Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
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: 001-39112
______________________________________
OYSTER POINT PHARMA, INC.
(Exact Name of Registrant as Specified in its Charter)
______________________________________
Delaware81-1030955
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
202 Carnegie Center, Suite 109 Princeton, New Jersey
08540
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (609) 382-9032
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class

Trading
Symbol(s)

Name of each exchange on which registered
Common stock, par value $0.001

OYST

Nasdaq Global Select 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, 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 November 27, 2019, the registrant had 21,362,538 shares of common stock, $0.001 par value per share, outstanding.





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained in this Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
the likelihood of our clinical trials demonstrating safety and efficacy of our product candidates, and other positive results;
the timing of initiation of our future clinical trials, and the reporting of data from our current and future trials;
our plans relating to the clinical development of our product candidates, including the size, number and disease areas to be evaluated;
the size of the market opportunity and prevalence of dry eye disease (DED) for our product candidates;
our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
the success of competing therapies that are or may become available;
our estimates of the number of patients in the United States who suffer from DED and the number of patients that will enroll in our clinical trials;
the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;
the timing or likelihood of regulatory filings and approval for our product candidates;
our ability to obtain and maintain regulatory approval of our product candidates;
our plans relating to the further development and manufacturing of our product candidates, including additional indications for which we may pursue;
the expected potential benefits of strategic collaborations with third parties and our ability to attract collaborators with development, regulatory and commercialization expertise;
existing regulations and regulatory developments in the United States and other jurisdictions;
our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;
our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
the sufficiency of our existing capital resources to fund our future operating expenses and capital expenditure requirements;
i


our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and
our anticipated use of our existing resources and the proceeds from our initial public offering.
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

ii


Table of Contents

Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

iii


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
OYSTER POINT PHARMA, INC.
Condensed Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

September 30, 2019December 31, 2018
Assets
Current assets:
Cash and cash equivalents$72,278  $5,228  
Prepaid expenses and other current assets4,617  390  
Total current assets76,895  5,618  
Restricted cash51    
Operating lease right-of-use asset879  66  
Deferred offering costs2,119    
Other non-current assets132  20  
Total assets$80,076  $5,704  
Liabilities, redeemable convertible preferred stock, and stockholders’ deficit
Current liabilities:
Accounts payable$1,833  $462  
Accrued liabilities3,458  422  
Operating lease liability288  56  
Total current liabilities5,579  940  
Non-current liabilities:
Operating lease liability, net of current maturities594  6  
Total liabilities6,173  946  
Commitments and contingencies (Note 4)
Series A redeemable convertible preferred stock: $0.001 par value per share - 7,611,691 shares authorized, issued and outstanding at September 30, 2019 and at December 31, 2018; liquidation preference $43,126 at September 30, 2019 and at December 31, 2018
$43,001  $43,001  
Series B redeemable convertible preferred stock: $0.001 par value per share- 6,581,590 shares authorized, issued and outstanding at September 30, 2019 and no shares authorized, issued and outstanding at December 31, 2018; liquidation preference $93,000 at September 30, 2019 and $0 at December 31, 2018
92,852    
Stockholders’ deficit
Common stock, $0.001 par value per share - 20,121,000 authorized shares at September 30, 2019, and 10,943,000 shares authorized at December 31, 2018; 1,419,257 shares issued and outstanding at September 30, 2019, and 1,411,966 shares issued and outstanding at December 31, 2018
1  1  
Additional paid-in-capital2,556  276  
Accumulated deficit(64,507) (38,520) 
Total stockholders’ deficit(61,950) (38,243) 
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit
$80,076  $5,704  
The accompanying notes are an integral part of these unaudited condensed financial statements.
1


OYSTER POINT PHARMA, INC.
Condensed Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Operating expenses:
Research and development$8,088  $5,775  $18,594  $10,410  
General and administrative3,809  916  8,546  2,277  
Total operating expenses11,897  6,691  27,140  12,687  
Loss from operations(11,897) (6,691) (27,140) (12,687) 
Interest income400  59  1,153  195  
Net loss and comprehensive loss$(11,497) $(6,632) $(25,987) $(12,492) 
Net loss per share attributable to common stockholders, basic and diluted$(8.10) $(4.70) $(18.37) $(8.85) 
Weighted-average shares outstanding used in computing net loss per share
attributable to common stockholders, basic and diluted
1,419,029  1,411,966  1,414,475  1,411,966  

The accompanying notes are an integral part of these condensed unaudited financial statements.
2


OYSTER POINT PHARMA, INC.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(in thousands, except share amounts)
(unaudited)
Redeemable Convertible Preferred StockCommon StockAdditional Paid-In Capital  Accumulated Deficit  Total Stockholders’ Deficit
Shares  Amount  Shares  Amount  
Balance at December 31, 20187,611,691  $43,001  1,411,966  $1  $276  $(38,520) $(38,243) 
Net loss—  —  —  —  —  (3,761) (3,761) 
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $148
6,015,431  84,852  —  —  —  —  

—  
Stock-based compensation expense—  —  —  —  40  —  40  
Balance at March 31, 201913,627,122  127,853  1,411,966  1  —  316  (42,281) (41,964) 
Net loss—  —  —  —  —  (10,729) (10,729) 
Issuance of Series B redeemable convertible preferred stock566,159  8,000  —  —  —  —  —  
Issuance of common stock upon exercise of stock options—  —  7,060  —  7  —  7  
Stock-based compensation expense—  —  —  $—  $1,175  $—  1,175  
Balance at June 30, 201914,193,281135,853  1,419,026  1  1,498  (53,010) (51,511) 
Net loss—  —  —  —  —  (11,497) (11,497) 
Issuance of common stock upon exercise of stock options—  —  231  —  —  —  —  
Stock-based compensation expense—  —  —  —  1,058  —  1,058  
Balance at September 30, 201914,193,281  $135,853  1,419,257  $1  $2,556  $(64,507) $(61,950) 


Redeemable Convertible Preferred StockCommon Stock
Additional Paid-In Capital
Accumulated Deficit  
Total Stockholders’ Deficit
Shares  Amount  Shares  Amount  
Balance at December 31, 20177,611,691  $43,001  1,411,966  $1  $122  $(22,017) 

$(21,894) 
Net loss—  —  —  —  —  (2,935) 

(2,935) 
Stock-based compensation—  —  —  —  30  —  

30  
Balance at March 31, 20187,611,691  43,001  1,411,966  1  —  152  —  (24,952) —  (24,799) 
Net loss—  —  —  —  $—  $(2,925) $(2,925) 
Stock-based compensation—  —  —  —  $38  $—  $38  
Balance at June 30, 20187,611,691  43,001  1,411,966  1  190  (27,877) 

(27,686) 
Net loss—  —  —  —  —  (6,632) (6,632) 
Stock-based compensation—  —  —  —  43  —  43  
Balance at September 30, 20187,611,691  $43,001  1,411,966  $1  $233  $(34,509) $(34,275) 

The accompanying notes are an integral part of these unaudited condensed financial statements.
3


OYSTER POINT PHARMA, INC.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018
Cash flows from operating activities
Net loss$(25,987) $(12,492) 
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense2,273  111  
Changes in assets and liabilities:
Prepaid expenses and other current assets(4,227) (344) 
Other non-current assets  (20) 
Accounts payable1,211  758  
Operating lease right-of-use asset(813) (78) 
Operating lease liability820  77  
Accrued liabilities2,442  (1,055) 
Net cash used in operating activities(24,281) (13,043) 
Cash flows from investing activities
Purchase of property and equipment(112)   
Net cash used in investing activities(112)   
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs92,852    
Payment of deferred offering costs(1,365)   
Proceeds from the issuance of common stock upon exercise of stock options7    
Net cash provided by financing activities91,494    
Net increase (decrease) in cash and cash equivalents67,101  (13,043) 
Cash and cash equivalents at the beginning of the period5,228  22,311  
Cash, cash equivalents and restricted cash at the end of the period$72,329  $9,268  
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents72,278  9,268  
Restricted cash51    
Cash, cash equivalents and restricted cash72,329  9,268  
Supplemental cash flow information
Right-of-use for office space acquired through operating leases$897  $113  
Supplemental non-cash investing and financing activities
Unpaid deferred offering costs$754  $  
The accompanying notes are an integral part of these unaudited condensed financial statements.
4


OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements
1. Organization and Summary of Significant Accounting Policies
Description of the Business
Oyster Point Pharma, Inc. (the “Company”) was incorporated in the state of Delaware on June 30, 2015. From inception through September 30, 2019, the Company has been primarily engaged in business planning, research, clinical development of its lead therapeutic product candidates, recruiting and raising capital. The Company is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of pharmaceutical therapies to treat ocular surface diseases. The Company’s principal office is located in Princeton, New Jersey.
Initial Public Offering

On November 4, 2019, the Company completed its initial public offering (IPO) selling 5,750,000 shares of common stock at a price to the public of $16.00 per share which includes 750,000 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses, were approximately $82.6 million. In addition, upon closing the IPO, all outstanding shares of redeemable convertible preferred stock outstanding converted into an aggregate of 14,193,281 shares of the Company’s common stock.

Basis of Presentation
The unaudited interim condensed financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
Reverse Stock Split
In October 2019, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 2.832861-for-1 reverse stock split of the Company’s common stock and redeemable convertible preferred stock, which was effected on October 18, 2019. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, redeemable convertible preferred stock, stock options, and related per share amounts in these unaudited interim condensed financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related the valuation of convertible notes, valuation of derivative instruments, valuation of redeemable convertible preferred stock, valuation of stock awards, income taxes and certain research and development accruals. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.
Unaudited Interim Condensed Financial Information
The accompanying condensed balance sheets as of September 30, 2019, the condensed statements of operations and comprehensive loss, the condensed statements of redeemable convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2019 and 2018 and condensed statements of cash flows for the nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations for the three and nine months ended September 30, 2019 and 2018 and its cash flows for the nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in these notes related to the nine months ended September 30, 2019 and 2018 are also unaudited. The results for the nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future
5

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
year or period. The balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim condensed financial statements.
The accompanying interim unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2018, which are included in the Company’s prospectus related to the IPO, filed with the SEC on October 31, 2019 (the "Prospectus"), pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).
Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash is held by one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company’s cash equivalents are invested in highly rated money market funds.
Summary of Significant Accounting Policies
There have been no material changes in the Company's accounting policies from those disclosed in the financial statements and the related notes included in the final Prospectus.
Deferred Offering Costs
The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which time such costs are recorded against the gross proceeds of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss.
Net Loss per Share Attributable to Common Stockholders
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock and common stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) under its accounting standard codifications (“ASC”) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.
Recently adopted accounting pronouncements
In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The Company adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new ASU, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. For public business entities, this ASU is
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Notes to Unaudited Interim Condensed Financial Statements (continued)
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU update effective January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU No. 2016-02. These ASUs (collectively, the new lease standard) require an entity to recognize a lease liability and an ROU asset on the balance sheet for leases with lease terms of more than twelve months. Lessor accounting is largely unchanged. For public business entities, these ASUs are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoptions rather than in the earliest period presented. In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements, which provides clarification on implementation issues associated with adopting ASU No. 2016-02. The Company early adopted the new lease standard using the modified retrospective approach effective January 1, 2018 (the “date of adoption”) and elected the following practical expedients as permitted under Topic 842: (i) elected to account for lease and nonlease components as a single lease component, and (ii) elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward (1) its historical lease classification, (2) its assessment on whether a contract was or contains a lease, and (3) its initial direct costs for leases that existed prior to the date of adoption. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, preferred shares and convertible debt instruments issued by private companies and early-stage public companies. This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments in Part I should be applied (1) retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the first fiscal year and interim periods; (2) retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU permits companies to reclassify disproportionate tax effects in accumulated other comprehensive income (“AOCI”) caused by the Tax Act to retained earnings. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees and simplifies the accounting for nonemployee share-based payment transactions. The accounting for share-based payments to nonemployees and employees will be substantially aligned because of this update. This ASU specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. This ASU also
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Notes to Unaudited Interim Condensed Financial Statements (continued)
clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606. The transition method provided by ASU No. 2018-07 is a modified retrospective basis, which recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, but may take place no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company early adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s financial statements and related disclosures.
Recently issued accounting pronouncements not yet adopted
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. For SEC filers that are eligible to be smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements and related disclosures.
2. Fair Value Measurements
The Company assesses the fair value of financial instruments as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk.
As of September 30, 2019, financial assets measured and recognized at fair value were as follows (in thousands):

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OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
Fair Value Measurements at September 30, 2019
Quoted Price in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Total
Assets
Money market funds$72,278  $  $  $72,278  
Total fair value of assets$72,278  $  $  $72,278  

As of December 31, 2018, financial assets measured and recognized at fair value were as follows (in thousands):

Fair Value Measurements at December 31, 2018
Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Money market funds$5,228  $  $  $5,228  
Total fair value of assets$5,228  $  $  $5,228  
Money market funds are included in cash and cash equivalents on the balance sheets and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
There were no financial liabilities measured and recognized at fair value as of September 30, 2019 and December 31, 2018.
3. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):

September 30, 2019December 31, 2018
Accrued compensation$593  $367  
Accrued professional services2,833  35  
Accrued other liabilities32  20  
Total$3,458  $422  

4. Commitments and Contingencies
Asset Purchase of OC-02
In October 2016, the Company entered into an asset purchase agreement pursuant to which the Company acquired the compound OC-02. The agreement provides for milestone payments of up to $37.0 million upon achievement of certain milestone events.The agreement also provides for royalty payments in the mid-single digit percentage on covered product net worldwide sales. The Company’s obligation to pay royalties will terminate at the latter of patent expiration in each country or ten years. In addition, the Company is required to pay 15% of any (i) licensing revenue received that is related to OC-02 and (ii) revenue received from the sale of OC-02, up to a maximum aggregate amount of $10.0 million.

License Agreement
On October 18, 2019, the Company entered into a non-exclusive patent license agreement (the License Agreement) with Pfizer, which granted the Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate to develop, manufacture, and commercialize the OC-01 varenicline product. Under the terms of the agreement, the Company made an upfront
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OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
payment to Pfizer of $5 million. If the Company successfully commercializes OC-01, it may be required to pay a single milestone payment in the very low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digits to the mid-teens. The royalty obligation to Pfizer will commence upon the first commercial sale of OC-01 and will expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents.

Operating Lease Obligations

In January 2018, the Company entered a lease for office space under a non-cancelable operating lease with an expiration date of March 15, 2020, in Princeton, New Jersey. Rent expense is recorded on a straight-line basis over the term of the lease. The total lease payment over the life of the lease is $0.1 million. The remaining lease term was 0.4 years as of September 30, 2019.

In April 2019, the Company entered a lease for office space under a non-cancelable operating lease in Princeton, New Jersey, commencing on July 1, 2019, for a period of three years from the commencement date. Rent expense is recorded on a straight-line basis over the term of the lease. The total lease payment over the life of the lease is $0.9 million. The remaining lease term was 2.8 years as of September 30, 2019.
At the commencement date, the Company determined the amounts of the lease liability using a discount rate of 9%, which management determined represents the Company’s incremental borrowing rate. Lease expense was $0.1 million and less than $0.1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively. Cash paid for amounts included in the measurement of the lease liability was $0.1 million and less than $0.1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively, and was included in cash flows from operating activities in the statements of cash flows. The remaining lease term was 0.5 years as of September 30, 2019 and 1.3 years as of December 31, 2018.
The maturities of the lease liabilities under non-cancelable operating leases are as follows (in thousands):

As of December 31, 2018Amount
2019$59  
20207  
Total undiscounted cash flows66  
Less: imputed interest(4) 
Total operating lease liability62  
Less: current portion(56) 
Operating lease liability$6  


As of September 30, 2019Amount
2019 (reminder)$92  
2020319  
2021316  
2022186  
Total undiscounted cash flows913  
Less: imputed interest(31) 
Total operating lease liability882  
Less: current portion(288) 
Operating lease liability$594  
Contingencies and Indemnifications
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that
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Notes to Unaudited Interim Condensed Financial Statements (continued)
such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications, including for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
The Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
5. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the three and nine months ended September 30, 2019 and September 30, 2018 as it has incurred net losses since inception. In addition, the net deferred tax assets generated from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.
6. Redeemable Convertible Preferred Stock
Under the Company’s amended and restated certificate of incorporation, the Company is authorized to issue two classes of shares: preferred and common stock. Under the Company’s amended and restated certificate of incorporation, the Company is authorized to issue 14,193,281 shares of redeemable convertible preferred stock at a par value of $0.001 as of September 30, 2019 and December 31, 2018.
Issued and outstanding redeemable convertible preferred stock and its principal terms as of December 31, 2018 were as follows (in thousands, except share and per share amounts):

Redeemable Convertible
Preferred Stock

Liquidation
Value
Carrying
Amount
Original
Issue
Price
AuthorizedOutstanding
Series A redeemable convertible preferred stock7,611,691  7,611,691  $43,126  $43,001  $5.67  
On February 15, 2019, the Company executed the Series B Preferred Stock Purchase Agreement to sell up to 6,581,590 shares of Series B redeemable convertible preferred stock.
Issued and outstanding redeemable convertible preferred stock and its principal terms as of September 30, 2019 were as follows (in thousands, except share and per share amounts):

Redeemable Convertible
Preferred Stock
Liquidation
Value
Carrying
Amount
Original
Issue
Price
AuthorizedOutstanding
Series A redeemable convertible preferred stock7,611,691  7,611,691  $43,126  $43,001  $5.67  
Series B redeemable convertible preferred stock6,581,590  6,581,590  93,000  92,852  $14.13  
14,193,281  14,193,281  $136,126  $135,853  

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Notes to Unaudited Interim Condensed Financial Statements (continued)
Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into an aggregate of 14,193,281 shares of the Company’s common stock.
Redemption and Balance Sheet Classification
The redeemable convertible preferred stock is recorded within mezzanine equity because while it is not mandatorily redeemable, it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control.
7. Common Stock
As of September 30, 2019 and December 31, 2018 the Company’s amended and restated certificate of incorporation authorized the Company to issue 20,121,000 and 10,943,000 shares of common stock, respectively, at a par value of $0.001 per share. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Company’s board of directors, subject to prior rights of the preferred stockholders. As of September 30, 2019 and December 31, 2018, no dividends have been declared to date.
The Company had reserved common stock, on an as-converted basis, for future issuance as follows:


September 30, 2019December 31, 2018
Conversion of Series A redeemable convertible preferred stock7,611,691  7,611,691  
Conversion of Series B redeemable convertible preferred stock6,581,590    
Outstanding options under the 2016 Plan2,559,935  1,376,084  
Issuance of options under the 2016 Plan186,648  216,333  
Total16,939,864  9,204,108  

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Notes to Unaudited Interim Condensed Financial Statements (continued)
8. Stock Option Plan
In 2016, the Company established its 2016 Equity Incentive Plan (the “Plan”) which provides for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and consultants.
The exercise price of an ISO and NSO shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the board of directors. The exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the board of directors. To date, outstanding options have a term of 10 years and generally vest monthly over a four-year period.
Activity under the Company’s stock option plan is set forth below (in thousands, except share and per share data):


Outstanding Options

Shares Available for Grant
Number of Shares Underlying Oustanding Options
Weighted Average Exercise Price
Weighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Balance, January 1, 2019216,333  1,376,084  $1.00  8.9$5,950  
Additional shares authorized1,161,457  —  
Options granted(1,191,439) 1,191,439  $6.57  
Options exercised—  (7,291) $1.02  $97  
Options canceled297  (297) $1.02  
Balance, September 30, 2019186,648  2,559,935  $3.59  8.9$27,356  
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2019 and 2018 was $8.22 and $0.54 per share, respectively.
As of September 30, 2019, the total unrecognized stock-based compensation expense for stock options was $8.0 million, which is expected to be recognized over a weighted-average period of 3.46 years.
Fair Value of Common Stock
Prior to the IPO the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the IPO, the fair value of the Company’s common stock is determined based on its closing market price.
Stock-Based Compensation Expense
Total stock-based compensation expense recorded related to options granted to employees and non-employees was as follows (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Research and development$203  $7  $417  $14  
General and administrative855  36  1,856  97  
$1,058  $43  $2,273  $111  

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Notes to Unaudited Interim Condensed Financial Statements (continued)
9. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Numerator:
Net loss attributable to common stockholders$(11,497) $(6,632) $(25,987) $(12,492) 
Denominator:
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted1,419,029  1,411,966  1,414,475  1,411,966  
Net loss per share attributable to common stockholders, basic and diluted
$(8.10) $(4.70) $(18.37) $(8.85) 
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

As of September 30,
20192018
Series A redeemable convertible preferred stock7,611,691  7,611,691  
Series B redeemable convertible preferred stock6,581,590    
Options to purchase common stock2,559,935  1,376,084  
Total16,753,216  8,987,775  

10. Subsequent Events
In October 2019, the Company’s Board of Directors and stockholders approved 2.832861-for-1 reverse stock split as described in Note 1.
In October 2019, the Company (i) granted an aggregate of 225,916 options to purchase the Company’s common stock to employees with an exercise price of $14.28 per share (ii) granted an aggregate of 7,766 options to purchase the Company’s common stock to employees with an exercise price of $16.00 and (iii) reserved 105,900 additional shares of common stock for issuance under the 2016 Plan.
In October 2019 and in connection with the reverse stock split, the Company increased the number of authorized common and preferred shares to a total of 21,000,000 common shares at a par value of $0.001 per share and 14,193,296 preferred shares at a par value of $0.001 per share, respectively.
In October 2019, the Company’s Board of Directors and stockholders approved the 2019 Equity Incentive Plan (the 2019 Plan), with an initial share reserve of 2,700,000 shares of the Company's common stock plus any reserved but unissued shares under the 2016 Plan. The 2019 Plan provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to the Company's employees, directors, and others.
In October 2019, the Company’s Board of Directors and stockholders also approved the 2019 Employee Stock Purchase Plan (the ESPP), which qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code, and pursuant to which 270,000 shares of common stock were reserved for future issuance. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions.

In October 2019, the Company entered into a non-exclusive patent license agreement (the License Agreement) with Pfizer, upon which the Company made an upfront payment of $5.0 million. Pursuant to the License Agreement, Pfizer granted the Company non-exclusive rights under Pfizer’s patent rights covering varenicline tartrate and related salts thereof, including U.S.
14

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
Patent Nos.: 7,265,119 and 6,890,927 to develop, manufacture, and commercialize the OC-01 varenicline product candidate for the treatment of any ophthalmic disease or condition via nasal administration in the United States. If the Company successfully commercializes OC-01, it may be required to pay a single milestone payment in the very low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digits to the mid-teens. The royalty obligation to Pfizer will commence upon the first commercial sale of OC-01 and will expire upon the later of (a) the expiration of all regulatory or data exclusivity granted to Pfizer in connection with varenicline in the United States; and (b) the expiration or abandonment of the last valid claims of the licensed patents.

On November 4, 2019, the Company completed its IPO selling 5,750,000 shares of common stock at a price to the public of $16.00 per share which includes 750,000 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses, were approximately $82.6 million. In addition, upon closing the IPO, all outstanding shares of redeemable convertible preferred stock outstanding converted into an aggregate of 14,193,281 shares of the Company’s common stock.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our 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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Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class pharmaceutical therapies to treat ocular surface diseases. Our lead product candidate OC-01 (varenicline), a highly selective nicotinic acetylcholine receptor (nAChR) agonist, is being developed as a nasal spray to treat the signs and symptoms of dry eye disease. We believe that targeting the parasympathetic nervous system through the use of locally administered cholinergic agonists has the potential to treat a wide range of diseases and disorders. We have identified several indications, including several outside of ophthalmology, where we believe this approach could provide a meaningful benefit to patients.
Since our formation in June 2015, we have devoted substantially all of our resources to developing our product candidates. We have incurred significant operating losses to date. Our net losses were $26.0 million and $12.5 million for the nine months ended September 30, 2019 and September 30, 2018, respectively. As of September 30, 2019, we had an accumulated deficit of $64.5 million. We expect that our operating expenses will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we have incurred and will continue to incur additional costs associated with operating as a public company.
We do not have any products approved for sale and have not generated any revenue since inception. We have funded our operations primarily from the sale and issuance of redeemable convertible preferred stock and convertible promissory notes. In February and April 2019, we raised an aggregate of $93.0 million from the sale of Series B redeemable convertible preferred stock. As of September 30, 2019, we had cash and cash equivalents of $72.3 million, which, together with the net proceeds from our initial public offering (IPO) in November 2019, we believe will be sufficient to fund our planned operations for at least the next 12 months.
Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
We plan to continue to use third-party service providers, including clinical research organizations (CROs) and contract manufacturing organization (CMOs), to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates. We do not currently have a sales force. If OC-01 is approved for the treatment of the signs and symptoms of DED, we intend to deploy a specialty sales force at launch of approximately 150 to 200 field representatives.
On October 18, 2019, we entered into a non-exclusive patent license agreement with Pfizer, pursuant to which we made an upfront payment of $5.0 million. If we successfully commercialize OC-01, we may be required to pay a single milestone payment in the very low double-digit millions and tiered royalties on net sales of OC-01 at percentages ranging from the mid-single digits to the mid-teens. For more information on the terms of our license agreement with Pfizer, see Note 4 "Commitments and Contingencies" and Note 10 “Subsequent Events” to our unaudited interim condensed financial statements.

Initial Public Offering

On November 4, 2019, we completed our IPO selling 5,750,000 shares of our common stock at $16.00 per share. Proceeds from our IPO, net of underwriting discounts and commissions and other offering expenses, were $82.6 million.

Prior to our IPO, we executed a 2.832861-for-1 reverse stock split of our common stock and our redeemable convertible preferred stock on October 18, 2019. In connection with the completion of our IPO on November 4, 2019, all then outstanding shares of redeemable convertible preferred stock converted into 14,193,281 shares of common stock.
Components of Operating Results
Revenue
We have not generated any revenue from product sales and do not expect to do so in the near future.

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Operating Expenses
Research and Development Expenses
Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities. We expense both internal and external research and development expenses as they are incurred.
We do not allocate our costs by product candidate, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, are not tracked by product candidate. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs, and therefore the costs cannot be allocated to a particular product candidate or development program. The following table shows our research and development expenses by type of activity (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Clinical and preclinical$3,010  $4,894  $6,071  

$7,671  
Chemistry, Manufacturing and Controls (CMC)3,982  548  9,876  

1,802  
Regulatory and other costs1,096  333  2,647  

937  
Total research and development expenses$8,088  $5,775  $18,594  

$10,410  
We are focusing substantially all of our resources on the development of our product candidates, particularly OC-01. We expect our research and development expenses to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates, complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable stock exchange and Securities and Exchange Commission (SEC) requirements, investor relations costs and director and officer insurance premiums associated with being a public company.
Interest Income
Interest income consists primarily of interest income earned on our cash and cash equivalents.
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Results of Operations
Comparison of the Three Months Ended September 30, 2019 and 2018
The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Three Months Ended September 30,
20192018Change%
Operating expenses:
Research and development$8,088  $5,775  $2,313  40 %
General and administrative3,809  916  2,893  316 %
Loss from operations(11,897) (6,691) (5,206) 78 %
Interest income400  59  341  578 %
Net loss$(11,497)