Item 8. Financial Statements and Supplementary Data
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 )
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Consolidated Balance Sheets
60
Consolidated Statements of Operations and Comprehensive Income (Loss)
61
Consolidated Statement of Shareholders ’ Equity (Deficit)
62
Consolidated Statements of Cash Flows
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Notes to Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors Omeros Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Omeros Corporation (the Company) as of December 31, 2023 and 2022 , the related consolidated statements of operations and comprehensive income (loss), shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023 , and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 , in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. 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 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.
We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
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OMIDRIA Contract Royalty Asset
Description of the Matter
As more fully described in Note 2 of the financial statements, the Company recorded a contract royalty asset in connection with its sale of OMIDRIA to Rayner Surgical, Inc. on December 23, 2021. To measure that contract royalty asset, the Company used the expected value approach, which is the discounted sum of the probability-weighted royalty payments using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur.
Auditing management’s forecasts is complex and requires judgment due to the level of estimation uncertainty and the sensitivity of the asset’s value to changes in assumptions. In particular, the value of the OMIDRIA contract royalty asset is sensitive to changes in significant assumptions such as forecasted royalties due from Rayner Surgical, Inc. 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
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. We compared estimated future royalties to the Company’s historical revenues and royalty rates in the asset purchase agreement. We evaluated the appropriateness and likelihood of occurrence of the various scenarios included in management’s calculation, given the Company’s experience and industry trends, and verified the clerical accuracy of the calculation. We also evaluated the Company’s disclosures in the consolidated financial statements related to these matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1998.
Seattle, Washington
April 1, 2024
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OMEROS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31,
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$ 7,105 $ 11,009
Short-term investments
164,743 183,909
OMIDRIA contract royalty asset, short-term
29,373 28,797
Receivables
8,096 213,221
Prepaid expense and other assets
8,581 6,300
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
1,950 1,492
Restricted investments
1,054 1,054
Total assets
$ 378,269 $ 590,969
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable
$ 7,712 $ 5,989
Accrued expenses
31,868 30,551
Current portion of convertible senior notes, net
— 94,381
Current portion of OMIDRIA royalty obligation
8,576 1,152
Current portion of lease liabilities
5,160 4,310
Total current liabilities
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
2,088 444
Commitments and contingencies (Note 10)
Shareholders’ equity (deficit):
Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized; none issued and outstanding at December 31, 2023 and December 31, 2022
— —
Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at December 31, 2023 and December 31, 2022; 61,128,597 and 62,828,765 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively.
611 628
Additional paid-in capital
727,936 720,773
Accumulated deficit
( 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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OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
Year Ended December 31,
2023
2022
2021
Costs and expenses:
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
( 164,530 ) ( 163,389 ) ( 173,617 )
Interest expense
( 30,844 ) ( 22,702 ) ( 19,669 )
Interest and other income
16,342 4,062 1,740
Gain on early extinguishment of convertible senior notes
4,112 — —
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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OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (DEFICIT)
(In thousands, except share data)
Additional
Total
Common Stock
Paid-in
Accumulated
Shareholders’
Shares
Amount
Capital
Deficit
Equity/(Deficit)
Balance at December 31, 2020
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
— — 17,539 — 17,539
Cumulative effect of adopting ASU 2020-06
— — ( 70,777 ) ( 4,697 ) ( 75,474 )
Net income
— — — 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
101,160 1 414 — 415
Issuance of common stock upon vesting of restricted stock units
98,750 1 ( 1 ) — —
Stock-based compensation
— — 14,072 — 14,072
Net income
— — — 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
Net loss
— — — (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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OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2023
2022
2021
Operating activities:
Net income (loss)
$ ( 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
11,650 14,072 17,630
Non-cash interest expense on convertible senior notes
1,853 1,830 1,696
Depreciation and amortization
920 952 1,386
Remeasurement on OMIDRIA contract royalty asset
( 41,167 ) ( 14,457 ) —
Interest on OMIDRIA contract royalty asset
(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
— 1,695 —
Changes in operating assets and liabilities:
Receivables
205,125 ( 175,066 ) ( 34,314 )
OMIDRIA contract royalty asset
40,595 65,439 —
Accounts payable and accrued expense
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:
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
— — 125,993
Net cash provided by (used in) investing activities
27,454 ( 127,564 ) 193,710
Financing activities:
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
— 125,000 —
At the market offering costs
— — ( 241 )
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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OMEROS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Basis of Presentation
General
Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, cancers, and addictive and compulsive disorders. 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).
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. 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. 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 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 7 – Discontinued Operations – Sale of OMIDRIA ” ).
Basis of Presentation
Our consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Liquidity and Capital Resources
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”).
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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; 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.
Segments
We operate in one segment. Management uses cash flow as the primary measure to manage our business and does not segment our business for internal reporting or decision-making.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include OMIDRIA contract royalty asset valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.
Note 2 — Significant Accounting Policies
Discontinued Operations
We review the presentation of planned or completed business dispositions in the consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business and, if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results.
Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the consolidated statements of operations and comprehensive income (loss). Results of discontinued operations include all revenues and expenses directly derived from such businesses. General corporate overhead is not allocated to discontinued operations. 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 7 – Discontinued Operations – Sale of OMIDRIA”).
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OMIDRIA Royalties, Milestones and Contract Royalty Assets
We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the sum of the discounted probability-weighted royalty payments, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. As contemplated by the Asset Purchase Agreement, the royalty rate applicable to U.S. 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. net sales and adjusted the probability weighted outcomes to reflect the occurrence of the Milestone Event. Royalties earned are recorded as a reduction to the OMIDRIA contract royalty asset. 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 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 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.
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. Investments classified as held-to-maturity are carried at cost. Amortization, accretion, interest, and dividends, realized gains and losses and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific-identification method. Investments with maturities of less than one year, or those for which management intends to use the investments to fund current operations, are included in current assets. We evaluate whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. Restricted investments held in money-market funds include security deposits held by our landlord.
Investment income, which is included as a component of other income, consists primarily of interest earned.
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Inventory
We expense inventory costs related to product candidates as research and development expenses until regulatory approval is reasonably assured in the U.S. or the European Union (“EU”). Once approval is reasonably assured, costs, including amounts related to third -party manufacturing, transportation and internal labor and overhead, will be capitalized.
Receivables
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
Property and equipment are stated at cost, and depreciation is calculated using the straight-line method over the estimated useful life of the assets, which is generally three to 10 years. Equipment acquired through finance leases is recorded as property and equipment and is amortized over the shorter of the useful lives of the related assets or the lease term. Expenditures for repairs and maintenance are expensed as incurred.
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.
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.
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Impairment of Long-Lived Assets
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. If the asset is impaired, the amount of any impairment will be reflected in the results of operations in the period of impairment. We have not recognized any impairment losses for the years ended December 31, 2023 , 2022 and 2021 .
Revenue Recognition
When we enter into a customer contract, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; 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, clinical trial study and manufacturing costs prior to approval; consulting services; 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 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 marketing and selling expenses; professional and legal services; patent 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 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.
Income Taxes
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. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized.
Stock-Based Compensation
Stock-based compensation expense is recognized for all share-based payments, including grants of stock option awards and restricted stock units (“RSU”) based on estimated fair values. The fair value of our stock is calculated using the Black-Scholes option-pricing model, which requires judgmental assumptions around volatility, forfeiture rates, risk-free rate and expected term. Compensation expense is recognized over the requisite service periods, which is generally the vesting period, using the straight-line method. 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, 2023 , 2022 and 2021 .
Financial Instruments and Concentrations of Credit Risk
Cash and cash equivalents, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount or cost, approximate fair value based on the short-term nature of these financial instruments. The fair value of short-term investments is based on quoted market prices. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and receivables. Cash and cash equivalents are held by financial institutions and are federally insured up to certain limits. At times, our cash and cash equivalents balance held at a financial institution may exceeds the federally insured limits. To limit the credit risk, we invest our excess cash in high-quality securities such as money market mutual funds, certificates of deposit and U.S. treasury bills.
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.
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Note 3 — Net Income (Loss) Per Share
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, 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. Potentially dilutive securities excluded from Diluted EPS are as follows:
Year Ended December 31,
2023
2022
2021
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
— 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.
( 2 ) The 2023 Notes were fully extinguished on November 15, 2023.
Note 4 — Fair-Value Measurements
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)
U.S. 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)
U.S. 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. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
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Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Our fair-value hierarchy for our financial assets are as follows:
December 31, 2023
Level 1
Level 2
Level 3
Total
(In thousands)
U.S. government securities classified as short-term investments
$ — $ 102,119 $ — $ 102,119
Money-market funds 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
Level 1
Level 2
Level 3
Total
(In thousands)
U.S. 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. Cash held in demand deposit accounts of $ 7.1 million and $ 11.0 million is excluded from our fair-value hierarchy disclosure as of December 31, 2023 and 2022 , respectively. 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 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
Receivables consists of the following:
December 31,
December 31,
2023
2022
(In thousands)
OMIDRIA milestone receivable
$ — $ 200,000
OMIDRIA royalty receivables
6,724 12,966
Other receivables
1,372 255
Total receivables
$ 8,096 $ 213,221
Property and Equipment, Net
Property and equipment, net consists of the following:
December 31,
December 31,
2023
2022
(In thousands)
Equipment under finance leases
$ 6,929 $ 6,204
Laboratory equipment
3,525 3,135
Computer equipment
1,113 1,076
Office equipment and furniture
624 625
Total cost
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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Accrued Expenses
Accrued expenses consist of the following:
December 31,
December 31,
2023
2022
(In thousands)
Clinical trials
$ 10,168 $ 5,536
Employee compensation
7,380 6,665
Contract research and development
6,223 3,209
Interest payable
4,242 5,172
Consulting and professional fees
3,539 4,425
Other accrued expenses
316 5,544
Total accrued expenses
$ 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. ASU 2020 - 06 removes the separate liability and equity accounting for our convertible senior notes. 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 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
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$ — $ 215,924 $ 215,924
Unamortized debt issuance costs
— ( 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
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$ 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.
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2023 Convertible Senior Notes
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:
Year Ended December 31,
2023
2022
2021
(In thousands)
Contractual interest expense
$ 5,195 $ 5,938 $ 5,938
Amortization of debt issuance costs
619 663 618
Total interest expense
$ 5,814 $ 6,601 $ 6,556
2026 Convertible Senior 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. The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms.
The initial conversion rate is 54.0906 shares of our common stock per $ 1,000 of note principal (equivalent to an initial conversion price of approximately $ 18.4875 per share of common stock), which equals approximately 12.2 million shares issuable upon conversion, subject to adjustment in certain circumstances.
The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026, the second scheduled trading day immediately before the stated maturity date of February 15, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:
( 1 ) during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130 % of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
( 2 ) during the five consecutive business days immediately after any five -consecutive-trading-day period (such five -consecutive-trading-day period, the “measurement period”) in which the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
( 3 ) there is an occurrence of one or more certain corporate events or distributions of our common stock; or
( 4 ) we call the 2026 Notes for redemption.
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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. The 2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice and (ii) the trading day immediately before the date we send such notice.
In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions in connection with the issuances of the 2026 Notes (the "2026 Capped Call"). The 2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes, the number of shares of common stock underlying the 2026 Notes when our common stock is trading within the range of approximately $ 18.49 and $26.10. However, should the market price of our common stock exceed the $ 26.10 cap, then the conversion of the 2026 Notes would have an additional dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price. 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. 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.
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.
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:
Year Ended December 31,
2023
2022
2021
(In thousands)
Contractual interest expense
$ 11,774 $ 11,814 $ 11,814
Amortization of debt issuance costs
1,355 1,167 1,078
Total interest expense
$ 13,129 $ 12,981 $ 12,892
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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
$ 125,993
OMIDRIA contract royalty asset
184,570
Gain on sale of OMIDRIA, gross
310,563
Transaction and closing costs
( 1,972 )
RSUs granted to transferred employees
( 1,419 )
Prepaid assets and inventory at cost
( 1,524 )
Gain on sale of OMIDRIA
$ 305,648
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,
2023
2022
2021
(In thousands)
Product sales, net
$ — $ — $ 110,735
Costs and expenses
— — 30,631
Gross margin
— — 80,104
Gain on sale of OMIDRIA
— — 305,648
Milestone income
— 200,000 —
Interest on OMIDRIA contract royalty asset
15,315 18,634 —
Remeasurement adjustments
41,167 14,457 —
Other income
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
$ 184,570
Royalties earned
( 65,439 )
Interest on OMIDRIA contract royalty asset
18,634
Remeasurement adjustments
14,457
Balance at December 31, 2022
152,222
Royalties earned
( 40,595 )
Interest on OMIDRIA contract royalty asset
15,315
Remeasurement adjustments
41,167
Balance at December 31, 2023
$ 168,109
Cash flow from discontinued operations is as follows:
Year Ended December 31,
2023
2022
2021
(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
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. DRI receives their prorated monthly cap amount before we receive any royalty proceeds. 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.
The changes in the OMIDRIA royalty obligation during the year ended December 31, 2023 are as follows (in thousands):
Balance at December 31, 2022
$ 126,278
Principal payments
( 1,152 )
Balance at December 31, 2023
$ 125,126
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, 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:
Total
Principal
Interest
Annual Cap
(In thousands)
2024
$ 8,576 $ 11,424 $ 20,000
2025
14,641 10,359 25,000
2026
16,081 8,919 25,000
2027
17,664 7,336 25,000
2028
19,402 5,598 25,000
Thereafter
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.
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Note 9 — Lease Liabilities
We have operating leases related to our office and laboratory space. 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 November 2026.
Lease-related assets and liabilities recorded on our consolidated balance sheet are as follows:
December 31,
December 31,
2023
2022
(In thousands)
Assets
Operating lease assets
$ 18,631 $ 21,762
Finance lease assets, net
1,220 945
Total lease assets
$ 19,851 $ 22,707
Liabilities
Current:
Operating leases
$ 4,590 $ 3,888
Finance leases
570 422
Non-current:
Operating leases
17,424 21,971
Finance leases
719 455
Total lease liabilities
$ 23,303 $ 26,736
Weighted-average remaining lease term
Operating leases (years)
3.8 4.8
Finance leases (years)
2.3 2.3
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:
Year Ended
December 31,
2023
2022
(In thousands)
Lease cost
Operating lease cost
$ 6,464 $ 6,152
Finance lease cost:
Amortization
677 812
Interest
174 174
Variable lease cost
3,160 3,191
Sublease income
( 1,500 ) ( 1,755 )
Net lease cost
$ 8,975 $ 8,574
The supplemental cash flow information related to leases is as follows:
Year Ended
December 31,
2023
2022
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash payments for operating leases
$ 7,144 $ 7,072
Cash payments for financing leases
$ 655 $ 790
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The future maturities of our lease liabilities as of December 31, 2023 are as follows:
Operating
Finance
Leases
Leases
Total
(In thousands)
2024
$ 8,528 $ 684 $ 9,212
2025
7,088 517 7,605
2026
6,870 258 7,128
2027
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
Contracts
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 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 11 — Shareholders ’ Equity (Deficit)
Common Stock
As of December 31, 2023 , we had reserved shares of common stock under our equity plans as follows:
Stock options outstanding
15,255,154
Awards available to issue under the 2017 Plan
8,802,249
Total shares reserved
24,057,403
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.
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.
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Note 12 — Stock-Based Compensation
Our equity plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, performance shares and other stock and cash awards to employees and consultants. Stock options are granted with an exercise price not less than the fair market value of Omeros’ common stock on the date of the grant. Any unexercised options expire 10 years from grant date, and any unvested stock options granted which are subsequently canceled become available for future reissuance.
Vesting schedules for our equity plans generally are as follows:
Grant Type
Vesting Schedule
Employee initial options grants
25% at one-year anniversary, 1/48 monthly thereafter
Employee recurring options grants
1/48 monthly
Non-employee consultant options grants
1/12 or 1/48 monthly
Employee RSUs
50% after one year, 50% after two years
Stock-based compensation expense is as follows:
Year Ended December 31,
2023
2022
2021
(In thousands)
Continuing operations:
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
$ 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. The following assumptions were applied to stock option grants during the periods ended:
Year Ended December 31,
2023
2022
2021
Estimated weighted-average fair value
$ 2.44 $ 2.94 $ 10.54
Weighted-average assumptions:
Expected volatility
93 % 90 % 81 %
Expected life, in years
7.2 6.0 6.0
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 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. Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.
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Stock option activity for all stock option plans is as follows:
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
Granted
3,153,200 3.01
Exercised
( 36,726 ) 4.10
Forfeited
( 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.
At December 31, 2023 , there were 4.7 million unvested stock options outstanding that vest over a weighted-average period of 2.1 years. The remaining estimated compensation expense to be recognized in connection with these unvested stock options is $ 14.5 million.
RSU activity for all stock plans is as follows:
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
Forfeited
( 31,500 ) 7.53
Balance at December 31, 2023
— $ —
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Note 13 — Income Taxes
The components of income tax benefit from continuing and discontinued operations were as follows:
December 31,
2023
2022
2021
(In thousands)
Continuing operations:
Current income tax expense:
Federal
$ — $ — $ —
State
— — —
Total current income tax expense
— — —
Deferred income tax benefit:
Federal
— — —
State
— — —
Total deferred income tax benefit
— — —
Income tax benefit in continuing operations
$ — $ — $ —
Income tax expense as a component of discontinued operations
$ 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.
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Significant components of deferred income taxes were as follows:
December 31,
2023
2022
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
$ 95,183 $ 85,887
Research and development tax credits
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
5,085 5,926
Other
10,283 9,234
Total deferred tax assets
281,741 243,358
Deferred tax liabilities:
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
$ — $ —
As of December 31, 2023 , we had federal net operating loss carryforwards of approximately $ 398.6 million and state net operating loss carryforwards of approximately $ 245.8 million. Pre- 2018 federal net operating losses of $ 109.8 million expire between 2035 and 2037. Post- 2018 federal net operating losses of $ 288.8 million do not expire. 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 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:
Year ended December 31,
2023
2022
2021
U.S. 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
27.7 % 28.3 % 26.9 %
Tax credits
( 8.0 )% ( 6.8 )% ( 5.5 )%
Stock compensation
1.5 % 1.4 % 0.3 %
Other
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.
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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
$ 212
Increase in balance related to tax positions taken during prior years
1,796
Decrease in balance related to tax positions during prior years
( 30 )
Decrease in balance as a result of a lapse of the applicable statute of limitations
( 12 )
Balance at December 31, 2023
$ 1,966
Note 14 — 401 (k) Retirement Plan
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.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.