The following discussion analyzes the Company's historical financial condition
and results of operations. As you read this discussion and analysis, refer to
the Company's financial statements and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q, which represents the results of operations
for the three and nine months ended September 30, 2022 and 2021. Also refer to
the Company's Annual Report on Form 10-K for the year ended December 31, 2021,
which includes detailed discussions of various items impacting the Company's
business, results of operations and financial condition. The discussion and
analysis below has been organized as follows:

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

Some of the information contained in the following discussion and analysis or
set forth elsewhere in this Quarterly Report on Form 10-Q, including information
with respect to Company's expectations in connection with the pending merger
with Viatris Inc., the Company's plans and strategy for its business, includes
forward-looking statements within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act that involve risks and uncertainties. As a
result of many factors, including those factors set forth in the "Risk Factors"
section of the Company's Annual Report on Form 10-K for the year ended
December 31, 2021 and in this Quarterly Report on Form 10-Q, the Company's
actual results could differ materially from the results described in or implied
by these forward-looking statements. Please also see the section of this
Quarterly Report on Form 10-Q titled "Special Note Regarding Forward-Looking
Statements."

The forward-looking statements in this Quarterly Report on Form 10-Q, other than
the statements regarding the pending merger with Viatris Inc., do not assume the
consummation of the proposed merger unless specifically stated otherwise.

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Executive Summary

Introduction and Overview

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

The Company 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.
The Company expects its product revenue to increase if it gains market share and
TYRVAYA Nasal Spray obtains insurance coverage from additional third-party
payors. The Company generated net losses of $134.6 million and $58.6 million for
the nine months ended September 30, 2022, and 2021, respectively, and had an
accumulated deficit of $390.0 million as of September 30, 2022. The Company has
financed its operations primarily through the sale and issuance of its
securities. In August 2021, the Company secured debt capital in the form of a
long-term credit facility of up to $125.0 million (the Credit Agreement) with
OrbiMed Royalty & Credit Opportunities III, LP (OrbiMed) to help finance its
operations.

Recent Events

Pending Transaction with Viatris Inc.



On November 7, 2022, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) by and among the Company, Viatris Inc. and Iris Purchaser
Inc. (Purchaser), a wholly owned subsidiary of Viatris Inc. The Merger Agreement
provides that, subject to satisfaction of customary closing conditions,
including the completion of the Offer (as defined below), Purchaser will merge
with and into the Company, with the Company continuing as the surviving
corporation as a wholly owned subsidiary of Viatris Inc. (the Merger).

Pursuant to the terms and subject to the conditions of the Merger Agreement,
Viatris Inc. has agreed to cause Purchaser to commence a tender offer (Offer) to
acquire all of the outstanding shares of common stock of the Company for (i)
$11.00 per share in cash plus (ii) the right to receive one contingent value
right payment (CVR) per share, which represents the right to receive a Milestone
Payment, defined as $1.00 per share in cash if Milestone One (as defined below)
is achieved or $2.00 per share in cash if Milestone Two (as defined below) is
achieved, net of applicable withholding taxes and without interest. Milestone
One will be met if the Company both (i) recognizes at least $21.6 million net
revenue from sales of TYRVAYA Nasal Spray for the twelve months ended December
31, 2022; and (ii) achieves at least 131,822 total TYRVAYA Nasal Spray
prescriptions in the United States for the twelve months ended December 31,
2022. Milestone Two will be met if the Company both (i) recognizes at least
$24.0 million net revenue from sales of TYRVAYA Nasal Spray for the twelve
months ended December 31, 2022; and (ii) achieves at least 146,469 total TYRVAYA
Nasal Spray prescriptions in the United States for the twelve months ended
December 31, 2022. If Milestone One is achieved and Milestone Two is not
achieved, the stockholders who had shares of the Company's common stock acquired
by Viatris Inc. in connection with the Offer shall receive a Milestone Payment
of $1.00 per share in cash. If Milestones One and Two are achieved, the
stockholders who had shares of the Company's common stock acquired by Viatris
Inc. in connection with the Offer shall receive a Milestone Payment of $2.00 per
share in cash. If Milestone One is not achieved, no Milestone Payment will
become payable and stockholders who had shares of the Company's common stock
acquired by Viatris Inc. in connection with the Offer shall not receive
additional consideration.

Pursuant to the terms and and subject to the conditions of the Merger Agreement,
the Merger will be affected pursuant to Section 251(h) of the Delaware General
Corporation Law, which permits completion of the Merger without a vote of the
holders of common stock upon the acquisition by Purchaser of a majority of the
aggregate voting power of common stock. As a result of the Merger, the Company
will cease to be a publicly traded company. The Merger Agreement contains
customary representations and warranties. The Merger is anticipated to close in
the first quarter of 2023, subject to the satisfaction of customary closing
conditions, including completion of the Offer. However, there can be no
assurance that the conditions to the completion of the Offer and the Merger will
be satisfied or waived, that the Offer and the Merger will be completed on the
expected timeframe or at all, or that the Offer and the Merger will be
consummated as contemplated by the Merger Agreement. If the Merger Agreement is
                                       23
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terminated under specified circumstances provided in the Merger Agreement, the
Company will be required to pay Viatris Inc. a termination fee of approximately
$11.9 million.

The foregoing description of the Merger Agreement and the Transactions does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is attached hereto as Exhibit 2.1 to this Quarterly
Report on Form 10-Q and incorporated by reference herein. Please also see "Item
1A. Risk Factors-Risks related to the pending merger with Viatris Inc.".

Operating Expense Streamlining Plan



In the second quarter of 2022, the Company announced a plan to streamline
operating expenses. The plan, which has since been implemented, included a
reduction in force and certain other cost-cutting measures. These measures,
which were approved by the Company's Board of Directors, served to better align
the Company's workforce with the anticipated current needs of its business,
maximize the commercial potential of TYRVAYA Nasal Spray, and create value for
the Company's stakeholders. The Company reduced its operating expenses,
primarily driven by lower non-employee-related general and administrative and
research and development expenses, and to a lesser extent, by the reduction of
approximately 40 positions across the organization.

Ji Xing Pharmaceuticals Enrolls Patients in a Phase 3 Clinical Trial of OC-01 in China



The Company granted Ji Xing an exclusive license to develop and commercialize
OC-01 (varenicline solution) nasal spray and OC-02 (simpinicline) nasal spray
pharmaceutical products, for all prophylactic uses for, and treatment of,
ophthalmology diseases or disorders in the greater China region in August 2021.
In July 2022, Ji Xing announced that the first patients have been enrolled in
its Phase 3 clinical study of OC-01 (varenicline solution) nasal spray in China.
The study is being carried out in over 20 leading clinical centers across China
and is designed to evaluate the efficacy and safety of OC-01 nasal spray for the
treatment of the signs and symptoms of dry eye disease to support a new drug
application in China.

Expansion of Commercial Coverage for TYRVAYA Nasal Spray



In July 2022, the Company introduced expanded patient access programs to include
more eligible patients. As of the third quarter of 2022, TYRVAYA Nasal Spray is
covered by commercial prescription drug plans managed by the nation's top three
Pharmacy Benefit Manager Group Purchasing Organizations. The Company expects to
expand market access to TYRVAYA Nasal Spray with additional coverage for
Medicare Part D patients in 2023 and beyond.

Continued Enrollment of Subjects in the OLYMPIA Phase 2 Clinical Trial of TYRVAYA Nasal Spray for Patients with Neurotrophic Keratopathy



During the nine months ended September 30, 2022, the Company continued
enrollment of subjects in the OLYMPIA Phase 2 clinical trial of OC-01 for the
treatment of Stage 1 Neurotrophic Keratopathy (NK). NK is a degenerative disease
resulting from a loss on corneal sensation, which causes progressive damage to
the top layer of the cornea and can negatively impact visual acuity. Enrollment
was completed in October 2022 and study results are expected in the first
quarter of 2023.

Additional Pre-Clinical Studies for Enriched Tear Film (ETF™) Gene Therapy to Target Neurotrophic Keratopathy and Vernal and Atopic Keratoconjunctivitis patients



During the nine months ended September 30, 2022, the Company progressed in its
multiple pre-clinical studies for the proprietary ETF™ gene therapy with OC-101
(AAV-NGF). OC-101 (AAV-NGF) is administered as a single, intralacrimal gland
injection of an adeno-associated virus (AAV) vector containing the human nerve
growth factor (NGF) gene for Stages 2 and 3 NK patients. The Company submitted a
Pre-IND meeting request and briefing document to the U.S. FDA for the OC-101
(AAV-NGF) program and received a response from FDA on the briefing document
questions. The Company expects to begin the final IND enabling study for this
platform in 2023. The Company also announced the development of OC-103
(AAV-DAO). OC-103 (AAV-DAO) is administered as a single, intralacrimal gland
injection of an adeno-associated virus (AAV) vector containing the enzyme
diamine oxidase (DAO) in vernal and atopic keratoconjunctivitis patients. OC-103
(AAV-DAO) is planned to begin preclinical animal studies in 2023.

                                       24
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The Impact of the SARS-CoV-2 Virus Pandemic



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. 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.

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

Results of Operations

Comparison of the Results of Operations for the Three Months Ended September 30, 2022 and 2021

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


                                             Three Months Ended September 30,
                                                 2022                2021              $ Change             % Change

Revenue:
Product revenue, net                        $     5,591          $        -          $   5,591                     100  %

License revenue - related party                       -              17,943            (17,943)                    100  %
Total revenue                                     5,591              17,943            (12,352)                    (69) %
Cost of product revenue                           1,348                   -              1,348                     100  %
Operating expenses:
Sales and marketing                              22,094              18,170              3,924                      22  %
General and administrative                       12,149              10,327              1,822                      18  %
Research and development                          3,913               6,214             (2,301)                    (37) %
Total operating expenses                         38,156              34,711              3,445                      10  %
Loss from operations                            (33,913)            (16,768)           (17,145)                    102  %
Other (expense) income:
Interest expense                                 (3,495)             (1,124)            (2,371)                    211  %
Other income, net                                   661                 222                439                     198  %
Total other (expense) income, net                (2,834)               (902)            (1,932)                    214  %
Net loss and comprehensive loss             $   (36,747)         $  (17,670)         $ (19,077)                    108  %



Product Revenue, Net

Product revenue, net was $5.6 million for the three months ended September 30,
2022, and was related to sales of TYRVAYA Nasal Spray, which was launched in the
U.S. in November 2021. Approximately 34,000 TYRVAYA Nasal Spray prescriptions,
written by approximately 6,100 unique eye care professionals, were filled during
the three months ended September 30, 2022. The Company did not generate any
revenues from product sales during the three months ended September 30, 2021.

License Revenue - Related Party



The Company did not recognize any license revenue during the three months ended
September 30, 2022. The Company recognized $17.9 million in license revenue
during the three months ended September 30, 2021 in connection with the License
Agreement entered into with Ji Xing. The license revenue was recognized upon the
transfer of control of the licenses to Ji Xing
                                       25
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and was comprised of $17.5 million cash consideration, and non-cash consideration of 397,562 senior common shares of Ji Xing valued at $0.4 million.

Cost of Product Revenue



Cost of product revenue for the three months ended September 30, 2022 was $1.3
million, which consisted of material costs, third-party manufacturing costs, and
royalty expense.

Sales and Marketing

Sales and marketing expenses increased by $3.9 million during the three months
ended September 30, 2022 compared to the three months ended September 30, 2021.
The increase was primarily due to higher payroll-related expenses of
$3.1 million, which was driven by the growth of the Company's sales force since
2021. Other sales and marketing expenses increased by $0.8 million during the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021, in connection with samples, trade shows, educational
programs, patient services, payor access and other marketing efforts related to
the commercialization of TYRVAYA Nasal Spray.

General and Administrative Expenses



General and administrative expenses increased by $1.8 million during the three
months ended September 30, 2022 compared to the three months ended September 30,
2021. The increase was primarily driven by additional payroll-related expenses
of $2.7 million due to an increase in headcount to support the Company's
business operations, including an increase in stock compensation expense of $0.8
million. Other general and administrative expenses decreased by $0.9 million
during the three months ended September 30, 2022 compared to the three months
ended September 30, 2021 primarily related to a decrease in sponsorships, public
relations and recruiting activities.

Research and Development Expenses



Research and development expenses decreased by $2.3 million during the three
months ended September 30, 2022, compared to the three months ended
September 30, 2021. The decrease was primarily due to decreased research and
development activity relating to OC-01 following its approval by the FDA on
October 15, 2021, and lower payroll-related expenses of $0.7 million.

Interest Expense



The Company incurred $3.5 million and $1.1 million of interest expense during
the three months ended September 30, 2022 and 2021, respectively, related to the
Credit Agreement, which the Company entered into with OrbiMed in August 2021.
Interest expense for both periods included contractual interest, as well as the
amortization of loan commitment fees and accretion of other long-term debt
related costs. Interest expense for the three months ended September 30, 2022
relates to $95.0 million of outstanding borrowings under the Credit Agreement
for the entire three-month period. For the three months ended September 30,
2021, the Company had outstanding borrowings under the Credit Agreement of $45.0
million from August 5, 2021 to September 30, 2021. In addition, the variable
rates of interest for a portion of the three months ended September 30, 2022
were higher than the variable rates of interest in the prior year period.

Other Income, net



Other income for the three months ended September 30, 2022 of $0.7 million
consisted of a $0.4 million change in the fair value of the net embedded
derivative liability related to the Credit Agreement, in addition to interest
earned on money market funds. Other income for the three months ended
September 30, 2021 primarily consisted of $0.2 million of income associated with
the change in the fair value of the net embedded derivative liability, as well
as interest income earned on money market funds.


                                       26
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Comparison of the Results of Operations for the Nine Months Ended September 30, 2022 and 2021

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


                                                Nine Months Ended September 30,
                                                    2022                2021             $ Change             % Change
Revenue:
Product revenue, net                           $    12,988          $       -          $  12,988                    100  %

License revenue - related party                          -             17,943            (17,943)                   100  %
Total revenue                                       12,988             17,943             (4,955)                   (28) %
Cost of product revenue                              2,994                  -              2,994                    100  %
Operating expenses:
Sales and marketing                                 77,169             28,947             48,222                    167  %
General and administrative                          39,079             27,938             11,141                     40  %
Research and development                            13,258             18,772             (5,514)                   (29) %
Total operating expenses                           129,506             75,657             53,849                     71  %
Loss from operations                              (119,512)           (57,714)           (61,798)                   107  %
Other (expense) income:
Interest expense                                    (9,717)            (1,124)            (8,593)                   765  %
Other (expense) income, net                         (5,352)               243             (5,595)                 (2302) %
Total other (expense) income, net                  (15,069)              (881)           (14,188)                  1610  %
Net loss and comprehensive loss                $  (134,581)         $ (58,595)         $ (75,986)                   130  %



Product Revenue, Net

Product revenue, net was $13.0 million for the nine months ended September 30,
2022, and was related to sales of TYRVAYA Nasal Spray, which was launched in the
U.S. in November 2021. Approximately 83,000 TYRVAYA Nasal Spray prescriptions,
written by over 8,600 unique eye care professionals, were filled during the nine
months ended September 30, 2022. The Company did not generate any revenues from
product sales during the nine months ended September 30, 2021.

License Revenue - Related Party



The Company did not recognize any license revenue during the nine months ended
September 30, 2022. The Company recognized $17.9 million in license revenue
during the nine months ended September 30, 2021 in connection with the License
Agreement entered into with Ji Xing. The license revenue was recognized upon the
transfer of control of the licenses to Ji Xing and was comprised of
$17.5 million cash consideration, and non-cash consideration of 397,562 senior
common shares of Ji Xing valued at $0.4 million.

Cost of Product Revenue

Cost of product revenue for the nine months ended September 30, 2022 was $3.0 million, which consisted of material costs, third-party manufacturing costs, and royalty expenses. In preparation of the commercial launch, the Company expensed all material costs related to pre-approval inventory to research and development expense. This resulted in a lower unit cost of product revenue than the Company's cost per unit during the nine months ended September 30, 2022 as the Company utilized this pre-approval inventory.

Sales and Marketing



Sales and marketing expenses increased by $48.2 million during the nine months
ended September 30, 2022 compared to the nine months ended September 30, 2021.
The increase was primarily due to higher payroll-related expenses of
$25.8 million, which was primarily driven by the growth of the Company's sales
force since 2021. The increase in payroll-related expenses included an increase
in commission expense of $5.1 million, in addition to an increase in severance
expense of $1.5 million due to the operating expenses streamlining plan
announced on June 28, 2022. Other sales and marketing expenses increased by
                                       27
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$22.4 million during the nine months ended September 30, 2022 compared to the
nine months ended September 30, 2021, in connection with advertising, samples,
trade shows, educational programs, patient services, payor access and other
marketing efforts related to the commercialization of TYRVAYA Nasal Spray.

General and Administrative Expenses



General and administrative expenses increased by $11.1 million during the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021. The increase was primarily driven by additional payroll-related expenses
of $8.4 million due to an increase in headcount to support the Company's
business operations. The increase in payroll-related expenses included an
increase in stock compensation expense of $2.0 million. Other general and
administrative expenses increased by $2.7 million during the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021, related
to accounting, consulting, public relations, legal, insurance and other
professional services, partially offset by decreases in sponsorships, recruiting
activities and software services. The increase in other general and
administrative expenses was primarily driven by the Company's transition from a
clinical-stage to a commercial stage company.

Research and Development Expenses
Research and development expenses decreased by $5.5 million during the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021. The decrease was primarily due to decreased research and development
activity relating to OC-01 following its approval by the FDA on October 15,
2021. This was partially offset by an increase in stock compensation expense of
$0.5 million, in addition to an increase in severance expense of $0.6 million
due to the reduction in force announced on June 28, 2022.

Interest Expense



The Company incurred $9.7 million and $1.1 million of interest expense during
the nine months ended September 30, 2022 and 2021, respectively, related to the
Credit Agreement. Interest expense for the nine months ended September 30, 2022
included contractual interest, as well as the amortization of loan commitment
fees and accretion of other long-term debt related costs. Interest expense for
the nine months ended September 30, 2022 relates to $95.0 million of outstanding
borrowings under the Credit Agreement for the entire nine-month period. For the
nine months ended September 30, 2021, the Company had outstanding borrowings
under the Credit Agreement of $45.0 million from August 5, 2021 to September 30,
2021. In addition, the variable rates of interest for a portion of the nine
months ended September 30, 2022 were higher than the variable rates of interest
in the prior year period.

Other (Expense) Income, net

Other expense for the nine months ended September 30, 2022 of $5.4 million
consisted of a $5.8 million change in the fair value of the net embedded
derivative liability related to the Credit Agreement, partially offset by
interest earned on money market funds. Other income for the nine months ended
September 30, 2021 primarily consisted $0.2 million of income associated with
the change in the fair value of the net embedded derivative liability, as well
as interest income earned on money market funds.



                                       28
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Liquidity and Capital Resources

Sources of Liquidity



The Company's principal sources of liquidity include cash on hand and borrowings
under the Credit Agreement, as further described in Note 8, Long-term Debt, to
the Company's condensed financial statements. The Company has $30.0 million
remaining to be drawn under the Credit Agreement, which may be funded, at the
option of the Company, on or prior to June 30, 2023, upon the Company having
received at least $40.0 million in TYRVAYA Nasal Spray net recurring revenue, as
defined in the Credit Agreement, in any twelve-month period prior to March 31,
2023, 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.

As of September 30, 2022 and December 31, 2021, the Company had cash and cash equivalents of $68.8 million and $193.4 million, respectively.



The Company is party to an at-the-market sales agreement with Cowen and Company,
LLC (Agent), pursuant to which the Company may offer and sell shares of its
common stock having an aggregate offering price of up to $100.0 million from
time to time through the Agent. As of September 30, 2022, the Company had not
sold any shares of common stock pursuant to the sales agreement and $100.0
million in shares remained available to be sold under the at-the-market program.
There can be no assurance the Company will be able to raise such additional
equity capital, or that any equity capital that may be raised will be at market
conditions that are favorable to the Company.

Additionally, while the Merger Agreement is in effect, the Company is subject to
restrictions on its business activities, generally requiring the Company to
conduct our 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.

Going Concern



Since inception, the Company has incurred recurring losses and negative cash
flows from operations. The Company generated net losses of $134.6 million and
$58.6 million for the nine months ended September 30, 2022 and 2021,
respectively, and had an accumulated deficit of $390.0 million as of
September 30, 2022. The Company has 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 August 2021, the
Company entered into the Credit Agreement with OrbiMed to help finance its
operations. The Company is also a party to a license agreement with Ji Xing,
according to which it is eligible to receive additional development and
sales-based milestone payments and royalties in future periods. On October 15,
2021, the Company's first product, TYRVAYA Nasal Spray, was approved by the FDA
for treatment of signs and symptoms of dry eye disease. The Company commenced
commercial shipments of TYRVAYA Nasal Spray in November 2021 and generated net
product revenues of $13.0 million in the nine months ended September 30, 2022.

The current global macro-economic environment is volatile, which has resulted in
global supply chain constraints and elevated rates of inflation, which may
continue to impact the Company to varying degrees. In addition, 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 law 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. 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, including future clinical
trials, will be successful.

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 financial statements
are issued without generating positive cash flows through product sales and by
raising additional capital from outside sources. The future viability of the
Company is dependent on its ability to fund its operations through the sales and
licensing of TYRVAYA
                                       29
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Nasal Spray, and raise additional capital through equity offerings, including
through the Company's at-the-market sales program, or other collaborative or
strategic arrangements. In addition, the Company may have the ability to draw up
to $30.0 million on the third tranche of the Credit Agreement, as further
described in Note 8, Long-term Debt. 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, as defined, 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 as long as an event of default resulting
from such violation is continuing, the lender could exercise remedies, which
include but are not limited to, the acceleration of all outstanding debt under
the Credit Agreement. In addition, the Company has generated limited revenue
from initial sales of TYRVAYA Nasal Spray, and given its limited commercial
history, cannot guarantee that its commercialization efforts will result in
product revenues that meet its sales expectations or those of analysts and
investors. 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 the
demand from investors. There can be no assurance that the Company will be
successful in raising this additional capital or that such capital, if
available, will be on terms that are acceptable to the Company.

These conditions raise substantial doubt about the Company's ability to continue
as a going concern within the next twelve months from the filing date of this
Quarterly Report on Form 10-Q. The ability to continue as a going concern is
dependent upon profitable future operations, positive cash flows from
operations, and obtaining additional financing from outside sources. If adequate
funds are unavailable on a timely basis from operations and 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.

Future Funding Requirements



The Company's primary uses of capital have been, and the Company expects will
continue to be, developing and commercializing TYRVAYA Nasal Spray, including
the costs and timing associated with marketing activities, patient services,
obtaining third-party payor coverage and reimbursement and maintaining
regulatory compliance. The Company also expects that it will continue to use
capital to advance its clinical and preclinical development programs.

The Company anticipates that it will need to raise substantial additional
capital, the requirements for which will depend on many factors, including:
•the completion of the Company's pending merger with Viatris Inc.;
•the cost and timing associated with commercializing TYRVAYA Nasal Spray,
including the costs and timing associated with marketing activities, patient
services, obtaining third-party payor coverage and reimbursement and maintaining
regulatory compliance;
•the scope, timing, rate of progress and costs of the Company's drug discovery
efforts, preclinical development activities, laboratory testing, clinical trials
and regulatory review for the Company's product candidates, and the cost and
timing associated with commercializing such product candidates, if they receive
regulatory approval;
•the scope and costs of development and commercial manufacturing activities;
•the extent to which the Company acquires or in-licenses other product
candidates and technologies;
•the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing the Company's intellectual property rights and defending
intellectual property-related claims;
•the Company's ability to establish and maintain collaborations on favorable
terms, if at all;
•its efforts to enhance operational systems and the Company's ability to
attract, hire and retain qualified personnel, including personnel to support the
commercialization of TYRVAYA Nasal Spray and the development and the sale of
additional products, following FDA approval;
•the Company's ability to manufacture products, the reliability of its supply
chain, labor shortages, backlog and any increase in costs as a result of
inflation;
•the Company's implementation of operational, financial and management systems;
•any current or future potential effects of the SARS-CoV-2 virus pandemic on the
Company's business, operations, preclinical and clinical development and
commercialization timelines and plans;
•the impact and effectiveness of the Company's operating expenses streamlining
plan, including the reduction in force, announced June 28, 2022; and
•the costs associated with being a public company.
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A change in the outcome of any of these or other variables with respect to the
commercialization of TYRVAYA Nasal Spray or development of any of the Company's
product candidates could significantly change the costs and timing associated
with the development of that product candidate.

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

The SARS-CoV-2 virus pandemic has impacted global economies, the rate of
inflation, supply chains, distribution networks and consumer behavior around the
world. Adequate funding may not be available to the Company on acceptable terms
or at all, and any uncertainty and volatility in capital markets caused by the
SARS-CoV-2 virus pandemic, or other events may negatively impact the
availability and cost of capital. The Company's failure to raise capital as and
when needed could have a negative impact on its financial condition and ability
to pursue its business strategies. If the Company is unable to raise additional
funds when needed, it may be required to delay, reduce, or eliminate certain
commercial expenses, including in selling, general and administrative expenses,
as well as delay, reduce, or eliminate one or more of its research or
development programs. The Company may also be required to sell or license to
others, rights to its product candidates in certain territories or indications
that it would prefer to develop and commercialize itself. The Company may seek
to raise capital through private or public equity or debt offerings, or
collaborative and other arrangements. If the Company chooses to enter into
collaborations and other arrangements to supplement its funds, it may have to
give up certain rights, thereby limiting its ability to develop and
commercialize the product candidates or may have other terms that are not
favorable to the Company, which could materially affect its business, results of
operation and financial condition.

See those factors set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and in this Quarterly Report on Form 10-Q for additional risks associated with the Company's substantial capital requirements.


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Cash Flow Discussion



The following table sets forth the primary sources and uses of cash, cash
equivalents and restricted cash for each of the periods presented below (in
thousands):
                                                      Nine Months Ended September 30,
                                                          2022                2021              $ Change
Net cash (used in) provided by:
Operating activities                                 $  (124,506)         $  (47,881)         $  (76,625)
Investing activities                                        (203)             (1,250)              1,047
Financing activities                                          76              40,712             (40,636)
Net decrease in cash and cash equivalents, and
restricted cash                                      $  (124,633)         $   (8,419)         $ (116,214)

Cash Flows Used in Operating Activities



Net cash used in operating activities during the nine months ended September 30,
2022, was $124.5 million, which was primarily attributable to the Company's net
loss, adjusted for non-cash items, in the amount of $112.5 million, and working
capital needs in the amount of $12.0 million. Working capital needs were
primarily driven by the Company's commercialization of TYRVAYA Nasal Spray,
which resulted in increases in accounts receivable of $6.5 million and inventory
of $5.6 million. There was also a decrease in accounts payable of $3.6 million,
primarily due to the timing of payments to vendors.

Net cash used in operating activities during the nine months ended September 30,
2021, was $47.9 million, which was primarily attributable to the Company's net
loss, adjusted for non-cash items, in the amount of $49.4 million and working
capital needs in the amount of $1.7 million.

Cash Flows Used in Investing Activities



Net cash used in investing activities decreased by $1.0 million for the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021, primarily related to payments for equipment used in the manufacturing of
TYRVAYA Nasal Spray purchased during 2021.

Cash Flows Provided by Financing Activities



Net cash provided by financing activities for the nine months ended
September 30, 2022 decreased by $40.6 million compared to the nine months ended
September 30, 2021. Financing activities for the current period included a $0.4
million revenue sharing fee paid to OrbiMed, payment of withholding taxes
related to stock-based compensation to the Company's employees and lower
proceeds from the exercise of employee stock options, partially offset by $0.5
million in proceeds received under the Company's Employee Stock Purchase Plan.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $40.7 million, which was primarily related to net proceeds of $40.2 million funded on August 10, 2021 under the first tranche of the Credit Agreement.


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Contractual Obligations and Commitments

Purchase Commitments



As of September 30, 2022, the Company has non-cancelable commitments for the
purchase of raw materials and materials for research and development, packaging
and product manufacturing costs of approximately $5.4 million, consisting of
$3.7 million for the remainder of 2022 and $1.7 million for 2023. No purchase
commitments have been made beyond year 2023. The Company made purchases of
$8.1 million and $2.3 million under its purchase commitments during the nine
months ended September 30, 2022 and 2021, respectively.

Manufacturing and Supply Commitments



In 2021, the Company entered into a manufacturing and supply agreement with a
CMO to manufacture and supply TYRVAYA Nasal Spray for an initial term of three
years. Under this agreement, the Company pays a minimum capacity reservation fee
in the amount of $2.5 million for the twelve months ended October 2022, 2023 and
2024. The minimum capacity reservation fee is subject to potential future credit
allowances based upon the prior year's manufacturing production, as provided for
in the agreement. In October 2022, the Company paid the $1.8 million minimum
capacity reservation fee for the twelve months ended October 2023.

As of September 30, 2022, other than noted above, there have been no other material changes in the contractual obligations and commitments from those disclosed in the financial statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

As of September 30, 2022, the Company does not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Estimates



The Company's financial statements have been prepared in accordance with U.S.
GAAP. The preparation of these condensed financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the condensed financial statements and the reported revenues and
expenses incurred during the reporting periods. The Company bases its estimates
on historical experience, terms of existing contracts, commonly accepted
industry practices and on other assumptions that it believes are reasonable
under the circumstances. The Company evaluates its estimates and assumptions on
an ongoing basis. The future effects of the SARS-CoV-2 virus pandemic on the
Company's results of operations, cash flows, and financial position are unclear,
however the Company believes it has used reasonable estimates and assumptions in
preparing the interim condensed financial statements. Actual results may differ
from these estimates under different assumptions or conditions.

The Company's critical accounting policies and estimates are included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2021. The
Company periodically reviews its accounting policies, estimates and assumptions
and makes adjustments when facts and circumstances dictate. In addition to the
accounting policies that are described in the Company's 2021 Annual Report on
Form 10-K, the following critical accounting policies were updated during the
nine months ended September 30, 2022.


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Stock-Based Compensation - Performance Stock Units



The Company granted PSUs to certain executive officers during the nine months
ended September 30, 2022. The issuance of the PSUs is contingent upon meeting
several milestones, as provided for in the January 2022 and July 2022 PSU award
agreements.

For the January PSU 2022 grants, the non-market performance milestones are
subject to attaining certain forecasted net product revenues and future
prescriptions of TYRVAYA Nasal Spray. 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. The fair value of the market milestone for these PSUs
was estimated using a Monte Carlo simulation in a risk-neutral framework and
includes an assumption that at least one of the non-market milestones are met,
among other assumptions as described in Note 6, Stockholders' Equity and Equity
Incentive Plans. The measurement of stock-based compensation expense for these
PSUs considers the probability of achievement of the non-market milestones. The
forecasted net product revenue and future prescriptions of TYRVAYA Nasal Spray
involve management's judgment, which, in and of themselves, could materially
affect the measurement of the stock-based compensation cost of the PSUs as
reported in the financial statements and related footnote disclosures.

For the July PSU 2022 grants, the grant amount is contingent on the executive
officers' continued service with the Company and a thirty-day volume-weighted
average stock price (VWAP) performance milestone. VWAP performance milestone is
based on the achievement of reaching a certain stock price. The fair value of
the VWAP-based portion of the award was estimated using a Monte Carlo simulation
based on assumptions including the risk free interest rate, expected volatility
and derived service period, among others, as described in Note 6, Stockholders'
Equity and Equity Incentive Plans.

Recent Accounting Pronouncements



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

JOBS Act



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

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

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