Exhibit 10.5

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement (the “Agreement”) is entered into as of
September 26, 2008, by and between ISTA PHARMACEUTICALS, INC., a Delaware
corporation (the “Borrower”) and SILICON VALLEY BANK (“Bank”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a Loan and
Security Agreement, dated on or about December 22, 2005 (as may be amended from
time to time the “Loan Agreement”). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the “Indebtedness.”

2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement, as amended hereby.

Hereinafter, the above-described security documents, together with all other
documents securing repayment of the Indebtedness shall be referred to as the
“Security Documents”. Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the “Existing Loan Documents”.

3. DESCRIPTION OF CHANGE IN TERMS.

 

  A. Modification to Loan Agreement.

 

  1. The definition of “Collateral” set forth in Exhibit A to the Loan Agreement
is hereby amended and replaced by the definition set forth in Exhibit A to this
Agreement, and Borrower hereby affirms its grant to Bank of a security interest
in such Collateral as defined hereby to secure the Obligations.

 

  2. The definition of “Permitted Indebtedness” in Section 13.1 is hereby
amended to add a clause (o) thereto as follows:

(o) Indebtedness of up to an aggregate principal amount of $65,000,000 issued by
Borrower under that certain Facility Agreement, dated September 26, 2008, so
long as the proceeds thereof are used, among other things, to retire the
Indebtedness under Borrower’s $40,000,000 convertible unsecured notes.

 

  3. The definition of “Permitted Liens” in Section 13.1 is hereby amended to
add a clause (m) thereto as follows:

(m) Liens (including, for the sake of clarity, Liens on any of Borrower’s
intellectual property and any rights therein) securing Permitted Indebtedness
described under clause (o) of the definition of “Permitted Indebtedness” so long
as the same are subject to an Intercreditor Agreement acceptable in form and
substance to Bank.

 

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  4. Section 6.6 is hereby amended and restated in its entirety to read as
follows:

6.6 Financial Covenant. Borrower shall maintain at Bank or Bank’s affiliates at
all times unrestricted cash and Cash Equivalents in an amount greater than or
equal to the sum of (a) $10,000,000 plus (b) the amount of the then outstanding
Obligations.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.

5. NO DEFENSES OF BORROWER. Borrower agrees that, as of the date hereof, it has
no defenses against the obligations to pay any amounts under the Indebtedness.

6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower’s representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank’s agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness.

7. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon the execution and delivery of this Modification Agreement and
the receipt by Bank of a loan modification fee in the amount of Ten Thousand
Dollars ($10,000).

 

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This Loan Modification Agreement is executed as of the date first written above.

 

BORROWER:     BANK: ISTA PHARMACEUTICALS, INC.     SILICON VALLEY BANK By:   
/s/ Lauren Silvernail     By:    /s/ Brett Maver Name:   Lauren Silvernail    
Name:   Brett Maver Title:   Chief Financial Officer and Vice President,
Corporate Development     Title:   Relationship Manager

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EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to
the following personal property:

All goods, Accounts (including health-care receivables), general intangibles,
Equipment, Inventory, contract rights or rights to payment of money, leases,
license agreements, franchise agreements, General Intangibles (except as
provided below), commercial tort claims, documents, instruments (including any
promissory notes), chattel paper (whether tangible or electronic), cash, deposit
accounts, fixtures, letters of credit rights (whether or not the letter of
credit is evidenced by a writing), securities, and all other investment
property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and

All now owned or hereafter acquired intellectual property and any rights
therein, including but not limited to: any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions,
technology or data, and any claims for damage by way of any past, present, or
future infringement of any of the foregoing; and

All Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.