The following discussion analyzes the Company's historical financial condition
and results of operations. As you read this discussion and analysis, refer to
the Company's financial statements and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q, which represents the results of operations
for the three and nine months ended September 30, 2021 and 2020. Also refer to
the Company's Annual Report on Form 10-K for the year ended December 31, 2020,
which includes detailed discussions of various items impacting the Company's
business, results of operations and financial condition. The discussion and
analysis below has been organized as follows:

•Executive summary, including a description of the business and recent events
that are important to understanding the results of operations and financial
condition;
•Results of operations, including an explanation of significant differences
between the periods in the specific line items of the condensed statements of
operations;
•Financial condition addressing the Company's sources of liquidity, future
funding requirements, cash flow, sources and uses of cash, updates to
contractual obligations and commitments, and off-balance sheet arrangements; and
•Critical accounting policies, significant judgements and estimates, which are
most important to both the portrayal of the Company's results of operations and
financial condition.

Some of the information contained in the following discussion and analysis or
set forth elsewhere in this Quarterly Report on Form 10-Q, including information
with respect to the Company's plans and strategy for its business, includes
forward-looking statements within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act that involve risks and uncertainties. As a
result of many factors, including those factors set forth in the "Risk Factors"
section of the Company's Annual Report on Form 10-K for the year ended December
31, 2020 and in this Quarterly Report on Form 10-Q, the Company's actual results
could differ materially from the results described in or implied by these
forward-looking statements. Please also see the section of this Quarterly Report
on Form 10-Q titled "Special Note Regarding Forward-Looking Statements."

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Executive Summary

Introduction and Overview

Oyster Point Pharma, Inc. (the Company) is a commercial-stage biopharmaceutical
company focused on the discovery, development and commercialization of
first-in-class pharmaceutical therapies to treat ophthalmic diseases. On October
15, 2021, TYRVAYA™ (varenicline solution) Nasal Spray (TYRVAYA Nasal Spray),
formerly referred to as OC-01 (varenicline solution) nasal spray, a highly
selective nicotinic acetylcholine receptor (nAChR) agonist, was approved by the
U.S. Food and Drug Administration (FDA) for the treatment of the signs and
symptoms of dry eye disease. TYRVAYA Nasal Spray's highly differentiated
mechanism of action is designed to increase basal tear production with a goal to
re-establish tear film homeostasis.

The Company expects to continue to finance its operations through private and
public equity, debt financing, collaborative or other arrangements with
corporate sources or through other sources of financing. The Company's net
losses were $58.6 million and $48.3 million for the nine months ended
September 30, 2021 and 2020, respectively. As of September 30, 2021, the Company
had an accumulated deficit of $213.3 million. The Company expects that its
selling, general and administrative expenses will continue to increase as the
Company commercializes TYRVAYA Nasal Spray following its recent approval by the
FDA. Additionally, operating expenses will increase as the Company advances its
other product candidates through preclinical and clinical development, seeks
regulatory approval, and prepares for and, if approved, proceeds to
commercialization; acquires, discovers, validates and develops additional
product candidates; obtains, maintains, protects and enforces its intellectual
property portfolio; and hires additional personnel.

Recent Events

FDA Approval of TYRVAYA Nasal Spray



On October 15, 2021, TYRVAYA Nasal Spray was approved by the FDA for the
treatment of the signs and symptoms of dry eye disease. TYRVAYA Nasal Spray is
the first and only nasal spray approved for the treatment of dry eye disease.
TYRVAYA Nasal Spray is believed to bind to cholinergic receptors to activate the
trigeminal parasympathetic pathway resulting in increased production of basal
tear film as a treatment for dry eye disease. TYRVAYA Nasal Spray is a highly
selective cholinergic agonist delivered twice daily as a multi-dose, aqueous
nasal spray into each nostril to activate basal tear production. Nasal spray
administration provides a new way to treat dry eye disease without administering
medication onto an already irritated ocular surface.

Credit Facility with OrbiMed



On August 5, 2021, Company entered into a $125 million term loan credit facility
(the Credit Agreement) with OrbiMed Royalty & Credit Opportunities III, LP, as
administrative agent and initial lender (OrbiMed). The Credit Agreement provides
for loans to be funded in three separate tranches: the first $45 million tranche
was funded on August 10, 2021, the second $50 million tranche to be funded, at
the option of the Company, upon FDA approval of TYRVAYA Nasal Spray for the
signs and symptoms of dry eye disease, with an approved label that includes eye
dryness score data from clinical trials, among other conditions, and the third
$30 million tranche to be funded on or prior to June 30, 2023, at the option of
the Company, upon the Company having received at least $40 million in net
recurring revenue from the sale and/or licensing of TYRVAYA Nasal Spray in any
twelve month period prior to March 31, 2023, among other conditions, including
having already drawn on the second tranche.

On October 19, 2021, the Company entered into a waiver and amendment (the
Amendment) to the Credit Agreement to waive certain labeling requirements
required for, and to permit the availability of, the second $50 million tranche
of funding under the Credit Agreement (among other customary funding provisions)
and make certain other amendments thereto, subject to the terms and conditions
contained therein. The Amendment also increased the amount of principal that is
required to be repaid if the Company does not meet certain minimum recurring
revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray on a
quarterly basis for the most recently ended four fiscal quarter period, from $5
million to $10 million if (i) the company does not meet such minimum recurring
revenue thresholds from the sale and/or licensing of TYRVAYA Nasal Spray in the
last four quarters and (ii) an improper promotional event has occurred. The
Company delivered notice to OrbiMed on October 19, 2021 that it intended to
borrow the second tranche and the Company received the second tranche funding on
November 4, 2021.

Ji Xing License and Collaboration Agreement

On August 5, 2021, the Company entered into a license and collaboration agreement (the License Agreement) with Ji Xing Pharmaceuticals Limited (Ji Xing), a biotechnology company headquartered in Shanghai, China and backed by RTW


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Investments, LP (RTW). Pursuant to the License Agreement, the Company has
granted Ji Xing an exclusive license to develop and commercialize OC-01
(varenicline solution) and OC-02 (simpinicline) nasal sprays, for all
prophylactic uses for, and treatment of, ophthalmology diseases or disorders in
the greater China region. Ji Xing will be responsible for the development,
regulatory, manufacturing and commercialization activities costs in the greater
China region, including mainland China, Hong Kong Special Administrative Region,
Macau Special Administrative Region, and Taiwan. The Company will be responsible
for supplying the drug substance and finished products of OC-01 (varenicline
solution) and OC-02 (simpinicline) for Ji Xing's clinical development at
quantities to be agreed by the parties for a period of up to twelve months,
subject to one or more separate supply agreements as contemplated by the License
Agreement. In August 2021, the Company recognized $17.9 million of revenue in
connection with the License Agreement, which is inclusive of 397,562 of Ji Xing
senior common shares valued at $0.4 million. The Company received $15.0 million
in cash consideration during the three months ended September 30, 2021 and
included $2.5 million in other receivable-related party on the condensed balance
sheet as of September 30, 2021. In October 2021, the Company received an
additional 397,561 senior common shares of Ji Xing and $5.0 million in
development milestone payments upon the FDA approval of TYRVAYA Nasal Spray
which occurred on October 15, 2021. Per the License Agreement, the Company is
eligible to receive up to $204.8 million in aggregate development and
sales-based milestone payments and royalty payments that are tiered on future
net sales of OC-01 and OC-02 and based on royalty rates between 10% and 20%.

Commercial Launch Agreements



In anticipation of the Company's commercial launch of TYRVAYA Nasal Spray in the
fourth quarter of 2021, the Company entered into wholesaler, patient services,
manufacturing and supply, as well as a third party logistics services
agreements.

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Full Onboarding of U.S. Sales Representatives



The Company has fully onboarded its planned field force of 150-200 sales
resources in 2021, who have been in the field communicating the Company's dry
eye disease-state awareness campaign and will now begin promoting TYRVAYA Nasal
Spray to eye care practitioners. TYRVAYA Nasal Spray is now available at U.S.
regional wholesalers for distribution to pharmacies, and samples are available
to eye care practitioners.

Preclinical Data Highlighting Potent Activity of TYRVAYA Nasal Spray and OC-02 (simpinicline) against SARS-CoV-2 Virus and Variants.



In July 2021, the Company announced preclinical data in non-human primates and
in vitro models evaluating TYRVAYA Nasal Spray against SARS-CoV-2 and the alpha
and beta variants, the viruses that cause COVID-19 disease. Administration of
TYRVAYA Nasal Spray to non-human primates was observed to inhibit viral
replication in the nose within 24 hours of infectious SARS-CoV-2 challenge with
absence of subgenomic RNA at Day 3 and Day 5 post-challenge. The results were
published on the preprint server bioRxiv. In addition, varenicline was observed
to inhibit cellular entry and replication of SARS-CoV-2 and its alpha and beta
variants in multiple human cell types. Lastly, OC-02 (simpinicline) was also
observed to inhibit cellular entry and replication of SARS-CoV-2 alpha variant
in Calu-3 human cells at very low concentrations. Additional preclinical studies
with SARS-CoV-2 variants are currently underway.

2021 Inducement Plan



In July 2021, the Company's Board of Directors approved the adoption of the 2021
Inducement Plan (the Inducement Plan), which is used exclusively for grants of
awards to individuals who were not previously employees or directors of the
Company (or following a bona fide period of non-employment) as a material
inducement to such individuals' entry into employment with the Company. The
Company has reserved 650,000 shares of its common stock that may be issued under
the Inducement Plan. The terms and conditions of the Inducement Plan are
substantially similar to those of the 2019 Plan.

Enrollment of First Subject in the OLYMPIA Phase 2 Clinical Trial of TYRVAYA
Nasal Spray (varenicline solution) Nasal Spray for Patients with Neurotrophic
Keratopathy

In June 2021, the Company announced enrollment of the first subject in the OLYMPIA Phase 2 clinical trial of TYRVAYA Nasal Spray for the treatment of Stage 1 Neurotrophic Keratopathy (NK). Enrollment is expected to be completed in 2022.

Pipeline Expansion with Enriched Tear Film (ETF™) Gene Therapy to Target Ophthalmic Diseases



In June 2021, the Company announced the expansion of its pipeline with the
introduction of its proprietary ETF™ gene therapy and proof-of-concept in vivo
study results from it first gene therapy candidate, OC-101. Preclinical study
results from a 42-day proof-of-concept in vivo study demonstrated a single,
intralacrimal gland injection of an adeno-associated virus (AAV) vector that
delivers the human Nerve Growth Factor (NGF) gene. A single injection produced
statistically significant increase of NGF in tear film, as compared to control.
Preclinical study results also demonstrated that following AAV transduction of
the lacrimal gland, cholinergic activation with TYRVAYA Nasal Spray produced
statistically significant increase of NGF levels in tear film of a rabbit model,
as compared to control, potentially indicating OC-01's ability to modulate
lacrimal secretion of NGF. No macroscopic or microscopic safety findings were
observed associated with either the intralacrimal gland administration of
TYRVAYA Nasal Spray or intranasal administration of TYRVAYA Nasal Spray.

Research Collaboration with Adaptive Phage Therapeutics, Inc. to Target Ophthalmic Diseases



In May 2021, the Company entered into a research collaboration agreement with
Adaptive Phage Therapeutics (APT) for the development of potential biological
treatments for multiple ophthalmic diseases. Under the terms of the
collaboration agreement, the Company has the option and certain rights to obtain
an exclusive license to develop and commercialize APT's technology for
ophthalmic diseases and disorders. Under the license terms, if such option is
exercised, the Company would pay
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for potential development and regulatory milestones, as well as the potential
for sales-related milestones and tiered royalties of net sales, if a licensed
phage therapy is approved by the FDA or certain other regulatory authorities.
Pursuant to the terms of the agreement, the Company paid a one-time,
non-refundable, upfront payment of $0.5 million for the collaboration and option
agreement which was included in research and development expense for the nine
months ended September 30, 2021.
The Impact of the SARS-CoV-2 Virus Pandemic

During the nine months ended September 30, 2021, the financial results of the
Company were not significantly affected by the SARS-CoV-2 virus pandemic.
However, the extent to which the SARS-CoV-2 virus pandemic may affect the
Company's future financial results and operations will depend on future
developments which are highly uncertain and cannot be predicted, including new
information which may emerge concerning the pandemic, the availability and
effectiveness of vaccines and treatment options, and current or future domestic
and international actions to contain it and treat it. The Company continues to
evaluate the impact of the SARS-CoV-2 virus pandemic on its trials, expected
timelines and costs, as well as potential supply-chain challenges as it prepares
itself for commercialization of the TYRVAYA Nasal Spray and as it continues to
learn more about the impact of the SARS-CoV-2 virus pandemic on the industry. In
addition, the Company has taken a variety of measures in an effort to ensure the
availability and functioning of the Company's critical infrastructure and to
promote the safety and security of its employees, including previously
instituted remote working arrangements for employees through at least the third
quarter of 2021 and investing in personal protective equipment for the future
return to the office. With the surge of the Delta variant of the virus across
the United States during the second half of 2021, the Company delayed the
planned voluntary return to the office for its employees until at least December
2021. However, the Company will continue monitoring COVID-19 infection rates and
make practical decisions about voluntary reopening in compliance with Centers
for Disease Control and Prevention, federal, state and local guidelines.

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

For further discussion of the risks that the Company faces as a result of the
SARS-CoV-2 virus pandemic refer to the "Risk Factors" section of the Company's
Annual Report on Form 10-K for the year ended December 31, 2020 and the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021
and June 30, 2021.

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Results of Operations

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

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


                                             Three Months Ended September 30,
                                                 2021                2020             $ Change             % Change

Revenue:
License revenue - related party             $    17,943          $        -          $ 17,943                     100  %
Total revenue                                    17,943          $        -            17,943                     100  %
Research and development:
Clinical, preclinical                             1,467               2,148              (681)                    (32) %
Chemistry, manufacturing and controls (CMC)       3,727               4,676              (949)                    (20) %
Other                                             1,020               1,386              (366)                    (26) %
   Total research and development                 6,214               8,210            (1,996)                    (24) %
Selling, general and administrative              28,497               8,112            20,385                     251  %
Loss from operations                            (16,768)            (16,322)             (446)                      3  %
Other income (expense)
Other income, net                                   222                  17               205                    1206  %
Interest expense                                 (1,124)                  -            (1,124)                    100  %
Total other expense, net                           (902)                 17              (919)                       N/M
Net loss                                    $   (17,670)         $  (16,305)         $ (1,365)                      8  %





N/M - Not Meaningful.

License Revenue - Related Party



In connection with the License Agreement entered into with Ji Xing, the Company
recognized $17.9 million in license revenue during the three months ended
September 30, 2021. The license revenue was recognized upon the transfer of
control of the licenses to Ji Xing and was comprised of $17.5 million cash
consideration, of which $2.5 million was included in other receivable-related
party on the condensed balance sheet as of September 30, 2021, and non-cash
consideration of 397,562 senior common shares of Ji Xing valued at $0.4 million.
The receipt of the Ji Xing senior common shares was recorded as a non-marketable
equity investment and included in other assets on the condensed balance sheet as
of September 30, 2021.

Research and Development Expenses



Research and development expenses decreased by $2.0 million during the three
months ended September 30, 2021 compared to the three months ended September 30,
2020. The decrease was driven by lower CMC expenses incurred by the Company in
the third quarter of 2021 compared to the third quarter of 2020, which included
significant pre-approval inventory costs, as well as expenses related to the
preparation of the NDA filing in December 2020. The Company also incurred lower
clinical and pre-clinical expense due to the timing and number of the studies
conducted during the three months ended September 30, 2021 compared to the three
months ended September 30, 2020.

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Selling, General and Administrative Expenses



Selling, general and administrative expenses increased by $20.4 million during
the three months ended September 30, 2021 compared to the three months ended
September 30, 2020. The increase was driven by higher payroll-related expenses
of $11.2 million, inclusive of increase in stock-based compensation of $0.8
million, primarily driven by onboarding a commercial field force during the
three months ended September 30, 2021. The Company incurred higher commercial
planning expenses of $5.2 million in anticipation of a U.S. launch of TYRVAYA
Nasal Spray, and higher general and administrative expenses of $3.1 million,
related to accounting, legal, facilities, and information technology costs. The
Company also incurred higher medical affairs costs in the amount of $0.9 million
during the three months ended September 30, 2021 compared to the three months
ended September 30, 2020.

Interest Expense

The Company incurred $1.1 million of interest expense during the three months
ended September 30, 2021 related to the Credit Agreement. Interest expense for
the three months ended September 30, 2021 includes contractual interest, as well
as the amortization of loan commitment fees and accretion of other long-term
debt related costs.

Comparison of the Nine Months Ended September 30, 2021 and 2020

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


                                                Nine Months Ended September 30,
                                                    2021                2020             $ Change            % Change
Revenue:
License revenue - related party                 $   17,943          $       -          $  17,943                   100  %
Total revenue                                       17,943                  -             17,943                   100  %
Research and development:
Clinical, preclinical                                5,468             10,141             (4,673)                  (46) %
Chemistry, manufacturing and controls (CMC)         12,772             14,236             (1,464)                  (10) %
Other                                                  532              3,727             (3,195)                  (86) %
   Total research and development                   18,772             28,104             (9,332)                  (33) %
Selling, general and administrative                 56,885             20,641             36,244                   176  %
Loss from operations                               (57,714)           (48,745)            (8,969)                   18  %
Other income (expense)
Other income, net                                      243                457               (214)                  (47) %
Interest expense                                    (1,124)                 -             (1,124)                  100  %
Total other expense, net                              (881)               457             (1,338)                 (293) %
Net loss                                        $  (58,595)         $ (48,288)         $ (10,307)                   21  %

License Revenue - Related Party



In connection with the License Agreement entered into with Ji Xing, the Company
recognized $17.9 million in license revenue during the nine months ended
September 30, 2021. The license revenue was recognized upon the transfer of
control of the licenses to Ji Xing and was comprised of $17.5 million cash
consideration, of which $2.5 million was included in other receivable-related
party on the condensed balance sheet as of September 30, 2021, and non-cash
consideration of 397,562 senior common shares of Ji Xing valued at $0.4 million.
The receipt of the Ji Xing senior common shares was recorded as a non-marketable
equity investment and included in other assets on the condensed balance sheet as
of September 30, 2021.

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Research and Development Expenses
Research and development expenses decreased by $9.3 million during the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020. The decrease in clinical, preclinical, and CMC expense of $6.1 million was
primarily due to the completion of the ONSET-2 Phase 3 clinical trial in May
2020. The decrease in other research and development costs of $3.2 million was
primarily driven by the application fee waiver granted to the Company in April
2021. In December 2020, the Company paid a fee of $2.9 million to the FDA under
the Prescription Drug User Fee Act (PDUFA) in conjunction with the filing of its
NDA for TYRVAYA Nasal Spray. The Company filed a request with the FDA to grant a
waiver and refund the fee under the small business waiver provision of the
PDUFA. Due to the uncertainty regarding the collectability of this refund, the
Company recorded the filing fee in research and development expense in December
2020. In February 2021, the FDA granted the Company's request for the waiver.
The refund was recorded as a reduction in other research and development expense
for the nine months ended September 30, 2021.

Selling, General and Administrative Expenses



Selling, general and administrative expenses increased by $36.2 million during
the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020. The increase was driven by higher payroll-related expenses
of $20.6 million, inclusive of increase in stock-based compensation of $3.4
million. The increase in payroll-related expenses is related to the onboarding
of commercial sales force and other employees to support the anticipated
commercial launch of TYRVAYA Nasal Spray in the fourth quarter of 2021. In
addition to the increase in payroll-related expenses related to the anticipated
launch of the product, the Company also incurred higher marketing and
advertising expenses of $9.0 million. The Company incurred higher other general
and administrative expenses of $4.3 million, related to accounting, legal,
facilities, and information technology costs. The Company also incurred an
increase in medical affairs costs in the amount of $2.3 million during the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020.

Interest Expense

The Company incurred $1.1 million of interest expense during the nine months
ended September 30, 2021 related to the Credit Agreement. Interest expense for
the three months ended September 30, 2021 includes contractual interest, as well
as the amortization of loan commitment fees and accretion of other long-term
debt related costs.

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Liquidity and Capital Resources

Sources of Liquidity



The Company's principal sources of liquidity include cash on hand and borrowings
under the Credit Agreement the Company entered into with OrbiMed in August 2021.
In August 2021, the Company drew upon the first tranche of the credit facility
in the amount of $45.0 million and received proceeds of $40.2 million, net of
loan commitment fees, debt issuance and discount costs. In October 2021, the
Company entered into the Amendment, to waive certain labeling requirements
required for, and to permit the availability of, the second $50 million tranche
of funding under the Credit Agreement (among other customary funding provisions)
and make certain other amendments thereto. The Company delivered a notice to
OrbiMed on October 19, 2021 that it intended to borrow the second tranche and
the Company received the second tranche funding on November 4, 2021. The Company
would also be barred from drawing the second tranche in the event an improper
promotional event occurs prior to the funding of the second tranche. The Credit
Agreement provides for the third $30 million tranche to be funded on or prior to
June 30, 2023, at the option of the Company, upon the Company having received at
least $40 million in net recurring revenue from the sale and/or licensing of
TYRVAYA Nasal Spray prior to March 31, 2023, among other conditions, including
having already drawn on the second tranche.

As of September 30, 2021, the Company had cash and cash equivalents of
approximately $184.2 million and $80 million remaining under the term loan
credit facility, which will be available upon the achievement of certain events
and the passage of time.
In November 2020, the Company entered into a sales agreement with Cowen and
Company, LLC (the Agent), pursuant to which the Company may offer and sell
shares of its common stock having an aggregate offering price of up to $100
million through the Agent (the ATM).

Future Funding Requirements



Based on the Company's current business plan, management believes that its
available cash and cash equivalents will be sufficient to fund the Company's
planned operations for at least 12 months from the filing date of this Quarterly
Report on Form 10-Q.

Since inception, the Company has incurred recurring losses and negative cash
flows from operations. The Company generated net losses of $58.6 million and
$48.3 million for the nine months ended September 30, 2021 and 2020,
respectively, and had an accumulated deficit of $213.3 million as of
September 30, 2021. On October 15, 2021, the Company's first product, TYRVAYA
Nasal Spray, was approved by the FDA for the treatment of the signs and symptoms
of dry eye disease. The Company is subject to all of the risks typically related
to the development and sale of new pharmaceutical products, and it may encounter
unforeseen expenses, difficulties, complications, delays and other unknown
factors that may adversely affect its business. The Company will require
additional funds as it commercializes TYRVAYA Nasal Spray, any future products,
and to fund operations for the foreseeable future. The Company is unable to
entirely fund these efforts with its current financial resources and there can
be no assurance that it will be able to secure such additional financing on a
timely basis, if at all, that will be sufficient to meet these needs. If
adequate funds are unavailable on a timely basis from operations or additional
sources of financing, the Company may have to delay, reduce or eliminate certain
commercial related expenses, included in selling, general and administrative
expenses, as well as delay, reduce or eliminate the scope of or eliminate one or
more of its research or development programs, which would materially and
adversely affect its business, financial condition and operations. The Company
may seek to raise capital through private or public equity or debt financings,
collaborative or other arrangement with corporate sources, or through other
sources of financing.

The Company anticipates that it will need to raise substantial additional capital, the requirements for which will depend on many factors, including:



•the scope, timing, rate of progress and costs of the Company's drug discovery
efforts, preclinical development activities, laboratory testing and clinical
trials for the Company's product candidates;
•the number and scope of clinical programs the Company decides to pursue;
•the cost, timing and outcome of preparing for and undergoing regulatory review
of the Company's product candidates;
•the scope and costs of development and commercial manufacturing activities;
•the cost and timing associated with commercializing of the Company's product
candidates, if they receive marketing approval;
•the extent to which the Company acquires or in-licenses other product
candidates and technologies;
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•the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing the Company's intellectual property rights and defending
intellectual property-related claims;
•the Company's ability to establish and maintain collaborations on favorable
terms, if at all;
•its efforts to enhance operational systems and the Company's ability to
attract, hire and retain qualified personnel, including personnel to support the
development of the Company's product candidates and, ultimately, the sale of the
Company's products, following FDA approval;
•the Company's implementation of operational, financial and management systems;
•any current or future potential effects of the SARS-CoV-2 virus pandemic on the
Company's business, operations, preclinical and clinical development and
commercialization timelines and plans; and
•the costs associated with being a public company.

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



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

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

See Item 1A. Risk Factors to the Annual Report on Form 10-K for the year ended
December 31, 2020 for additional risks associated with the Company's substantial
capital requirements.

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Cash Flow Discussion



The following table sets forth the primary sources and uses of cash, cash
equivalents and restricted cash for each of the periods presented below (in
thousands):
                                                         Nine Months Ended September 30,
                                                            2021                   2020              $ Change
Net cash (used in) provided by:
Operating activities                                 $        (47,895)         $  (37,348)         $ (10,547)
Investing activities                                           (1,250)               (342)              (908)
Financing activities                                           40,726             112,884            (72,158)
Net (decrease) increase in cash and cash
equivalents, and restricted cash                     $         (8,419)

$ 75,194 $ (83,613)

Cash Flows Used in Operating Activities



Net cash used in operating activities increased by $10.5 million for the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020, due to higher net loss adjusted for non-cash items during the period in
the amount of $6.2 million, as well as a decrease in working capital of $4.3
million. The decrease in working capital was driven primarily by timing of the
$2.5 million receivable due from Ji Xing in connection with the License
Agreement, as well as timing of payments to the Company's service providers. The
Company's higher net loss was driven by the preparation for the commercial
launch of TYRVAYA Nasal Spray in the fourth quarter of 2021, as well as
continued development of the Company's product candidates.

Cash Flows Used in Investing Activities



Net cash used in investing activities increased by $0.9 million for the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020, primarily related to partial payments for equipment to be used in
manufacturing of TYRVAYA Nasal Spray, as well as purchases of laboratory
equipment.

Cash Flows Provided by Financing Activities



Net cash provided by financing activities decreased by $72.2 million for the
nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020. The Company received $112.6 million in proceeds from the
follow on public offering during the second quarter of 2020, compared to net
proceeds from long-term debt of $40.2 million received during the nine months
ended September 30, 2021 under the Credit Agreement.

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Contractual Obligations and Commitments



In connection with the Credit Agreement and as further described in Note 7,
Long-term Debt, the Company is required to make certain contractual payments in
future periods. The Credit Agreement matures on August 5, 2027 and the loan is
structured for full principal repayment at maturity.

The following table identifies the Company's obligations under the Credit Agreement as of September 30, 2021 (in thousands):


                                           Less than 1                                                 More than 5
                                              year              1-3 years           3-5 years             years              Total
Debt Principal                            $        -          $        -          $        -          $   45,000          $ 45,000
Exit Fee                                           -                   -                   -               2,700             2,700
Contractual Interest on debt                   3,878               7,767               7,756               3,283            22,684
Revenue Sharing Cap (a)                            -                   -                   -               9,000             9,000
Total obligations                         $    3,878          $    7,767          $    7,756          $   59,983          $ 79,384

(a) - The Revenue Sharing Fee is capped at $9 million and timing of payments will vary based on the Company's net sales of OC-01.



In August 2021, the Company entered into a lease agreement for office space in
Boston, Massachusetts for a five-year term beginning on December 1, 2021 and
ending on November 30, 2026. Total future minimum lease payments under this
lease are $2.7 million as of September 30, 2021 with the first lease payment to
be made on December 1, 2021.

In July 2021, the Company entered into a manufacturing and supply agreement with
a contract manufacturing organization (CMO) to manufacture and supply TYRVAYA
Nasal Spray for an initial term of three years. Under this agreement, the
Company will pay a minimum capacity reservation fee in the amount of
$2.5 million for each of the next three years ending December 31, 2021, 2022,
and 2023, respectively. The minimum capacity reservation fee is subject to
potential future credit allowances based upon the prior year's manufacturing
production, as provided for in the agreement. The Company made no minimum
capacity reservation fee payments as of September 30, 2021.

In February 2021, the Company entered into a lease agreement for laboratory and
office space in New Jersey for a three-year term beginning on March 1, 2021 and
ending on February 29, 2024. Total future minimum lease payments under this
agreement are $0.7 million as of September 30, 2021.

As of September 30, 2021, other than noted above, there have been no other material changes in the contractual obligations and commitments from those disclosed in the financial statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

As of September 30, 2021, the Company does not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies, Significant Judgments and Estimates



The Company's financial statements have been prepared in accordance with U.S.
GAAP. The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported revenues and expenses incurred during
the reporting periods. The Company bases its estimates on historical experience,
terms of existing contracts, commonly accepted industry practices and on other
assumptions that it believes are reasonable under the circumstances. The Company
evaluates its estimates and assumptions on an ongoing basis. The future effects
of the SARS-CoV-2 virus pandemic on the Company's results of operations, cash
flows, and financial position are unclear, however the Company believes it has
used reasonable estimates and assumptions in preparing the interim condensed
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.
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The Company's critical accounting policies and estimates are included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2020. The
Company periodically reviews its accounting policies, estimates and assumptions
and makes adjustments when facts and circumstances dictate. In addition to the
accounting policies that are described in the Company's 2020 Annual Report on
Form 10-K, the following critical accounting policies were affected by critical
accounting estimates in connection with the Company offering its employees an
option to purchase the Company's common stock under the ESPP effective April 1,
2021 and the Company entering into the License Agreement with Ji Xing in August
2021.

Stock-Based Compensation
Effective April 1, 2021, the Company established its first offering period under
the ESPP. Stock-based compensation expense related to purchase rights issued
under the ESPP, is based on the Black-Scholes option-pricing model fair value of
the estimated number of awards as of the beginning of the offering period.
Stock-based compensation expense is recognized using the straight-line method
over the offering period.
The determination of the grant date fair value of shares purchased under the
ESPP is affected by the estimated fair value of our common stock as well as
other assumptions and judgments, which are estimated as follows:
•Expected term. The expected term for ESPP is the beginning of the offering
period to the end of each purchase period.
•Expected volatility. As the Company has a limited trading history of its common
stock, the expected volatility is estimated based on the third quartile of the
range of the observed volatilities for comparable publicly traded biotechnology
and pharmaceutical related companies over a period equal to length of the
offering period. The comparable companies are chosen based on industry, stage of
development, size and financial leverage of potential comparable companies.
•Risk-free interest rate. The risk-free interest rate is based on the implied
yield currently available on U.S. Treasury zero-coupon issues with a remaining
term equivalent to the expected term of the offering period.
•Expected dividend rate. The Company has not paid and does not anticipate paying
any dividends in the near future. Accordingly, the Company has estimated the
dividend yield to be zero.

Revenue

The Company entered into the License Agreement with Ji Xing during the three
months ended September 30, 2021, as further described in Note 8, License and
Collaboration Agreements. The License Agreement provides for Ji Xing to develop
and commercialize certain Company products in exchange for payments by the
licensee that include a non-refundable, up-front license fee, development and
sales-based milestone payments, as well as royalties on net sales of licensed
products. In connection with the License Agreement, the Company adopted revenue
policies in accordance with ASU 606. The Company recognizes license revenue when
the licensee has the ability to direct the use of and benefit from the licensed
intellectual property.

Recent Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 1, Nature of Business, Basis of Presentation and Significant Accounting Policies to the Company's unaudited interim condensed financial statements included in this Quarterly Report.

JOBS Act



The Company is an "emerging growth company," as defined in the Jumpstart Our
Business Startups Act of 2012, or the JOBS Act. Section 107(b) of the JOBS Act
provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. Thus,
an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. The
Company has irrevocably elected not to avail itself of this extended transition
period, and, as a result, it will adopt new or revised accounting standards on
the relevant dates on which adoption of such standards is required for other
public companies. The Company intends to rely on other exemptions provided by
the JOBS Act, including without limitation, not being required to comply with
the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act.

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The Company will remain an emerging growth company until the earliest to occur
of: (1) the last day of its first fiscal year in which it has total annual
revenues of more than $1.07 billion; (2) the date it qualifies as a "large
accelerated filer," with at least $700.0 million of equity securities held by
non-affiliates; (3) the date on which it has issued more than $1.0 billion in
non-convertible debt securities during the prior three-year period; and (4) the
last day of the fiscal year ending after the fifth anniversary of its initial
public offering.

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