What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-13 · 464 added, 285 removed, 477 unchanged (61% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Omeros Corporation

To the Shareholders and the Board of Directors Omeros Corporation

Opinion on the Financial Statements

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2023 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible instruments in 2021 due to the adoption of ASU No.

2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of an expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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in various scenarios and the probability-weighting of those scenarios, which are affected by expectations about future market and regulatory conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over management’s process for measuring the OMIDRIA contract royalty asset.

How We Addressed

the Matter in Our

To test the measurement of the OMIDRIA contract royalty asset, we performed audit procedures that included, among others, evaluating (1) the estimated future royalties in various scenarios, and (2) management’s relative weighting of those scenarios.

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Seattle, Washington

March 13, 2023

April 1, 2024

OMEROS CORPORATION

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Cash and cash equivalents

$ 7,105 $ 11,009

Short-term investments

164,743 183,909

OMIDRIA contract royalty asset, short-term

Receivables, net

29,373 28,797

8,096 213,221

Prepaid expense and other assets

Total current assets

217,898 443,236

OMIDRIA contract royalty asset

138,736 123,425

Right of use assets

18,631 21,762

Property and equipment, net

Restricted investments

Liabilities and shareholders’ equity

$ 378,269 $ 590,969

Liabilities and shareholders’ equity (deficit)

Current liabilities:

Accounts payable

$ 7,712 $ 5,989

Accrued expenses

Current portion of unsecured convertible senior notes, net

31,868 30,551

Current portion of convertible senior notes, net

Current portion of OMIDRIA royalty obligation

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Total current liabilities

Unsecured convertible senior notes, net

53,316 136,383

Convertible senior notes, net

213,155 220,906

OMIDRIA royalty obligation

116,550 125,126

Lease liabilities, non-current

18,143 22,426

Other accrued liabilities - noncurrent

Commitments and contingencies (Note 10)

Shareholders’ equity:

Shareholders’ equity (deficit):

Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized;

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Additional paid-in capital

727,936 720,773

Accumulated deficit

Total shareholders’ equity

Total liabilities and shareholders’ equity

( 753,530 ) ( 635,717 )

Total shareholders’ equity (deficit)

( 24,983 ) 85,684

Total liabilities and shareholders’ equity (deficit)

$ 378,269 $ 590,969

See accompanying Notes to Consolidated Financial Statements

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Research and development

$ 114,870 $ 112,721 $ 118,775

Selling, general and administrative

49,660 50,668 54,842

Total costs and expenses

164,530 163,389 173,617

Loss from operations

Loss on early extinguishment of debt

( 164,530 ) ( 163,389 ) ( 173,617 )

Interest expense

( 30,844 ) ( 22,702 ) ( 19,669 )

Interest and other income

Loss from continuing operations before income tax benefit

Income tax benefit

16,342 4,062 1,740

Gain on early extinguishment of convertible senior notes

Net loss from continuing operations

( 174,920 ) ( 182,029 ) ( 191,546 )

Net income from discontinued operations, net of tax

57,107 229,446 385,781

Net income (loss)

$ ( 117,813 ) $ 47,417 $ 194,235

Basic and diluted net income (loss) per share:

Net loss from continuing operations

$ ( 2.79 ) $ ( 2.90 ) $ ( 3.07 )

Net income from discontinued operations

0.91 3.66 6.19

Net income (loss)

$ ( 1.88 ) $ 0.76 $ 3.12

Weighted-average shares used to compute basic and diluted net income (loss) per share

62,739,227 62,737,091 62,344,100

See accompanying Notes to Consolidated Financial Statements

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Balance at December 31, 2020

Issuance of common stock in direct offering, net of offering costs

61,671,231 $ 616 $ 751,304 $ ( 872,672 ) $ ( 120,752 )

Issuance of common stock upon exercise of stock options

945,924 10 8,372 — 8,382

Issuance of common stock upon grant of restricted stock awards

11,700 — 91 — 91

At the market offering fees

— — ( 241 ) — ( 241 )

Stock-based compensation

Equity component of 2026 Notes, net of issuance costs

Purchase of 2026 Capped Calls

Equity component of early extinguishment of 2023 Notes

Termination of the 2023 Capped Call contracts related to debt repurchased

Income tax benefit related to issuance of 2026 Notes

— — 17,539 — 17,539

Cumulative effect of adopting ASU 2020-06

— — ( 70,777 ) ( 4,697 ) ( 75,474 )

— — — 194,235 194,235

Balance at December 31, 2021

62,628,855 626 706,288 ( 683,134 ) 23,780

Issuance of common stock upon exercise of stock options

Issuance of common stock upon grant of restricted stock awards

At the market offering fees

101,160 1 414 — 415

Issuance of common stock upon vesting of restricted stock units

98,750 1 ( 1 ) — —

Stock-based compensation

Cumulative effect of adopting ASU 2020-06

— — 14,072 — 14,072

— — — 47,417 47,417

Balance at December 31, 2022

62,828,765 628 720,773 ( 635,717 ) 85,684

Issuance of common stock upon exercise of stock options

36,726 — 150 — 150

Issuance of common stock upon vesting of restricted stock units

67,250 1 ( 1 ) — —

Repurchases of common stock

( 1,804,144 ) ( 18 ) ( 4,636 ) — ( 4,654 )

Stock-based compensation

— — 11,650 — 11,650

— — — (117,813 ) ( 117,813 )

Balance at December 31, 2023

61,128,597 $ 611 $ 727,936 $ ( 753,530 ) $ ( 24,983 )

See accompanying Notes to Consolidated Financial Statements

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Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

$ ( 117,813 ) $ 47,417 $ 194,235

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation expense

Gain on sale of OMIDRIA, gross

Non-cash interest expense on unsecured convertible debt

Non-cash interest expense on future royalty obligation

11,650 14,072 17,630

Non-cash interest expense on convertible senior notes

1,853 1,830 1,696

Depreciation and amortization

Noncash adjustments on buyout of equipment finance leases

920 952 1,386

Remeasurement on OMIDRIA contract royalty asset

( 41,167 ) ( 14,457 ) —

Interest on OMIDRIA contract royalty asset

Early termination of operating lease

Loss on early extinguishment of debt

Deferred income tax

Fair value settlement upon termination of cap call contract

(15,315 ) ( 18,634 ) —

Accretion on U.S.

government treasury bills, net

( 8,714 ) — —

Gain on early extinguishment of convertible senior notes

( 4,112 ) — —

Gain on sale of OMIDRIA, gross

— — ( 310,563 )

Non-cash interest expense on future royalty obligation

Changes in operating assets and liabilities:

Prepaid expenses and other

205,125 ( 175,066 ) ( 34,314 )

OMIDRIA contract royalty asset

40,595 65,439 —

Accounts payable and accrued expense

Net cash used in operating activities

4,682 ( 10,665 ) 14,640

Prepaid expenses and other

( 2,978 ) 934 5,568

Net cash provided by (used in) operating activities

74,726 ( 86,483 ) ( 109,722 )

Investing activities:

Cash proceeds on sale of OMIDRIA

Purchases of investments

( 1,018,602 ) ( 429,045 ) ( 32,006 )

Proceeds from the sale and maturities of investments

1,046,482 301,594 100,000

Purchases of property and equipment

( 426 ) ( 113 ) ( 277 )

Cash proceeds on sale of OMIDRIA

Net cash provided by (used in) investing activities

27,454 ( 127,564 ) 193,710

Financing activities:

Proceeds upon entering into OMIDRIA royalty obligation

Principal payments on OMIDRIA royalty obligations

Proceeds from issuance of convertible debt

Payments for debt issuance costs

Purchases of capped calls related to convertible senior notes

Payments for repurchases of convertible senior notes

Proceeds from termination of capped call contracts

Proceeds from issuance of common stock, net

Release in restricted investments

Proceeds upon exercise of stock options and warrants

Payments on convertible senior notes

( 99,873 ) — —

Repurchases on common stock

( 4,654 ) — —

Principal payments on OMIDRIA royalty obligation

( 1,152 ) ( 417 ) —

Payments on finance lease obligations

( 555 ) ( 750 ) ( 1,823 )

Proceeds upon exercise of stock options

150 415 8,383

Proceeds upon entering into OMIDRIA royalty obligation

At the market offering costs

Net cash provided by financing activities

Net cash provided by (used in) financing activities

( 106,084 ) 124,248 6,319

Net increase (decrease) in cash and cash equivalents

( 3,904 ) ( 89,799 ) 90,307

Cash and cash equivalents at beginning of period

11,009 100,808 10,501

Cash and cash equivalents at end of period

$ 7,105 $ 11,009 $ 100,808

Supplemental cash flow information

Cash paid for interest

$ 29,923 $ 19,178 $ 17,876

Equipment acquired under finance lease

$ 952 $ 40 $ 289

See accompanying Notes to Consolidated Financial Statements

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We marketed our first drug product OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1% / 0.3% for use during cataract surgery or intraocular lens replacement in the United States (the “U.S.”) until we sold OMIDRIA and related business assets on December 23, 2021 ( see “Sale of OMIDRIA Assets” below for additional information).

The lead drug candidate in our pipeline of complement-targeted therapeutics is narsoplimab, a proprietary, patented human monoclonal antibody targeting mannan-binding lectin-associated serine protease 2 (“MASP-2”), the key activator of the lectin pathway of complement.

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”) and immunoglobulin A (“IgA”) nephropathy.

Our pipeline of clinical-stage investigational agents also includes:

our long-acting MASP-2 inhibitor, OMS1029, our inhibitor of mannan-binding lectin-associated serine protease-3 (“MASP-3”), OMS906, and our phophodiesterase 7 (“PDE7”) inhibitor, OMS527.

Our pipeline of clinical-stage development programs includes:

narsoplimab, our antibody targeting mannan-binding lectin-associated serine protease 2 ("MASP- 2" ), the effector enzyme of the lectin pathway of complement;

OMS1029, our long-acting antibody targeting MASP- 2;

OMS906, our antibody targeting mannan-binding lectin-associated serine protease- 3 ("MASP- 3" ), the key activator of the alternative pathway of complement;

and OMS527, our phosphodiesterase 7 ( "PDE7" ) inhibitor program.

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy ("TA-TMA").

Our Biologics License Application ("BLA") for narsoplimab in TA-TMA is anticipated to be resubmitted with additional information to support potential approval of narsoplimab in this indication.

In October 2023, we announced the results of a pre-specified interim analysis of our Phase 3 ARTEMIS-IGAN trial evaluating narsoplimab for the treatment of immunoglobulin A ("IgA") nephropathy.

Topline results showed that narsoplimab did not reach statistically significant improvement over placebo on the primary endpoint of reduction in proteinuria.

Based on this result, we have discontinued the ARTEMIS-IGAN clinical trial.

Phase 1 and Phase 2 clinical programs are underway in our other clinical-stage assets.

Sale of OMIDRIA Assets

On December 23, 2021, we closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc.

(“Rayner”) for the sale of our commercial product OMIDRIA and certain related assets including inventory and prepaid expenses.

(“Rayner”) for the sale of our commercial product OMIDRIA.

Rayner paid us $ 126.0 million in cash at closing, and we retained all outstanding accounts receivable, accounts payable and accrued expenses as of the closing date.

Under the Asset Purchase Agreement, Omeros is entitled to receive a milestone payment of $ 200.0 million (the “Milestone Payment”) within 30 days following an event that establishes separate payment for OMIDRIA for a continuous period of at least four years when furnished in the ambulatory surgery center (“ASC”) setting.

Additionally, we are entitled to future royalty payments on net sales of OMIDRIA.

Under the Asset Purchase Agreement, Omeros is entitled to receive a milestone payment of $ 200.0 million (the “Milestone Payment”) following an event (the "Milestone Event") that establishes separate payment for OMIDRIA for a continuous period of at least four years when furnished in the ambulatory surgery center (“ASC”) setting.

In December 2022, the Milestone Event occurred and we recorded a $ 200.0 million milestone receivable.

We received the Milestone Payment together with accrued interest in February 2023.

As a result of the divestiture, the results of OMIDRIA operations (e.g., revenues and operating costs) have been reclassified to discontinued operations in our consolidated statements of operations and comprehensive income (loss) and excluded from continuing operations for all periods presented (See “Note 3 – Discontinued Operations”).

We received the Milestone Payment in February 2023.

Basis of Presentation

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Liquidity and Capital Resources

As of December 31, 2022, we had cash, cash equivalents and short-term investments of $ 194.9 million and outstanding accounts receivable of $ 213.2 million, substantially all of which have since been collected subsequent to year end .

Our cash used in operations was $ 86.5 million and our net income for the year ended December 31, 2022 was $ 47.4 million, which included the $ 200.0 million Milestone Payment.

In addition, the principal balance of $ 95.0 million outstanding on our 2023 convertible senior notes becomes due in November 2023.

As of December 31, 2023 , we had cash, cash equivalents and short-term investments of $ 171.8 million.

Our cash provided by operations for the year ended December 31, 2023 was $ 74.7 million and included our 2023 net loss for the year of $ 117.8 million and collection of the $ 200.0 million Milestone Payment in the first quarter of 2023.

We extinguished $ 95.0 million outstanding of convertible senior notes at maturity in November 2023.

In February 2024, we received $ 115.5 million upon the sale to DRI Healthcare Acquisition LP ("DRI") of substantially all of our expected remaining U.S.-only Rayner OMIDRIA royalty receipts payable through December 31, 2031 ( see “Note 8 - OMIDRIA Royalty Obligation”).

Historically, we have incurred net losses from continuing operations and negative operating cash flows.

We have not yet established an ongoing source of revenue sufficient to cover our operating costs and, therefore, could need to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in 2026.

We plan to continue to fund our operations for at least the next twelve months with our existing cash and investments and our accounts receivable.

If FDA approval is granted for HSCT-TMA within the next twelve months, sales of narsoplimab may also provide funds for our operations .

We have not yet established an ongoing source of revenue sufficient to cover our operating costs;

therefore, we potentially need to continue to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in 2026.

We plan to continue to fund our operations for at least the next twelve months with our existing cash and investments and the $ 115.5 million we received in February 2024 from DRI.

We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $ 150.0 million.

Should it be determined to be strategically advantageous, we could pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technology.

Should it be necessary to manage our operating expenses, we could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

We operate in one segment.

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The OMIDRIA asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented.

The Company included information regarding cash flows from discontinued operations (see “Note 3 – Discontinued Operations”).

The Company included information regarding cash flows from discontinued operations (see “Note 7 – Discontinued Operations – Sale of OMIDRIA”).

OMIDRIA Royalties, Milestones and Contract Royalty Assets

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net sales of OMIDRIA was reduced from 50 % to 30 % upon the occurrence, in December 2022, of the event triggering the $ 200.0 million Milestone Payment.

The reduction in our royalty rate to 30 % continues until the expiration or termination of the last issued and unexpired U.S.

patent, which we expect to occur no earlier than 2035.

Consequently, we revalued the OMIDRIA contract royalty asset using the 30 % royalty rate on U.S.

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The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset at 11.0 % and any amounts we receive that are different from the expected royalties.

The OMIDRIA contract royalty asset will be re-measured periodically using the expected value approach based on actual results and future expectations.

Any required adjustment to the OMIDRIA contract royalty asset will be recorded in discontinued operations.

The OMIDRIA contract royalty asset is re-measured periodically using the expected value approach based on actual results and future expectations.

Any required adjustment to the OMIDRIA contract royalty asset is recorded in discontinued operations.

OMIDRIA Royalty Obligation

On September 30, 2022, we sold to DRI Healthcare Acquisitions LP (“DRI”) an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $ 125.0 million in cash (see “Note 9 - OMIDRIA Royalty Obligation”).

The $ 125.0 million cash consideration was recorded as an “OMIDRIA royalty obligation” on our consolidated balance sheet.

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $ 125.0 million and recorded as an “OMIDRIA royalty obligation” on our consolidated balance sheet.

The liability is amortized over the term of the arrangement using the implied effective interest rate of 9.4 %.

Interest expense is recorded as a component of continuing operations.

To the extent our estimates of future royalties are less than previous estimates, we will adjust the carrying amount of the OMIDRIA royalty obligation to the present value of the revised estimated cash flows, discounted at the 9.4 % original effective interest rate utilizing the cumulative catch-up method.

The adjustment would be recognized as a component of net income (loss) from continuing operations.

T o the extent our estimates of future royalties are less than previous estimates, we will adjust the carrying amount of the OMIDRIA royalty obligation to the present value of the revised estimated cash flows, discounted at the effective interest rate utilizing the cumulative catch-up method.

The adjustment would be recognized as a component of net income (loss) from continuing operations (see “Note 8 - OMIDRIA Royalty Obligation”).

Cash and Cash Equivalents, Short-Term Investments and Restricted Investments

Cash and cash equivalents include highly liquid investments with a maturity of three months or less on the date of purchase which can be easily converted into cash without a significant impact to their value.

Short-term investment securities are classified as held-to-maturity or available-for-sale.

Short-term investment securities are classified as held-to-maturity.

Investments classified as held-to-maturity are carried at cost.

Investments classified as available-for-sale are carried at fair value.

Unrealized gains and losses on investments classified as available-for-sale are reported as a separate component of shareholders’ equity.

Amortization, accretion, interest, and dividends, realized gains and losses and declines in value judged to be other-than-temporary are included in other income.

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Once approval is reasonably assured, costs, including amounts related to third -party manufacturing, transportation and internal labor and overhead, will be capitalized.

Receivables, Net

Receivables at December 31, 2022 primarily consisted of the $ 200.0 million milestone and royalties receivable from Rayner.

Receivables at December 31, 2021 were primarily OMIDRIA customer receivables made prior to the sale to Rayner and collected after the closing.

Considering the nature of our receivables, we concluded an allowance for doubtful accounts was not necessary as of December 31, 2022 and 2021.

Receivables at December 31, 2023 primarily consist of royalties receivable from Rayner.

Receivables at December 31, 2022 also included the $ 200.0 million Milestone Payment which we received in February 2023.

Considering the nature of our receivables, we concluded an allowance for doubtful accounts was not necessary as of December 31, 2023 and 2022 , respectively.

Property and Equipment, Net

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Expenditures for repairs and maintenance are expensed as incurred.

Right-of-Use Assets and Related Lease Liabilities

We record operating leases as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available.

We recognize variable lease payments, when incurred.

Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

We record finance leases as a component of property and equipment and amortize these assets within operating expenses on a straight-line basis to their residual values over the shorter of the term of the underlying lease or the estimated useful life of the equipment.

The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term.

We account for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

Unsecured Convertible Senior Notes

Convertible Senior Notes

On January 1, 2021, we adopted Accounting Standards Update (“ASU”) 2020 - 06, Debt — Debt with Conversion Options (Subtopic 470.20 and Derivatives and Hedging — Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ) on a modified retrospective basis.

ASU 2020 - 06 removed the separate liability and equity accounting for our convertible senior notes that was required under previous guidance and allows us to account for our convertible senior notes wholly as debt.

Upon adoption, we removed the equity component allocated to debt issuance costs increasing unsecured convertible senior notes and shareholders’ equity by $ 75.5 million.

Transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation by the debtor are evaluated as a modification or an exchange transaction depending on whether the exchange is determined to have substantially different terms.

The 6.25 % Convertible Senior Notes (the “2023 Notes”) repurchase and issuance of the 5.25 % Convertible Senior Notes (“2026 Notes”) were deemed to have substantially different terms due to the significant difference between the value of the conversion option immediately prior to and after the exchange.

Therefore, the repurchase of the 2023 Notes was accounted for as a debt extinguishment.

(See “Note 8 - Unsecured Convertible Senior Debt”).

Upon adoption, we removed the equity component allocated to debt issuance costs.

Transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation are evaluated as a modification or an extinguishment depending on whether the exchange is determined to have substantially different terms.

We extinguished the 6.25 % convertible senior notes (the “2023 Notes”) at par upon maturity on November 15, 2023.

In December 2023, we repurchased $ 9.1 million par value of our 5.25 % convertible senior notes ( “2026 Notes”) at a discount, realizing a $ 4.1 million non-cash gain on extinguishment.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, primarily property and equipment, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the impairment of long-lived assets, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability of these assets is measured by comparing the carrying value to future undiscounted cash flows that the asset is expected to generate.

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and (v) recognize revenue when (or as) we satisfy a performance obligation.

Prior to the sale of OMIDRIA to Rayner, we recorded product sales as revenue when the product was delivered to our wholesalers and title for the product was transferred.

Product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts.

Research and Development

Research and development expenses are comprised primarily of contracted research and manufacturing costs prior to approval;

costs for personnel, including salaries, benefits and stock compensation;

clinical study costs;

contracted research;

manufacturing costs prior to approval;

Research and development expenses are comprised primarily of contracted research, clinical trial study and manufacturing costs prior to approval;

consulting services;

depreciation;

contract milestones;

materials and supplies;

costs for personnel, including salaries, benefits and stock compensation;

depreciation;

an allocation of our occupancy costs;

and other expenses incurred to sustain our overall research and development programs.

Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and then recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided.

Advance payments for goods or services that will be used for future research and development activities are deferred and then recognized as an expense as the related goods are delivered or the services are performed.

All other research and development costs are expensed as incurred.

Selling, General and Administrative

Selling, general and administrative expenses are comprised primarily of salaries, benefits, and stock-compensation costs for sales, marketing, and other personnel not directly engaged in research and development.

Additionally, selling, general and administrative expenses include marketing and selling expenses, professional and legal services;

Selling, general and administrative expenses are comprised primarily of marketing and selling expenses;

professional and legal services;

patent costs;

depreciation, an allocation of our occupancy costs;

and salaries, benefits, and stock-compensation costs for sales, marketing, and other personnel not directly engaged in research and development.

Additionally, selling, general and administrative expenses include depreciation;

an allocation of our occupancy costs;

and other general corporate expenses.

Advertising costs, which we consider to be media and marketing materials, are expensed as incurred and were $ 3.2 million, $ 7.8 million and $ 5.6 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Of these amounts, advertising costs related to the discontinued operations of OMIDRIA were $ 2.0 million and $ 1.1 million in 2021 and 2020, respectively.

Advertising costs are expensed as incurred.

We had no advertising costs during the years ended December 31, 2023 and 2022.

For the year ended December 31, 2021, we incurred $ 0.8 million in advertising costs related to our sales of OMIDRIA.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases.

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Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

Common Stock Repurchases

We may repurchase shares of our common stock from time to time under authorization made by our Board of Directors.

Under applicable Washington State law, repurchased shares are retired and not presented separately as treasury stock on the consolidated financial statements.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is comprised of net income (loss) and certain changes in equity that are excluded from net income (loss).

There was no difference between comprehensive income (loss) and net income (loss) for the years ended December 31, 2022, 2021 or 2020.

There was no difference between comprehensive income (loss) and net income (loss) for the years ended December 31, 2023 , 2022 and 2021 .

Financial Instruments and Concentrations of Credit Risk

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treasury bills.

Note 3—Discontinued Operations

On December 23, 2021, we closed an Asset and Purchase Agreement for the sale of OMIDRIA and certain related assets including inventory and prepaid expenses.

We retained the outstanding accounts receivable and all outstanding liabilities related to OMIDRIA as of the closing date.

Upon closing, we received an up-front cash payment of $ 126.0 million.

We received a 50 % royalty on OMIDRIA net sales in the U.S.

following the sale of OMIDRIA.

The occurrence of the milestone event in December 2022 resulted in recognition of the $ 200.0 million Milestone Payment and reduced our royalty rate on U.S.

OMIDRIA net sales (the “U.S.

base royalty rate”) to 30 % until the expiration or termination of the last issued and unexpired U.S.

patent, which we expect to occur no earlier than 2033.

base royalty rate would be reduced to 10 % upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for separate payment.

The sale of OMIDRIA was recorded as an asset sale.

Additionally, the results of operations for OMIDRIA are recorded as income from discontinued operations for all periods presented in the consolidated statements of operations and comprehensive income (loss).

The following schedule is a rollforward of the OMIDRIA contract royalty asset (in thousands):

OMIDRIA contract royalty asset at December 31, 2021

Royalties earned

Interest on OMIDRIA contract royalty asset

Remeasurement adjustments

OMIDRIA contract royalty asset at December 31, 2022

During the year ended December 31, 2022, we earned royalties of $ 65.4 million on U.S.

net sales of OMIDRIA, which we recorded as a reduction from the OMIDRIA contract royalty asset.

Additionally, we recorded $ 33.1 million of income in discontinued operations comprising effective interest on the OMIDRIA contract royalty asset and remeasurement adjustments.

Net income from discontinued operations, net of tax is as follows:

Year Ended December 31,

(In thousands)

Product sales, net

Costs and expenses

Gain on sale of OMIDRIA

Milestone income

Interest on OMIDRIA contract royalty asset

Remeasurement adjustments

Income before income tax

Income tax expense (1)

Net income from discontinued operations, net of tax

(1) For further discussion of income tax expense refer to “Note 14 – Income Taxes”.

The year ended December 31, 2021 included a gain on the sale of OMIDRIA comprised as follows (in thousands):

Cash proceeds

OMIDRIA contract royalty asset

Gain on sale of OMIDRIA, gross

Transaction and closing costs

RSUs granted to transferred employees

Prepaid assets and inventory at cost

Gain on sale of OMIDRIA

Cash flow from discontinued operations is as follows:

Year Ended December 31, 2022

(In thousands)

Net cash provided by discontinued operations from operating activities

Net cash provided by discontinued operations from investing activities

We historically recorded revenue from product sales when the product was delivered to our wholesalers and title for the product was transferred.

Product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts.

Accruals or allowances were established for these deductions in the same period when revenue was recognized, and actual amounts incurred were offset against the applicable accruals or allowances.

We reflected each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount was expected to be settled.

Prior to the sale of OMIDRIA to Rayner, we sold OMIDRIA through four wholesalers.

These wholesalers, including entities under their common control, each accounted for greater than 15 % of our total revenues for the years ended December 31, 2021 and 2020.

Collectively, they accounted for 100 % of our total sales.

These wholesalers, and entities under their common control, each represented greater than 10 % of our accounts receivable as of December 31, 2021 and 2020.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU 2023 - 09, Income Taxes - Improvements to Income Tax Disclosure (Topic 740 ), to enhance the transparency of income tax disclosures.

ASU 2023 - 09 provides enhancements to the income tax disclosures related to the rate reconciliation and income taxes paid information.

ASU 2023 - 09 is effective for fiscal years after December 15, 2025 and applied prospectively.

The Company is evaluating the impact of this pronouncement on its consolidated financial statements.

Note 3 — Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Basic net income (loss) per share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Our potentially dilutive securities include common shares related to our stock options, warrants, RSUs and unsecured convertible senior notes calculated using the treasury stock method.

Our potentially dilutive securities include common shares related to our stock options, RSUs and convertible senior notes calculated using the treasury stock method.

In periods where we have a net loss from continuing operations but overall net income, we do not compute Diluted EPS.

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2026 Notes convertible to common stock (1)

11,132,366 12,172,008 12,172,008

2023 Notes convertible to common stock (1)(2)

4,318,944 4,941,739 4,941,739

Outstanding options to purchase common stock

38,462 9,488 1,707,371

Outstanding restricted stock units

Outstanding warrants to purchase common stock

Total potentially dilutive shares excluded from net income (loss) per share

(1) The 2023 Notes and 2026 Notes (defined below) are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 8 - Unsecured Convertible Senior Notes”.

— 98,750 2,642

Total dilutive shares excluded from net income (loss) per share

15,489,772 17,221,985 18,823,760

( 1 ) The 2023 Notes were, and the 2026 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 6 - Convertible Senior Notes”.

Any potential impact of the capped call arrangement is excluded from this table.

Note 5—Receivables, Net

Receivables, net consists of the following:

(In thousands)

OMIDRIA milestone receivable

OMIDRIA royalty receivables

Trade receivables, net

Sublease and other receivables

Total receivables, net

Trade receivables contained no significant chargeback and product return allowance as of December 31, 2022 compared to $ 2.0 million of chargeback and product return allowances as of December 31, 2021.

Based on the nature of our receivables, we determined a reserve for doubtful accounts was not required for the years ended December 31, 2022 and 2021.

( 2 ) The 2023 Notes were fully extinguished on November 15, 2023.

Note 4 — Fair-Value Measurements

As of December 31, 2022, all investments were classified as held-to-maturity and earnings were included in interest and other income.

As of December 31, 2021, all investments were classified as short-term and available-for-sale.

On a recurring basis, we measure certain financial assets at fair value.

All of our investments are held in our name and are classified as short-term and held-to-maturity.

Interest income from investments for the years ended December 31, 2023 and December 31, 2022 were $ 14.7 million and $ 2.2 million, respectively .

The following tables summarize our investments:

December 31, 2023

Gross Unrealized

Amortized Cost

Gains/(Losses)

Estimated Fair Value

(In thousands)

government securities classified as short-term investments

$ 102,100 $ 19 $ 102,119

Money-market funds classified as short-term investments

62,643 — 62,643

Total short-term investments

164,743 19 164,762

Certificate of deposit classified as non-current restricted investments

1,054 — 1,054

Total investments

$ 165,797 $ 19 $ 165,816

December 31, 2022

Gross Unrealized

Amortized Cost

Gains/(Losses)

Estimated Fair Value

(In thousands)

government securities classified as short-term investments

$ 99,027 $ 22 $ 99,049

Money-market funds classified as short-term investments

84,882 — 84,882

Total short-term investments

183,909 22 183,931

Certificate of deposit classified as non-current restricted investments

1,054 — 1,054

Total investments

$ 184,963 $ 22 $ 184,985

Fair value is defined 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.

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(In thousands)

government securities classified as short-term investments

$ — $ 102,119 $ — $ 102,119

Money-market funds classified as short-term investments

government treasury bills classified as short-term investments

62,643 — — 62,643

Total short-term investments

62,643 102,119 — 164,762

Money-market funds classified as non-current restricted investments

1,054 — — 1,054

Total investments

$ 63,697 $ 102,119 $ — $ 165,816

December 31, 2022

(In thousands)

government treasury bills classified as short-term investments

$ — $ 99,049 $ — $ 99,049

Money-market funds classified as short-term investments

84,882 — — 84,882

Total short-term investments

84,882 99,049 — 183,931

Money-market funds classified as non-current restricted investments

1,054 — — 1,054

Total investments

$ 85,936 $ 99,049 $ — $ 184,985

Unrealized gains and losses on our short-term investments were not material for either period presented.

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The carrying amounts for receivables, accounts payable and accrued liabilities, and other current monetary assets and liabilities, including lease financing obligations, approximate fair value.

See “Note 8 - Unsecured Convertible Senior Notes” and “Note 9 – OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our 5.25 % convertible senior notes due 2026, 6.25 % convertible senior notes due 2023 and OMIDRIA royalty obligation.

See “Note 6 - Convertible Senior Notes” and “Note 8 – OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our 2023 Notes, 2026 Notes and the OMIDRIA royalty obligation.

Note 5 — Certain Balance Sheet Accounts

Receivables consists of the following:

(In thousands)

OMIDRIA milestone receivable

$ — $ 200,000

OMIDRIA royalty receivables

Other receivables

Total receivables

$ 8,096 $ 213,221

Property and Equipment, Net

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Equipment under finance leases

$ 6,929 $ 6,204

Laboratory equipment

1 unchanged sentence

Office equipment and furniture

12,191 11,040

Less accumulated depreciation and amortization

( 10,241 ) ( 9,548 )

Total property and equipment, net

$ 1,950 $ 1,492

For the years ended December 31, 2023 , 2022 and 2021 , depreciation and amortization expenses were $ 0.9 million, $ 1.0 million and $ 1.4 million, respectively.

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(In thousands)

Employee compensation

Clinical trials

$ 10,168 $ 5,536

Employee compensation

Contract research and development

Interest payable

Income taxes payable

Consulting and professional fees

Contract research and development

Sales rebates, fees and discounts

Other accrued expenses

Total accrued expenses

Note 8—Unsecured Convertible Senior Notes

$ 31,868 $ 30,551

Note 6 — Convertible Senior Notes

On January 1, 2021, we adopted ASU 2020 - 06, Debt — Debt with Conversion Options (Subtopic 470 - 20 ) and Derivatives and Hedging — Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ) on a modified retrospective basis.

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Consequently, we now account for our convertible senior notes wholly as debt.

Upon adoption, we removed the equity component allocated to debt issuance costs increasing unsecured convertible senior notes and shareholders’ equity by $ 75.5 million.

In November 2018, we issued $ 210.0 million in aggregate principal amount on our 2023 Notes, and in August and September 2020, we issued an aggregate principal amount of $ 225.0 million on our 2026 Notes.

We used a portion of the proceeds from the 2026 Notes to repurchase $ 115.0 million principal amount of the 2023 Notes and terminate a corresponding portion of the related capped call.

Unsecured convertible senior notes outstanding at December 31, 2022 and 2021, respectively, are as follows:

Upon adoption, we removed the equity component allocated to debt issuance costs increasing convertible senior notes and shareholders’ equity by $ 75.5 million.

In December 2023, we repurchased $ 9.1 million par value of our 2026 Notes realizing a non-cash gain on debt extinguishment of $ 4.1 million to our consolidated statement of operations and comprehensive loss in the current year.

On November 15, 2023, we also extinguished at par the $ 95.0 million outstanding principal amount on our 2023 Notes.

Convertible senior notes outstanding at December 31, 2023 and 2022 , respectively, are as follows:

Balance as of December 31, 2023

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Principal amount

$ — $ 215,924 $ 215,924

Unamortized debt issuance costs

Total unsecured convertible senior notes, net

Fair value of outstanding unsecured convertible senior notes (1)

— ( 2,769 ) ( 2,769 )

Total convertible senior notes, net

$ — $ 213,155 $ 213,155

Fair value of outstanding convertible senior notes (1)

$ — $ 131,444

Balance as of December 31, 2022

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Principal amount

Unamortized discount

Total unsecured convertible senior notes, net

Fair value of outstanding unsecured convertible senior notes (1)

(1) The fair value is classified as Level 3 due to the limited trading activity for the unsecured convertible senior notes.

$ 95,000 $ 225,030 $ 320,030

Unamortized debt issuance costs

( 619 ) ( 4,124 ) ( 4,743 )

Total convertible senior notes, net

$ 94,381 $ 220,906 $ 315,287

Fair value of outstanding convertible senior notes (1)

$ 92,031 $ 118,141

( 1 ) The fair value is classified as Level 3 due to the limited trading activity for the convertible senior notes.

2023 Convertible Senior Notes

The 2023 Notes are unsecured and accrue interest at an annual rate of 6.25 % per annum, payable semi-annually in arrears on May 15 and November 15 of each year.

The 2023 Notes mature on November 15, 2023 unless earlier purchased, redeemed or converted in accordance with their terms and are classified as a current liability on our Consolidated Balance Sheets as of December 31, 2022.

The 2023 Notes are convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion.

The initial conversion rate is 52.0183 shares of our common stock per $ 1,000 of note principal (equivalent to an initial conversion price of approximately $ 19.22 per share of common stock), subject to adjustment in certain circumstances.

To reduce the dilutive impact or potential cash expenditure associated with conversion of the 2023 Notes, we entered into a capped call transaction (the “2023 Capped Call”), which essentially covers the number of shares of our common stock underlying the 2023 Notes when our common stock is trading between the initial conversion price of $ 19.22 per share and $ 28.84 per share.

However, should the market price of our common stock exceed the $ 28.84 cap, then the conversion of the 2023 Notes would have an additional dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price.

In August and September 2020, we issued the 2026 Notes and used approximately $ 125.6 million of the net proceeds to repurchase $ 115.0 million principal amount of the 2023 Notes (see “2026 Convertible Senior Notes” below).

Upon repurchase, the settlement consideration was allocated between the repurchase of the liability and the equity component with the fair value of the liability component estimated to be $ 103.6 million based on the expected future cash flows associated with the $ 115.0 million principal amount discounted at a 9.9 % effective interest rate.

The remaining $ 22.0 million was accounted for as a repurchase of the equity component, reducing additional paid-in capital.

As of the repurchase date of August 14, 2020, the carrying value of the repurchased 2023 Notes, net of unamortized debt discount and issuance costs, was $ 90.2 million.

The difference between the $ 103.6 million fair value of the 2023 Notes repurchased and the carrying value of $ 90.2 million resulted in a $ 13.4 million loss on early extinguishment of debt.

After giving effect to the repurchase, the total principal amount outstanding under the 2023 Notes as of August 14, 2020 was $ 95.0 million.

In connection with the repurchase of $ 115.0 million in principal amount of the 2023 Notes, we terminated a proportionate amount of the related 2023 Capped Call for approximately 6.0 million underlying shares.

Upon settlement, the Company received $ 7.5 million in cash and recorded a $ 0.8 million loss due to the change in fair value of the contract between signing and settlement dates.

The proceeds were recorded as cash with a corresponding increase in additional paid-in capital, and the loss was recorded to other expense in the consolidated statements of operations and comprehensive income (loss).

As of December 31, 2022, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

Upon adoption of ASU 2020-06 in January 2021, we removed the equity component allocated to debt issuance costs.

The unamortized debt issuance costs of $ 0.6 million as of December 31, 2022 will be amortized to interest expense at an effective interest rate of 7.0 % over the remaining term.

The 2023 Notes accrued interest at an annual rate of 6.25 % per annum.

The 2023 Notes matured on November 15, 2023, and the $ 95.0 million outstanding principal and related accrued interest were paid at that time.

The following table sets forth total interest expense recognized in connection with the 2023 Notes:

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Contractual interest expense

$ 5,195 $ 5,938 $ 5,938

Amortization of debt issuance costs

Amortization of debt discount

Total interest expense

$ 5,814 $ 6,601 $ 6,556

2026 Convertible Senior Notes

In August and September 2020, we issued $ 225.0 million aggregate principal amount of our 2026 Notes and repurchased $ 125.6 million of our 2023 Notes.

The 2026 Notes are unsecured and accrue interest at an annual rate of 5.25 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year.

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( 4 ) we call the 2026 Notes for redemption.

We may elect, at our sole discretion, to convert the 2026 Notes into cash, shares of our common stock or a combination thereof.

We will settle any conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate(s).

Subject to the satisfaction of certain conditions, we may redeem in whole or in part the 2026 Notes at our option beginning August 15, 2023 through the 50th scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.

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The 2026 Capped Call will expire on various dates over the 50 -trading-day period ranging from December 2, 2025 to February 12, 2026, if not exercised earlier.

Capped Call is a separate transaction and not part of the terms of the 2026 Notes and was executed separately from the issuance of the 2026 Notes.

The 2026 Capped Call is a separate transaction and not part of the terms of the 2026 Notes and was executed separately from the issuance of the 2026 Notes.

The amount paid for the 2026 Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheet.

As of December 31, 2023 , approximately 12.2 million shares remained outstanding under the 2026 Capped Call.

We evaluated the accounting for the issuance of the 2026 Notes and concluded that the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet, and that the cash conversion guidance applies.

Upon issuance, the proceeds of $ 225.0 million were allocated first to the liability component based on the fair value of non-convertible debt with the residual proceeds allocated to the equity component for the conversion features.

The Company allocated $ 6.8 million in issuance costs associated with the 2026 Notes to the liability and equity component in the same proportion as the $ 225.0 million in proceeds.

Further, we concluded the 2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet.

Consequently, the fair value of the 2026 Capped Call of $ 23.2 million is classified as equity, not accounted for as derivatives, and will not be subsequently remeasured.

Upon adoption of ASU 2020-06 in January 2021, we removed the equity component allocated to debt issuance costs.

The unamortized debt issuance costs of $ 4.1 million as of December 31, 2022 will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.

The unamortized debt issuance costs o f $ 2.8 million as of December 31, 2023 will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.

The following table sets forth interest expense recognized related to the 2026 Notes:

2 unchanged sentences

Contractual interest expense

$ 11,774 $ 11,814 $ 11,814

Amortization of debt issuance costs

Amortization of debt discount

Future Minimum Principal Payments

Future minimum principal for the 2023 and 2026 Notes as of December 31, 2022 are as follows (in thousands):

Total future minimum principal payments under the 2023 Notes and 2026 Notes

1,355 1,167 1,078

Total interest expense

$ 13,129 $ 12,981 $ 12,892

Note 7— Discontinued Operations - Sale of OMIDRIA

On December 23, 2021, we closed the sale of OMIDRIA and related assets, which is reported as discontinued operations in our consolidated statements of operations and comprehensive income.

Upon closing, we received an up-front cash payment from Rayner of $ 126.0 million, and we retained the outstanding receivables and liabilities related to OMIDRIA as of the closing date.

The year ended December 31, 2021, included a gain on the sale of OMIDRIA comprised as follows (in thousands):

Cash proceeds

OMIDRIA contract royalty asset

Gain on sale of OMIDRIA, gross

Transaction and closing costs

RSUs granted to transferred employees

Prepaid assets and inventory at cost

Gain on sale of OMIDRIA

In December 2022, the achievement of the Milestone Event triggered a $ 200.0 million Milestone Payment from Rayner which we received in February 2023.

The Milestone Event also resulted in a reduction in the U.S.

royalty rate from 50 % to 30 % on OMIDRIA net sales.

The results of operations for OMIDRIA are recorded as income from discontinued operations for all periods presented in the consolidated statements of operations and comprehensive income (loss).

Year Ended December 31,

(In thousands)

Product sales, net

$ — $ — $ 110,735

Costs and expenses

Gain on sale of OMIDRIA

Milestone income

Interest on OMIDRIA contract royalty asset

15,315 18,634 —

Remeasurement adjustments

41,167 14,457 —

1,087 307 1,035

Income before income tax

57,569 233,398 386,787

Income tax expense (1)

( 462 ) ( 3,952 ) ( 1,006 )

Net income from discontinued operations, net of tax

$ 57,107 $ 229,446 $ 385,781

( 1 ) For further discussion of income tax expense refer to “Note 13 – Income Taxes”.

The following schedule is a rollforward of the OMIDRIA contract royalty asset (in thousands):

Balance at December 31, 2021

Royalties earned

Interest on OMIDRIA contract royalty asset

Remeasurement adjustments

Balance at December 31, 2022

Royalties earned

Interest on OMIDRIA contract royalty asset

Remeasurement adjustments

Balance at December 31, 2023

Cash flow from discontinued operations is as follows:

Year Ended December 31,

(In thousands)

Net cash provided by discontinued operations from operating activities

$ 241,317 $ 78,082 $ 55,380

Net cash provided by discontinued operations from investing activities

$ — $ — $ 125,993

Note 8— OMIDRIA Royalty Obligation

On September 30, 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $ 125.0 million in cash consideration which was recorded as an OMIDRIA royalty obligation on our consolidated balance sheet.

In September 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $ 125.0 million in cash consideration which was recorded as an OMIDRIA royalty obligation on our consolidated balance sheet.

DRI is entitled to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, subject to annual caps.

1 unchanged sentence

DRI is not entitled to carry-forward nor recoup any shortfall if the royalties paid by Rayner for an annual period are less than the cap amount applicable to each discrete calendar year.

Additionally, DRI has no recourse to or security interest in our assets other than our OMIDRIA royalty receipts, and we retain all royalty receipts in excess of the respective cap in any given calendar year.

DRI will receive a total of $ 125.0 million in payment no sooner than August 2028, and the maximum future payout that DRI is entitled to receive as of December 31, 2022 is $ 186.8 million which, if fully paid, would be at an effective interest rate of 9.4 %.

Additionally, DRI has no recourse to or security interest in our assets other than our OMIDRIA royalty receipts.

The changes in the OMIDRIA royalty obligation during the year ended December 31, 2023 are as follows (in thousands):

Principal amount borrowed at September 30, 2022

Capitalized accrued interest

Balance at December 31, 2022

Principal payments

OMIDRIA royalty obligation at December 31, 2022

Balance at December 31, 2023

The OMIDRIA royalty obligation is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market.

As of December 31, 2022, the obligation’s carrying value approximates fair value.

For the year ended December 31, 2022, we incurred $ 2.9 million of interest expense of which $ 1.7 million was non-cash and added to the outstanding principal balance of the OMIDRIA royalty obligation and $ 1.2 million was cash.

As of December 31, 2023 , the approximate fair value of our obligation was $ 116.3 million.

For the years ended December 31, 2023 and December 31, 2022, we incurre d interest expense of $ 11.8 million and $ 2.9 million, respectively, on the OMIDRIA royalty obligation.

As of December 31, 2023 , the maximum scheduled principal and interest payments (based on an implied effective interest rate of 9.4 %) are as follows:

(In thousands)

$ 8,576 $ 11,424 $ 20,000

14,641 10,359 25,000

16,081 8,919 25,000

17,664 7,336 25,000

19,402 5,598 25,000

48,762 4,988 53,750

Total scheduled payments

$ 125,126 $ 48,624 $ 173,750

Subsequent Event

In February 2024, Omeros and DRI expanded their royalty purchase agreement, resulting in Omeros receiving $ 115.5 million in cash consideration from DRI upon closing.

The Amended and Restated Royalty Purchase Agreement ("RPA") eliminated the caps on royalty payments effective in the first quarter of 2024 and provides that DRI will now receive all royalties on U.S.

net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031.

DRI is entitled to payment only to the extent of royalty payments that are payable in the respect of U.S.

net sales of OMIDRIA on or before December 31, 2031 and DRI has no recourse to our assets other than its interest in OMIDRIA royalties.

Omeros retains the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S.

payable from and after January 1, 2024, as well as royalties on global net sales of OMIDRIA payable from and after December 31, 2031.

To date, international royalties have not been significant.

We are also entitled to receive a milestone ranging between $ 10.0 million and $ 27.5 million if U.S.

net sales of OMIDRIA reach applicable thresholds ranging between a total of $ 156.0 million and $ 160.0 million for any period of four consecutive quarters prior to January 1, 2026.

In addition, we are entitled to receive a separate milestone ranging between $ 8.0 million and $ 27.5 million if U.S.

net sales of OMIDRIA reach applicable thresholds ranging between a total of $ 181.0 million and $ 185.0 million for any period of four consecutive quarters prior to January 1, 2028.

Note 9 — Lease Liabilities

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The initial term of the leases is through November 2027 and we have two options to extend the lease term, each by five years.

We have finance leases for certain laboratory and office equipment that have lease terms expiring through June 2026.

In January 14, 2022, we entered into an agreement with our landlord to early terminate a portion of our office and lab premises, which reduced the right of use asset by $ 4.7 million and related liability by $ 5.2 million.

We recorded a non-cash gain of $ 0.5 million on early termination of this portion of our lease.

We have finance leases for certain laboratory and office equipment that have lease terms expiring through November 2026.

Lease-related assets and liabilities recorded on our consolidated balance sheet are as follows:

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Operating lease assets

$ 18,631 $ 21,762

Finance lease assets, net

Total lease assets

$ 19,851 $ 22,707

Operating leases

$ 4,590 $ 3,888

Finance leases

Operating leases

17,424 21,971

Finance leases

Total lease liabilities

$ 23,303 $ 26,736

Weighted-average remaining lease term

Operating leases

Finance leases

Operating leases (years)

Finance leases (years)

Weighted-average discount rate

Operating leases

12.81 % 12.81 %

Finance leases

8.57 % 10.44 %

The components of total lease costs are as follows:

1 unchanged sentence

Operating lease cost

$ 6,464 $ 6,152

Finance lease cost:

1 unchanged sentence

Sublease income

( 1,500 ) ( 1,755 )

Net lease cost

$ 8,975 $ 8,574

The supplemental cash flow information related to leases is as follows:

2 unchanged sentences

Cash payments for operating leases

$ 7,144 $ 7,072

Cash payments for financing leases

1 unchanged sentence

(In thousands)

$ 8,528 $ 684 $ 9,212

7,088 517 7,605

6,870 258 7,128

5,950 — 5,950

Total undiscounted lease payments

28,436 1,459 29,895

Less interest

( 6,422 ) ( 170 ) ( 6,592 )

Total lease liabilities

$ 22,014 $ 1,289 $ 23,303

Note 10 — Commitments and Contingencies

We have various agreements with third parties that collectively require payment of termination fees totaling $ 24.2 million as of December 31, 2022 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.

We have various agreements with third parties that collectively require payment of termination fees totaling $ 25.8 m illion as of December 31, 2023 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.

Development Milestones and Product Royalties

We have licensed a variety of intellectual property from third parties that we are currently developing or may develop in the future.

These licenses may require milestone payments on achievement of clinical development, regulatory or sales milestones, as well as low-single-to low-double-digit royalties on the net income or net sales of the product.

We have entered a variety of development, collaboration, licensing or similar agreements with third parties under which we have accessed technology or services in connection with our development assets and programs.

Some of these agreements require milestone payments based on achievements of development, regulatory or sales milestones, and/or low-single to low-double digit royalties on net income or net sales of the relevant product.

For the years ended December 31, 2023 , 2022 and 2021 , we paid $ 5.0 million, $ 0.3 million and $ 0.5 million, respectively in development milestones.

Note 12—Shareholders’ Equity

Note 11 — Shareholders ’ Equity (Deficit)

As of December 31, 2023 , we had reserved shares of common stock under our equity plans as follows:

Stock options outstanding

RSUs outstanding

Awards available to issue under the 2017 Plan

Total shares reserved

Securities Offerings – In August 2020, we sold 6.9 million shares of our common stock at a public offering price of $ 14.50 per share.

After deducting underwriter discounts and offering expenses, we received net proceeds from the transaction of $ 93.7 million.

At the Market Sales Agreement – We have a sales agreement to sell shares of our common stock having an aggregate offering price of up to $ 150.0 million, from time to time, through an “at the market” equity offering program.

We have outstanding warrants to purchase shares of our common stock as follows:

Outstanding At

December 31, 2022

Expiration Date

Exercise Price

April 12, 2023

Amendment of 2017 Omnibus Incentive Compensation Plan - At our June 23, 2023 annual meeting, our shareholders approved a 5,000,000 share increase in the number of shares of common stock available for grant under the 2017 Omnibus Incentive Compensation Plan, as amended and restated.

Share Repurchase Program - On November 9, 2023, the Board of Directors approved an indefinite-term share repurchase program under which we may repurchase from time to time up to $ 50.0 million of our common stock in the open market or through privately negotiated transactions.

For the year ended December 31, 2023, we repurchased and retired 1.8 million shares of common stock at an average share price of $ 2.54 , for an aggregate repurchase price of $ 4.7 million.

Note 12 — Stock-Based Compensation

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Employee recurring options grants

1/ 48 monthly

Non-employee consultant options grants

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Research and development

$ 4,754 $ 6,123 $ 6,791

Selling, general and administrative

7,140 8,042 8,154

Total stock-based compensation in continuing operations

11,894 14,165 14,945

Discontinued operations

( 244 ) ( 93 ) 2,685

Total stock-based compensation

In November 2020 and 2021, respectively, restricted stock awards totaling 14,000 shares with a fair value of $ 11.05 per share and 11,700 shares with a fair value of $ 7.80 per share were granted to OMIDRIA sales employees.

The awards vested immediately.

$ 11,650 $ 14,072 $ 17,630

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

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Estimated weighted-average fair value

$ 2.44 $ 2.94 $ 10.54

Weighted-average assumptions:

Expected volatility

93 % 90 % 81 %

Expected life, in years

Risk-free interest rate

3.97 % 2.83 % 1.06 %

Expected dividend yield

Expected volatility is based on the historical volatility of our stock price weighted by grant issuances over the reporting period.

We use the simplified method to calculate expected life used in the valuation of our stock options.

risk-free interest rate is based on the U.S.

We estimated the expected life of the stock options granted using the historical exercise behavior of option holders.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

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Stock option activity for all stock option plans is as follows:

Contractual Life

(In thousands)

Options Outstanding

Weighted- Average Exercise Price per Share Remaining Contractual Life (In years)

Aggregate Intrinsic Value (In thousands)

Balance at December 31, 2022

13,872,973 $ 11.02

3,153,200 3.01

( 36,726 ) 4.10

( 1,734,293 ) 9.96

Balance at December 31, 2023

15,255,154 $ 9.50 6.2 $ 1,388

Vested and expected to vest at December 31, 2023

14,762,090 $ 9.65 6.0 $ 1,272

Exercisable at December 31, 2023

10,554,140 $ 11.50 4.7 $ 217

Of the 15.3 million common stock options outstanding as of December 31, 2023, 12.3 million have an exercise price above the $ 3.27 closing price of our stock on the Nasdaq exchange on December 31, 2023.

The total intrinsic value of stock options exercised during the years ended December 31, 2023 , 2022 and 2021 was $ 0.1 million, $ 0.2 million and $ 7.8 million, respectively.

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RSU activity for all stock plans is as follows:

Weighted- Average

RSUs Outstanding

Weighted- Average Grant Date Fair Value Per Share

Balance at December 31, 2022

98,750 $ 7.53

Vested and released

( 67,250 ) 7.53

( 31,500 ) 7.53

Balance at December 31, 2023

Note 13 — Income Taxes

The components of income tax expense (benefit) from continuing and discontinued operations were as follows:

The components of income tax benefit from continuing and discontinued operations were as follows:

(In thousands)

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Income tax expense as a component of discontinued operations

In 2022 and 2021, for federal and state income tax purposes, we had net losses from continuing operations and net income from discontinued operations, which resulted in overall taxable net income.

For federal income tax purposes, we utilized existing net operating loss carryforwards of $ 269.8 million and $ 245.1 million respectively to fully offset our federal tax liability for both periods.

For state income tax purposes, we did not have adequate net operating losses and tax credits to fully offset our state tax liability.

We recorded a state income tax expense of $ 4.0 million and $ 1.0 million in discontinued operations in 2022 and 2021, respectively.

As of December 31, 2022, income taxes payable of $ 4.9 million is included in accrued expenses in our consolidated balance sheet.

In 2020, we adopted ASU 2019-12, Income Taxes (Topic 740), which eliminated the exception to the incremental approach of intra-period tax allocation whereby losses from continuing operations can no longer offset income from discontinued operations.

This resulted in an income tax benefit of $ 23.3 million in continuing operations and income tax expense of $ 11.2 million in discontinued operations in 2020.

Deferred income taxes reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

$ 462 $ 3,952 $ 1,006

For the years ended December 31, 2023, 2022 and 2021, for federal and state income tax purposes, we had net losses from continuing operations and net income from discontinued operations, which resulted in an overall tax loss.

At December 31, 2023, 2022 and 2021, we had federal net operating loss ("NOL") carryforwards of approximately $ 398.6 million, $ 361.4 million and $ 630.6 million, respectively, for all periods.

At December 31, 2023, 2022 and 2021, we had state NOL carryforwards of approximately $ 245.8 million, $ 226.3 million and $ 245.1 million, respectively.

In 2023, we had a net loss for federal income tax purposes and in 2022 and 2021, we utilized existing net operating loss carryforwards of $ 268.6 million and $ 245.1 million, respectively to fully offset our federal tax liability for both periods.

We recorded state income tax expense of $0.5 million, $ 4.0 million and $ 1.0 million in discontinued operations in 2023, 2022 and 2021, respectively as we did not have adequate net operating losses and tax credits to fully offset our state tax liability.

Deferred income tax assets and liabilities reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred income taxes were as follows:

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Net operating loss carryforwards

$ 95,183 $ 85,887

Research and development tax credits

OMIDRIA royalty obligation

92,837 78,992

Capitalized research and development

39,318 21,864

OMIDRIA royalty obligation

28,903 28,938

Stock-based compensation

10,132 12,517

Lease liability

Total deferred tax assets

281,741 243,358

Deferred tax liabilities:

Gain on discontinued operations

OMIDRIA contract royalty asset

( 38,832 ) ( 34,883 )

Right of use assets

( 4,304 ) ( 4,987 )

Property and equipment

( 122 ) ( 288 )

Total deferred tax liabilities

( 43,258 ) ( 40,158 )

Net deferred tax assets before valuation allowance

238,483 203,200

Less valuation allowance

( 238,483 ) ( 203,200 )

Net deferred tax liabilities

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Research and development tax credit carryforwards of $ 93.0 million expire between 2024 and 2043.

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and requires the capitalization and subsequent amortization of research and experimental expenditures beginning in 2022.

During 2022, we capitalized $ 21.9 million of research and development expenses into deferred tax assets.

Prior to 2022, these costs were expensed as incurred for tax purposes.

We established a 100 % valuation allowance for all periods due to the uncertainty around our ability to generate sufficient taxable income to realize our deferred tax assets.

During 2022 and 2021, respectively, our valuation allowance decreased $ 1.9 million and $ 19.3 million.

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and includes the requirement to capitalize and amortize research and experimental expenditures beginning in 2022.

Prior to 2022, we expensed these costs as incurred for tax purposes.

Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes from continuing operations are as follows:

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Federal statutory rate on net loss

( 21.0 )% ( 21.0 )% ( 21.0 )%

State tax, net of federal tax benefit

( 2.1 )% ( 1.7 )% ( 0.6 )%

Change in valuation allowance

Research and development tax credits

27.7 % 28.3 % 26.9 %

( 8.0 )% ( 6.8 )% ( 5.5 )%

Stock compensation

1.5 % 1.4 % 0.3 %

1.9 % ( 0.2 )% ( 0.1 )%

Effective tax rate

0.0 % 0.0 % 0.0 %

We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments.

However, because of net operating loss carryforwards, substantially all our tax years remain open to federal and state tax examination.

We recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense.

To date, there have been no significant interest or penalties charged to us in relation to the underpayment of income taxes.

As of December 31, 2023 and 2022, the total amount of gross unrecognized tax benefits was $ 2.0 million and $ 0.2 million, respectively.

We recognized $ 0.3 million of interest and penalties at December 31, 2023 as an unrecognized tax benefit.

As of December 31, 2023, $ 1.8 million of the total unrecognized tax benefits, if recognized, would have an impact on our effective tax rate.

We estimate that there will be no material changes in this uncertain tax position for the next 12 months.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The following table summarizes the activities related to our gross unrecognized tax benefits (in thousands):

Balance at December 31, 2022

Increase in balance related to tax positions taken during prior years

Decrease in balance related to tax positions during prior years

Decrease in balance as a result of a lapse of the applicable statute of limitations

Balance at December 31, 2023

Note 14 — 401 (k) Retirement Plan

Our 401(k) retirement plan provides for an annual company discretionary match on employee contributions up to 4.0 % of each participating employee’s eligible earnings, with a maximum company match of $ 4,000 per employee per year.

Our 401 (k) retirement plan provides for an annual company discretionary match on employee contributions.

For the years-ended December 31, 2023, 2022 and 2021, Omeros' 401 (k) match expense was $ 0.6 million, $ 0.6 million and $ 0.8 million, respectively.

We match up to 4.0 % of each participating employee’s eligible earnings, with a maximum company match of $ 4,000 per employee per year.

All employees are eligible to participate.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data