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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2024

☐	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 No.)

6310 Town Square, Suite 400 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

(Nasdaq Global Market)

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

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

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

As of August 2, 2024, there were 54,384,165 shares of the registrant’s $0.01 par value Common Stock issued and outstanding.

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ALIMERA SCIENCES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	5
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (Unaudited)	5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (Unaudited)	6
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2024 and 2023 (Unaudited)	7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)	8
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2024 and 2023 (Unaudited)	9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	46
Item 4. Controls and Procedures	47

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	50
Item 5. Other Information	50
Item 6. Exhibits	51
Signatures	52

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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, including statements 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 (some of which are beyond our control) and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “forecast,” “outlook,” “contemplates,” “predict,” “project,” “aim,” “seek,” “target,” “likely,” “remain,” “potential,” “continue,” “ongoing,” “will,” “will likely result,” “will continue,” “would,” “should,” “could,” or the variation 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.

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 on the forward-looking statements we make or that are made on our behalf as predictions of future events. 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, except as may be required under applicable securities laws.

We encourage you to read management’s discussion and analysis of our financial condition and results of operations and our accompanying unaudited interim condensed consolidated financial statements and notes thereto (“Interim Financial Statements”) contained in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. 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, projections and estimates.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	*June 30,*			*December 31,*
	*2024*			*2023*
	(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents	$	10,828		$	12,058
Restricted cash		33			32
Accounts receivable, net		37,079			34,545
Prepaid expenses and other current assets		4,013			3,909
Inventory		3,455			1,879
Total current assets		55,408			52,423
Property and equipment, net		2,278			2,466
Right-of-use assets, net		996			1,124
Intangible assets, net		91,587			97,355
Deferred tax asset		101			104
Warrant asset		7			52
Total assets	$	150,377		$	153,524
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,208		$	8,252
Accrued expenses		5,708			6,192
Accrued licensor payment		3,677			7,275
Finance lease obligations		245			194
Total current liabilities		19,838			21,913
Non-current liabilities:
Notes payable, net of discount		69,731			64,489
Accrued licensor payments		16,111			15,136
Other non-current liabilities		5,909			5,816
Total liabilities		111,589			107,354
Commitments and contingencies (note 8)
Stockholders’ equity:
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2024 and December 31, 2023, none issued		—			—
Common stock, $.01 par value — 150,000,000 shares authorized, 52,387,763 shares issued and outstanding at June 30, 2024 and 52,354,450 shares issued and outstanding at December 31, 2023		524			524
Common stock warrants		4,396			4,396
Additional paid-in capital		464,825			462,446
Accumulated deficit		(428,052	)		(418,490	)
Accumulated other comprehensive loss		(2,905	)		(2,706	)
Total stockholders’ equity		38,788			46,170
Total liabilities and stockholders’ equity	$	150,377		$	153,524

See Notes to Unaudited Interim Condensed Consolidated Financial Statements (“Interim Financial Statements”)

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	*Three Months Ended*						*Six Months Ended*
	*June 30,*						*June 30,*
	*2024*			*2023*			*2024*			*2023*
	(In thousands, except share and per share data)

Net revenue	$	27,000		$	17,538		$	50,011		$	31,084
Cost of goods sold, excluding depreciation and amortization		(3,831	)		(2,425	)		(7,184	)		(4,453	)
Gross profit		23,169			15,113			42,827			26,631
Operating expenses:
Research, development and medical affairs expenses		4,263			3,648			8,624			7,812
General and administrative expenses		7,379			4,373			12,811			8,544
Sales and marketing expenses		8,511			6,434			17,593			12,238
Depreciation and amortization		3,093			1,866			6,178			2,547
Total operating expenses		23,246			16,321			45,206			31,141
Loss from operations		(77	)		(1,208	)		(2,379	)		(4,510	)
Interest expense and other, net		(3,153	)		(1,694	)		(6,892	)		(3,361	)
Unrealized foreign currency loss, net		(125	)		(7	)		(321	)		(20	)
Loss on extinguishment of debt		—			(1,079	)		—			(1,079	)
Change in fair value of common stock warrant		—			(5,911	)		—			(5,911	)
Change in fair value of warrant asset		1			(105	)		(45	)		(91	)
Net loss before income taxes		(3,354	)		(10,004	)		(9,637	)		(14,972	)
Income tax benefit (provision)		43			(25	)		75			(25	)
Net loss		(3,311	)		(10,029	)		(9,562	)		(14,997	)
Preferred stock dividends		—			(669	)		—			(683	)
Net loss applicable to common stockholders	$	(3,311	)	$	(10,698	)	$	(9,562	)	$	(15,680	)
Net loss per share — basic and diluted	$	(0.06	)	$	(1.32	)	$	(0.18	)	$	(2.07	)
Weighted average shares outstanding — basic and diluted		54,383,604			8,093,640			54,370,216			7,565,868

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

	*Three Months Ended*						*Six Months Ended*
	*June 30,*						*June 30,*
	*2024*			*2023*			*2024*			*2023*
	(In thousands)
Net loss	$	(3,311	)	$	(10,029	)	$	(9,562	)	$	(14,997	)

Other comprehensive (loss) income:
Foreign currency translation adjustments		(51	)		—			(199	)		172
Total other comprehensive (loss) income		(51	)		—			(199	)		172
Comprehensive loss	$	(3,362	)	$	(10,029	)	$	(9,761	)	$	(14,825	)

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	*Six Months Ended*
	*June 30,*
	*2024*			*2023*
	(In thousands)
Cash flows from operating activities:
Net loss	$	(9,562	)	$	(14,997	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,178			2,547
Loss on extinguishment of debt		—			1,079
Provision for credit losses		176			1,496
Unrealized foreign currency transaction loss, net		321			20
Amortization of debt discount and deferred financing costs		542			488
Stock-based compensation expense		2,302			442
Change in fair value of warrant asset		45			91
Change in fair value of warrant liability		—			5,911
Changes in assets and liabilities:
Accounts receivable		(3,028	)		(4,355	)
Prepaid expenses and other current assets		(59	)		(539	)
Inventory		(1,588	)		559
Accounts payable		4,445			(2,066	)
Accrued expenses and other current liabilities		(287	)		202
Other non-current liabilities		975			917
Net cash provided by (used in) operating activities		460			(8,205	)
Cash flows from investing activities:
Purchases of property and equipment		(132	)		(171	)
Purchase of intangible assets		—			(75,272	)
Net cash used in investing activities		(132	)		(75,443	)
Cash flows from financing activities:
Repurchase of Series A Preferred Stock		—			(938	)
Proceeds from issuance of Series B Convertible Preferred Stock		—			78,339
Series B Convertible Preferred Stock issuance costs		—			(509	)
Proceeds from issuance of common stock		40			2,404
Proceeds from exercise of stock options		37			—
Repurchase of common stock		—			(314	)
Issuance of debt		5,000			22,500
Payment of debt costs		(62	)		(4,108	)
Payment of accrued licensor obligations		(3,750	)		—
Payment of SLR exit fee agreements		(2,425	)		—
Payment of finance lease obligations		(188	)		(251	)
Net cash (used in) provided by financing activities		(1,348	)		97,123
Effect of exchange rates on cash and cash equivalents and restricted cash		(209	)		28
Net change in cash and cash equivalents and restricted cash		(1,229	)		13,503
Cash and cash equivalents and restricted cash — beginning of period		12,090			5,304
Cash and cash equivalents and restricted cash — end of period	$	10,861		$	18,807
Supplemental cash flow information:
Cash paid for interest	$	3,723		$	3,136
Cash paid for income taxes	$	21		$	21
Supplemental noncash investing and financing activities:
Note payable end of term payment accrued but unpaid	$	3,625		$	3,375

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

							*Series A*						*Series B*
							*Convertible*						*Convertible*												*Accumulated*
	*Common Stock*						*Preferred Stock*						*Preferred Stock*				*Additional*			*Common*					*Other*
																	*Paid-In*			*Stock*		*Accumulated*			*Comprehensive*
	*Shares*			*Amount*			*Shares*			*Amount*			*Shares*		*Amount*		*Capital*			*Warrants*		*Deficit*			*Loss*			*Total*
2023													*(In thousands, except share data)*
Balance, December 31, 2022		6,995,513		$	70			600,000		$	19,227			—	$	—	$	378,238		$	—	$	(415,388	)	$	(2,955	)	$	(20,808	)
Issuance of common stock, net of issuance costs		597,000			6			—			—			—		—		(6	)		—		—			—			—
Repurchase of common stock		(200,919	)		(2	)		—			—			—		—		(312	)		—		—			—			(314	)
Repurchase of Preferred Stock - Series A		—			—			(600,000	)		(19,227	)		—		—		—			—		18,289			—			(938	)
Issuance of Preferred Stock - Series B		—			—			—			—			12,000		7,714		—			—		—			—			7,714
Preferred stock dividends		—			—			—			—			—		14		—			—		(14	)		—			—
Stock-based compensation expense		—			—			—			—			—		—		226			—		—			—			226
Net loss		—			—			—			—			—		—		—			—		(4,968	)		—			(4,968	)
Foreign currency translation adjustments		—			—			—			—			—		—		—			—		—			172			172
Balance, March 31, 2023		7,391,594			74			—			—			12,000		7,728		378,146			—		(402,081	)		(2,783	)		(18,916	)
Issuance of common stock, net of issuance costs		1,415,133			14			—			—			—		—		34			—		—			—			48
Forfeitures of restricted stock		(3,000	)		—			—			—			—		—		—			—		—			—			—
Issuance of Preferred Stock - Series B		—			—			—			—			66,617		66,328		2,355					—			—			68,683
Preferred stock dividends		—			—			—			—			—		669		—					(669	)		—			—
Forfeiture of common stock warrants		—			—			—			—			—		—		6,227					—			—			6,227
Stock-based compensation expense		—			—			—			—			—		—		217			—		—			—			217
Net loss		—			—			—			—			—		—		—			—		(10,029	)		—			(10,029	)
Balance, June 30, 2023		8,803,727		$	88			—		$	—			78,617	$	74,725	$	386,979		$	—	$	(412,779	)	$	(2,783	)	$	46,230

2024
Balance, December 31, 2023		52,354,450		$	524			—		$	—			—	$	—	$	462,446		$	4,396	$	(418,490	)	$	(2,706	)	$	46,170
Issuance of common stock, net of issuance costs		7,112			—			—			—			—		—		—			—		—			—			—
Stock option exercises		13,125			—			—			—			—		—		37			—		—			—			37
Stock-based compensation expense		—			—			—			—			—		—		845			—		—			—			845
Net loss		—			—			—			—			—		—		—			—		(6,251	)		—			(6,251	)
Foreign currency translation adjustments		—			—			—			—			—		—		—			—		—			(148	)		(148	)
Balance, March 31, 2024		52,374,687			524			—			—			—		—		463,328			4,396		(424,741	)		(2,854	)		40,653
Issuance of common stock, net of issuance costs		13,826			—			—			—			—		—		40			—		—			—			40
Forfeitures of restricted stock		(750	)		—			—			—			—		—		—			—		—			—			—
Stock-based compensation expense		—			—			—			—			—		—		1,457			—		—			—			1,457
Net loss		—			—			—			—			—		—		—			—		(3,311	)		—			(3,311	)
Foreign currency translation adjustments		—			—			—			—			—		—		—			—		—			(51	)		(51	)
Balance, June 30, 2024		52,387,763		$	524			—		$	—			—	$	—	$	464,825		$	4,396	$	(428,052	)	$	(2,905	)	$	38,788

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

1. NATURE OF OPERATIONS

Alimera Sciences, Inc., together with its wholly-owned subsidiaries (the “Company”), is a global pharmaceutical company that specializes in the commercialization and development of ophthalmic retinal pharmaceuticals. The Company was formed on June 4, 2003, under the laws of the State of Delaware.

The Company presently focuses on diseases affecting the retina, because the Company believes these diseases are not well treated with current therapies and affect millions of people globally. The Company’s commercialized products are ILUVIEN^® (fluocinolone acetonide intravitreal implant) 0.19 mg, which has received marketing authorization and reimbursement in the United States (“U.S.”) and 24 countries for the treatment of diabetic macular edema (“DME”) and YUTIQ^® (fluocinolone acetonide intravitreal implant) 0.18 mg, available in the U.S. for the treatment and prevention of non-infectious uveitis affecting the posterior segment of the eye (“NIU-PS”).

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. In addition, ILUVIEN has received marketing authorization in 17 European countries and reimbursement in ten countries for the prevention of relapse in recurrent NIU-PS.

The Company markets ILUVIEN directly in the U.S., Germany, the United Kingdom (“U.K.”), Portugal and Ireland. In addition, the Company has 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, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand and several countries in the Middle East. In addition, the Company has granted an exclusive license to Ocumension Therapeutics (“Ocumension”) for the development and commercialization of the Company’s 0.19 mg fluocinolone acetonide intravitreal injection in China, East Asia and the Western Pacific. As of June 30, 2024, the Company has recognized sales of ILUVIEN to its international distributors in the Middle East, China, Austria, Belgium, Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands, and certain Nordic countries.

In the U.S., YUTIQ is indicated for the treatment and prevention of chronic NIU-PS of the eye. The Company has the rights to commercialize YUTIQ under a product rights agreement dated May 17, 2023 (the “Product Rights Agreement”) with EyePoint Pharmaceuticals, Inc. (“EyePoint Parent”) in the entire world, except Europe, the Middle East and Africa, as the Company had previously licensed from EyePoint Pharmaceuticals US, Inc. (“EyePoint”) rights in those territories to certain products, which included YUTIQ (known as ILUVIEN in Europe, the Middle East and Africa) for the prevention of relapse in recurrent NIU-PS (see Note 4). The Product Rights Agreement also excludes any rights to YUTIQ for the treatment and prevention of chronic NIU-PS in China and certain other countries and regions in Asia, which rights are subject to a pre-existing exclusive license between EyePoint Parent and Ocumension.

Agreement and Plan of Merger with ANI Pharmaceuticals, Inc. and ANIP Merger Sub INC.

On June 21, 2024, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ANI Pharmaceuticals, Inc., a Delaware corporation (“ANI”), and ANIP Merger Sub INC., a Delaware corporation and a wholly owned indirect subsidiary of ANI (“Merger Subsidiary”), providing for the merger of Merger Subsidiary with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned indirect subsidiary of ANI (the “Surviving Corporation”). At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) outstanding immediately prior to the Effective Time (including each Company RSA (as defined below) but excluding any treasury shares or shares owned by ANI, Merger Subsidiary or any other subsidiary of ANI or the Company), shall be canceled and cease to exist and shall be converted into the right to receive (i) $5.50 in cash, without interest (such amount, as may be adjusted in accordance with the Merger Agreement, the “Closing Cash Consideration”) and (ii) one contingent value right (a “CVR”), which shall represent the right to receive the Milestone Payments (as defined below) subject to the terms and conditions set forth in the CVR Agreement (as defined below) (the consideration contemplated by (i) and (ii), together, the “Merger Consideration”).

Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval by the holders of a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote on the Merger. Consummation of the Merger by ANI and Merger Subsidiary is further subject to satisfaction of customary closing conditions on the part of the Company, including, without limitation, the Company having performed, or complied with, in all material respects its agreements, covenants and other obligations required to be performed or complied with by the Merger Agreement at or prior to the Closing Date, the representations and warranties of the Company being true and correct (subject in certain instances to materiality qualifiers as specified within the respective agreement), and no continuing Company Material Adverse Effect.

Consummation of the Merger by the Company is further subject to satisfaction of customary closing conditions on the part of ANI and the Merger Subsidiary, including, without limitation, ANI and Merger Subsidiary having performed, or complied with, in all material respects all of their respective agreements, covenants and obligations required to be performed or complied with by each of them under the Merger Agreement at or prior to the Closing Date, the representations and warranties of ANI and Merger Subsidiary being true and correct (subject in certain instances to materiality qualifiers as specified within the respective agreement), and the CVR Agreement being in full force and effect.

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The Merger Agreement includes covenants requiring the Company not to (i) initiate, solicit or knowingly encourage or facilitate any inquiries or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal, (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person, in each case relating to, any Acquisition Proposal or any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal, (iii) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any of the Company Subsidiaries (as defined in the Merger Agreement) (subject to the Company Board’s (as defined in the Merger Agreement) ability to exercise its fiduciary duties), (iv) approve any transaction under, or any third party becoming an “interested stockholder” under, Section 203 of the Delaware General Corporation Law, (v) otherwise knowingly facilitate any effort or attempt by any third party (or its potential sources of financing) to make any proposal or offer that constitutes an Acquisition Proposal, (vi) approve, endorse, recommend or execute or enter into any letter of intent, agreement in principle, term sheet, memorandum of understanding, merger agreement, acquisition agreement or other similar contract relating to an Acquisition Proposal or (vii) approve, authorize, agree or publicly announce any intention to do any of the foregoing, with customary exceptions for superior proposals. The Merger Agreement also includes covenants customary for a transaction of this nature regarding the operation of the business of the Company and its subsidiaries between signing of the Merger Agreement and the Effective Time.

The Merger Agreement requires the Company, as promptly as reasonably practicable, and in any event within 25 business days following the date of the Merger Agreement, to prepare and file with the U.S. Securities and Exchange Commission (the “SEC”) a proxy statement for the purpose of seeking stockholder approval to the Merger Agreement. To satisfy this requirement, the Company completed a PREM14A filing with the SEC on July 24, 2024.

The Merger Agreement contains certain termination rights for the Company and ANI. Upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay ANI a termination fee of approximately $10.4 million. Among other termination rights, and subject to certain limitations, (i) either the Company or ANI may terminate the Merger Agreement if the Merger is not consummated by December 21, 2024 and (ii) the Company and ANI may mutually agree to terminate the Merger Agreement.

At the Effective Time, outstanding awards of restricted stock with respect to shares of Company Common Stock (each, a “Company RSA”), whether vested or unvested as of immediately prior to the Effective Time, for which the holder thereof made a timely and valid election (an “83(b) Election”) under Section 83(b) of the Internal Revenue Code of 1986, as amended, shall be canceled and cease to exist, and shall be converted into the right to receive the Merger Consideration. At the Effective Time, each Company RSA for which the holder thereof did not make a timely and valid 83(b) Election shall be canceled and converted into the right to receive (i) an amount in cash (without interest and subject to deduction for any required withholding as contemplated by the Merger Agreement) equal to: (A) the total number of shares of such Company RSAs multiplied by (B) the Closing Cash Consideration, without any interest thereon, and (ii) CVRs in an amount equal to the total number of shares of such Company RSAs.

At the Effective Time, each stock option granted by the Company to purchase Company Common Stock (each, a “Company Option”) that is outstanding and unvested immediately prior to the Effective Time will vest in full, and (i) each Company Option that is then outstanding and unexercised and which has a per share exercise price that is less than the Closing Cash Consideration shall be canceled and converted into the right to receive the sum of an amount in cash (without interest and subject to deduction for any required withholding as contemplated in the Merger Agreement) equal to: (a) the excess, if any, of the Closing Cash Consideration over the exercise price per share of such Company Option; multiplied by the number of shares of Company Common Stock underlying such Company Option and (b) one (1) CVR, (ii) each Company Option that is then outstanding and unexercised, and which has a per share exercise price that equals or exceeds the Closing Cash Consideration, but is less than the Maximum Total Consideration (as defined in the Merger Agreement) (each, an “Eligible Option”) shall be canceled and converted into the right to receive a cash payment equal to (a) the excess, if any, of (A) the Total Consideration (as defined in the Merger Agreement) over (B) the per share exercise price of such Eligible Option, multiplied by (b) the total number of shares of Company Common Stock subject to such Eligible Option immediately prior to the Effective Time, and (iii) each Company Option that is then outstanding and unexercised and that has a per share exercise price that is equal or greater than the Maximum Total Consideration shall be canceled with no consideration payable in respect thereof.

At the Effective Time, each Company performance stock unit (“Company PSU”) that is then outstanding shall automatically be canceled and converted into the right to receive (i) from the Surviving Corporation an amount of cash equal to the product of (A) the total number of shares of Company Common Stock then underlying such Company PSUs pursuant to the applicable Company PSU grant terms, with, for the avoidance of doubt, all performance metrics deemed achieved at 100%, multiplied by (B) the Closing Cash Consideration, without any interest thereon and (ii) CVRs in an amount equal to the total number of shares of Company Common Stock then underlying such Company PSUs pursuant to the applicable Company PSU grant terms, with, for the avoidance of doubt, all performance metrics deemed achieved at 100%.

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At the Effective Time, each Company restricted stock unit (“Company RSU”) that is then outstanding shall automatically be canceled and converted into the right to receive (i) from the Surviving Corporation an amount of cash equal to the product of (A) the number of shares of Company Common Stock then underlying such Company RSU multiplied by (B) the Closing Cash Consideration, without any interest thereon and (ii) CVRs in an amount equal to the total number of shares of Company Common Stock then underlying such Company RSUs.

At the Effective Time, each Company warrant (“Company Warrant”) that is outstanding as of immediately prior to the Effective Time shall, upon the Effective Time, convert into the right to receive, upon exercise of such Company Warrant, the same Merger Consideration as such holder would have been entitled to receive following the Effective Time if such holder had been, immediately prior to the Effective Time, the holder of the number of shares of Company Common Stock then issuable upon exercise in full of such Company Warrant without regard to any limitations on exercise contained therein.

Voting Agreement

In connection with the execution of the Merger Agreement, ANI and the Company entered into a voting agreement (the “Voting Agreement”) with Caligan Partners LP, Caligan Partners Master Fund LP and Caligan Partners CV VI LP (collectively, “Caligan”). Pursuant to the Voting Agreement, Caligan has agreed, among other things, to (i) vote or cause to be voted all of its shares of Company Common Stock in favor of the Merger and the transactions contemplated by the Merger Agreement and (ii) prior to the Expiration Time (as defined in the Voting Agreement) and subject to limited exceptions, not to sell or otherwise transfer any of its shares of Company Common Stock other than with the consent of ANI and the Company. The shares of Company Common Stock owned by Caligan represented approximately 32.1% of the outstanding shares of Company Common Stock as of July 31, 2024.

Contingent Value Rights Agreement

At or immediately prior to the Effective Time, ANI will enter into a contingent value rights agreement (the “CVR Agreement”) with a rights agent (the “Rights Agent”), pursuant to which each holder of Company Common Stock, as well as holders of Company Warrants, Company Options, Company PSUs, Company RSAs and Company RSUs, may become entitled to contingent cash payments per CVR (each, a “Milestone Payment”), such payments being contingent upon, and subject to, the achievement of: (i) $140.0 million in net revenue (the “2026 Milestone”) on third party sales of ILUVIEN and YUTIQ for ANI’s 2026 fiscal year (the “2026 Net Revenue”) and/or (ii) $160.0 million in net revenue (the “2027 Milestone” and together with the 2026 Milestone, the “Milestones”) on third party sales of ILUVIEN and YUTIQ for ANI’s 2027 fiscal year (the “2027 Net Revenue”).

When issued, each CVR will entitle the holder (the “Holder”) to receive a Milestone Payment upon satisfaction of the applicable Milestones. The Milestone Payment for each CVR will equal the product (rounded to the nearest 1/100 of $0.01) of (i) $0.25 multiplied by a fraction (not exceeding one), the numerator of which is the amount, if any, by which the 2026 Net Revenue exceeds $140.0 million and the denominator of which is $10.0 million (subject to adjustment for the exercise price of Eligible Options) and/or (ii) $0.25 multiplied by a fraction (not exceeding one), the numerator of which is the amount, if any, by which the 2027 Net Revenue exceeds $160.0 million and the denominator of which is $15.0 million (subject to adjustment for the exercise price of Eligible Options).

If a Milestone is attained, the distributions in respect of the CVRs will be made on or prior to the date that is fifteen (15) business days following the filing by ANI of its audited financial statements with the SEC on Form 10-K in respect of the applicable year in which such Milestone has been achieved, and will be subject to a number of deductions, exceptions and limitations, including but not limited to certain taxes.

Under the CVR Agreement, the Rights Agent will have, and Holders of at least 35% of the CVRs then-outstanding have, certain rights to audit and enforcement on behalf of all Holders of the CVRs. ANI will undertake under the terms of the CVR Agreement to use diligent efforts to achieve the Milestones, as such efforts are further described in the CVR Agreement.'

Costs incurred associated with the Merger Agreement totaled $2.2 million for both the three and six months ended June 30, 2024 and are included in general and administrative expenses in our condensed consolidated statement of operations.

2. BASIS OF PRESENTATION

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (“Interim Financial Statements”) in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the SEC. Accordingly, these Interim Financial Statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

The accompanying Interim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023, and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 8, 2024 (the “2023 Form 10-K”). The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.

As of June 30, 2024 and December 31, 2023, the Company had approximately $10.9 million and $12.1 million in cash and cash equivalents, respectively. The Company anticipates its commercial operations will generate sufficient cash flow, combined with the Company’s current financial assets, to fund all conditional and unconditional financial obligations for at least the next 12 months.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the 2023 Form 10-K. Certain of the Company’s more significant accounting policies adopted in the current year are as follows:

Acquisition of Intangible Assets

The Company accounts for the acquisition of pharmaceutical product licenses as an asset acquisition in accordance with Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASC 805”). ASC 805 specifies that if substantially all of the fair value of the gross assets acquired in a transaction are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business and is recorded as an asset acquisition. Under this model, the Company assigns the cost of the transaction to the acquired tangible assets, to the identified intangible assets and liabilities, and to any above or below-market contracts. The purchase price, including the direct amounts paid for the net assets in the transaction and any acquisition costs incurred that relate directly to the acquisition, is assigned based on the relative fair values of the assets acquired and liabilities assumed. The fair value of any identified intangible assets is determined at the acquisition date based on inputs and other factors based on market participants.

Foreign Currency Translation

The financial statements of each of the Company’s subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses are included in other (expense) income, net in the results of operations.

Adoption of New Accounting Standards

In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This standard clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This standard became effective for the Company on January 1, 2024. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This standard requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. All disclosure requirements under this standard are also required for public entities with a single reportable segment. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. This standard became effective for the Company on January 1, 2024. The adoption of this ASU did not have a material impact on the Company’s financial statements and related disclosures.

Accounting Standards Issued but Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This standard provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is available until December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the period of time preparers can utilize the reference rate reform relief guidance in ASU 2020-04. The guidance ensures the relief in ASU 2020-04 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of ASU 2020-04 from December 31, 2022, to December 31, 2024. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). This standard modifies the disclosure or presentation requirements of a variety of topics and aligns requirements with the SEC’s existing disclosure requirements. ASU 2023-06 is effective on the date each amendment is removed from Regulation S-X or Regulation S-K with early adoption prohibited. The amendments in ASU 2023-06 will be applied prospectively in the consolidated financial statements. The Company is currently evaluating the timing of its adoption of this standard and the impact on its financial statements.

In December 2023, ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) requires public business entities to disclose on an annual basis additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition, ASU 2023-09 requires disclosure pertaining to taxes paid, net of refunds received, to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. ASU 2023-09 is effective for the Company for the annual period beginning on January 1, 2025. Early adoption is permitted. ASU 2023-09 should be applied on a prospective basis. However, companies have the option to apply the standard retrospectively. The Company is currently evaluating the potential impact that this new standard will have on its financial statements and related disclosures.

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4. REVENUE RECOGNITION

Overview

The Company recognizes revenue when a customer obtains control of the related good or service pursuant to ASC 606, Revenue from Contracts with Customers. The amount recognized reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following steps as outlined in the guidance: (1) identify the contract with the customer, (2) identify the performance obligations within the contract, (3) determine the net sales price (“transaction price”), (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the entity satisfies a performance obligation. At the inception of a contract, the contract is evaluated to determine if it falls within the scope of ASC 606, followed by the Company’s assessment of the goods or services promised within each contract, assessment of whether the promised good or service is distinct and determination of the performance obligations. The Company then recognizes revenue based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.

Product Revenue

The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its “Customer(s)”). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Estimates of Variable Consideration

Revenues from product sales are recorded at the transaction price, which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations, Group Purchasing Organizations, distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.

With respect to the Company’s international contracts with third-party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market events and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.

Consideration Payable to Customers

Distribution service fees are payments issued to distributors for compliance with various contractually defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.

Product Returns

The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may, at its option, either refund the sales price paid by the Customer by issuing a credit or exchange of the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products, and product recalls, if any.

The estimation process for product returns involves, in each case, several interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue from product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. Through the date of the Interim Financial Statements, product returns have been minimal.

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Collaboration and License Revenue

The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of these agreements may include payment to the Company of one or more of the following: non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.

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

Customer Payment Obligations

The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s locations, but generally range between 30 to 120 days. Occasionally, the Company offers extended payment terms or payment term discounts to certain Customers. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services within one year or less of receiving those products or services.

Accounts Receivable, net

Accounts receivable are generated through sales primarily to major pharmaceutical distributors, pharmacies, hospitals and wholesalers. The Company does not require collateral from its customers for accounts receivable. The carrying amount of accounts receivable is reduced by an allowance for expected credit losses that reflects management’s best estimate of the amounts that will not be collected. Management considers many factors in assessing the need for an allowance for expected credit losses, including the length of time trade accounts receivable are past due, the customer’s ability to pay its obligation, customer types, credit worthiness and the condition of the general economy and the industry as a whole. From time to time, management may adjust its assumptions for anticipated changes in any of those or other factors expected to affect collectability.

The Company writes off accounts receivable when management determines they are uncollectable and credits payments subsequently received on such receivables to bad debt expense in the period received. As of June 30, 2024 and 2023, the Company had $0.2 million reserved for expected credit losses. During the three months ended June 30, 2024 and 2023, the Company reserved $0 and $0.6 million for expected credit losses, respectively.

Allowance for credit losses consisted of the following for the three and six months ended June 30, 2024 and 2023:

	*Three Months Ended June 30,*
	*2024*		*2023*
	(In thousands)
Beginning balance	$	186	$	185
Provision for credit losses		—		625
Write-off of bad debt		—		(625	)
Ending Balance	$	186	$	185

	For the Six Months Ended June 30,
	2024			2023
	(In thousands)
Beginning balance	$	1,222		$	—
Provision for credit losses		176			1,496
Write-off of bad debt		(1,212	)		(1,311	)
Ending Balance	$	186		$	185

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5. LEASES

The Company evaluates all of its contracts to determine whether it is or contains a lease component under FASB ASC 842 – Leases (“ASC 842”). Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease determination and classification for existing leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.

Lease renewal options are not recognized as part of the lease liability until the Company determines it is reasonably certain it will exercise any applicable renewal options. The Company has determined that it is not reasonably certain it will exercise any applicable renewal options. Accordingly, the Company has not recorded any liability for renewal options in these consolidated financial statements. The useful lives of leased assets as well as leasehold improvements, if any, are limited by the expected lease term.

Operating Leases

The Company’s operating lease activities primarily consist of leases for office space in the U.S., the U.K., and Ireland. Most of these leases include options to renew, with renewal terms generally ranging from one to eight years. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information as of June 30, 2024 and December 31, 2023 for the Company’s operating leases is as follows:

	*June 30,*		*December 31,*
	*2024*		*2023*
	(In thousands)
Non-current assets:
Right-of-use assets, net	$	996	$	1,124
Total lease assets	$	996	$	1,124
Current liabilities:
Accrued expenses	$	535	$	634
Non-current liabilities:
Other non-current liabilities		1,691		1,826
Total lease liabilities	$	2,226	$	2,460

The Company’s operating lease cost for the three and six months ended June 30, 2024 was $0.1 million and $0.3 million, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations. The Company’s operating lease cost for the three and six months ended June 30, 2023 was $0.3 million and $0.4 million, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.

As of June 30, 2024, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:

Years Ending December 31	*(In thousands)*
2024 (remaining)	$	319
2025		474
2026		488
2027		503
2028		518
Thereafter		534
Total		2,836
Less amount representing interest		(610	)
Present value of minimum lease payments		2,226
Less current portion (as a portion of accrued expenses)		(535	)
Non-current portion (as a portion of other non-current liabilities)	$	1,691

For the three months ended June 30, 2024 and 2023, cash paid for operating leases was $0.2 million and $0.3 million, respectively. For the six months ended June 30, 2024 and 2023, cash paid for operating leases was $0.2 million and $0.4 million, respectively. No right-of-use assets were obtained in connection with operating leases for the three and six months ended June 30, 2024 or 2023.

As of June 30, 2024, the weighted average remaining lease terms of the Company’s operating leases was 5.3 years. The weighted average discount rate used to determine the lease liabilities was 9.4%.

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Finance Leases

The Company’s finance lease activities primarily consist of leases for automobiles. Property and equipment leases are capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information as of June 30, 2024 and December 31, 2023 for the Company’s finance leases is as follows:

	*June 30,*		*December 31,*
	*2024*		*2023*
	(In thousands)
Non-current assets:
Property and equipment, net	$	589	$	554
Total lease assets	$	589	$	554
Current liabilities:
Finance lease obligations	$	245	$	194
Non-current liabilities:
Finance lease obligations - less current portion		244		256
Total lease liabilities	$	489	$	450

Depreciation expense associated with property and equipment under finance leases was $0.1 million for both the three months ended June 30, 2024 and 2023. Depreciation expense associated with property and equipment under finance leases was approximately $0.1 million for both the six months ended June 30, 2024 and 2023. Interest expense associated with finance leases was less than $0.1 million for both the three months ended June 30, 2024 and 2023. Interest expense associated with finance leases was less than $0.1 million for both the six months ended June 30, 2024 and 2023.

As of June 30, 2024, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:

Years Ending December 31	*(In thousands)*
2024 (remaining)	$	195
2025		284
2026		182
2027		13
Total		674
Less amount representing interest		(185	)
Present value of minimum lease payments		489
Less current portion		(245	)
Non-current portion	$	244

Cash paid for finance leases was $0.1 million during both of the three months ended June 30, 2024 and 2023. Cash paid for finance leases was $0.2 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively. The Company acquired $0.1 million of property and equipment in exchange for finance leases for both the three months ended June 30, 2024 and 2023. The Company acquired $0.2 million and $0.1 million of property and equipment in exchange for finance leases for the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, the weighted average remaining lease terms of the Company’s finance leases was 1.3 years. The weighted average discount rate used to determine the finance lease liabilities was 10.2%.

6. INVENTORY

Inventories are stated at the lower of cost or net realizable value with cost determined under the first in, first out (“FIFO”) method. Included in inventory costs are component parts, work-in-progress and finished goods. The Company relies on third-party manufacturers for the production of all inventory and does not capitalize any internal costs. The Company periodically reviews inventories for excess, obsolete or expiring inventory and writes down obsolete or otherwise unmarketable inventory to its estimated net realizable value in the period in which the impairment is identified.

As of June 30, 2024 and December 31, 2023, inventory consisted of the following:

	*June 30,*		*December 31,*
	*2024*		*2023*
	(In thousands)
Component parts ⁽¹⁾	$	653	$	688
Work-in-process ⁽²⁾		308		134
Finished goods		2,494		1,057
Total Inventory	$	3,455	$	1,879

⁽¹⁾	Component parts inventory consists of manufactured components of the ILUVIEN applicator.

⁽²⁾	Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing as required by U.S. or European Economic Area regulatory authorities.

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7. INTANGIBLE ASSETS

ILUVIEN Intangible Asset

As a result of the U.S. Food and Drug Administration’s approval of ILUVIEN in September 2014, the Company was required to pay a milestone payment of $25.0 million (the “EyePoint Milestone Payment”) to EyePoint in October 2014 (see Note 8).

The gross carrying amount of the ILUVIEN intangible asset is $25.0 million, which is being amortized over approximately 13 years from the acquisition date. The amortization expense related to the ILUVIEN intangible asset was approximately $0.5 million for the three months ended June 30, 2024 and 2023. The amortization expense related to the ILUVIEN intangible asset was approximately $1.0 million for the six months ended June 30, 2024 and 2023. The net book value of the ILUVIEN intangible asset was $6.0 million and $7.0 million as of June 30, 2024 and December 31, 2023, respectively.

The estimated remaining amortization of the ILUVIEN intangible asset as of June 30, 2024, is denoted in the following:

Years Ending December 31	*(In thousands)*
2024 (remaining)	$	978
2025		1,940
2026		1,940
2027		1,191
Total	$	6,049

YUTIQ Intangible Asset

On May 17, 2023, the Company was granted an exclusive and sublicensable right and license, pursuant to the Product Rights Agreement to commercialize YUTIQ for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa (where ILUVIEN is utilized), excluding any rights for the treatment and prevention of chronic NIU-PS of the eye in China and certain other countries and regions in Asia, which rights are subject to a pre-existing exclusive license between EyePoint and Ocumension Therapeutics. As a result, the Company paid EyePoint Parent an upfront payment of $75.0 million and has made two quarterly payments to EyePoint totaling approximately $3.8 million for the six months ended June 30, 2024 and will make two additional guaranteed payments to EyePoint Parent totaling approximately $3.8 million through December 31, 2024. Also, the Company will pay royalties starting in 2025 through 2028 (see Note 8). The present value of the 2024 quarterly payments and the present value of estimated royalties payable to EyePoint Parent for years 2025 to 2028 is included in the cost of the intangible the Company recorded. The estimated royalties will continue to be revalued at each reporting date until they are settled.

As of June 30, 2024, the gross carrying amount of the YUTIQ intangible asset is $96.4 million, which is being amortized over 10 years. The net book value of the YUTIQ intangible asset was $85.5 million and $90.3 million as of June 30, 2024 and December 31, 2023, respectively. The amortization expense related to the YUTIQ intangible asset was approximately $2.4 million and $1.2 million for the three months ended June 30, 2024 and 2023. The amortization expense related to the YUTIQ intangible was $4.8 million and $1.2 million for the six months ended June 30, 2024 and 2023.

The estimated remaining amortization of the YUTIQ intangible asset as of June 30, 2024 is as follows (in thousands):

Years Ending December 31	*(In thousands)*
2024 (remaining)	$	4,853
2025		9,627
2026		9,627
2027		9,627
2028		9,654
Thereafter		42,150
Total	$	85,538

8. LICENSE AGREEMENTS

EyePoint Agreements

In February 2005, the Company entered into an agreement with EyePoint for the use of fluocinolone acetonide (“FAc”) in EyePoint’s proprietary insert technology. This agreement was subsequently amended several times (as amended, the “EyePoint Agreement”). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.

On July 10, 2017, the Company and EyePoint entered into a Second Amended and Restated Collaboration Agreement (the “New Collaboration Agreement”), which amended and restated the EyePoint Agreement. The New Collaboration Agreement expanded the license to include uveitis, including NIU-PS, in Europe, the Middle East and Africa and also allows the Company to pursue an indication for NIU-PS for ILUVIEN in those territories. The New Collaboration Agreement converted the Company’s obligation to share 20% of its net profits to a royalty payable on global net revenues of ILUVIEN. The Company began paying a 2% royalty on net revenues and other related consideration to EyePoint on July 1, 2017. This royalty amount increased to 6% effective December 12, 2018. Pursuant to the New Collaboration Agreement, the Company was required to pay an additional 2% royalty on global net revenues and other related consideration in excess of $75 million in any year.

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On May 17, 2023, the Company entered into a product rights agreement with EyePoint Parent which grants the Company an exclusive and sublicensable right and license under EyePoint Parent’s and its affiliates’ interest in certain of EyePoint Parent’s and its affiliates’ intellectual property to develop, manufacture, sell, commercialize and otherwise exploit certain products, including YUTIQ, for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa, where the Company already has such rights pursuant to the New Collaboration Agreement, and except for China, Hong Kong, Macau, Taiwan, Brunei, Burma (Myanmar), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam, where Ocumension holds a license from EyePoint Parent. Pursuant to the agreement, the Company paid EyePoint Parent an upfront payment of $75.0 million and will also make four quarterly guaranteed payments to EyePoint Parent totaling $7.5 million during 2024. The Company will also pay royalties to EyePoint Parent from 2025 to 2028 at a percentage of mid-to-low double digits of annual U.S. net sales of certain products (including YUTIQ and ILUVIEN) in excess of certain thresholds, beginning at $70.0 million in 2025, increasing annually thereafter. Upon making the quarterly payments in the aggregate amount of $7.5 million in 2024, the licenses and rights granted to the Company will automatically become perpetual and irrevocable. For the quarter ended June 30, 2024, the Company paid the second quarterly payment of $1.9 million. The present value of the 2024 quarterly payments and the present value of estimated royalties payable to EyePoint Parent for years 2025 to 2028 is included in the cost of the intangible the Company recorded. The estimated royalties will continue to be revalued at each reporting date until they are settled.

Concurrently in May 2023, the Company also entered into a commercial supply agreement (the “Supply Agreement”) with EyePoint Parent pursuant to which, during the term of the Product Rights Agreement, EyePoint Parent will be responsible for manufacturing and exclusively supplying (subject to certain exceptions) to agreed-upon quantities of YUTIQ necessary for the Company to commercialize YUTIQ in the U.S. at certain cost-plus amounts, subject to adjustments. EyePoint Parent’s manufacture and supply of YUTIQ will be exclusive (subject to certain exceptions) until the Company has the ability to manufacture and supply YUTIQ for commercialization in the U.S. The term of the Supply Agreement is for a period of two years through May 2025 and thereafter automatically renews for successive one-year terms unless either party provides notice of non-renewal to the other party within a specified period of time prior to the beginning of the next automatic renewal term, provided that the Supply Agreement automatically terminates upon the successful completion of the transfer of manufacturing for YUTIQ to the Company or its designee. The Supply Agreement also automatically terminates upon termination of the Product Rights Agreement.

The Company’s license rights to EyePoint’s proprietary delivery device could revert to EyePoint if the Company were to: (i) fail twice to cure its breach of an obligation to make certain payments to EyePoint following receipt of written notice thereof; (ii) fail to cure other breaches of material terms of the EyePoint Agreement 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; (iii) 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 its property, file a petition under any bankruptcy or insolvency act or have any such petition filed against it and such proceeding remains undismissed or unstayed for a period of more than 60 days; or (iv) notify EyePoint in writing of its decision to abandon its license with respect to a certain product using EyePoint’s proprietary insert technology.

In connection with a previous agreement with EyePoint, the Company was entitled to recover commercialization costs that were incurred prior to profitability of ILUVIEN and offset a portion of future payments owed to EyePoint in connection with sales of ILUVIEN with those accumulated commercialization costs, referred to as the “Future Offset.” Following the signing of the New Collaboration Agreement, the Company retained the right to recover up to $15.0 million of the Future Offset. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5.0 million of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of June 30, 2024 and December 31, 2023, the balance of the Future Offset was approximately $6.4 million and $6.5 million, respectively, which was fully reserved.

SWK Agreements

On December 17, 2020, EyePoint entered into a royalty purchase agreement (the “SWK Agreement”) with SWK Funding, LLC (“SWK”). Pursuant to the SWK Agreement, EyePoint sold its interest in royalties that the Company is obligated to pay EyePoint under the New Collaboration Agreement. The Company is not a party to the SWK Agreement.

On June 19, 2024, the Company entered into a letter agreement (the “Letter Agreement”) with SWK updating certain terms of the Company’s existing New Collaboration Agreement and associated royalty payments. The Letter Agreement modifies the royalty payment that the Company is obligated to pay SWK to 3.125% on net revenues (the “Alternative Royalty”) for any FAc product, including ILUVIEN and YUTIQ. In addition, pursuant to the terms of the Letter Agreement, in the case of a Change of Control (as defined in the Letter Agreement), the Company may, at its option, at any time during the six (6) months following the effective date of such Change of Control buy out the entire royalty obligation for the greater of (a) $17,250,000 or (b) 4.75 times the aggregate amount of Alternative Royalty paid or payable (x) over the most recently completed four (4) calendar quarters, or (y) if such Option is exercised prior to April 1, 2025, then 3.125% of net revenues for any FAc product over the most recently completed four (4) calendar quarters.

If the Company or SWK were to default under the Letter Agreement, the Company would be required to revert to making royalty payments under the New Collaboration agreement in lieu of the Alternative Royalty.

Royalty Expense

For the three months ended June 30, 2024 and 2023, the Company recognized $0.8 million and $0.5 million of royalty expense, respectively, which is included in cost of goods sold. For the six months ended June 30, 2024 and 2023, the Company recognized $1.7 million and $0.9 million of royalty expense, respectively, which is included in cost of goods sold. As of June 30, 2024 and 2023, approximately $0.8 million and $0.9 million of this royalty expense was included in the Company’s accounts payable, respectively.

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Ocumension License Agreement

On April 14, 2021, the Company entered into an exclusive license agreement (the “License Agreement”) with Ocumension (Hong Kong) Limited (“Ocumension HK”), a wholly owned subsidiary of Ocumension, for the development and commercialization under Ocumension HK’s own brand name(s), either directly or through its affiliates or approved third-party sublicensees, of the Company’s 190 microgram fluocinolone acetonide intravitreal implant in applicator (the “Product”; currently marketed in the United States, Europe, and the Middle East as ILUVIEN) for the treatment and prevention of eye diseases in humans, other than uveitis, in a specified territory. The territory is defined as the People’s Republic of China, including Hong Kong SAR and Macau SAR, region of Taiwan, South Korea, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam (the “Territory”).

The Company received a nonrefundable upfront payment of $10.0 million from Ocumension HK and may in the future receive additional sales-based milestone payments totaling up to $89.0 million upon the achievement by Ocumension HK of certain specified sales milestones during the term of the License Agreement of the Product. The Company’s receipt of future milestone payments depends upon whether Ocumension HK is able to successfully complete product development and commercialization in the Territory, which requires, among other things, obtaining necessary regulatory approvals and appropriate reimbursement pricing in the various countries and jurisdictions in the Territory, a process that may take several years.

The term of the License Agreement will continue (a) until the 10th anniversary of the latest first commercial sale of the Product in any country or jurisdiction in the Territory or (b) for as long as Ocumension HK is commercializing the Product in any part of the Territory, whichever is later. The term is subject to the Company’s right to partially terminate the License Agreement beginning on the 10th anniversary of the effective date with respect to any country or jurisdiction in the Territory in which Ocumension has not achieved at the time of termination first commercial sale and is not continuing to commercialize the Product. Ocumension will purchase Product from the Company at a fixed transfer price without royalty obligation on future sale (other than milestone payments as described above). Ocumension HK is responsible for all costs of development and commercialization in the Territory.

As of June 30, 2024 and December 31, 2023, the Company had approximately $0.3 and $0.4 million, respectively, of deferred revenue under the Ocumension license agreement that will be recognized over the remaining term of the agreement once Ocumension begins to sell the Product under the License Agreement.

Warrant Subscription Agreement

On April 14, 2021, the Company entered into the warrant agreement with Ocumension pursuant to which Ocumension agreed to issue to the Company 1,000,000 non-transferable warrants granting the Company the right for a period of four years to subscribe to up to an aggregate of 1,000,000 shares of Ocumension stock at the subscription price of HK$23.88 per warrant share (or US$3.07 per warrant share as converted to U.S. Dollars at the exchange rate on April 9, 2021 of 0.12853 U.S. Dollars per HK$), subject to adjustment. (The converted rate is for illustrative purposes only; if the Company exercises the warrants, it will pay the subscription price of HK$23.88 per warrant share in HK$.) The warrants were issued on August 13, 2021, pursuant to the terms of the warrant agreement and expire on April 14, 2025. The warrants are not and will not be listed on any stock exchange. The fair value of the warrants are included on the balance sheet and revalued at each of the Company’s reporting dates with fluctuations being booked through the Company’s statement of operations.

9. LOAN AGREEMENTS

Loan Agreements with SLR Investment Corp. (formerly Solar Capital Ltd.)

On January 5, 2018, the Company entered into a $40.0 million loan and security agreement with SLR Investment Corp. (“SLR,” also formerly known as Solar Capital Ltd.), as Collateral Agent, and the parties signatory thereto from time to time as “Lender(s),” including Solar Capital Ltd. in its capacity as a Lender (the “2018 Loan Agreement”) and a related exit fee agreement (the “2018 Exit Fee Agreement”).

On December 31, 2019, the Company refinanced the 2018 Loan Agreement by entering into a $45.0 million loan and security agreement (the “2019 Loan Agreement”) and a related exit fee agreement (the “2019 Exit Fee Agreement”) with SLR, as Agent, and the parties signing the 2019 Loan Agreement from time to time as Lenders, including SLR in its capacity as a Lender. The Company has amended the 2019 Loan Agreement on multiple occasions, which are summarized as follows:

●

On February 22, 2022, the Company entered into a Third Amendment to the 2019 Loan Agreement (the “Third Amendment”), which, among other things, amended the provisions relating to the minimum revenue amount that the Company must achieve at the end of each calendar quarter, as calculated on a trailing six-month basis (the “Revenue Covenant”).

●

On December 7, 2022, the Company entered into a Fourth Amendment to the 2019 Loan Agreement (the “Fourth Amendment”), which, among other things, extended the amortization date from January 1, 2023 to April 1, 2023, and provided that such date might be further extended to July 1, 2023 upon the Company’s request and in consultation with the Lenders, in each of the Lenders’ sole discretion. The Fourth Amendment also amended the provisions relating to the Revenue Covenant effective with the first calendar quarter in 2023.

●

On March 24, 2023, the Company entered into a Fifth Amendment to the 2019 Loan Agreement (the “Fifth Amendment”) and a related Fifth Amendment Exit Fee Agreement (the “2023 Exit Fee Agreement”). Pursuant to the Fifth Amendment, the Lenders agreed to, among other things, (i) an additional tranche of $2.5 million to increase the Company’s existing term loan facility to $47.5 million, subject to certain closing conditions, (ii) extend availability of the amount of $15.0 million to be funded at the Lender’s sole discretion, and (iii) amended the Revenue Covenants to be effective for calendar quarters ending on or after March 31, 2023.

●

On May 17, 2023, the Company entered into a Sixth Amendment to the 2019 Loan Agreement, (the “Sixth Amendment”). Pursuant to the Sixth Amendment, the Lenders agreed to, among other things, (i) an increase of the limit of availability from $15.0 million to $20.0 million, and (ii) amended the Revenue Covenants to be effective for calendar quarters ending on or after June 30, 2023. The Company received aggregate gross proceeds of $20.0 million upon execution of the Sixth Amendment.

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●

On March 6, 2024, Alimera entered into the Seventh Amendment to the 2019 Loan Agreement, (the “Seventh Amendment”). Pursuant to the Seventh Amendment, the Lenders agreed to, among other things, increase the amount available under the facility from $67.5 million to $72.5 million and funded an additional $5.0 million on March 6, 2024.

Interest on the 2019 Loan Agreement prior to the Fifth Amendment was payable at an annual rate the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. Interest on the 2019 Loan Agreement following the Fifth Amendment is payable at an annual rate equal to 5.15% plus the greater of (i) 4.60% or (ii) one-month SOFR, which will reset monthly. As of June 30, 2024 and December 31, 2023, the interest rate on the 2019 Loan Agreement was approximately 10.48% and 10.50%, respectively. The 2019 Loan Agreement provides for interest only payments until April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by April 20, 2025, followed by monthly payments of principal and interest through the loan maturity date of April 30, 2028. The Company met such financial targets during the year ended December 31, 2023, and provided there are no events of default as defined by the Loan Agreement on or prior to April 20, 2025, the Company anticipates being able to extend the interest only period for an additional 12 months.

The Company is in compliance with the Revenue Covenant, and expects to comply with the remainder of the Revenue Covenant through one year after these Interim Financial Statements are issued.

Exit Fee Agreements

2018 Exit Fee Agreement

Pursuant to the existing 2018 Exit Fee Agreement, the Company is obligated to pay an exit fee of up to $2.0 million upon the occurrence of an exit event, which generally means a “change in control” (as defined in the 2018 Exit Fee Agreement) and will survive the termination of the 2019 Loan Agreement and accompanying amendments with a term of 10 years. To the extent that the Company has not already paid the $2.0 million exit fee, the Company is also obligated to pay a fee of $1.0 million on achieving each of the following milestones:

●

First, if the Company achieves revenues of $80.0 million or more from the sale of its ILUVIEN product in the ordinary course of business to third-party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and

●

Second, if the Company achieves revenues of $100.0 million or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.

2019 Exit Fee Agreement

Pursuant to the existing 2019 Exit Fee Agreement, the Company is obligated to pay an exit fee of up to a $0.7 million upon the occurrence of an exit event, which generally means a “change in control” (as defined in the 2019 Exit Fee Agreement) and will survive the termination of the 2019 Loan Agreement and accompanying amendments with a term of 10 years. To the extent that the Company has not already paid the $0.7 million exit fee, the Company is obligated to pay a fee of $0.3 million on achieving each of the following milestones:

●

First, if the Company achieves revenues of $75.0 million or more from the sale of its ILUVIEN product in the ordinary course of business to third-party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and

●

Second, if the Company achieves revenues of $95.0 million or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.

2023 Exit Fee Agreement

Pursuant to the existing 2023 Exit Fee Agreement, the Company is obligated to pay 1.5% of the aggregate principal amount funded under the 2019 Loan Agreement and accompanying amendments (principal amount currently is $72.5 million) as an exit fee upon the occurrence of an exit event, which generally means a change in control, and will survive the termination of the 2019 Loan Agreement and accompanying amendments and has a term of 10 years. To the extent that the Company has not already paid the 1.5% (currently $1.1 million) of the aggregate principal amount funded under the 2019 Loan Agreement and accompanying amendments, the Company is obligated to pay a fee of 1.5% of the aggregate principal amount funded under the 2019 Loan Agreement and accompanying amendments upon achieving the following milestone:

●

If the Company achieves revenues of $82.5 million or more from the sale of its ILUVIEN product in the ordinary course of business to third-party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month.

On May 17, 2023, the Company amended the revenue criteria for all three exit fee agreements to include the sales of YUTIQ in the ordinary course of business to third-party customers. The exit fees payable pursuant to the Company’s existing exit fee agreements will not exceed $3.8 million in total.

During the fourth quarter of 2023, the Company met one revenue milestone under the 2018 Exit Fee Agreement and one revenue milestone under the 2019 Exit Fee Agreement. Accordingly, the Company recognized $1.3 million of interest expense during the fourth quarter of 2023. During the first quarter of 2024, the Company met the revenue milestone under the 2023 Exit Fee Agreement and recognized $1.1 million of interest expense. During the second quarter of 2024, the Company met one revenue milestone under the 2019 Exit Fee Agreement and recognized $0.3 million of interest expense. As of June 30, 2024, there was $0.3 million in exit fees included in accounts payable. As of June 30, 2024, one revenue milestone relating to the 2018 Exit Fee Agreement, totaling $1.0 million, remained untriggered.

Modification of Debt

The Company capitalized approximately $2.6 million of deferred financing costs in connection with the Fifth and Sixth Amendments during 2023. In connection with the Seventh Amendment, the Company capitalized less than $0.1 million of deferred financing costs.

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Extinguishment of Debt

In accordance with the guidance in ASC Subtopic 470-50, Debt – Modifications and Extinguishments, the Company entered into and accounted for the Sixth Amendment as an extinguishment of debt. The Company recognized a loss on extinguishment of $1.1 million in connection with the Sixth Amendment.

Fair Value of Debt

The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at June 30, 2024 and December 31, 2023.

10. EARNINGS (LOSS) PER SHARE

The Company follows ASC 260, Earnings Per Share (“ASC 260”), which requires the reporting of both basic and diluted earnings per share (“EPS”). Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses. The Company’s preferred stock for Series A and Series B were eliminated in 2023 (see Note 11).

Basic net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, unvested restricted stock units and Employee Stock Purchase Plan (“ESPP”) shares are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share were the same for all periods presented as a result of the Company’s net loss.

The following common stock equivalents were excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2024 and 2023, respectively, because their inclusion would have had anti-dilutive effect:

	*June 30,*
	*2024*		*2023*
Series B convertible preferred stock		—		45,272,874
Common stock warrants		1,600,000		1,600,000
Stock options		3,275,893		1,217,045
Restricted stock units (“RSUs”)		869,638		—
Performance stock units (“PSUs”)		900,000		—
Total		6,645,531		48,089,919

11. STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

In October 2012, the Company closed its preferred stock financing in which it sold units consisting of 1,000,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) and warrants (which expired on October 1, 2017) to purchase 300,000 shares of Series A Preferred Stock for gross proceeds of $40.0 million prior to the payment of approximately $0.6 million of related issuance costs. In 2014, 400,000 shares of Series A Preferred Stock were converted into common stock. In 2023, the Company repurchased the remaining 600,000 shares of Series A Preferred Stock. Following such repurchase, the Company filed a certificate of elimination of the Series A Preferred Stock with the Secretary of State of the State of Delaware. The authorized shares of Series A Preferred Stock were returned to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series.

Series B Convertible Preferred Stock

In March 2023, the Company issued and sold an aggregate of 12,000 shares of Series B Convertible Preferred Stock at a purchase price of $1,000 per share and warrants to purchase common stock for aggregate gross proceeds of $12.0 million. In May 2023, the Company issued and sold an additional aggregate of 67,000 shares of Series B Convertible Preferred Stock at a purchase price of $1,000 per share and warrants to purchase common stock for aggregate gross proceeds of $67.0 million. On August 1, 2023, the Company amended the Certificate of Designation of Series B Convertible Preferred Stock to allow for the issuance of pre-funded warrants (“Pre-Funded Warrants”) to certain holders of Series B Preferred Stock. Prior to such amendment, the Certificate of Designation provided that the Series B Preferred Stock (including any accrued but unpaid dividends) would automatically convert at the then-applicable conversion price (the “Mandatory Conversion”) in full into the Company’s common stock following stockholder approval. Stockholder approval was received at the Company’s 2023 annual meeting of stockholders held on August 1, 2023, and the Company designated August 15, 2023, as the date for the Mandatory Conversion of the Series B Convertible Preferred Stock into its common stock and Pre-Funded Warrants to purchase common stock. In connection with the Mandatory Conversion, the Company issued 43,617,114 shares of common stock and Pre-Funded Warrants exercisable for 2,000,000 shares of common stock at an exercise price of $0.01 per share to the holders of the Series B Convertible Preferred Stock. Following the Mandatory Conversion, no shares of the Series B Convertible Preferred Stock remain outstanding. The authorized shares of Series B Preferred Stock were returned to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series.

In August 2024, the Pre-Funded Warrants were exercised by the holder on a cashless basis, resulting in the issuance of 1,996,402 shares of common stock, and no Pre-Funded Warrants remaining outstanding.

Common and Preferred Stock

The Company’s authorized capital stock consists of (a) 150,000,000 shares of common stock, par value $0.01 per share; and (b) 10,000,000 shares of preferred stock, par value $0.01 per share. At June 30, 2024 and December 31, 2023, there were 52,387,763 and 52,354,450 shares of common stock issued and outstanding, respectively. At June 30, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding.

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12. STOCK-BASED COMPENSATION

2023 Equity Incentive Plan

On August 1, 2023, the Company’s stockholders approved the 2023 Equity Incentive Plan (the “2023 Plan”), which replaced the 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2023 Plan has a share reserve equal to the sum of (a) 3,231,755 shares of common stock, (b) shares that are subject to awards granted under the 2019 Plan that are outstanding on or after August 1, 2023 (the “Effective Date”) and that are subsequently forfeited, cancelled, expire or lapse unexercised or unsettled or are reacquired by the Company, (c) the number of shares reserved under the 2019 Plan that are not issued or subject to outstanding awards under the 2019 Plan on the Effective Date, and (d) the increase in shares described in the next sentence. On the first anniversary of the Effective Date, the number of shares of common stock that may be issued under the 2023 Plan will increase by a number of shares equal to 6% of the number of outstanding shares of common stock. Under the 2023 Plan, the Compensation Committee of the Company’s board of directors is authorized to grant equity-based incentive awards that include stock options, restricted stock units (“RSUs”), shares of restricted stock (“RSS”) and performance-based restricted stock units (“PSUs”) to officers, directors, employees and contractors. Equity-based awards are also outstanding under the Company’s 2019 and 2010 equity incentive plans, although no new awards can be granted under either plan. The Company’s equity incentive plans permit the issuance of various types of awards including but not limited to stock options, restricted stock, RSUs and PSUs.

2024 Equity Inducement Plan

On February 8, 2024, upon recommendation of the Compensation Committee of the Board of Directors of the Company, they approved and adopted the 2024 Equity Inducement Plan (the “2024 Equity Inducement Plan”), and subject to the adjustment provisions of the 2024 Equity Inducement Plan, reserved 800,000 shares of the Company’s common stock, par value $0.01 per share, for issuance of equity awards under the 2024 Equity Inducement Plan. The 2024 Equity Inducement Plan was approved and adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2024 Equity Inducement Plan provides for grants of non-statutory stock options, RSUs, PSUs, stock appreciation rights, and restricted shares (each, an “Inducement Award”). In addition, the Compensation Committee of the Board of Directors also approved various forms of stock-based awards. The terms and conditions of the 2024 Equity Inducement Plan are intended to comply with the Nasdaq inducement award rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, the only persons eligible to receive grants of Inducement Awards are individuals who were not previously employees or directors of the Company (or following a bona fide period of non-employment), as an inducement material to the individuals’ entry into employment with the Company.

An aggregate 440,814 and 142,511 shares of the Company’s common stock were available for issuance of new awards granted under the Company’s equity incentive plans as of June 30, 2024 and December 31, 2023, respectively.

Stock Options

Options granted to employees typically become exercisable over a four-year vesting period and have a ten-year contractual term. Initial options granted to directors typically vest over a four-year period and have a ten-year contractual term. Annual option grants to directors typically vest in full on the date of the Company’s next annual meeting of shareholders and have a ten-year contractual term.

During the three months ended June 30, 2024 and 2023, the Company recorded compensation expense related to stock options of approximately $0.5 million and $0.1 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded compensation expense related to stock options of approximately $1.0 million and $0.3 million, respectively. As of June 30, 2024, the total unrecognized compensation cost related to non-vested stock options granted was $4.5 million and is expected to be recognized over a weighted average period of 3.16 years.

The following table presents a summary of stock option activity for the three months ended June 30, 2024 and 2023:

	*Three Months Ended*
	*June 30,*
	*2024*					*2023*
				*Weighted*					*Weighted*
				*Average*					*Average*
				*Exercise*					*Exercise*
	*Options*			*Price ($)*		*Options*			*Price ($)*
Options outstanding at beginning of period		3,239,384			7.38		1,216,953			18.03
Grants		64,000			3.00		17,321			2.55
Forfeitures and expirations		(27,491	)		12.80		(17,229	)		45.18
Exercises		—			—		—			—
Options outstanding at period end		3,275,893			7.25		1,217,045			17.43
Options exercisable at period end		1,245,003			13.51		893,401			22.07
Weighted average per share fair value of options granted during the period	$	2.19				$	1.77

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The following table presents a summary of stock option activity for the six months ended June 30, 2024 and 2023:

	*Six Months Ended*
	*June 30,*
	*2024*					*2023*
				*Weighted*					*Weighted*
				*Average*					*Average*
				*Exercise*					*Exercise*
	*Options*			*Price ($)*		*Options*			*Price ($)*
Options outstanding at beginning of period		3,194,574			7.42		1,175,339			19.03
Grants		163,500			3.72		117,723			2.70
Forfeitures and expirations		(69,056	)		7.55		(76,017	)		19.41
Exercises		(13,125	)		2.82		—			—
Options outstanding at period end		3,275,893			7.25		1,217,045			17.43
Options exercisable at period end		1,245,003			13.51		893,401			22.07
Weighted average per share fair value of options granted during the period	$	2.60				$	1.86

The following table provides additional information related to outstanding stock options as of June 30, 2024:

					*Weighted*
			*Weighted*		*Average*
			*Average*		*Remaining*		*Aggregate*
			*Exercise*		*Contractual*		*Intrinsic*
	*Shares*		*Price ($)*		*Term (in years)*		*Value ($)*
							(In thousands)
Outstanding		3,275,893		7.25		7.25		5,600
Exercisable		1,245,003		13.51		5.88		1,206
Outstanding, vested and expected to vest		2,826,910		7.86		7.76		4,617

The following table provides additional information related to outstanding stock options as of December 31, 2023:

					Weighted
			*Weighted*		*Average*
			*Average*		*Remaining*		*Aggregate*
			*Exercise*		*Contractual*		*Intrinsic*
	*Shares*		*Price ($)*		*Term (in years)*		*Value ($)*
							(In thousands)
Outstanding		3,194,574		7.42		8.35		2,460
Exercisable		993,037		16.34		5.40		258
Outstanding, vested and expected to vest		2,887,226		7.84		8.20		2,164

Shares outstanding, vested and expected to vest in the table above do not reflect any accelerated vesting of unvested stock options that may result from the ANI Merger Agreement.

As of June 30, 2024, 110,179 shares remain available for grant under the 2023 Plan. As of June 30, 2024, 311,500 shares remain available for grant under the 2024 Equity Inducement Plan.

Restricted Stock and Restricted Stock Units

The following table presents a summary of restricted stock and RSUs activity for the three months ended June 30, 2024 and 2023:

	*Three Months Ended*
	*June 30,*
	*2024*					*2023*
				*Weighted*					*Weighted*
				*Average*					*Average*
				*Grant Date*					*Grant Date*
	*Shares*			*Fair Value ($)*		*Shares*			*Fair Value ($)*
Restricted stock and RSUs outstanding at beginning of period		1,281,120			2.66		685,176			1.67
Grants		—			—		—			—
Vested restricted stock and RSUs		—			—		—			—
Forfeitures		(750	)		1.35		(3,000	)		1.35
Restricted stock and RSUs outstanding at period end		1,280,370			2.67		682,176			1.67

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The following table presents a summary of restricted stock and RSUs activity for the six months ended June 30, 2024 and 2023:

	*Six Months Ended*
	*June 30,*
	*2024*					*2023*
				*Weighted*					*Weighted*
				*Average*					*Average*
				*Grant Date*					*Grant Date*
	*Shares*			*Fair Value ($)*		*Shares*			*Fair Value ($)*
Restricted stock and RSUs outstanding at beginning of period		1,217,076			2.35		73,594			4.98
Grants		223,300			3.77		632,050			1.39
Vested restricted stock and RSUs		(159,256	)		1.82		(20,468	)		4.98
Forfeitures		(750	)		1.35		(3,000	)		1.35
Restricted stock and RSUs outstanding at period end		1,280,370			2.67		682,176			1.67

Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”) was $0.3 million and approximately $0.1 million for the three months ended June 30, 2024 and 2023. Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”) was $0.6 million and $0.1 million for the six months ended June 30, 2024 and 2023.

As of June 30, 2024, the total unrecognized compensation cost related to restricted stock and RSUs was $3.0 million and is expected to be recognized over a weighted average period of 3.16 years.

Performance-based restricted stock units

During the fourth quarter of 2023, the Company began granting performance-based PSUs that will settle in stock. PSUs awarded to employees have a three-year performance period and vest equally upon the achievement of annual performance measures established at the date of grant. Participants may ultimately earn between zero and 100% of the number of PSUs granted based on the degree of achievement of the performance metrics. If zero PSUs vest in a given year because the annual performance metric was not achieved, such PSUs will not be eligible to vest in a later year for the participant.

The following table summarizes the PSUs activity for three months ended June 30, 2024 and 2023:

	*Three Months Ended*
	*June 30,*
	*2024*				*2023*
			*Weighted*				*Weighted*
			*Average*				*Average*
			*Grant Date*				*Grant Date*
	*Shares*		*Fair Value ($)*		*Shares*		*Fair Value ($)*
PSUs outstanding at beginning of period		900,000		3.23		—		—
Grants		—		—		—		—
Vested		—		—		—		—
Forfeitures		—		—		—		—
Restricted stock and RSUs outstanding at period end		900,000		3.23		—		—

The following table summarizes the PSUs activity for six months ended June 30, 2024 and 2023:

	*Six Months Ended*
	*June 30,*
	*2024*				*2023*
			*Weighted*				*Weighted*
			*Average*				*Average*
			*Grant Date*				*Grant Date*
	*Shares*		*Fair Value ($)*		*Shares*		*Fair Value ($)*
PSUs outstanding at beginning of period		625,000		2.99		—		—
Grants		275,000		3.77		—		—
Vested		—		—		—		—
Forfeitures		—		—		—		—
Restricted stock and RSUs outstanding at period end		900,000		3.23		—		—

The Company recognized $0.9 million in compensation costs related to the PSUs during the three and six months ended June 30, 2024, as performance conditions were expected and probable to be achieved as of June 30, 2024. The Company recognized no compensation costs related to the PSUs during the three and six months ended June 30, 2023. As of June 30, 2024, there was approximately $2.0 million of total unrecognized compensation cost related to outstanding PSUs that could be recognized over a weighted average period of 2.64 years if the PSUs vest.

In July 2024, 299,999 PSUs vested in accordance with the performance conditions outlined in the PSU agreements. Per the PSU agreements, the vested PSUs will be settled in the form of common stock as soon as practicable on or following the end of each measurement year within the performance period.

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Employee Stock Purchase Plan

During the three months ended June 30, 2024 and 2023, the Company recorded compensation expense related to its employee stock purchase plan of less than $0.1 million for each period. For both the six months ended June 30, 2024 and 2023, the Company recorded compensation expense related to its employee stock purchase plan of less than $0.1 million for each period.

13. INCOME TAXES

In accordance with ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. Significant management judgment is involved in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. Due to uncertainties with respect to the realization of U.S. deferred tax assets due to the history of operating losses, a valuation allowance has been established against the entire net U.S. deferred tax asset balance. The valuation allowance is based on management’s estimates of taxable income in the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. If actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed, which could materially impact the Company’s financial position and results of operations.

At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates.

The Company also applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements. There has been no change to the Company’s policy that recognizes potential interest and penalties related to uncertain tax positions. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.

For the three and six months ended June 30, 2024, the Company has recorded a tax benefit for both periods of less than $0.1 million. The effective tax rate for the period differs from the statutory tax rate for the period primarily due to the effects of valuation allowances on net operating losses and on other deferred tax assets.

As of December 31, 2023, the Company had federal NOL carry-forwards of approximately $146.8 million and state NOL carry-forwards of approximately $106.8 million, subject to further limitation based upon the final results of the Company’s analyses of Internal Revenue Code Sections 382 and 383. These NOLs are available to reduce future income unless otherwise taxable. If not utilized, the federal NOL carry-forwards will expire at various dates between 2029 and 2037, the Company’s federal NOL created in 2018 and onward will carry forward indefinitely and the state NOL carry-forwards will expire at various dates between 2023 and 2043.

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 Internal Revenue Code Section 382 (“Section 382”) (or comparable provisions of state law) if certain changes in ownership were to occur. The Company periodically evaluates its NOL carry-forwards and whether certain changes in ownership have occurred that would limit the Company’s ability to utilize a portion of its NOL carry-forwards. If it is determined that significant ownership changes have occurred since the Company generated its NOL carry-forwards, the Company may be subject to annual limitations on the use of these NOL carry-forwards under Section 382 (or comparable provisions of state law). The Company has determined that Section 382 changes in ownership occurred in late 2015 and in 2023. As a result of these changes in ownerships, the Company estimated that substantially all of its federal and state NOL carry-forwards and tax credits generated prior to the 2023 change in ownership will be subject to Section 382 limitations and may not be fully utilized in the future. The Company is currently in the process of evaluating the Section 382 impact to determine if a write-off is necessary. The reduction to the Company’s 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.

Effective January 1, 2022, for U.S. tax purposes research and development costs, including software development costs, are required to be capitalized and will be deductible over five years for costs incurred domestically and over fifteen years for costs incurred in a foreign country. Additionally, the first year of amortization requires that amortization begin with the midpoint of the taxable year.

As of December 31, 2023 and 2022, the Company’s U.K. subsidiary is in a net deferred tax asset position primarily due to the step up in tax basis for intangible assets created by the transfer of intellectual property from the Netherlands to the U.K. Based upon the expected pattern of reversal of deferred taxes, it is not more likely than not that these deferred tax assets will be realized. As such, a full valuation allowance is placed against the net deferred tax assets of the U.K. subsidiary. The Company’s Irish subsidiary has a deferred tax asset for net operating loss carryforwards. The Company utilized $1.1 million of this carryforward as of December 31, 2023. The Company expects the remaining net operating loss carryforward to be fully realizable in the future based upon the Company’s control of the transfer pricing arrangements. A valuation allowance is not recorded on the deferred tax assets of the Ireland subsidiary. Deferred tax considerations for all other foreign entities are immaterial to the financial statements.

The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings and original investments in such subsidiaries. As a result, the Company does not expect to record deferred tax liabilities in the future related to excesses of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.

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14. SEGMENT INFORMATION

The Company’s operations are managed as three operating segments: U.S., International and Operating Cost. The Company determined that each of these operating segments represented a reportable segment. In monitoring performance, aligning strategies and allocating resources, the Company’s CODM manages and evaluates our U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, the Company classifies within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

The Company’s U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development.

Each of the Company’s U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to the Company’s consolidated totals. The Company does not report balance sheet information by segment because the Company’s CODM does not review that information. The Company allocates certain operating expenses among its reporting segments based on activity-based costing methods. These activity-based costing methods require the Company 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.

During the three months ended June 30, 2024 and 2023, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 65% and 68% of the Company’s consolidated product revenues, respectively. During the six months ended June 30, 2024 and 2023, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 64% and 63% of the Company’s consolidated product revenues, respectively. These same two customers within the U.S. segment accounted for approximately 70% of the Company’s consolidated accounts receivable at June 30, 2024 and at December 31, 2023. Internationally, our distributors produced approximately 64% and 41% of our international product revenues during the three months ended June 30, 2024 and 2023, respectively. Internationally, our distributors produced approximately 58% and 44% of our international product revenues during the six months ended June 30, 2024 and 2023, respectively.

The following table presents a summary of the Company’s reporting segments for the three months ended June 30, 2024 and 2023:

	*Three Months Ended*
	*June 30, 2024*
	*U.S.*			*International*			*Operating Cost*			*Other*			*Consolidated*
	(In thousands)
Net revenue	$	17,558		$	9,442		$	—		$	—		$	27,000
Cost of goods sold, excluding depreciation and amortization		(1,925	)		(1,906	)								(3,831	)
Gross profit		15,633			7,536			—			—			23,169
Operating expenses:
Research, development and medical affairs expenses		1,347			737			2,137			42			4,263
General and administrative expenses		341			625			5,263			1,150			7,379
Sales and marketing expenses		5,942			1,828			474			267			8,511
Depreciation and amortization		—			—			—			3,093			3,093
Total operating expenses		7,630			3,190			7,874			4,552			23,246
Segment income (loss) from operations		8,003			4,346			(7,874	)		(4,552	)		(77	)
Other income and expenses, net		—			—			—			(3,277	)		(3,277	)
Net loss before taxes													$	(3,354	)

	*Three Months Ended*
	*June 30, 2023*
	*U.S.*			*International*			*Operating Cost*			*Other*			*Consolidated*
	(In thousands)
Net revenue	$	11,876		$	5,662		$	—		$	—		$	17,538
Cost of goods sold, excluding depreciation and amortization		(1,290	)		(1,135	)		—			—			(2,425	)
Gross profit		10,586			4,527			—			—			15,113
Operating expenses:
Research, development and medical affairs expenses		1,748			842			1,033			25			3,648
General and administrative expenses		1,101			510			2,619			143			4,373
Sales and marketing expenses		4,781			1,379			225			49			6,434
Depreciation and amortization		—			—			—			1,866			1,866
Total operating expenses		7,630			2,731			3,877			2,083			16,321
Segment income (loss) from operations		2,956			1,796			(3,877	)		(2,083	)		(1,208	)
Other income and expenses, net		—			—			—			(8,796	)		(8,796	)
Net loss before taxes													$	(10,004	)

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The following table presents a summary of the Company’s reporting segments for the six months ended June 30, 2024 and 2023:

	*Six Months Ended*
	*June 30, 2024*
	*U.S.*			*International*			*Operating Cost*			*Other*			*Consolidated*
	(In thousands)

Net revenue	$	32,110		$	17,901		$	—		$	—		$	50,011
Cost of goods sold, excluding depreciation and amortization		(3,349	)		(3,835	)		—			—			(7,184	)
Gross profit		28,761			14,066			—			—			42,827
Operating expenses:
Research, development and medical affairs expenses		2,647			1,421			4,462			94			8,624
General and administrative expenses		909			1,186			8,920			1,796			12,811
Sales and marketing expenses		12,895			3,377			908			413			17,593
Depreciation and amortization		—			—			—			6,178			6,178
Total operating expenses		16,451			5,984			14,290			8,481			45,206
Segment income (loss) from operations		12,310			8,082			(14,290	)		(8,481	)		(2,379	)
Other income and expenses, net		—			—			—			(7,258	)		(7,258	)
Net loss before taxes													$	(9,637	)

	*Six Months Ended*
	*June 30, 2023*
	*U.S.*			*International*			*Operating Cost*			*Other*			*Consolidated*
	(In thousands)

Net revenue	$	19,456		$	11,628		$	—		$	—		$	31,084
Cost of goods sold, excluding depreciation and amortization		(2,195	)		(2,258	)		—			—			(4,453	)
Gross profit		17,261			9,370			—			—			26,631
Operating expenses:
Research, development and medical affairs expenses		2,910			1,589			3,266			47			7,812
General and administrative expenses		2,205			1,227			4,814			298			8,544
Sales and marketing expenses		9,056			2,794			291			97			12,238
Depreciation and amortization		—			—			—			2,547			2,547
Total operating expenses		14,171			5,610			8,371			2,989			31,141
Segment income (loss) from operations		3,090			3,760			(8,371	)		(2,989	)		(4,510	)
Other income and expenses, net		—			—			—			(10,462	)		(10,462	)
Net loss before taxes													$	(14,972	)

15. FAIR VALUE

The Company applies FASB ASC 820, Fair Value Measurements (“ASC 820”), in determining the fair value of certain assets and liabilities. ASC 820 defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

●

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

●

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

●

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Pursuant to the Company’s warrant agreement with Ocumension, the Company has the right to exercise the warrants at its option, which are considered to be derivative instruments and classified as non-current warrant assets. The Company uses the Black-Scholes pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in the fair value during each reporting period are reported in the consolidated statement of operations.

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There have been no changes to the valuation methods during the three months ended June 30, 2024 or 2023.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents and current assets and liabilities approximate their fair value because of their short maturities. The weighted average interest rate of the Company’s notes payable approximates the rate at which the Company could obtain alternative financing; therefore, the carrying amount of the note approximates the fair value.

The following fair value table presents information about certain of the Company’s assets measured at fair value on a recurring basis:

	*June 30, 2024*
	*Level 1*		*Level 2*		*Level 3*		*Total*
	(In thousands)
Assets:
Warrant asset ⁽¹⁾	$	—	$	7	$	—	$	7
Assets measured at fair value	$	—	$	7	$	—	$	7

	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Warrant asset ⁽¹⁾	$	—	$	52	$	—	$	52
Assets measured at fair value	$	—	$	52	$	—	$	52

⁽¹⁾

The Company uses the Black-Scholes pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in this value each reporting period are reported in the condensed consolidated statement of operations.

16. SUBSEQUENT EVENTS

On July 17, 2024, the Company entered into a Manufacturing Services Agreement (the “New Siegfried Agreement”) with Alliance Medical Products, Inc. d.b.a. Siegfried Irvine (“Siegfried”) that supersedes and replaces the First Amended and Restated Commercial Contract Manufacturing Agreement, dated as of February 5, 2016, between the Company and Siegfried. Pursuant to the terms of the New Siegfried Agreement, Siegfried will be responsible for manufacturing and supplying to Alimera agreed-upon quantities of ILUVIEN at certain cost-plus amounts, subject to adjustments set forth in the New Siegfried Agreement. Siegfried has agreed that during the term of the New Siegfried Agreement, it will not manufacture for any other customer any product competitive with ILUVIEN (meaning any other drug-eluting eye implant for the treatment of diabetic macular edema or uveitis). The term of the New Siegfried Agreement is for a period of five (5) years and shall thereafter automatically renew for successive two (2) year terms unless either party provides notice of non-renewal to the other party within a specified period of time prior to the beginning of the next automatic renewal term.

The New Siegfried Agreement contains customary representations and warranties. The assertions embodied in the representations and warrants were made solely for purposes of the transaction contemplated therein and may be subject to important qualifications and limitations. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders or may have been used for purposes of allocating risk between the Company and Siegfried rather than establishing matters as facts. For the foregoing reasons, no person should rely on such representations and warranties as statements of factual information at the time they were made or otherwise.

In July 2024, 299,999 PSUs vested in accordance with the performance conditions outlined in the PSU agreements. Per the PSU agreement, the vested PSUs will be settled in the form of common stock as soon as practicable on or following the end of each measurement year within the performance period.

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

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes (“Interim Financial Statements”) that appear elsewhere in this quarterly report on Form 10-Q. 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 Part I, Item 1A, “Risk Factors” and elsewhere in the 2023 Form 10-K. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.

Overview

Alimera Sciences, Inc., and its subsidiaries (“we,” “our,” “us,” “Alimera” or the “Company”), is a global pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic retinal pharmaceuticals. We are committed to improving the retinal health of patients through long term treatment of chronic retinal diseases. We believe these diseases are not well treated with current therapies and affect millions of people globally. Our vision is to be the place in retina and our mission is to be invaluable to patients, physicians and partners concerned with retinal health and maintaining better vision longer.

The term “ILUVIEN^®” and “YUTIQ^®” are our registered trademarks. All other trademarks, trade names and service marks appearing in these Interim Financial Statements are the property of their respective owners.

Agreement and Plan of Merger with ANI Pharmaceuticals, Inc. and ANIP Merger Sub INC.

On June 21, 2024, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ANI Pharmaceuticals, Inc., a Delaware corporation (“ANI”), and ANIP Merger Sub INC., a Delaware corporation and a wholly owned indirect subsidiary of ANI (“Merger Subsidiary”), providing for the merger of Merger Subsidiary with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned indirect subsidiary of ANI (the “Surviving Corporation”). At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) outstanding immediately prior to the Effective Time (including each Company RSA (as defined below) but excluding any treasury shares or shares owned by ANI, Merger Subsidiary or any other subsidiary of ANI or the Company), shall be canceled and cease to exist and shall be converted into the right to receive (i) $5.50 in cash, without interest (such amount, as may be adjusted in accordance with the Merger Agreement, the “Closing Cash Consideration”) and (ii) one contingent value right (a “CVR”), which shall represent the right to receive the Milestone Payments (as defined below) subject to the terms and conditions set forth in the CVR Agreement (as defined below) (the consideration contemplated by (i) and (ii), together, the “Merger Consideration”).

Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval by the holders of a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote on the Merger. Consummation of the Merger by ANI and Merger Subsidiary is further subject to satisfaction of customary closing conditions on the part of the Company, including, without limitation, the Company having performed, or complied with, in all material respects its agreements, covenants and other obligations required to be performed or complied with by the Merger Agreement at or prior to the Closing Date, the representations and warranties of the Company being true and correct (subject in certain instances to materiality qualifiers as specified within the respective agreement), and no continuing Company Material Adverse Effect.

The Merger Agreement includes covenants requiring the Company not to (i) initiate, solicit or knowingly encourage or facilitate any inquiries or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal, (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person, in each case relating to, any Acquisition Proposal or any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal, (iii) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any of the Company Subsidiaries (as defined in the Merger Agreement) (subject to the Company Board’s (as defined in the Merger Agreement) ability to exercise its fiduciary duties), (iv) approve any transaction under, or any third party becoming an “interested stockholder” under, Section 203 of the Delaware General Corporation Law, (v) otherwise knowingly facilitate any effort or attempt by any third party (or its potential sources of financing) to make any proposal or offer that constitutes an Acquisition Proposal, (vi) approve, endorse, recommend or execute or enter into any letter of intent, agreement in principle, term sheet, memorandum of understanding, merger agreement, acquisition agreement or other similar contract relating to an Acquisition Proposal or (vii) approve, authorize, agree or publicly announce any intention to do any of the foregoing, with customary exceptions for superior proposals. The Merger Agreement also includes covenants customary for a transaction of this nature regarding the operation of the business of the Company and its subsidiaries between signing of the Merger Agreement and the Effective Time.

The Merger Agreement contains certain termination rights for the Company and ANI. Upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay ANI a termination fee of approximately $10.4 million. Among other termination rights, and subject to certain limitations, (i) either the Company or ANI may terminate the Merger Agreement if the Merger is not consummated by December 21, 2024 and (ii) the Company and ANI may mutually agree to terminate the Merger Agreement.

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At the Effective Time, outstanding awards of restricted stock with respect to shares of Company Common Stock (each, a “Company RSA”), whether vested or unvested as of immediately prior to the Effective Time, for which the holder thereof made a timely and valid election (an “83(b) Election”) under Section 83(b) of the Internal Revenue Code of 1986, as amended, shall be canceled and cease to exist, and shall be converted into the right to receive the Merger Consideration. At the Effective Time, each Company RSA for which the holder thereof did not make a timely and valid 83(b) Election shall be canceled and converted into the right to receive (i) an amount in cash (without interest and subject to deduction for any required withholding as contemplated by the Merger Agreement) equal to: (A) the total number of shares of such Company RSAs multiplied by (B) the Closing Cash Consideration, without any interest thereon, and (ii) CVRs in an amount equal to the total number of shares of such Company RSAs.

At the Effective Time, each stock option granted by the Company to purchase Company Common Stock (each, a “Company Option”) that is outstanding and unvested immediately prior to the Effective Time will vest in full, and (i) each Company Option that is then outstanding and unexercised and which has a per share exercise price that is less than the Closing Cash Consideration shall be canceled and converted into the right to receive the sum of an amount in cash (without interest and subject to deduction for any required withholding as contemplated in the Merger Agreement) equal to: (a) the excess, if any, of the Closing Cash Consideration over the exercise price per share of such Company Option; multiplied by the number of shares of Company Common Stock underlying such Company Option and (b) one (1) CVR, (ii) each Company Option that is then outstanding and unexercised, and which has a per share exercise price that equals or exceeds the Closing Cash Consideration, but is less than the Maximum Total Consideration (as defined in the Merger Agreement) (each, an “Eligible Option”) shall be canceled and converted into the right to receive a cash payment equal to (a) the excess, if any, of (A) the Total Consideration (as defined in the Merger Agreement) over (B) the per share exercise price of such Eligible Option, multiplied by (b) the total number of shares of Company Common Stock subject to such Eligible Option immediately prior to the Effective Time, and (iii) each Company Option that is then outstanding and unexercised and that has a per share exercise price that is equal or greater than the Maximum Total Consideration shall be canceled with no consideration payable in respect thereof.

Voting Agreement

In connection with the execution of the Merger Agreement, ANI and the Company entered into a voting agreement (the “Voting Agreement”) with Caligan Partners LP, Caligan Partners Master Fund LP and Caligan Partners CV VI LP (collectively, “Caligan”). Pursuant to the Voting Agreement, Caligan has agreed, among other things, to (i) vote or cause to be voted all of its shares of Company Common Stock in favor of the Merger and the transactions contemplated by the Merger Agreement and (ii) prior to the Expiration Time (as defined in the Voting Agreement) and subject to limited exceptions, not to sell or otherwise transfer any of its shares of Company Common Stock other than with the consent of ANI and the Company. The shares of Company Common Stock owned by Caligan represented approximately 32.1% of the outstanding shares of Company Common Stock as of July 31, 2024.

Contingent Value Rights Agreement

At or immediately prior to the Effective Time, ANI will enter into a contingent value rights agreement (the “CVR Agreement”) with a rights agent (the “Rights Agent”), pursuant to which each holder of Company Common Stock, as well as holders of Company Warrants, Company Options, Company PSUs, Company RSAs and Company RSUs, may become entitled to contingent cash payments per CVR (each, a “Milestone Payment”), such payments being contingent upon, and subject to, the achievement of: (i) $140.0 million in net revenue (the “2026 Milestone”) on third party sales of ILUVIEN and YUTIQ for ANI’s 2026 fiscal year (the “2026 Net Revenue”) and/or (ii) $160.0 million in net revenue (the “2027 Milestone” and together with the 2026 Milestone, the “Milestones”) on third party sales of ILUVIEN and YUTIQ for ANI’s 2027 fiscal year (the “2027 Net Revenue”).

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When issued, each CVR will entitle the holder (the “Holder”) to receive a Milestone Payment upon satisfaction of the applicable Milestones. The Milestone Payment for each CVR will equal the product (rounded to the nearest 1/100 of $0.01) of (i) $0.25 multiplied by a fraction (not exceeding one), the numerator of which is the amount, if any, by which the 2026 Net Revenue exceeds $140.0 million and the denominator of which is $10.0 million (subject to adjustment for the exercise price of Eligible Options) and/or (ii) $0.25 multiplied by a fraction (not exceeding one), the numerator of which is the amount, if any, by which the 2027 Net Revenue exceeds $160.0 million and the denominator of which is $15.0 million (subject to adjustment for the exercise price of Eligible Options).

If a Milestone is attained, the distributions in respect of the CVRs will be made on or prior to the date that is fifteen (15) business days following the filing by ANI of its audited financial statements with the SEC on Form 10-K in respect of the applicable year in which such Milestone has been achieved, and will be subject to a number of deductions, exceptions and limitations, including but not limited to certain taxes.

Costs incurred associated with the Merger Agreement totaled $2.2 million for both the three and six months ended June 30, 2024 and are included in general and administrative expenses in our condensed consolidated statement of operations.

ILUVIEN and YUTIQ

At Alimera, we internally developed and commercialized ILUVIEN (fluocinolone acetonide intravitreal implant) 0.19 mg, in the United States (“U.S.”) and internationally for the treatment of diabetic macular edema (“DME”), and certain international markets for chronic non-infectious uveitis affecting the posterior segment of the eye (“NIU-PS”), both are leading causes of severe vision loss and blindness. DME is a disease of the retina that affects individuals with Type 1 or Type 2 diabetes. ILUVIEN is sold to treat DME only in the U.S. In certain European and Middle Eastern countries, ILUVIEN is approved and commercialized to treat DME and to prevent relapse in recurrent NIU-PS, an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid. We also have rights to commercialize ILUVIEN for NIU-PS in Africa and parts of Asia. In May 2023, we acquired exclusive commercialization rights to YUTIQ (fluocinolone acetonide intravitreal implant) 0.18 mg, from EyePoint Pharmaceuticals, Inc. (“EyePoint Parent”) for the treatment of chronic NIU-PS. Alimera sells YUTIQ to treat chronic NIU-PS only in the U.S.

ILUVIEN and YUTIQ are both intravitreal implants that are inserted into the back of the patient’s eye in non-surgical procedures employing devices with 25-gauge needles, which allow for self-sealing wounds. “Intravitreal” refers to the space inside the eye behind the lens that contains the jelly-like substance called vitreous. The implants, which are non-bioerodible, provide consistent delivery as a result of their constant surface area, permitting elution of FAc to the vitreous. We call this CONTINUOUS MICRODOSING™. This delivery mechanism 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. CONTINUOUS MICRODOSING delivery makes ILUVIEN and YUTIQ the only approved drug therapies for DME and NIU-PS that can deliver consistent daily therapeutic levels of corticosteroid and reduce the recurrence of DME and uveitis for up to three years. Other therapies that physicians currently use to treat DME, such as anti-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 an effective dose or reestablish the therapeutic effect after the disease has recurred.

FAc is a non-proprietary corticosteroid and the active compound in ILUVIEN and YUTIQ. We at Alimera believe that corticosteroids provide the best option in the treatment of DME and NIU-PS because they reduce the inflammatory aspects of both diseases. ILUVIEN and YUTIQ deliver continuous daily sub-microgram levels of FAc in in vivo release kinetic studies for up to 36 months. ILUVIEN and YUTIQ are the only single injection therapies available to treat retinal diseases consistently every day for up to three years, which may allow patients to see better, longer, with fewer injections.

Chronic inflammation results in a loss of integrity of retinal blood vessels, which begin to leak fluid into extracellular spaces. The buildup of fluid and other blood constituents leads to macular swelling (i.e. edema) and causes visual disturbances due to mechanical stress put upon retinal cells. To compensate for the damaged blood vessels, the body begins to upregulate production of vascular endothelial growth factor (“VEGF”), which promotes the generation of new blood vessels. However, these new blood vessels also lack structural integrity and add to the problem rather than solving it. This process, called neovascularization, has been well characterized in DME as well as other retinal diseases.

The primary way to combat the process of neovascularization is to inhibit the growth of new blood vessels by preventing downstream VEGF signaling via anti-VEGF agents. However, the inflammatory process is early and central to DME pathogenesis, often preceding the vascular changes that lead to symptoms perceived by the patient. Chronic hyperglycemia present in the diabetic state leads to upregulation of many inflammatory cytokines, including, but not limited to, VEGF. Early and complete control of this inflammatory cascade is essential to maintain vascular integrity and thus prevent macular edema. This is evident in the results from a Diabetic Retinopathy Clinical Research Network study showed that 32-65% of patients treated with anti-VEGF monotherapy on a monthly basis for six months had persistent macular edema, despite this aggressive treatment regimen.

Comprehensive control over the various inflammatory factors promoting macular edema is rarely achieved by focusing on only one vasogenic cytokine. This has been demonstrated throughout multiple studies, first establishing an understanding of the broad spectrum of inflammatory control steroids exert, and another demonstrating significant reductions in vitreous levels of multiple inflammatory cytokines after six months of ILUVIEN therapy. Further, a growing body of literature has identified particular biomarkers that predict better outcomes to early corticosteroid therapy, including intraretinal cysts, subretinal fluid, disorganization of inner retinal layers, and hyper-reflective foci on optical coherence tomography images. As the benefits of steroids become more widely understood and appreciated, more efforts are being put into identifying patients most likely to experience optimal therapeutic outcomes with this drug class.

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NIU-PS is by definition an inflammatory disease and is almost always managed with some form of local or systemic steroid. In controlled studies, treatment of recurrent NIU-PS with a local, low-dose, long-acting steroid (such as YUTIQ) extended time between recurrence of symptoms, led to improved visual acuity, and fewer adjuvant therapies compared to sham-treated eyes. Though the etiologies differ between DME and NIU-PS, the resulting edema originating from excessive inflammatory factors is similar and responds well to corticosteroid therapy.

Corticosteroids, including FAc, have demonstrated a range of pharmacological actions, including inhibition of inflammation and neurodegeneration, as well as promoting cellular processes that protect the integrity of the blood-retinal barrier. These pharmacological actions have the potential to treat various ocular conditions, including DME and NIU-PS. FAc is highly lipophilic and therefore effectively penetrates retinal tissue and allows FAc to achieve a therapeutic effect at a low dose. Despite providing clinically significant anatomic and visual benefits, steroids are often relegated to second line therapy (particularly in DME) due to drug-class specific side effects of potential increases in intraocular pressure (“IOP”) and accelerated cataract development. To mitigate these side effects, ILUVIEN and YUTIQ are designed to deliver significantly lower daily exposure than any other available corticosteroid dosage form while maintaining a therapeutic effect. Further, adherence to the U.S. label requiring a steroid challenge prior to utilizing ILUVIEN has been shown to reduce the risk of uncontrolled IOP responses. Additionally, as demonstrated with real-world evidence, the side effects of ILUVIEN and YUTIQ 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.

Disease Overview and Market Opportunity

Diabetes and Diabetic Retinopathy

Diabetes is a chronic disease that occurs either when the pancreas does not produce enough insulin or when the body cannot effectively use the insulin it produces. Insulin is a hormone that regulates blood glucose. Hyperglycemia, also called raised blood glucose or raised blood sugar, is a common effect of uncontrolled diabetes and over time leads to serious damage to many of the body’s systems, especially the nerves and blood vessels. Diabetes mellitus is a disease of inadequate control of blood glucose levels. 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 2021 increased to 537 million people and is expected to increase to 783 million people by 2045.

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 70. 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 out of blood vessels into nearby vessels), macular ischemia (lack of adequate blood supply) 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.

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. 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. There are an estimated 750,000 people with DME in the U.S., according to the National Eye Institute’s 2019 update.

Studies have shown that DME is a multifactorial disease 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 multiple 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 in many diabetic retinopathy patients.

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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 (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.

Chronic NIU-PS of the eye is an inflammatory disease that afflicts people of all ages, producing swelling and destroying eye tissues, which can lead to severe vision loss and blindness. This disease affects between 60,000 to 100,000 people each year in the U.S. and causes approximately 30,000 new cases of blindness every year. The standard of care treatment for this disease typically involves the use of short-acting corticosteroids to reduce uveitis flares followed by additional treatments of sustained release, lower dose steroids to minimize the risk of further flares.

Our NEW DAY Study

We believe that ILUVIEN continues to be underutilized in the treatment of DME and should be used much earlier in patients suffering from 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 the 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.

In July 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 was fully enrolled with 300 treatment-naïve, or almost naïve, DME patients in approximately 42 sites around the U.S. 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. We expect to share the study data in 2025.

The primary outcome measure for the NEW DAY Study 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 trial 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.

Our SYNCHRONICITY Study

The SYNCHRONICITY Study is a multicenter, open label study evaluating YUTIQ in chronic inflammation. The Synchronicity Study currently has enrolled 110 patient eyes in approximately 25 sites around the U.S. Patients who meet the entry criteria receive YUTIQ as an intravitreal injection in the designated study eye. The treatment period is 36 months, with data capture for this study being the first 24 months of YUTIQ drug treatment.

The primary outcome measure for the SYNCHRONICITY Study is the mean change from baseline in BCVA letter score in the study eye measured by ETDRS (Early Treatment Diabetic Retinopathy Study) at Month 6 and the mean change from baseline central subfield thickness at Month 6. Key secondary endpoints include time to recurrence of non-infectious inflammation in the study eye, presence of vascular leakage at Months 1, 3, 6, 12, 18 and 24, proportion of subjects with resolution of macular edema at Months 1, 3, 6, 12, 18 and 24, mean change from baseline in BCVA letter score at Day 14 and at Months 1, 3, 12, 18 and 24, and mean change from baseline in CST at Months 1, 3, 12, 18 and 24.

ILUVIEN for Other Diseases of the Eye

ILUVIEN is currently being studied in a DRCR Retina Network study entitled “A Randomized Clinical Trial Evaluating Intravitreal Faricimab (6.0 mg) Injections or Fluocinolone Acetonide (0.19 mg) Intravitreal Implants vs Observation for Prevention of Visual Acuity Loss due to Radiation Retinopathy.” The study is planned to include 600 participants with primary choroidal melanoma receiving treatment with plaque brachytherapy, and in March 2024 the first patient was randomized. The study will assess development of macular edema and associated long-term visual acuity effects of consistent and continuous release of corticosteroid or repeated injections of anti-VEGF initiated near the time of radiation therapy compared to observation until macular edema develops in patients at risk for radiation retinopathy. Radiation retinopathy (“RR”) is a common complication after Iodine-125 plaque brachytherapy for choroidal melanoma. Although the initial radiation insult is immediate, clinical onset of RR is not seen until many months later and RR frequently progresses over time to profound vision loss. When utilized as baseline therapy, we believe ILUVIEN’s CONTINUOUS MICRODOSING delivery may prevent, delay or reduce the occurrence of the complication of radiation retinopathy and consequent vision loss when used in patients treated with plaque brachytherapy.

Although we, as a company, are not actively conducting clinical trials for other new indications, we believe that ILUVIEN has the potential to address other ophthalmic diseases such as retinal vein occlusion (“RVO”), non-proliferative diabetic retinopathy (“NPDR”), dry age-related macular degeneration (“dry AMD”) and wet age-related macular degeneration (“wet AMD”), and we are evaluating opportunities for further clinical trials.

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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 is reimbursed and marketed as shown in the following table:

Indication for the Treatment of DME	Territories Where ILUVIEN Has Received Marketing Authorization to Treat DME	Territories Where ILUVIEN Has Received Reimbursement Approval to Treat DME	Territories Where ILUVIEN is Currently Available 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, Hong Kong, Bahrain, Kuwait, Lebanon and the United Arab Emirates	U.S., Kuwait, Lebanon and the United Arab Emirates	U.S., Bahrain, 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, the Czech Republic, the Netherlands and Luxembourg	The U.K., Germany, France, Italy, Spain, Portugal, Ireland, Luxembourg and the Netherlands	The U.K., Belgium, the Czech Republic, Germany, France, Italy, Spain, Portugal, Ireland, Austria, Luxembourg, Denmark, Norway, Finland, Sweden and the Netherlands

Where We Market ILUVIEN and YUTIQ to Treat Chronic Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (“NIU-PS”)

YUTIQ has received marketing authorization to treat NIU-PS and is reimbursed and marketed by us in the U.S. ILUVIEN has received marketing authorization to treat NIU-PS and is reimbursed and marketed as shown in the following table:

Indication for the

Treatment of NIU-PS

Territories

Where ILUVIEN Has

Received Marketing Authorization

to Treat NIU-PS

Territories

Where ILUVIEN Has

Received Reimbursement Approval to Treat NIU-PS

Territories 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, Italy, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, the Czech Republic, the Netherlands, Luxembourg and the United Arab Emirates

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

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

Where We Sell ILUVIEN Direct

We commercially market ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland.

Where We Sell ILUVIEN 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, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand, China and several countries in the Western Pacific and several countries in the Middle East. As of June 30, 2024 and December 31, 2023, we have recognized net product revenue from our international distributors in the Middle East, China, Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands and certain Nordic countries.

Sources of Revenues

Our sales personnel focus on physician offices, clinics, pharmacies and hospitals in the U.S. and in European countries where we seek to persuade end users to purchase our products. In our promotional efforts, we focus on three main areas to generate demand for our products. The first is to gain access for ILUVIEN or YUTIQ, as appropriate, on formularies and 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 ILUVIEN and YUTIQ 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.

Our revenues for the three months ended June 30, 2024 and 2023 were generated from product sales primarily in the U.S., Germany, Spain, Portugal, France and the U.K. In the U.S., two large pharmaceutical distributors accounted for 65% and 68% of our consolidated product revenues for the three months ended June 30, 2024 and 2023, respectively. These U.S.-based distributors purchase ILUVIEN and YUTIQ from us, maintain inventories of ILUVIEN and YUTIQ and sell on 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. Internationally, in countries where we sell to distributors, these distributors purchase ILUVIEN from us and maintain inventories of ILUVIEN that they sell to their customers.

Transactions with Ocumension Therapeutics (“Ocumension”)

On April 14, 2021, we entered into an exclusive license agreement (the “License Agreement”) with Ocumension (Hong Kong) Limited, a wholly owned subsidiary of Ocumension Therapeutics (“Ocumension”), for the development and commercialization under Ocumension’s own distinct trademark, of our 190 microgram FAc intravitreal implant (the “Product,” which is currently marketed elsewhere as ILUVIEN) for the treatment and prevention of eye diseases in humans, other than uveitis, in the People’s Republic of China, including Hong Kong SAR and Macau SAR, region of Taiwan, South Korea, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

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We received a nonrefundable upfront payment of $10.0 million from Ocumension and may in the future receive additional sales-based milestone payments totaling up to $89.0 million upon the achievement by Ocumension of certain specified sales milestones during the term of the License Agreement. Our receipt of future milestone payments depends upon whether Ocumension is able to successfully complete product development and commercialization in the covered territory, which requires, among other things, obtaining necessary regulatory approvals and appropriate reimbursement pricing, which may take several years.

The term of the license will continue until the later of (a) the 10th anniversary of the first commercial sale of the Product in Ocumension’s licensed territory or (b) as long as Ocumension is commercializing the Product in its licensed territory. The term is subject to our right to partially terminate the License Agreement beginning on the 10th anniversary of the License Agreement with respect to any country or jurisdiction in which Ocumension has not achieved a commercial sale at such time and is not continuing to commercialize the Product. Ocumension is responsible for all costs of development and commercialization in the licensed territory.

In April 2021, the Company entered into the warrant agreement with Ocumension pursuant to which Ocumension agreed to issue to the Company 1,000,000 non-transferable warrants granting the Company the right for a period of four years to subscribe to up to an aggregate of 1,000,000 shares of Ocumension stock at the subscription price of HK$23.88 per warrant share (or US$3.07 per warrant share as converted to U.S. Dollars at the exchange rate on April 9, 2021 of 0.12853 U.S. Dollars per HK$), subject to adjustment. The warrants were issued on August 13, 2021, pursuant to the terms of the warrant agreement. The warrants are not and will not be listed on any stock exchange. These warrants are revalued at each of the Company’s reporting dates with fluctuations being booked to the Company’s statement of operations.

For more information about the Ocumension transaction, see Note 8 in the Interim Financial Statements.

Agreements with EyePoint Parent and EyePoint

In February 2005, we entered into a license agreement with the predecessor entity to EyePoint Pharmaceuticals US, Inc. (“EyePoint”) in which we received 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 in humans other than uveitis. In July 2017, we amended and restated our license agreement with EyePoint (the “New Collaboration Agreement”), to add a license from EyePoint for the use of steroids, including FAc, in EyePoint’s proprietary insert technology for the treatment of uveitis 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 of 6% for net revenues and other related consideration up to $75.0 million annually and 8% for net revenues and other related consideration in excess of $75.0 million on an annual basis. The New Collaboration Agreement included a right to offset $15.0 million of future royalty payments (the “Future Offset”), which reduces royalties that would otherwise be owed to EyePoint from 6% to 5.2% for net revenues and other related consideration up to $75.0 million annually and from 8% to 6.8% for net revenues and other related consideration in excess of $75.0 million on an annual basis until the future offset is recovered. As of June 30, 2024, the remaining value of the Future Offset is $6.4 million. For further discussion on royalties, see the “SWK Agreements” section below.

On May 17, 2023, we entered into a product rights agreement (the “Product Rights Agreement”) with EyePoint Parent which grants Alimera an exclusive and sublicensable right and license to certain intellectual property to develop, manufacture, sell, commercialize and otherwise exploit certain products, including YUTIQ, for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa, where we already have such rights pursuant to the New Collaboration Agreement, and except for China, Hong Kong, Macau, Taiwan, Brunei, Myanmar (Burma), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam, where Ocumension holds a license from EyePoint Parent. Pursuant to the agreement, we paid EyePoint Parent an upfront payment of $75.0 million and will also make four quarterly guaranteed payments to EyePoint Parent totaling $7.5 million during 2024. We will also pay royalties to EyePoint Parent from 2025 to 2028 at a percentage of mid-to-low double digits of annual U.S. net sales of YUTIQ and ILUVIEN, in excess of certain thresholds, beginning at $70.0 million in 2025, increasing annually thereafter. Upon completing the $7.5 million in payments, the licenses and rights granted to Alimera will automatically become perpetual and irrevocable.

We also entered into a commercial supply agreement (the “Supply Agreement”) with EyePoint Parent pursuant to which, during the term of the Product Rights Agreement, EyePoint Parent will be responsible for manufacturing and exclusively supplying (subject to certain exceptions) to us agreed-upon quantities of YUTIQ necessary for us to commercialize YUTIQ in the U.S. at certain cost-plus amounts, subject to adjustments. EyePoint Parent’s manufacture and supply to us of YUTIQ will be exclusive (subject to certain exceptions) until we have the right and ability to manufacture and supply YUTIQ for commercialization in the U.S. The term of the Supply Agreement is for a period of two years through May 2025 and thereafter automatically renews for successive one-year terms unless either party provides notice of non-renewal to the other party within a specified period of time prior to the beginning of the next automatic renewal term, provided that the Supply Agreement automatically terminates upon the successful completion of the transfer of manufacturing for YUTIQ to us or our designee. The Supply Agreement also automatically terminates upon termination of the Product Rights Agreement.

For more information about our agreements with EyePoint Parent and EyePoint, including how we calculate the royalty percentages we are required to pay, see Note 8 in the Interim Financial Statements.

SWK Agreements

On December 17, 2020, EyePoint entered into a royalty purchase agreement (the “SWK Agreement”) with SWK Funding, LLC (“SWK”). Pursuant to the SWK Agreement, EyePoint sold its interest in royalties that we are obligated to pay EyePoint under the New Collaboration Agreement. We are not a party to the SWK Agreement.

On June 19, 2024, we entered into a letter agreement (the “Letter Agreement”) with SWK updating certain terms of our existing New Collaboration Agreement and associated royalty payments. The Letter Agreement modifies the royalty payment that we are obligated to pay SWK to 3.125% on net revenues (the “Alternative Royalty”) for any FAc product, including ILUVIEN and YUTIQ. In addition, pursuant to the terms of the Letter Agreement, in the case of a Change of Control (as defined in the Letter Agreement), we may, at our option, at any time during the six (6) months following the effective date of such Change of Control buy out the entire royalty obligation for the greater of (a) $17,250,000 or (b) 4.75 times the aggregate amount of Alternative Royalty paid or payable (x) over the most recently completed four (4) calendar quarters, or (y) if such Option is exercised prior to April 1, 2025, then 3.125% of net revenues for any FAc product over the most recently completed four (4) calendar quarters.

If we or SWK were to default under the Letter Agreement, we would be required to revert to making royalty payments under the New Collaboration agreement in lieu of the Alternative Royalty.

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Consolidated Results of Operations

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
	(In thousands, except share and per share data)

Net revenue	$	27,000		$	17,538		$	50,011		$	31,084
Cost of goods sold, excluding depreciation and amortization		(3,831	)		(2,425	)		(7,184	)		(4,453	)
Gross profit		23,169			15,113			42,827			26,631
Operating expenses:
Research, development and medical affairs expenses		4,263			3,648			8,624			7,812
General and administrative expenses		7,379			4,373			12,811			8,544
Sales and marketing expenses		8,511			6,434			17,593			12,238
Depreciation and amortization		3,093			1,866			6,178			2,547
Total operating expenses		23,246			16,321			45,206			31,141
Loss from operations		(77	)		(1,208	)		(2,379	)		(4,510	)
Interest expense and other, net		(3,153	)		(1,694	)		(6,892	)		(3,361	)
Unrealized foreign currency gain, net		(125	)		(7	)		(321	)		(20	)
Loss on extinguishment of debt		—			(1,079	)		—			(1,079	)
Change in fair value of common stock warrant		—			(5,911	)		—			(5,911	)
Change in fair value of warrant asset		1			(105	)		(45	)		(91	)
Net loss before income taxes		(3,354	)		(10,004	)		(9,637	)		(14,972	)
Income tax benefit (provision)		43			(25	)		75			(25	)
Net loss		(3,311	)		(10,029	)		(9,562	)		(14,997	)
Preferred stock dividends		—			(669	)		—			(683	)
Net loss applicable to common stockholders	$	(3,311	)	$	(10,698	)	$	(9,562	)	$	(15,680	)
Net loss per share — basic and diluted	$	(0.06	)	$	(1.32	)	$	(0.18	)	$	(2.07	)
Weighted average shares outstanding — basic and diluted		54,383,604			8,093,640			54,370,216			7,565,868

Revenue

We generate revenue primarily from sales of ILUVIEN and YUTIQ, our two products. In addition to generating revenue from product sales, we 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. 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 increased by $9.5 million, or 54%, to $27.0 million for the three months ended June 30, 2024, compared to $17.5 million for the three months ended June 30, 2023 driven by the addition of YUTIQ in the U.S. segment, as well as increased unit sales volumes of ILUVIEN in the International segment of our business.

Net revenue increased by $18.9 million, or 61%, to $50.0 million for the six months ended June 30, 2024, compared to $31.1 million for the six months ended June 30, 2023 driven by the addition of YUTIQ in the U.S. segment, as well as increased unit sales volumes of ILUVIEN in the International segment of our business.

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

Gross profit is affected by cost 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 $1.4 million, or 58%, to $3.8 million for the three months ended June 30, 2024, compared to $2.4 million for the three months ended June 30, 2023. The increase was primarily related to our increased product sales.

Cost of goods sold, excluding depreciation and amortization, increased by $2.7 million, or 60%, to $7.2 million for the six months ended June 30, 2024, compared to $4.5 million for the six months ended June 30, 2023. The increase was primarily related to our increased product sales.

Gross profit increased by $8.1 million, or 54%, to $23.2 million for the three months ended June 30, 2024, compared to $15.1 million for the three months ended June 30, 2023. Increases were due to the addition of YUTIQ in May 2023 to the U.S. segment, as well as increased unit sales volumes of ILUVIEN in the International segment of our business. For both periods ended June 30, 2024 and 2023, gross margin was 86%.

Gross profit increased by $16.2 million, or 61%, to $42.8 million for the six months ended June 30, 2024, compared to $26.6 million for the six months ended June 30, 2023. The increases were due to the addition of YUTIQ in May 2023 to the U.S. segment, as well as increased unit sales volumes of ILUVIEN in the International segment of our business. For both periods ended June 30, 2024 and 2023, gross margin was 86%.

Research, Development and Medical Affairs Expenses

Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and YUTIQ. These expenses include salaries and related expenses for research and development and medical affairs personnel, expenses related to clinical trials including our NEW DAY, SYNCHRONICITY and CALM studies. Our research, development and medical affairs expenses also include costs related to symposia development for physician education, and costs related to compliance with U.S. Food and Drug Administration, European Economic Area or other regulatory requirements. We expense both internal and external research and development costs as they are incurred.

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Research, development and medical affairs expenses increased by $0.6 million, or 17%, to $4.3 million for the three months ended June 30, 2024, compared to $3.6 million for the three months ended June 30, 2023. The increase was primarily attributable to increases of $0.3 million in consultant costs, $0.1 million in clinical study costs, $0.1 million in personnel costs, $0.1 million in clinical study costs, $0.1 million in registration costs for ILUVIEN under the Prescription Drug User Fee Act, some of which are directly related to the acquisition of YUTIQ and offset by a decrease of $0.2 million in applicator design costs.

Research, development and medical affairs expenses increased by $0.8 million, or 10%, to $8.6 million for the six months ended June 30, 2024, compared to $7.8 million for the six months ended June 30, 2023. The increase was primarily attributable to increases of $0.4 million in consultant costs, $0.3 million in personnel costs, $0.2 million in registration costs for ILUVIEN under the Prescription Drug User Fee Act, $0.1 million in safety and quality costs, some of which are directly related to the acquisition of YUTIQ, partially offset by decreases of $0.1 million in clinical study costs and $0.3 million in applicator design costs.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, 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 and managing license agreements. 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 increased by $3.0 million, or 68%, to $7.4 million for the three months ended June 30, 2024, compared to $4.4 million for the three months ended June 30, 2023. The increase was primarily attributable to an increase of $2.0 million in professional fees relating to the ANI Merger Agreement, $0.4 million in personnel costs and $1.0 million in stock-based compensation. These increases are offset by a $0.6 million reduction in bad debt expenses.

General and administrative expenses increased by $4.3 million, or 51%, to $12.8 million for the six months ended June 30, 2024, compared to $8.5 million for the six months ended June 30, 2023. The increase was primarily attributable to an increase of $2.1 million in professional fees relating to the ANI Merger Agreement, $1.1 million personnel costs, $1.5 million in stock-based compensation and $0.5 million in logistics fees. These increases are offset by a $1.3 million reduction in bad debt expenses.

Sales and Marketing Expenses

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

Sales and marketing expenses increased by $2.1 million, or 33%, to $8.5 million for the three months ended June 30, 2024, compared to $6.4 million for the three months ended June 30, 2023. The increase was primarily attributable to an increase of $1.3 million in personnel costs, $0.5 million in marketing costs, including an overall increase in costs to market YUTIQ, attend conventions, and costs associated with increasing customer engagement, and $0.2 million in stock-based compensation.

Sales and marketing expenses increased by $5.4 million, or 44%, to $17.6 million for the six months ended June 30, 2024, compared to $12.2 million for the six months ended June 30, 2023. The increase was primarily attributable to an increase of $3.0 million in personnel costs, $1.2 million in marketing costs, including an overall increase in costs to market YUTIQ, attend conventions, and costs associated with increasing customer engagement, and $0.2 million in stock-based compensation.

Operating Expenses

As a result of the increases and decreases in various expenses described above, total operating expenses increased by $6.9 million, or 42%, to $23.2 million for the three months ended June 30, 2024, compared to $16.3 million for the three months ended June 30, 2023. The increase was primarily attributable to $2.2 million in general and administrative expenses related to the merger agreement with ANI Pharmaceuticals Inc., $1.8 million of additional sales and marketing expenses driven by expansion of our commercial infrastructure to support selling two products in the U.S., $1.2 million in additional amortization expense attributable to the YUTIQ acquisition in May 2023, and $1.2 million in additional stock-based compensation expense, as described above.

As a result of the increases and decreases in various expenses described above, total operating expenses increased by $14.1 million, or 45%, to $45.2 million for the six months ended June 30, 2024, compared to $31.1 million for the six months ended June 30, 2023. The increase was primarily attributable to increases of $0.8 million in research and development expenses, $3.6 million in depreciation and amortization, $5.4 million in sales and marketing expenses, and $4.3 million in general and administrative expenses, as described above.

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Interest Expense and Other, Net

Interest expense and other, net increased by $1.5 million, or 88%, to $3.2 million for the three months ended June 30, 2024, compared to $1.7 million for the three months ended June 30, 2023. This increase is primarily related to the triggering of $0.3 million in exit fees as required under our loan agreements, as well as increased interest on additional borrowings under our credit facility.

Interest expense and other, net increased by $3.5 million, or 103%, to $6.9 million for the six months ended June 30, 2024, compared to $3.4 million for the six months ended June 30, 2023. This increase is primarily related to the triggering of $1.4 million in exit fees as required under our loan agreements, as well as increased interest on additional borrowings under our credit facility.

Basic and Diluted Net 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. As of June 30, 2023, because our preferred stockholders could participate in dividends equally with common stockholders (if we were to declare and pay dividends), we use the two-class method to calculate EPS. However, our preferred stockholders were not contractually obligated to share in losses. As of June 30, 2024, we no longer have any series of preferred stock outstanding.

Basic EPS is computed by dividing net (loss) income 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 and warrants we have issued. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, because 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 and do not share in losses or would have been anti-dilutive. Those securities were approximately 6.6 million for the three and six months ended June 30, 2024, and 48.1 million for the three and six months ended June 30, 2023.

Results of Operations – Segment Review

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

Our U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development. In monitoring performance, aligning strategies and allocating resources, our chief operating decision maker (“CODM”), manages and evaluates our U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, we classify within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

Each of our U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to our consolidated totals. For that reconciliation, please see Note 14 of the accompanying Interim Financial Statements. We do not report balance sheet information by segment because our CODM does not review that information. 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.

U.S. Segment Results

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
	(In thousands)

Net revenue	$	17,558		$	11,876		$	32,110		$	19,456
Cost of goods sold, excluding depreciation and amortization		(1,925	)		(1,290	)		(3,349	)		(2,195	)
Gross profit		15,633			10,586			28,761			17,261
Operating expenses:
Research, development and medical affairs expenses		1,347			1,748			2,647			2,910
General and administrative expenses		341			1,101			909			2,205
Sales and marketing expenses		5,942			4,781			12,895			9,056
Total operating expenses		7,630			7,630			16,451			14,171
Segment income from operations	$	8,003		$	2,956		$	12,310		$	3,090

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U.S. Segment – three months ended June 30, 2024 compared to the three months ended June 30, 2023

Net revenue. Net revenue increased by $5.7 million, or 48%, to $17.6 million for the three months ended June 30, 2024, compared to $11.9 million for the three months ended June 30, 2023. The increase was primarily driven by net revenue from YUTIQ, which was acquired in May 2023.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by $0.6 million, or 46%, to $1.9 million for the three months ended June 30, 2024, compared to approximately $1.3 million for the three months ended June 30, 2023. The increase was primarily attributable to our increased product sales led by the YUTIQ acquisition in May 2023.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by $0.4 million, or 24%, to $1.3 million for the three months ended June 30, 2024, compared to $1.7 million for the three months ended June 30, 2023. The decrease was primarily attributable to a decrease of $0.2 million in personnel costs.

General and administrative expenses. General and administrative expenses decreased by $0.8 million, or 73%, to $0.3 million for the three months ended June 30, 2024, compared to $1.1 million for the three months ended June 30, 2023. The decrease was primarily attributable to a $0.6 million decrease in bad debt expense and a $0.3 million decrease in insurance costs.

Sales and marketing expenses. Sales and marketing expenses increased by $1.1 million, or 23%, to $5.9 million for the three months ended June 30, 2024, compared to $4.8 million for the three months ended June 30, 2023. The increase was primarily attributable to an increase of $0.9 million in personnel costs and $0.2 million in marketing costs, including costs to attend conventions, costs associated with customer engagement, and costs to market YUTIQ.

U.S. Segment – six months ended June 30, 2024 compared to the six months ended June 30, 2023

Net revenue. Net revenue increased by approximately $12.6 million, or 65%, to $32.1 million for the six months ended June 30, 2024, compared to $19.5 million for the six months ended June 30, 2023. The increase was primarily driven by net revenue from YUTIQ, which was acquired in May 2023.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by $1.1 million, or 50%, to $3.3 million for the six months ended June 30, 2024, compared to $2.2 million for the six months ended June 30, 2023. The increase was primarily attributable to our increased product sales led by the YUTIQ acquisition in May 2023.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by $0.3 million, or 10%, to $2.6 million for the six months ended June 30, 2024, compared to $2.9 million for the six months ended June 30, 2023. The decrease was primarily attributable to a decrease of $0.3 million in clinical study costs offset in part by an increase of $0.2 million in registration costs primarily related to YUTIQ under the Prescription Drug User Fee Act.

General and administrative expenses. General and administrative expenses decreased by $1.3 million, or 59%, to $0.9 million for the six months ended June 30, 2024, compared to $2.2 million for the six months ended June 30, 2023. The decrease was primarily attributable to a $1.1 million decrease in bad debt expense, a $0.2 million decrease in personnel costs, and a $0.5 million decrease in insurance costs, partially offset by a $0.3 million increase in logistics costs.

Sales and marketing expenses. Sales and marketing expenses increased by $3.8 million, or 42%, to $12.9 million for the six months ended June 30, 2024, compared to $9.1 million for the six months ended June 30, 2023. The increase was primarily attributable to an increase of $2.4 million in personnel costs and $1.4 million in marketing costs, including costs to attend conventions, costs associated with customer engagement, and costs to market YUTIQ.

International Segment Results

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
	(In thousands)

Net revenue	$	9,442		$	5,662		$	17,901		$	11,628
Cost of goods sold, excluding depreciation and amortization		(1,906	)		(1,135	)		(3,835	)		(2,258	)
Gross profit		7,536			4,527			14,066			9,370
Operating expenses:

ALIMERA SCIENCES INC 10-Q