UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended DecemberMarch 31, 20172020  

OR

For the transition period fromto

COMMISSION FILE NUMBER 000-51122

pSivida Corp.EyePoint Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

(617) 926-5000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

There were 45,256,999 124,741,832 shares of the registrant’s common stock, $0.001 par value, outstanding as of February 5, 2018.May 1, 2020.

PSIVIDA CORP.EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

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PART I. FINANCIALFINANCIAL INFORMATION

PSIVIDA CORP.

EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands except share amounts)

See notes to condensed consolidated financial statements

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PSIVIDA CORP.EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands except per share amounts)data)

See notes to condensed consolidated financial statements

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PSIVIDA CORP.EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands except share amounts)data)

See notes to condensed consolidated financial statements

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PSIVIDA CORP.EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

See notes to condensed consolidated financial statements

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PSIVIDA CORP.EYEPOINT PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Overview

The accompanying condensed consolidated financial statements of pSivida Corp.EyePoint Pharmaceuticals, Inc. and subsidiaries (the(collectively, the “Company”) as of DecemberMarch 31, 20172020 and for the three and six months ended DecemberMarch 31, 20172020 and 20162019 are unaudited. Certain information in the footnote disclosures of these financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in itsthe Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (“fiscal 2017”).December 31, 2019. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended June 30, 2017,December 31, 2019, and include all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair presentation of the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods indicated. The preparation of financial statements in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make assumptions and estimates that affect, among other things, (i) reported amounts of assets and liabilities; (ii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) reported amounts of revenues and expenses during the reporting period. The results of operations for the three and six months ended DecemberMarch 31, 20172020 are not necessarily indicative of the results that may be expected for the entire fiscal year or any future period.

The Company develops sustained-release drug deliveryis a pharmaceutical company committed to developing and commercializing innovative ophthalmic products primarily for the treatment of chronicserious eye diseases. disorders. The Company’sCompany has two products, YUTIQ^® and DEXYCU^®, which were approved products and product candidates deliver drugs at a controlled and steady rate for months or years. In January 2018, the Company filed a new drug application (“NDA”) withby the U.S. Food and Drug Administration (“FDA”) in 2018.

YUTIQ (fluocinolone acetonide intravitreal implant) 0.18 mg for its lead product candidate, Durasert™ three-year non-erodible fluocinolone acetonide (“FA”) insert for posterior segment uveitis (“Durasert three-year uveitis”). The FDA typically informs a company whether its NDA is complete and acceptable for review within sixty days after submission of the NDA. The Company has previously developed three of the four sustained-release products approved by the FDA for treatment of back-of-the-eye diseases. ILUVIEN^® for diabetic macular edema (“DME”), the Company’s lead licensed product, is sold by Alimera Sciences, Inc. (“Alimera”)intravitreal injection, was launched directly in the U.S. and several European Union (“EU”) countries. Retisert^®, an earlier generation product approved in 2005 by the FDAFebruary 2019. YUTIQ is indicated for the treatment of posterior segment uveitis, is sold in the U.S. by Bausch & Lomb Incorporated (“Bausch & Lomb”). The Company’s development programs are focused primarily on developing sustained release products that utilize its Durasert technology platform to deliver approved drugs to treat chronic diseases. The Company’s strategy includes developing products independently while continuing to leverage its technology platforms through collaborations and license agreements.

Durasert three-year uveitis, the Company’s most advanced development product candidate, is designed to treat chronic non-infectious uveitis affecting the posterior segment of the eye, (“posterior segment uveitis”) for three years from a single administration.which affects between 60,000 to 100,000 people in the U.S. each year and causes approximately 30,000 new cases of blindness every year, making it the third leading cause of blindness. Injected into the eye in an office visit, this product candidateYUTIQ is a tiny micro-insert that delivers a micro-dose of a corticosteroid to the back of the eye on a sustained constant (zero order release) basis. The Company is developing Durasert three-year uveitis independently.

Both Phase 3 clinical trials investigating Durasert three-year uveitis met their primary efficacy endpoint of prevention of recurrence of disease through six months with statistical significance (p < 0.001, intentbasis for up to treat analysis) and with safety data consistent with the known effects of ocular corticosteroid use. Statistical significance for efficacy and encouraging safety results were maintained through 12 months of follow-up in both Phase 3 clinical trials. In Europe, the Company filed a marketing authorization application (“MAA”) in June 2017 and subsequently withdrew the application after out-licensing the European rights for Durasert three-year uveitis to Alimera. In January 2018, Alimera received validation of a Type II variation submitted under its existing ILUVIEN MAA in all seventeen European countries in which it previously received regulatory approval for ILUVIEN for DME. If the variation is approved, Alimera plans to commercialize the uveitis indication under its ILUVIEN trademark.

ILUVIEN is an injectable, sustained-release micro-insert that provides three years of treatment of DME from a single injection. ILUVIEN36 months. YUTIQ is based on the sameCompany’s proprietary Durasert^® sustained-release drug delivery technology platform, which can deliver drugs for predetermined periods of time ranging from months to years.

DEXYCU (dexamethasone intraocular suspension) 9%, for intraocular administration, was launched directly in the U.S. in March 2019.  Indicated for the treatment of post-operative ocular inflammation, DEXYCU is administered as a single dose at the Durasert three-year uveitis insert and delivers the same corticosteroid, FA. ILUVIEN was developed in collaboration with,end of ocular surgery and is the first long-acting intraocular product approved by the FDA for this indication. DEXYCU utilizes the Company’s proprietary Verisome^® drug-delivery platform, which allows for a single intraocular injection that releases dexamethasone, a corticosteroid, over time. There were approximately 3.8 million cataract surgeries performed during 2018 in the U.S.and the Company launched DEXYCU with a primary focus on its use following cataract surgery. The Company acquired DEXYCU in connection with its acquisition of Icon Bioscience, Inc. (“Icon”) in March 2018 (the Icon Acquisition”).

ILUVIEN^® for diabetic macular edema (“DME”), the Company’s licensed to and sold by Alimera. ILUVIEN has beenproduct, is sold directly in the United Kingdom (“U.K.”) and Germany since 2013, in the U.S. and Portugal since 2015,several European Union (“EU”) countries by Alimera Sciences, Inc. (“Alimera”). In July 2017, the Company expanded its license agreement with Alimera to include the uveitis indication utilizing the Durasert technology in Europe, the Middle East and Africa (“EMEA”), which received European regulatory approval in AustriaMarch 2019 and, Ireland beginning in 2017, and also has marketing approvals in 12 other European countries. Alimera has sublicensed distribution, regulatorysubject to obtaining pricing and reimbursement mattersin each applicable country, will be marketed as ILUVIEN.

EYP-1901, 6-Month bioerodible Durasert Vorolanib – Tyrosine Kinase Inhibitor (“TKI”) is being advanced as a potential treatment for ILUVIEN in Australia and New Zealand, Canada, Italy, Spain, France and numerous countries in the Middle East.

The Company’s development programs are focused primarily on developing sustained release drug products using its proven Durasert technology platform to deliver small molecule drugs to treat uveitis, wet age-related macular degeneration glaucoma, osteoarthritis(“wAMD”) with potential in diabetic retinopathy (“DR”) and other diseases. A sustained release implant, surgically administered in an outpatient procedure, delivering a corticosteroid to treat pain associated with severe knee osteoarthritis, was jointly developed by the Company and Hospital for Special Surgeryretinal vein occlusion (“HSS”RVO”). In December 2017, the Company and HSS reported positive data from a Phase I investigator-sponsored safety and tolerability study conducted by HSS.

The Company has financed its operations primarily from salescompleted initial animal pharmacokinetic and toxicology studies before 2020 and initiated GLP toxicology studies in March 2020 to support the anticipated filing of equity securities andan Investigational New Drug application with the receipt of license fees, milestone payments, research and development funding and royalty income from its collaboration partners. FDA later this year, with a Phase 1 clinical trial scheduled to follow shortly afterwards.

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Liquidity

The Company has a history of operating losses and to date, has not had significant recurring cash inflows from revenue. The Company’s anticipated recurring useoperations have been financed primarily from sales of cashits equity securities, issuance of debt and a combination of license fees, milestone payments, royalty income and other fees received from its collaboration partners. In the first quarter of 2019, the Company commenced the U.S. launch of its first two commercial products, YUTIQ and DEXYCU. However, management does not yet have sufficient historical evidence to assert that it is probable that the Company will receive sufficient revenues from its product sales to fund operations in combination with no probable sourceoperations. As of additionalMarch 31, 2020, the Company has had recurring operating losses since its inception and has an accumulated deficit of approximately $478.5 million and working capital raisesof $39.4 million. The Company had cash and cash equivalents of $26.3 million at March 31, 2020.

Accordingly, the foregoing conditions, taken together, continue to raise substantial doubt about itsthe Company’s ability to continue as a going concern for one year from the issuance of itsthese financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s plans that are intended to mitigate those conditions include continuing to fulfill its funding needs through cash inflows from revenue of YUTIQ and DEXYCU product sales, licensing arrangements, additional capital raises or other arrangements. The Company’s plans also include a restructuring plan and curtailing expenses to conserve cash in response to a significant decline in product demand associated with shut-downs of customer facilities and postponements of elective surgical procedures and physician office visits in response to the COVID-19 coronavirus pandemic (the “Pandemic”). On April 8, 2020, the Company submitted an application through Silicon Valley Bank for the Paycheck Protection Program Loan (the “PPP Loan”) that is administered by the U.S. Small Business Administration (the “SBA”), under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On April 22, 2020, the Company received the PPP Loan proceeds of $2.0 million. The Company believes that its cash and cash equivalents of $12.9$26.3 million at DecemberMarch 31, 2017,2020, the PPP Loan proceeds of $2.0 million received on April 22, 2020, and expected proceeds from existing collaborationcash inflows under its product sales and royalty agreements coupled with cash conservation activities will enable the Company to maintainfund its current and planned operations (including its two Durasert three-year uveitis Phase 3 clinical trials) through approximatelyinto 2021 under current assumptions for the second quarterduration of calendar year 2018. In order to extend the Company’s ability to fund its operations beyond then, including its planned commercial launch of Durasert three-year uveitis inCOVID-19-related closures across the U.S. if approved by the FDA, management’s plans include accessing additional equity financing from the sale of its common stock through its at-the-market (“ATM”) program or other equity or debt financing transactions and/or, as applicable, reducing or deferring operating expenses. At the Company’s annual meeting of stockholders held on December 15, 2017, stockholders approved proposals that, pursuant to applicable Australian Securities Exchange (“ASX”) Listing Rules, permitAlthough the Company believes such plans, if executed, should provide the Company sufficient financing to issue up to 25% ofmeet its then issued and outstanding capital without any further stockholder approval in the next 12 months, unless such stockholder approval is required by applicable law, other rules of the ASX, the rules of the Nasdaq Stock Market (“Nasdaq”) or the rules of another stock exchange on which the Company’s securities may be listed at the time. The timing and extent of the Company’s implementation of these plans is expected to depend on the amount and timing of cash receipts from existing or any future collaboration or other agreements and/or proceeds from any financing transactions. Thereneeds, there is no assurance that additional funding will be achieved and that the Company will receive significant revenuessucceed in its future operations. Actual cash requirements could differ from management’s projections due to many factors, including the success of commercialization for YUTIQ and DEXYCU, the actual costs of Durasert three-year uveitis these commercialization efforts, additional investments in research and development programs, competing technological and market developments and the costs of any strategic acquisitions and/or ILUVIEN or obtain financing from any other sources.development of complementary business opportunities.

Recently Adopted and Recently Issued Accounting Pronouncements

New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective dates. Unless otherwise disclosed below, the Company believes that recently issued and adopted accounting pronouncements will not have a material impact on the Company’s financial position, results of operations and cash flows or do not apply to the Company’s operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers(Topic 606) (“ASU 2014-09”), which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, which officially deferred the effective date of ASU 2014-09 by one year, while also permitting early adoption. As a result, ASU 2014-09 will become effective on July 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In FebruaryJune 2016, the FASB issued ASU No. 2016-02,Leases. The new standard establishes2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”): Measurement of Credit Losses on Financial Instruments, to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a right-of-use (“ROU”) modelmethodology that reflects expected credit losses and requires consideration of a lesseebroader range of reasonable and supportable information, including forecasted information, to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standarddevelop credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2018, including2019, and interim periods within those fiscal years. AsEarly adoption is permitted for fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-13 on January 1, 2020. The adoption of this standard did not have a result,material impact on its consolidated financial statements.

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In December 2019, the FASB issued ASU 2016-02No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. This standard will becomebe effective on July 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presentedCompany in the financial statements, with certain practical expedients available.first quarter of its fiscal year ending December 31, 2021. The Company is currently evaluating the impact the adoption of this standardupdate will have on its consolidated financial statements.

AlimeraRevenue Recognition

UnderRevenue is recognized when a collaboration agreementcustomer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Alimera, as amended in March 2008 (the “Prior Alimera Agreement”Customers (“ASC 606”), the Company licensedperforms the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to Alimera the rightsperformance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to develop, market and sell certain product candidates, including ILUVIEN, and Alimera assumed all financial responsibilitycontracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the developmentgoods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of licensed products. In addition,ASC 606, the Company was entitledassesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to receive 20%the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of anythird parties are excluded from revenue.

Product sales, net profits (as defined) — The Company sells YUTIQ and DEXYCU to a limited number of specialty distributors and specialty pharmacies (collectively the “Distributors”) in the U.S., with whom the Company has entered into formal agreements, for delivery to physician practices for YUTIQ and to hospital outpatient departments and ambulatory surgical centers for DEXYCU. The Company recognizes revenue on sales of each licensed product (including ILUVIEN) by Alimera, measured onits products when a quarter-by-quarter and country-by-country basis. Alimera could recover 20% of previously incurred and unapplied net losses (as defined) for commercialization of each product in a country, but only by an offset of up to 4%customer obtains control of the net profits earnedproducts, which occurs at a point in that country each quarter, reducing the Company’s net profit sharetime, typically upon delivery. In addition to 16% in each country until those net losses were recouped. In the event that Alimera sublicensed commercialization in any country,distribution agreements with customers, the Company was entitled to 20% of royaltiesalso enters into arrangements with healthcare providers and 33% of non-royalty consideration received by Alimera, less certain permitted deductions. The Company is also entitled to reimbursement of certain patent maintenance costspayors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the patents licensedpurchase of the Company’s products.

Reserves for variable consideration — Product sales are recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration include trade discounts and allowances, provider chargebacks and discounts, payor rebates, product returns, and other allowances that are offered within contracts between the Company and its Distributors, payors, and other contracted purchasers relating to Alimera.the Company’s product sales. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified either as reductions of product revenue and accounts receivable or a current liability, depending on how the amount is to be settled. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the estimates, the Company adjusts these estimates, which would affect product revenue and earnings in the period such variances become known.

BecauseDistribution fees — The Company compensates its Distributors for services explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product sale is recognized.

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Provider chargebacks and discounts — Chargebacks are discounts that represent the estimated obligations resulting from contractual commitments to sell products at prices lower than the list prices charged to the Company’s Distributors. These Distributors charge the Company for the difference between what they pay for the product and the Company’s contracted selling price. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.  Reserves for chargebacks consist of amounts that the Company expects to pay for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold under a contracted selling price, and chargebacks that Distributors have claimed, but for which the Company has no remaining performancenot yet settled.

Government rebates — The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the Prior Alimera Agreement, all amountssame period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. The Company’s liability for these rebates consists of invoices received for claims from Alimera are generallyprior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, upon receipt orbut which remains in the distribution channel inventories at such earlier date, if applicable, on which any such amounts are both fixed and determinable and reasonably assured of collectability. In instances when payments are received and subject to a contingency, revenue is deferred until such contingency is resolved.

On July 10, 2017, the Company entered into a further amended and restated collaboration agreement (the “Amended Alimera Agreement”), pursuant to which the Company (i) licensed its Durasert three-year uveitis product candidate to Alimera for Europe, the Middle East and Africa (“EMEA”) and (ii) converted the net profit share arrangement for each licensed product (including ILUVIEN) to a sales-based royalty on a calendar quarter basis commencing July 1, 2017, with payments from Alimera due 60 days following the end of each quarter.reporting period.

Sales-based royalties start atPayor rebates — The Company contracts with certain private payor organizations, primarily insurance companies, for the ratepayment of 2%. Commencing January 1, 2019 (or earlier underrebates with respect to utilization of its products. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Co-Payment assistance — The Company offers co-payment assistance to commercially insured patients meeting certain circumstances),eligibility requirements. The calculation of the sales-based royalty will increaseaccrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to 6%receive associated with product that has been recognized as revenue.

Product returns — The Company generally offers a limited right of return based on aggregate calendar yearits returned goods policy, which includes damaged product and remaining shelf life. The Company estimates the amount of its product sales that may be returned and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to trade receivables, net sales up to $75 million and to 8% on any calendar year sales in excess of $75 million. Alimera’s share of contingently recoverable accumulated ILUVIEN commercialization losses under the original net profit share arrangement, capped at $25 million, are to be reduced as follows: (i) $10.0 million was cancelled in lieu of an upfront license fee on the effective datecondensed consolidated balance sheets.

License and collaboration agreement revenue — The Company analyzes each element of its license and collaboration arrangements to determine the appropriate revenue recognition. The terms of the Amended Alimera Agreement; (ii) for calendar years 2019license agreement may include payment to the Company of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and 2020, 50% of earned sales-based royalties in excess of 2% will be offset against the quarterly royalty payments otherwise due from Alimera; (iii) on January 1, 2020, another $5 million will be cancelled, provided, however, that such date of cancellation may be extended under certain circumstancesinternally approved pricing guidelines related to Alimera’s regulatory approval process for ILUVIEN for posterior uveitis, with such extension, if any, subject to mutual agreement by the parties; and (iv) commencing in calendar year 2021, 20% of earned sales-based royalties in excess of 2% will be offset against the quarterly royalty payments due from Alimera until such time as the balance of the original $25 million of recoverable commercialization losses has been fully recouped.performance obligations.

The Company recognizes sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, the Company determines that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, the Company will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2020.

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Royalties — The Company recognizes revenue from license arrangements with its commercial partners’ net sales of products. Such revenues are included as royalty income. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. The Company’s commercial partners are obligated to report their net product sales and the resulting royalty due to the Company typically within 60 days from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, the Company recognizes royalty income each quarter and subsequently withdrewdetermines a true-up when it receives royalty reports and payment from its previously filed EU marketing approval applicationcommercial partners. Historically, these true-up adjustments have been immaterial.

Feasibility Studies — The Company recognizes revenue over the term of the statements of work under any funded feasibility study agreements. Revenue recognition for consideration, if any, related to a license option right is assessed based on the terms of any such future license agreement or is otherwise recognized at the completion of the feasibility study agreement.

Please refer to Note 3 for further details on the license and its EU orphan drug designationcollaboration agreements into which the Company has entered and corresponding amounts of revenue recognized during the current and prior year periods.

Cost of sales, excluding amortization of acquired intangible assets — Cost of sales, excluding amortization of acquired intangible assets, consist of costs associated with the manufacture of YUTIQ and DEXYCU, certain period costs, product shipping and, as applicable, royalty expense. The inventory costs for posterior uveitis,YUTIQ include purchases of various components, the active pharmaceutical ingredient (“API”) and Alimera was responsible for filing a Type II variation for ILUVIENinternal labor and overhead for the treatmentproduct manufactured in the Company’s Watertown, MA facility. The inventory costs for DEXYCU include purchased components, the API and third-party manufacturing and assembly. Capitalization of posterior segment uveitis. In January 2018, Alimera received validationinventory costs begins after FDA approval of the product. Prior thereto, inventory costs of products and product candidates are recorded as research and development expense, even if this inventory may later be sold as commercial product.

For the three months ended March 31, 2020 and 2019, the Company accrued sales-based royalty expense of $517,000 and $99,000 respectively, as a Type II variation submittedcomponent of cost of sales. $400,000 of accrued sales-based royalty expense during the three months ended March 31,  2020 was related to the partnering income in December 2017 underconnection with the Icon Acquisition of Icon Bioscience, Inc. in March 2018.

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Product Revenue Reserves and Allowances

The Company’s product revenues have been primarily from sales of YUTIQ and DEXYCU in the U.S., which it began shipping to its existing approved ILUVIEN MAAcustomers in seventeen European countries. If the variation is approved, Alimera plans to commercialize the uveitis indication under its ILUVIEN trademark.February 2019 and March 2019, respectively.

Revenue under the Prior Alimera Agreement and/or the Amended Alimera Agreement totaled $200,000 and $14,000Net product revenues by product for the three months ended DecemberMarch 31, 20172020 and 2016,2019, respectively, were as follows (in thousands):

The following table summarizes activity in each of the product revenue allowance and $290,000 and $34,000reserve categories for the six months ended December 31, 2017 and 2016, respectively. In addition to patent fee reimbursements in both periods, the Company earned (i) $196,000 of sales-based royalties in the three months ended DecemberMarch 31, 2017 attributable to the first quarter2020 and 2019, respectively (in thousands):

Returns are recorded as a reduction of fiscal 2018 (recorded as royalty income under the Amended Alimera Agreement) and (ii) $50,000 of net profits in the three months ended September 30, 2017 attributable to the fourth quarter of fiscal 2017 (recorded as collaborative research and development revenue under the Prior Alimera Agreement).

Pfizer

In June 2011, the Company and Pfizer, Inc. (“Pfizer”) entered into an Amended and Restated Collaborative Research and License Agreement (the “Restated Pfizer Agreement”) to focus solelyaccounts receivable on the developmentcondensed consolidated balance sheets. Chargebacks, discounts and fees and rebates are recorded as a component of a sustained-release bioerodible micro-insert injected intoaccrued expenses on the subconjunctiva designed to deliver latanoprost for human ophthalmic disease or conditions other than uveitis (the “Latanoprost Product”)condensed consolidated balance sheets (See Note 5). Pfizer made an upfront payment of $2.3 million

License and the Company agreed to provide Pfizer options under various circumstances for an exclusive, worldwide license to developCollaboration Agreements and commercialize the Latanoprost Product.Royalty Income

The estimated selling price of the combined deliverables under the Restated Pfizer Agreement of $6.7 million was partially recognized as collaborative research and development revenue over the estimated performance period using the proportional performance method with costs associated with developing the Latanoprost Product reflected in operating expenses in the period in which they have been incurred. No collaborative research and development revenue was recorded during the three months ended September 30, 2016.Alimera

On October 25, 2016, the Company notified Pfizer that it had discontinued development of the Latanoprost Product, which provided Pfizer a 60-day option to acquire a worldwide license in return for a $10.0 million payment and potential sales-based royalties and development, regulatory and sales performance milestone payments. Pfizer did not exercise its option and the Restated Pfizer Agreement automatically terminated on December 26, 2016. The remaining deferred revenue balance of $5.6 million was recognized as revenue in the three-month period ended December 31, 2016.

Bausch & Lomb

Pursuant to a licensing and development agreement, as amended, Bausch & LombAlimera Sciences, Inc. has a worldwide exclusive license to make and sell RetisertILUVIEN in return for royalties based on sales. Royaltysales and patent fee reimbursements. Royalties income totaled $276,000was $782,000 and $269,000$516,000 for the three months ended DecemberMarch 31, 20172020 and 2016, respectively,2019, respectively. Total revenue was $817,000 and $521,000 and $512,000$551,000 for the sixthree months ended DecemberMarch 31, 20172020 and 2016,2019, respectively. Accounts receivable from Bausch & Lomb totaled $277,000 at December 31, 2017 and $246,000 at June 30, 2017.

OncoSil MedicalOcumension Therapeutics

TheIn November 2018, the Company entered into an exclusive worldwide royalty-bearing license agreement in December 2012, amended and restated in March 2013, with OncoSil Medical UK Limited (f/k/a EnigmaOcumension Therapeutics Limited), a wholly owned subsidiary of OncoSil Medical Ltd (“OncoSil”Ocumension”) for the development and commercialization of BrachySil,its three-year micro insert using the Company’s BioSilicon product candidateDurasert technology for the treatment of pancreaticchronic non-infectious uveitis affecting the posterior segment of the eye (YUTIQ in

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the U.S.) in Mainland China, Hong Kong, Macau and other types of cancer.Taiwan. The Company received ana one-time upfront feepayment of $100,000$1.75 million from Ocumension and is entitledeligible to 8%receive up to (i) $7.25 million upon the achievement by Ocumension of certain prescribed development and regulatory milestones, and (ii) $3.0 million commercial sales-based royalties, 20% of sublicense consideration and milestone payments based on aggregate product sales. OncoSil is obligated to pay an annual license maintenance fee of $100,000 by the end of each calendar year, the most recent of which was received in December 2017. For each calendar year commencing with 2014,milestones. In addition, the Company is entitled to receive reimbursement of any patent maintenance costs,mid-single digit sales-based royalties and sub-licensee sales-based royalties earned, but onlyroyalties. Ocumension has also received a special approval by the Hainan Province People's Government to the extent such amounts,market this product for chronic, non-infectious posterior segment uveitis in the aggregate, exceedHainan Bo Ao Lecheng International Medical Tourism Pilot Zone (“Hainan Pilot Zone”). In March 2019, the $100,000 annual license maintenance fee. To date, OncoSil has not received regulatory approval in any jurisdiction, although an application for CE Mark approval in Europe is pending. The Company has no consequential performance obligations under the OncoSil license agreement and, accordingly, any amountsentered into a Memorandum of Understanding (“MOU”), pursuant to which, the Company will supply product for the clinical trials and Hainan Pilot Zone use. Paralleling to Ocumension’s normal registration process of the product with the Chinese Regulatory Authorities, the MOU modified the Company’s entitlement to the development and regulatory milestones of up to $7.25 million under the license agreement to product supply milestones or development milestones, whichever comes first, totaling up to $7.25 million.In August 2019, the Company began shipping this product to Ocumension.

The Company was required to provide a fixed number of hours of technical assistance support to Ocumension at no cost, which support has been completed and no future performance obligation exists. Ocumension is responsible for all development, regulatory and commercial costs, including any additional technical assistance requested. Ocumension has a first right of negotiation for an additional exclusive license to the Company’s shorter-duration line extension candidate for this indication.

In August 2019, the Company received a $1.0 million development milestone payment from Ocumension triggered by the approval of its Investigational New Drug (“IND”) in China for this program. The IND allows the importation of finished product into China for use in a clinical trial to support regulatory filing.

In January 2020, the Company entered into an exclusive license agreement with Ocumension for the development and commercialization in Mainland China, Hong Kong, Macau and Taiwan of DEXYCU for the treatment of post-operative inflammation following ocular surgery. Pursuant to the terms of the license agreement, the Company received upfront payments of $2.0 million from Ocumension in February 2020 and will be eligible to receive up to (i) $6.0 million upon the achievement by Ocumension of certain prescribed development and regulatory milestones, and (ii) $6.0 million commercial sales-based milestones. In addition, the Company is entitled underto receive mid-single digit sales-based royalties. In exchange, Ocumension will receive exclusive rights to develop and commercialize DEXYCU in Mainland China, Hong Kong, Macau and Taiwan, at its own cost and expense with the agreement areCompany supplying product for clinical trials and commercial sale. In addition, Ocumension will receive a fixed number of hours of technical assistance support from the Company at no cost.

Other than a fixed number of hours of technical assistance support to be provided at no cost by the Company, Ocumension is responsible for all development, regulatory and commercial costs, including any additional technical assistance requested. During the three months ended March 31, 2020, the Company recognized as revenue on the earlierapproximately $2.0 million of receipt or when collectability is reasonably assured. Revenue relatedlicense and collaboration revenue. The remaining balance of $30,000 attributable to the OncoSil agreement totaled $100,000Company’s technical assistance obligation has been recorded as current deferred revenue in the accompanying consolidated balance sheet.

During the three months ended March 31, 2019, the Company recognized revenue of $30,000 attributable to the Company’s technical assistance for the threedevelopment and six-month periods endedcommercialization of its three-year micro insert using the Durasert technology for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye. As of March 31, 2020 and December 31, 2017 and 2016, respectively. As of December 31, 2017,2019, no deferred revenue was recorded for this agreement.agreement, respectively.

EvaluationThe Company recorded sales-based royalty expense of $400,000 during the three months ended March 31,  2020, with respect to partnering income in connection with the ICON acquisition in March 2018.

Research Agreements

The Company from time to time enters into funded agreements to evaluate the potential use of its technology systems for sustained release of third partythird-party drug candidates in the treatment of various diseases. Consideration received is generally recognized as revenue over the term of the feasibility study agreement. Revenue recognition for consideration, if any, related to a license option right is assessed based on the terms of any such future license agreement or is otherwise recognized at the completion of the evaluationfeasibility study agreement.  Revenues under evaluationfeasibility study agreements totaled $355,000$15,000 and $3,000$470,000 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020 and December 31, 20172019, $0 and 2016, respectively, and $405,000 and $11,000$15,000 deferred revenue was recorded for the six months ended December 31, 2017 and 2016, respectively. Deferred revenue for these agreements totaled $505,000 and $50,000 at December 31, 2017 and June 30, 2017, respectively. During the quarter ended December 31, 2017, the Company received $850,000 in connection with two new feasibility study agreements.

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The reconciliation of intangible assets for the sixthree months ended DecemberMarch 31, 20172020 and for the year ended June 30, 20172019 was as follows (in thousands):

The Company amortizes its intangible assets with finite lives on a straight-line basis over their respective estimated useful lives. Amortization of intangible assets totaled $183,000 and $180,000$615,000 for the three months ended DecemberMarch 31, 20172020 and 2016, respectively, and $366,000 and $363,0002019, respectively.  

In connection with the Icon Acquisition in March 2018, the initial purchase price was attributed to the DEXYCU product intangible asset. This finite-lived intangible asset is being amortized on a straight-line basis over its expected remaining useful life of 11.0 years at the rate of approximately $2.5 million per year. Amortization expense was reported as a component of cost of sales for the sixthree months ended DecemberMarch 31, 20172020 and 2016, respectively. At December 31, 2017, the carrying value of each of the Durasert and Tethadur intangible assets was amortized to zero.2019.