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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, 2022
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 106 Princeton, New Jersey
08540
(Address of principal executive offices)(Zip Code)
202 Carnegie Center, Suite 109 Princeton, New Jersey
08540
(Former 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

The 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 4, 2022, the registrant had 26,844,292 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 within the meaning of Section 27A of the Securities Act of 1933, as amended (the Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). 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, such forward-looking statements can be identified by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q, other than the statements regarding the proposed acquisition by Viatris Inc., do not assume the consummation of the proposed acquisition unless specifically stated otherwise. These forward-looking statements include, but are not limited to, statements about:
expectations regarding the Company’s planned merger with Viatris Inc. including expected timing, completion and effects of the merger;
plans relating to commercializing TYRVAYA® (varenicline solution) Nasal Spray and the Company's other product candidates, if approved, including the geographic areas of focus and sales strategy;
the commercial success of TYRVAYA Nasal Spray and the Company’s other product candidates, once approved;
the extent to which third-party coverage and reimbursement will be available from third-party payors, including government health administration authorities (including in connection with government healthcare programs, such as Medicare and Medicaid), private healthcare insurers and other healthcare funding organizations for TYRVAYA Nasal Spray and the Company’s other product candidates;
the likelihood of the Company being able to maintain existing, or obtain additional insurance coverage from third-party payors and expand the commercial coverage with respect to TYRVAYA Nasal Spray;
the likelihood of the Company's clinical trials demonstrating the safety and efficacy of its product candidates, and other positive results;
the timing of the initiation of the Company's future clinical trials, and the reporting of data from completed, current and future clinical trials and preclinical studies;
plans relating to the clinical development of the Company's product candidates, including the size, number and disease areas to be evaluated;
the size of the market opportunity for the Company's products and product candidates;
the success of competing therapies that are or may become available;
the Company's estimates of the number of patients in the U.S. and other countries who suffer from dry eye and other ophthalmic diseases, and the number of patients that will enroll in its clinical trials;
the beneficial characteristics, safety, efficacy and therapeutic effects of TYRVAYA Nasal Spray and the Company's other product candidates;
the timing, likelihood or scope of regulatory filings and approvals for its product candidates;
the Company's ability to obtain and maintain regulatory approval of its product candidates;
the Company's plans relating to the further development and manufacturing of its products and product candidates, including additional indications for which it may pursue;
the expected potential benefits of strategic collaborations with third parties and the Company's ability to attract collaborators with development, regulatory and commercialization expertise;
the availability or likelihood of success of any strategic collaborations with third parties for the development or commercialization of the Company’s products and product candidates;
existing regulations and regulatory developments in the U.S. and other jurisdictions;
the Company's plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;
continued reliance on third parties to conduct additional clinical trials of the Company's product candidates, and for the manufacture and supply of products and product candidates, components for preclinical studies and clinical trials and products and components for commercialization of TYRVAYA Nasal Spray and any additional approved products;
the need to hire additional personnel, and the Company's ability to attract and retain such personnel;
the potential effects of the coronavirus, or SARS-CoV-2 virus pandemic, on business, operations and clinical development timelines and plans;
the accuracy of estimates regarding expenses, revenues, capital requirements and needs for additional financing;
the Company's financial performance;
the sufficiency of existing capital resources to fund future operating expenses and capital expenditure requirements, and the Company's ability to raise additional capital;
the Company's ability to retain existing talent and attract new, highly skilled talent;
i


the Company's estimates associated with the Company's plan to streamline operating expenses, including the associated reduction in force, and any resulting savings benefits the Company expects to achieve;
expectations regarding the period during which the Company will qualify as an emerging growth company under the JOBS Act; and
the Company's anticipated use of its existing capital resources.

Forward-looking statements include, without limitation, statements regarding the planned merger transaction with Viatris Inc., as well as and payments that may be made upon the satisfaction of specified milestones, which are each based on the Company’s current expectations and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to the Company’s ability to complete the transaction on the proposed terms and schedule or at all; whether the conditions for the tender offer in connection with the merger will be satisfied, or whether a sufficient number of shares will be tendered; the outcome of any future legal proceedings that may be instituted against the Company and/or others relating to the transaction; the failure (or delay) to receive any required regulatory approvals relating to the transaction; the possibility that competing offers will be made; uncertainty of the expected financial performance of the Company and its products, including whether any milestones will ever be achieved; and the occurrence of any event, change, or other circumstance that could give rise to the termination of the acquisition agreement.
The Company has based these forward-looking statements largely on its current expectations, including the Company's expectations regarding the Company's planned merger with Viatris, Inc., and projections about its business, the industry in which it operates and financial trends that it believes may affect business, financial condition, results of operations and growth 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, as well as Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, these forward-looking statements should not be relied on as predictions of future events. The events and circumstances reflected in the Company's 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, the Company does not plan to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
In addition, statements that “the Company believes” and similar statements reflect its beliefs and opinions on the relevant subject. These statements are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and its statements should not be read to indicate that it has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
ii


TABLE OF CONTENTS
Page
ITEM 1
ITEM 2
ITEM 3
ITEM 4
PART II – OTHER INFORMATION
ITEM 1
ITEM 1A
ITEM 2
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SIGNATURES

iii


PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
OYSTER POINT PHARMA, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)

September 30, 2022December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents$68,800 $193,372 
Restricted cash 61 
Accounts receivable, net13,184 6,656 
Inventory, net6,959 6,086 
Prepaid expenses and other current assets8,764 9,075 
Total current assets97,707 215,250 
Property and equipment, net2,438 2,497 
Investment - related party886 886 
Other assets5,692 1,082 
Right-of-use assets, net2,478 2,902 
Total Assets$109,201 $222,617 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable$4,145 $6,496 
Accrued expenses and other current liabilities24,360 21,511 
Lease liabilities692 795 
Total current liabilities29,197 28,802 
Lease liabilities, non-current1,811 2,118 
Long-term debt, net 92,218 89,815 
Other liabilities8,177 2,345 
Total Liabilities131,403 123,080 
Commitments and Contingencies (Note 11)
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; 0 outstanding
  
Common stock, $0.001 par value per share; 1,000,000,000 shares authorized, 26,831,485 and 26,579,585 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
27 27 
Additional paid-in capital367,762 354,920 
Accumulated deficit(389,991)(255,410)
Total Stockholders’ Equity (Deficit)(22,202)99,537 
Total Liabilities and Stockholders’ Equity (Deficit)
$109,201 $222,617 
The accompanying notes are an integral part of these 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,
2022202120222021
Revenue:
Product revenue, net$5,591 $ $12,988 $ 
License revenue - related party  17,943  17,943 
Total revenue5,591 17,943 12,988 17,943 
Cost of product revenue1,348  2,994  
Operating expenses:
Sales and marketing22,094 18,170 77,169 28,947 
General and administrative12,149 10,327 39,079 27,938 
Research and development3,913 6,214 13,258 18,772 
Total operating expenses38,156 34,711 129,506 75,657 
Loss from operations(33,913)(16,768)(119,512)(57,714)
Other (expense) income, net
Interest expense(3,495)(1,124)(9,717)(1,124)
Other income (expense), net 661 222 (5,352)243 
Total other (expense) income, net     (2,834)(902)(15,069)(881)
Net loss and comprehensive loss$(36,747)$(17,670)$(134,581)$(58,595)
Net loss per share, basic and diluted$(1.37)$(0.68)$(5.03)$(2.25)
Weighted average shares outstanding, basic and diluted26,830,756 26,037,975 26,736,177 25,984,412 

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


OYSTER POINT PHARMA, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)
Common StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmount
Balance at January 1, 202226,579,585 $27 $354,920 $(255,410)$99,537 
Net loss— — — (47,892)(47,892)
Issuance of common stock upon exercise of stock options69,930 — 76 — 76 
Issuance of common stock upon vesting of restricted stock units20,618 — — — — 
Shares withheld for taxes(7,436)— (87)— (87)
Stock-based compensation expense— — 4,359 — 4,359 
Balance at March 31, 202226,662,697 $27 $359,268 $(303,302)$55,993 
Net loss— — — (49,942)(49,942)
Issuance of common stock upon vesting of restricted stock units37,550 — — — — 
Issuance of common stock under the employee stock purchase plan (ESPP)128,926 — 541 — 541 
Stock-based compensation expense— — 4,183 — 4,183 
Balance at June 30, 202226,829,173 $27 $363,992 $(353,244)$10,775 
Net loss— — — (36,747)(36,747)
Issuance of common stock upon vesting of restricted stock units2,312 — — — — 
Stock-based compensation expense— — 3,770 — 3,770 
Balance at September 30, 202226,831,485 $27 $367,762 $(389,991)$(22,202)



3


Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders’ Equity
SharesAmount
Balance at January 1, 202125,890,490 $26 $341,384 $(154,751)$186,659 
Net loss— — — (18,909)(18,909)
Issuance of common stock upon exercise of stock options55,046 — 218 — 218 
Issuance of common stock upon vesting of restricted stock units15,252 — — — — 
Stock-based compensation expense— — 2,680 — 2,680 
Balance at March 31, 202125,960,788 $26 $344,282 $(173,660)$170,648 
Net loss— — — (22,016)(22,016)
Issuance of common stock upon exercise of stock options28,748 — 104 — 104 
Issuance of common stock upon vesting of restricted stock units16,901 — — — — 
Stock-based compensation expense— — 3,048 — 3,048 
Balance at June 30, 202126,006,437 $26 $347,434 $(195,676)$151,784 
Net loss— — — (17,670)(17,670)
Issuance of common stock upon exercise of stock options87,816 — 283 — 283 
Stock-based compensation expense— — 3,115 — 3,115 
Balance at September 30, 202126,094,253 $26 $350,832 $(213,346)$137,512 


The accompanying notes are an integral part of these condensed financial statements.
4


OYSTER POINT PHARMA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net loss$(134,581)$(58,595)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense12,312 8,843 
Depreciation 261 91 
Amortization and accretion of long-term debt related costs 3,085 508 
Reduction in the carrying amount of the right-of-use assets709 371 
Provision for inventory obsolescence (73) 
Non-cash consideration for license revenue - related party (443)
Change in fair value of net embedded derivative liability5,806 (212)
Changes in assets and liabilities:
Accounts receivable, net(6,528) 
Inventory(5,600) 
Prepaid expenses and other current assets311 395 
Other receivable - related party (2,500)
Other assets(102)(118)
Accounts payable(2,352)1,215 
Lease liabilities - operating leases(669)(357)
Accrued expenses and other current liabilities2,889 2,921 
Other liabilities26  
Net cash used in operating activities(124,506)(47,881)
Cash flows from investing activities
Purchases of property and equipment(203)(1,250)
Net cash used in investing activities(203)(1,250)
Cash flows from financing activities
Payment of deferred offering costs  (30)
Net proceeds from long-term debt  40,151 
Repayment of long-term debt(429) 
Repayment of principal on finance leases(26)(14)
Payment of withholding taxes related to stock-based compensation(87) 
Proceeds from the issuance of common stock under the ESPP542  
Proceeds from the exercise of stock options 76 605 
Net cash provided by financing activities76 40,712 
Net decrease in cash, cash equivalents and restricted cash(124,633)(8,419)
Cash, cash equivalents and restricted cash at the beginning of the period193,433 192,646 
Cash, cash equivalents and restricted cash at the end of the period$68,800 $184,227 
5


OYSTER POINT PHARMA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Nine Months Ended September 30,
20222021
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$68,800 $184,166 
Restricted cash 61 
Cash, cash equivalents and restricted cash$68,800 $184,227 
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $6,632 $617 
Non-cash investing and financing activities:
Right-of-use assets acquired through leases$285 $344 


The accompanying notes are an integral part of these condensed financial statements.
6


OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements


1.    Nature of Business, Basis of Presentation and Significant Accounting Policies

Description of the Business

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.

Liquidity

Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company generated net losses of $134.6 million for the nine months ended September 30, 2022, and had an accumulated deficit of $390.0 million as of September 30, 2022. The Company had cash and cash equivalents of $68.8 million as of September 30, 2022. The Company has historically financed its operations primarily through the sale and issuance of its securities. In the second half of 2021, the Company secured debt capital in the form of a long-term credit facility of up to $125.0 million (the Credit Agreement), to finance its operations, as further described in Note 8, Long-term Debt. The Company is also a party to a license agreement with Ji Xing Pharmaceuticals Limited (Ji Xing), according to which it is eligible to receive additional development and sales-based milestone payments and royalties in future periods. In addition, the Company began selling TYRVAYA Nasal Spray in November 2021 and generated net product revenues of $13.0 million for the nine months ended September 30, 2022.

Based on the Company’s current business plan, management believes that the Company’s available cash and cash equivalents will not be sufficient to fund its operations for the next twelve months from the date these condensed financial statements are issued, and that the future viability of the Company is dependent on its ability to fund its operations through the sales and licensing of TYRVAYA Nasal Spray and raising additional capital. Management believes that it may be able to raise such additional capital by raising up to $100.0 million of equity capital through its at-the-market sales agreement with Cowen and Company, LLC, and potentially receiving upfront and milestone payments through collaborative or strategic arrangements to license its OC-01 intellectual property in additional non-U.S. regions and/or intellectual property related to its pipeline assets worldwide. There can be no assurance the Company will be able to raise such additional equity capital. In addition, the Company may have the ability to draw up to $30.0 million on the third tranche of the Credit Agreement. This is contingent upon achieving at least $40.0 million in TYRVAYA Nasal Spray net recurring revenue, as defined in the Credit Agreement, in any twelve-month period on or before March 31, 2023, and without an improper promotional event having occurred, among other conditions. There can be no assurance that the Company will meet the net recurring revenue minimum threshold to enable the Company to draw on the third tranche. The Credit Agreement also requires the Company to maintain a minimum level of cash and permitted cash equivalent investments of at least $5.0 million at all times in a deposit account subject to control by the lender. If the Company is in violation of this covenant and an event of default resulting from such violation is continuing, the lender could exercise remedies, including but not limited to, the acceleration of all outstanding debt under the Credit Agreement. While the Company has generated limited revenue from initial sales of TYRVAYA Nasal Spray, and given its limited commercial history, the Company cannot guarantee that its commercialization efforts will result in product revenues that meet its sales expectations or those of analysts and investors. Finally, although the Company believes that it will continue to raise capital to fund its operations as it has in the past, the Company’s ability to raise equity capital may depend on the stability of U.S. capital markets and demand from investors, among other factors. There can be no assurance that the Company will be successful in commercializing TYRVAYA Nasal Spray or raising this additional capital or that such capital, including under the at-the-market sales agreement, if available, will be on terms that are acceptable to the Company. If the Company is unable to successfully commercialize TYRVAYA Nasal Spray and raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.
7

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)

If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay or reduce the scope of its marketing and commercialization efforts or make other changes to its operating plan, which could materially and adversely affect the Company's business, financial condition and operations. Successfully commercializing TYRVAYA Nasal Spray requires significant sales and marketing efforts, and the Company’s pipeline programs may require significant additional research and development efforts, including extensive preclinical and clinical testing. These activities will in turn require significant amounts of capital, qualified personnel and adequate infrastructure. There can be no assurance when, if ever, the Company will realize significant revenue from the sales of TYRVAYA Nasal Spray or if the development efforts supporting the Company’s pipeline of product candidates, including future clinical trials, will be successful. Additionally, the Company may decide to enter into additional license agreements or other collaborative or strategic arrangements to supplement its funds, which may require the Company to give up certain rights, thereby limiting its ability to develop and commercialize TYRVAYA Nasal Spray, as well as other product candidates in the pipeline, or may have other terms that are not favorable to the Company, which could materially and adversely affect its business, results of operations and financial condition.

Additionally, while the Merger Agreement (as defined in Note 12, Subsequent Events) is in effect, the Company is subject to restrictions on our business activities, generally requiring the Company to conduct its business in the ordinary course, consistent with past practice, and subjecting the Company to a variety of specified limitations absent Viatris Inc.’s prior consent. These limitations include, among other things, restrictions on the Company’s ability to acquire other businesses and assets, sell, transfer or license the Company’s assets, make investments, repurchase or issue securities, pay dividends, make capital expenditures, amend the Company’s organizational documents, issue securities and incur indebtedness.

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern. The propriety of assuming that the Company will continue as a going concern is dependent upon, among other things, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet the Company’s obligations as they become due. However, the factors described above raise substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the date these condensed financial statements are issued.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, but not limited to, the ability to secure sufficient capital to fund operations, competition from other companies’ products, the availability and sufficiency of third-party payor coverage and reimbursement, compliance with laws and government regulations, the ability to develop and bring to market new products, protection of proprietary technology, and dependence on third parties and key personnel.

The current global macro-economic environment is volatile, resulting in global supply chain constraints and elevated rates of inflation, which may impact the Company to varying degrees. In addition, the Company operates in a dynamic and highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies and industry standards; results of clinical trials; regulatory approval and market acceptance of the Company’s products; development of sales channels; certain strategic relationships; litigation or claims against the Company related to intellectual property, product, regulatory, or other matters; and the Company’s ability to attract and retain employees necessary to support its growth.

Product candidates developed by the Company require approval from the FDA and/or other international regulatory agencies prior to commercial sales. There can be no assurance that the Company's product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approval, it could have a material adverse impact on the Company.

The Company relies on single source manufacturers and suppliers for the supply of its FDA-approved product and its product candidates. This adds to the manufacturing risks faced by the Company, which could be left without backup facilities in the event of any failure by a supplier. In addition, if the Company decides to move to a different or add additional manufacturers and suppliers in the future, any such transition or addition could result in delays or other issues, which could have an adverse effect on the supply of TYRVAYA Nasal Spray or other product candidates. Any disruption from these manufacturers or
8

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
suppliers could have a negative impact on the Company’s business, financial position and results of operations. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

For the nine months ended September 30, 2022, a majority of the Company's sales of TYRVAYA Nasal Spray were to four large wholesale drug distributors, and the Company is expected to continue to rely on a limited number of wholesale drug distributors for the distribution of TYRVAYA Nasal Spray. If the Company is unable to maintain its business relationships with wholesale drug distributors on commercially acceptable terms, it could have a material adverse impact on the Company’s business, financial condition and results of operations.

The Company does not believe its financial results were materially affected by the SARS-CoV-2 virus pandemic during the three and nine months ended September 30, 2022. The Company will continue to make practical decisions in compliance with Centers for Disease Control and Prevention, federal, state and local guidelines with respect to the SARS-CoV-2 virus pandemic. 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.

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) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to state fairly the Company’s financial position as of September 30, 2022 and December 31, 2021, the results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. While management believes that the disclosures presented are adequate to mitigate the risk of the information being misleading, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

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 as of the date of the financial statements. On an ongoing basis, management evaluates its estimates, including those related to the valuation of stock-based awards, revenue and gross-to-net deductions, inventory, income taxes, net embedded derivative liability bifurcated from the Company's long-term credit agreement 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.

Significant Accounting Policies Update

The Company’s significant accounting policies are disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the Annual Report on Form 10-K for the year ended December 31, 2021. The Company updated its stock-based compensation accounting policy, as described below, in connection with the Performance Stock Units (PSUs) granted during the nine months ended September 30, 2022.

Stock-Based Compensation - Performance Stock Units

In January 2022 and July 2022, the Company granted PSUs to certain executive officers, as further described in Note 6, Stockholders' Equity and Equity Incentive Plans - Performance Stock Units. The PSUs are subject to vesting based on the Company’s attainment of pre-established performance milestones and service conditions. The performance milestones for the January 2022 PSUs are comprised of two non-market milestones and one market milestone. The July 2022 PSUs will vest upon the continuation of service to the Company and/or achievement of a market milestone. The fair values of the grants are measured
9

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
as described in Note 6, Stockholders' Equity and Equity Incentive Plans - Performance Stock Units.
Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board under its accounting standards codifications (ASC) or other standard setting bodies and are adopted by the Company as of the specified effective date. For the nine months ended September 30, 2022, there were no newly adopted accounting pronouncements that had a material impact to the Company's condensed financial statements. As of September 30, 2022, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact the Company's condensed financial statements.

Reclassification

The condensed statement of operations and comprehensive loss for the three and nine months ended September 30, 2021 has been conformed to separately present sales and marketing expenses which were previously reported in selling, general and administrative expenses. Certain prior year amounts have been reclassified for comparative purposes.


2.    Inventory

Inventory, net consisted of the following (in thousands):

September 30, 2022December 31, 2021
Raw materials$1,144 $2,524 
Work in process 5,500 3,053 
Finished goods 315 509 
Inventory, net $6,959 $6,086 

Raw materials in the amount of $4.8 million are not expected to be incorporated into products that will be sold within the next 12 months and are included in other assets on the condensed balance sheet as of September 30, 2022.


3.    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    Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3    Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As further discussed in Note 8, Long-term Debt, in connection with entering into the Credit Agreement in 2021, the Company is required to make quarterly payments to OrbiMed Royalty & Credit Opportunities III, LP (OrbiMed) in the form of a revenue sharing fee, which was evaluated under ASC 815-40, Derivatives and Hedging, and determined to be an embedded derivative liability. In addition, the Company has the right to optionally prepay, in whole or in part, the outstanding principal
10

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
amount of the term loan in an amount equal to the outstanding principal, accrued and unpaid interest, together with other fees and payments required under the term loan. This prepayment option has been determined to qualify as an embedded derivative asset under ASC 815-40, Derivatives and Hedging. Lastly, the term loan contains a lender-held put option that requires the Company to repay $5.0 million of the outstanding principal amount of the term loan if the Company fails to achieve certain pre-defined levels of OC-01 net recurring revenues for the trailing four quarters, which commences with the quarter ending December 31, 2022 and continues through the maturity of the term loan. This put option has been determined to qualify as an embedded derivative liability under ASC 815-40, Derivatives and Hedging.

These three embedded derivatives have been bifurcated and netted to result in a net embedded derivative liability, which is classified as a Level 3 financial liability in the fair value hierarchy as of September 30, 2022 and 2021. The net embedded derivative liability is recorded in other liabilities on the Company's condensed balance sheets.

The valuation method for the embedded derivatives includes certain unobservable Level 3 inputs including revenue projections for 2022 through 2027, revenue volatility, yield volatility, discount rates, credit spreads, operational leverage and risk-free rates of interest. The change in fair value due to the remeasurement of the net embedded derivative liability is recorded in other (expense) income, net in the Company’s condensed statements of operations and comprehensive loss.

The following table reconciles the beginning and ending balances for the Company’s net embedded derivative liability that is carried at fair value as a long-term liability on the Company's condensed balance sheets using significant unobservable inputs (Level 3) (in thousands):
20222021
Beginning balance as of January 1$2,345 $ 
Recognition of net embedded derivative liability 450 
Change in fair value of the net embedded derivative liability5,806 (212)
Ending balance as of September 30$8,151 $238 

As of September 30, 2022, financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
Fair Value Measurements as of September 30, 2022
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 funds42,696   42,696 
Total assets$42,696 $ $ $42,696 
Liabilities:
Net embedded derivative liability  8,151 8,151 
Total liabilities$ $ $8,151 $8,151 

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OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
As of December 31, 2021, financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
Fair Value Measurements as of December 31, 2021
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 funds162,376   162,376 
Total assets$162,376 $ $ $162,376 
Liabilities:
Net embedded derivative liability  2,345 2,345 
Total liabilities$ $ $2,345 $2,345 

Money market funds are included in cash and cash equivalents on the Company's condensed balance sheets and are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices.

The carrying amounts reflected in the Company's condensed balance sheets for cash equivalents, restricted cash, accounts receivable, and accounts payable approximate their fair values, due to their short-term nature.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Investment - Related Party

In connection with entering into a license agreement with Ji Xing, as described in Note 10, License and Collaboration Agreements, the Company received 397,562 senior common shares of Ji Xing in August 2021 and 397,561 senior common shares in October 2021 (the Investment), which were accounted for as a non-marketable equity investment and valued as of August 5, 2021 and October 15, 2021, respectively. Ji Xing is an entity affiliated with RTW Investments, LP. RTW Investments, LP, is one of the Company's beneficial owners and, as a result, the Investment is considered to be a related party transaction. The Investment is classified within Level 3 in the fair value hierarchy because the fair value was determined based on a market approach in which one or more significant inputs to the valuation model are unobservable. The Investment is subject to non-recurring fair value measurements for the evaluation of potential impairment losses and observable price changes in orderly transactions for an identical or similar investment of Ji Xing. There was no impairment expense recorded for the Investment during the three or nine months ended September 30, 2022.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are money market funds, which are included in cash and cash equivalents on the Company's condensed balance sheets. The Company attempts to minimize the risks related to cash and cash equivalents by using highly-rated financial institutions that invest in a broad and diverse range of financial instruments. The Company's investment portfolio is maintained in accordance with its investment policy that defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.

12

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)

4.    Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):
September 30, 2022December 31, 2021
Laboratory equipment $605 $585 
Manufacturing equipment502  
Furniture and fixtures27 73 
Leasehold improvements121 226 
Marketing equipment 258 258 
Office equipment68 68 
Construction-in-progress1,169 1,524 
Total property and equipment$2,750 $2,734 
Accumulated depreciation(312)(237)
Property and equipment, net$2,438 $2,497 



5.    Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

September 30, 2022December 31, 2021
Accrued gross-to-net deductions$7,762 $4,837 
Accrued compensation10,876 9,153 
Accrued inventory70 594 
Accrued professional services3,981 5,451 
Accrued research and development expense1,085 1,156 
Accrued other expense586 320 
Total accrued expenses and other current liabilities
$24,360 $21,511 
13

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)

6.    Stockholders' Equity and Equity Incentive Plans

Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock, at a par value of $0.001 per share. Each share of common stock is entitled to one vote.
The Company's outstanding equity awards as well as reserved common stock for future issuance is as follows:
September 30, 2022December 31, 2021
Outstanding options under the 2016 Equity Incentive Plan (the 2016 Plan)1,800,3341,935,240
Outstanding options under the 2019 Equity Incentive Plan (the 2019 Plan)2,775,9262,078,232
Outstanding options under the 2021 Equity Inducement Plan (the 2021 Plan)514,883270,600
Outstanding performance stock units (PSUs) under the 2019 Plan1,038,250
Unvested restricted stock units (RSUs) under the 2019 Plan987,428179,149
Equity awards available for grant under the 2019 Plan (1)
66,3801,535,488
Equity awards available for grant under the 2021 Plan135,117379,400
Shares reserved for purchase under the Employee Stock Purchase Plan (the ESPP) (2)
362,316225,447
Total7,680,6346,603,556
(1) Effective January 1, 2022, in connection with the evergreen provision contained in the 2019 Plan, an additional 1,070,967 shares of common stock were reserved for issuance under the 2019 Plan, including 7,784 shares of common stock that have become available for issuance under the 2019 Plan as a result of the forfeiture, termination, tender to or withholding for payment of an exercise price or for tax withholding obligations, expiration or repurchase of stock options, restricted stock units or other stock awards that had been granted under the 2016 Plan, pursuant to the terms of the 2019 Plan.

(2) Effective January 1, 2022, in connection with an evergreen provision contained in the ESPP, an additional 265,795 shares of common stock were reserved for issuance under the ESPP.

Performance Stock Units

July 2022 PSU Grant

In July 2022, the Company's Board of Directors granted 350,000 PSUs to the Company’s President and Chief Executive Officer and 300,000 PSUs to the Company’s Chief Financial and Business Officer. Upon vesting, each PSU will entitle the grantee to receive one share of the Company’s common stock based on the following conditions and the executive officer’s continued service with the Company:

50% of the PSUs will vest on July 6, 2023 (Tranche 1); and
The remaining 50% of the PSUs will vest at such time, if any, during the period that begins on July 6, 2023, and ending on July 6, 2024, as the thirty-day volume-weighted average stock price (VWAP) of the Company’s common stock reaches $6.00 per share (Tranche 2).

The fair value of Tranche 1 is based on the market price of the Company's stock at the date of grant. The fair value of Tranche 2 is estimated using a Monte Carlo simulation in a risk-neutral framework and uses the following inputs to determine the fair value:

Expected term - 2.00 years.
Expected volatility - Historical volatility of the Company's common stock price over a lookback period that is commensurate to the vesting period, which is 68.8%.
Risk-free interest rate - The Constant Maturity U.S. Treasury Curve, which is 2.95%.
Expected dividend rate - The Company has estimated the dividend yield to be zero.
Derived service period - 1.123 years.
14

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)

The Company recorded stock-based compensation expense of $0.6 million related to these PSUs for the three and nine months ended September 30, 2022.

January 2022 PSU Grant

In January 2022, the Company granted a target number of PSUs to certain executive officers that are subject to vesting based on the Company’s attainment of pre-established performance milestones and service conditions. The performance milestones are comprised of two non-market milestones and one market milestone. The non-market performance milestones are subject to attaining certain forecasted net product revenues and future prescriptions of TYRVAYA Nasal Spray, and the market performance milestone is subject to (i) at least one of the non-market milestones being met and (ii) attaining total shareholder return based on the change in the price of the Company's common stock. Depending on the terms of the PSUs and the outcome of the performance milestones, a recipient may ultimately earn 0% to 125% (as specified for each PSU grant) of the target number of PSUs granted of 310,600.

The number of PSUs that may vest and be issued is based upon the determination of the Compensation Committee of the Company's Board of Directors that one or more of the three performance milestones are achieved in the period beginning on the vesting commencement date of January 1, 2022 and ending on June 30, 2023, with the PSUs vesting on July 1, 2024, subject to the participant continuing their service through such vesting date.

The fair value of the non-market milestones is based on the market price of the Company’s stock as of the date of grant. The fair value of the market performance milestone is estimated using a Monte Carlo simulation. The probability of the number of actual shares expected to be earned is considered in the grant date valuation, and therefore, stock-based compensation expense is not adjusted at the vesting date to reflect the actual number of shares earned. The Monte Carlo simulation assumes that at least one of the non-market milestones are met and includes the following assumptions:

Expected term - 1.48 years.
Expected volatility - Historical volatility of the Company's common stock price over a lookback period that is commensurate to the performance period, which is 61.3%.
Risk-free interest rate - The Interpolated Constant Maturity U.S. Treasury Curve, which is 0.64%.
Expected dividend rate - The Company has estimated the dividend yield to be zero.

The Company records stock-based compensation expense over the estimated service period for each performance-based milestone subject to the achievement of the milestones being considered probable. At each reporting date, the Company assesses whether achievements of the milestones are considered probable and, if so, records stock-based compensation expense based on the portion of the service period elapsed to date with respect to the milestones, with a cumulative catch-up. The Company did not record stock-based compensation expense related to these PSUs during the three or nine months ended September 30, 2022.
Stock Options
The following table summarizes stock option activity under the 2016 Plan, the 2019 Plan and the 2021 Plan for the nine months ended September 30, 2022 (in thousands, except shares, contractual term and per share data):

Outstanding Options
Number of Shares Underlying Outstanding Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding at January 1, 20224,284,072 $13.54 8.1$28,874 
Options granted1,458,967 14.45  
Options exercised(69,930)1.09 995 
Options forfeited(581,966)17.44 23 
Outstanding at September 30, 20225,091,143 13.53 7.83,122 
Shares vested and exercisable as of September 30, 20222,562,866 11.55 6.83,023 
Vested and expected to vest as of September 30, 20225,091,143 $13.53 7.8$3,122 
15

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
The weighted average fair value of options granted during the nine months ended September 30, 2022 was $10.32 per share. As of September 30, 2022, the total unrecognized stock-based compensation expense for stock options was $25.1 million, which is expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock Units
The RSUs are granted to the Company's directors and employees. The value of an RSU award is based on the Company's stock price on the date of the grant. The shares underlying the RSUs are not issued until the RSUs vest.
Activity with respect to the Company's RSUs for the nine months ended September 30, 2022 was as follows (in thousands, except share, contractual term, and per share data):

Outstanding RSUs
Number of Shares Underlying Outstanding Awards
Weighted Average Grant Date Fair Value per Share
Weighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding at January 1, 2022179,149 $17.52 2.4$3,271 
Restricted stock units granted918,357 7.43 6,822 
Restricted stock units vested(60,480)17.86 451 
Restricted stock units forfeited (49,598)14.37 251 
Outstanding at September 30, 2022987,428 8.27 2.15,549 
Vested and expected to vest as of September 30, 2022987,428 $8.27 2.1$5,549 
As of September 30, 2022, the total unrecognized stock-based compensation expense for RSUs was $6.6 million which is expected to be recognized over a weighted average period of 2.4 years.
Employee Stock Purchase Plan
The Company maintains an ESPP which allows eligible employees to purchase shares of the Company's common stock at 85% of the fair market value of the Company's stock at the beginning or the end of the offering period, whichever is lower through payroll deductions. The Company issued 128,926 shares of common stock under the ESPP during the nine months ended September 30, 2022.

Stock-Based Compensation Expense
The following is a summary of stock-based compensation expense by function recognized (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Sales and marketing$549 $812 $2,882 $1,959 
General and administrative2,664 1,818 7,605 5,573 
Research and development557 485 1,825 1,311 
Total stock-based compensation expense $3,770 $3,115 $12,312 $8,843 

16

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)

7.    Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Numerator:
  Net loss$(36,747)$(17,670)$(134,581)$(58,595)
Denominator:
  Weighted average shares outstanding, basic and diluted26,830,756 26,037,975 26,736,177 25,984,412 
Net loss per share, basic and diluted
$(1.37)$(0.68)$(5.03)$(2.25)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
September 30,
20222021
Options to purchase common stock5,091,143 4,672,788 
Unvested restricted stock units987,428 178,595 
Performance stock units650,000  
Shares committed under the ESPP 93,831 30,170 
Total
6,822,402 4,881,553 


8. Long-term Debt

Credit Facility with OrbiMed

On August 5, 2021, the Company entered into the Credit Agreement with OrbiMed as administrative agent and initial lender. The term loan underlying the Credit Agreement matures on August 5, 2027 and is structured for full principal repayment at maturity. The term loan bears interest at the secured overnight financing rate (SOFR, as defined in the Credit Agreement) (with a floor of 0.40% per annum) plus a spread of 8.10% per annum.

The Company is required to make quarterly payments to OrbiMed in the form of a revenue sharing fee in an amount equal to 3.0% of all net revenue from fiscal year net sales and licenses of OC-01 up to $300.0 million and 1% of all revenue from fiscal year sales and licenses of TYRVAYA Nasal Spray in excess of $300.0 million and up to $500.0 million, subject to caps on such fiscal year net sales and license revenues. As of September 30, 2022 and December 31, 2021, the Company accrued $0.2 million and $0.2 million, respectively, for the revenue sharing fee which is classified in accrued expenses and other current liabilities on the Company's condensed balance sheet.

The discount created by the bifurcated net embedded derivative liability, together with the exit fee, the buyout amount, and any debt issuance fees attributable to the drawn tranches are deferred and amortized using the effective interest method over the life of the term loan, which resulted in an effective interest rate of 16.04% on the loan as of September 30, 2022.

In connection with entering into the Credit Agreement, the Company incurred loan commitment fees, which were capitalized and recorded in other assets on the Company's condensed balance sheet as of September 30, 2022. The Company amortizes loan commitment fees on a straight-line basis over the term of the loan commitment. Undrawn loan commitment fees, net of accumulated amortization, were $0.3 million and $0.6 million as of September 30, 2022 and December 31, 2021, respectively.

17

OYSTER POINT PHARMA, INC.
Notes to Unaudited Interim Condensed Financial Statements (continued)
The balances of the long-term debt, debt issuance and discount costs, net of amortization and accretion recorded on the Company's condensed balance sheet were as follows:

September 30, 2022December 31, 2021
Long-term debt $95,000 $95,000 
Debt issuance and discount costs, net of amortization(2,782)(5,185)
Long-term debt, net $92,218 $89,815 

During the three and nine months ended September 30, 2022, the Company recorded interest expense of $3.5 million and $9.7 million, respectively, of which $1.0 million and $3.1 million, respectively, are related to the amortization of the loan commitment fees and accretion of the debt issuance and discount costs.

The Credit Agreement contains customary affirmative and negative covenants, including but not limited to the Company’s ability to enter into certain forms of indebtedness, as well as to pay dividends and other restricted payments. The Credit Agreement also includes provisions for customary events of default. The Credit Agreement requires compliance with a minimum liquidity covenant of $5.0 million. The Company was in compliance with all covenants as of September 30, 2022.

9.    Leases
The Company is party to non-cancelable operating leases for office and laboratory space in New Jersey and Massachusetts.
The Company's variable lease payments primarily consist of maintenance and other operating expenses from its real estate leases. Variable lease payments are excluded from the right of use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company leases certain office equipment under finance leases with remaining lease terms of less than 3.8 years.
Supplemental balance sheet information for the Company's leases is as follows (in thousands):
September 30, 2022December 31, 2021
Operating lease right-of-use assets$2,444 $2,884
Finance lease right-of-use assets3418
Total right-of-use assets$2,478 $2,902
Operating lease liabilities$675 $779
Finance lease liabilities1716
Total lease liabilities$692 $