased assets. The Company accounts for lease and non-lease components as a single lease component for operating leases. The discount rate used to calculate the present value of the Company's leases is based on either an explicit rate stipulated in the contract (for finance leases) or the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. The Company determines the incremental borrowing rate by considering various factors, such as its credit rating, interest rates of similar debt instruments of entities with comparable credit ratings, the lease term and the currency in which the lease was denominated. The Company does not record leases with terms of 12 months or less on the balance sheets. See Note 8, Leases, for additional information regarding the Company's operating and finance leases.

Fair Value of Financial Instruments

The carrying amounts for financial instruments consisting of cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their fair value due to short-term maturities. See Note 2, Fair Value Measurements, for additional information on the Company's measurements of its financial instruments.

Research and Development

Research and development expenses primarily consist of CMOs and CROs related costs, costs relating to manufacturing clinical trial materials and pre-approval inventory, regulatory compliance costs, employee compensation and benefits, consulting, laboratory supplies, product licenses, sponsored research, as well as facility-related expenses and depreciation. All research and development costs are charged to research and development expenses within the statements of operations and comprehensive loss as incurred. Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are also expensed as incurred.

The Company’s accruals for research and development activities performed by third parties are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accruals accordingly. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Net Loss per Common Share

Basic and diluted net loss per common share is presented in conformity with ASC Topic 260, Earning Per Share for all periods presented. In accordance with this guidance, basic and diluted net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the period. Basic net loss per share is calculated without consideration of potentially dilutive securities, while diluted net loss per share accounts for potentially dilutive securities outstanding for the period.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses the Black-Scholes pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, using the asset and liability method whereby deferred tax asset and liability amounts are determined based on the differences between the financial reporting and tax bases of assets and liabilities. The differences are measured using the enacted tax rates and laws that are in effect for the year in which

they are expected to affect taxable income. Valuation allowances are established where necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination that the position meets the more-likely-than-not threshold and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether the factors underlying the more-likely-than-not threshold assertion have changed and the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. The Company's policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that would result from transactions and economic events other than those with stockholders. There have been no items qualifying as other comprehensive income (loss) and, therefore, for all periods presented, the Company’s comprehensive loss was the same as its reported net loss.

Reclassification

Certain prior year amounts have been reclassified for comparative purposes.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently adopted accounting pronouncements

ASU 2019-12— In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or Topic 740, as amended, which simplifies various aspects related to the accounting for income taxes. This ASU removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU 2019-12 in the second quarter of 2020 and its adoption did not have a material effect on the Company's financial statements and related disclosures.

ASU 2018-15 — In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other (Subtopic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, or Topic 350, as amended, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU 2018-15 effective January 1, 2020 and its adoption did not have a material effect on the Company's financial statements and related disclosures.

ASU 2018-13 — In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or Topic 820, as amended, which modifies the disclosure requirements on fair value measurements. This ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-13 effective January 1, 2020 and its adoption did not have a material effect on the Company’s financial statements and related disclosures.

Recently issued accounting pronouncements not yet adopted

ASU 2020-10 — In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The amendments in the ASU 2020-10 are effective for annual periods beginning after December 15, 2020, for public business entities. The Company plans to adopt ASU 2020-10 on January 1, 2021 and does not expect that the adoption of this update to have a material effect on the Company’s consolidated financial statements.

2. Fair Value Measurements

The Company assesses the fair value of financial instruments as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of December 31, 2020, financial assets measured and recognized at fair value were as follows (in thousands):


	Fair Value Measurements at December 31, 2020
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Money market funds	$	191,585	$	0	$	0	$	191,585
Total fair value of assets	$	191,585	$	0	$	0	$	191,585

As of December 31, 2019, financial assets measured and recognized at fair value were as follows (in thousands):


	Fair Value Measurements at December 31, 2019
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Money market funds	$	138,147	$	0	$	0	$	138,147
Total fair value of assets	$	138,147	$	0	$	0	$	138,147

Money market funds are included in cash and cash equivalents on the Company's balance sheets. They are valued using quoted market prices and therefore are classified within Level 1 of the fair value hierarchy.

The carrying amounts reflected in the Company's balance sheets for cash and cash equivalents, prepaid expenses and other current assets, restricted cash, accounts payable and accrued expenses and other liabilities approximate their fair values due to their short-term nature.

There were 0 financial liabilities measured and recognized at fair value as of December 31, 2020 and December 31, 2019.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk, such as money market funds, are included in cash and cash equivalents on the balance sheets. The Company attempts to minimize the risks related to cash and

cash equivalents by using highly-rated financial institutions that invest in a broad and diverse range of financial instruments. The Company's investment portfolio is maintained in accordance with its investment policy that defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.

3. Property and Equipment, Net

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


	December 31,
	2020		2019
Leasehold improvements	$	158	$	105
Office equipment	68		45
Furniture and fixtures	73		50
Construction-in-progress	601		0
Total property and equipment	900		200
Accumulated depreciation	(96)		(19)
Property and equipment, net	$	804	$	181

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	December 31,
	2020		2019
Accrued compensation	$	3,500	$	1,214
Accrued professional services	1,244		1,163
Accrued research and development expense	3,541		2,219
Accrued expenses and other current liabilities	$	8,285	$	4,596

5. Stockholders' Equity

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, at a par value of $0.001 per share. Each share of common stock is entitled to 1 vote.

The Company reserved common stock for future issuance as follows:


	December 31,
	2020	2019
Outstanding options under the 2016 Plan	2,567,566	2,748,434
Outstanding options under the 2019 Plan	918,145	29,466
Equity awards available for grant under the 2019 Plan	1,790,106	2,747,047
Unvested restricted stock units (RSUs) under the 2019 Plan	61,215	23,125
Shares reserved for purchase under the ESPP (a)	270,000	270,000
Total	5,607,032	5,818,072

(a) — Employee Stock Purchase Plan approved in October 2019, as further described in Note 6, Equity Incentive Plans.

Changes in Capital Structure

On November 4, 2019, upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock were converted into an aggregate of 14,193,281 shares of the Company’s common stock and $135.9 million of mezzanine equity was reclassified to common stock and additional paid-in capital. As of December 31, 2020 and December 31, 2019, there were 0 shares of redeemable convertible preferred stock issued and outstanding.

In October 2019, the Company effected a 2.832861-for-1 reverse stock split of the Company’s common stock and redeemable convertible preferred stock. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, redeemable convertible preferred stock, stock options, and related per share amounts for the period through October 18, 2019 have been retroactively adjusted to give effect to the reverse stock split.

On February 15, 2019, the Company executed the Series B Preferred Stock Purchase Agreement to sell 6,581,590 shares of Series B redeemable convertible preferred stock. In February and April 2019, the Company received gross cash proceeds of $85.0 million and $8.0 million, respectively, from the sale of Series B redeemable convertible preferred stock.

6. Equity Incentive Plans

In October 2019, the Company’s Board of Directors (BOD) and stockholders approved the 2019 Equity Incentive Plan (the 2019 Plan). The 2019 Plan provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to the Company's employees, directors, and others.

The exercise price of an incentive stock option (ISO) and non-qualified stock option (NSO) shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the BOD. The exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the BOD. To date, outstanding options have a term of 10 years and generally vest over a four-year period with 25% vested after the first year and monthly vesting thereafter.

In October 2019, the Company’s BOD and stockholders approved the 2019 Employee Stock Purchase Plan (the ESPP), which qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code, and pursuant to which 270,000 shares of common stock were reserved for future issuance. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions. There were 0 ESPP purchases during the year ended December 31, 2020 and 2019, respectively.

Stock Options

The following table summarizes stock option activity under the 2016 Plan and the 2019 Plan during the year ended December 31, 2020 (in thousands, except share, contractual term and per share data):


	Outstanding Options
		Number of Shares Underlying Outstanding Options	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2020		2,777,900	$	4.59	8.7	$	55,146
Options granted		891,529	28.22			—
Options exercised		(175,030)	1.62			4,370
Options canceled		(8,688)	20.02			91
Outstanding at December 31, 2020		3,485,711	$	10.74	8.2	$	36,506
Vested and exercisable as of December 31, 2020		1,556,245	$	3.46	7.5	$	23,914
Vested and expected to vest as of December 31, 2020		3,485,711	$	10.74	8.2	$	36,506

During the years ended December 31, 2020 and 2019, the Company granted options with a weighted-average grant date fair value of $20.41 and $8.62 per share, respectively. The fair value of options that vested during the years ended December 31, 2020 and 2019 was $3.2 million and $2.5 million, respectively. As of December 31, 2020, the total unrecognized stock-based compensation expense for stock options was $21.6 million, which is expected to be recognized over a weighted average period of 3.0 years.

Restricted Stock Units

The company issues restricted stock units (RSUs) with terms of one year to three years, subject to continuing services to be provided to the Company. The value of an RSU award is based on the Company's stock price on the date of the grant.

Activity with respect to the Company's restricted stock units during the year ended December 31, 2020 was as follows (in thousands, except share, contractual term, and per share data):


	Outstanding RSUs
	Number of Shares Underlying Outstanding Units	Weighted Average Grant Date Fair Value per Unit		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2020	23,125	$	16.00	2.8	$	565
Restricted stock units granted	74,100	27.01			2,001
Restricted stock units vested	(36,010)	25.34			811
Restricted stock units canceled	0	0			—
Outstanding at December 31, 2020	61,215	$	23.83	1.4	$	1,152
Unvested and expected to vest as of December 31, 2020	61,215	$	23.83	1.4	$	1,152

During the years ended December 31, 2020 and 2019, the Company granted RSUs with a weighted-average grant date fair value of $27.01 and $16.00 per unit, respectively. The fair value of RSUs vested during the year ended December 31, 2020 was $0.9 million. No RSUs vested during the year ended December 31, 2019. As of December 31, 2020, the total unrecognized stock-based compensation expense for RSUs was $1.3 million, which is expected to be recognized over a weighted average period of 1.3 years.

Stock-Based Compensation Expense

The following table is a summary of stock-based compensation expense by function recognized (in thousands):


	Year Ended December 31,
	2020		2019
Research and development	$	966	$	579
Selling, general and administrative	6,007		2,687
Total stock-based compensation	$	6,973	$	3,266

Fair Value of Options Granted

Prior to the IPO, the fair value of the Company’s common stock underlying the stock options was determined by the BOD with assistance from management and, in part, on input from an independent third-party valuation firm. The BOD determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the IPO, the fair value of the Company’s common stock is based on the closing quoted market price of its common stock as reported by the NASDAQ Global Select Market on the date of grant.

In determining fair value of the stock options granted, the Company uses the Black-Scholes model, which requires the input of several assumptions. These assumptions include: estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of the Company’s common stock price over the expected term (expected volatility), risk-free interest rate and expected dividend rate. Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized.

Expected dividend rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

The fair value of options granted were calculated using the weighted average assumptions set forth below:


	Year Ended December 31,
	2020	2019
Expected volatility	82.0% - 118.0%	69.0% - 84.0%
Risk-free interest rate	0.36% - 1.40%	1.48% - 2.38%
Dividend yield	0%	0%
Expected term	6.08 years	5.04 - 6.08 years

7. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):


	Year Ended December 31,
	2020		2019
Numerator:
Net loss	$	(70,520)	$	(45,711)
Denominator:
Weighted-average shares outstanding, basic and diluted	24,128,603		4,585,146
Net loss per share, basic and diluted	$	(2.92)	$	(9.97)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:


	December 31,
	2020	2019
Options to purchase common stock	3,485,711	2,777,900
Unvested restricted stock units	61,215	23,125
Total	3,546,926	2,801,025

8. Leases

Lease Obligations

In April 2019, the Company entered into a non-cancelable operating lease for office space in Princeton, New Jersey, commencing on July 1, 2019, for a period of three years from the commencement date. In January 2020, the Company amended this lease to include additional office space, with the same terms as the original lease. Total future minimum lease payments under this amendment are $0.7 million as of December 31, 2020. The total lease payments required over the life of this lease are $1.2 million. The remaining lease term was 1.6 years as of December 31, 2020. Rent expense was $0.4 million and $0.2 million for the year ended December 31, 2020 and 2019, respectively. The Company's variable lease payments primarily consist of maintenance and other operating expenses from its real estate leases. Variable lease payments are excluded from the right of use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The lease terms include the option to extend or terminate the lease for one additional period of three years. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company leases certain office equipment under finance leases with remaining lease terms of 1.7 years to 2.3 years. At the commencement date, the Company determined the amount of lease liability using a discount rate of 3%, which management determined represents the rate implicit in the lease. Interest expense and amortization expense for the finance leases were immaterial for the years ended December 31, 2020 and 2019, respectively.

Supplemental balance sheet information for the leases is as follows (in thousands):


	December 31, 2020		December 31, 2019
Operating lease right-of-use asset	$	644	$	783
Finance lease right-of-use asset	34		14
Total right-of-use asset	$	678	$	797

Operating lease liabilities	$	400	$	290
Finance lease liabilities	18		6
Total lease liabilities	$	418	$	296

Operating lease liabilities, non-current	$	250	$	500
Finance lease liabilities, non-current	19		12
Total lease liabilities, non-current	$	269	$	512

The maturities of the lease liabilities under non-cancelable operating and finance leases are as follows (in thousands):


As of December 31, 2020	Finance Leases		Operating Leases		Total
2021	$	18	$	432	$	450
2022	16		255		271
2023	4		0		4
Total undiscounted cash flows	38		687		725
Less: imputed interest	(1)		(37)		(38)
Total lease liability	37		650		687
Less: current portion	(18)		(400)		(418)
Lease liability	$	19	$	250	$	269


As of December 31, 2019	Total
2020	$	319
2021	316
2022	186
Total undiscounted cash flows	821
Less: imputed interest	(13)
Total lease liability	808
Less: current portion	(296)
Lease liability	$	512

In February 2021, the Company entered into a lease agreement for laboratory and office space in New Jersey for a three-year term beginning on March 1, 2021 and ending on February 29, 2024. Total future minimum lease payments under this agreement are $0.4 million.

9. Commitments and Contingencies

License Agreement

The Company is party to a non-exclusive patent license agreement with Pfizer, which granted the Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate to develop, manufacture, and commercialize the OC-01 (varenicline) nasal spray product. Under the terms of the agreement, the Company made an upfront payment to Pfizer of $5 million during the year ended December 31, 2019. If the Company commercializes OC-01 (varenicline) nasal spray, it may be

100

required to pay a single milestone payment in low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digits to the mid-teens. The royalty obligation to Pfizer would commence upon the first commercial sale of OC-01 (varenicline) nasal spray and expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents. No milestone was achieved or probable to be achieved or royalties payable accrued as of December 31, 2020 and 2019.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. There are no matters pending that the Company currently believes are reasonably possible or probable of having a material impact to the Company's business, consolidated financial condition, results of operations of cash flows.

10. Income Taxes

The Company did 0t record a federal or state income tax provision or benefit for the for the years ended December 31, 2020 and December 31, 2019 as it has incurred net losses since inception. In addition, the net deferred tax assets generated from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

The Company had an effective tax rate of 0% for the years ended December 31, 2020 and 2019. The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:


	Year Ended December 31,
	2020		2019
Federal statutory income tax rate	21.0	%	21.0	%
State taxes (tax effected)	7.7	%	8.5	%
Research tax credit	1.7	%	3.3	%
Other permanent differences	0.3	%	(2.0)	%
Change in valuation allowance	(30.7)	%	(30.8)	%
Provision for income taxes	0	%	0	%

The components of the Company’s net deferred tax assets and liabilities as of December 31, 2020 and 2019, were as follows (in thousands):

101


	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	29,786	$	12,454
Credits	3,836		2,408
Tangible and intangible assets	2,666		1,977
Lease liability	195		227
Stock compensation	1,737		253
Accruals and Reserves	840		36
Gross deferred tax assets	39,060		17,355
Less: Valuation allowance	(38,051)		(16,423)
Deferred tax assets, net of valuation allowance	1,009		932
Deferred tax liabilities:
Prepaids	(817)		(708)
Right of use asset	(192)		(224)
Net deferred tax assets	$	0	$	0

Deferred Tax Assets and Valuation Allowance

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s historical operating performance and the U.S. cumulative net losses in all prior periods, the Company has provided a full valuation allowance against its U.S. deferred tax assets. The Company’s valuation allowance increased by $21.6 million and $10.7 million for the years ended December 31, 2020, and 2019, respectively. The increases to the Company's valuation allowance for both years related to the losses generated during the periods.

NOL Carryforwards

For the years ended December 31, 2020 and 2019, the Company had $120.6 million and $59.1 million of U.S. federal net operating losses, respectively. Certain U.S. federal net operating loss carryforwards will begin to expire, if not utilized, in 2035. Included in the U.S. federal net operating loss carryforwards are $116.1 million and $54.6 million as of December 31, 2020 and 2019, respectively, of net operating loss carryforwards, which are not subject to expiration. However, the deductibility of such net operating loss carryforwards will be limited in future years.

For the years ended December 31, 2020 and 2019, the Company had state net operating loss carryforwards of $123.9 million and $60.7 million, respectively which generally begin to expire in the year 2035.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state laws. The annual limitation may result in the expiration of net operating losses and credits before utilization.

A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of the Company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company has experienced an ownership change in prior periods. However, the change is not expected to cause a material limitation on the Company’s utilization of net operating loss carryforwards. Subsequent ownership changes may affect the limitation in future years. The Company is not in a taxable position and no net operating loss carryforwards have been utilized to date.

Research and Experimentation Credit Carryforwards

As of December 31, 2020 and 2019, the Company had federal research and experimentation credit carryforwards of $3.3 million and $2.1 million, respectively, and state research and experimentation credit carryforwards of $0.7 million and

102

$0.4 million. The federal research and experimentation credit carryforwards expire beginning in the years 2037, and the state credit carryforwards are subject to varying expiration periods, the earliest beginning in year 2032.

Uncertain Tax Positions

As of December 31, 2020 and 2019, the Company had the following unrecognized tax benefits (in thousands):


	Year Ended December 31,
	2020		2019
Balance at the beginning of the year	$	5,388	$	1,989
Increases for tax positions taken during prior period	50		0
Increases for tax positions taken during current period	0		3,399
Balance at the end of the year	$	5,438	$	5,388

The reversal of the unrecognized tax benefits would not affect the Company’s effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets. The Company does not expect any changes to uncertain tax benefits within the next twelve months.

The Company files income tax returns in the U.S. federal, California, Florida, Massachusetts and New Jersey jurisdictions. Due to the Company’s net losses, its federal and state income tax returns are subject to examination for federal and state purposes since inception. If and when the Company claims net operating loss carryforwards from any prior year against future taxable income, those losses may be examined by the taxing authorities. As of December 31, 2020, there were no ongoing examinations.

11. Unaudited Quarterly Financial Information

Below is a summary of the unaudited quarterly financial information for the year ended December 31, 2020 (in thousands, except share and per share data):


	Three months ended
	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020

Operating expenses:
Research and development	$	11,340	$	8,554	$	8,210	$	11,707
Selling, general and administrative	5,589		6,940		8,112		10,537
Total operating expenses	16,929		15,494		16,322		22,244
Loss from operations	(16,929)		(15,494)		(16,322)		(22,244)
Other income, net	410		30		17		12
Net loss and comprehensive loss	$	(16,519)	$	(15,464)	$	(16,305)	$	(22,232)
Basic and diluted net loss per share	$	(0.77)	$	(0.66)	$	(0.63)	$	(0.86)
Weighted average shares outstanding	21,367,532		23,442,530		25,797,282		25,869,601

103

Below is a summary of the unaudited quarterly financial information for the year ended December 31, 2019 (in thousands, except share and per share data):


	Three months ended
	March 31, 2019		June 30, 2019		September 30, 2019		December 31, 2019

Operating expenses:
Research and development	$	2,405	$	8,101	$	8,088	$	15,034
Selling, general and administrative	1,605		3,132		3,809		5,127
Total operating expenses	4,010		11,233		11,897		20,161
Loss from operations	(4,010)		(11,233)		(11,897)		(20,161)
Other income, net	250		503		400		437
Net loss and comprehensive loss	$	(3,760)	$	(10,730)	$	(11,497)	$	(19,724)
Basic and diluted net loss per share	$	(2.66)	$	(7.60)	$	(8.10)	$	(1.41)
Weighted average shares outstanding	1,411,966		1,412,354		1,419,064		13,993,730

Per share amounts for each quarter have been calculated separately. Accordingly, quarterly amounts may not add to annual amounts.

104

EXHIBIT INDEX

Exhibit

Number

Description

Form

File No.

Number

Filing Date

3.1

Amended and Restated Certificate of Incorporation of the Registrant.

8-K

001-39112

3.1

November 5, 2019

3.2

Amended and Restated Bylaws of the Registrant.

8-K

001-39112

3.2

November 5, 2019

4.1

Description of Securities of the Registrant.

10-K

001-39112

4.1

February 27, 2020

4.2

Form of Common Stock Certificate.

S-1/A

333-234104

4.2

October 15, 2019

4.3

Amended and Restated Investor Rights Agreement among the Registrant and certain of its stockholders, dated February 15, 2019.

S-1

333-234104

4.1

October 4, 2019

10.1^

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.

S-1

333-234104

10.1

October 4, 2019

10.2^

2016 Equity Incentive Plan, as amended, and forms of agreement thereunder.

S-1

333-234104

10.2

October 4, 2019

10.3^

2019 Equity Incentive Plan and forms of agreements thereunder.

S-1/A

333-234104

10.3

October 21, 2019

10.4^

2019 Employee Stock Purchase Plan.

S-1/A

333-234104

10.4

October 21, 2019

10.5^

Employment Offer Letter between the Registrant and Jeffrey Nau, Ph.D., M.M.S.

S-1

333-234104

10.5

October 4, 2019

10.6^

Employment Offer Letter between the Registrant and Daniel Lochner.

S-1

333-234104

10.6

October 4, 2019

10.7^

Employment Offer Letter between the Registrant and John Snisarenko.

S-1

333-234104

10.7

October 4, 2019

10.8^

Form of Change in Control and Severance Agreement.

S-1

333-234104

10.8

October 4, 2019

10.9^*

Outside Director Compensation Policy.

10.10^

Executive Incentive Compensation Plan.

S-1

333-234104

10.10

October 4, 2019

10.11#

Non-Exclusive Patent License Agreement between the Registrant and Pfizer Inc., dated as of October 18, 2019.

S-1/A

333-234104

10.11

October 21, 2019

23.1*

Consent of Independent Registered Public Accounting Firm.

24.1*

Power of Attorney (contained in the signature page to this Annual Report on Form 10-K).

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

105

~~10.7~~^

~~Employment Offer Letter between the Registrant and John Snisarenko.~~

~~S-1~~

~~333-234104~~

~~10.7~~

~~October 4, 2019~~

~~10.8~~^

~~Form of Change in Control and Severance Agreement.~~

~~S-1~~

~~333-234104~~

~~10.8~~

~~October 4, 2019~~

~~10.9~~^

~~Outside Director Compensation Policy.~~

~~S-1~~

~~333-234104~~

~~10.9~~

~~October 4, 2019~~

~~10.10~~^

~~Executive Incentive Compensation Plan.~~

~~S-1~~

~~333-234104~~

~~10.10~~

~~October 4, 2019~~

~~10.11~~#

~~Non-Exclusive Patent License Agreement between the Registrant and Pfizer Inc., dated as of October 18, 2019.~~

~~S-1/A~~

~~333-234104~~

~~10.11~~

~~October 21, 2019~~

~~23.1~~*

~~Consent of Independent Registered Public Accounting Firm.~~

~~24.1~~*

~~Power of Attorney (contained in the signature page to this Annual Report on Form 10-K).~~

~~31.1~~*

~~Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.1*+

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.2*+

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

# Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit.

+ The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed

filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the

Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made

before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained

in such filing.

^ Indicates management contract or compensatory plan

ITEM 16. FORM 10-K SUMMARY

None.

106

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	OYSTER POINT PHARMA, INC.

Date: February ~~27, 2020~~18, 2021	By:	/s/ Jeffrey Nau
		Jeffrey Nau, Ph.D., M.M.S.
		President, Chief Executive Officer and ~~Director~~President


Date: February ~~27, 2020~~18, 2021	By:	/s/ Daniel Lochner
		Daniel Lochner
		Chief Financial Officer

93107

POWER OF ATTORNEY

~~KNOW ALL PERSONS BY THESE PRESENTS,~~Know all persons by these presents, that each person whose signature appears below constitutes and appoints Jeffrey Nau and Daniel Lochner, jointly and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:


Signature	Title	Data

/s/ Jeffrey Nau	Chief Executive Officer, President and Director	February ~~27, 2020~~18, 2021
Jeffrey Nau, Ph.D., M.M.S.	(Principal Executive Officer)


/s/ Daniel Lochner	Chief Financial Officer	February ~~27, 2020~~18, 2021
Daniel Lochner	(Principal Financial and Accounting Officer)


/s/ ~~Michael Ackermann~~Ali Behbahani	Chair of the Board	February ~~27, 2020~~18, 2021
~~Michael Ackermann, Ph.D.~~Ali Behbahani, M.D.
		February ~~27, 2020~~18, 2021
/s/ Michael Atieh	Director
Michael Atieh

/s/ Mark Murray	Director	February 18, 2021
Mark Murray

/s/ ~~Ali Behbahani~~	~~Director~~	~~February 27, 2020~~
~~Ali Behbahani, M.D.~~

~~/s/~~ William J. Link	Director	February ~~27, 2020~~18, 2021
William J. Link, Ph.D.

/s/ Clare Ozawa	Director	February ~~27, 2020~~18, 2021
Clare Ozawa, Ph.D.

/s/ Benjamin Tsai	Director	February ~~27, 2020~~18, 2021
Benjamin Tsai

/s/ Aimee Weisner	Director	February ~~27, 2020~~18, 2021
Aimee Weisner

95108

~~OYSTER POINT PHARMA, INC.~~

~~Index to Financial Statements~~


~~Financial Statements:~~
~~Report of Independent Register~~ed ~~Public Accounting Firm~~			~~F-2~~
~~Balance Sheets~~			~~F-3~~
~~Statements of Operations and Comprehensive Loss~~			~~F-4~~
~~Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)~~			~~F-5~~
~~Statements of Cash Flows~~			~~F-6~~
~~Notes to Financial Statements~~			~~F-7~~

~~F-1~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Stockholders of Oyster Point Pharma, Inc.~~

~~Opinion on the Financial Statements~~

We have audited the accompanying balance sheets of Oyster Point Pharma, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders' equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

~~Basis for Opinion~~

~~/s/ PricewaterhouseCoopers LLP~~

~~Florham Park, New Jersey~~

~~February 27, 2020~~

~~We have served as the Company’s auditor since 2017.~~

~~F-2~~

~~OYSTER POINT PHARMA, INC.~~

~~Balance Sheets~~

~~(in thousands, except share and per share amounts)~~

December 31, 2019 December 31, 2018
Assets
Current assets:
Cash and cash equivalents $ 139,147 $ 5,228
Prepaid expenses and other current assets 3,033 390
Total current assets 142,180 5,618
Restricted cash 51 —
Operating lease right-of-use asset 797 66
Property and equipment, net 181 —
Other non-current assets — 20
Total assets $ 143,209 $ 5,704
Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable $ 500 $ 462
Accrued liabilities 4,603 422
Operating lease liability 296 56
Total current liabilities 5,399 940
Non-current liabilities:
Operating lease liability, non-current 512 6
Total liabilities 5,911 946
Commitments and contingencies (Note 5)
Series A redeemable convertible preferred stock: $0.001 par value per share - 0 shares authorized, issued and outstanding at December 31,2019 and 7,611,691 shares authorized, issued and outstanding at December 31, 2018; liquidation preference $43,126 at December 31, 2018 $ — $ 43,001
Stockholders’ equity (deficit)
Preferred stock: $0.001 par value per share - 5,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2019 and 0 shares authorized, issued and outstanding as of December 31, 2018 — —
Common stock, $0.001 par value per share - 1,000,000,000 authorized shares at December 31, 2019, and 10,943,000 shares authorized at December 31, 2018; 21,366,950 shares issued and outstanding at December 31, 2019, and 1,411,966 shares issued and outstanding at December 31, 2018 21 1
Additional paid-in-capital 221,508 276
Accumulated deficit (84,231) (38,520)
Total stockholders’ equity (deficit) 137,298 (38,243)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 143,209 $ 5,704

~~The accompanying notes are an integral part of these financial statements.~~

~~F-3~~

~~OYSTER POINT PHARMA, INC.~~

~~Statements of Operations and Comprehensive Loss~~

~~(in thousands, except share and per share amounts)~~

Year Ended December 31,
2019 2018
Operating expenses:
Research and development $ 33,628 $ 13,755
General and administrative 13,673 2,981
Total operating expenses 47,301 16,736
Loss from operations (47,301) (16,736)
Interest income 1,590 233
Net loss and comprehensive loss $ (45,711) $ (16,503)
Net loss per share attributable to common stockholders, basic and
diluted $ (9.97) $ (11.69)
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted 4,585,146 1,411,966

~~The accompanying notes are an integral part of these financial statements.~~

~~F-4~~

~~OYSTER POINT PHARMA, INC.~~

~~Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)~~

~~(in thousands, except share amounts)~~

Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)
Shares Amount Shares Amount
Balance at January 1, 2018 7,611,691 $ 43,001 1,411,966 $ 1 $ 122 $ (22,017)

$ (21,894)
Net loss — — — — — (16,503)

(16,503)
Stock-based compensation — — — — 154 —

154
Balance at December 31, 2018 7,611,691 $ 43,001 1,411,966 $ 1 $ 276 $ (38,520) $ (38,243)
Net loss — — — — — (45,711) (45,711)
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $148 6,581,590 92,852 — — — —

—
Issuance of common stock upon initial public offering, net of issuance cost of $9,898 — — 5,750,000 6 82,096 — 82,102
Conversion of redeemable convertible preferred stock into common stock upon initial public offering (14,193,281) (135,853) 14,193,281 14 135,839 — 135,853
Stock issued through exercise of stock options — — 11,703 — 31 — 31
Stock-based compensation expense — — — — 3,266 — 3,266
Balance at December 31, 2019 — $ — 21,366,950 $ 21 $ 221,508 $ (84,231) $ 137,298

~~The accompanying notes are an integral part of these financial statements.~~

~~F-5~~

~~OYSTER POINT PHARMA, INC.~~

~~Statements of Cash Flows~~

~~(in thousands)~~

Year Ended December 31,
2019 2018
Cash flows from operating activities
Net loss $ (45,711) $ (16,503)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense 3,266 154
Depreciation and amortization 19 —
Changes in assets and liabilities:
Prepaid expenses and other current assets (2,643) 473
Other non-current assets 20 (20)
Accounts payable 38 44
Operating lease right-of-use asset (731) (66)
Operating lease liability 746 62
Accrued liabilities 4,181 (1,227)
Net cash used in operating activities (40,815) (17,083)
Cash flows from investing activities
Purchases of property and equipment (200) —
Net cash used in investing activities (200) —
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 92,852 —
Proceeds from initial public offering, net of issuance costs 82,102 —
Proceeds from the issuance of common stock upon exercise of stock options 31 —
Net cash provided by financing activities 174,985 —
Net increase (decrease) in cash and cash equivalents 133,970 (17,083)
Cash and cash equivalents at the beginning of the period 5,228 22,311
Cash, cash equivalents and restricted cash at the end of the period $ 139,198 $ 5,228
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents 139,147 5,228
Restricted cash 51 —
Cash, cash equivalents and restricted cash 139,198 5,228
Supplemental cash flow information
Right-of-use for office space acquired through operating leases $ 897 $ 113
Supplemental non-cash investing and financing activities
Conversion of redeemable convertible preferred stock to common stock upon closing of the initial public offering $ (135,853) $ —

~~The accompanying notes are an integral part of these financial statements.~~

~~F-6~~

~~OYSTER POINT PHARMA, INC.~~

~~Notes to Financial Statements~~

~~(in thousands, except share and per share data)~~

~~1. Organization and Summary of Significant Accounting Policies~~

~~Description of the Business~~

Oyster Point Pharma, Inc. (the “Company”) was incorporated on June 30, 2015. From inception through December 31, 2019, the Company has been primarily engaged in business planning, research, clinical development of its lead therapeutic product candidates, recruiting and raising capital. The Company is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of pharmaceutical therapies to treat ocular surface diseases. The Company’s principal office is located in Princeton, New Jersey.

~~Initial Public Offering~~

On November 4, 2019, the Company completed its initial public offering (IPO) selling 5,750,000 shares of common stock at a price to the public of $16.00 per share. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses, were $82.1 million. In addition, upon the closing the IPO, all outstanding shares of redeemable convertible preferred stock outstanding were converted into an aggregate of 14,193,281 shares of the Company’s common stock.

~~Liquidity~~

Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company incurred net losses of $45.7 million and $16.5 million for the years ended December 31, 2019 and 2018, respectively, and had an accumulated deficit of $84.2 million as of December 31, 2019. The Company has historically financed its operations primarily through the sale and issuance of its securities. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales. The Company expects to incur increased sales and marketing expenses with the commercialization of new and existing products, if approved for sale, as well as increased research and development expenses as it develops additional product candidates. The Company expects its operating losses to continue to increase for the foreseeable future.

While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms that are favorable, or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

The Company had cash and cash equivalents of $139.1 million as of December 31, 2019. Management believes that the Company’s current cash and cash equivalents will be sufficient to fund its planned operations for at least 12 months from the date of issuance of these financial statements.

~~Basis of Presentation~~

~~The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).~~

~~Reverse Stock Split~~

In October 2019, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 2.832861-for-1 reverse stock split of the Company’s common stock and redeemable convertible preferred stock, which was effected on October 18, 2019. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, redeemable convertible preferred stock, stock options, and related per share amounts as of and for the year ended December 31, 2018 and for the period through October 18, 2019 have been retroactively adjusted to give effect to the reverse stock split.

~~F-7~~

~~Use of Estimates~~

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to the valuation of stock awards, income taxes and certain research and development accruals and for periods prior to the IPO, the valuation of convertible notes, derivative instruments, and redeemable convertible preferred stock. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.

~~Segments~~

The Company operates and manages its business as 1 reportable operating segment. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of the Company's long-lived assets are located in the United States.

~~Concentration of Credit Risk~~ 

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash is held by one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company’s cash equivalents are invested in highly rated money market funds.

~~Risks and Uncertainties~~

Product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration or other international regulatory agencies prior to commercial sales. There can be no assurance that the product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approval, it could have a materially adverse impact on the Company.

The Company has expended and will continue to expend substantial funds to complete the research, development and clinical testing of its product candidates. The Company also will be required to expend additional funds to establish commercial-scale manufacturing arrangements and to provide for the marketing and distribution of products that receive regulatory approval. The Company will require additional funds to commercialize its products. The Company is unable to entirely fund these efforts with its current financial resources. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay, reduce the scope of or eliminate one or more of its research or development programs which would materially and adversely affect its business, financial condition and operations.

~~Cash and Cash Equivalents~~

The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. As of December 31, 2019 and 2018, cash and cash equivalents consisted of cash on deposit with a bank denominated in U.S. dollars and investment in money market funds.

~~F-8~~

~~Restricted Cash~~

As of December 31, 2019, the Company had $51,000 of long-term restricted cash deposited with a financial institution. The entire amount is held in a separate bank account to support a letter of credit agreement related to one of the Company’s office facilities lease, which expires in 2022.

~~Property and Equipment~~

~~Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets as follows:~~

~~Office equipment 5 years~~

~~Furniture and fixtures 7 years~~

~~Leasehold improvements Shorter of lease term or estimated useful life~~

~~Leases~~

The Company determines if an arrangement is or contains a lease and the classification of that lease at inception of a contract. The Company’s operating lease asset is included in “operating lease right-of-use asset” (“ROU asset”), and the current and non-current portions of the operating lease liability are included in “operating lease liability”, and “operating lease liability, non-current”, respectively, on the balance sheets. As of December 31, 2019 and 2018, the Company had no finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Operating lease right-of-use assets are based on the corresponding lease liability adjusted for (i) payments made at or before the commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives under the lease. The Company does not account for renewals or early terminations unless it is reasonably certain to exercise these options at commencement. Operating lease expense is recognized on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for operating leases. The Company does not record leases with terms of 12 months or less on the balance sheets.

As the implicit rate for the operating lease was not determinable, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The Company’s incremental borrowing rate was estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. The Company determined the incremental borrowing rate by considering various factors, such as its credit rating, interest rates of similar debt instruments of entities with comparable credit ratings, the lease term and the currency in which the lease was denominated.

~~Fair Value of Financial Instruments~~

~~The carrying amounts for financial instruments consisting of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their short maturities.~~

~~Redeemable Convertible Preferred Stock~~

The Company recorded all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. Redeemable convertible preferred stock was recorded outside of permanent equity because while it was not mandatorily redeemable, in certain events considered not solely within the Company’s control, such as a merger, acquisition, or sale of all or substantially all of the Company’s assets (each, a “deemed liquidation event”), the redeemable convertible preferred stock have become redeemable at the option of the holders of at least a majority of the then outstanding preferred shares. The Company did not adjust the carrying value of the redeemable convertible preferred stock to its liquidation preference because a deemed liquidation event obligating the Company to pay the liquidation preference to holders of shares of redeemable convertible preferred stock was not probable of occurring. All outstanding shares of redeemable convertible preferred stock were converted to common stock shares upon the closing of the IPO in November 2019.

~~Research and Development~~

Research and development expenses consist of compensation costs, employee benefit costs, costs for contract manufacturing organizations (“CMOs”), costs for clinical research organizations (“CROs”), costs for sponsored research, consulting costs, costs for laboratory supplies, costs for product licenses, facility-related expenses and depreciation. All research and development costs are charged to research and development expenses within the statements of operations and comprehensive loss as incurred.

~~F-9~~

Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are also expensed as incurred.

~~Stock-Based Compensation~~

The Company accounts for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses the Black-Scholes pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award.

~~Comprehensive Loss~~

Comprehensive loss represents all changes in stockholders’ equity (deficit) except those resulting from distributions to stockholders. There have been no items qualifying as other comprehensive income (loss) and, therefore, for all periods presented, the Company’s comprehensive loss was the same as its reported net loss.

~~Income Taxes~~

The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability accounts are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established where necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company accounts for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line. Accrued interest and penalties are included within the related income tax liability line in the balance sheets. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

~~Net Loss per Share Attributable to Common Stockholders~~

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock and common stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock was a participating security. The Company’s participating securities did not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

~~Recent Accounting Pronouncements~~

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) under its accounting standard codifications (“ASC”) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

~~F-10~~

~~Recently adopted accounting pronouncements~~

~~In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity~~ (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, preferred shares and convertible debt instruments issued by private companies and early-stage public companies. This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments in Part I should be applied (1) retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the first fiscal year and interim periods; (2) retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.

~~In February 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ The ASU permits companies to reclassify disproportionate tax effects in accumulated other comprehensive income (“AOCI”) caused by the Tax Act to retained earnings. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.

~~Recently issued accounting pronouncements not yet adopted~~

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,~~ ~~whichsimplify various aspects related to the accounting for income taxes.~~This ASU removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,~~ which modifies the disclosure requirements on fair value measurements. This ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. For SEC filers that are eligible to be smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures.

~~2. Fair Value Measurements~~

~~F-11~~

~~such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:~~

~~Level 1 Quoted prices in active markets for identical assets or liabilities.~~

~~Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk.

~~As of December 31, 2019, financial assets measured and recognized at fair value were as follows (in thousands):~~

Fair Value Measurements at December 31, 2019
Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
Assets
Money market funds $ 138,147 $ — $ — $ 138,147
Total fair value of assets $ 138,147 $ — $ — $ 138,147

~~As of December 31, 2018, financial assets measured and recognized at fair value were as follows (in thousands):~~

Fair Value Measurements at December 31, 2018
Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Money market funds $ 5,228 $ — $ — $ 5,228
Total fair value of assets $ 5,228 $ — $ — $ 5,228

Money market funds are included in cash and cash equivalents on the balance sheets and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

~~There were 0 financial liabilities measured and recognized at fair value as of December 31, 2019 and December 31, 2018.~~

~~F-12~~

~~3. Property and Equipment, net~~

~~Property and equipment consisted of the following (in thousands):~~


	~~December 31, 2019~~
~~Leasehold improvements~~	$	~~105~~
~~Office equipment~~	45
~~Furniture and fixtures~~	50
	~~200~~
~~Accumulated depreciation~~	~~(19)~~
~~Property and equipment, net~~	$	~~181~~

~~The Company did not have any property and equipment as of December 31, 2018.~~

~~4. Accrued Liabilities~~

~~Accrued liabilities consisted of the following (in thousands):~~

December 31,
2019 2018
Accrued compensation $ 1,214 $ 367
Accrued professional services 1,163 35
Accrued research and development expense 2,219 —
Accrued other liabilities 7 20
Total $ 4,603 $ 422

~~5. Commitments and Contingencies~~

~~Asset Purchase of OC-02~~

In October 2016, the Company entered into an asset purchase agreement pursuant to which the Company acquired the compound OC-02. The agreement provides for milestone payments of up to $37.0 million upon achievement of certain milestone events. The agreement also provides for royalty payments in the mid-single digit percentage on covered product net worldwide sales. The Company’s obligation to pay royalties will terminate at the latter of patent expiration in each country or ten years. In addition, the Company is required to pay 15% of any (i) licensing revenue received that is related to OC-02 and (ii) revenue received from the sale of OC-02, up to a maximum aggregate amount of $10.0 million.

~~License Agreement~~

In October 2019, the Company entered into a non-exclusive patent license agreement (the License Agreement) with Pfizer, which granted the Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate to develop, manufacture, and commercialize the OC-01 varenicline product candidate. Under the terms of the License Agreement, the Company made an upfront payment to Pfizer of $5.0 million, which is included in research and development expense for the year ended December 31, 2019. If the Company successfully commercializes OC-01, it may be required to pay a single milestone payment in the very low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digits to the mid-teens. The royalty obligation to Pfizer will commence upon the first commercial sale of OC-01 and will expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents.

~~F-13~~

~~Operating Lease Obligations~~

In January 2018, the Company entered a lease for office space under a non-cancelable operating lease with an expiration date of March 15, 2020, in Princeton, New Jersey. Rent expense is recorded on a straight-line basis over the term of the lease. The total lease payment over the life of the lease is $0.1 million. The remaining lease term was 0.2 years as of December 31, 2019.

In April 2019, the Company entered a lease for office space under a non-cancelable operating lease in Princeton, New Jersey, commencing on July 1, 2019, for a period of three years from the commencement date. Rent expense is recorded on a straight-line basis over the term of the lease. The total lease payment over the life of the lease is $0.9 million. The remaining lease term was 2.5 years as of December 31, 2019.

At the commencement date, the Company determined the amounts of the lease liability using a discount rate of 9%, which management determined represents the Company’s incremental borrowing rate. Lease expense was $0.2 million and less than $0.1 million for the twelve months ended December 31, 2019 and December 31, 2018, respectively. Cash paid for amounts included in the measurement of the lease liability was $0.2 million and less than $0.1 million for the twelve months ended December 31, 2019 and December 31, 2018, respectively, and was included in cash flows from operating activities in the statements of cash flows.

~~The maturities of the lease liabilities under non-cancelable operating leases are as follows (in thousands):~~

As of December 31, 2018 Amount
2019 $ 59
2020 7
Total undiscounted cash flows 66
Less: imputed interest (4)
Total operating lease liability 62
Less: current portion (56)
Operating lease liability $ 6

As of December 31, 2019 Amount
2020 $ 319
2021 316
2022 186
Total undiscounted cash flows 821
Less: imputed interest (13)
Total operating lease liability 808
Less: current portion (296)
Operating lease liability $ 512

In January 2020 the Company amended the lease of one its office facilities in Princeton, New Jersey to include additional office space, with an expiration date of July 31, 2022. Total future minimum lease payments under this amendment are $0.4 million.

~~Contingencies and Indemnifications~~

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications, including for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend

~~F-14~~

~~any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.~~

The Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid.

~~6. Income Taxes~~

The Company did 0t record a federal or state income tax provision or benefit for the for the years ended December 31, 2019 and December 31, 2018 as it has incurred net losses since inception. In addition, the net deferred tax assets generated from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

~~The Company’s loss before provision for income taxes for the years ended December 31, 2019 and 2018 was as follows (in thousands):~~

Year Ended December 31,
2019 2018
Domestic $ (45,711) $ (16,503)
International — —
Loss before provision for income taxes $ (45,711) $ (16,503)

The Company had an effective tax rate of 0% for the years ended December 31, 2019 and 2018. The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

Year Ended December 31,
2019 2018
Federal statutory income tax rate 21.0 % 21.0 %
State taxes (tax effected) 8.5 % 9.2 %
Research tax credit 3.3 % 2.6 %
Other permanent differences (2.0) % (0.2) %
Change in valuation allowance (30.8) % (32.6) %
Provision for income taxes 0.0% 0 %

~~The components of the Company’s net deferred tax assets and liabilities as of December 31, 2019 and 2018, were as follows (in thousands):~~

~~F-15~~

December 31,
2019 2018
Deferred tax assets:
Net operating loss carryforwards $ 12,454 $ 4,826
Credits 2,408 662
Tangible and intangible assets 1,977 269
Lease liability 227 —
Stock compensation 253 —
Other 36 57
Gross deferred tax assets 17,355 5,814
Less: Valuation allowance (16,423) (5,750)
Deferred tax assets, net of valuation allowance 932 64
Deferred tax liabilities:
Prepaids (708) (64)
Right of use asset (224) —
Net deferred tax assets $ — $ —

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s historical operating performance and the U.S. cumulative net losses in all prior periods, the Company has provided a valuation allowance against its U.S. deferred tax assets. The Company’s valuation allowance increased by $10.7 million for the year ended December 31, 2019 and by $4.0 million for the year ended December 31, 2018.

As of December 31, 2019, the Company has U.S. federal and state net operating losses of $59.1 million and $60.7 million, respectively, which expire beginning in the year 2035. As of December 31, 2018, the Company had U.S. federal and state net operating losses of $22.8 million and $22.9 million, respectively, which expire beginning in the year 2035.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of the Company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company has experienced an ownership change; however, the change will have no material limit on the Company’s net operating loss carryforwards. The Company is not in a taxable position and no net operating loss carryforwards have been used to date.

As of December 31, 2019 and 2018, the Company also had federal research and experimentation credit carryforwards of $2.1 million and $0.6 million, respectively, and state research and experimentation credit carryforwards of $0.4 and $0.1 million. The federal research and experimentation credit carryforwards expire beginning 2037. The California tax credit can be carried forward indefinitely.

~~As of December 31, 2019 and 2018, the Company had the following unrecognized tax benefits (in thousands):~~

Year Ended December 31,
2019 2018
Balance at the beginning of the year $ 1,989 $ 508
Additions based on tax positions related to current year 3,399 1,481
Balance at the end of the year $ 5,388 $ 1,989

~~F-16~~

~~The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.~~ ~~NaN~~ ~~accrued interest and penalties have been recorded as of December 31, 2019 and 2018.~~

The Company files income tax returns in the U.S. federal, California and New Jersey jurisdictions. Due to the Company’s net losses, its federal and state income tax returns are subject to examination for federal and state purposes since inception. As of December 31, 2019, there were no ~~ongoing examinations.~~

~~7. Redeemable Convertible Preferred Stock~~

~~On February 15, 2019, the Company executed the Series B Preferred Stock Purchase Agreement to sell up to 6,581,590 shares of Series B redeemable convertible preferred stock.~~ ~~In February and April 2019, the Company received gross cash proceeds of $85.0 million and $8.0 million, respectively, from the sale of Series B redeemable convertible preferred stock.~~

~~On November 4, 2019,~~ ~~upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock were converted into an aggregate of 14,193,281 shares of the Company’s common stock~~ and $135.9 million of mezzanine equity was reclassified to common stock and additional paid-in capital. As of December 31, 2019, there were 0 shares of redeemable convertible preferred stock issued and outstanding.

~~8. Common Stock~~

The Company amended and restated its certificate of incorporation, effective November 4, 2019, in connection with the IPO. The amended and restated certificate of incorporation authorizes the Company to issue 1,000,000,000 shares of common stock, at a par value of $0.001 per share. Each share of common stock is entitled to 1 vote.

~~The Company reserved common stock shares for future issuance as of December 31, 2019 and 2018 as follows:~~

December 31,

2019 2018
Conversion of Series A redeemable convertible preferred stock — 7,611,691
Outstanding options under the 2016 Plan 2,748,434 1,376,084
Equity awards available for grants under the 2016 Plan — 216,333
Outstanding options under the 2019 Plan 29,466 —
Unvested RSUs under the 2019 Plan 23,125 —
Equity awards available for grants under the 2019 Plan 2,747,047 —
Total 5,548,072 9,204,108

~~9. Equity Incentive Plans~~

In 2016, the Company established its 2016 Equity Incentive Plan (the “Plan”) which provides for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and consultants.

In October 2019, the Company’s Board of Directors and stockholders approved the 2019 Equity Incentive Plan (the 2019 Plan), with an initial shares reserved of 2,700,000 shares of the Company's common stock plus 99,638 shares reserved but unissued under the 2016 Plan. The 2019 Plan provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to the Company's employees, directors, and others.

The exercise price of an ISO and NSO shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the board of directors. The exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the board of directors. To date, outstanding options have a term of 10 years and generally vest monthly over a ~~four-year period.~~

~~As of December 31, 2019, there were 2,747,047 common stock shares reserved for future grants under the 2019 Plan.~~

In October 2019, the Company’s Board of Directors and stockholders also approved the 2019 Employee Stock Purchase Plan (the ESPP), which qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code, and pursuant to which 270,000 shares of common stock were reserved for future issuance. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions. There were no ESPP purchases during the year ended December 31, 2019.

~~Option activity under the Company’s stock option plans is set forth below (in thousands, except share and per share data):~~

Outstanding Awards
Number of Shares Underlying Outstanding Options Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at January 1, 2018 1,057,373 $ 1.00 9.85 $ 25
Options granted 318,711 1.02
Outstanding at December 31, 2018 1,376,084 $ 1.00 8.90 $ 5,950
Options granted 1,446,823 8.01
Options exercised (11,703) 2.64 255
Options canceled (33,304) 5.86
Outstanding at December 31, 2019 $ 2,777,900 $ 4.59 8.73 $ 55,146
Shares vested and exercisable as of December 31, 2019 $ 1,108,041 $ 2.10 8.29 $ 24,757
Vested and expected to vest as of December 31, 2019 $ 2,777,900 $ 4.59 8.73 $ 55,146

~~During the years ended December 31, 2019 and 2018, the Company granted options with a weighted-average grant date fair value of $8.62 and $0.53 per share, respectively.~~

~~The fair value of options that vested during the years ended December 31, 2019 and 2018 was $2.5 million and $0.2 million, respectively.~~

~~As of December 31, 2019, the total unrecognized stock-based compensation expense for stock options was $9.4 million, which is expected to be recognized over a weighted-average period of 3.21 years.~~

In October 2019, the Company granted restricted stock units (RSUs) for 23,125 common stock shares that will vest one-third annually over three years, subject to continuing services to be provided to the Company. Grant date fair value was $16.00 per share, which is the common stock market price at the grant date. As of December 31, 2019, the total unrecognized stock-based compensation expense for RSUs was $0.3 million, which is expected to be recognized over a weighted-average period of 2.83 years.

~~Stock-Based Compensation Expense~~

~~The following table is a summary of stock compensation expense by function recognized (in thousands):~~

Year Ended December 31,
2019 2018
Research and development $ 579 $ 21
General and administrative 2,687 133
Total stock-based compensation $ 3,266 $ 154

~~Fair Value of Options Granted~~

Prior to the IPO, the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the IPO, the fair value of the Company’s common stock is based on the closing quoted market price of its common stock as reported by the NASDAQ Global Select Market on the date of grant.

In determining fair value of the stock options granted, the Company uses the Black-Scholes model, which requires the input of several assumptions. These assumptions include: estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of the Company’s common stock price over the expected term (expected volatility), risk-free interest rate and expected dividend rate. Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized.

~~Expected term.~~ The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

~~Expected volatility.~~ The Company used an average historical stock price volatility of a peer group of comparable publicly traded companies in biotechnology and pharmaceutical related industries to be representative of its expected future stock price volatility, as the Company did not have any trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.

~~Risk-free interest rate.~~ ~~The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock award.~~

~~Expected dividend rate.~~ ~~The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.~~

~~The fair value of options granted were calculated using the weighted average assumptions set forth below:~~

Year Ended December 31,
2019 2018
Expected volatility 69.0 - 84.0% 52.5%
Risk-free interest rate 1.48% - 2.38% 2.49% - 2.80%
Dividend yield 0.00% 0.00%
Expected term 5.04 - 6.08 years 6.02 years

~~F-17~~

~~10. Net Loss Per Share Attributable to Common Stockholders~~

~~The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):~~

Year Ended December 31,
2019 2018
Numerator:
Net loss attributable to common stockholders $ (45,711) $ (16,503)
Denominator:
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted 4,585,146 1,411,966
Net loss per share attributable to common stockholders, basic and diluted $ (9.97) $ (11.69)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

Year Ended December 31,
2019 2018
Series A redeemable convertible preferred stock — 7,611,691
Options to purchase common stock 2,777,900 1,376,084
Unvested restricted stock units 23,125 —
Total 2,801,025 8,987,775

~~11. Quarterly Results of Operations Data (unaudited)~~

The following table sets forth our unaudited statement of operations and comprehensive loss data for each of the eight quarters in the two-year period ended December 31, 2019. The unaudited quarterly statement of operations and comprehensive loss data set forth below have been prepared on a basis consistent with the audited annual financial statements and include, in our opinion, all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited financial statements and the related notes.

~~Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2019 (in thousands, except share and per share data):~~

~~F-20~~

Three months ended
March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019
Operating expenses:
Research and development $ 2,405 $ 8,101 $ 8,088 $ 15,034
General and administrative 1,605 3,132 3,809 5,127
Total operating expenses 4,010 11,233 11,897 20,161
Loss from operations (4,010) (11,233) (11,897) (20,161)
Interest income 250 503 400 437
Net loss and comprehensive loss $ (3,760) $ (10,730) $ (11,497) $ (19,724)
Basic and diluted net loss per share $ (2.66) $ (7.60) $ (8.10) $ (1.41)
Weighted average shares outstanding 1,411,966 1,412,354 1,419,064 13,993,730

~~Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2018 (in thousands, except share and per share data):~~

Three months ended
March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018
Operating expenses:
Research and development $ 2,374 $ 2,261 $ 5,775 $ 3,345
General and administrative 626 735 916 704
Total operating expenses 3,000 2,996 6,691 4,049
Loss from operations (3,000) (2,996) (6,691) (4,049)
Interest income 66 70 59 38
Net loss and comprehensive loss $ (2,934) $ (2,926) $ (6,632) $ (4,011)
Basic and diluted net loss per share $ (2.08) $ (2.07) $ (4.70) $ (2.84)
Weighted average shares outstanding 1,411,966 1,411,966 1,411,966 1,411,966

~~Per share amounts for each quarter have been calculated separately. Accordingly, quarterly amounts may not add to annual amounts.~~

~~F-21~~


Delaware			81-1030955
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
202 Carnegie Center, Suite 109 Princeton, New Jersey			08540
(Address of principal executive offices)			(Zip Code)


		Page
	PART I.
Item 1.	B ~~usiness~~Business	35
Item 1A.	R ~~isk~~Risk Factors	3529
Item 1B.	Unresolved Staff Comments	7671
Item 2.	P ~~roperties~~Properties	7671
Item 3.	L ~~egal Proceedings~~Legal Proceedings	7671
Item 4.	M ~~ine~~Mine Safety Disclosures	7671

	PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities	7772
Item 6.	S ~~elected~~Selected Financial Data	7773
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7874
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	8783
Item 8.	Financial Statements and Supplementary Data	8783
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	8883
Item 9A.	Controls and Procedures	8883
Item 9B.	Other Information	8984

	PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	8985
Item 11.	Executive Compensation	9085
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	9085
Item 13.	Certain Relationships and Related Transactions, and Director Independence	9085
Item 14.	Principal Accounting Fees and Services	9085

	PART IV.
Item 15.	~~Exhibits,~~ Financial ~~Statement~~Statements, Schedules, Exhibits	9186
Item 16.	Form 10-K Summary	92106
	Signatures	93107


			•Completing development and obtaining approval of OC-01 (varenicline) nasal spray for the treatment of dry eye disease. OC-01 (varenicline) nasal spray demonstrated statistically significant improvements (as compared to placebo) in signs of dry eye disease in the MYSTIC, ONSET-1 and ONSET-2 randomized, controlled clinical trials. In the ONSET-1 and ONSET-2 trials, there was statistically or nominally statistically significant improvement in symptom scores at Day 28, and in ONSET-2 as early as Day 14, as compared to placebo. The Company is not aware of another therapy that has shown statistically significant improvements in both signs and symptoms of dry eye disease in multiple registrational clinical trials. However, to date the Company's trials have been designed as randomized, masked, placebo-controlled clinical trials and, as such, the Company has not tested OC-01 (varenicline) nasal spray head-to-head with any other products or therapies, nor is it aware of any head-to-head results indicating that such other products or therapies could not have shown similar results. On December 17, 2020, based on the safety and efficacy results from the conducted clinical trials, the Company submitted a 505(b)(2) NDA to the FDA for OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry eye disease.						~~Completing development and obtaining approval of OC-01 for the treatment of DED.~~ OC-01 demonstrated statistically significant improvements (as compared to placebo) in both signs and symptoms of DED in a single registrational clinical trial. We are not aware of another therapy that has shown statistically significant improvements in both signs and symptoms of DED in a single registrational clinical trial. However, to date our trials have been designed as randomized, masked, placebo-controlled clinical trials and, as such, we have not tested OC-01 head-to-head with any other products or therapies, nor are we aware of any head-to-head results indicating that such other products or therapies could not have shown similar results. Based on the strength of the data observed in ONSET-1, our Phase 2b registrational clinical trial, we initiated a Phase 3 multicenter, randomized, double-masked, placebo-controlled clinical trial (ONSET-2). We expect to report top-line results from this second registrational trial by the end of the second quarter 2020 and, if successful, submit a 505(b)(2) NDA to the FDA in the second half of 2020.
			•						~~Establishing our own specialty sales organization to commercialize OC-01 in the United States.~~ If OC-01 is approved for the treatment of the signs and symptoms of DED, we intend to commercialize our lead product candidate by deploying a specialty sales force at launch of approximately 150 to 200 field representatives targeting the top-prescribing ophthalmologists and optometrists. Given the importance of increasing awareness and educating patients with DED, we also anticipate deploying focused direct-to-consumer marketing campaigns for OC-01. We anticipate that this sales organization could also support the commercialization of additional product candidates treating ocular diseases.


			•Maximizing value of OC-01 (varenicline) nasal spray and the Company's other product candidates outside the United States. With more than 300 million additional dry eye disease patients outside of the United States, the Company believes there is a significant commercial opportunity for its product candidates internationally. To address these markets, it may seek one or more partners with regional capabilities and infrastructure to support and potentially accelerate the clinical development and commercialization of the Company's product candidates, if approved, in such geographies.						~~Developing OC-01 for additional indications associated with and beyond DED.~~ Based on the fundamental role of natural tear film in ocular surface health, we plan to pursue development of OC-01 in other indications where this equilibrium is disturbed. First, we plan to pursue development for patients with neurotrophic keratitis, a degenerative disease resulting from a loss of corneal sensation, which causes progressive damage to the top layer of the cornea. As natural tear film contains a myriad of beneficial components, including endogenous growth factors, proteins and antibodies, we believe that our product candidate could be beneficial in improving the health of the cornea in these patients. A second population of potential clinical benefit is in subjects with DED associated with contact lens intolerance. In addition, based on the unique characteristics of this product candidate, we see the potential for use in patients that are preparing for refractive surgery where there is often an underlying dry eye condition that could impact refraction and ultimately patient satisfaction and quality of life post-surgery.

			•						~~Leveraging the capabilities of our experienced discovery and development team and our nAChR domain expertise to continue expanding our pipeline of product candidates.~~ We have studied a second nAChR agonist product candidate OC-02 (simpinicline) in two Phase 2b clinical trials for DED. We have identified several indications, other than DED, where we believe this product candidate has the potential to provide a meaningful benefit to patients. In certain indications, we believe OC-02 could advance directly into a Phase 2 proof of concept study, supported by preclinical and clinical data that we and others have generated. However, we cannot guarantee that the FDA will permit us to advance OC-02 into a Phase 2 proof of concept study nor can we guarantee that the FDA will grant marketing approval to OC-02 for the treatment of any indication. Beyond OC-02, we plan to continue our efforts to identify and develop additional product candidates.


¹			~~ANCOVA, Least Squares mean. ITT-observed population. Controlled Adverse Environment (CAE).~~
²			~~ANCOVA, Least Squares mean. ITT-observed population.~~
^*			~~Nominal p-value~~


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


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


			•						~~Mechanisms of action only address inflammation.~~ Currently approved therapies only target inflammation for moderate to severe DED; no approved pharmaceutical products replicate natural tear film, which is highly complex in composition. As these prescription therapies fail to address the fundamental characteristic of DED, the loss of tear film homeostasis, we estimate that 75% of patients still require over-the-counter therapies to supplement their treatment.


			•						~~Slow onset of action~~. Based on data reported from clinical trials, currently available treatments can take between three to six months to demonstrate a significant effect in clinical signs. We believe this delayed onset of action hinders compliance and in turn limits the benefit that patients derive from such treatments.


			•						~~Tolerability and compliance issues.~~ Currently approved pharmaceutical therapies for DED are typically administered in an eye-drop formulation and are commonly associated with ocular burning, reduced visual acuity and bad taste after application. The effective use of eye drops can be challenging for some patients, and such challenges can result in reduced compliance.


			•						•Establishing specialty sales organization to commercialize OC-01 (varenicline) nasal spray in the United States. If OC-01 (varenicline) nasal spray is approved for the treatment of the signs and symptoms of dry eye disease, the Company intends to commercialize its lead product candidate by deploying a specialty sales force at launch of approximately 150-200 field representatives targeting the top-prescribing ophthalmologists and optometrists in the United States. Given the importance of increasing awareness and educating patients with dry eye disease, the Company also anticipates deploying focused direct-to-consumer marketing campaigns for OC-01 (varenicline) nasal spray. The Company anticipates that this sales organization could also support the commercialization of additional product candidates treating ocular diseases. 5 ~~Maximizing the value of OC-01 and our other product candidates outside the United States.~~ With more than 300 million additional DED patients outside of the United States, we believe there is a significant commercial opportunity for our product candidates internationally. To address these markets, we may seek one or more partners with regional capabilities and infrastructure to support and potentially accelerate the clinical development and commercialization of our product candidates, if approved, in such geographies.


			•						~~Selectively evaluating external opportunities to expand the scope of our pipeline or product offerings.~~ ~~We may pursue acquisition or in-licensing of product candidates, particularly in our~~•Developing OC-01 (varenicline) nasal spray for additional indications associated with and beyond dry eye disease. Based on the fundamental role of natural tear film in ocular surface health, the Company plans to pursue development of OC-01 (varenicline) nasal spray in other indications where this equilibrium is disturbed. First, the Company submitted to the FDA a protocol to initiate a clinical study in adult patients with NK, a degenerative disease resulting from a loss of corneal sensation, which causes progressive damage to the top layer of the cornea. As natural tear film contains a myriad of beneficial components, including endogenous growth factors, proteins and antibodies, the Company believes that its product candidate could be beneficial in improving the health of the cornea in these patients. A second population of potential clinical benefit is in subjects with dry eye disease associated with contact lens intolerance. In addition, based on the unique characteristics of this product candidate, the Company sees the potential for use in patients that are preparing for refractive surgery where there is often an underlying dry eye condition that could impact refraction and ultimately patient satisfaction and quality of life post-surgery. •Leveraging the capabilities of the Company's experienced discovery and development team and its nAChR domain expertise to continue expanding pipeline of product candidates. The Company has studied a second nAChR agonist product candidate OC-02 (simpinicline) in two Phase 2b clinical trials for dry eye disease. The Company has identified several indications, other than dry eye disease, where it believes this product candidate has the potential to provide a meaningful benefit to patients. In certain indications, the Company believes OC-02 could advance directly into a Phase 2 proof of concept study, supported by preclinical and clinical data that the Company and others have generated. However, the Company cannot guarantee that the FDA will permit it to advance OC-02 into a Phase 2 proof of concept study nor can it guarantee that the FDA will grant marketing approval to OC-02 for the treatment of any indication. Beyond OC-02, the Company plans to continue its efforts to identify and develop additional product candidates. •Selectively evaluating external opportunities to expand the scope of the Company's pipeline or product offerings. The Company may pursue collaboration, acquisition or in-licensing of product candidates, particularly in its core disease area of ocular surface diseases.


			•Tolerability and compliance issues. Currently approved pharmaceutical therapies for dry eye disease are typically administered in an eye-drop formulation and are commonly associated with ocular burning, reduced visual acuity and bad taste after application. The effective use of eye drops can be challenging for some patients and may result in reduced compliance. Corticosteroids are limited based on known complications of glaucoma and damage to the optic nerve as well as delayed wound healing of the cornea.						~~Tolerability and compliance issues.~~ Currently approved pharmaceutical therapies for DED are typically administered in an eye-drop formulation and are commonly associated with ocular burning, reduced visual acuity and bad taste after application. The effective use of eye drops can be challenging for some patients and result in reduced compliance.


¹			~~ANCOVA primary analysis. ITT-observed population.~~ On December 17, 2020, based on the safety and efficacy results from the Phase 1 Zen, Phase 2 MYSTIC, Phase 2b ONSET-1 and Phase 3 ONSET-2 clinical trials in over 1,000 subjects with dry eye disease, the Company submitted a 505(b)(2) NDA to the FDA for OC-01 (varenicline) nasal spray for the treatment of signs and symptoms of dry eye disease.


	Year Ended December 31,
	2019		2018
	(in thousands, except per share data)
Statements of Operations and Comprehensive Loss Data:
Operating expenses
Research and development	$	33,628	$	13,755
General and administrative	13,673		2,981
Total operating expenses	47,301		16,736
Loss from operations	(47,301)		(16,736)
Interest income	1,590		233
Related party interest expense	—		—
Net loss and comprehensive loss	$	(45,711)	$	(16,503)
Net loss attributable to common stockholders	$	(45,711)	$	(16,503)
Net loss per share attributable to common stockholders, basic and diluted	$	(9.97)	$	(11.69)

	As of December 31,
	2019		2018
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	139,147	$	5,228
Working capital ⁽¹⁾	136,781		4,678
Total assets	143,209		5,704
Total liabilities	5,911		946
Redeemable convertible preferred stock	—		43,001
Accumulated deficit	(84,231)		(38,520)
Total stockholders' equity (deficit)	137,298		(38,243)


	Year EndedDecember 31,
	2019		2018

Clinical and preclinical	$	12,470	$	9,302
Chemistry, Manufacturing and Controls (CMC)	12,148		2,885
License costs	5,000		—
Regulatory and other costs	4,010		1,568
Total research and development expenses	$	33,628	$	13,755


	Payments Due by Period (in thousands)
	Less than 1 year		1 to 3 years		Total
Operating lease obligations (1)	$	319	$	502	$	821


	December 31, 2019		December 31, 2018

Assets
Current assets:
Cash and cash equivalents	$	139,147	$	5,228
Prepaid expenses and other current assets	3,033		390
Total current assets	142,180		5,618
Restricted cash	51		—
Operating lease right-of-use asset	797		66
Property and equipment, net	181		—
Other non-current assets	—		20
Total assets	$	143,209	$	5,704
Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	500	$	462
Accrued liabilities	4,603		422
Operating lease liability	296		56
Total current liabilities	5,399		940
Non-current liabilities:
Operating lease liability, non-current	512		6
Total liabilities	5,911		946
Commitments and contingencies (Note 5)
Series A redeemable convertible preferred stock: $0.001 par value per share - 0 shares authorized, issued and outstanding at December 31,2019 and 7,611,691 shares authorized, issued and outstanding at December 31, 2018; liquidation preference $43,126 at December 31, 2018	$	—	$	43,001

Stockholders’ equity (deficit)
Preferred stock: $0.001 par value per share - 5,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2019 and 0 shares authorized, issued and outstanding as of December 31, 2018	—		—
Common stock, $0.001 par value per share - 1,000,000,000 authorized shares at December 31, 2019, and 10,943,000 shares authorized at December 31, 2018; 21,366,950 shares issued and outstanding at December 31, 2019, and 1,411,966 shares issued and outstanding at December 31, 2018	21		1
Additional paid-in-capital	221,508		276
Accumulated deficit	(84,231)		(38,520)
Total stockholders’ equity (deficit)	137,298		(38,243)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	143,209	$	5,704


	Fair Value Measurements at December 31, 2018
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Money market funds	$	5,228	$	—	$	—	$	5,228
Total fair value of assets	$	5,228	$	—	$	—	$	5,228


As of December 31, 2018	Amount
2019	$	59
2020	7
Total undiscounted cash flows	66
Less: imputed interest	(4)
Total operating lease liability	62
Less: current portion	(56)
Operating lease liability	$	6


	Outstanding Awards
		Number of Shares Underlying Outstanding Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2018		1,057,373		$	1.00	9.85	$	25
Options granted		318,711		1.02
Outstanding at December 31, 2018		1,376,084		$	1.00	8.90	$	5,950
Options granted		1,446,823		8.01
Options exercised		(11,703)		2.64			255
Options canceled		(33,304)		5.86
Outstanding at December 31, 2019		$	2,777,900	$	4.59	8.73	$	55,146
Shares vested and exercisable as of December 31, 2019		$	1,108,041	$	2.10	8.29	$	24,757
Vested and expected to vest as of December 31, 2019		$	2,777,900	$	4.59	8.73	$	55,146


	Three months ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018

Operating expenses:
Research and development	$	2,374	$	2,261	$	5,775	$	3,345
General and administrative	626		735		916		704
Total operating expenses	3,000		2,996		6,691		4,049
Loss from operations	(3,000)		(2,996)		(6,691)		(4,049)
Interest income	66		70		59		38
Net loss and comprehensive loss	$	(2,934)	$	(2,926)	$	(6,632)	$	(4,011)

Basic and diluted net loss per share	$	(2.08)	$	(2.07)	$	(4.70)	$	(2.84)

Weighted average shares outstanding	1,411,966		1,411,966		1,411,966		1,411,966