Clearside Biomedical, Inc. - Quarter Report: 2021 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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

Commission File Number: 001-37783

Clearside Biomedical, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	45-2437375
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
900 North Point Parkway, Suite 200 Alpharetta, GA	30005
(Address of principal executive offices)	(Zip Code)

(678) 270-3631

Registrant’s telephone number, including area code

N/A

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CLSD	The Nasdaq Stock Market LLC

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

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

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

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

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

As of August 6, 2021, the registrant had 59,479,568 shares of common stock, $0.001 par value per share, outstanding.


		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Balance Sheets as of June 30, 2021 and December 31, 2020	3
	Statements of Operations for the three and six months ended June 30, 2021 and 2020	4
	Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	5
	Statements of Cash Flows for the six months ended June 30, 2021 and 2020	6
	Notes to the Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	26
Signatures		27

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CLEARSIDE BIOMEDICAL, INC.

Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	26,414		$	17,287
Prepaid expenses		359			722
Other current assets		880			109
Total current assets		27,653			18,118
Property and equipment, net		327			416
Operating lease right-of-use asset		452			528
Restricted cash		160			260
Total assets	$	28,592		$	19,322
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,220		$	1,997
Accrued liabilities		2,196			1,582
Current portion of long-term debt		—			991
Current portion of operating lease liabilities		380			373
Deferred revenue		5,000			5,000
Total current liabilities		8,796			9,943
Operating lease liabilities		458			616
Total liabilities		9,254			10,559
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized and no shares issued at June 30, 2021 and December 31, 2020		—			—
Common stock, $0.001 par value; 100,000,000 shares authorized at June 30, 2021 and December 31, 2020; 59,091,591 and 51,860,941 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		59			52
Additional paid-in capital		288,592			264,578
Accumulated deficit		(269,313	)		(255,867	)
Total stockholders’ equity		19,338			8,763
Total liabilities and stockholders’ equity	$	28,592		$	19,322

See accompanying notes to the financial statements

CLEARSIDE BIOMEDICAL, INC.

Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
License and other revenue	$	780		$	354		$	814		$	4,451
Operating expenses:
Research and development		4,060			3,300			9,550			7,111
General and administrative		2,816			2,611			5,709			5,733
Total operating expenses		6,876			5,911			15,259			12,844
Loss from operations		(6,096	)		(5,557	)		(14,445	)		(8,393	)
Other income		1			—			999			—
Other expense		—			(197	)		—			(272	)
Net loss	$	(6,095	)	$	(5,754	)	$	(13,446	)	$	(8,665	)
Net loss per share of common stock — basic and diluted	$	(0.11	)	$	(0.13	)	$	(0.23	)	$	(0.19	)
Weighted average shares outstanding — basic and diluted		57,745,465			45,214,500			57,394,017			44,984,005

See accompanying notes to the financial statements.

CLEARSIDE BIOMEDICAL, INC.

Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


	Six Months Ended June 30, 2021
										Total
	Common Stock				Additional		Accumulated			Stockholders'
	Shares		Amount		Paid-In-Capital		Deficit			Equity
Balance at December 31, 2020		51,860,941	$	52	$	264,578	$	(255,867	)	$	8,763
Issuance of common shares under a direct registered offering		4,209,050		4		11,074		—			11,078
Issuance of common shares under at-the-market sales agreement		1,186,579		2		3,247		—			3,249
Exercise of stock options		62,493		—		38		—			38
Vesting and settlement of restricted stock units		227,754		—		—		—			—
Issuance of common shares under employee stock purchase plan		31,908		—		54		—			54
Share-based compensation expense		—		—		1,154		—			1,154
Net loss		—		—		—		(7,351	)		(7,351	)
Balance at March 31, 2021		57,578,725		58		280,145		(263,218	)		16,985
Issuance of common shares under at-the-market sales agreement		1,397,436		1		7,083		—			7,084
Exercise of stock options		21,673		—		33		—			33
Vesting and settlement of restricted stock units		93,757		—		—		—			—
Share-based compensation expense		—		—		1,331		—			1,331
Net loss		—		—		—		(6,095	)		(6,095	)
Balance at June 30, 2021		59,091,591	$	59	$	288,592	$	(269,313	)	$	19,338


	Six Months Ended June 30, 2020
										Total
	Common Stock				Additional		Accumulated			Stockholders'
	Shares		Amount		Paid-In-Capital		Deficit			Equity
Balance at December 31, 2019		44,413,372	$	44	$	248,770	$	(237,657	)	$	11,157
Issuance of common shares under at-the-market sales agreement		455,186		1		1,192		—			1,193
Share-based compensation expense		—		—		1,001		—			1,001
Net loss		—		—		—		(2,911	)		(2,911	)
Balance at March 31, 2020		44,868,558		45		250,963		(240,568	)		10,440
Issuance of common shares under at-the-market sales agreement		800,170		1		1,606		—			1,607
Exercise of stock options		58,333		—		72		—			72
Vesting and settlement of restricted stock units		512,550		—		—		—			—
Issuance of common shares under employee stock purchase plan		35,359		—		31		—			31
Share-based compensation expense		—		—		891		—			891
Net loss		—		—		—		(5,754	)		(5,754	)
Balance at June 30, 2020		46,274,970	$	46	$	253,563	$	(246,322	)	$	7,287

See accompanying notes to the financial statements.

CLEARSIDE BIOMEDICAL, INC.

Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021			2020
Operating activities
Net loss	$	(13,446	)	$	(8,665	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		89			90
Share-based compensation expense		2,485			1,892
Gain on extinguishment of debt		(998	)		—
Non-cash interest expense		—			59
Accretion of debt discount		—			129
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(408	)		1,418
Other assets and liabilities		(75	)		(68	)
Accounts payable and accrued liabilities		(156	)		(878	)
Net cash used in operating activities		(12,509	)		(6,023	)
Investing activities
Acquisition of property and equipment		—			(55	)
Net cash provided by (used in) investing activities		—			(55	)
Financing activities
Proceeds from registered direct offering, net of issuance costs		11,078			—
Proceeds from at-the-market sales agreement, net of issuance costs		10,333			2,800
Proceeds from exercise of stock options		71			72
Proceeds from shares issued under employee stock purchase plan		54			31
Proceeds from long-term debt		—			991
Payments made on long-term debt		—			(5,340	)
Net cash provided by (used in) financing activities		21,536			(1,446	)
Net increase (decrease) in cash, cash equivalents and restricted cash		9,027			(7,524	)
Cash, cash equivalents and restricted cash, beginning of period		17,647			22,955
Cash, cash equivalents and restricted cash, end of period	$	26,674		$	15,431
Supplemental disclosure of noncash financing activities
Forgiveness of PPP Loan and accrued interest	$	998		$	—

Reconciliation of cash, cash equivalents and restricted cash:


	June 30,
	2021		2020
Cash and cash equivalents	$	26,414	$	15,071
Restricted cash (including $100 for each period recorded in other current assets)		260		360
Cash, cash equivalents and restricted cash at end of period	$	26,674	$	15,431

See accompanying notes to the financial statements.

CLEARSIDE BIOMEDICAL, INC.

Notes to the Financial Statements

(unaudited)

1. The Company

Clearside Biomedical, Inc. (the “Company”) is a biopharmaceutical company dedicated to developing and delivering treatments that restore and preserve vision for people with serious back of the eye diseases. The Company’s proprietary SCS Microinjector targets the suprachoroidal space and offers unique access to the macula, retina and choroid where sight-threatening disease often occurs. This suprachoroidal space injection is an inherently flexible, in-office, non-surgical procedure, intended to provide targeted delivery to the site of disease and to work with both established and new formulations of medications, as well as future therapeutic innovations. Incorporated in the State of Delaware on May 26, 2011, the Company has its corporate headquarters in Alpharetta, Georgia.

The Company’s activities since inception have primarily consisted of developing product and technology rights, raising capital and performing research and development activities. The Company has no current source of revenue to sustain present activities, and does not expect to generate meaningful revenue until and unless the Company receives regulatory approval of and successfully commercializes its product candidates, either on its own or with a third party. The Company is subject to a number of risks and uncertainties similar to those of other life science companies at a similar stage of development, including, among others, the need to obtain adequate additional financing, successful development efforts including regulatory approval of products, compliance with government regulations, successful commercialization of potential products, protection of proprietary technology and dependence on key individuals.

Liquidity

The Company had cash and cash equivalents of $26.4 million as of June 30, 2021. On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional purchasers that purchased 4.2 million shares of its common stock in a registered direct offering at a price of $2.851 per share. The Company raised net proceeds of $11.1 million after deducting offering expenses. During the six months ended June 30, 2021, the Company sold 2.6 million shares of its common stock for net proceeds of $10.3 million under its at-the-market agreement with Cowen and Company, LLC. Subsequent to June 30, 2021, the Company sold an additional 0.3 million shares of its common stock for net proceeds of $1.9 million under its at-the-market agreement with Cowen and Company, LLC.

The Company has funded its operations primarily through the sale of common stock and convertible preferred stock and the issuance of long-term debt. The Company will continue to need to obtain additional financing to fund future operations, including completing the development, partnering and potential commercialization of its primary product candidates. The Company will need to obtain financing to conduct additional trials for the regulatory approval of its product candidates if requested by regulatory bodies, and completing the development of any product candidates that might be acquired. If such products were to receive regulatory approval, the Company would need to obtain financing to prepare for the potential commercialization of its product candidates, if the Company decides to commercialize the products on its own.

The Company has suffered recurring losses and negative cash flows from operations since inception and anticipates incurring additional losses until such time, if ever, that it can obtain regulatory approval to sell, and then generate significant revenue from commercializing its lead product candidate, XIPERE™ (triamcinolone acetonide suprachoroidal injectable suspension) with its licensees. In the absence of product or other revenues, the amount, timing, nature or source of which cannot be predicted, the Company’s losses will continue as it conducts its research and development activities.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Based on its current plans and forecasted expenses, the Company expects that its cash and cash equivalents as of the filing date, August 10, 2021, will enable it to fund its planned operating expenses and capital expenditure requirements into the second quarter of 2022. This estimate does not give effect to additional development milestone payments the Company might receive under the agreements with Bausch, REGENXBIO or Arctic Vision, or in connection with any other potential license or collaboration agreement for XIPERE or any future product candidates. The Company has based this estimate on assumptions that may prove to be wrong, and it could exhaust its capital resources sooner than expected. Until the Company can generate sufficient revenue, the Company will need to finance future cash needs through public or private equity offerings, license agreements, debt financings or restructurings, collaborations, strategic alliances and marketing or distribution arrangements.

The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

2. Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Unaudited Interim Financial Information

The accompanying balance sheet as of June 30 2021, statements of operations for the three and six months ended June 30, 2021 and 2020, statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2021, its results of its operations for the three and six months ended June 30, 2021 and 2020, its changes in stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and its cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are unaudited. The results for the six months ended June 30, 2021 are not indicative of results to be expected for the year ending December 31, 2021, any other interim periods or any future year or period. These unaudited financial statements should be read in conjunction with the audited financial statements and related footnotes, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, the accounting for useful lives to calculate depreciation and amortization, clinical trial expense accruals, share-based compensation expense and income tax valuation allowance. Actual results could differ from these estimates.

Effects of COVID-19

The COVID-19 pandemic has created global volatility, economic uncertainty and general market disruption. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require us to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Revenue Recognition

The Company recognizes revenue from its contracts with customers under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company’s primary revenue arrangements are license agreements which typically include upfront payments, regulatory and commercial milestone payments and royalties based on future product sales. The arrangements may also include payments for the Company’s SCS Microinjector devices as well as payments for assistance and oversight of the customer’s use of the Company’s technology. In determining the amount of revenue to be recognized under these agreements, the Company performs the following steps: (i) identifies the promised goods and services to be transferred in the contract, (ii) identifies the performance obligations, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligations and (v) recognizes revenue as the performance obligations are satisfied.

The Company receives payments from its customers based on billing schedules established in each contract. Upfront and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Research and Development Costs

Research and development costs are charged to expense as incurred and include:



employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;



expenses incurred under agreements with contract research organizations, contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;



costs associated with preclinical and clinical development activities;



costs associated with submitting regulatory approval applications for the Company’s product candidates;



costs associated with training physicians on the suprachoroidal injection procedure and educating and providing them with appropriate product candidate information;



costs associated with technology and intellectual property licenses;



costs for the Company’s research and development facility; and



depreciation expense for assets used in research and development activities.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the financial statements as prepaid or accrued expense.

Share-Based Compensation

Compensation cost related to share-based awards granted to employees is measured based on the estimated fair value of the award at the grant date. The Company estimates the fair value of stock options using a Black-Scholes option pricing model. Compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of restricted stock units granted is measured based on the market value of the Company’s common stock on the date of grant. Share-based compensation costs are expensed on a straight-line basis over the relevant vesting period.

Compensation cost related to shares purchased through the Company’s employee stock purchase plan, which is considered compensatory, is based on the estimated fair value of the shares on the offering date, including consideration of the discount and the look back period. The Company estimates the fair value of the shares using a Black-Scholes option pricing model. Compensation expense is recognized over the six-month withholding period prior to the purchase date.

All share-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying employees’ roles within the Company.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with an original term of three months or less at the date of purchase.

Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits

The Company maintains its cash in bank deposits that at times may exceed federally insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant risks with respect to its cash balances.

Recent Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions 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. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The Company adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on its financial statements and related disclosures.

3. Property and Equipment, Net

Property and equipment, net consisted of the following (dollar amounts in thousands):


	Estimated Useful Lives (Years)	June 30, 2021			December 31, 2020
Furniture and fixtures	5	$	337		$	337
Machinery and equipment	5		176			176
Computer equipment	3		13			13
Leasehold improvements	Lesser of useful life or remaining lease term		667			667
			1,193			1,193
Less: Accumulated depreciation			(866	)		(777	)
		$	327		$	416

4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2021		2020
Accrued research and development	$	1,095	$	234
Accrued employee costs		837		1,132
Accrued professional fees		27		56
Accrued expense		237		160
	$	2,196	$	1,582

5. CARES Act Paycheck Protection Program Loan

On April 20, 2020, the Company entered into a loan agreement with Silicon Valley Bank (the “PPP Lender”) under the terms of which the PPP Lender made a loan to the Company in an aggregate principal amount of $1.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note (the “Note”) containing the terms and conditions for repayment of the PPP Loan.

Under the terms of the Note and the PPP Loan, interest accrued on the outstanding principal amount at the rate of 1.0% per annum. The term of the Note was until April 2022, with the Company obligated to make equal monthly payments of principal and interest, beginning in November 2020 and continuing until the maturity date.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. On January 11, 2021, the Company was notified by the PPP Lender that the PPP Loan had been forgiven in full, including approximately $7,000 of accrued interest. In accordance with ASC 405-20, Extinguishment of Liabilities, the income from the forgiveness of the amount borrowed and the accrued interest was recognized in the statement of operations in other income as a gain on extinguishment of debt.

6. Common Stock

The Company’s amended and restated certificate of incorporation authorizes the Company to issue 100,000,000 shares of $0.001 par value common stock. As of June 30, 2021 and December 31, 2020, there were 59,091,591 and 51,860,941 shares of common stock outstanding, respectively.

7. Stock Purchase Warrants

In September 2016, in connection with a loan agreement, the Company issued warrants to purchase up to 29,796 shares of common stock at a price per share of $10.74. The warrants expire in September 2026, or earlier upon the occurrence of specified mergers or acquisitions of the Company, and are immediately exercisable. The warrants were recorded in equity and had a weighted average remaining life of 5.50 years as of June 30, 2021.

8. Share-Based Compensation

Share-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation.

Stock Options

The Company has granted stock option awards to employees, directors and consultants from its 2011 Stock Incentive Plan (the “2011 Plan”) and its 2016 Equity Incentive Plan (the “2016 Plan”). The estimated fair value of options granted is determined as of the date of grant using the Black-Scholes option pricing model. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the awards.

Share-based compensation expense for options granted under the 2011 Plan and the 2016 Plan is reflected in the statements of operations as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	414	$	286	$	791	$	592
General and administrative		514		379		936		792
Total	$	928	$	665	$	1,727	$	1,384

The following table summarizes the activity related to stock options during the six months ended June 30, 2021:


				Weighted
	Number of			Average
	Shares			Exercise Price
Options outstanding at December 31, 2020		4,248,193		$	3.95
Granted		1,794,906			3.93
Exercised		(84,166	)		0.83
Forfeited		—			—
Options outstanding at June 30, 2021		5,958,933			3.99

Options exercisable at December 31, 2020		2,355,900			4.96

Options exercisable at June 30, 2021		3,015,204			4.55

As of June 30, 2021, the Company had $7.4 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.9 years.

Restricted Stock Units

The Company has granted restricted stock units (“RSUs”) to employees from the 2016 Plan. The shares underlying the RSU awards have vesting terms of two to four years from the date of grant subject to the employees’ continuous service and subject to accelerated vesting in specified circumstances. The fair value of the RSUs granted is measured based on the market value of the Company’s common stock on the date of grant and is recognized ratably over the requisite service period, which is generally the vesting period of the awards.

The total share-based compensation expense related to RSUs is reflected in the statements of operations as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	196	$	109	$	367	$	234
General and administrative		192		114		362		268
Total	$	388	$	223	$	729	$	502

The following table summarizes the activity related to RSUs during the six months ended June 30, 2021:


				Weighted Average
	Number of			Grant Date
	Shares			Fair Value
Non-vested RSUs outstanding at December 31, 2020		767,271		$	1.78
Granted		965,344			4.01
Vested		(321,511	)		1.43
Non-vested RSUs outstanding at June 30, 2021		1,411,104			3.39

As of June 30, 2021, the Company had $4.2 million of unrecognized compensation expense related to the RSUs which is expected to be recognized over a weighted average period of 3.3 years.

Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (the “2016 ESPP”) became effective on June 1, 2016. The 2016 ESPP is considered a compensatory plan and the fair value of the discount and the look-back period are estimated using the Black-Scholes option pricing model and expense is recognized over the six-month withholding period prior to the purchase date.

The share-based compensation expense recognized for the 2016 ESPP is reflected in the statements of operations and comprehensive loss as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	9	$	1	$	17	$	2
General and administrative		6		2		12		4
Total	$	15	$	3	$	29	$	6

During the six months ended June 30, 2021, the Company issued 31,908 shares of common stock purchased under the 2016 ESPP.

9. Commitments and Contingencies

Lease Commitment Summary

In November 2016, the Company signed an office lease agreement to lease approximately 20,000 square feet of office space in Alpharetta, Georgia for its corporate headquarters. The lease agreement is for a 6.5 year term with a renewal option for one additional five-year term. Rental payments are $35,145 per month subject to an increase of 3% per year. Rent expense under this lease is recognized on a straight-line basis over the term of the lease. In addition, the lease agreement requires payment of the pro-rata share of the annual operating expenses associated with the premises.

The Company’s operating leases included on the balance sheet are as follows (in thousands):


	June 30, 2021
Operating lease right-of-use asset	$	452

Liabilities
Current portion of operating lease liabilities	$	380
Operating lease liabilities		458
Total operating lease liabilities	$	838

The Company recognizes a right-of-use asset for the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments over the lease term. The renewal option is not included in the calculation of the right-of-use asset and the lease liabilities as the Company has not yet determined if the Alpharetta, Georgia lease will be renewed. The present value of the lease payments is calculated using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. At June 30, 2021, the Company’s weighted average discount rate was 11.0% and the weighted average lease term was 2.25 years.

Minimum lease payments were as follows at June 30, 2021 (in thousands):


Year Ending December 31,
2021	$	198
2022		407
2023		316
Total minimum lease payments		921
Less imputed interest		(83	)
Total operating lease liabilities	$	838

Equipment leases with an initial term of 12 months or less are not recorded with operating lease liabilities. The Company recognizes expense for these leases on a straight-line basis over the lease term. The equipment leases were deemed to be immaterial.

Operating lease cost was $62,000 for each of the three months ended June 30, 2021 and 2020, and $123,000 for each of the six months ended June 30, 2021 and 2020. Variable lease cost was $24,000 for each of the three months ended June 30, 2021 and 2020, and $47,000 for each of the six months ended June 30, 2021 and 2020. Short-term lease cost was $2,000 and $4,000 for the three months ended June 30, 2021 and 2020, respectively, and $4,000 and $8,000 for the six months ended June 30, 2021 and 2020, respectively. Cash payments included in operating activities on the statement of cash flows for operating lease liabilities were $194,000 and $187,000 for the six months ended June 30, 2021 and 2020, respectively.

Contract Service Providers

In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development, clinical research and manufacturing. Substantially all of these contracts are on an as needed basis.

10. License and Other Agreements

Bausch + Lomb

On October 22, 2019, the Company entered into a License Agreement with Bausch + Lomb, a division of Bausch Health Companies, Inc. (“Bausch”). Pursuant to the Bausch License Agreement, the Company has granted an exclusive license to Bausch to develop, manufacture, distribute, promote, market and commercialize XIPERE using the Company’s proprietary microinjector (the “Device”), as well as specified other steroids, corticosteroids and NSAIDs in combination with the Device (“Other Products,” and together with XIPERE, the “Products”), subject to specified exceptions, in the United States and Canada (the “Original Territory”) for the treatment of ophthalmology indications, including non-infectious uveitis.

On April 27, 2020, the Company and Bausch entered into an amendment to the Company’s License Agreement with Bausch dated October 22, 2019 (as amended, the “Bausch License Agreement”). Pursuant to the Bausch License Agreement, the Company has granted Bausch an exclusive option (the “Option”) to develop, manufacture, distribute, promote, market and commercialize XIPERE in one or more of the following regions: (i) the European Union, including the United Kingdom, (ii) Australia and New Zealand and (iii) South America and Mexico (such regions, the “Additional Regions” and together with the Original Territory, the “Territory”). The Option may be exercised any time before the earlier of regulatory approval of XIPERE in the United States and August 31, 2021.

Pursuant to the Bausch License Agreement, Bausch made an upfront payment of $5.0 million (the “Upfront Payment”) in October 2019, which is subject to a refund if the Bausch License Agreement is terminated in specified circumstances. In addition, Bausch has agreed to make additional payments of up to $15.0 million upon the achievement of specified pre-launch development and regulatory milestones (the “Pre-Launch Milestone Payments”) and up to an aggregate of $57.3 million in additional milestone payments upon the achievement of (i) specified regulatory approvals for specified additional indications of XIPERE (including certain regulatory and commercial milestones if Bausch exercises its Option in the European Union) and (ii) specified levels of annual net sales (as defined in the Bausch License Agreement). Further, during the applicable royalty term, the Company will also be entitled to receive tiered royalties at increasing percentages, from the high-teens to twenty percent, based on XIPERE achieving certain annual net sales thresholds in the Original Territory, as well as a lower royalty on annual net sales of Other Products in the Original Territory and on annual net sales of Xipere in the Additional Regions if Bausch exercises its Option, in each case subject to reductions in specified circumstances; provided that the Company will not receive any royalties on the first $45.0 million of cumulative net sales of all products in the Original Territory.

The Bausch License Agreement will expire upon expiration of the royalty terms for all Products and countries in the Territory, with each royalty term for a given Product and country ending on the latest of (i) the date of expiration of the last-to-expire valid claim of any licensed patent rights covering such Product in such country in the Territory, (ii) the date of the loss of regulatory exclusivity for such Product in such country in the Territory, or (iii) ten years from the later of the first sale of such Product in such country in the Territory. For a specified period of time, Bausch may terminate the Bausch License Agreement immediately and have the Upfront

Payment refunded if the U.S. Food and Drug Administration (the “FDA”) has not approved the Company’s New Drug Application (“NDA”) for XIPERE by August 31, 2021. Following the payment of the Pre-Launch Milestone Payments, Bausch may also terminate the Bausch License Agreement for convenience upon 180 days’ written notice. In addition, the Company can terminate the Bausch License Agreement if Bausch commences a legal action challenging the validity, enforceability or scope of any of the licensed patents. If the FDA requires an additional clinical trial prior to approving the NDA for XIPERE and the Company notifies Bausch that the Company will not conduct the trial at the Company’s expense, then Bausch may terminate the Bausch License Agreement and have the Upfront Payment refunded within 60 days of the receipt of such notice from the Company. Both parties may terminate the Bausch License Agreement (i) upon a material breach of the Bausch License Agreement, subject to a specified cure period and specified exceptions, or (ii) if the other party encounters bankruptcy or insolvency.

The Company is responsible for all development expenses for XIPERE in the Original Territory until the NDA is approved by the FDA, subject to specified exceptions, as well as manufacturing costs in connection with the NDA. The Company is also responsible for all clinical and development expenses conducted to satisfy the FDA’s requests in the complete response letter issued on October 18, 2019 related to the NDA and any subsequent complete response letter related to the NDA (the “CRL-related expenses”). If XIPERE is approved by the FDA, Bausch will be responsible for all expenses following such approval; provided that the Company will be responsible for the CRL-related expenses and for one-half of the costs of any post-approval clinical trials required by the FDA, up to a specified maximum amount.

Due to the refund provisions in the License Agreement, the upfront payment of $5.0 million received from Bausch was included on the balance sheet as deferred revenue as of June 30, 2021 and December 31, 2020 and will remain in deferred revenue until the refund provisions lapse.

Arctic Vision (Hong Kong) Limited

On March 10, 2020, the Company entered into a License Agreement (the “License Agreement”) with Arctic Vision (Hong Kong) Limited (“Arctic Vision”). Pursuant to the License Agreement, the Company has granted an exclusive license to Arctic Vision to develop, distribute, promote, market and commercialize XIPERE, subject to specified exceptions, in China, Hong Kong, Macau, Taiwan and South Korea (the “Arctic Territory”). Under the terms of the License Agreement, neither party may commercialize XIPERE in the other party’s territory. Arctic Vision has agreed to use commercially reasonably efforts to pursue development and commercialization of XIPERE for indications associated with uveitis in the Arctic Territory. In addition, upon receipt of the Company’s consent, Arctic Vision will have the right, but not the obligation, to develop and commercialize XIPERE for additional indications in the Arctic Territory.

Pursuant to the License Agreement, Arctic Vision paid the Company an upfront payment of $4.0 million in March 2020. In addition, Arctic Vision has agreed to pay up to $31.5 million in development milestone payments for specified events, including $4.0 million upon receipt of FDA approval of XIPERE in the United States and sales milestone payments for achievement of specified levels of net sales. Further, during the applicable royalty term, the Company will also be entitled to receive tiered royalties of ten to twelve percent of net sales based on achieving certain annual net sales thresholds in the Territory, subject to customary reductions, payable on a product-by-product and country-by-country basis, commencing at launch in such country and lasting until the latest of (i) the date that all valid claims within the licensed patent rights covering XIPERE have expired, (ii) the date of the loss of marketing or regulatory exclusivity of XIPERE in a given country, or (iii) ten years from the first commercial sale of XIPERE in a given country.

Other

The Company periodically enters into short-term agreements with other customers to evaluate the potential use of its proprietary SCS Microinjector with third-party product candidates for the treatment of various diseases. Funds received from these agreements are recognized as revenue over the term of the agreement.

11. Fair Value Measurements

The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, on fair value measurements. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.



Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.



Level 2—Other inputs that are directly or indirectly observable in the marketplace.



Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s material financial instruments at June 30, 2021 and December 31, 2020 consisted primarily of cash and cash equivalents and long-term debt. The fair values of cash and cash equivalents, other current assets and accounts payable approximate their respective carrying values due to the short term nature of these instruments and are classified as Level 1 in the fair value hierarchy. The fair value of long-term debt approximates the carrying value due to variable interest rates that correspond to market rates and is classified as Level 1 in the fair value hierarchy.

There were no significant transfers between Levels 1, 2 and 3 during the six months ended June 30, 2021 and the year ended December 31, 2020.

12. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration of the dilutive effect of potential common stock equivalents. Diluted net loss per share gives effect to all dilutive potential shares of common stock outstanding during this period. For all periods presented, the Company’s potential common stock equivalents, which included stock options, restricted stock units and stock purchase warrants, have been excluded from the computation of diluted net loss per share as their inclusion would have the effect of reducing the net loss per share. Therefore, the denominator used to calculate both basic and diluted net loss per share is the same in all periods presented. The Company’s potential common stock equivalents that have been excluded from the computation of diluted net loss per share for all periods presented because of their antidilutive effect consisted of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Outstanding stock options		5,958,933		5,034,701		5,958,933		5,034,701
Non-vested restricted stock units		1,411,104		1,236,050		1,411,104		1,236,050
Stock purchase warrants		29,796		29,796		29,796		29,796
		7,399,833		6,300,547		7,399,833		6,300,547

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or SEC, under the heading “Risk Factors”. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2020 appearing in our Annual Report on Form 10-K filed with the SEC on March 15, 2021.

Overview

We are a biopharmaceutical company dedicated to developing and delivering treatments that restore and preserve vision for people with serious back of the eye diseases. Our proprietary SCS Microinjector targeting the suprachoroidal space, or SCS, offers unique access to the macula, retina and choroid where sight-threatening disease often occurs. When fluid is injected between the choroid and sclera, the elasticity of the SCS allows the fluid to migrate and spread spherically toward the posterior regions of the eye where it is absorbed into adjacent tissue. Our proprietary microinjector is able to precisely administer drugs into the SCS utilizing a needle that is approximately one millimeter in length. This non-surgical method of administration facilitates more targeted delivery of therapeutic agents to chorioretinal structures and can be accomplished in an in-office setting.

We are leveraging our SCS injection platform by building an internal research and development pipeline targeting retinal diseases and by creating external collaborations with other companies. Using our suprachoroidal injection technology in conjunction with proprietary formulations of existing drugs as well as novel therapies, we believe we have created a broad therapeutic platform for developing product candidates to treat serious eye diseases.

The current development status of our pipeline of internal product candidates and external collaborations is summarized in the chart below:

Internal Pipeline

Our first candidate, XIPERE, formerly known as CLS-TA, is a proprietary, preservative-free suspension of the corticosteroid triamcinolone acetonide, or TA, formulated for administration via suprachoroidal injection. Corticosteroids are the standard of care in uveitis. They are effective at treating the inflammatory aspect of ocular disease, but when delivered locally, either topically as drops, intravitreally, or by periocular injection, they have been associated with significant side effects, such as cataract formation or exacerbation, and elevated intraocular pressure, or IOP, which can lead to glaucoma.

XIPERE is being developed for the treatment of macular edema associated with uveitis. Uveitis is a set of ocular inflammatory conditions affecting approximately 350,000 patients in the United States and more than one million worldwide. Approximately one-third of uveitis patients develop uveitic macular edema, a build-up of fluid in the macula, the area of the retina responsible for sharp, straight-ahead vision. Macular edema is the leading cause of vision loss and blindness in uveitis patients and can occur from uveitis affecting any anatomic location—anterior, intermediate, posterior or panuveitis. The uveitis market is expected to grow to nearly $550 million by 2024 in the United States, and over $1 billion globally.

In December 2018, we submitted a New Drug Application, or NDA, for XIPERE to the Food and Drug Administration, or FDA, for the treatment of macular edema associated with uveitis. In October 2019, we received a complete response letter, or CRL, from the FDA regarding our NDA for XIPERE. The FDA did not identify any efficacy issues, and there were no requests for further clinical efficacy studies. The CRL included the FDA’s request for additional stability data, additional clarifying information on components of the manufacturing process, and reinspection of the drug product manufacturer.

In August 2020, we secured a new contract manufacturing organization, or CMO, to manufacture the registration batches of XIPERE for the resubmission of our NDA, as well as to manufacture batches of XIPERE for potential commercialization after our prior CMO notified us that they were no longer willing to serve as our commercial supplier for XIPERE and that they were uncertain about being prepared for an FDA pre-approval inspection on our timeline. The new CMO generated the data requested by the FDA, and we resubmitted the XIPERE NDA in April 2021. In May 2021, the FDA accepted the resubmitted NDA and assigned a Prescription Drug User Fee Act action date of October 30, 2021.

We are developing a proprietary suspension of axitinib, a tyrosine kinase inhibitor, or TKI, for suprachoroidal injection, which we refer to as CLS-AX. In our preclinical studies, administration of CLS-AX through suprachoroidal injection was well tolerated and showed durability over several months, providing us with the opportunity to potentially reduce treatment burden and address a primary need for wet age-related macular degeneration, or AMD, patients.

In August 2020, we announced that the FDA had accepted our Investigational New Drug application, or IND, for CLS-AX. In January 2021, we announced that the first patients had been enrolled in our Phase 1/2a clinical trial of CLS-AX, known as OASIS. In March 2021, we completed patient dosing in Cohort 1 of OASIS and in June 2021, reported that we achieved our safety and tolerability endpoints. We began enrolling patients in Cohort 2 and expect to report data by the end of 2021.

We have initiated another small molecule program utilizing suprachoroidal administration of an integrin inhibitor suspension. Integrins play a role in pathologic processes, such as inflammation, angiogenesis and fibrosis. Integrin inhibition has had some recent preliminary validation in preclinical models and clinical studies of diabetic macular edema and macular degeneration conducted by others. We believe that integrin inhibition could potentially serve as primary therapy, adjunctive therapy to anti-VEGF agents or secondary therapy in refractory cases of diabetic macular edema and macular degeneration. Suprachoroidal delivery of an integrin inhibitor suspension could provide targeting, compartmentalization and durability advantages over topical or intravitreal delivery, similar to what we have observed in other preclinical studies of small molecule suspensions, such as triamcinolone acetonide and axitinib. Therefore, we are assessing ocular tolerability, distribution and pharmacokinetics of our integrin inhibitor suprachoroidal suspension in a series of preclinical studies. We expect to conclude these studies this year.

External Collaborations Pipeline

In addition to growing our internal pipeline, we are also focused on collaborating with other companies to provide access to the suprachoroidal space.

During the second half of 2019, we entered into three license and other agreements that we believe validate and expand the reach of our suprachoroidal injection platform. In October 2019, we announced that Bausch + Lomb, a division of Bausch Health Companies, Inc., or Bausch, acquired an exclusive license for the commercialization and development of XIPERE (triamcinolone acetonide suprachoroidal injectable suspension) in the United States and Canada. In April 2020, we granted Bausch an exclusive option to develop, manufacture, distribute, promote, market and commercialize XIPERE in one or more of the following regions: (i) the European Union, including the United Kingdom, (ii) Australia and New Zealand and (iii) South America and Mexico.

In October 2019, REGENXBIO Inc., or REGENXBIO, exercised its option to license our SCS Microinjector technology for in-office delivery of adeno-associated virus, or AAV,-based therapeutics to the SCS to potentially treat AMD, diabetic retinopathy and certain other conditions for which chronic anti-VEGF treatment is currently the standard of care. REGENXBIO is currently

conducting two Phase 2 clinical trials using our SCS Microinjector technology: the Phase 2 trial entitled AAVIATE for the treatment of wet AMD and a second Phase 2 trial entitled ALTITUDE for the treatment of diabetic retinopathy. REGENXBIO expects to report interim data from both clinical trials in the second half of 2021.

In July 2019, Aura Biosciences, or Aura, licensed our SCS Microinjector to deliver Aura’s proprietary drug candidates into the SCS for the potential treatment of certain ocular cancers, including choroidal melanoma. Aura is currently conducting a Phase 2 clinical trial for the treatment of choroidal melanoma.

In March 2020, we entered into a license agreement, or the Arctic Vision License Agreement, with Arctic Vision (Hong Kong) Limited, or Arctic Vision. Pursuant to the Arctic Vision License Agreement, we granted an exclusive license to Arctic Vision to develop, distribute, promote, market and commercialize XIPERE, subject to specified exceptions, in China, Hong Kong, Macau, Taiwan and South Korea, or the Arctic Territory. In December 2020, Arctic Vision announced approval of its IND for a Phase 3 clinical trial of XIPERE in China and they expect to begin Phase 3 clinical trials later this year.

These partnerships enable us to expand the use of our suprachoroidal injection platform to other indications and geographies globally. Under these license agreements, we are eligible to receive up to an aggregate of more than $200 million in potential future development and sales milestones, as well as and royalties from net sales of covered products.

We have incurred net losses since our inception. In recent years, our operations have consisted primarily of conducting preclinical studies and clinical trials, raising capital and undertaking other research and development initiatives. To date, we have not generated any revenue, other than license and other revenue, and we have primarily financed our operations through public offerings and private placements of our equity securities, issuances of convertible promissory notes and loan agreements. As of June 30, 2021, we had an accumulated deficit of $269.3 million. We recorded net losses of $6.1 million and $5.8 million for the three months ended June 30, 2021 and 2020, respectively, and net losses of $13.4 million and $8.7 million for the six months ended June 30, 2021 and 2020, respectively. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval of our product candidates, as well as discovering compounds and developing proprietary formulations to utilize with our SCS Microinjector.

We expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate significant product or license and other revenue unless and until we successfully complete necessary development of, obtain regulatory approval for and successfully commercialize one or more of our product candidates, either on our own or together with a third party. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities. Our clinical trial expenses have decreased significantly following our decision to discontinue late-stage clinical trials of XIPERE for indications other than uveitis. However, we expect clinical trial expenses to increase in 2021 as a result of our Phase 1/2a clinical trial of CLS-AX. We also will continue our efforts to seek to discover, research and develop additional product candidates and seek regulatory approvals in additional regions for XIPERE for the treatment of macular edema associated with uveitis. Based on our current research and development plans and expected near-term partnership milestone payments, we expect to have sufficient resources to fund our planned operations into the second quarter of 2022.

Impact of COVID-19 on Our Business

We have been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. Our financial results for the three and six months ended June 30, 2021 were not significantly impacted by COVID-19, and we currently do not expect any material impact on our financial results for the remainder of 2021. We continue to operate normally with the exception of enabling our employees to work from home and abiding by travel restrictions issued by federal and local governments.

As the COVID-19 pandemic continues, we may experience other disruptions that could severely impact our business, results of operations and prospects. The extent to which COVID-19 may impact our business, preclinical development and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and the impact of new variants or mutations of the coronavirus, such as the Delta variant.

Components of Operating Results

Revenue

We have not generated any revenue from the sale of any drugs, and we do not expect to generate any product revenue unless or until we obtain regulatory approval of and commercialize our product candidates, either on our own or with a third party. Our revenue in recent periods has been generated primarily from our license agreements. We are seeking to enter into additional license and other agreements with third parties to evaluate the potential use of our proprietary SCS Microinjector with the third party’s product candidates for the treatment of various eye diseases. These agreements may include payments to us for technology access, upfront license payments, regulatory and commercial milestone payments and royalties.

Research and Development

Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which include:



employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;



expenses incurred under agreements with contract research organizations, or CROs, as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies;



costs associated with nonclinical activities and development activities;



costs associated with submitting regulatory approval applications for our product candidates;



costs associated with training physicians on the suprachoroidal injection procedure and educating and providing them with appropriate product candidate information;



costs associated with technology and intellectual property licenses;



costs for our research and development facility; and



depreciation expense for assets used in research and development activities.

We expense research and development costs to operations as incurred. These costs include preclinical activities, such as manufacturing and stability and toxicology studies, that are supportive of a product candidate itself. In addition, there are expenses related to clinical trials and similar activities for each program, including costs associated with CROs. Clinical costs are recognized based on the terms of underlying agreements, as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and additional information provided to us by our vendors about their actual costs occurred. Expenses related to activities that support more than one development program or activity, such as salaries, share-based compensation and depreciation, are not classified as direct preclinical costs or clinical costs and are separately classified as unallocated.

The following table shows our research and development expenses by program for the three and six months ended June 30, 2021 and 2020 (in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
XIPERE (uveitis program)	$	402	$	654	$	1,875	$	1,267
CLS-AX (wet AMD program)		763		566		2,041		951
Total		1,165		1,220		3,916		2,218
Unallocated		2,895		2,080		5,634		4,893
Total research and development expense	$	4,060	$	3,300	$	9,550	$	7,111

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended under contracts with research institutions, consultants and CROs that conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we would modify our estimates of accrued expenses accordingly on a prospective basis.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. It is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that may include, among others:



the costs associated with process development, scale-up and manufacturing of XIPERE and the SCS Microinjector in support of filings for regulatory approval;



the number of trials required for approval and any requirement for extension trials;



per patient trial costs;



the number of patients that participate in the trials;



the number of sites included in the trials;



the countries in which the trials are conducted;



the length of time required to enroll eligible patients;



the number of doses that patients receive;



the potential impact of the COVID-19 pandemic on the enrollment in, and timing of, our clinical trials;



the drop-out or discontinuation rates of patients;



potential additional safety monitoring or other studies requested by regulatory agencies;



the duration of patient follow-up; and



the efficacy and safety profiles of the product candidates.

In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.

General and Administrative

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative costs historically included commercial pre-launch preparations for XIPERE, and also include facility related costs not otherwise included in research and development expenses, as well as professional fees for legal, patent, consulting, and accounting and audit services.

Other Income (Expense)

Other income consists of the gain on the extinguishment of the PPP Loan and accrued interest and interest income earned on our cash and cash equivalents and short-term investments. Interest income is not considered significant to our financial statements.

Other expense consists of interest expense incurred under our loan agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the

reported amounts of expenses during the reporting periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of share-based compensation and some of our research and development expenses. We base our estimates on historical experience and on various other factors that we believe 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 define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the six months ended June 30, 2021, there were no significant changes to our critical accounting policies disclosed in our audited financial statements for the year ended December 31, 2020, which are included in our Annual Report on Form 10-K, as filed with the SEC on March 15, 2021.

Results of Operations for the Three Months Ended June 30, 2021 and 2020

The following table sets forth our results of operations for the three months ended June 30, 2021 and 2020.


	Three Months Ended June 30,						Period-to-Period
	2021			2020			Change
	(in thousands)
License and other revenue	$	780		$	354		$	426
Operating expenses:
Research and development		4,060			3,300			760
General and administrative		2,816			2,611			205
Total operating expenses		6,876			5,911			965
Loss from operations		(6,096	)		(5,557	)		(539	)
Other income		1			—			1
Other expense		—			(197	)		197
Net loss	$	(6,095	)	$	(5,754	)	$	(341	)

Revenue. In the three months ended June, 2021 and 2020, we recognized $0.8 million and $0.2 million, respectively, of revenue associated with our license agreements. License revenue for the three months ended June 30, 2021 was primarily a result of a milestone payment received from Arctic.

Research and development. Research and development expense increased by $0.8 million, from $3.3 million for the three months ended June 30, 2020 to $4.1 million for the three months ended June 30, 2021. This increase was due to a $0.5 million increase in employee related costs and a $0.1 million increase in costs for the for CLS-AX program, including costs for OASIS, a Phase 1/2a clinical trial of CLS-AX. In addition, the prior year included a research and development tax credit of $0.5 million. These increases were partially offset by $0.3 million decrease in costs in our other programs.

General and administrative. General and administrative expenses increased by $0.2 million, from $2.6 million for the three months ended June 30, 2020 to $2.8 million for the three months ended June 30, 2021. This was primarily attributable to an increase in employee related costs.

Results of Operations for the Six Months Ended June 30, 2021 and 2020

The following table sets forth our results of operations for the six months ended June 30, 2021 and 2020.


	Six Months Ended June 30,						Period-to-Period
	2021			2020			Change
	(in thousands)
License and other revenue	$	814		$	4,451		$	(3,637	)
Operating expenses:
Research and development		9,550			7,111			2,439
General and administrative		5,709			5,733			(24	)
Total operating expenses		15,259			12,844			2,415
Loss from operations		(14,445	)		(8,393	)		(6,052	)
Other income		999			—			999
Other expense		—			(272	)		272
Net loss	$	(13,446	)	$	(8,665	)	$	(4,781	)

Revenue. In the six months ended June 30, 2021 and 2020, we recognized $0.8 million and $4.5 million, respectively, of revenue associated with our license agreements. License revenue for the six months ended June 30, 2021 and 2020 was primarily a result of milestone payments of $0.8 million and $4.0 million, respectively, received from Arctic.

Research and development. Research and development expense increased by $2.4 million, from $7.1 million for the six months ended June 30, 2020 to $9.6 million for the six months ended June 30, 2021. This increase was primarily due to a $1.8 million increase in costs for the for CLS-AX program, including costs for OASIS, a Phase 1/2a clinical trial of CLS-AX, and costs related drug manufacturing for XIPERE. In addition, employee related costs increased $0.8 million during the same period.

General and administrative. General and administrative expenses remained relatively the same for the six months ended June 30, 2021 and 2020 .

Other income. Other income for the six months ended June 30, 2021 was primarily comprised of the gain on the extinguishment of debt from the forgiveness of the PPP Loan and accrued interest.

Other expense. Other expense for the six months ended June 30, 2020 primarily consisted of interest on long-term debt, the amortization of financing costs, the accretion of warrants and the final payment related to our prior loan agreement.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations primarily through the proceeds of public offerings of our common stock, sales of convertible preferred stock and the issuance of long-term debt. As of June 30, 2021, we had cash and cash equivalents of $26.4 million. We invest any cash in excess of our immediate requirements primarily with a view to liquidity and capital preservation. As of June 30, 2021, our funds were held in cash and money market funds.

In April 2020, we entered into a loan agreement with Silicon Valley Bank under the terms of which Silicon Valley bank loaned us $1.0 million, or the PPP Loan, pursuant to the Paycheck Protection Program, or PPP, under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In accordance with the requirements of the CARES Act, we used the proceeds primarily for payroll costs and other eligible expenses. The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. On January 11, 2021, we received notification from Silicon Valley Bank that the PPP loan was forgiven in full, including approximately $7,000 of accrued interest.

In March 2020, we entered into the Arctic License Agreement, pursuant to which Arctic Vision has agreed to pay us up to a total of $35.5 million. This amount includes an upfront payment of $4.0 million, which we received in March 2020, as well as an aggregate of up to $31.5 million in potential development milestone payments for specified events, including $4.0 million upon regulatory approval of XIPERE in the United States and potential sales milestone payments for achievement of specified levels of net sales. Further, during the applicable royalty term, we will also be entitled to receive tiered royalties of 10-12% of net sales in the Arctic Territory, subject to customary reductions.

In October 2019, we announced that Bausch acquired an exclusive license for the commercialization and development of XIPERE in the United States and Canada. In connection with this license Bausch has agreed to make additional payments of up to $15.0 million upon the achievement of specified pre-launch development and regulatory milestones.

We have entered into an at-the-market sales agreement, or the ATM agreement, with Cowen and Company LLC, or Cowen, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen acting as our sales agent. During the six months ended June 30, 2021, we sold 2.6 million shares of our common stock for net proceeds of $10.3 million under the ATM agreement. As of June 30, 2021, there was $16.4 million available for sales of our common stock under the ATM agreement. Subsequent to June 30, 2021, we sold 0.3 million shares of our common stock for net proceeds of $1.9 million.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, ongoing costs related to our NDA submission for XIPERE, research and development costs to build our product candidate pipeline, legal and other regulatory expenses and general overhead costs.

The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of XIPERE or any future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from product sales. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:



successful enrollment in, and completion of, clinical trials;



receipt of marketing approvals from applicable regulatory authorities;



establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;



obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; and



launching commercial sales of the products, if and when approved, whether alone or in collaboration with others.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that candidate.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license and development agreements. Other than potential payments we may receive under our license and other agreements, we do not currently have any committed external source of funds, though, as described above, we may also be able to sell our common stock under the ATM agreement with Cowen subject to the terms of that agreement and depending on market conditions. We expect that we will require additional capital to fund our ongoing operations. Additional funds may not be available to us on a timely basis, on commercially reasonable terms, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, including any future collaboration or licensing arrangement for XIPERE outside of the territories in which we have previously licensed or granted options to license XIPERE, we may be required to relinquish additional rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We also incur costs as a public company, including costs and expenses for fees to members of our board of directors, accounting and finance personnel costs, directors and officers insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with reporting requirements under the Exchange Act and rules implemented by the SEC and Nasdaq.

Outlook

We have suffered recurring losses and negative cash flows from operations since inception and anticipate incurring additional losses until such time, if ever, that we can obtain FDA approval to market and then generate significant milestone payments and royalties from XIPERE and other licensing arrangements or revenues from other product candidates. We will need additional financing to fund our operations. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date of this report. Our plans primarily consist of raising additional capital, potentially in a combination of equity or debt financings or restructurings, or potentially entering into additional collaborations, partnerships and other strategic arrangements.

Based on our current plans and forecasted expenses, we expect that our cash and cash equivalents as of the filing date, August 10, 2021, will enable us to fund our planned operating expenses and capital expenditure requirements into the second quarter of 2022. This estimate does not give effect to additional development milestone payments we might receive under the agreements with Bausch, REGENXBIO or Arctic Vision, or in connection with any other potential license or collaboration agreement for XIPERE or any future product candidates. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should we be unable to continue as a going concern. .

Cash Flows

The following is a summary of the net cash flows provided by (used in) our operating, investing and financing activities (in thousands):


	Six Months Ended June 30,
	2021			2020
Net cash (used in) provided by:
Operating activities	$	(12,509	)	$	(6,023	)
Investing activities		—			(55	)
Financing activities		21,536			(1,446	)
Net change in cash and cash equivalents	$	9,027		$	(7,524	)

During the six months ended June 30, 2021 and 2020, our operating activities used net cash of $12.5 million and $6.0 million, respectively. The use of cash in each period primarily resulted from our net losses. The increase in net loss to $13.4 million for the six months ended June 30, 2021 as compared to $8.7 million for the six months ended June 30, 2020 was primarily attributable to higher research and development expenses related to the preclinical and clinical CLS-AX program in the six months ended June 30, 2021 and the receipt of $4.0 million in license revenue in the six months ended June 30, 2020.

During the six months ended June 30, 2020, our net cash used in investing activities was $55,000, due to the purchase of equipment.

During the six months ended June 30, 2021 our net cash provided by financing activities was $21.5 million. This primarily consisted of $11.1 million of net proceeds from the sale of shares of our common stock in a registered direct offering and $10.3 million of net proceeds from the sale of shares of our common stock under the ATM agreement. During the six months ended June 30, 2020, our net cash used in financing activities consisted of payment of $5.3 million under our credit facility, partially offset by $2.8 million of net proceeds from the sale of shares of our common stock under the ATM agreement and $1.0 million of proceeds from the PPP Loan.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Recent Accounting Pronouncements

See Item 1, “Financial Statements – Note 2, Significant Accounting Policies” for a discussion of recent accounting pronouncements and their effect on us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. 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 inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting. However, we continue to monitor and assess the potential impact of the COVID-19 pandemic on our control environment.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. These risks could be amplified by the COVID-19 pandemic and its potential impact on the global economy generally and our business and industry in particular. In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors described below and in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on March 15, 2021. There have been no material changes to the risk factors described in that report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

Item 6. Exhibits


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37783) filed with the SEC on June 7, 2016).

3.2		Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37783) filed with the SEC on June 7, 2016).

31.1*		Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

31.2*		Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

32.1**		Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith.

** These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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.


	Clearside Biomedical, Inc.

Date: August 10, 2021	By:	/s/ Charles A. Deignan
		Charles A. Deignan
		Chief Financial Officer
		(On behalf of the Registrant and as Principal Financial Officer)