P6YP6MP1YP1YP1Yfalse--12-31FY20200001267602YesYesNoNo0.010.01P2YP1Y0.010.01P4YP4YP10YP10YP10Y0001267602us-gaap:CommonStockMember2019-01-012019-12-310001267602us-gaap:SeriesBPreferredStockMember2018-09-042018-09-040001267602us-gaap:SeriesCPreferredStockMemberus-gaap:PreferredStockMember2020-01-012020-12-310001267602us-gaap:CommonStockMember2020-01-012020-12-310001267602us-gaap:CommonStockMember2014-01-012014-12-3100012676022019-11-142019-11-140001267602us-gaap:RetainedEarningsMember2020-12-310001267602us-gaap:AdditionalPaidInCapitalMember2020-12-310001267602us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001267602alim:CommonStockWarrantsMember2020-12-310001267602us-gaap:RetainedEarningsMember2019-12-310001267602us-gaap:AdditionalPaidInCapitalMember2019-12-310001267602us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001267602alim:CommonStockWarrantsMember2019-12-310001267602us-gaap:RetainedEarningsMember2018-12-310001267602us-gaap:AdditionalPaidInCapitalMember2018-12-310001267602us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001267602alim:CommonStockWarrantsMember2018-12-310001267602alim:CommonStockWarrantsMember2020-01-012020-12-310001267602us-gaap:SeriesAPreferredStockMemberus-gaap:PreferredStockMember2020-12-310001267602us-gaap:CommonStockMember2020-12-310001267602us-gaap:SeriesCPreferredStockMemberus-gaap:PreferredStockMember2019-12-310001267602us-gaap:SeriesAPreferredStockMemberus-gaap:PreferredStockMember2019-12-310001267602us-gaap:CommonStockMember2019-12-310001267602us-gaap:SeriesCPreferredStockMemberus-gaap:PreferredStockMember2018-12-310001267602us-gaap:SeriesAPreferredStockMemberus-gaap:PreferredStockMember2018-12-310001267602us-gaap:CommonStockMember2018-12-310001267602us-gaap:EmployeeStockMember2010-12-310001267602us-gaap:EmployeeStockMemberus-gaap:SubsequentEventMember2021-01-012021-01-010001267602us-gaap:EmployeeStockMember2020-01-012020-01-010001267602alim:DirectorsOptionPlanMember2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMember2020-01-012020-12-310001267602us-gaap:CollaborativeArrangementMember2019-01-012019-12-310001267602us-gaap:SoftwareDevelopmentMember2020-01-012020-12-310001267602us-gaap:FurnitureAndFixturesMember2020-01-012020-12-310001267602us-gaap:AutomobilesMember2020-01-012020-12-310001267602us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2020-12-310001267602us-gaap:OfficeEquipmentMember2020-12-310001267602us-gaap:LeaseholdImprovementsMember2020-12-310001267602us-gaap:FurnitureAndFixturesMember2020-12-310001267602us-gaap:EquipmentMember2020-12-310001267602alim:FinanceLeaseMember2020-12-310001267602us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2019-12-310001267602us-gaap:OfficeEquipmentMember2019-12-310001267602us-gaap:LeaseholdImprovementsMember2019-12-310001267602us-gaap:FurnitureAndFixturesMember2019-12-310001267602us-gaap:EquipmentMember2019-12-310001267602alim:FinanceLeaseMember2019-12-310001267602alim:SeriesBAndCConvertiblePreferredStockMember2020-12-310001267602us-gaap:SeriesBPreferredStockMember2018-09-040001267602us-gaap:SeriesCPreferredStockMember2020-12-310001267602us-gaap:SeriesAPreferredStockMember2020-12-310001267602us-gaap:SeriesCPreferredStockMember2019-12-310001267602us-gaap:SeriesAPreferredStockMember2019-12-310001267602us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001267602us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310001267602us-gaap:StateAndLocalJurisdictionMember2020-12-310001267602us-gaap:StateAndLocalJurisdictionMember2019-12-310001267602us-gaap:OtherNoncurrentLiabilitiesMember2020-12-310001267602us-gaap:AccruedLiabilitiesMember2020-12-310001267602us-gaap:AccruedLiabilitiesMember2019-12-310001267602alim:AccruedAndOtherNoncurrentLiabilitiesMember2020-12-310001267602us-gaap:RetainedEarningsMember2020-01-012020-12-310001267602us-gaap:RetainedEarningsMember2019-01-012019-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Member2018-01-050001267602alim:TwentyFourteenTermLoanMemberalim:HerculesTechnologyGrowthCapitalInc.Member2014-04-300001267602srt:MinimumMember2020-12-310001267602srt:MaximumMember2020-12-310001267602alim:LoanAndSecurityAgreementMember2020-12-310001267602alim:LoanAndSecurityAgreementMember2019-12-310001267602srt:RevisionOfPriorPeriodReclassificationAdjustmentMember2019-01-012019-12-310001267602us-gaap:LicensingAgreementsMember2019-12-310001267602us-gaap:LicensingAgreementsMember2020-12-310001267602us-gaap:EmployeeStockOptionMember2019-12-310001267602us-gaap:RestrictedStockUnitsRSUMember2019-12-310001267602us-gaap:AllOtherSegmentsMember2020-01-012020-12-310001267602us-gaap:AllOtherSegmentsMember2019-01-012019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:AmendmentMemberalim:SolarCapitalLtd.Member2019-12-310001267602alim:LoanAndSecurityAgreementMember2020-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Member2020-01-012020-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Member2020-12-310001267602alim:PppLoanMember2020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:OneMonthLiborMember2019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalMember2020-12-310001267602alim:PppLoanMember2020-04-220001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Memberalim:OneMonthLiborMember2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:OneMonthLiborMember2019-01-012019-12-310001267602alim:UnitedStatesSegmentMember2020-01-012020-12-310001267602alim:InternationalSegmentMember2020-01-012020-12-310001267602alim:UnitedStatesSegmentMember2019-01-012019-12-310001267602alim:InternationalSegmentMember2019-01-012019-12-310001267602us-gaap:SeriesCPreferredStockMember2018-09-040001267602us-gaap:SeriesAPreferredStockMember2014-01-012014-12-310001267602alim:AlimeraSciencesLimitedLimitedMembersrt:MaximumMemberalim:FourthLoanAmendmentMemberalim:HerculesTechnologyGrowthCapitalInc.Member2016-10-310001267602alim:AlimeraSciencesIncCompanyMembersrt:MaximumMemberalim:TwentyFourteenTermLoanMemberalim:HerculesTechnologyGrowthCapitalInc.Member2014-04-300001267602alim:Warrants2016Memberalim:HerculesTechnologyGrowthCapitalInc.Member2020-12-310001267602alim:WarrantAmendmentMemberalim:HerculesTechnologyGrowthCapitalInc.Member2020-12-310001267602alim:HerculesTechnologyGrowthCapitalInc.Member2018-12-310001267602alim:AlimeraSciencesLimitedLimitedMemberalim:FourthLoanAmendmentMemberalim:HerculesTechnologyGrowthCapitalInc.Member2016-10-310001267602alim:AlimeraSciencesIncCompanyMemberalim:July2016WaiverMemberalim:HerculesTechnologyGrowthCapitalInc.Member2016-07-310001267602alim:AlimeraSciencesIncCompanyMemberalim:TwentyFourteenTermLoanMemberalim:HerculesTechnologyGrowthCapitalInc.Member2014-04-300001267602alim:UnitedStatesSegmentMember2020-12-310001267602alim:UnitedStatesSegmentMember2019-12-3100012676022018-12-310001267602us-gaap:WarrantMember2020-01-012020-12-310001267602us-gaap:SeriesAPreferredStockMember2020-01-012020-12-310001267602us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001267602us-gaap:WarrantMember2019-01-012019-12-310001267602us-gaap:SeriesCPreferredStockMember2019-01-012019-12-310001267602us-gaap:SeriesAPreferredStockMember2019-01-012019-12-310001267602us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001267602us-gaap:EmployeeStockOptionMember2019-01-012019-12-310001267602us-gaap:LicensingAgreementsMember2020-01-012020-12-310001267602us-gaap:LicensingAgreementsMember2019-01-012019-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:SellingAndMarketingExpenseMember2020-01-012020-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-12-310001267602us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001267602us-gaap:EmployeeStockMember2020-01-012020-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:SellingAndMarketingExpenseMember2019-01-012019-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-12-310001267602us-gaap:EmployeeStockOptionMemberus-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-12-310001267602us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001267602us-gaap:EmployeeStockOptionMember2019-01-012019-12-310001267602us-gaap:EmployeeStockMember2019-01-012019-12-310001267602us-gaap:RestrictedStockUnitsRSUMember2018-01-012018-12-310001267602us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001267602us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001267602us-gaap:AccountsPayableMemberus-gaap:CollaborativeArrangementMember2020-12-3100012676022020-06-3000012676022021-03-0100012676022018-01-012018-12-310001267602alim:NewCollaborationAgreement2017SecondAmendedMember2020-12-310001267602srt:MaximumMemberus-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2017-07-100001267602us-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMember2020-01-012020-12-310001267602us-gaap:CostOfGoodsTotalMemberalim:ThirdPartyManufacturerMember2020-01-012020-12-3100012676022020-01-012020-01-010001267602country:USus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001267602us-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001267602us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001267602country:USus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310001267602us-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310001267602us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310001267602alim:IluvienMember2020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:TrancheTwoMemberalim:SolarCapitalLtd.Memberalim:ExitFeeAgreementMember2019-01-012019-12-310001267602alim:TwentyEighteenTermLoanMemberalim:TrancheTwoMemberalim:SolarCapitalLtd.Member2018-01-012018-12-310001267602alim:LoanAndSecurityAgreementMemberalim:TrancheOneMemberalim:SolarCapitalLtd.Memberalim:ExitFeeAgreementMember2019-01-012019-12-310001267602alim:TwentyEighteenTermLoanMemberalim:TrancheOneMemberalim:SolarCapitalLtd.Member2018-01-012018-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2020-01-012020-12-310001267602us-gaap:SeriesAPreferredStockMember2012-10-020001267602alim:CroMember2020-01-012020-12-310001267602alim:CroMember2020-12-310001267602us-gaap:SeriesAPreferredStockMember2012-10-022012-10-020001267602srt:MinimumMember2020-01-012020-01-010001267602srt:MaximumMember2020-01-012020-01-0100012676022019-01-012019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2020-02-210001267602srt:MinimumMemberalim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:TrancheTwoMemberalim:SolarCapitalLtd.Member2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:TrancheThreeMemberalim:SolarCapitalLtd.Member2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:TrancheOneMemberalim:SolarCapitalLtd.Member2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2020-02-212020-02-210001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:ExitFeeAgreementMember2020-01-012020-12-310001267602srt:MaximumMemberalim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:ExitFeeAgreementMember2019-01-012019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:ExitFeeAgreementMember2019-01-012019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Memberalim:AchievementOfMilestoneMember2019-01-012019-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Memberalim:AchievementOfMilestoneMember2018-01-012018-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Member2018-01-012018-12-310001267602alim:PppLoanMember2020-01-012020-12-310001267602alim:LoanAndSecurityAgreementMemberalim:AmendmentMemberalim:SolarCapitalLtd.Member2019-01-012019-12-310001267602alim:TwentyEighteenTermLoanMemberalim:SolarCapitalLtd.Member2019-01-012019-12-310001267602alim:LoanAndSecurityAgreementMemberalim:SolarCapitalLtd.Member2019-01-012019-12-310001267602srt:MinimumMember2020-01-012020-12-310001267602srt:MaximumMember2020-01-012020-12-310001267602us-gaap:SeriesCPreferredStockMember2018-09-042018-09-040001267602alim:IluvienMember2010-02-012010-02-280001267602alim:CadenceMember2020-01-012020-12-310001267602alim:IluvienMember2016-02-012016-02-290001267602us-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2018-12-122018-12-120001267602us-gaap:CollaborativeArrangementMember2017-07-102017-07-100001267602us-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2019-03-012019-03-310001267602us-gaap:CollaborativeArrangementMember2020-01-012020-12-3100012676022020-01-012020-12-310001267602us-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2014-10-012014-10-3100012676022020-12-3100012676022019-12-31xbrli:sharesalim:employeealim:customeralim:countryalim:itemiso4217:USDxbrli:sharesxbrli:pureiso4217:USD

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

 

 

FORM 10-K

(Mark One)

 

x

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

For the fiscal year ended December 31, 2020

or

 

o

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

For the transition period from                     to                    

Commission file number: 001-34703

 

 

 

Alimera Sciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-0028718

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

6120 Windward Parkway, Suite 290

Alpharetta, GA

 

30005

(Address of principal executive offices)

 

(Zip Code)

(678) 990-5740

(Registrant’s telephone number, including area code)

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, $0.01 par value per share

ALIM

The Nasdaq Stock Market LLC

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

None

 

 

 

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

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

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  x    No  o

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  x    No  o

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.

Large accelerated filer

o

 

Accelerated filer

o

Non-accelerated filer

x

 

Smaller reporting company

x

 

 

 

Emerging growth company

o

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. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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


Table of Contents

As of June 30, 2020, the last business day of the registrant’s last completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $29,531,837 based on the closing price of the registrant’s Common Stock, on June 30, 2020, as reported by the Nasdaq Global Market. For the purposes of this disclosure, shares of Common Stock held by each executive officer, director and stockholder known by the registrant to be affiliated with such individuals based on public filings and other information known to the registrant have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 1, 2021, there were 5,753,434 shares of the registrant’s common stock issued and outstanding. 


Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrant’s proxy statement with respect to the registrant’s 2021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 


Table of Contents

Alimera Sciences, Inc.

Form 10-K

Table of Contents

 

 

 

Page

 

Part I

1

 

Special Note Regarding Forward-Looking Statements and Projections

1

Summary of Principal Risk Factors

1

Item 1.

Business

3

Item 1A.

Risk Factors

16

Item 1B.

Unresolved Staff Comments

37

Item 2.

Properties

37

Item 3.

Legal Proceedings

37

Item 4.

Mine Safety Disclosures

37

Part II

38

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

38

Item 6.

Selected Consolidated Financial Data

38

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 7A.

Qualitative and Quantitative Disclosures about Market Risk

49

Item 8.

Financial Statements and Supplementary Data

50

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

50

Item 9A.

Controls and Procedures

50

Item 9B.

Other Information

50

Part III

52

Item 10.

Directors, Executive Officers and Corporate Governance

52

Item 11.

Executive Compensation

52

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

52

Item 13.

Certain Relationships and Related Transactions and Director Independence

53

Item 14.

Principal Accountant Fees and Services

53

Part IV

54

Item 15.

Exhibits and Financial Statements Schedules

54

Item 16.

Form 10-K Summary

54

Index to Financial Statements

 

55

Exhibit Index

 

85

Signatures

 

88

Unless the context otherwise requires, throughout this Annual Report on Form 10-K, the words “Alimera” “we,” “us,” the “registrant” or the “Company” refer to Alimera Sciences, Inc. and its subsidiaries (as applicable).

The term “ILUVIEN” is our registered trademark. All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners.

 


Table of Contents

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include those factors summarized in the immediately following section entitled “Summary of Principal Risk Factors,” which we encourage you to read.

All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).

We encourage you to read the discussion and analysis of our financial condition and our consolidated financial statements contained in this Annual Report on Form 10-K. We also encourage you to read Item 1A of Part 1 of this Annual Report on Form 10-K, entitled “Risk Factors,” which contains a more detailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks described above and in “Risk Factors,” other unknown or unpredictable factors also could affect our results. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.

SUMMARY OF PRINCIPAL RISK FACTORS

Below is a summary of the principal risk factors we face. Please read it carefully and refer to the more detailed descriptions of the risk factors in Item 1A, “Risk Factors.”

We face risks from:

Risks Related to the COVID-19 Pandemic

the adverse effects of the COVID-19 pandemic, and its unpredictable duration and severity, in the regions where we have customers, employees and distributors;

the possibility that manufacture or distribution of the ILUVIEN insert or applicator may be disrupted by government action related to COVID-19 or by the effect of the COVID-19 pandemic on our manufacturers’ or distributors’ workforces;

the adverse effects of the COVID-19 pandemic on sales of ILUVIEN resulting from (a) limitations on in-person access to physicians for treatment imposed by governments or healthcare facilities, including those recently imposed in Europe and the U.K., and (b) the unwillingness of patients, many of whom suffer from diabetic macular edema and, in Europe and the U.K., non-infectious uveitis, to visit their physicians in person for fear of contracting the COVID-19 coronavirus;

the financial uncertainty associated with the adverse effects of the COVID-19 pandemic and the duration and severity of those effects, which had an adverse effect on our revenue beginning late in the first quarter of 2020 and continuing to the date of this report, and if these adverse effects continue in the future, they may (a) adversely affect our revenue, financial condition and cash flows, and (b) affect certain estimates we use to prepare our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain receivables;

the possibility that the restrictions placed on regulatory and pricing bodies will delay or defer market access for ILUVIEN as we seek to secure reimbursement;

the possibility that the economic impact of the COVID-19 pandemic will lead to changes in reimbursement policies and reduce market access for ILUVIEN in countries where we sell ILUVIEN;

the possibility that we may fail to maintain or modify as necessary our internal controls over financial reporting in the current environment in which (a) some of our employees may be required to work remotely from time to time and (b) we or our distributors are required to modify our standard business processes to take into account the current environment in light of the COVID-19 pandemic;

the possibility that staffing shortages resulting from the COVID-19 pandemic will recur at the third-party manufacturer where the ILUVIEN implant is made and the ILUVIEN applicator is assembled and packaged that may lead to product shortages;

1


Table of Contents

the possibility of reduced efficiency and potential distractions of our employees resulting from the prolonged impact of the COVID-19 pandemic, and the resulting loss of productivity;

the possible delay in enrollment of patients in our NEW DAY Study;

Operational Risks

our dependence on the commercial success of our only product, ILUVIEN;

the competition we face, given that our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater marketing capabilities, and greater experience in drug development and in obtaining regulatory approvals than we do;

uncertainty associated with our ability to retain our current employees and to recruit and retain the new employees we need in the future, in particular a productive sales force;

the possibility that the NEW DAY Study may (a) fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME) or to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, and (b) take longer or be more costly to complete than we currently anticipate;

our possible inability to expand our portfolio of ophthalmic products;

Manufacturing Risks

uncertainty associated with our transition from the previous third-party manufacturer of certain component parts of the ILUVIEN applicator to the successor manufacturer;

our dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality, in a timely manner (particularly during the COVID-19 pandemic), and at an acceptable price;

the possibility that we may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need;

Financial Risks

the possibility that we may fail to comply with the financial covenants in our $45.0 million Loan and Security Agreement with Solar Capital Ltd. as Collateral Agent (Agent), and certain other lenders, including Solar Capital in its capacity as a lender, dated December 31, 2019 (the 2019 Solar Loan Agreement);

our possible need to raise additional financing, the terms of which may restrict our operations and, if the capital we raise is equity or a debt security that is convertible into equity, could dilute our stockholders’ investment;

uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN in the U.S., the European Economic Area (EEA) and other regions of the world where we sell ILUVIEN;

a slowdown or reduction in our sales due to, among other things, a reduction in end user demand, unexpected competition, regulatory issues or other unexpected circumstances;

the possibility that we may not be entitled to forgiveness of our PPP Loan;

Regulatory Risks

the possibility that we may not timely obtain the necessary regulatory approvals to perform manufacturing at Cadence, Inc. of the components used in the ILUVIEN applicator;

uncertainty associated with our pursuit of reimbursement from local health authorities in certain countries for the recently obtained additional indication for ILUVIEN for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS);

delay in or failure to obtain regulatory and reimbursement of ILUVIEN or any future products or product candidates in additional markets where we do not currently sell ILUVIEN;

uncertainty associated with our ability to meet any post-market requirements for NIU-PS in the EEA;

uncertainty associated with our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets; and

Intellectual Property Risks

the possibility that we may be adversely affected by the expiration of patents that protect key aspects of ILUVIEN in the near- to medium-term.


2


Table of Contents

ITEM 1. BUSINESS

Overview

Alimera Sciences, Inc., and its subsidiaries (we or Alimera), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally.

The COVID-19 Pandemic and Our Steps to Address its Effects on our Business

The crisis caused by the COVID-19 pandemic and the measures being taken by governments, health authorities, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and we expect will continue to have, certain negative effects on, and present certain risks to, our business. We expect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this time. As more and more people in our markets are vaccinated and as governmental restrictions are gradually lifted, however, we look forward to the prospect of a return to more normal conditions later this year and continuing the growth trends we saw prior to the COVID-19 pandemic. (Please refer to “Special Note Regarding Forward-Looking Statements and Projections” above.)

In response to the COVID-19 pandemic, we have implemented measures to mitigate the impact of the pandemic on our financial position and operations. These measures include the following:

We are continuing to manage our cost structure, minimizing all non-payroll spending where possible to mitigate our anticipated loss of revenue and conserve our cash until the COVID-19 pandemic begins to resolve.

We have decreased our external spending on commercial and medical affairs activities related to the promotion of ILUVIEN. 

Because we believe that our employees are critical to both (a) serving our customers and patients through alternative forms of engagement as the pandemic-related restrictions continue, and (b) realizing the long-term value of ILUVIEN, we have maintained our staffing levels and do not currently have any plans to reduce them.

For more information about the effect of the COVID-19 pandemic on our business and the related risks we face, please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Effects of the COVID-19 Pandemic,” and Item 1A, “Risk Factors – Risks Related to the Public Health Pandemic.”

ILUVIEN

Our only commercial product is ILUVIEN®, an intravitreal implant that treats patients by delivering a continuous microdose of the non-proprietary corticosteroid fluocinolone acetonide (FAc) in the eye, for up to 36 months. “Intravitreal” refers to the space inside the eye behind the lens that contains the jelly-like substance called vitreous. ILUVIEN was initially developed to treat diabetic macular edema (DME), a disease of the retina that affects individuals with diabetes and can lead to severe vision loss and blindness. ILUVIEN can also be used to prevent relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS). Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness.

ILUVIEN is inserted into the back of the patient’s eye in a non-surgical procedure employing a device with a 25-gauge needle, which allows for a self-sealing wound. We believe that corticosteroids provide the best option in the treatment of DME and NIU-PS because they reduce the inflammatory aspects of the disease. Further, we believe that ILUVIEN’s CONTINUOUS MICRODOSING™ delivery makes it the only approved drug therapy for DME that can deliver consistent daily therapeutic levels of corticosteroid. The delivery mechanism of ILUVIEN provides lower daily and aggregate exposure to corticosteroids than any other intraocular dosage forms currently available, which we believe mitigates the typical risks associated with corticosteroid therapy. Further, ILUVIEN, which is non-bioerodible, provides consistent delivery as a result of its constant surface area, permitting elution of FAc to the vitreous. This provides a sustained therapeutic effect on DME and NIU-PS. Other therapies that physicians currently use to treat DME, such as anti-vascular endothelial growth factor (VEGF) treatments and other corticosteroids, are acute (short-acting) therapies that provide a higher initial daily dose but then rapidly decline, requiring frequent reinjection by the physician to maintain or reestablish the therapeutic effect.

ILUVIEN delivers continuous daily sub-microgram levels of FAc in both in vitro and in vivo release kinetic studies for up to 36 months, making it the only single injection therapy available to treat the retina consistently every day for up to three years, to control the recurrence of edema, allowing patients to see better, longer with fewer injections. The delivery mechanism of ILUVIEN provides lower daily and aggregate exposure to corticosteroids than any other intraocular dosage forms currently available for DME in the U.S. and in the other countries in which we have approval. We believe that the lower daily and aggregate exposure to corticosteroids mitigates the typical risks associated with corticosteroid therapy. Additionally, the side effects of ILUVIEN are consistent with and predictable following the use of shorter duration or acute corticosteroid therapies, increasing the physician’s ability to manage those side effects.

3


Table of Contents

The active compound in ILUVIEN is FAc, a non-proprietary corticosteroid that is a member of the class of steroids known as corticosteroids. Corticosteroids have demonstrated a range of pharmacological actions, including inhibition of inflammation, inhibition of leukostasis, up regulation of occludin, inhibition of the release of certain inflammatory cytokines and suppression of VEGF secretion. Leukostasis refers to the accumulation of white blood cells at a particular site, which leads to further tissue damage. Occludin is an important protein in maintaining and reinforcing the tight junctions between cells. These pharmacological actions have the potential to treat various ocular conditions, including DME, NIU-PS, Non-Proliferative Diabetic Retinopathy (NPDR), retinal vein occlusion (RVO), dry age-related macular degeneration (AMD) and wet AMD. However, FAc shares many of the same “class effect” side effects seen with other corticosteroids that are currently available for intraocular use. The two main side effects of using corticosteroids to treat ocular conditions are (a) increased intraocular pressure, which may increase the risk of glaucoma, and (b) the acceleration of cataract formation. FAc is uniquely lipophilic, making it very effective at penetrating retina tissue, and allowing it to achieve a therapeutic effect at a very low dose, typically lower than other corticosteroids.

Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)

ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countries shown in the following table:

Indication for the

Treatment of DME

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat DME

Countries

Where ILUVIEN Is

Reimbursed to Treat DME

Countries Where

ILUVIEN is

Currently Marketed

to Treat DME

Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure

U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates

U.S., Kuwait, Lebanon and the United Arab Emirates

U.S., Kuwait, Lebanon and the United Arab Emirates

Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies

The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg

The U.K., Germany, France, Italy, Spain, Portugal, Ireland and the Netherlands

The U.K., Germany, France, Italy, Spain, Portugal, Ireland, Austria and the Netherlands

Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS)

In December 2017, we filed in the 17 EEA countries in Europe where ILUVIEN is currently approved for the treatment of DME an application for a new indication for ILUVIEN for the prevention of relapse in recurrent NIU-PS. In March 2019, we announced that the U.K.’s National Institute for Health and Care Excellence (NICE), in its Final Appraisal Determination for national reimbursement, had recommended funding for ILUVIEN 190 micrograms intravitreal implant in applicator for the prevention of relapse in recurrent NIU-PS. In addition, ILUVIEN has received marketing authorization in 16 European countries and reimbursement in three countries, Germany, the Netherlands and the U.K., for the prevention of relapse in recurrent NIU-PS.

Indication for the

Treatment of NIU-PS

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat NIU-PS

Countries

Where ILUVIEN Is

Reimbursed to Treat

NIU-PS

Countries Where

ILUVIEN is

Currently Marketed

to Treat NIU-PS

The prevention of relapse in recurrent NIU-PS

The U.K., Germany, France, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg

The U.K., Germany and the Netherlands

The U.K. Germany and the Netherlands

We launched ILUVIEN for the NIU-PS indication in Germany and the U.K. during the third quarter of 2019 and the Netherlands during the fourth quarter of 2020.

4


Table of Contents

Where We Sell Direct

We commercially market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, and Ireland. We are planning to launch directly in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler to support tendering processes in hospitals and regions.

Where We Sell Through Distributors

We have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East. We have an extended distribution relationship with our French distributor Horus Pharma to distribute ILUVIEN in Belgium, the Netherlands and Luxembourg. Our Canadian distributor is currently pursuing reimbursement. As of December 31, 2020, we have recognized revenue from sales of ILUVIEN to our international distributors in the Middle East, Austria, France, Italy, Spain and the Netherlands.

Business Strategy

We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and represent a significant market opportunity. Our strategy is to establish ILUVIEN as a leading therapy for DME and NIU-PS patients for which ILUVIEN is proven safe and effective because of its ability to help patients see better, longer with fewer injections for up to three years. We intend to capitalize on our management’s experience, the breadth of our commercial resources in both the U.S. and Europe, and to maintain focus on the retinal space to commercialize ILUVIEN. We intend to use those same strengths to acquire, obtain regulatory approval for and commercialize other potential eye care products. To implement our strategy, and taking into account the effects and potential future effects of the COVID-19 pandemic, we intend to:

Maximize the commercial success of ILUVIEN for treatment of DME in the U.S. and Europe where we have obtained regulatory approval. We are seeking to increase our direct sales and sales to distributors in the U.S. and Europe where we have obtained regulatory approval and are currently marketing ILUVIEN. We are also pursuing opportunities to sell ILUVIEN in the remaining countries where we have obtained regulatory approval but are not currently marketing ILUVIEN.

Pursue commercialization of ILUVIEN for treatment of DME in additional countries outside the U.S. and Europe where we have obtained regulatory approval. We have established distribution relationships in Australia, New Zealand, Canada and the Middle East. Our distributor in the Middle East began selling ILUVIEN in 2016 and launched commercial sales in 2019. Our distributor in Canada received regulatory approval in 2018 and is currently pursuing reimbursement in certain provinces of Canada. Our distributor in Australia secured regulatory approval during 2019 but has been unable to achieve reimbursement. Our distributor has chosen to abandon pursuing reimbursement further.

Pursue commercialization of ILUVIEN for NIU-PS in Europe where we have obtained regulatory approval. We are seeking to increase our direct sales in Germany, the Netherlands and the U.K. where we have obtained regulatory approval and are currently marketing ILUVIEN for NIU-PS. We are pursuing opportunities to sell ILUVIEN for NIU-PS in 13 additional European countries, where we have obtained regulatory approval but are not currently marketing ILUVIEN.

Pursue approval for ILUVIEN for DME and NIU-PS in additional countries. We will evaluate seeking regulatory approval for the treatment of DME in countries where we do not have approval and of NIU-PS in the remainder of Europe and in the Middle East and Africa where we have the license to use ILUVIEN.

Expand our ophthalmic product offerings. We believe there are further unmet medical needs in the treatment of retinal diseases. We intend to continue to evaluate in-licensing and acquisition opportunities for compounds and technologies with potential treatment applications for diseases affecting the eye.

Disease Overview and Market Opportunity

Diabetes and Diabetic Retinopathy

Diabetes mellitus, with its systemic and ophthalmic complications, represents a global public health threat. The International Diabetes Federation (IDF) estimated prevalence of diabetes worldwide in 2017 increased to 425 million people and is expected to increase to 629 million people by 2045.

The 2020 National Diabetes Statistics Reports published by the U.S. Centers for Disease Control and Prevention (CDC) reported that as of 2018, 34.2 million Americans, or 10.3% of the U.S. population, had diabetes and that there were 1.5 million new cases of diabetes diagnosed among people ages 18 and older. Approximately 1 in 5 adults living with diabetes, 7.3 million Americans, did not know they had the condition and are therefore not being monitored and treated to control their disease and

5


Table of Contents

prevent systemic and ophthalmic complications. The report also identified that around 88.0 million people have prediabetes, a condition that if not treated often leads to type 2 diabetes within five years. In this population, only 15.3% of adults know they had prediabetes. In the International Diabetes Federation 9th Edition IDF Diabetes Atlas, it is estimated that there are approximately 59.3 million people in Europe in 2019 with diabetes and that 24.2 million remain undiagnosed. In the Middle East, it is estimated there are approximately 23.0 million people with diabetes and 10.0 million remain undiagnosed.

All patients with diabetes are at risk of developing some form of diabetic retinopathy, an ophthalmic complication of diabetes with symptoms including the swelling and leakage of blood vessels within the retina or the abnormal growth of new blood vessels on the surface of the retina. According to the CDC Vision Health Initiative, diabetic retinopathy causes approximately 12,000 to 24,000 new cases of blindness in the U.S. each year; making diabetes the leading cause of new cases of blindness in adults aged 20 to 74. Diabetic retinopathy can be divided into either non-proliferative or proliferative retinopathy. Non-proliferative retinopathy develops first and causes increased capillary permeability, micro aneurysms, hemorrhages, exudates (when fluid leaks into spaces between vessels), macular ischemia (lack of oxygen) and macular edema (thickening of the retina caused by fluid leakage from capillaries). Proliferative retinopathy is an advanced stage of diabetic retinopathy that, in addition to characteristics of non-proliferative retinopathy, results in the growth of new blood vessels. These new blood vessels are abnormal and fragile, growing along the retina and along the surface of the clear, vitreous gel that fills the inside of the eye. By themselves, these blood vessels do not cause symptoms or vision loss. However, these blood vessels have thin, fragile walls that are prone to leakage and hemorrhage.

Diabetic Macular Edema

When the blood vessel leakage of diabetic retinopathy leads to the build-up of fluid, or edema, in a region of the retina called the macula, the condition is called DME. This area of the eye is important for the sharp, straight-ahead vision that is used for reading, recognizing faces, and driving. There are an estimated 750,000 people with DME in the U.S., according to the National Eye Institute's 2019 update. DME is the most common cause of vision loss among people with diabetic retinopathy and about 30% of people with diabetic retinopathy will develop DME. It is more likely to occur as diabetic retinopathy worsens, although it may occur at any stage of the disease. The onset of DME is painless and may go undetected by the patient until it manifests with the blurring of central vision or acute vision loss. The severity of this blurring may range from mild to profound loss of vision.

Studies have shown that DME is a multifactorial disease that is underpinned by inflammatory cytokine activity in the eye. Of the currently approved pharmacotherapies used to treat DME, only corticosteroids, including FAc found in the ILUVIEN implant, affect these cytokines.

As the incidence of diabetes continues to increase worldwide, the incidence of DME and other complications is predicted to rise as well. Most patients who suffer from diabetes do not meet glycemic (glucose or blood sugar) targets, resulting in hyperglycemia (elevated levels of glucose in the blood). This, in turn, leads to the development of micro-vascular complications, which manifest in the eye as diabetic retinopathy, as well as elevated cytokines that break down the blood-retina barrier, leading to macular edema (DME) in many diabetic retinopathy patients.

Uveitis

Uveitis means inflammation of the uveal tract, which is a layer of tissue located between the outer layer (cornea and sclera) and the inner layer (the retina) of the eye. The front portion (anterior) of the uveal tract contains the iris, and the back portion (posterior) of the uveal tract contains the choroid and the stroma of the ciliary body. Inflammation of the uvea encompasses approximately 30 inflammatory disorders characterized by intraocular inflammation, a major cause of visual loss in people of working age in both developed and developing countries. It can affect people of all ages, producing swelling and destroying eye tissues, which can lead to severe vision loss and blindness. According to the classification scheme recommended by the International Uveitis Study Group, the disease can be classified on the basis of anatomic locations: anterior, intermediate, posterior or pan uveitis. Uveitis can be caused by a number of factors such as infection (infectious uveitis) or other autoimmune diseases or conditions. Non-infectious uveitis is a persistent and recurrent disease that can adversely affect the retina. Additionally, it commonly affects vision, more so than anterior uveitis, and macular edema is the most common mechanism of visual loss, affecting 44% patients with posterior uveitis.

There are two forms of uveitis:

infectious uveitis (bacterial, viral, fungal, or parasitic), which is treated with an appropriate antimicrobial drug as well as corticosteroids and cycloplegics; and

non-infectious uveitis (NIU), where corticosteroids are used to reduce inflammation and prevent adhesions in the eye.

Current Treatments for DME

Anti-vascular endothelial growth factor (anti-VEGF) therapies are the current standard of care for the treatment of DME. Lucentis (ranibizumab) and Eylea (aflibercept) are the only approved anti-VEGF therapies marketed for the treatment of vision

6


Table of Contents

loss associated with DME in Europe and for the treatment of DME in the U.S. Off-label injections of the anti-VEGF therapy Avastin (bevacizumab) are also used to treat DME. However, anti-VEGF therapies are acute therapies and are limited by a need for multiple and frequent injections to achieve the same therapeutic effect reported in randomized controlled trials. Further, DME is a multi-factorial disease, and anti-VEGF therapy does not address all of these factors. As a result, many patients either do not achieve a sufficient response or are unable to routinely attend clinic appointments, meaning that anti-VEGF therapy is not optimally administered. When not optimally administered, these acute therapies allow for a recurrence of the edema. In addition, these therapies have safety profiles that include an increased risk of endophthalmitis, a serious eye infection that must be treated with high doses of antibiotics. This risk of endophthalmitis is associated with any intravitreal injection. There is evidence that intravitreal anti-VEGF therapy affects systemic VEGF levels, which may have cardiovascular complications.

Intravitreal corticosteroid therapies are also used to treat DME. Acute corticosteroids typically have peak effects within two to three months, and there is a need for repeated injections. Similarly, without optimized treatment frequency, macular edema is allowed to recur when the effect of acute corticosteroids dissipates. Ozurdex (dexamethasone), a short-acting corticosteroid, is marketed for the treatment of vision loss associated with DME in Europe and for the treatment of DME in the U.S. Triamcinolone acetonide is another short-acting steroid used off-label to treat DME. In contrast to the dexamethasone implant and triamcinolone acetonide, which are both acute therapies, ILUVIEN is a long-term persistent and continuous steroid delivery therapy. The steroid in the ILUVIEN implant, fluocinolone acetonide, or FAc, is a key lipophilic component that allows a single implant to deliver a sustained daily dose for up to 36 months. Corticosteroids have historically been associated with significant increases in intraocular pressure, which may increase the risk of glaucoma. Additionally, corticosteroids are associated with the acceleration of cataract formation. We believe the low dose of ILUVIEN mitigates these side effects and makes them more manageable. Additionally, the side effects of ILUVIEN are consistent with and predictable following the use of shorter duration or acute corticosteroid therapies, increasing the physician’s ability to manage those side effects.

Laser photocoagulation is a retinal procedure in which a laser is used to apply a burn, or a pattern of burns, to cauterize leaky blood vessels to reduce edema. Visual acuity gains are less frequently seen with this therapy, as it is used to prevent or slow the loss of vision. Further, this destructive procedure has undesirable side effects including partial loss of peripheral and night vision.

Current Treatments for NIU-PS

Historically, the treatment of uveitis varies according to the type and location of uveitis. The inflammation in non-infectious uveitis (NIU) can be anterior (at the front of the eye) or posterior (at the back of the eye) or in both locations. Importantly though, all forms of NIU can affect the posterior segment of the eye. In anterior forms of NIU, drops are used to address inflammation; however, in patients where the posterior segment is affected, these drops do not penetrate the eye to address the posterior segment. Other agents, both intravitreal and systemic, are specifically licensed for the treatment of active non-infectious posterior uveitis. This means that treatment of NIU-PS focuses on (a) systemic therapy, administered in a tablet form or via injection, which very often leads to side effects that adversely affect the whole body, or (b) the localized delivery of therapies, usually a steroid.

Patients with NIU-PS are initially treated with systemic steroids, which are very effective, but when used at high doses for extended periods can lead to serious side effects. These side effects include acne, weight gain, sleep and mood disorders, hypertension and osteoporosis, which can limit the sustained use of systemic steroids. Patients then often progress to steroid-sparing therapies with systemic immune suppressants or biologics, which themselves can have severe side effects, including an increased risk of cancer and infections. In addition, periocular or intraocular steroids may be used to try to locally control inflammation in NIU-PS. Other therapies that may be used to treat NIU-PS include immunosuppressive drugs and tumor necrosis factor (TNF) antagonists.

A significant problem for patients and clinicians is that recurrence of NIU-PS is very common. In chronic NIU-PS, recurrence often occurs within six months of withholding treatment, and patients and clinicians are forced to go through cycles of treatment initiation and cessation with the accompanying complexity of managing several drug classes, and their side effects, at once. For the patient, this approach to treatment provides temporary relief, but with uncertainty of when the next relapse of their disease will occur. Recurrence is known to put the patient’s vision at risk, so there is a need for treatments that can provide longer term control of inflammation in this setting.

For patients with recurrent NIU-PS, locally delivered (intravitreal) steroids present an attractive treatment strategy allowing for effective delivery of steroid therapy at the point of need, while minimizing the risk of systemic side effects. For intravitreal treatment, the short-acting Ozurdex implant is marketed in Europe for the treatment of adult patients with active inflammation of the posterior segment of the eye presenting as non-infectious uveitis and for the treatment of non-infectious uveitis.

In contrast, ILUVIEN has specifically been studied to evaluate the prevention of relapse in recurrent NIU-PS. Clinical trials have demonstrated that ILUVIEN significantly extends the time to relapse in patients with recurrent NIU-PS, while at the same time reducing the need for adjunctive treatments, including systemic drug treatment.

7


Table of Contents

Our NEW DAY Study

On July 9, 2020, we announced the initiation of our NEW DAY clinical trial, a multicenter, single masked, randomized and controlled trial designed to generate prospective data evaluating ILUVIEN as a baseline therapy in the treatment of DME and demonstrate its advantages over using the current standard of care of repeat anti-VEGF injections. The NEW DAY Study is planned to enroll 320 treatment-naïve, or almost naïve, DME patients in approximately 42 sites around the U.S. As of February 28, 2021, we have enrolled 19 DME patients. We expect the pace of the enrollment to increase as the COVID-19 pandemic begins to resolve.

We believe that ILUVIEN continues to be underutilized in the treatment of DME. Our prior clinical data sets demonstrate the ability of ILUVIEN to control the underlying disease process and reduce the recurrence of edema for up to three years, rather than treating recurrent chronic edema with short term therapies. With this NEW DAY Study, we intend to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early DME by comparing ILUVIEN to the current standard of care, anti-VEGF therapy.

Patients who meet the entry criteria will be randomized to receive either an ILUVIEN intravitreal implant or five injections of intravitreal aflibercept 2 mg at four-week intervals for the first 16 weeks as a loading dose. After the initial 16-week period, both arms will be evaluated every four weeks and receive supplemental intravitreal injections of aflibercept 2 mg only as needed. Criteria for supplemental treatment is set by protocol and will be identical in both treatment arms. The planned treatment period in the study is 18 months. Once the treatment period is concluded, patients will be given the option to participate in an open label extension study for up to 42 months.

The primary outcome measure for NEW DAY is the mean number of supplemental aflibercept injections needed during the trial between treatment groups. Key secondary endpoints include mean best corrected visual acuity (BCVA) score over time up to 18 months, time to first supplemental treatment, retinal thickness amplitude on optical coherence tomography (OCT), and diabetic retinopathy scores. In addition, the study will collect patient-reported outcome measures to evaluate the effect on patients’ quality of life and level of functioning. Exploratory endpoints will include neuronal functional measures and OCT imaging measures of retinal nerve layer thickness.

ILUVIEN for Other Diseases of the Eye

Although we are not actively conducting clinical trials for a new indication, we believe that ILUVIEN has the potential to address other ophthalmic diseases such as RVO, NPDR, dry AMD and wet AMD.

ILUVIEN Commercialization Status

Diabetic Macular Edema

ILUVIEN has received marketing authorization for two indications in various countries as noted above in “Overview - Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME).” We plan to pursue regulatory approval for ILUVIEN for the treatment of DME, directly or with a partner, in additional countries.

Uveitis

ILUVIEN has received marketing authorization for treatment of NIU-PS in 15 countries of the EEA, and we plan to pursue our right to seek approval in the Middle East and Africa. Because we do not have the contractual right to pursue approval to treat NIU-PS in the U.S., we do not have marketing authorization in the U.S. We have obtained marketing authorization for ILUVIEN to treat NIU-PS in various countries as noted above in “Overview - Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS).” We will evaluate seeking approval for the treatment of NIU-PS in other countries in Europe, the Middle East and Africa where we have the license to use ILUVIEN.

Sales and Marketing

Our sales personnel focus on physician offices, pharmacies and hospitals in the U.S. and in European countries where we seek to persuade end users to purchase ILUVIEN. In our promotional efforts, we focus on three main areas to generate demand for ILUVIEN. The first is to gain access for ILUVIEN on formularies, contracts and through national and local health care authorities to achieve a reasonable price in the countries in which we intend to commercialize. Second is to educate physicians on the efficacy and safety of our products through direct promotion, advocacy building and indirect marketing activities. Third is to enable patients and caregivers in markets where it is permitted to become more educated on their disease and the possible treatments.

The COVID-19 pandemic has negatively affected our sales and marketing efforts in a number of ways, which has in turn had an adverse impact on our revenues. Governments and private parties have imposed limitations on in-person access to physicians, which have made it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about the benefits of ILUVIEN and to provide support for insurance pre-certifications. These limitations have also affected patient access to treatment, given that ILUVIEN is administered only by

8


Table of Contents

an injection into the eye, which means telemedicine is not a viable substitute. Our business is also negatively affected by patient behavior in the current environment. Most of our ILUVIEN sales are driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that governmental authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are or may be unwilling to visit their physicians in person (even if otherwise permitted) for fear of contracting the COVID-19 coronavirus.

Distributor Agreements

We have various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for commercialization of ILUVIEN in Austria, the Czech Republic, Italy, Spain, France, Belgium, the Netherlands, Luxembourg, Canada, Australia and New Zealand and in several countries in the Middle East. Pursuant to these agreements, our distributors assisted or will assist us in obtaining and maintaining approval and reimbursement approval, or they will seek approval or reimbursement approval with our oversight in those countries, if such approval or reimbursement approval has not already been obtained.

Manufacturing

We do not have an in-house manufacturing capability for our products. As a result, we depend and expect to continue to depend exclusively on third-party contract manufacturers to produce and package ILUVIEN. We manage the quality of our product produced by these manufacturers through quality agreements and our quality system to ensure that they produce active pharmaceutical ingredients (APIs) and finished drug products in accordance with the FDA’s current Good Manufacturing Practices (cGMP) and all other applicable laws and regulations. We maintain agreements with potential and existing manufacturers that include confidentiality and intellectual property provisions to protect our proprietary rights related to ILUVIEN.

The manufacturing process for ILUVIEN consists of filling a polyimide tube with a paste consisting of 190 micrograms of FAc in an aqueous slurry of polyvinyl alcohol, cutting the tube into smaller sections in the proper lengths for the ILUVIEN implant, capping each small section with a permeable membrane cap on one end and an impermeable silicone cap on the other end to create the ILUVIEN implant, curing the implant at high temperature, loading the implant inside the ILUVIEN applicator, and packaging and sterilizing the product. This process has been validated at Alliance Medical Products Inc., a Siegfried Company (Alliance).

Third party manufacturers are responsible for the commercial-scale production of ILUVIEN. We have agreements with a single third-party manufacturer for each of:

the manufacture of FAc, ILUVIEN’s active pharmaceutical ingredient (FARMABIOS SpA/Byron Chemical Company Inc.),

the manufacture of the components of the ILUVIEN applicator (Cadence, Inc. (Cadence)),

the manufacture of the ILUVIEN implant, final assembly of the injector with the implant and release testing in the U.S. (Alliance),

the quality release testing of ILUVIEN (Alliance),

final product release to market in the European Economic Area (EEA) post-Brexit (carried out in Ireland by Packaging Coordinators, Inc.), and

final product release to market in the U.K., post-Brexit (AndersonBrecon Limited trading as Packaging Coordinators, Inc.).

Although we may seek alternative providers in the future, we do not currently have alternate providers for any of these tasks. We recently replaced FlexMedical, an affiliate of Flextronics International, Ltd. (Flextronics), with Cadence as described below.

Under our agreement with Alliance, which we entered into in 2010 and amended and restated in 2016, we are responsible for supplying Alliance with the ILUVIEN applicator and the API. We purchased certain equipment at Alliance’s facility that Alliance uses solely to manufacture and package ILUVIEN for us. We have agreed to order from Alliance at least 80% of our total requirements for new units of ILUVIEN in the U.S., Canada and Europe in a calendar year, provided that Alliance is able to fulfill our supply requirements and is not in breach of its agreements or obligations to us. Currently, we order 100% of our global requirements for ILUVIEN units from Alliance because we do not have an alternate supplier. Unless terminated earlier in accordance with its provisions, the amended and restated agreement has a remaining term through February 2022 and will automatically renew for successive terms of one year unless either party delivers written notice of non-renewal to the other at least 12 months before the end of the then current term. As of the date of this filing, we have not received a notice of non-renewal that would take effect in February 2022.

Under the Flextronics Agreement dated March 2, 2012, Flextronics agreed to manufacture the component parts of the ILUVIEN applicator (the components) for us. As we reported in a Current Report on Form 8-K dated March 28, 2019, we received notice from Flextronics on that date that it intended to terminate the Flextronics Agreement on September 30, 2020. The Flextronics Agreement terminated in accordance with the notice on September 30, 2020. Before the Flextronics Agreement

9


Table of Contents

expired, Flextronics manufactured a supply of components that has served and is serving as a safety stock until the components can be supplied by Cadence, the replacement manufacturer.

On October 30, 2020, we entered into a Manufacturing Services Agreement with Cadence, Inc., to manufacture the components used in the ILUVIEN applicator. Cadence is in the final stages of process qualification and is expected to begin manufacturing production components during the second quarter of 2021. We have filed with European Regulatory Agencies for the necessary approvals needed for Cadence to manufacture components to be used in ILUVIEN sold in Europe, and we anticipate receiving European approval in April 2021. We will be filing a Prior Approval Supplement (PAS) with the FDA in the next one-to-two months. We believe we have sufficient safety stock produced by Flextronics to meet the anticipated demand of our distributors and end users until FDA approval is obtained and throughout 2021. Until the transition to Cadence is complete, however, there can be no assurances that Cadence will manufacture the components in a timely and otherwise acceptable manner. Significant disruption in this transition, or unanticipated costs related to the transition, could materially and adversely affect our business, financial condition and cash flows, and results of operations.

Business Segments

Our business has a U.S. segment and an International segment, and we report Other to reconcile to consolidated totals. You can find financial information about our business segments below in (a) Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Segment Review” and (b) Note 19 of the accompanying consolidated financial statements.

Customers

Our revenues for the fiscal years ended December 31, 2020 and 2019 were generated from product sales primarily in the U.S., Germany, France and the U.K. In the U.S., two large pharmaceutical distributors accounted for 49% and 60% of our consolidated revenues for the years ended December 31, 2020 and 2019, respectively. These distributors maintain inventories of ILUVIEN and sell to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.

Competition

The development and commercialization of new drugs and drug delivery technologies is highly competitive. We face competition with respect to ILUVIEN and any products or product candidates we may develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide, many of whom have substantially greater financial and other resources than we do.

In the countries in which ILUVIEN has received or been recommended for marketing authorization or becomes approved for use in the treatment of DME, it competes or will compete against the use of anti-VEGF therapies, short duration corticosteroids and laser photocoagulation or other therapies that may be approved in the future. Other companies are working to develop other drug therapies and sustained delivery platforms for DME and other indications. These competitive therapies may result in pricing pressure even if ILUVIEN is otherwise viewed as a preferable therapy. We believe that the following drugs and treatments compete with ILUVIEN:

Lucentis© (ranibizumab injection), marketed by Genentech (Roche) in the U.S. and Novartis in the rest of the world, and Avastin (bevacizumab), an oncology product marketed by the Roche group, are both antibodies that inhibit VEGF signaling pathways. Lucentis is currently approved for the treatment of DME, the treatment of diabetic retinopathy in patients with DME, the treatment of neovascular wet AMD and the treatment of macular edema following RVO in the U.S. In the EEA, the indications are similar except for diabetic retinopathy where the indication is for the treatment of proliferative diabetic retinopathy.

Avastin©, is used by retinal specialists in both the U.S. and in certain countries of the EEA in the treatment of numerous retinal diseases off label but is not formulated or approved for any ophthalmic use.

Eylea© (aflibercept), marketed by Regeneron in the U.S. and by Bayer in the EEA, is a VEGF antagonist that is approved for the treatment of DME, diabetic retinopathy in patients with DME, neovascular wet AMD and RVO in the U.S. In the EEA, the indication does not include diabetic retinopathy.

10


Table of Contents

Ozurdex© (dexamethasone intravitreal implant), marketed by Allergan (now owned by AbbVie), is a short duration biodegradable implant that delivers the corticosteroid dexamethasone. Ozurdex is approved for the treatment of DME, macular edema following branch or central RVO and non-infectious uveitis in the U.S. In the EEA, the indication for DME is for visual impairment due to diabetic macular edema in persons who are pseudophakic (persons who have had an artificial lens implanted after the natural eye lens has been removed) or who are considered insufficiently responsive to, or unsuitable for, non-corticosteroid therapy. It is also indicated for macular edema following either Branch Retinal Vein Occlusion (BRVO) or Central Retinal Vein Occlusion (CRVO) and inflammation of the posterior segment of the eye presenting as non-infectious uveitis.

Humira© (adlimumab), marketed by Abbvie, is a TNF-blocker that has an ophthalmic indication. It works by targeting and blocking a specific source of inflammation that plays a role in non-infectious uveitis. In the U.S., Humira is indicated for the treatment of non-infectious intermediate, posterior and pan uveitis. In the EEA, Humira is indicated for the treatment of chronic non-infectious anterior uveitis in children aged two years or older who have had an inadequate response to or are intolerant to conventional therapy.

Beovu®(brolucizumab-dbll), marketed by Novartis, is a VEGF inhibitor indicated for the treatment of neovascular wet AMD. Beovu is the first FDA approved anti-VEGF to offer both greater fluid resolution versus aflibercept and the ability to maintain eligible wet AMD patients on a three-month dosing interval immediately after a three-month loading phase with uncompromised efficacy. Beovu is also approved by the European commission for the treatment of wet AMD in all 27 European Union member states as well as the U.K., Iceland, Norway and Liechtenstein. Novartis has completed trials for the treatment of DME and is in the process of preparing a submission to the FDA in 2021.

Intravitreal triamcinolone is used by some physicians for the treatment of DME although it is not approved for DME.

Laser photocoagulation is currently used to treat DME and may be used in conjunction with drug therapies as well. Other laser or surgical treatments for DME may also compete against ILUVIEN.

In addition, a number of other companies, including Ampio Pharmaceuticals, Aerie Pharmaceuticals, Allegro Opthalmics, and Clearside Biomedical are developing drug therapies or sustained delivery platforms for the treatment of retinal diseases.

We believe we will be less likely to face a generic competitor for ILUVIEN for the treatment of DME because of the bioequivalency requirements of a generic form of ILUVIEN. A generic pharmaceutical competitor to ILUVIEN would need to establish bioequivalency through the demonstration of an equivalent pharmacodynamic endpoint in a clinical trial. We believe conducting such a clinical trial would be cost-prohibitive and time-consuming, although we cannot provide any assurances in that regard.

The licensing and acquisition of pharmaceutical products, which is part of our strategy, is a highly competitive area. A number of more established companies are also pursuing strategies to license or acquire products. These established companies may have a competitive advantage over us due to, among other factors, their size, cash flow and institutional experience.

The active pharmaceutical ingredient in ILUVIEN is FAc, which is not patent protected. As a result, our competitors could develop an alternative formulation or delivery mechanisms to treat diseases of the eye with FAc. For a description of our license of proprietary insert technology for ILUVIEN, see the section immediately below.

Licenses and Agreements

EyePoint Pharmaceuticals US, Inc.

In 2005, we entered into an agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., for the use of FAc in EyePoint’s proprietary insert technology. In July 2017, we amended and restated the EyePoint agreement in the Second Amended and Restated Collaboration Agreement (New Collaboration Agreement). The New Collaboration Agreement provides us with a license to utilize certain underlying technology used in the development and commercialization of ILUVIEN. Before entering into the New Collaboration Agreement, we held a worldwide license from EyePoint for the use of steroids, including FAc, in EyePoint’s proprietary insert technology for the treatment of all ocular diseases other than uveitis. The New Collaboration Agreement expands the license to include uveitis, including NIU-PS, in Europe, the Middle East and Africa.

The New Collaboration Agreement provides us with a license to develop and sell EyePoint’s proprietary insert technology to deliver other corticosteroids to the back of the eye for the treatment and prevention of eye diseases in humans or to treat DME by delivering a compound to the back of the eye through a direct delivery method through an incision required for a 25-gauge or larger needle. We do not have the right to develop and sell EyePoint’s proprietary insert technology for indications for diseases outside of the eye anywhere in the world, or for the treatment of uveitis outside of Europe, the Middle East and Africa. EyePoint retained the right to develop and sell EyePoint’s proprietary insert technology for indications and countries not licensed to us. Further, our agreement with EyePoint permits EyePoint to grant to any other party the right to use its intellectual property (a) to treat DME through an incision smaller than that required for a 25-gauge needle, unless using a corticosteroid delivered to the back

11


Table of Contents

of the eye, (b) to deliver any compound outside the back of the eye unless it is to treat DME through an incision required for a 25-gauge or larger needle, or (c) to deliver non-corticosteroids to the back of the eye, unless it is to treat DME through an incision required for a 25-gauge or larger needle.

Before we entered into the New Collaboration Agreement, we were required to share 20% of our net profits on a country-by-country basis. We were permitted to offset up to 20% of this amount with our commercialization costs incurred during unprofitable calendar quarters in each country. The New Collaboration Agreement converts this profit share obligation to a royalty payable on global net revenues of ILUVIEN. We began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. This royalty amount increased to 6% effective December 12, 2018. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During 2020, we recognized approximately $2.1 million of royalty expense. During 2019, we recognized approximately $2.2 million of royalty expense.

Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments (the Future Offset). In accordance with the terms of the New Collaboration Agreement, this offset was reduced by $5.0 million when we obtained regulatory approval in the U.K. in March 2019 for the use of ILUVIEN to treat NIU-PS. As of December 31, 2020, the balance of the Future Offset was approximately $7.9 million.

Our license rights to EyePoint’s proprietary insert technology could revert to EyePoint if we were to:

(a)fail twice to cure our breach of an obligation to make certain payments to EyePoint following receipt of written notice of the breach;

(b)fail to cure other breaches of material terms of our agreement with EyePoint within 30 days after notice of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured within such 30-day period;

(c)file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over our property, file a petition under any bankruptcy or insolvency act or have any such petition filed against us and such proceeding remains undismissed or unstayed for a period of more than 60 days; or

(d)notify EyePoint in writing of our decision to abandon our license with respect to a certain product using EyePoint’s proprietary insert technology.

On December 17, 2020, EyePoint and its parent, EyePoint Pharmaceuticals, Inc., entered into a royalty purchase agreement (the “SWK Agreement”) with SWK Funding, LLC (“SWK”). In its Current Report on Form 8-K filed on December 18, 2020, EyePoint Pharmaceuticals, Inc. stated that pursuant to the SWK Agreement, EyePoint Pharmaceuticals, Inc. sold its interest in royalties that we are obligated to pay EyePoint under the New Collaboration Agreement. EyePoint Pharmaceuticals, Inc. reported that it had received a one-time $16.5 million payment from SWK and, in return, SWK became entitled to receive future royalties that we are obligated to pay to EyePoint under the New Collaboration Agreement. We are not a party to the SWK Agreement.

As noted above, we have from time to time amended our license agreement with EyePoint, and we may again seek to do so in the future if the need arises. We believe that given the terms of the SWK Agreement, however, it could be more difficult for us to agree with EyePoint on an amendment to the New Collaboration Agreement, because SWK must consent to any amendment that could reasonably be expected to adversely affect the amount of the royalty payments that EyePoint sold to SWK. Similarly, if we were to be engaged in a dispute with EyePoint regarding its enforcement or termination by either party, SWK’s rights could complicate the resolution of any such dispute.

We are not in breach of the New Collaboration Agreement with EyePoint as of the date of this filing.

Government Regulation

General Overview

Government authorities in the U.S. and other countries extensively regulate, among other things the research, development, testing, quality, efficacy, safety (pre- and post-marketing), manufacturing, labeling, storage, record-keeping, advertising, promotion, export, import, marketing and distribution of pharmaceutical products. In addition, although third parties manufacture ILUVIEN for us, these manufacturing operations and our research and development activities must follow applicable environmental laws and regulations. The cost to comply with these environmental laws and regulations is not currently significant, but in the future complying with these environmental laws and regulations could increase our costs for manufacturing, research and development.

12


Table of Contents

U.S.

In the U.S., the FDA, under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and other federal and local statutes and regulations, subjects pharmaceutical products to review. If we do not comply with applicable regulations, the government may refuse to approve or place our clinical studies on clinical hold, refuse to approve our marketing applications, refuse to allow us to manufacture or market our products, seize our products, impose injunctions and monetary fines on us, and prosecute us for criminal offenses.

To obtain approval of a new product from the FDA, we must, among other requirements, submit data supporting the safety and efficacy as well as detailed information on the manufacture and composition of the product and proposed labeling.

The testing and collection of data and the preparation of the necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approval that could delay or preclude us from marketing additional products. Once approved by the FDA, a drug requires an annual product and establishment fee, which was approximately $325,000 as of our last renewal in October 2020.

Post-Marketing Requirements

We are required to meet post-marketing safety surveillance requirements to continue marketing an approved product. We must report any adverse events with the product to the FDA, and the FDA could impose market restrictions through labeling changes or in product removal. The FDA may withdraw product approvals if we fail to maintain compliance with regulatory requirements or if problems concerning safety and/or efficacy of the product occur following approval. The FDA may, at its discretion, also require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. The FDA did not require any post-marketing testing as part of its approval of ILUVIEN.

As part of the approval process in Europe, we committed to conduct a five-year, post-authorization, open label registry study in 800 patients treated with ILUVIEN. Due to our post market safety surveillance not showing any unexpected safety signals, we requested and received approval to modify our protocol to cap enrollment in the study. Enrollment was completed with 562 patients. The study was completed in 2020 and the results were submitted to regulatory authorities, fulfilling our post-marketing commitment. The results of the study confirmed existing safety information on ILUVIEN, and no new risks were identified.

Also, as part of the approval process in Europe, we are committed to conduct an open label trial in the pediatric population with NIU-PS. We have initiated this trial and enrollment will start shortly provided that the COVID-19 pandemic does not interfere with our ability to execute the study.

U.S. FDA Regulations

With respect to product advertising and promotion of marketed products, the FDA imposes a number of complex regulations that include standards for direct-to-consumer advertising, off-label promotions, industry-sponsored scientific and educational activities and Internet promotional activities. The FDA has very broad enforcement authority under the FD&C Act, and failure to abide by these regulations can result in (a) penalties, (b) the issuance of warning letters directing the sponsor to correct deviations from FDA standards, a requirement that future advertising and promotional materials must be pre-cleared by the FDA, and (d) federal civil and criminal investigations and prosecutions (as well as state prosecutions).

The manufacturing facility that produces our product, as well as our corporate headquarters facility, must maintain compliance with the FDA’s current Good Manufacturing Practices (cGMP) and is subject to periodic inspections by the FDA. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal and regulatory action, including Warning Letters, seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties.

Foreign Regulations

Foreign regulatory systems, although varying from country to country, include risks similar to those associated with FDA regulations in the U.S.

Under the EU regulatory system, applications for drug approval may be submitted either in a centralized or decentralized procedure. Under the centralized procedure, a single application to the European Medicines Evaluation Agency, if approved, would permit marketing of the product throughout the EU (currently 27 member states). The decentralized procedure provides for applications to be submitted for marketing authorization in a select number of EU countries. The process is managed by a Reference Member State that coordinates the review process with the other countries in the EEA in which the applicant has applied for marketing authorization.

13


Table of Contents

A mutual recognition procedure of nationally approved decisions is available to pursue marketing authorizations for a product in the remaining EU countries. Under the mutual recognition procedure, the holders of national marketing authorization in one of the countries within the EU may submit further applications to other countries within the EU, who will be requested to recognize the original authorization.

We chose to pursue the decentralized procedure for ILUVIEN for DME and used the mutual recognition procedure due to our limited resources. Through this procedure, we obtained marketing authorizations in the 17 countries in the EEA discussed above. For ILUVIEN for NIU-PS, we filed a type II variation in these 17 countries in the EEA using the same procedure. In each instance, we received the Final Variation Assessment Report for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom based on our submission to the MHRA through the mutual recognition procedure. In light of Brexit, we have moved marketing authorizations for certain European approvals from our U.K. subsidiary to our Irish subsidiary. In addition, we may need to submit our application to a country within the EU if we seek to obtain an additional indication or an expanded indication for ILUVIEN in the EU.

Third-Party Reimbursement and Pricing Controls

In the U.S., the EEA and elsewhere, sales of pharmaceutical products depend in significant part on the availability of reimbursement to the consumer from third-party payers, such as government and private insurance plans. Third-party payers are increasingly challenging the prices charged for medical products and services.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (together, the ACA), significantly changed the way healthcare is financed by both governmental and private insurers. The provisions of the ACA became effective beginning in 2010, although some of its key provisions were altered through the Tax Cuts and Jobs Act enacted in December 2017. We cannot predict the changes that the new Biden Administration may make to current federal reimbursement policies under this law and whether those changes will affect us. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce our profitability.

In many foreign markets, including the countries in the EEA, pricing of pharmaceutical products is subject to governmental control. In the U.S., there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental pricing control. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of those proposals could have a material adverse effect on our business, financial condition and profitability.

For a summary of the countries where we have received reimbursement, see Item 1, “Business – Overview – Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)” and “ – Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS).”

Patents and Proprietary Rights

Our success depends in part on our ability to obtain and maintain proprietary protection for ILUVIEN or any future products or product candidates, technology and know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Because we license certain intellectual property relating to ILUVIEN from third parties, we depend on their ability to obtain and maintain such protection. Where we have conducted our own research, our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

As of December 31, 2020, we owned or licensed two U.S. utility patents and one U.S. design patent as well as numerous foreign counterparts to many of these patents and patent applications relating to ILUVIEN or the ILUVIEN applicator. We licensed our one utility patent right relating to ILUVIEN from EyePoint. Pursuant to our agreement with EyePoint, our ILUVIEN-related patent rights are only for diseases of the human eye in Europe, the Middle East and Africa, and for diseases of the human eye excluding uveitis in the rest of the world. In addition to the U.S. patents licensed from EyePoint, we also license two European patents from EyePoint. We have a U.S. utility patent directed to our applicator system for ILUVIEN. Our licensed patent portfolio includes U.S. patents (with no currently pending or issued corresponding European applications or patents) with claims directed to methods for administering a corticosteroid with an implantable sustained delivery device to deliver the corticosteroid to the vitreous of the eye wherein aqueous corticosteroid concentration is less than vitreous corticosteroid concentration during release.

U.S. utility patents generally have a term of 20 years from the date of filing. The utility patent rights relating to ILUVIEN that EyePoint licensed to us include five U.S. patents that expired between April 2020 and June 2020, one U.S. patent that will expire August 2027, two European patents that are directed to our low-dose device that expire in April 2021 and October 2024

14


Table of Contents

and counterpart filings to these patents in a number of other jurisdictions. No patent term extension or supplementary protection certificate will be available for any of these U.S. or European patents or applications.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies or duplicate any technology we develop. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before such product can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Research and Development

We invested $1.3 million and $368,000 in research and development during 2020 and 2019, respectively.

Employees

As of February 1, 2021, we had 140 employees, 130 of whom were full-time employees.

Corporate Information

We are a Delaware corporation incorporated on June 4, 2003. Our principal executive office is located at 6120 Windward Parkway, Suite 290, Alpharetta, Georgia 30005 and our telephone number is (678) 990-5740. Our website address is www.alimerasciences.com. The information contained in our website, or that can be accessed through our website, is not part of this report and should not be considered part of this report.

Available Information

We file annual, quarterly and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge at our website, www.alimerasciences.com, as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. Our code of ethics, other corporate policies and procedures, and the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, are also available through our website.


15


Table of Contents

ITEM 1A. RISK FACTORS

Investing in our common stock involves risk. You should carefully consider the risks described below as well as all the other information in this Annual Report on Form 10-K, including the consolidated financial statements and the related notes included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could suffer. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has had, and we expect will continue to have, adverse effects on our business, results of operations, financial condition and cash flows.

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, health authorities, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and we expect will continue to have, certain negative effects on, and present certain risks to, our business that include the following:

Governments and private parties have imposed limitations on in-person access to physicians, which have:

affected patient access to treatment, given that ILUVIEN is administered only by an injection into the eye, which means telemedicine is not a viable substitute; and

made it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about the benefits of ILUVIEN and to provide support for insurance pre-certifications.

Our business is also negatively affected by patient behavior in the current environment. Most of our ILUVIEN sales are driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that governmental authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are or may be unwilling to visit their physicians in person (even if otherwise permitted) for fear of contracting the COVID-19 coronavirus.

These limitations had an adverse impact on our revenues beginning late in the first quarter and continuing through the date of this report. We expect these factors to continue to adversely impact our revenue, and the extent and duration of that impact is uncertain at this time, particularly in light of the emergence of COVID-19 variants that may increase the transmissibility of the coronavirus or be more deadly, or both. If the COVID-19 pandemic intensifies (as is currently the case in most of the U.S. and Europe and the U.K.), its duration is longer than we expect, or the coronavirus becomes transmissible at a greater rate or becomes more deadly, its negative effect on our sales and thus our liquidity and financial condition could be more prolonged and may be severe. Financial uncertainty associated with the adverse effects of the COVID-19 pandemic, and the duration and severity of those effects, could affect certain estimates we use to prepare our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain receivables.

Other effects or possible effects of the COVID-19 pandemic on us include:

Limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, have curtailed our in-person marketing activities, which have in turn contributed to lower sales of ILUVIEN.

Cancellation of in-person trade shows, medical congresses and similar events which have affected our ability to market the product as we had in the past.

As a result of the COVID-19 pandemic, including related governmental guidance or directives, we required almost all office-based employees, including almost all employees based at our headquarters in Georgia, to work remotely for some or all of the second quarter of 2020. While most of our personnel in our headquarters have returned to work in the office, we may in the future experience reductions in productivity and disruptions to our business routines if remote work requirements are reinstated in Georgia or we voluntarily decide to direct our employees to work remotely. Governmental directives continue to affect the ability of non-U.S. office-based personnel to return to full-time work in the office.

We may fail to maintain or modify as necessary our internal controls over financial reporting in an environment in which (a) many of our employees are working remotely and (b) we or our distributors have been and may be required to modify our standard business processes to take into account the current environment in light of the pandemic. If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

16


Table of Contents

We may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need. Either event could have an adverse effect on our results of operations, financial condition and cash flows.

As a result of lower sales of ILUVIEN due to the COVID-19 pandemic, we may fail to comply with financial covenants in the 2019 Solar Loan Agreement. If an event of default under the 2019 Solar Loan Agreement occurs, Solar Capital may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to raise additional financing, renegotiate the 2019 Solar Loan Agreement on terms less favorable to us or immediately cease operations. Any declaration by Solar Capital of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline significantly after we publicly disclose that event in an SEC filing. Further, if we were liquidated, Solar Capital’s right to repayment would be senior to the rights of our stockholders.

We have four third-party manufacturers in our supply chain, each of which performs an essential task in the manufacture and testing of ILUVIEN. We do not currently have alternate providers for any of these tasks. If workers at one or more of these facilities become ill or are quarantined and in either or both events are therefore unable to work, our manufacturing operations have been and could again be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which could negatively affect our financial condition or results of operations.

Risks Related to Our Business, Including Our Dependence on ILUVIEN

Our business depends on our only product, ILUVIEN.

We are a pharmaceutical company with only one product available for commercial sale in the U.S., the U.K., most of the countries in the EEA and a limited number of other markets. Because we do not currently have any other products or product candidates available for sale or in clinical development, our future success depends on our and our distributors’ successful commercialization of ILUVIEN.

We have incurred and expect to continue to incur significant expenses:

to continue to support our sales efforts in the U.S., Germany, Portugal and the U.K.,

to pursue the regulatory and reimbursement approval for ILUVIEN in other countries for both DME and NIU-PS,

to grow our operational capabilities and

to support our NEW DAY study.

These investments represent a significant investment in the commercial and regulatory success of ILUVIEN, which is uncertain.

If we or our distributors do not successfully maintain our sales in countries where we are approved to sell ILUVIEN or our distributors do not successfully commence and grow our sales of ILUVIEN in other countries where we are seeking to begin selling ILUVIEN or have recently done so, our business may be seriously harmed. In addition, we may experience delays and unforeseen difficulties in the commercialization of ILUVIEN, including unfavorable pricing or reimbursement levels in certain countries that could negatively affect our ability to increase revenues.

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The development and commercialization of new drugs is highly competitive, and the commercial success of ILUVIEN or any of our future products or product candidates will depend on several factors, including our ability to differentiate ILUVIEN or any of our future products or product candidates from our competitors’ current or future products. We will face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to ILUVIEN and to any future products or product candidates that we may develop or commercialize in the future.

Our commercial opportunities for ILUVIEN will be reduced or eliminated if our competitors develop or market products that:

are more effective;

receive better reimbursement terms;

have higher rates of acceptance by physicians;

have fewer or less severe adverse side effects;

are better tolerated;

are more adaptable to various modes of dosing;

have better distribution channels;

are easier to administer; or

are less expensive, including a generic version of ILUVIEN.

17


Table of Contents

Many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products, some of which may target the same indications as ILUVIEN or any future products or product candidates. Our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals and greater marketing capabilities than we do. Each of Genentech, Novartis, Regeneron and AbbVie (Allergan) provides a short-term therapy that competes with ILUVIEN.

If we lose key management personnel, or if we fail to recruit additional highly skilled personnel, it will impair our ability to identify, develop and commercialize ILUVIEN and any future products or product candidates.

We depend on the principal members of our management team, including Richard S. Eiswirth, Jr., our President and Chief Executive Officer, Philip Ashman, Ph.D., our Chief Operating Officer and Senior Vice President Commercial Operations Europe, J. Philip Jones, our Chief Financial Officer, and David Holland, our Chief Marketing Officer and Senior Vice President Corporate Communications and Managed Markets. These executives have significant ophthalmic, regulatory industry, sales and marketing, operational and/or corporate finance experience. The loss of any such executives or any other principal member of our management team may impair our ability to identify, develop and market ILUVIEN and any future ophthalmic products or product candidates.

In addition, our growth will require us to hire a significant number of qualified technical, commercial and administrative personnel. We face intense competition from other companies and research and academic institutions for the qualified personnel we need in our business. If we cannot continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain or grow our operations.

We may not be successful in our efforts to expand the number of ophthalmic products we sell.

In the future, we may choose to commercialize one or more new ophthalmic drugs in addition to ILUVIEN. We may seek to do so by establishing an internal research program or through licensing or otherwise acquiring the rights to potential new products and future product candidates for the treatment of ophthalmic disease.

A significant portion of the research that we may choose to conduct may involve new and unproven technologies. Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources, whether or not we ultimately identify any candidates. Any future research programs may initially show promise in identifying potential products or product candidates, yet fail to yield products or product candidates for clinical development for a number of reasons, including:

the research methodology used may not be successful in identifying potential products or product candidates; or

we may learn after further study that potential products or product candidates have harmful side effects or other characteristics that indicate they are unlikely to be effective drugs.

We may be unable to license or acquire suitable products or product candidates or products from third parties for a number of reasons. In particular, the licensing and acquisition of pharmaceutical products is highly competitive. Several more established companies are also pursuing strategies to license or acquire products in the ophthalmic field. These established companies may have a competitive advantage over us due to their size, cash resources and greater development and commercialization capabilities. Other factors that may prevent us from licensing or otherwise acquiring suitable products or product candidates include the following:

we may be unable to license or acquire the relevant technology on terms that would allow us to make an appropriate return from the product;

we may need to obtain our lender’s consent to any significant payment or potential payment in conjunction with a license of acquisition of technology;

companies that perceive us to be their competitors may be unwilling to assign or license their product rights to us; or

we may be unable to identify suitable products or product candidates within our areas of expertise.

Additionally, it may take greater human and financial resources to develop suitable potential products or product candidates through internal research programs or by obtaining rights than we will possess, thereby limiting our ability to develop a diverse product portfolio.

If we are unable to develop suitable potential product candidates through internal research programs or by obtaining rights to novel therapeutics from third parties, opportunity for future growth could be limited.

18


Table of Contents

Our internal information technology systems, or those of our third-party contract research organizations (CROs) or other contractors or consultants, may fail or suffer security breaches, loss or leakage of data and other disruptions, which could result in a material disruption of certain parts of our business, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.

We depend on information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit confidential information, including intellectual property, proprietary business information and personal information. Maintaining the confidentiality and integrity of that confidential information is essential to our business. We also have outsourced elements of our operations to third parties, and as a result we work with a number of third-party contractors that have access to some of our confidential information.

Although we have implemented security, backup and recovery measures, our internal information technology systems and those of our third-party manufacturers, CROs and other contractors or consultants are potentially vulnerable to breakdown or other damage or interruption from:

service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, contractors, consultants, business partners or other third parties, and

cyber-attacks by malicious third parties, including cyber-related threats of spoofed or manipulated electronic communications that lead to misdirected or fraudulent payments, the deployment of harmful malware or ransomware, malicious websites, denial-of-service attacks, and social engineering and other means to adversely affect service reliability and threaten the confidentiality, integrity and availability of information.

Any of the foregoing may compromise our system infrastructure or lead to data leakage.

While we have not experienced any such cyber-related fraud, system failure, accident or security breach to date that has materially affected our business, we cannot assure that our and our vendors’ data protection efforts and our and our vendors’ investment in information technology will prevent cyber-attacks by malicious third parties, significant breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations or a direct financial loss due to misdirected or fraudulent payments, it could result in a material disruption of our business operations, including, distribution and manufacturing, or to a direct financial loss.

For example, we sell ILUVIEN in the U.S. primarily to two distributors and in Europe use two logistics providers, and a security breach that impairs these distribution or logistics operations could significantly impair our ability to deliver our products to healthcare providers. In addition, ILUVIEN is manufactured and tested by third parties, and a security breach that impairs these third parties could significantly impair our ability to procure ILUVIEN and deliver it to our distributors in a timely manner. There can be no assurance that our or their efforts will detect, prevent or fully recover systems or data from all breakdowns, service interruptions, attacks or breaches of systems, any of which could adversely affect our business and operations and/or result in the loss of critical or sensitive data, which could result in financial, legal, business or reputational harm to us or impact our stock price.

In addition, the loss of clinical trial data for our product candidates or our post-market studies could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, significant disruptions or security breaches of our internal information technology systems or our vendors’ technology systems could adversely affect or result in the loss of, misappropriation of, unauthorized access to, use of, disclosure of or the prevention of access to our confidential information, including trade secrets or other intellectual property, proprietary business information and personal information of our employees and patients in studies conducted on our behalf, which could result in financial, legal, business and reputational harm to us. For example, any such event that leads to unauthorized access to, use of or disclosure of personal information, including personal information regarding our employees or information we may have regarding patients, could harm our reputation directly, compel us to comply with federal and state breach notification laws and foreign law equivalents, subject us to mandatory corrective action and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

Maintaining and growing our commercial infrastructure is a significant undertaking that requires productive, well-trained sales and marketing personnel, effective managers and substantial financial resources, and we may not be successful in our efforts to meet these needs.

We anticipate that in the near term our ability to generate revenues will depend almost entirely on our ability to continue the successful commercialization of ILUVIEN, both in the U.S. and abroad. We launched ILUVIEN in Germany and the U.K. in 2013; in the U.S. and Portugal in 2015; in Ireland and Austria in 2017; in the Middle East, Italy and Spain in 2018; in France in

19


Table of Contents

2019; and in the Netherlands in 2020. A commercial launch of ILUVIEN is a significant undertaking that requires substantial financial and managerial resources. As of February 1, 2021, we had 140 employees. As our commercialization plans and strategies evolve, we will need to further expand the size of our organization by recruiting additional managerial, operational, sales, marketing, financial and other personnel.

We may not be able to maintain and expand our commercial operation in a cost-effective manner or realize a positive return on this investment. In addition, we have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize our products include:

our inability to recruit and retain adequate numbers of effective personnel;

the departure of our employees to work for a competitor;

the inability of sales personnel to obtain access to or persuade adequate numbers of ophthalmologists to prescribe our products;

the lack of complementary products or additional labeled indications for ILUVIEN to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

unforeseen costs and expenses associated with creating a commercial organization.

If we are not successful in recruiting and retaining sales and marketing personnel or in maintaining our sales and marketing infrastructure or if we do not successfully enter into additional collaboration arrangements with third parties, we will have difficulty commercializing ILUVIEN or any future products or product candidates, which would adversely affect our business, operating results and financial condition. As an indication of the risks we face, in the first six months of 2019 our revenues in the U.S. market were negatively affected by a competitor’s hiring some of our key sales personnel.

Additionally, we may encounter unexpected or unforeseen delays in expanding our commercial operations that delay the commercial launch in one or more countries in which ILUVIEN has received marketing authorization. These delays may increase the cost of, and the resources required for successful commercialization of, ILUVIEN. Further, a delay in the commercial launch of ILUVIEN in certain jurisdictions could result in the withdrawal of our marketing or regulatory authorization for ILUVIEN in those jurisdictions, including certain EEA member states where ILUVIEN has already received marketing authorization.

The NEW DAY Study may fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME), fail to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, take longer or be more costly to complete than we currently anticipate or fail to change physician prescribing practices.

We are in the early stages of conducting our NEW DAY clinical trial, which is a multicenter, single-masked, randomized, controlled trial designed to generate prospective data evaluating ILUVIEN as a baseline therapy in the treatment of DME and demonstrate its potential advantages over the current standard of care of repeat anti-VEGF (afilbercept) injections. The NEW DAY Study is planned to enroll approximately 300 treatment-naïve, or almost naïve, DME patients in approximately 42 sites around the U.S. The NEW DAY Study may (a) fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME), (b) fail to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, (c) take longer or be more costly to complete than we currently anticipate, and (d) fail to change physician prescribing practices despite a successful result. The occurrence of any of these events could materially and adversely affect our business, financial condition and cash flows, and results of operations. 

We may acquire additional businesses or form strategic alliances in the future, and we may not realize the benefits of those acquisitions or alliances.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing ILUVIEN-based business, including adding new products in the ophthalmic field. If we acquire businesses with promising markets or ophthalmic products, we may be unable to realize the benefit of acquiring those businesses if we are unable to successfully integrate them with our existing operations and company culture. We may have difficulty in developing, manufacturing and marketing the ophthalmic products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure that, following an acquisition, we will achieve the revenues or specific net income that justifies the acquisition.

The U.K.’s leaving the EU, or “Brexit,” could have a material adverse effect on us.

On June 23, 2016, the U.K. held a referendum and voted in favor of leaving the European Union (Brexit). The U.K. formally left the EU on January 31, 2020, subject to a transition period that ended on December 31, 2020. The process of preparing for Brexit has created political and economic uncertainty, particularly in the U.K. and the EEA, and this uncertainty may last for years, even though the U.K. has now left the EU. Our business in the U.K., the EEA and in other parts of the world could be adversely affected by Brexit in many ways, only some of which we can identify.

20


Table of Contents

Because the regulatory framework for pharmaceutical products in the U.K. covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of product candidates in the U.K. It remains to be seen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the U.K. These possible negative impacts, and others resulting from the U.K.’s withdrawal from the EU, may adversely affect our operating results and growth prospects as well as the manner in which we conduct our business operations in Europe.

We currently operate in Europe through two subsidiary companies, one based in the U.K. and the other based in the Republic of Ireland. The two subsidiary companies work very closely to cover our operations in Europe as a whole, which provides us with certain operational and other benefits when conducting business in the EEA. Nevertheless, the U.K.’s withdrawal from the EU could adversely affect our ability to realize those benefits, and we may incur costs and suffer disruptions in our European operations as a result, including changing our base of operations or part of our operations from the U.K. to another country in the EEA.

Brexit may continue to cause significant volatility in global financial markets, including in global currency and debt markets. This volatility could cause a slowdown in economic activity in the U.K., Europe or globally, which could adversely affect our operating results and growth prospects. Our business could be negatively affected by new trade agreements between the U.K. and other countries, including the U.S., and by the possible imposition of trade or other regulatory barriers in the U.K. These possible negative impacts, and others resulting from the U.K.’s withdrawal from the EU, may adversely affect our operating results and growth prospects.

If we fail to successfully manage our international operations, our business, operating results and financial condition could suffer.

Our international operations require significant management attention and financial resources. Our international operations today cover much of Europe and the Middle East. There is a high level of regulation in all markets where ILUVIEN is sold and great diversity in how those markets operate. Consequently, experience and expertise is vital in understanding the market dynamics of each country, the rules and regulations in place governing the sale of medicines, the codes of practice governing promotion of medicines, different currencies, the financial frameworks applying to taxation (both corporate and VAT) and the need to communicate in different languages. There is always a risk of loss of expertise through attrition of key roles within these international areas.

Moreover, we rely on distributors in many countries to provide adequate levels of experience and expertise on our behalf. We seek to monitor and manage these relationships appropriately, including through a quarterly “Joint Steering Committee” process to address business issues and assess risks in each of these markets.

In addition, there are many risks inherent in international business activities, including:

extended collection timelines for accounts receivable and greater working capital requirements;

multiple legal systems and unexpected changes in legal requirements;

tariffs, export restrictions, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;

trade laws and business practices favoring local competition;

potential tax issues, including restrictions on repatriating earnings, resulting from multiple, conflicting and complex tax laws and regulations;

weaker intellectual property protection in some countries;

political instability, including war and terrorism or the threat of war and terrorism; and

adverse economic conditions, including the stability and solvency of business financial markets, financial institutions and sovereign nations.

In addition, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act and local laws prohibiting corrupt payments to governmental officials. Although we have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products in one or more countries, and could also materially and adversely harm our business and financial condition.

21


Table of Contents

We rely on third parties for several important aspects of our business.

We rely heavily upon our third-party contractors, suppliers and distributors. Especially during challenging and uncertain times like the present, there may be disruptions or delays in the performance of these third parties. We rely entirely on third parties to manufacture, assemble and test our ILUVIEN applicators, as described in the following section. We also rely on distributors for a majority of our sales of ILUVIEN. We sell to two large pharmaceutical distributors in the U.S., which accounted for 49% of our consolidated revenues in 2020. Internationally, our distributors produced approximately 37% of our international sales in 2020. If one or more of our key third-party contractors, suppliers and distributors are unable to satisfy their commitments to us, our business and results of operations could be adversely affected.

Manufacturing Risks

We rely on third parties to manufacture and test ILUVIEN, and our business would be seriously harmed if any of these third parties is unable to satisfy our demand, given that obtaining these products or services from alternative sources can require a long transition period.

We do not have, nor do we currently intend to establish, in-house manufacturing capability. We depend entirely on, and have agreements with, a single third-party manufacturer for each of:

the manufacture of ILUVIEN’s active pharmaceutical ingredient,

the manufacture of the ILUVIEN applicator,

the manufacture of the ILUVIEN implant, final assembly of the injector with the implant and release testing in the U.S., and

the quality release testing of ILUVIEN in the EEA post-Brexit.

If any of these third-party manufacturers (a) breaches its agreement, (b) is unable to meet its contractual or quality requirements or (c) becomes unwilling to perform for any reason, we may be unable, or may be unable in a timely manner, to locate alternative acceptable manufacturers or testing facilities, as applicable, enter into favorable agreements with them and ensure that they are approved by the applicable regulatory authorities, such as the U.S. Food and Drug Administration (FDA). Further, all of our manufacturers rely on additional third parties for the manufacture of component parts. Any inability to acquire sufficient quantities of the active pharmaceutical ingredient, the ILUVIEN implants or the ILUVIEN applicator in a timely manner from these third parties could delay commercial production of ILUVIEN and adversely affect our ability to fulfill demand for ILUVIEN, which could in turn adversely affect our revenue, operations and cash flow.

In the first quarter of 2020, we were unable to obtain a sufficient number of ILUVIEN units to meet end user demand in the ordinary course of business (a stock-out) due to greater than anticipated demand in the fourth quarter of 2019 and an equipment issue within our third-party manufacturing facility. Although we rectified the equipment issue, any recurrence, for whatever reason, could have a material adverse effect on our revenues, reputation and relationships with our distributors and end users.

Our third-party manufacturing partners have been stressed by the COVID-19 pandemic. These difficulties stem from lockdown regulations that can affect the ability of staff to get to work and also the difficulties employing replacement staff to cover attrition. In a situation where manufacturing requires training and expertise, such as with ILUVIEN, the potential loss of trained personnel is a risk to manufacturing that is made worse during the pandemic.

We may fail to effect the transition of the manufacturing of essential component parts of our ILUVIEN applicator by our new contract manufacturer before we exhaust our current inventory of those parts.

Under the Flextronics Agreement dated March 2, 2012, Flextronics agreed to manufacture the component parts of the ILUVIEN applicator (the components) for us. As we reported in a Current Report on Form 8-K dated March 28, 2019, we received notice from Flextronics on that date that it intended to terminate the Flextronics Agreement on September 30, 2020. The Flextronics Agreement terminated in accordance with the notice on September 30, 2020. Before the Flextronics Agreement expired, Flextronics manufactured a supply of components that has served and is serving as a safety stock until the components can be supplied by the replacement manufacturer.

On October 30, 2020, we entered into a Manufacturing Services Agreement with Cadence, Inc., to manufacture the components used in the ILUVIEN applicator. Cadence is in the final stages of process qualification and is expected to begin manufacturing production components during the second quarter of 2021. We have filed with European Regulatory Agencies for the necessary approvals needed for Cadence to manufacture components to be used in ILUVIEN sold in Europe, and we anticipate receiving European approval in April 2021. We will be filing a Prior Approval Supplement (PAS) with the FDA in the next one-to-two months. We believe we have sufficient safety stock produced by Flextronics to meet the anticipated demand of our distributors and end users until FDA approval is obtained and throughout 2021. Until the transition to Cadence is complete, however, there can be no assurances that Cadence will manufacture the components in a timely and otherwise acceptable manner.

22


Table of Contents

Significant disruption in this transition, or unanticipated costs related to the transition, could materially and adversely affect our business, financial condition and cash flows, and results of operations.

Materials necessary to manufacture ILUVIEN may not be available on commercially reasonable terms, or at all.

We rely on our manufacturers to purchase materials from third-party suppliers necessary to produce ILUVIEN. Suppliers may not sell these materials to our manufacturers when needed or on commercially reasonable terms. We do not have any control over the process or timing of our manufacturers’ acquisition of these materials. If our manufacturers are unable to obtain these materials in sufficient amounts, our sales of ILUVIEN would be hampered or there would be a shortage in supply, which would materially affect our ability to generate the revenues from the sale of ILUVIEN that we expect. Moreover, although we have agreements with our suppliers for the supply of the active pharmaceutical ingredient in ILUVIEN, the commercial production of the ILUVIEN implant and the commercial production of the ILUVIEN applicator, the suppliers may be unable to meet their contractual or quality requirements or choose not to supply us in a timely manner or in the minimum guaranteed quantities. If our manufacturers are unable to obtain these essential supplies, their ability to manufacture ILUVIEN and thus our supply of ILUVIEN for sale would be delayed, which could significantly reduce our sales of ILUVIEN and have an adverse impact on our business.

Financial Risks

Our existing cash may be inadequate to fund our operations and support our growth.

As of December 31, 2020, we had approximately $11.2 million in cash and cash equivalents. Whether this amount will be sufficient to fund our operations and support our growth will be determined by many factors, some of which are beyond our control, and we may need additional capital to fund our operations and support our growth sooner than we might anticipate. These factors include:

the level of continued success of the commercialization of ILUVIEN in the U.S., and in our international markets,

expenses relating to the commercialization of ILUVIEN;

our research, development and general and administrative expenses;

the timing of approvals, if any, of ILUVIEN for additional indications or in additional jurisdictions;

the extent to which we enter into, maintain and derive revenues from licensing agreements, including agreements to license ILUVIEN in additional countries or regions; research and other collaborations; joint ventures; and other business arrangements;

the extent to which we acquire, and our success in integrating, technologies or companies;

regulatory changes and technological developments in our markets; and

the extent to which we can manage the use of cash in our business operations.

If we need additional capital to fund our operations and support our growth and we are unable to obtain that capital as noted below, our business may suffer.

We may need to raise additional capital to fund and grow our business, and in that event (a) we may be unable to do so on commercially reasonable terms, (b) the terms on which we obtain the capital may restrict our operations and (c) if the capital we raise is equity or a debt security that is convertible into equity, our stockholders’ investment could be diluted.

For the reasons described above, we may need to raise alternative or additional financing to fund our operations and support growth. General market conditions or the market price of our common stock may not support capital-raising transactions such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise additional capital may depend upon obtaining stockholder approval. There can be no assurance that we will be able to obtain stockholder approval for a capital raise if it is necessary under applicable Nasdaq rules that require capital raises over a certain size to be approved by stockholders. If we need additional financing, we may seek to fund our operations through the sale of equity securities, additional debt financing and strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when needed or that, if available, the additional financing will be obtained on terms favorable to us or our stockholders.

If we raise additional funds by selling shares of our capital stock, the ownership interest of our current stockholders will be diluted. If we attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under those agreements. If we raise additional funds by incurring additional debt (assuming Solar Capital would permit such debt, which would be subordinated to the debt outstanding under the 2019 Solar Loan Agreement), the terms of the debt may include significant installment payments as well as covenants and specific financial ratios that may restrict our ability to continue to commercialize ILUVIEN or commercialize any future products or product candidates or otherwise successfully operate our business.

23


Table of Contents

The terms of the 2019 Solar Loan Agreement require us to meet certain operating covenants and restrict our operating and financial flexibility.

The 2019 Solar Loan Agreement contains certain operating covenants and restricts our operating and financial flexibility. The 2019 Solar Loan Agreement is secured by a lien covering all of our U.S. assets (and certain ownership interests in one of our foreign subsidiaries), other than our intellectual property. The 2019 Solar Loan Agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include covenants requiring us to comply with applicable laws, maintain our legal existence, deliver certain financial reports and maintain insurance coverage. Negative covenants restrict our ability to transfer any part of our business or property, to change our business or key management, to incur additional indebtedness, to engage in mergers or acquisitions, to pay dividends or make other distributions, to make investments, to create other liens on our assets and to allow revenues from the sale of ILUVIEN to fall below certain minimums, in each case subject to customary exceptions.

If an event of default under the 2019 Solar Loan Agreement occurs, Solar Capital may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to raise additional financing, renegotiate the 2019 Solar Loan Agreement on terms less favorable to us or immediately cease operations. Any declaration by Solar Capital of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline significantly after we publicly disclose that event. Further, if we are liquidated, Solar Capital’s right to repayment would be senior to the rights of our stockholders.

We have incurred operating losses in each year since our inception and expect to continue to incur losses in 2021.

To date we have incurred recurring losses and negative cash flow from operations, and we have accumulated a deficit of $392.9 million from our inception through December 31, 2020. Our ability to achieve profitability and positive cash flow depends on our ability to maintain revenue and contain our expenses. We are uncertain if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to maintain and increase revenue and achieve profitability depends on our ability to continue to successfully market and sell ILUVIEN in the geographic areas where we or our distributors offer ILUVIEN. We cannot assure you that we will be profitable even if we successfully commercialize ILUVIEN or future products or product candidates. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. In that regard, the audit report issued by our independent registered public accounting firm for the audit of our 2020 financial statements includes an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern.

There is no assurance that sufficient financing will be available to us when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Our quarterly operating results and cash flows may fluctuate significantly.

We expect our operating results and cash flows to be subject to quarterly fluctuations. Our revenues and operating results will be affected by numerous factors, including:

the effects of the COVID-19 pandemic as described above;

the ongoing commercial success of ILUVIEN (or lack thereof);

inconsistent timing and ordering patterns from our U.S. distributors;

seasonality caused by insurance renewals for patients in the U.S. and by doctor and or patient absences due to holidays and vacations;

sales, marketing and medical affairs expenses;

the timing and amount of royalties, milestone payments or product purchases by our distributors;

our ability to obtain regulatory approval of ILUVIEN in additional jurisdictions or for additional indications;

regulatory developments affecting ILUVIEN, our future product candidates or our competitors’ products;

the emergence of products or treatments that compete with ILUVIEN;

variations in the level of expenses related to our products or future development programs;

the status of our clinical development programs;

our execution of collaborative, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements;

any lawsuit or intellectual property infringement in which we are or may become involved; and

the timing and recognition of stock-based compensation expense.

24


Table of Contents

If our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any fluctuations in our operating results or cash flows may, in turn, cause significant volatility in the price of our stock. We believe that comparisons of our quarterly financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

Exchange rate fluctuations of foreign currencies relative to the U.S. Dollar could materially and adversely affect our business.

Approximately 51% of our net revenues in 2020 were international. A substantial majority of our international revenues and expenses are denominated in British Pounds and Euros, and as such are sensitive to changes in exchange rates. We also have balances, such as cash, accounts receivable, accounts payable and accruals, that are denominated in foreign currencies. These foreign currency transactions and balances are sensitive to changes in exchange rates. Fluctuations in exchange rates of the British Pound and Euro in relation to the U.S. Dollar could materially reduce our future revenues as compared to prior periods. We do not seek to mitigate this exchange rate effect by using derivative financial instruments. To the extent we are unable to match revenues received in foreign currencies with costs paid in the same currency, exchange rate fluctuations in that currency could have a material adverse effect on our business and results of operations.

Our ability to use our net operating loss carry-forwards may be limited.

As of December 31, 2020, we had U.S. federal and state net operating loss (NOL) carry-forwards of approximately $131.4 million and $96.2 million, respectively. Except for the NOLs generated after 2017, the U.S. federal NOLs not fully utilized will expire at various dates between 2029 and 2037; most state NOL carry-forwards will expire at various dates between 2020 and 2040. Under the Tax Cuts and Jobs Act of 2017, U.S. federal NOLs and some state NOLs generated after 2017 will carry forward indefinitely. These NOLs may be subject to further limitation based upon the final results of our Internal Revenue Code sections 382 and 383 analyses. Sections 382 and 383 of the Internal Revenue Code limit the annual use of NOL carry-forwards and tax credit carry-forwards, respectively, following an ownership change. NOL carry-forwards may be subject to annual limitations under Section 382 (or comparable provisions of state law) if certain changes in ownership of our company were to occur. In general, an ownership change occurs for purposes of Section 382 if there is a more than 50% change in ownership of a company over a 3-year testing period. We have determined that a Section 382 change in ownership occurred in December of 2015. As a result of this change in ownership, we estimated that approximately $18.6 million of our federal NOLs and approximately $382,000 of federal tax credits generated prior to the change in ownership will not be utilized in the future. We are currently in the process of refining and finalizing these calculations, and upon finalization, will determine if a write-off is necessary. The reduction to our NOL deferred tax asset due to the annual Section 382 limitation and the NOL carryforward period would result in an offsetting reduction in valuation allowance recorded against the NOL deferred tax asset. Therefore, the limitation does not affect the statements of operations for the periods presented. Any future changes in our ownership or sale of our stock could further limit the use of our NOLs in the future. If we need to obtain alternative or additional financing to meet our liquidity requirements under the 2019 Solar Loan Agreement and we raise those funds by selling additional equity, this could further limit the use of our NOLs in the future.

The term loan under the 2019 Solar Loan Agreement matures on July 1, 2024, and our interest rate is based on LIBOR. As a result, we are exposed to the risks associated with the planned discontinuation of LIBOR before that date.

The term loan under the 2019 Solar Loan Agreement matures on July 1, 2024, and our interest rate is based on LIBOR. The U.K. Financial Conduct Authority (the authority that regulates LIBOR) has announced its intention to phase out the use of LIBOR by the end of 2021. On November 30, 2020, however, the Intercontinental Exchange, Inc. (ICE) announced that the ICE Benchmark Administration Limited, a wholly owned subsidiary of ICE and the administrator of LIBOR, announced its plan to extend the date that most U.S. LIBOR values would cease being computed and announced from December 31, 2021 to June 30, 2023. This announcement is viewed as an effective extension of the end of USD LIBOR. It is unclear if after this date LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist. It is also unclear whether the COVID-19 pandemic will have further effect on LIBOR transition plans. We have exposure to LIBOR, including in the 2019 Solar Loan Agreement, which includes fallback language that seeks to facilitate an agreement with our lenders on a replacement rate for LIBOR in the event of its discontinuance. We cannot predict what reference rate would be agreed upon or what the impact of any such replacement rate would be to our interest expense, but such changes could result in increased interest expense related to the 2019 Solar Loan Agreement, and increased borrowing costs in the future. Although the impact is uncertain at this time, the elimination of LIBOR could have an adverse impact on our business, results of operations, or financial condition.

We may not be entitled to forgiveness of our PPP Loan.

On April 22, 2020, we received an approximately $1,778,000 loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration (the SBA). The PPP Loan is unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender. The Note has a two-year term. The Paycheck Protection Program provides for forgiveness of up to the full amount borrowed as long as we use the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. Under the

25


Table of Contents

CARES Act, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period. We used all of the proceeds from the PPP Loan to pay expenses during the applicable period that we believe were for eligible purposes. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. As of the date of this filing, the application for forgiveness is still pending review.

Under the revised rules for the PPP Loan program, we will not have to begin principal and interest payments before the date on which the SBA remits the loan forgiveness amount to HSBC (or notifies HSBC that no loan forgiveness is allowed). If no loan forgiveness is allowed, the Company will be required to pay HSBC equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any. We cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

Regulatory Risks

Regulatory agencies may impose limitations on the indicated uses for which ILUVIEN may be marketed, which would be adverse to our business.

Regulatory agencies generally approve products for particular indications, or the conditions that make a particular treatment or procedure advisable. If a regulatory agency approves ILUVIEN for only a limited indication, the size of our potential market for ILUVIEN will be reduced. ILUVIEN has received marketing authorization in numerous countries in the EEA and elsewhere in the world for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. In the U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates, the indication for ILUVIEN is different, as ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. Either of these indications or future indications may limit the use of ILUVIEN to a narrower segment of the DME population than we believe is warranted. As a result, our potential revenues are now and may be in the future less that they would be with broader indications for ILUVIEN.

The manufacture and packaging of pharmaceutical products such as ILUVIEN are subject to the requirements of the FDA and similar foreign regulatory entities. If we or our third-party manufacturers fail to satisfy these requirements, our commercialization efforts may be materially harmed.

The FDA and similar foreign regulatory agencies regulate the manufacture and packaging of pharmaceutical products such as ILUVIEN, which must be conducted in accordance with the FDA’s current Good Manufacturing Practices (cGMP) and comparable requirements of foreign regulatory agencies. Only a limited number of manufacturers that operate under these cGMP regulations are both capable of manufacturing ILUVIEN and willing to do so. If we or our third-party manufacturers fail to comply with applicable regulations, requirements or guidelines, the regulatory agencies could refuse to grant marketing approval of ILUVIEN or any future products or product candidates and could impose sanctions on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. Failure of our manufacturers to maintain compliance could interrupt the production of ILUVIEN, resulting in delays and additional costs that could significantly and adversely affect our business. Any significant delays in the manufacture of ILUVIEN or issues with the quality of the product could materially harm our business and prospects.

Changes in certain aspects of the manufacturing process or procedures require prior FDA review or approval of the manufacturing process and procedures in accordance with the FDA’s cGMP regulations. There are comparable foreign requirements as well. This review may be costly and time-consuming and could delay or prevent the launch of a product. If we elect or are required to manufacture products at another facility, we will transfer the manufacturing to a registered medical device manufacturing company to seek to ensure that the new facility and the manufacturing process comply with cGMP and comparable foreign regulations. Any such new facility would also be subject to inspection. In addition, we would be required to demonstrate by physical and chemical methods, which are costly and time consuming, that the product made at any new facility is equivalent to the product made at the former facility. The FDA or a foreign regulatory agency may require clinical testing to prove equivalency of the product manufactured at any new facility compared to the old facility, which would result in additional costs and delay.

Further, we are required to complete testing on both the active pharmaceutical ingredient and on the finished product in the packaging that we propose for commercial sales. This includes testing of stability, identification of impurities and testing of other product specifications by validated test methods. In addition, our manufacturers are required to consistently produce our product in commercial quantities and of specified quality in a reproducible manner and document their ability to do so. This requirement is referred to as process validation. The FDA and similar foreign regulatory agencies may also implement new standards, or change their interpretation and enforcement of existing standards and requirements, for the manufacture, packaging or testing of products at any time.

26


Table of Contents

In the U.S., ILUVIEN and any future products or product candidates may not remain commercially viable if we fail to obtain or maintain an adequate level of reimbursement for these products from any of the following: private insurers, the Medicare and Medicaid programs or other third-party payers.

Our revenue from sales of ILUVIEN in the U.S. depends on our ability to maintain pricing and reimbursement guidelines at our desired levels. Those guidelines, however, may fall well below our current expectations. The same could also occur for any future products or product candidates we may develop that receive approval, if any. Sales of pharmaceutical products depend in significant part on the availability of reimbursement to the consumer from third-party payers, such as government and private insurance plans. Third-party payers are increasingly challenging the prices charged for medical products and services.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (together, the ACA), significantly changed the way healthcare is financed by both governmental and private insurers. The provisions of the ACA became effective beginning in 2010, although some of its key provisions were altered through the Tax Cuts and Jobs Act enacted in December 2017. We cannot predict the changes that the new Biden Administration may make to current federal reimbursement policies under this law and whether those changes will affect us. Changes to the ACA or any replacement law may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of ILUVIEN or new products. Any rebates, discounts, taxes, costs or regulatory or systematic changes on healthcare resulting from changes to the ACA may have a significant effect on our profitability in the future. We cannot predict whether the ACA will continue in its present form or what other laws or proposals will be made or adopted, or what impact these efforts may have on us. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce our profitability.

Our list pricing in the U.S. for ILUVIEN is based upon the burden of diabetic macular edema (DME), the current pricing of approved therapies for DME, our perception of the overall cost-to-benefit ratio of ILUVIEN and the pricing of other therapies. Due to numerous factors beyond our control, including efforts to provide for containment of health care costs, the U.S. may not support our current level of governmental pricing and reimbursement for ILUVIEN, which would reduce our anticipated revenue from ILUVIEN.

In the U.S., the Medicare and Medicaid programs currently provide reimbursement for ILUVIEN, but the reimbursement amount for ILUVIEN could be modified in the future, and the types of patients for whom ILUVIEN is reimbursed could be reduced to a smaller subset of patients. In addition, in some states, Medicare reimburses physicians for less than the cost of ILUVIEN. In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. Comprehensive reforms to the U.S. healthcare system were recently enacted, including changes to the methods for, and amounts of, Medicare reimbursement. As already noted, the new presidential administration may seek further reform of the Medicare program and the U.S. healthcare system. Some of these changes and reforms could result in reduced reimbursement rates for ILUVIEN and our future product candidates, which would adversely affect our business strategy, operations and financial results. Our business could also be adversely affected if retinal specialists are not reimbursed for the cost of the procedure in which they administer ILUVIEN at a level that is satisfactory to them. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Our business could be materially adversely affected if the Federal Medicare program, or local Medicare carriers (MACS) or fiscal intermediaries were to make such a determination and deny or limit the reimbursement of ILUVIEN. If the local contractors that administer the Medicare program are slow to reimburse retinal specialists for ILUVIEN, that delay could ultimately affect the timing of payments to us, which would in turn adversely affect our working capital.

In the U.S., almost all private insurers, including managed care organizations, have agreed to reimburse for ILUVIEN, but the reimbursement amount could be modified in the future, and the types of patients for whom ILUVIEN is reimbursed could be reduced to a smaller subset of patients. We expect that private insurers will consider the efficacy, cost effectiveness and safety of ILUVIEN in determining whether to maintain approval for reimbursement for ILUVIEN in the U.S. and at what level. Maintaining these approvals can be a time consuming and expensive process. Our business would be materially adversely affected if we do not maintain approval for reimbursement of ILUVIEN from private insurers on a timely or satisfactory basis or such approvals are changed to reduce the level of reimbursements.

We may experience pricing pressures in connection with the sale of ILUVIEN due to the potential healthcare reforms discussed above, as well as the trend toward programs aimed at reducing health care costs, the increasing influence of health maintenance organizations, additional legislative proposals and the economic health of the U.S. economy. If reimbursement for our products is unavailable, limited in scope or amount or if pricing is set at unsatisfactory levels, our business could be materially harmed.

27


Table of Contents

In the European Economic Area and the U.K., ILUVIEN and any future products or product candidates may not be commercially viable if we fail to obtain or maintain an adequate level of reimbursement for these products from any of the following: governments, private insurers or other third-party payers.

In the EEA and the U.K., each country has a different reviewing body that evaluates reimbursement dossiers submitted by marketing authorization holders of new drugs and then makes recommendations as to whether or not the drug should be reimbursed. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval. For example, in February 2017 we announced that the Italian government had published a change in the reimbursement status of ILUVIEN, allowing ILUVIEN to be hospital-administered and that ILUVIEN should be fully reimbursed for pseudophakic patients. The negotiation for this reimbursement change took more than 15 months. In some countries, to obtain reimbursement approval or pricing approval at a level that we believe is appropriate, we may be required to conduct a clinical trial that compares the cost-effectiveness of ILUVIEN to other available therapies. Limitations on reimbursement could be imposed at the national, regional or local level or by fiscal intermediaries in each country, either through the initial authorization process or at some point in the future.

In addition, due to price referencing within the EEA, the U.K. and certain other countries, existing pricing in our current markets could be negatively affected by a change in pricing in a country where we currently have reimbursement or by a new price in a country where we obtain reimbursement approval in the future. For example, in 2019 we gained pricing approval in France that is lower than our current established price in Portugal. Subsequently, the Portuguese government reduced the published price for ILUVIEN. Such cross-border price referencing could have a material adverse effect on our business.

Our business could also be adversely affected if governments, private insurers or other reimbursing bodies or payers (a) limit the indications for reimbursement approval to a smaller subset than we believe ILUVIEN is effective in treating or (b) establish a limit on the frequency with which ILUVIEN may be administered that is less often than we believe would be effective. Those actions could limit our revenues and harm our business.

Failure to comply with government regulations regarding the sale and marketing of our products could harm our business.

Our and our distribution partners’ activities, including the sale and marketing of our products, are subject to extensive government regulation and oversight, including regulation under the federal Food, Drug and Cosmetic Act and other federal and state statutes, along with requirements in Europe, such as the Medicines Act of 1968 in the U.K. In the U.S., we are also subject to the provisions of the Federal Anti-Kickback Statute, the Federal False Claims Act and several similar state laws, which prohibit payments intended to induce physicians or others either to purchase or arrange for or recommend the purchase of healthcare products or services. While the federal law applies only to products or services for which payment may be made by a federal healthcare program, state laws may apply regardless of whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of manufacturers of drugs by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians and other potential purchasers of drugs. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent, or are for items or services that were not provided as claimed. Anti-kickback and false claims laws prescribe civil and criminal penalties for noncompliance that can be substantial, including the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid).

Pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting antitrust violations, violations of the Federal False Claim Act, the Anti-Kickback Statute, the Prescription Drug Marketing Act and other violations in connection with off-label promotion of products and Medicare and/or Medicaid reimbursement and claims under state laws, including state anti-kickback and fraud laws. In Europe, each country has different regulations that govern the promotional claims and activities of pharmaceutical and biotechnology companies. The violation and enforcement of these regulations by each country may result in heavy fines, further legal action, public reprimand, injunction and may include the loss of market authorization.

While we have implemented a compliance program to assist with monitoring and complying with these activities and we strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing practices are ever evolving. If any such actions are instituted against us or our partners and we or they are not successful in defending those actions or asserting our rights, those actions could have a significant and material adverse effect on our business, including the imposition of significant fines or other sanctions. Even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could have a material adverse effect on our business, results of operations and financial condition.

Regulatory approval for any approved product is limited by the regulatory authorities to those specific indications for which clinical safety and efficacy have been demonstrated.

Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the applicable regulatory authorities, including the FDA in the U.S. and various regulatory authorities in Europe. In

28


Table of Contents

addition to approval required for new formulations, any new indication for an approved product also requires regulatory approval. If we are unable to obtain regulatory approval for any desired future indications for our products, our ability to effectively market and sell our products may be reduced and our opportunity for future growth could be limited.

While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by regulatory authority. These “off-label” uses by physicians are common across medical specialties and may constitute an appropriate treatment for some patients in some circumstances. Regulatory authorities generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do restrict, however, communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow regulatory authority rules and guidelines relating to promotion and advertising may cause the regulatory authority to suspend or withdraw an approved product from the market in the applicable country, require a recall or payment of fines, or impose sanctions that could include disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our business.

The regulatory approval of ILUVIEN in any additional countries is uncertain, and our regulatory approval in certain countries is contingent on our ability to sell ILUVIEN in an appropriate time frame. Failure to obtain regulatory approval in additional foreign jurisdictions or maintain regulatory approval in jurisdictions where we have received regulatory approval but have not yet sold ILUVIEN would prevent us from marketing and commercializing ILUVIEN in those additional markets.

ILUVIEN has received marketing authorization in the U.S., in numerous countries in Europe and in other places in the world as described above in “Business – Overview.” We sell ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland and expect to launch directly into Denmark, Finland, Norway and Sweden in 2021. Our distributors will continue to sell ILUVIEN in the Middle East, Austria, France, the Netherlands, Italy and Spain in 2021, and we expect further progress to be made towards the launch through distributors in the Czech Republic, Belgium and Luxembourg in 2021. When we received marketing authorization in the remaining countries in the EEA, those marketing authorizations required that we sell at least one ILUVIEN in those countries within three years or our license in those countries could be revoked unless we negotiate to extend the deadline. We intend to either sell one ILUVIEN in each of those countries or negotiate to extend the deadline, but we may not be able to make such a sale or extend the deadline, in which case our license in that country could be revoked. If our license in any of these countries is revoked, we will need to pursue marketing authorization again for that country, and we may be unsuccessful in that effort.

We intend to continue to pursue market authorizations for ILUVIEN internationally in additional jurisdictions. To market our products in foreign jurisdictions, we will be required to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. We may not receive necessary approvals to commercialize ILUVIEN in any additional market.

The process of obtaining regulatory approvals and clearances in jurisdictions where ILUVIEN is not approved will require us to expend substantial time and capital. Despite the time and expense incurred, regulatory approval is never guaranteed. The number of preclinical and clinical tests that will be required for regulatory approval varies depending on the drug candidate, the disease or condition for which the drug candidate is in development, the jurisdiction in which we are seeking approval and the regulations applicable to that particular drug candidate. Regulatory agencies can delay, limit or deny approval of a drug candidate for many reasons, including that:

regulatory agencies may interpret data from preclinical and clinical testing in different ways than we do;

regulatory agencies may not approve of our manufacturing processes;

a drug candidate may not be safe or effective;

regulatory agencies may conclude that the drug candidate does not meet quality standards for stability, quality, purity and potency; and

regulatory agencies may change their approval policies or adopt new regulations.

The applicable regulatory authorities may make requests or suggestions regarding our clinical trials, resulting in an increased risk of difficulties or delays in obtaining regulatory approval. For example, the regulatory authorities may not approve of certain of our methods for analyzing our trial data, including how we evaluate the relationship between risk and benefit. Additionally, the foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain additional foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

29


Table of Contents

Risks Related to Intellectual Property and Other Legal Matters

We may be adversely affected by the expiration of patents that protect key aspects of ILUVIEN in the near- to medium-term.

The patent rights relating to ILUVIEN licensed to us from EyePoint include five U.S. patents that expired between April 2020 and June 2020, one U.S. patent that will expire in August 2027, two European patents that expire in April 2021 and October 2024 and counterpart filings to these patents in a number of other jurisdictions. No patent term extension will be available for any of these U.S. patents, European patents or any of our licensed U.S. or European pending patent applications. After these patents expire in August 2027 in the U.S. and October 2024 in Europe, we will not be able to block others from marketing FAc in an implant similar to ILUVIEN.

We rely on patent, trademark and other intellectual property protection in the discovery, development, manufacturing and sale of our products. In particular, patent protection is, in the aggregate, important in our marketing of pharmaceutical products in the United States and most major markets outside of the United States. Patents covering our products normally provide market exclusivity, which is important for the profitability of many of our products.

As patents for certain of our products expire, we will or could face competition from lower priced generic or biosimilar products. The expiration or loss of patent protection for a product typically is followed promptly by substitutes that may significantly reduce sales for that product in a short amount of time. If our competitive position is compromised because of generics, biosimilars or otherwise, it could have a material adverse effect on our business and results of operations. In addition, proposals emerge from time to time for legislation to further encourage the early and rapid approval of generic drugs or biosimilars. Any such proposals that are enacted into law could increase the negative effect of generic competition.

If we fail to comply with our obligations in the agreements under which we license development or commercialization rights to products or technology from third parties, we could lose license rights that are material to our business.

Our licenses are material to our business, and we may enter into additional licenses in the future. We hold a license from EyePoint to intellectual property relating to ILUVIEN. Our ability to pursue the development and commercialization of ILUVIEN depends upon the continuation of our license from EyePoint. This license imposes various commercialization, milestone payment, royalty payments, insurance and other obligations on us, including the right by EyePoint to audit. If we fail to comply with these obligations, EyePoint may have the right to terminate the license. Our license rights to EyePoint’s proprietary insert technology could revert to EyePoint if we:

(a)fail twice to cure our breach of an obligation to make certain payments to EyePoint following receipt of written notice of the breach;

(b)fail to cure other breaches of material terms of our agreement with EyePoint within 30 days after notice of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured within such 30-day period;

(c)file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over our property, file a petition under any bankruptcy or insolvency act or have any such petition filed against us and such proceeding remains undismissed or unstayed for a period of more than 60 days; or

(d)notify EyePoint in writing of our decision to abandon our license with respect to a certain product using EyePoint’s proprietary delivery device.

If our license with EyePoint, or any other current or future material license agreement, were terminated, we would be unable to market the applicable products, such as ILUVIEN, that may be covered by such license, which would materially and adversely affect our business, results of operations and future prospects.

If we or our licensors are unable to obtain and maintain protection for the intellectual property incorporated into our products, the value of our technology and products will be adversely affected.

Our success depends largely on our ability or the ability of our licensors to obtain and maintain protection in the U.S. and other countries for the intellectual property incorporated into our products. The patent situation in the field of biotechnology and pharmaceuticals generally is highly uncertain and involves complex legal and scientific questions. We or our licensors may be unable to obtain additional issued patents relating to our technology. Our success will depend in part on the ability of our licensors to obtain, maintain (including making periodic filings and payments) and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights.

Under our license with EyePoint, EyePoint controls the filing, prosecution and maintenance of all patents. Our licensors may not successfully prosecute or continue to prosecute the patent applications to which we are licensed. Even if patents are issued in respect of these patent applications, we or our licensors may fail to maintain these patents, may determine not to pursue

30


Table of Contents

litigation against entities that are infringing upon these patents, or may pursue such litigation less aggressively than we ordinarily would. Without protection for the intellectual property that we own or license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects. Moreover, FAc is an off-patent active ingredient that is commercially available in several forms, including the extended release ocular implant Retisert.

Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection that we may have for our products. In addition, our patents and our licensors’ patents may not afford us protection against competitors with similar technology.

Litigation or third-party claims of intellectual property infringement would require us to divert resources and may prevent or delay our commercialization of ILUVIEN or the development or regulatory approval of other product candidates.

ILUVIEN or any future products or product candidates may infringe upon other parties’ intellectual property rights that are protected by patents or patent applications. Third parties may now or in the future own or control these patents and patent applications in the U.S. and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses or divert substantial employee resources from our business. If those claims are successful, we could be required to pay substantial damages or could be prevented from developing any future product candidates. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay manufacturing, sales, research or development of the product or product candidate that is the subject of the suit.

Several issued and pending U.S. patents claiming methods and devices for the treatment of eye diseases, including through the use of steroids, implants and injections into the eye, purport to cover aspects of ILUVIEN. For example, one of our potential competitors holds issued and pending U.S. patents and a pending European patent application with claims covering injecting an ocular implant into a patient’s eye similar to the ILUVIEN applicator. There is also an issued U.S. patent with claims covering implanting a steroidal anti-inflammatory agent to treat an inflammation-mediated condition of the eye. If these or any other patents were held by a court of competent jurisdiction to be valid and to cover aspects of ILUVIEN, then the owners of such patents would be able to block our ability to commercialize ILUVIEN unless and until we obtain a license under such patents (which license might require us to pay royalties or grant a cross-license to one or more patents that we own), until those patents expire or unless we are able to redesign our product to avoid any such valid patents.

As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be forced to cease some aspect of our business operations, or be prevented from commercializing a product if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the U.S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any litigation or other proceeding, regardless of its merit, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings better than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may, regardless of their merit, also absorb significant management time and employee resources.

If our efforts to protect the proprietary nature of the intellectual property related to our products are inadequate, we may not be able to compete effectively in our markets.

The strength of our patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. In addition to the rights we have licensed from EyePoint relating to ILUVIEN, we rely upon intellectual property we own, including patents, patent applications and trade secrets. Our patent applications may be challenged or fail to result in issued patents and our existing or future patents may be too narrow to prevent third parties from developing or designing around these patents. Moreover, it is possible that a third party could successfully challenge the scope (i.e., whether a patent is infringed), validity and enforceability of our licensed patents before patent expiration and obtain approval to market a competitive product.

Further, the patent applications that we license or have filed may fail to result in issued patents. Patent examiners have rejected some claims in pending patent applications that we have filed or licensed. We may need to amend these claims. Even after amendment, a patent may not be permitted to issue. Further, the existing or future patents to which we have rights based on

31


Table of Contents

our agreement with EyePoint may be too narrow to prevent third parties from developing or designing around these patents. Additionally, we may lose our rights to the patents and patent applications we license in the event of a breach or termination of our license agreement with EyePoint. Manufacturers may also seek to obtain approval to sell a generic version of ILUVIEN before the expiration of the relevant licensed patents. If the sufficiency of the breadth or strength of protection provided by the patents we license with respect to ILUVIEN or the patents we pursue related to ILUVIEN or any future product candidate is threatened, it could dissuade companies from collaborating with us to commercialize ILUVIEN and develop any future product candidates. Further, if we encounter delays in our clinical trials for any future product candidate, the period during which we could market those product candidates under patent protection would be reduced.

Third-party claims of intellectual property infringement may prevent or delay our commercialization efforts with respect to ILUVIEN and our discovery, development or commercialization efforts with respect to any future product candidates.

Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. In addition, at least several issued and pending U.S. patents claiming methods and devices for the treatment of eye diseases, including through the use of steroids, implants and injections into the eye, purport to cover aspects of ILUVIEN.

Although we are not currently aware of any litigation or other proceedings or third-party claims of intellectual property infringement related to ILUVIEN, the pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may in the future allege that our activities infringe their patents or that we are employing their proprietary technology without authorization. We may not have identified all the patents, patent applications or published literature that could potentially affect our business either by blocking our ability to commercialize our products or product candidates, by preventing the patentability of one or more aspects of our products or those of our licensors or by covering the same or similar technologies that may affect our ability to market our product. We cannot predict whether we would be able to obtain a license on commercially reasonable terms, if at all. Any inability to obtain such a license under the applicable patents on commercially reasonable terms, or at all, may have a material adverse effect on our ability to commercialize ILUVIEN or any future products or product candidates until such patents expire.

In addition, third parties may obtain patents in the future and claim that use of ILUVIEN, our technologies or future products or product candidates infringes upon these patents. Furthermore, parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further commercialize ILUVIEN or develop and commercialize any future product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties or pay royalties, or we may be enjoined from further commercializing ILUVIEN or developing and commercializing any future product candidates or technologies. In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of ILUVIEN or any future product candidate, and we have done so from time to time. We may fail to obtain future licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be unable to further commercialize ILUVIEN or develop and commercialize any future product candidates, which could harm our business significantly.

We may become involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings brought by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patents and patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the U.S.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If

32


Table of Contents

securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

We rely on trade secret protection and confidentiality agreements to protect certain proprietary know-how that is not patentable, for processes for which patents are difficult to enforce and for any other elements of our development processes with respect to ILUVIEN that involve proprietary know-how, information and technology that is not covered by patent applications. Any involuntary disclosure or misappropriation by third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

We seek to protect confidential or proprietary information in part by confidentiality agreements with our employees, consultants and third parties. While we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information and technology to enter into confidentiality agreements, we cannot be certain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the U.S. and abroad. If we are unable to protect or defend the intellectual property related to our technologies, we will not be able to establish or maintain a competitive advantage in our market.

Product liability lawsuits could divert our resources, reduce the commercial potential of our products and result in substantial liabilities, which insurance may not cover.

Our business exposes us to the risk of product liability claims, which is inherent in the manufacturing, testing and marketing of drugs and related products. We face an increased risk of product liability as we further commercialize ILUVIEN, especially in the U.S. If the use of ILUVIEN or one or more of our future products causes physical harm, we may be subject to costly and damaging product liability claims. We believe that we may be at a greater risk of product liability claims relative to other pharmaceutical companies because ILUVIEN is inserted into the eye, and it is possible that we may be held liable for eye injuries of patients who receive ILUVIEN. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forego further commercialization of ILUVIEN or one or more of our future products. Even if we are not held liable, product liability lawsuits could cause adverse publicity and decrease the demand for ILUVIEN, which could have a material adverse effect on our business, results or operations and financial condition. To date we have not had any material claims against us.

Although we maintain product liability insurance covering our clinical trial activities and our product sales, our aggregate coverage limit under these insurance policies is limited to $10 million in most jurisdictions, and while we believe this amount of insurance is sufficient to cover our product liability exposure, these limits may not be high enough to fully cover potential liabilities. The insurance provides worldwide coverage where allowed by law. As we generate product revenue in new countries, we intend to obtain compulsory coverage in those countries that require it. However, we may not be able to obtain or maintain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could prevent or interfere with our product development and commercialization efforts.

Certain Risks of Owning Our Common Stock

The Series A Convertible Preferred Stock contains covenants that may limit our business flexibility.

For so long as at least 37.5% of the shares of Series A Convertible Preferred Stock originally issued to the investors at the closing of our Series A Convertible Preferred Stock financing in October 2012 are held by the initial investors or their affiliates, we may not, without first obtaining the approval of the holders of at least 70% of the then outstanding shares of Series A Convertible Preferred Stock:

increase or decrease the authorized number of shares of Series A Convertible Preferred Stock;

authorize, create, issue or obligate us to issue (by reclassification, merger or otherwise) any security (or any class or series thereof) or any indebtedness, in each case that has any rights, preferences or privileges senior to, or on a parity with, the Series A Convertible Preferred Stock, or any security convertible into or exercisable for any such security or indebtedness, subject to limited exceptions for certain debt transactions;

33


Table of Contents

amend our certificate of incorporation or the certificate of designation of the Series A Convertible Preferred Stock, in each case in a manner that adversely affects the rights, preference or privileges of the Series A Convertible Preferred Stock;

redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any shares of common stock or preferred stock; provided, however, that this restriction shall not apply to (A) the redemption of rights issued pursuant to any “poison pill” rights plan or similar plan we adopt in the future or (B) the repurchases of stock from former employees, officers, directors or consultants who performed services for us in connection with the cessation of such employment or service pursuant to the terms of existing agreements with such individuals;

declare or pay any dividend or distribution on any shares of capital stock; provided, however, that this restriction shall not apply to (A) dividends payable to holders of common stock that consist solely of shares of common stock for which adjustment to the conversion price of the Series A Convertible Preferred Stock is made pursuant to the certificate of designation or (B) dividends or distributions issued pro rata to all holders of capital stock (on an as-converted basis) in connection with our implementation of a “poison pill” rights plan or similar plan;

authorize or approve any increase to the number of aggregate shares of capital stock reserved for issuance pursuant to stock option, stock purchase plans or other equity incentive plans such that the total aggregate number of shares issued under such plans and reserved for issuance under such plans (on an as-converted basis) exceeds the number of shares issued and reserved for issuance under such plans (on an as-converted basis) on the date of the closing of the Series A Convertible Preferred Stock financing by more than 20% (as adjusted for stock splits, combinations, stock dividends, recapitalizations and the like);

issue stock or other equity securities of any subsidiary (other than to us or another of our wholly-owned subsidiaries);

declare or pay any dividend or other distribution of cash, shares or other assets or redemption or repurchase of shares of any subsidiary; or

incur any secured indebtedness other than certain limited debt transactions.

There is no guarantee that the holders of the Series A Convertible Preferred Stock would approve any such restricted action, even where such an action would be in the best interests of our stockholders. Any failure to obtain such approval could harm our business and result in a decrease in the value of our common stock.

Holders of our Series A Convertible Preferred Stock have the ability to significantly influence the outcome of matters submitted for stockholder approval and may have interests that differ from those of our other stockholders.

The terms of the Series A Convertible Preferred Stock provide that certain corporate actions require the prior consent of the holders of at least 70% of the then outstanding shares of Series A Convertible Preferred Stock. As a result, there may be actions that management and the holders of a majority of our outstanding voting power may approve but that the holders of our Series A Convertible Preferred Stock may elect to block.

We have in the past failed to comply with the continued listing requirements of The Nasdaq Stock Market (Nasdaq). If we were to fail to comply again and were unable to regain compliance, our common stock could be delisted from The Nasdaq Global Market, which could materially reduce the liquidity of our common stock and have an adverse effect on its market price.

Our common stock trades on The Nasdaq Global Market, which we believe helps support and maintain liquidity for our stock. Companies whose shares are listed on The Nasdaq Global Market, however, are subject to various rules and requirements imposed by Nasdaq that a listed company must satisfy to continue having its stock listed on the exchange. In 2019 we received three different notices from Nasdaq informing us that we had failed on three occasions to meet the standards for continued listing on The Nasdaq Global Market. Although we regained compliance each time, we cannot provide any assurances that (a) we will not fail to comply in the future and (b) if that were to recur, we would be able to regain and maintain compliance with the continued listing standards.

If we were to fail to regain compliance with Nasdaq’s continued listing requirements, our shares could be delisted from The Nasdaq Global Market, which could materially reduce the liquidity of our common stock and have an adverse effect on its market price. If our common stock is delisted from Nasdaq and we are unable to list our common stock on the NYSE American stock exchange, we would be forced to list our shares on the OTC Markets or another quotation medium, depending on our ability to meet the specific listing requirements of those quotation systems. As a result, an investor would likely find it more difficult to trade, or to obtain accurate price quotations for, our shares. Delisting would likely also reduce the visibility, liquidity and value of our common stock, including as a result of reduced institutional investor interest in our company, and may increase the volatility of our common stock. Delisting could also cause a loss of confidence of potential industry partners, lenders and employees, which could further harm our business and our future prospects.

34


Table of Contents

Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.

The realization of any of the risks described in these risk factors or other unforeseen risks could have a dramatic and adverse effect on the market price of our common stock. The trading price of our common stock has from time to time been and may in the future be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including those discussed in this “Risk Factors” section.

From time to time, we estimate the timing of the accomplishment of various regulatory, scientific, clinical and other product development goals or milestones. These milestones may include:

the submission of regulatory filings,

the notification of the results of regulatory filings,

the anticipated commercial launch of ILUVIEN in various new jurisdictions or for new or expanded indications,

any future products or product candidates and

the commencement or completion of scientific studies and clinical trials.

Also, from time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, our stock price may decline and the further commercialization of ILUVIEN or any future products or product candidates may be delayed.

In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of publicly traded companies, including us. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been initiated against these companies. This litigation, if brought against us, could result in substantial costs and a diversion of our management’s attention and resources.

Significant sales of our common stock could depress or reduce the market price of our common stock, cause our shares of common stock to trade below the prices at which they would otherwise trade, or impede our ability to raise future capital.

A small number of institutional investors and private equity funds hold a significant number of shares of our common stock and all of our shares of Series A Convertible Preferred Stock. Sales by these stockholders of a substantial number of common shares, or the expectation of such sales, could cause a significant reduction in the market price of our common stock.

We may sell our shares in registered public offerings. We also may elect to sell shares of our common stock through an at-the-market offering. Any sale of additional shares of common stock in the future, if we determine it is appropriate or necessary to do so, could cause a significant reduction in the market price of our common stock.

In addition to our outstanding common stock, as of February 1, 2021, we were obligated to issue: (a) a total of 1,125,711 shares of common stock upon the exercise of outstanding common stock options and (b) a total of 30,582 shares of common stock upon the exercise of outstanding common stock warrants. Upon the exercise of the stock options in accordance with their terms, the shares so acquired may be resold freely, subject to restrictions imposed on our affiliates under the SEC’s Rule 144 and to our securities trading policy. The shares acquired upon exercise of warrants can be sold under Rule 144. If significant sales of these shares occur in short periods, these sales could reduce the market price of our common stock. Any reduction in the trading price of our common stock could impede our ability to raise capital on attractive terms.

Actual or perceived significant sales of our common stock could depress or reduce the market price of our common stock, cause our shares of common stock to trade below the prices at which they would otherwise trade or impede our ability to raise future capital.

Future sales and issuances of our equity securities or rights to purchase our equity securities, including pursuant to our equity incentive plans, would result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

To the extent we raise additional capital by issuing equity securities; our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, whether in public or private offerings, investors may be diluted by subsequent sales. Those sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to existing stockholders. In addition,

35


Table of Contents

the Series A Convertible Preferred Stock is entitled to price-based anti-dilution protection in connection with certain financings, which has the potential to further dilute our other stockholders.

Pursuant to the 2019 Omnibus Incentive Plan, our board of directors is authorized to grant various types of equity-based awards, including stock options and RSUs, to our employees, directors and consultants. As of February 1, 2021, a total of 7,481 shares of our common stock were available for issuance under new awards granted under our 2019 Omnibus Incentive Plan. We are currently planning to seek stockholder approval at our 2021 annual stockholders meeting for an additional number of shares of our common stock to be authorized for awards under our 2019 Omnibus Incentive Plan.

Anti-takeover provisions in our charter and bylaws and in Delaware law could prevent or delay acquisition bids for us that stockholders might consider favorable and could entrench current management.

We are a Delaware corporation. The anti-takeover provisions of the Delaware General Corporation Law may deter, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our restated certificate of incorporation and bylaws:

authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;

do not provide for cumulative voting in the election of directors, which would allow holders of less than a majority of our outstanding common stock to elect some directors;

establish a classified Board of Directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

require that directors only be removed from office for cause;

provide that vacancies on the Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

contain certain protective provisions in favor of the holders of Series A Convertible Preferred Stock;

limit who may call special meetings of stockholders;

prohibit common stockholder action by written consent, requiring all actions of the holders of common stock to be taken at a meeting of the stockholders; and

establish advance notice requirements for nominating candidates for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

General Risk Factors

We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to comply with various securities laws and regulations and Nasdaq listing requirements.

As a public company, we incur significant accounting, legal and other expenses. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and Nasdaq, has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel are required to devote a substantial amount of time to legal compliance.

If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), we are required to perform system and process evaluation and testing of our internal controls over financial reporting. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires us to incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group. Moreover, if we are unable to comply with the requirements of Section 404 in a timely manner or if we identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market

36


Table of Contents

price of our stock could decline and we could be subject to sanctions or investigations by the SEC, Nasdaq or other regulatory authorities, which would require additional financial and management resources.

If the interpretations, estimates or judgments we use to prepare our financial statements prove to be incorrect, we may be required to restate our financial results, which could have a number of material adverse effects on us.

We are also subject to complex tax laws, regulations, accounting principles and interpretations thereof. The preparation of our financial statements requires us to interpret accounting principles and guidance and to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We base our interpretations, estimates and judgments on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for the preparation of our financial statements. Generally accepted accounting principles presentation is subject to interpretation by the SEC, the Financial Accounting Standards Board and various other bodies formed to interpret and create appropriate accounting principles and guidance. If one of these bodies disagrees with our accounting recognition, measurement or disclosure or any of our accounting interpretations, estimates or assumptions, it may have a significant effect on our reported results and may retroactively affect previously reported results. Any restatement of our financial results could, among other potential adverse effects:

result in us incurring substantial costs,

affect our ability to timely file our periodic reports until the restatement is completed,

divert the attention of our management and employees from managing our business,

result in material changes to our historical and future financial results,

result in investors losing confidence in our operating results,

subject us to securities class action litigation, and

cause our stock price to decline.

Prolonged economic uncertainties or downturns, as well as unstable market, credit and financial conditions, may exacerbate certain risks affecting our business and have serious adverse consequences on our business.

Economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control. Sales of our products will depend, in large part, on reimbursement from government health administration authorities, private health insurers, distribution partners and other organizations in the U.S., Germany, Portugal, Ireland, the U.K. and other countries. Negative trends in the general economy in any of the jurisdictions in which we may do business may cause these organizations to be unable to satisfy their reimbursement obligations or to delay payment. In addition, health authorities in some jurisdictions may reduce reimbursements, and private insurers may increase their scrutiny of claims. A reduction in the availability or extent of reimbursement could negatively affect our product sales and revenue.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

In our U.S. segment, our U.S. headquarters are located in Alpharetta, Georgia, consisting of approximately 18,000 square feet of office space. We expect to relocate our U.S. headquarters under a lease for new office space we entered into on November 20, 2020. We have agreed to occupy approximately 14,900 feet of office space in a new office building that is currently under construction. The office building will be located in Halcyon, a new mixed-use development in Alpharetta. We expect to move to the new leased premises on or about October 1, 2021 after our current lease expires in September 2021. Our obligation to pay rent commences on October 1, 2022 at an annual rate of $447,000 and escalates gradually over the 11-year term of the lease to $583,000 in the final year.

In our international segment, we lease approximately 1,000 square feet of office space in each of Dublin, Ireland, Berlin, Germany, and Lisbon, Portugal, and approximately 6,000 square feet of office space in Aldershot, U.K. Our leases for these facilities in Ireland, Germany and Portugal expire in June 2022, June 2021 and March 2021, respectively. Our lease for the U.K. facility expires in December 2024. We anticipate that following the expiration of the leases, we will be able to lease additional or alternative space at commercially reasonable terms.

 

ITEM 3. LEGAL PROCEEDINGS

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

37


Table of Contents

 

PART II

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

Our common stock is traded on The Nasdaq Global Market (Nasdaq) under the symbol ALIM.

Stockholder Data

As of March 1, 2021, there were 28 holders of record of our common stock, and there were 5,753,434 shares of our common stock issued and outstanding.

Dividends

We have not declared or paid any cash dividends on our common stock since our inception. We do not plan to pay dividends in the foreseeable future. Further, the rights and preferences of our Series A Convertible Preferred Stock also place limitations on our ability to declare or pay any dividend or distribution on any shares of capital stock. We currently intend to retain earnings, if any, to finance our growth. Consequently, stockholders will need to sell shares of our common stock to realize a return on their investment, if any.

Sales of Unregistered Securities

In 2018, 2019 and 2020, we did not sell any shares of stock that were not registered under the Securities Act of 1933, as amended, other than those sales previously reported in a Current Report on Form 8-K.

 

ITEM 6. RESERVED.

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

The following discussion and analysis should be read in conjunction with our audited annual consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those described in Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” at the beginning of Part I of this Annual Report on Form 10-K.

Overview

Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally.

ILUVIEN

Our only product is ILUVIEN®, which has received marketing authorization and reimbursement in numerous countries for the treatment of DME. In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. ILUVIEN is also now indicated in 16 countries in Europe for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS). See Item 1, “Business - Overview” above.

We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, and Ireland, and we are planning to launch directly in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East. As of December 31, 2020, we have recognized sales of ILUVIEN to our international distributors in the Middle East, Austria, France, Italy, Spain and the Netherlands.

38


Table of Contents

Accumulated Deficit

We commenced operations in June 2003. Since our inception we have incurred significant losses. As of December 31, 2020, we had accumulated a deficit of $392.9 million. We expect to incur additional expenses as we pursue our business strategy. See Item 1, “Business - Business Strategy” above.

As of December 31, 2020, we had approximately $11.2 million in cash and cash equivalents.

Effects of the COVID-19 Pandemic

The unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues and may in the future have an adverse effect on our liquidity and financial condition. These adverse effects of the pandemic on us have resulted from the following, among other factors. Governments and private parties imposed limitations on in-person access to physicians, which adversely affects us in at least two ways. First, these limitations can affect patient access to treatment. Because ILUVIEN is administered only by an injection into the eye, telemedicine is not a viable substitute when administration of treatment is required. Second, limitations on in-person access to physicians also makes it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about ILUVIEN.

Our business is also negatively affected by patients’ concerns in the current environment. Prior to the pandemic, most of our ILUVIEN sales were driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that health authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many DME patients are unwilling to visit their physicians in person (even if otherwise permitted) for fear of contracting the COVID-19 coronavirus.

In addition to the effects of limitations on in-person access to physicians, limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, have curtailed our in-person marketing activities.

These limitations and other effects of the COVID-19 pandemic have had an adverse impact on our revenues beginning late in the first quarter and continuing through the date of this report. We expect these factors to continue to adversely impact our revenue and capital resources, and the extent and duration of that impact is uncertain at this time, particularly in light of the emergence of COVID-19 variants that may increase the transmissibility of the coronavirus or be more deadly, or both. (See “Liquidity and Capital Resources – Current Cash Position” below.) As more and more people in our markets are vaccinated and as governmental restrictions are gradually lifted, however, we look forward to the prospect of a return to more normal conditions later this year and continuing the growth trends we saw prior to the COVID-19 pandemic. (Please refer to “Special Note Regarding Forward-Looking Statements and Projections” above.)

In response to these developments, we have implemented measures to mitigate the impact of the pandemic on our financial position and operations. These measures include the following:

We are managing our cost structure, minimizing all non-payroll spending where possible to mitigate our anticipated loss of revenue and conserve our cash.

We are decreasing our external spending on commercial and medical affairs activities related to the promotion of ILUVIEN. 

Because we believe that our employees are critical to both (a) serving our customers and patients through alternative forms of engagement as the pandemic-related restrictions continue, and (b) realizing the long-term value of ILUVIEN, we have maintained our staffing levels and do not currently have any plans to reduce them.

For more information about the effect of the COVID-19 pandemic on our business and the related risks we face, please see Item 1A, “Risk Factors – Risks Related to the Public Health Pandemic.”

License Agreement with EyePoint Pharmaceuticals US, Inc.

In July 2017, we amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, we have rights to the technology underlying ILUVIEN for the treatment of uveitis, including NIU-PS, in Europe, the Middle East and Africa. The New Collaboration Agreement converted our previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. We began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. The royalty amount increased to 6% as of December 12, 2018. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During 2020 and 2019, we recognized approximately $2,064,000 and $2,158,000 of royalty expense, respectively.

39


Table of Contents

Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments. In March 2019, pursuant to the New Collaboration Agreement, we forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of December 31, 2020, the balance of the Future Offset was approximately $7,874,000. (See Note 10 of our notes to consolidated financial statements below.)

Sources of Revenues

Our revenues for the fiscal years ended December 31, 2020 and 2019 were generated from product sales primarily in the U.S., Germany and the U.K. In the U.S., two large pharmaceutical distributors accounted for 49% and 60% of our consolidated revenues for the years ended December 31, 2020 and 2019, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.

Reclassifications

Within the operating expenses section of the consolidated statements of operations for the year ended December 31, 2019 as well as within the International segment, we reclassified $683,000 in sales and marketing expenses associated with our country managers in Europe from general and administrative expenses to sales and marketing expenses. We made this reclassification to align these expenses with the true nature of the activity being performed and to conform them to the current year presentation. These changes had no impact on previously reported consolidated balance sheets, net loss on our statements of operations, comprehensive loss, stockholders’ deficit or cash flows.


40


Table of Contents

Results of Operations - Year ended December 31, 2020 compared to year ended December 31, 2019

Years Ended December 31,

2020

2019

(In thousands, except share and per share data)

NET REVENUE

$

50,820

$

53,943

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(6,941)

(6,626)

GROSS PROFIT

43,879

47,317

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

9,668

10,992

GENERAL AND ADMINISTRATIVE EXPENSES

11,652

13,271

SALES AND MARKETING EXPENSES

20,384

25,687

DEPRECIATION AND AMORTIZATION

2,676

2,641

OPERATING EXPENSES

44,380

52,591

LOSS FROM OPERATIONS

(501)

(5,274)

INTEREST EXPENSE AND OTHER

(5,380)

(4,869)

UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET

474

(84)

NET LOSS BEFORE TAXES

(5,407)

(10,227)

BENEFIT (PROVISION) FOR TAXES

68

(216)

NET LOSS

(5,339)

(10,443)

NET LOSS PER SHARE — Basic and diluted (Note 2)

$

(1.04)

$

(2.19)

WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted

5,117,656

4,770,204

Revenue

We generate revenue from ILUVIEN, our only product. In addition to generating revenue from product sales, we intend to seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of ILUVIEN or any future product candidates and other intellectual property. Additionally, revenue from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.

Net revenue decreased by approximately $3.1 million, or 6%, to approximately $50.8 million for 2020, compared to approximately $53.9 million for 2019. The decrease was attributable to a $7.5 million revenue decrease in our U.S. business related to the impact of the COVID-19 pandemic. This decrease was offset by a $4.3 million revenue increase in our International segment, which was primarily due to expansion and growth into new and existing markets through our distributors. We also saw increased sales volume in the markets where we sell direct. These direct sales included sales for our uveitis indication.

Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit

Gross profit is affected by costs of goods sold, which includes costs of manufactured goods sold and royalty payments to EyePoint under the New Collaboration Agreement. Additionally, cost of goods sold by our international distributors fluctuates depending on the revenue share attributable to the respective contract.

Cost of goods sold, excluding depreciation and amortization increased by approximately $300,000, or 5%, to approximately $6.9 million for 2020, compared to approximately $6.6 million for 2019. The increase was primarily attributable to increased sales in our international segment, including to distributors, where costs of goods sold is a higher percentage of net revenue, and an increase in royalty expense payable on our global revenue as a result of the increased royalty percentage payable to EyePoint.

Gross profit decreased by approximately $3.4 million, or 7%, to approximately $43.9 million for 2020, compared to approximately $47.3 million for 2019. Gross margin was 86% and 88% for 2020 and 2019, respectively. As our revenues to our international distributors increase and our royalty expense payable to EyePoint increases, we expect our gross margin to decrease.

Research, Development and Medical Affairs Expenses

Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and include salaries and related expenses for research and development and medical affairs personnel, including

41


Table of Contents

medical science liaisons. Our research, development and medical affairs expenses also include costs related to the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. We expense both internal and external development costs as they are incurred.

Research, development and medical affairs expenses decreased by approximately $1.3 million, or 12%, to approximately $9.7 million for 2020, compared to approximately $11.0 million for 2019. The decrease was primarily attributable to decreases of approximately $650,000 in personnel costs, including international vacant positions, global bonus expenses and global stock-based compensation expenses; $620,000 in scientific communications expenses; $450,000 in travel expenses; and $420,000 in consulting costs. These decreases were offset by an increase of approximately $790,000 in clinical study costs, primarily consisting of costs associated with the NEW DAY Study.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.

General and administrative expenses decreased by approximately $1.6 million, or 12%, to approximately $11.7 million for 2020, compared to approximately $13.3 million for 2019. The decrease was primarily attributable to decreases of approximately $700,000 in global stock-based compensation expenses and $470,000 in professional fees. Additionally, in 2020 we benefitted from a one-time cash refund of approximately $400,000 associated with recovery of previously paid VAT expense in Germany for the years 2014 through 2018.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of reimbursement approval for and the commercialization of ILUVIEN, including launch plans for ILUVIEN in new markets. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.

Sales and marketing expenses decreased by approximately $5.3 million, or 21%, to approximately $20.4 million for 2020, compared to approximately $25.7 million for 2019. The decrease was primarily attributable to a decrease of approximately $4.2 million in marketing costs related to cost controls we implemented to address the COVID-19 pandemic, the absence in 2020 of expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S., a decrease of $870,000 in travel expenses and a decrease of $400,000 in market access costs.

Operating Expenses

As a result of the changes in expenses described above, total operating expenses decreased by approximately $8.2 million, or 16%, to approximately $44.4 million for 2020, compared to approximately $52.6 million for 2019. The decrease was primarily attributable to decreases of approximately $5.3 million in sales and marketing expenses, $1.6 million in general and administrative expenses and $1.3 million in research, development and medical affairs expenses as described above.

Interest Expense and Other

On January 5, 2018, we entered into a $40.0 million loan and security agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital). On December 31, 2019, we refinanced the 2018 Solar Loan Agreement by entering into a $45.0 million loan and security agreement (the 2019 Solar Loan Agreement) with Solar Capital. For 2020 and 2019, interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 and 2019 Solar Loan Agreements. Interest income consisted primarily of interest earned on our cash, cash equivalents and investments.

Interest expense and other. Interest expense and other increased by approximately $500,000, or 10%, to approximately $5.4 million for 2020, compared to approximately $4.9 million for 2019. Interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 and 2019 Solar Loan Agreements with Solar Capital. For more detailed information, see Note 11 of our notes to consolidated financial statements below.

Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock

We follow FASB Accounting Standards Codification (ASC), Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common

42


Table of Contents

stockholders (if we were to declare and pay dividends), we use the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.

Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.

Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating or would have been anti-dilutive, totaled approximately 1.6 million and 2.3 million for 2020 and 2019, respectively.

Results of Operations - Segment Review

The following selected unaudited financial and operating data are derived from our consolidated financial statements. The results and discussions that follow reflect how executive management monitors the performance of our reporting segments.

We have a U.S. segment and an International segment, and we report Other to reconcile back to consolidated totals. Each segment is separately managed and is evaluated primarily upon segment income or loss from operations. Non-cash items including stock-based compensation expense, depreciation and amortization are categorized as Other. We allocate certain operating expenses among our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation methodology during 2020 or 2019.

U.S. Segment

Years Ended December 31,

2020

2019

(In thousands)

NET REVENUE

$

24,809

$

32,283

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(2,858)

(3,487)

GROSS PROFIT

21,951

28,796

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

6,239