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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-03-02 · 94 added, 97 removed, 192 unchanged (50% of the section changed)

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We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers.

Our drug product OMIDRIA ® is marketed in the United States for use during cataract surgery or intraocular lens (“IOL”), replacement procedures to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain.

In our pipeline we have multiple Phase 3 and Phase 2 clinical-stage development programs focused on complement-associated thrombotic microangiopathies;

complement-mediated disorders and substance abuse.

In addition, we have a diverse group of preclinical programs, including GPR174, a novel target in immuno-oncology that modulates a new cancer immunity axis recently discovered by us.

Small-molecule inhibitors of GPR174 are part of our proprietary G protein-coupled receptor (“GPCR”), platform through which we control 54 new GPCR drug targets and their corresponding compounds.

We also exclusively possess a novel antibody-generating platform.

For OMIDRIA and each of our product candidates and our programs, we have retained control of all commercial rights.

Our drug product OMIDRIA® is marketed in the United States for use during cataract surgery or intraocular lens replacement for adult and pediatric patients.

Our drug candidate narsoplimab is the subject of a rolling biologics license application (“BLA”) under priority review by the U.S.

Food and Drug Administration (“FDA”) for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”).

We also have multiple Phase 3 and Phase 2 clinical-stage development programs in our pipeline, which are focused on:

complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”), and COVID-19.

We have also initiated a Phase 1 clinical program for our MASP-3 inhibitor OMS906 targeting the alternative pathway of complement and have successfully completed a Phase 1 study in our phosphodiesterase 7 (“PDE7”) program focused on addiction.

In addition, we have a diverse group of preclinical programs, including GPR174, a novel target in immuno-oncology that modulates a new cancer immunity axis that we discovered.

Small-molecule and antibody inhibitors of GPR174 are part of our proprietary G protein-coupled receptor (“GPCR”) platform through which we control 54 GPCR drug targets and their corresponding compounds.

We also possess a proprietary-asset-enabled antibody-generating technology.

We have retained control of all commercial rights for OMIDRIA and each of our product candidates and programs.

Financial Summary

We recognized net losses of $84.5 million, $126.8 million, and $53.5 million for the years ended December 31, 2019, 2018 and 2017, respectively and our OMIDRIA revenues were $111.8 million, $29.9 million, and $64.8 million respectively.

During the period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B.

We recognized net losses of $138.1 million, $84.5 million, and $126.8 million for the years ended December 31, 2020, 2019 and 2018, respectively and our OMIDRIA revenues were $73.8 million, $111.8 million, and $29.9 million

respectively.

Historically, OMIDRIA revenues were impacted by the reimbursement status for OMIDRIA under Medicare Part B, as well as the COVID-19 pandemic.

Fiscal quarters without pass-through reimbursement

Separate reimbursement payment for OMIDRIA was restored for a two-year period effective October 1, 2018.

On November 1, 2019, the Centers for Medicare Services (“CMS”), declined to grant separate payment to OMIDRIA beyond the expiration of its current pass-through status on September 30, 2020.

CMS also noted in the 2020 final rule that it would continue to analyze evidence and monitor utilization of OMIDRIA.

If we are unable to obtain permanent separate or similar reimbursement for OMIDRIA, the net revenues we receive for OMIDRIA would be reduced, potentially by a significant amount.

Although we expect to pursue an alternative sales strategy if we are unable to obtain permanent separate or similar reimbursement for OMIDRIA, we may face difficulties or delays in implementing such a strategy and, even if successfully implemented, we cannot predict whether or to what extent our customers would increase their utilization of OMIDRIA.

Fiscal quarters with reduced cataract procedures due to COVID-19

Pass-through reimbursement expired on October 1, 2020.

In December 2020, separate payment was confirmed for OMIDRIA, effective retroactively as of October 1, 2020.

During the period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B, and our revenues decreased significantly.

After reinstatement of pass-through reimbursement for OMIDRIA in the fourth quarter of 2018, our revenues quickly returned to levels seen in prior periods during which pass-through reimbursement was available and subsequent quarter-over-quarter revenue growth approximated historical rates.

Pass-through status for OMIDRIA allowed for separate reimbursement payment (i.e., outside the packaged procedural payment) to ASCs and hospitals using OMIDRIA in procedures involving patients covered by Medicare Part B.

Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020, and consequently, our net revenues for September and the fourth quarter of 2020 were significantly reduced.

In December 2020, the Centers for Medicare & Medicaid Services (“CMS”) confirmed that OMIDRIA, as an otherwise policy packaged drug following OMIDRIA’s expiration of pass-through status on October 1, 2020, qualifies for separate payment when used on Medicare Part B patients in the ambulatory surgery center (“ASC”) setting under CMS’ policy for non-opioid pain management surgical drugs.

CMS made separate payment for OMIDRIA under this policy effective retroactively as of October 1, 2020.

CMS’ non-opioid separate payment policy and, as a result, separate payment for OMIDRIA thereunder, like other CMS policies in the OPPS and ASC systems, can be changed by CMS through its annual rulemaking and comment process for its outpatient prospective payment and ASC payment systems.

We believe that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019, and that OMIDRIA will continue to be separately reimbursed when used in the ASC setting.

See Part 1, Item 1, “Business—Commercial Product—OMIDRIA” for additional details regarding the pass-through reimbursement status for OMIDRIA.

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Results of Operations

Our revenue consists of OMIDRIA product sales to ambulatory surgery centers (“ASCs”), and hospitals in the U.S.

Our revenue consists of OMIDRIA product sales to ASCs, and hospitals in the U.S.

Our product sales, net are as follows:

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in the second quarter of 2015 and sell OMIDRIA primarily through wholesalers which, in turn, sell to ASCs and hospitals.

CMS, the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA, effective from January 1, 2015 through December 31, 2017.

Pass-through status for OMIDRIA allows for separate reimbursement payment (i.e., outside the packaged procedural payment) to ASCs and hospitals using OMIDRIA in procedures involving patients covered by Medicare Part B.

During the nine-month period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B.

The 2018 Appropriations Act extended pass-through reimbursement status for certain drugs, including OMIDRIA, for a two-year period beginning October 1, 2018 through September 30, 2020.

In 2020, OMIDRIA revenue decreased $38.0 million, or 34%, as compared to the year ended December 31, 2019.

The decrease in revenue during 2020 compared to 2019 was due to COVID-19-related reductions in the number of elective cataract procedures from mid-March 2020 through late June 2020.

The additional decrease in revenue during 2020 compared to 2019 was due to a slowdown in orders from wholesalers during September and the fourth quarter following expiration of pass-through reimbursement for OMIDRIA on October 1, 2020.

In December 2020, CMS confirmed that OMIDRIA qualifies for separate payment when used in the ASC setting.

In 2019, OMIDRIA revenue increased $81.9 million, or 274%, as compared to the year ended December 31, 2018.

Th e increase in revenue in 2019 compared to 2018 was due to significantly increased demand for OMIDRIA by ASCs and hospitals following the reinstatement of pass-through reimbursement status for OMIDRIA on October 1, 2018.

In 2018, OMIDRIA revenue decreased $35.0 million, or 53.9%, as compared to the year ended December 31, 2017.

The decrease in OMIDRIA revenue in 2018 was attributable to the lack of separate reimbursement payments for OMIDRIA for procedures involving patients covered under Medicare Part B from January 1, 2018 through September 30, 2018.

We believe that a substantial majority of facilities that are using OMIDRIA will continue to use OMIDRIA at current or greater rates during the period OMIDRIA is eligible for pass-through reimbursement.

Accordingly, we anticipate that OMIDRIA product sales, net, will continue to increase at least through the first half of 2020 compared to

the same period in 2019.

We continue to pursue administrative and legislative means to obtain continued separate payment or similar reimbursement status for OMIDRIA;

however, we are currently unable to predict when separate or similar reimbursement will be granted, if at all, and what the actual reimbursement rate for OMIDRIA will be.

If our administrative and legislative efforts are unsuccessful, we expect to pursue an alternative sales strategy.

After implementing this strategy, we cannot predict how quickly, or if, our customers would increase their OMIDRIA utilization.

During the nine-month period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B.

Given the uncertainty and local variances in the severity and response to the COVID-19 pandemic across the U.S., and whether CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019, we may experience significant fluctuations in period-over-period OMIDRIA revenues.

Gross-to-Net Deductions

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We record a provision for estimated chargebacks and rebates at the time we recognize OMIDRIA product sales revenue and reduce the accrual when payments are made or credits are granted.

Our chargebacks are related to a pharmaceutical pricing agreement, a Federal supply schedule agreement, a 340B prime vendor agreement, a Medicaid drug rebate agreement and beginning in 2019, an off-invoice discount to our ASC and hospital customers.

Our chargebacks are related to a pharmaceutical pricing agreement, a federal supply schedule agreement, a 340B prime vendor agreement, a Medicaid drug rebate agreement and an off-invoice discount to our customers.

We also record a provision for our OMIDRIAssure® patient assistance and reimbursement services program and our rebates under our purchase volume-discount programs.

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When a return or claim is received, we issue a credit memo to the wholesaler against its outstanding receivable to us or we reimburse the customer.

We accept returns from our wholesalers and ASCs and hospitals that have purchased OMIDRIA.

Should pass-through reimbursement expire on September 30, 2020, it is possible that wholesalers, ASCs and hospitals may return a portion of their OMIDRIA on hand for a full refund of the purchase price.

If a reserve is required, we would record the reserve during our third quarter of 2020.

Research and Development Expenses

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The following table illustrates our expenses associated with these activities:

Year Ended December 31,

(In thousands)

Direct external expenses:

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MASP-2 program - OMS721 (narsoplimab)

MASP-3 program - OMS906

OMIDRIA - Ophthalmology

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Total research and development expenses

The $12.1 million, or 20.6%, increase in direct external expenses for the year ended December 31, 2019 as compared to the year ended December 31, 2018 was due primarily to higher third-party narsoplimab process validation and commercial drug substance manufacturing costs in 2019 compared to the earlier-stage manufacturing scale-up costs incurred in 2018 and higher clinical study costs.

The increase in direct external expenses related to our preclinical research and development expense in 2019 compared to 2018 reflects the increase in third-party manufacturing scale-up costs related to our OMS906 program, offset by costs associated with the initiation of a Phase 1 clinical trial for OMS527, our PDE7 program for addiction and compulsive disorders in July 2018.

The $29.8 million, or 102.8%, increase in direct external expenses for the year ended December 31, 2018 as compared to the year ended December 31, 2017 was due primarily to higher early stage third-party manufacturing scale-up costs for our narsoplimab program as we continued to increase our production capacity, higher clinical costs associated with initiating our narsoplimab IgA nephropathy Phase 3 clinical trial and the initiation, in July 2018, of our Phase 1 clinical trial for OMS527.

In addition, we also incurred higher third-party preclinical development expenses as we advanced OMS527 into the clinic and continued preclinical development of our small-molecule MASP-2 inhibitors, OMS906 and our GPCR programs.

These increases were partially offset by decreased costs due to completing the transfer of OMIDRIA manufacturing to a new facility in December 2017.

The increases in internal, overhead and other expenses in all years presented are primarily due to due to additional employee-related costs and buildout of additional laboratory facilities in 2019 to support our increased research and development activities.

During 2020, we expect that the majority of our research and development expenses will be related to narsoplimab.

We expect research and development costs to increase in 2020 as we continue our ongoing Phase 3 clinical programs and manufacture commercial drug substance in preparation for our anticipated submission of marketing applications and potential commercialization of narsoplimab in HSCT-TMA in the U.S.

At this time, we are unable to estimate with any certainty the longer-term costs we will incur in the continued development of our product candidates due to the inherently unpredictable nature of our preclinical and clinical development activities.

Clinical research and development expenses decreased by $0.5 million between 2020 and 2019 due to timing of narsoplimab drug manufacturing activities and reduced OMS527 toxicology spending.

During 2020, OMS906 clinical research and development expenses were $7.2 million, and embedded within pre-clinical research and development costs

were $3.5 million of OMS906-related expenditures.

These total expenditures of $10.7 million represent an increase of $1.8 million over the prior year.

The decrease in preclinical research and development expenses in 2020 compared to 2019 is primarily due to the migration of OMS906 from preclinical to clinical research and development beginning in the third quarter of 2020.

The increases in internal, overhead and other expenses in all years presented are primarily due to additional employee-related costs and buildout of expanded laboratory facilities in 2020 to support our research and development activities.

We expect overall research and development costs to increase in 2021 as we continue our ongoing Phase 3 clinical programs for narsoplimab and manufacture commercial drug substance in anticipation of the drug’s FDA approval for the treatment of HSCT-TMA.

Our accounting policy is to expense all manufacturing costs incurred until regulatory approval is obtained in either the U.S.

At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our product candidates due to the inherently unpredictable nature of our preclinical and clinical development activities as well as the potential impact of the COVID-19 pandemic.

Clinical development timelines, the probability of success and development costs can differ materially as new data become available and as expectations change.

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We are required to expend substantial resources in the development of our product candidates due to the lengthy process of completing clinical trials and seeking regulatory approval.

Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses, which, in turn, could have a material adverse effect on our results of operations, financial condition and liquidity.

Because of the factors above, we are not able to estimate with any certainty when or if we would recognize any net cash inflows from our research and development projects.

Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses.

Selling, General and Administrative Expenses

Our 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, marketing and selling expenses, professional and legal services, general corporate costs and an allocation of our occupancy costs.

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

Costs also include marketing and selling expenses, professional and legal services, general corporate costs and an allocation of our occupancy costs.

Year Ended December 31,

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Total selling, general and administrative expenses

The increase in selling, general and administrative expenses, excluding stock-based compensation during the year ended December 31, 2019 was primarily due to increased pre-commercialization activities for narsoplimab, sales and marketing costs related to OMIDRIA subsequent to obtaining reinstatement of pass-through reimbursement in October 2018, consulting and professional service fees, and employee-related costs.

The increase in selling, general and administrative expenses, excluding stock-based compensation during the year ended December 31, 2018 as compared to 2017 was primarily due to increased fees related to patent applications, consulting and professional service fees, and headcount-related costs, partially offset by reduced legal costs associated with pursuing patent infringement claims against generic drug manufacturers that sought to obtain FDA approval for a generic version of OMIDRIA, which were favorably resolved.

(See Part I, Item 1, “Business-License and Development Agreements” for more information regarding the successful conclusion of our patent infringement lawsuits.)

We expect that our selling, general and administrative expenses for 2020 will increase from 2019, primarily due to preparations for potential commercialization of narsoplimab in HSCT-TMA including incremental sales related headcount supporting pre-commercial activities.

The increase in selling, general and administrative expenses, excluding stock-based compensation during both years ended December 31, 2020 and 2019 was primarily due to increased pre-commercialization activities for narsoplimab for the treatment of HSCT-TMA.

We expect that our selling, general and administrative expenses in 2021 will increase from 2020, primarily due to planned U.S.

commercialization activities related to narsoplimab.

Interest Expense

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Interest expense

The increase in interest expense over the years 2019, 2018 and 2017 is primarily due t he issuance, in November 2018, of $210.0 million of 6.25% Convertible Senior Notes due 2023 (the “Convertible Notes”), which replaced $125.0 million of previously outstanding debt.

Interest expense is primarily comprised of contractual interest and amortization of debt issuance and debt discount related to our 6.25% Convertible Senior Notes (the “2023 Notes”) and 5.25% Convertible Senior Notes (the “2026 Notes”) as well as interest on our finance leases .

Non-cash interest expense for 2020, 2019 and 2018 was $11.6 million, $9.2 million and $5.6 million, respectively.

For more information regarding our debt and our Convertible Notes, see Part II, Item 8, “Note 7--Debt” and “Note 8--Convertible Senior Notes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

We expect interest expense will remain consistent in 2020.

Interest expense increased for each of these periods due to increases in total debt outstanding for each period.

For more information regarding our debt and our unsecured convertible notes, see Part II, Item 8, “Note 7—Debt” and “Note 8—Unsecured Convertible Senior Notes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Loss on Early Extinguishment of Debt

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Loss on early extinguishment of debt

In November 2018, we issued Convertible Notes and repaid all previously outstanding loan amounts.

In August and September 2020, we issued the 2026 Notes and repurchased $115.0 million of our 2023 Notes.

We recorded a $13.4 million loss on early extinguishment of debt related to expensing the unamortized discount and issuance costs associated with the repurchased 2023 Notes.

In November 2018, we issued the 2023 Notes and repaid all previously outstanding loan amounts.

We incurred a loss on early extinguishment of debt of $13.0 million associated with the unamortized lender facility fee, debt issuance costs, debt discount and prepayment fees in connection with the repayment.

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Other income principally includes sublease rental income and interest earned on our cash and investments.

The variations between years is primarily due to the amounts of cash and investments we have available to invest.

The variations between years is primarily due to $0.8 million of expenses incurred in 2020 in connection with terminating the portion of the capped call related to the 2023 Notes that we repurchased.

Income Tax Benefit

Year Ended December 31,

(In thousands)

Income tax benefit

The income tax benefit in 2020 and 2018 is related to the issuance of the 2026 and 2023 Notes, respectively.

See Part II, Item 8, “Note 13—Income Taxes” for additional information.

Financial Condition - Liquidity and Capital Resources

As of December 31, 2020, we had $135.0 million in cash, cash equivalents and short-term investments available for general corporate use held primarily in money-market accounts as compared to $60.8 million at December 31, 2019.

In addition, as of December 31, 2019 we had $35.2 million in accounts receivable, net.

In December 2019, we issued 4,389,311 shares of common stock in an offering that was registered under the Securities Act and received approximately $54.2 million of net proceeds, after deducting the underwriter’s discount and our offering expenses.

In August 2019, we entered into a Loan and Security Agreement with Silicon Valley Bank, which provides for a $50.0 million revolving line of credit facility, or the Line of Credit Agreement.

Under the Line of Credit Agreement, we may draw, on a revolving basis, up to the lesser of $50.0 million and 85.0% of our eligible accounts receivable, less certain reserves.

We have no outstanding borrowings under the Line of Credit Agreement.

For more information

regarding the Line of Credit Agreement , see Part II, Item 8, “Note 7--Debt” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

In November 2018, we issued $210.0 million of Convertible Notes.

We used $146.0 million of the proceeds to repay a previously outstanding loan, including associated prepayment fees and accrued interest, and $33.2 million to enter into the Capped Call Transaction described below, resulting in net proceeds available for corporate use, after deducting the initial purchasers’ discounts and commissions and our offering expenses, of $24.0 million.

For more information regarding the Convertible Notes, see Part II, Item 8, “Note 8--Convertible Senior Notes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

We have historically generated net losses and incurred negative cash flows.

For the year ended December 31, 2020, we incurred net losses of $138.1 million and incurred negative cash flows from operations of $100.1 million.

We cannot predict future OMIDRIA revenues in the second half of 2020 and beyond due to the uncertain reimbursement status of OMIDRIA after the currently scheduled expiration of pass-through reimbursement on September 30, 2020.

See Part 1, Item 1, “Business-Commercial Product – OMIDRIA” for additional details regarding the pass-through reimbursement status for OMIDRIA.

Similarly, we are unable to include in the determination regarding our prospects as a going concern amounts available under the Line of Credit Agreement, as borrowing availability is determined based on eligible OMIDRIA accounts receivable.

We have also not included any proceeds from debt transactions or other financing instruments, despite our successful track record in accessing capital through each of these avenues nor any potential partnerships related to our products or product candidates.

The conditions described above when evaluated within the constraints of the accounting literature raise substantial doubt with respect to our ability to meet our obligations through March 2, 2021 and, therefore, to continue as a going concern.

We plan to continue to fund our operations through proceeds from sales of OMIDRIA and, in addition, we may utilize funds available under our receivable-based line of credit.

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

If these capital sources, for any reason, are needed but inaccessible, it would have a significantly negative effect on our financial condition.

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

The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

The net loss and the negative cash flows from operations were significantly affected by (1) reduced OMIDRIA revenues due to uncertainties regarding the reimbursement status of OMIDRIA following expiration of the drug’s pass-through status and associated separate payment by CMS on October 1, 2020 and (2) the impact of COVID-19 on the number of cataract surgeries performed nationally.

In December 2020, CMS confirmed that OMIDRIA qualifies for separate payment when used in the ASC setting.

See Part 1, Item 1, “Business — Commercial Product — OMIDRIA” for additional details regarding the reimbursement status for OMIDRIA.

FDA accepted our BLA for narsoplimab in HSCT-TMA for priority review and has indicated a Prescription Drug User Fee Act (“PDUFA”) date of July 17, 2021.

We expect to launch narsoplimab commercially for HSCT-TMA in the U.S.

very soon following FDA approval, and preparations to execute our sales and marketing strategies for launch are underway.

These plans include various milestones at which we commit to incremental activities, such as field sales hiring, and provide for flexibility in the timing of costs incurred should the approval of narsoplimab occur in advance or after the current PDUFA date.

If warranted, we will adjust the timing and associated costs of our HSCT-TMA launch activities as we advance through the BLA review and approval process.

We plan to continue to fund our operations for at least the next twelve months with our cash and investments on hand, from sales of OMIDRIA and, if FDA approval is granted, from sales of narsoplimab for HSCT-TMA.

There is also the possibility that narsoplimab will generate revenues in the treatment of COVID-19.

In addition, we may utilize funds available under our accounts receivable-based line of credit, which allows us to borrow up to 85% of our available accounts receivable borrowing base less certain reserves or $50.0 million, whichever is less.

We may also sell shares of our common stock through our “at the market” equity offering program.

For additional information regarding this program, see Part II, Item 9B, “Other Information.” Should it be necessary or determined to be strategically advantageous, we also could pursue debt financings, public and private offerings of our equity securities similar to those we have completed previously, or other strategic transactions, which may include licensing all or a portion of any of our existing technologies.

Cash Flow Data

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Operating Activities.

Net cash used in operating activities increased for the year ended December 31, 2020 by $40.0 million compared to the same period in 2019.

The difference largely resulted from the $53.6 million increase in our net loss from 2019, a $33.0 million increase in cash used in accounts payable and accrued expense, and a $3.6 million increase in cash used for prepaid and other assets.

These uses were partially offset by a $43.7 million increase in cash provided from collections of accounts receivable and an increase in non-cash charges of $5.6 million.

Net cash used in operating activities decreased for the year ended December 31, 2019 by $43.7 million as compared to the same period in 2018.

The decrease largely resulted from the $42.3 million decrease in our net loss from 2018 due to an increase in OMIDRIA product sales of $81.9 million, partially offset by a $33.1 million increase in total cost and expenses.

In addition, increases in non-cash charges of $6.1 million in 2019 compared to 2018

also positively impacted the change in our cash used in operating activities.

In addition, increases in non-cash charges of $6.1 million in 2019 compared to 2018 also positively impacted the change in our cash used in operating activities.

The net change in operating assets and liabilities of $5.1 million also reduced our net cash used in operations for the year ended December 31, 2019 compared to the same period in 2018.

Net cash used in operating activities increased for the year ended December 31, 2018 by $67.5 million as compared to 2017.

The increase largely resulted from the $73.3 million increase in our net loss from 2017 due to a decrease in OMIDRIA product sales of $35.0 million and an increase in research and development expense of $34.3 million.

In addition, increases in changes in operating assets and liabilities of $4.1 million and non-cash charges of $1.3 million in 2018 when compared to 2017 positively impacted the change in our cash used in operating activities.

Investing Activities.

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Because we manage our cash usage with respect to our cash, cash equivalents and short-term investments, we do not consider the fluctuations in cash flows from investing activities to be important to the understanding of our liquidity and capital resources.

Net cash used in investing activities during 2020 was $67.0 million, an increase of $63.6 million from the $3.4 million net cash used in investing activities for the same period in 2019, driven by an increase in purchases of investments of $133.2 million offset by proceeds from sale and maturities of investments of $66.4 million.

Net cash used investing activities during 2019 was $3.4 million, a decrease of $28.6 million from the $25.2 million net cash provided by investing activities for the same period in 2018.

The net change in our investments sold compared to purchased decreased by $28.8 million providing cash to fund our operations.

Net cash provided by investing activities in the year ended December 31, 2018 was $25.2 million, an increase of $62.7 million from the $37.6 million used in investing activities in 2017.

The cash provided by investing activities in 2018 was primarily due to proceeds from the sale of short-term investments for $94.5 million, which were partially offset by the sale and maturity of $68.8 million of short-term investments.

Financing Activities.

Net cash provided by financing activities in the year ended December 31, 2019 was $60.7 million, a net decrease of $20.4 million over the same period in 2018, In December 2019, we sold 4.4 million shares of our common stock at a public offering price of $15.24 per share.

After deducting underwriter discounts and offering expense, we received net proceeds from the transaction of $54.2 million.

Net cash provided by financing activities in the year ended December 31, 2018 was $81.1 million, a net increase of $6.1 million over 2017 and included the following:

$24.0 million of net proceeds from the issuance of Convertible Notes (see Convertible Notes immediately following);

$44.6 million in net proceeds from borrowings under our now extinguished note payable without a similar borrowing in 2017;

$6.7 million in proceeds from exercises of stock options compared to $11.8 million in 2017;

$63.7 million in proceeds from issuance of common stock in 2017 without a similar issuance in 2018;

and $4.7 million in funds made available in 2018 due to a decrease in restricted investments.

Net cash provided by financing activities in the year ended December 31, 2020 was $174.5 million, a net increase of $113.8 million over the same period in 2019.

The increase compared to the prior year was due to receiving cash proceeds of $76.9 million, net, from the issuance of our 2026 Notes, which includes the payments for partial repurchase of our 2023 Notes, payments for debt issuance costs, proceeds from termination of our 2023 capped call, and purchases of capped calls related to our 2026 Notes.

In addition, we received net proceeds of $93.7 million from our August 2020 public offering of our common stock.

Net cash provided by financing activities in the year ended December 31, 2019 was $60.7 million, a net decrease of $20.4 million over the same period in 2018, In December 2019, we received $54.2 million net proceeds from a public offering of our common stock.

Convertible Notes

For more information regarding the Convertible Notes, see Part II, Item 8, “Note 8--Convertible Senior Notes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

For more information regarding the 2023 and 2026 Notes, see Part II, Item 8, “Note 8—Unsecured Convertible Senior Notes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Line of Credit

On August 2, 2019, we entered into the Line of Credit Agreement, under which we may draw, on a revolving basis, up to the lesser of $50.0 million and 85.0% of our eligible accounts receivable, less certain reserves.

We have a Line of Credit Agreement, under which we may draw, on a revolving basis, up to the lesser of $50.0 million and 85.0% of our eligible accounts receivable, less certain reserves.

The Line of Credit Agreement is secured by all our assets excluding intellectual property and development program inventories and matures on August 2, 2022.

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● accounting for lease agreements, primarily related to our computation of incremental borrowing rate;

● accounting for convertible debt issuances, primarily related to fair valuing debt and issuance costs;

● stock-based compensation, primarily related to our fair value assumptions.

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Product Sales, Net:

W e generally record revenue from product sales when the product is delivered to our wholesalers which is generally when we satisfy all performance obligations.

W e typically record revenue from product sales when the product is delivered to our wholesalers which is generally when we satisfy all performance obligations.

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

6 unchanged sentences

We apply an experience ratio based on historical and projected patient claims.

This experience ratio is applied to product sales to determine the patient rebate accrual and is being reviewed and updated periodically to reflect actual results.

This experience ratio is applied to product sales to determine the patient rebate accrual and is reviewed and updated periodically to reflect actual results.

We provide rebate payments for which ASCs qualify by meeting or exceeding purchase volumes of OMIDRIA under our purchase volume-discount program.

1 unchanged sentence

For purchases of OMIDRIA not yet reported as sold-through to the ASC by our wholesalers, we apply an experience ratio to product sales to determine the rebate accrual.

This experience ratio is being reviewed and updated periodically to reflect actual results.

This experience ratio is reviewed and updated periodically to reflect actual results.

Distribution Fees and Product Return Allowances :

2 unchanged sentences

We allow for the return of product up to 12 months past its expiration date or for product that is damaged.

In estimating product returns, we take into consideration our return experience to date, the remaining shelf-life of product we have previously sold, inventory in the wholesale channel and our expectation that product is typically not held by the healthcare providers based on the frequency of their reorders.

In estimating product returns, we take into consideration our return experience to date, the remaining shelf-life of product we have previously sold, inventory in the wholesale channel and our expectation that product is typically not held by the health care providers based on the frequency of their reorders.

Research and Development Expenses

9 unchanged sentences

We record accrued expenses equal to our estimated expense in excess of amount invoiced by the suppliers.

Clinical trial expenses requires certain estimates.

We estimate these costs on a cost per patient that varies depending on the clinical trial site.

Clinical trial expenses are estimated on a cost per patient that varies depending on the clinical trial site.

As actual costs become known to us, we adjust our estimates;

17 unchanged sentences

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 7. Management’s Discussion and Analysis