Item 2.01. Completion of Acquisition or Disposition of Assets.
On July 8, 2022, Kala Pharmaceuticals, Inc., a Delaware corporation (the “Company”) closed the transaction contemplated by the previously announced Asset Purchase Agreement, dated as of May 21, 2022 (the “Asset Purchase Agreement”), by and between the Company, Alcon Pharmaceuticals Ltd., a Swiss limited company (“Alcon Switzerland”), and Alcon Vision, LLC, a Delaware limited liability company (together, with Alcon Switzerland, the “Buyers”), pursuant to which the Buyers (1) purchased (a) the Company’s rights to (i) manufacture, sell, distribute, market and commercialize EYSUVIS® (loteprednol etabonate ophthalmic suspension) 0.25% and INVELTYS® (loteprednol etabonate ophthalmic suspension) 1% and (ii) develop, manufacture, market and otherwise exploit its proprietary AMPPLIFY® Drug Delivery Technology, which, among other applications, is incorporated into EYSUVIS and INVELTYS and (b) certain assets used by the Company in connection with the foregoing (collectively, the “Commercial Business”) and (2) assumed certain liabilities with respect to the Commercial Business (the “Transaction”).
The Buyers paid to the Company an upfront cash payment of $60.0 million upon the closing of the Transaction. In addition, pursuant to the Asset Purchase Agreement, the Company is eligible to receive from the Buyers up to four commercial-based sales milestone payments as follows: (1) $25.0 million upon the achievement of $50.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (2) $65.0 million upon the achievement of $100.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (3) $75.0 million upon the achievement of $175.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029 and (4) $160.0 million upon the achievement of $250.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029. Each milestone payment will only become payable once, if at all, upon the first time such milestone is achieved, and only one milestone payment will be paid with respect to a calendar year. In the event that more than one milestone is achieved in a calendar year, the higher milestone payment will become payable and the lower milestone payment will become payable only if the corresponding milestone is achieved again in a subsequent calendar year. Pursuant to the Asset Purchase Agreement, on July 8, 2022, the Company entered into supply and commercial agreements under which the Company agreed to supply EYSUVIS and INVELTYS to the Buyers and their affiliates and distribute EYSUVIS and INVELTYS to third-party customers of the Commercial Business on behalf of the Buyers and their affiliates for a period of six months following the closing of the Transaction, subject to early termination. In addition, the Company entered into a transition services agreement under which the Company agreed to provide agreed upon transition services to the Buyers on a cost-plus pricing arrangement for up to six months following the closing of the Transaction. Pursuant to the supply agreement, the Buyers purchased from the Company, at the closing of the Transaction, certain EYSUVIS and INVELTYS inventory on-hand at the Company.
The material terms and conditions of the Asset Purchase Agreement were described in Item 1.01 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2022 (the “Prior Report”) under the heading “Asset Purchase Agreement,” which description is incorporated herein by reference and is qualified in its entirety by reference to the full text of the Asset Purchase Agreement, which is attached as Exhibit 2.1 to the Prior Report.
Item 2.05. Costs Associated with Exit or Disposal Activities.
On June 16, 2022, the Board of Directors (the “Board”) of the Company committed to a course of action to terminate 113 employees, consisting of the Company’s entire commercial sales force and certain employees in its commercial, scientific, manufacturing, finance and administrative functions. The determination to proceed with the workforce reduction was made in the context of the anticipated closing of the Transaction and the Company’s determination to focus its resources on the development of KPI-012 described in Item 8.01 of this Current Report on Form 8-K.
The Company expects this workforce reduction to result in approximately $27.6 million in reduced annualized operating expenses once the reduction is fully implemented. In addition, the Company expects to incur a charge of approximately $2.5 million primarily in the third quarter of 2022 related to the workforce reduction, consisting of severance, benefits and related costs, all of which are anticipated to be paid prior to the end of the first quarter of 2023. The Company expects to substantially complete the workforce reduction by December 31, 2022.