What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 273 added, 155 removed, 480 unchanged (47% of the section changed)

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2021 expressed an unqualified opinion thereon.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered losses from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Adoption of ASU No.

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Critical Audit Matter

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

The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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 consolidated 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 accounts or disclosures to which it relates.

Patient Rebate Revenue Deduction

Description of the Matter

As more fully described in Note 2 of the financial statements, product sales to wholesalers are recorded net of revenue deductions.

At December 31, 2019, reserves and allowances for revenue deductions totaled $12.5 million of which patient rebates is the most judgmental component.

The portion of the revenue deductions related to patient rebates is determined by applying an experience ratio to product sales.

The experience ratio is based on historical and projected patient claims.

Auditing management’s determination of patient rebates was complex and requires judgment due to the level of estimation involved in management’s assumptions used to determine the experience ratio.

The communication of critical audit matters 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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

to determine the experience ratio.

In particular, management was required to estimate patient rebates for which claims have not been submitted to the Company as of December 31, 2020.

Revenue Deductions

Description of the Matter

As more fully described in Note 2 of the consolidated financial statements, product sales to wholesalers are recorded net of revenue deductions.

For the year ended December 31, 2020, revenue deductions totaled $33.4 million.

Certain of these revenue deductions require estimates of inventory at wholesalers and ASCs as well as the application of an experience ratio based on historical and projected discounts and rebate claims.

Auditing management’s determination of the revenue deductions is complex and requires judgment due to the level of estimation involved in management’s assumptions related to inventories held by wholesalers and ASCs, and the experience ratio used to estimate unsubmitted claims.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over management’s process for estimating patient rebates, including management’s determination of the experience ratio.

To test the patient rebates reserve, we performed audit procedures that included, among others, evaluating the significant assumptions and the accuracy and completeness of underlying data used in management’s calculations.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over management’s process for estimating inventories in channel and the experience ratio.

To test the revenue deductions, we performed audit procedures that included, among others, evaluating the significant assumptions and the accuracy and completeness of underlying data used in management’s calculations.

We compared the significant assumptions used by management to historical ratios of rebate claims to product sales, and other relevant factors.

We also assessed the historical accuracy of management’s estimates by comparing previous estimates of patient rebates to the amount of actual payments in subsequent periods.

We also assessed the historical accuracy of management’s estimates by comparing previous estimates to actual activity in subsequent periods.

Accounting for convertible senior notes

Description of the Matter

During 2020, the Company issued $225 million of 5.25% Convertible Senior Notes due 2026 (the “2026 Notes”).

As discussed in Note 8 of the consolidated financial statements, the 2026 Notes include conversion terms that require the Company to account for the debt and equity components of the instruments separately, including allocating value to the debt component with the remaining value allocated to the equity component reflected as a debt discount to be amortized to interest expense over the term of the notes.

Auditing management’s conclusions related to the value allocated to the debt portion of the Convertible Note is complex and involves estimation to determine the effective yield that the Company would have received on the debt issuance had it not included a conversion feature.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s initial 2026 Notes accounting process including controls over the Company’s review of the valuation methodology and related key assumptions used to determine the fair value of the debt component.

To test the initial accounting for the 2026 Notes, our audit procedures included, among others, inspection of the debt agreement and testing management’s application of the relevant accounting guidance.

To test the value assigned to the debt and equity components, we performed audit procedures involving our valuation specialists to evaluate the Company’s determination of the fair value of the debt absent of any conversion feature.

This included testing the appropriateness of the methodology and underlying assumptions used, performing independent comparable calculations, and evaluating the sensitivity of management’s key assumptions.

/s/ Ernst & Young LLP

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Unsecured convertible senior notes, net

Deferred rent

Commitments and contingencies (Note 10)

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Interest expense

Loss before income taxes

Loss before income tax benefit

Income tax benefit

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Balance at December 31, 2017

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

Issuance of common stock upon exercise of stock options

Issuance of warrants in connection with debt amendment

Stock-based compensation

Purchase of 2023 Capped Calls

Equity component of 2023 Notes, net of issuance costs

Income tax benefit related to issuance of 2023 Notes

Balance at December 31, 2018

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

Issuance of common stock upon exercise of stock options

Issuance of warrants in connection with debt amendment

Stock-based compensation

Premium paid for Capped Call in connection with Convertible Notes

Equity component of issuance of Convertible Notes

Tax benefit related to equity component of Convertible Notes

Balance at December 31, 2019

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Issuance of common stock upon exercise of stock options

Issuance of common stock upon grant of restricted stock awards

Stock-based compensation

Equity component of 2026 Notes, net of issuance costs

Purchase of 2026 Capped Calls

Equity component of early extinguishment of 2023 Notes

Termination of the 2023 Capped Call contracts related to debt repurchased

Income tax benefit related to issuance of 2026 Notes

Balance at December 31, 2020

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Deferred income tax

Fair value adjustment to convertible notes in equity

Fair value settlement upon termination of cap call contract

Changes in operating assets and liabilities:

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Proceeds from issuance of convertible senior notes

Payments for debt issuance costs

Proceeds from debt borrowings

Proceeds upon exercise of stock options and warrants

Proceeds from issuance of common stock, net

Release in restricted investments

Purchases of capped calls related to convertible senior notes

Payments for repurchases of convertible senior notes

Repayment of debt

Premium paid for capped call option

Payments on debt prepayment and extinguishment

Payments for debt issuance costs

Proceeds from termination of capped call contracts

Proceeds from issuance of common stock, net

Proceeds upon exercise of stock options and warrants

Release in restricted investments

Principal payments on finance lease liabilities

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Certain prior year amounts in the balance sheet, statement of cash flows and the footnotes have been reclassified in the consolidated financial statements to conform to the current year presentation.

Going Concern Discussion

As of December 31, 2019, we had cash, cash equivalents and investments of $ 60.8 million, net working capital of $ 48.3 million and an accounts receivable based line of credit that allows us to borrow up to $ 50.0 million depending on our eligible accounts receivable borrowing base.

We have incurred losses from operations of $ 63.4 million, $ 112.2 million and $ 43.9 million in 2019, 2018 and 2017, respectively, used cash in operating activities of $ 60.1 million, $ 103.7 million and $ 36.2 million in 2019, 2018 and 2017, respectively and anticipate that we will continue to incur losses until such time as revenues exceed operating costs.

OMIDRIA pass-through reimbursement is scheduled to end on September 30, 2020.

As such, we cannot predict with precision future OMIDRIA revenues due to the uncertain impact on sales of OMIDRIA in second half of 2020 and beyond.

Similarly, we are unable to include in the determination regarding our prospects as a going concern amounts available under our revolving line of credit or any proceeds from debt transactions or other financing instruments despite our successful track record in accessing capital through these avenues.

We also have not included 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, which allows us to borrow up to $ 50 million based on our available accounts-receivable borrowing base.

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.

Risks and Uncertainties

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.

CMS’ current 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 OPPS/ASC annual rulemaking and comment process.

The outbreak of the novel strain of coronavirus that causes COVID-19 and the responses to the global pandemic by various governmental authorities, the medical community and others continue to have a significant impact on our business.

Due to the unknown magnitude, duration and outcome of the COVID-19 pandemic, it is not possible to estimate precisely its impact on our business, operations or financial results;

however, the impact has been and could continue to be substantial.

We have filed our narsoplimab BLA application for HSCT-TMA with FDA.

We anticipate, but cannot warrant, that narsoplimab will receive FDA approval and launch in the U.S.

Currently we cannot fully predict, if and when approved, the timing or the magnitude of narsoplimab revenues, but we believe they will be significant.

Execution of our sales and marketing strategies for the launch of narsoplimab for HSCT-TMA is underway.

These plans include various milestones at which we commit to incremental activities, providing for flexibility in the timing of costs incurred should the approval of narsoplimab be in advance of or following the current PDUFA date.

If appropriate, 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.

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.

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.

We operate in one segment.

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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 revenue recognition, accruals for manufacturing of drug product, clinical drug supply and clinical trials, lease liabilities, and stock-based compensation expense.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances;

Significant items subject to such estimates include revenue recognition, 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, including the impact of the COVID-19 pandemic, that we believe are reasonable under the circumstances;

however, actual results could differ from these estimates.

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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 are held in money-market funds.

Restricted investments held in money-market funds include security deposits held by our landlord.

As of December 31, 2020 and 2019, all investments are classified as short-term and available-for-sale.

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Costs include amounts related to third-party manufacturing, transportation and internal labor and overhead.

Capitalization of costs as inventory begins when the product candidate receives regulatory approval in the U.S.

Capitalization of costs as inventory begins when regulatory approval of the product candidate is reasonably assured in the U.S.

or the European Union (EU).

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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.

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.

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

Unsecured Convertible Senior Notes

In November 2018, we issued $ 210.0 million in aggregate principal amount of our 6.25 % Convertible Senior Notes (the 2023 Notes) and, in August and September 2020, we issued $ 225.0 million in aggregate principal amount of our 5.25 % Convertible Senior Notes (the 2026 Notes).

We used a portion of the proceeds from the 2026 Notes to repurchase $ 115.0 million principal amount of the 2023 Notes and the related capped call (see “Note 8--Unsecured Convertible Senior Notes”) and used the remainder for general corporate purposes.

The 2023 and 2026 Notes are accounted for in accordance with Accounting Standards Codification (ASC) Subtopic 470-20, Debt with Conversion and Other Options .

Pursuant to ASC Subtopic 470-20, we account for convertible debt that may be settled wholly or partially in cash upon conversion as having both a liability component (debt) and an equity component (conversion option).

The cash conversion guidance applies as the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in the balance sheet.

Principal cash proceeds from the instrument are allocated first to the liability component based on the fair value of non-convertible debt using the income and market-based approaches to determine an effective interest rate for present valuing the cash proceeds.

For the income-based approach, we use a convertible bond pricing model that includes several assumptions such as volatility and a risk-free rate.

For the market-based approach, we observe the price of derivative price instruments purchased in conjunction with our convertible senior note issuances or evaluate issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance.

The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument.

Issuance costs from the instrument are then allocated to the liability and equity components in the same proportion as the proceeds.

The equity component of the cash principal proceeds and the liability component of the issuance costs represent a debt discount, which we amortize as non-cash interest expense over the term of the notes using the effective interest rate method.

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

The 2023 Notes repurchase and issuance of the 2026 Notes were deemed to have substantially different terms due to the significant difference between the value of the conversion option immediately prior to and after the exchange.

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

Impairment of Long-Lived Assets

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If the asset is considered to be 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 ending December 31, 2019, 2018 and 2017.

We have not recognized any impairment losses for the years ended December 31, 2020, 2019 and 2018.

Revenue Recognition

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Product Sales, Net

We generally record revenue from product sales when the product is delivered to our wholesalers.

We generally record revenue from product sales when the product is delivered to our wholesalers and title for the product is transferred.

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

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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

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Stock-based compensation expense is recognized for all share-based payments based on estimated fair values.

The fair value of our stock options is calculated using the Black-Scholes option-pricing model which requires judgmental assumptions including volatility, forfeiture rates and expected option life.

We use the straight-line method to allocate

compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period.

The fair value of our stock options is calculated using the Black-Scholes option-pricing model which requires judgmental assumptions around volatility, forfeiture rates and expected option term.

Compensation expense is recognized over the optionees’ 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.

Accumulated Other Comprehensive Loss

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses , (Topic 326) which changes how entities account for credit losses on most financial assets and certain other instruments and expands disclosures.

The standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted.

We adopted the standard on January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software , (Subtopic 350-40) related to the accounting for cloud computing arrangements to follow the internal-use software guidance in determining which development costs to defer and recognize as an asset.

We adopted the standard January 1, 2020 on a prospective basis and expect to capitalize certain cloud computing development costs and amortize them on a straight-line basis over the expected useful-life of the related systems.

We adopted the standard January 1, 2020 on a prospective basis.

In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt—Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes from U.S.

GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under Topic 815, Derivatives and Hedging , or (2) a convertible debt instrument was issued at a substantial premium.

Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes.

Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis.

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

In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, Income Taxes (Topic 740), which is intended to simplify various aspects of the income tax accounting guidance, including elimination of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example, other comprehensive income).

ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

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

Note 3—Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period.

Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock method.

Common share equivalents are excluded from the diluted net loss per share computations if their effect is anti-dilutive.

The basic and diluted net loss per share amounts for the years ended December 31, 2019, 2018 and 2017 were computed based on the shares of common stock outstanding during the respective periods.

Potentially dilutive securities excluded from the diluted net loss per share calculation are as follows:

Our potentially dilutive securities include potential common shares related to our stock options, warrant and unsecured convertible senior notes.

Diluted earnings per share (Diluted EPS) considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period.

Potentially dilutive securities excluded from Diluted EPS are as follows:

Year Ended December 31,

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There were no unrealized gains or losses associated with our short-term investments as of December 31, 2020 or 2019.

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

See “Note 8--Convertible Senior Notes” for the carrying amount and estimated fair value of our 6.25 % Convertible Senior Notes due 2023.

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

See “Note 8--Unsecured Convertible Senior Notes” for the carrying amount and estimated fair value of our 5.25 % Convertible Senior Notes due 2026 and 6.25 % Convertible Senior Notes due 2023.

Note 6—Certain Balance Sheet Accounts

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Contract research and development

Sales rebates, fees and discounts

Consulting and professional fees

Interest payable

Employee compensation

Sales rebates, fees and discounts

Clinical trials

Interest payable

Other accrued expenses

Total accrued expenses

In October 2016, we entered into a note payable agreement (the Note) and borrowed $ 80.0 million.

In May 2018, we borrowed the remaining $ 45.0 million available under the Note and issued warrants to purchase up to 200,000 shares of our common stock with an exercise price of $ 23.00 per share and total fair value of $ 1.4 million.

Interest accrued on the Note at an annual rate of 12.25 % ( 4.00 % of which we deferred by adding such amounts to the aggregate principal amount outstanding).

The Note required us to pay a back-end lender facility fee equal to 5.00 % of the aggregate principal amount borrowed and, upon early repayment, we were subject to a 4.0 % prepayment fee.

In November 2018, we issued $ 210.0 million in principal amount of unsecured convertible senior notes (see “Note 8--Convertible Senior Notes”) and repaid the Note.

In October 2016, we entered into a note payable agreement (the Note) with CRG Servicing LLC (“CRG”) and borrowed $ 80.0 million.

In May 2018, we borrowed the remaining $ 45.0 million available under the Note and issued to CRG warrants to purchase up to 200,000 shares of our common stock with an exercise price of $ 23.00 per share and total fair value of $ 1.4 million.

In November 2018, we issued $ 210.0 million in principal amount of unsecured convertible senior notes (see “Note 8—Unsecured Convertible Senior Notes”) and repaid the Note.

Upon repayment, 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 upon repayment of the Note.

Line of Credit

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 (the Line of Credit Agreement).

We have a Loan and Security Agreement with Silicon Valley Bank (SVB), which provides for a $ 50.0 million revolving line of credit facility (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.

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

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

Interest on amounts outstanding is payable monthly at a floating rate equal to the greater of 5.50 % and the prime rate per annum.

If the Line of Credit Agreement is terminated prior to the maturity date for any reason other than replacement with a new Silicon Valley Bank (SVB) credit facility or a new syndicated facility in which SVB acts as the agent, we are required to pay a termination fee of $ 1.0 million.

If the Line of Credit Agreement is terminated prior to the maturity date for any reason other than replacement with a new SVB credit facility or a new syndicated facility in which SVB acts as the agent, we are required to pay a termination fee of $ 1.0 million.

We paid an initial commitment fee of $ 150,000 upon closing and are required to pay additional commitment fees of $ 150,000 on each of the first and second anniversaries of the closing date, or upon the earlier termination of, or default under, the Line of Credit Agreement.

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As of December 31, 2020, we had no outstanding borrowings under the Line of Credit Agreement.

Note 8—Convertible Senior Notes

In November 2018, we issued $ 210.0 million aggregate principal amount 6.25 % Convertible Senior Notes due 2023 (the Convertible Notes) and received net proceeds of $ 24.0 million, as summarized below:

Note 8—Unsecured Convertible Senior Notes

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

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

Unsecured convertible senior notes outstanding at December 31, 2020 and 2019, respectively, are as follows:

Balance as of December 31, 2020

(In thousands)

Convertible Notes initially issued

Repayment of previously outstanding loan

Principal amount

Unamortized discount

Unamortized issuance costs attributable to liability component

Total Convertible Senior Notes, net

Fair value of outstanding Convertible Senior Notes (1)

Amount by which the Convertible Senior Notes if-converted value exceeds their principal amount

Equity component

Issuance costs

Net carrying amount of equity component (2)

Balance as of

December 31, 2019

(In thousands)

Principal amount

Unamortized discount

Unamortized issuance costs attributable to liability component

Total Convertible Senior Notes, net

Fair value of outstanding Convertible Senior Notes (1)

Amount by which the Convertible Senior Notes if-converted value exceeds their principal amount

Equity component

Issuance costs

Net carrying amount of equity component (2)

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

(2) Included in the consolidated balance sheet within additional paid-in capital.

2023 Convertible Senior Notes

In November 2018, we issued $ 210.0 million in aggregate principal amount on our 2023 Notes.

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

The 2023 Notes mature on November 15, 2023 unless earlier purchased, redeemed or converted in accordance with their terms.

We received net proceeds of $ 24.0 million as summarized below:

(In thousands)

2023 Notes principal amount issued

Repayment of previously outstanding note payable (see "Note 7--Debt")

Purchase of 2023 Capped Call

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Net proceeds available for corporate use

The Convertible Notes accrue interest at an annual rate of 6.25 % per annum, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2019.

The Convertible Notes mature on November 15, 2023, unless earlier repurchased, redeemed or converted in accordance with their terms and are unsecured.

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

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

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

The Convertible Notes will be convertible at the option of the holders on or after May 15, 2023 at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of

November 15, 2023.

Additionally, holders may convert their Convertible Notes at their option at specified times prior to the maturity date of November 15, 2023, only if:

(1) during any calendar quarter beginning after March 31, 2019, the last reported sale price per share of our common stock exceeds 130 % of the conversion price of the Convertible 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 Convertible 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) upon the occurrence of certain corporate events or distributions of our common stock;

(4) we call the Convertible Notes for redemption.

Subject to the satisfaction of certain conditions, we may redeem all, but not less than all, of the Convertible Notes at our option prior to the maturity date at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest.

The Convertible 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 150 % 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 conversion of the Convertible Notes, we used $ 33.2 million of the proceeds from sale of the Convertible Notes to enter into a capped call transaction (the Capped Call Transaction).

The Capped Call Transaction will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of our common stock underlying the Convertible Notes when our common stock is trading between the initial conversion price of approximately $ 19.22 and $ 28.8360 .

However, if the market price of our common stock exceeds the $ 28.8360 cap price, then the conversion of the Convertible Notes would have a dilutive impact and/or require a cash expenditure to the extent the market price exceeds the cap price.

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

Therefore, the Convertible Notes issuance proceeds of $ 210.0 million are allocated first to the liability component based on the fair value of non-convertible debt with otherwise identical residual terms with the residual proceeds allocated to equity for the conversion features.

The debt issuance costs associated with the Convertible Notes of $ 6.8 million were allocated to the liability and equity component in the same proportion as the issuance proceeds.

We also evaluated the interest feature on default and redemption features embedded in the Convertible Notes and concluded that they are clearly and closely related to the Convertible Notes, and therefore they would not be separately accounted for as a derivative.

For the contingent interest features unrelated to our creditworthiness, we concluded that they should be separately accounted for as a compound derivative instrument with de-minimis value.

Further, we concluded the Capped Call Transaction 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 Capped Call of $ 33.2 million is classified as equity and will not be subsequently remeasured.

The balance of our Convertible Notes at December 31, 2019 and 2018, is as follows:

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2020, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

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

Year Ended December 31,

Contractual interest expense

Amortization of debt issuance costs

Amortization of debt discount

2026 Convertible Senior Notes

In August and September 2020, we issued $ 225.0 million aggregate principal amount on our 2026 Notes.

The issuance of the 2026 Notes and use of proceeds are as follows:

(In thousands)

Principal amount

Unamortized discount

Unamortized issuance costs attributable to principal amount

Total Convertible Notes, net

Fair value of outstanding Convertible Notes

Amount by which the Convertible Notes if-converted value exceeds their principal amount

The unamortized debt discount and debt issuance costs related to the Convertible Notes are being amortized to interest expense using the effective interest method through the scheduled maturity of November 15, 2023.

The estimated fair value of the Convertible Notes at December 31, 2019, as determined through consideration of quoted market prices, was $ 208.2 million.

The fair value is classified as Level 3 due to the limited trading activity for the Convertible Notes.

2026 Notes principal amount issued

Repurchase of 2023 Notes

Purchase of 2026 Capped Call

Termination of the 2023 Capped Call contracts related to debt repurchased

Issuance costs

Net proceeds available for corporate use

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;

(4) we call the 2026 Notes for redemption.

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

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 condensed consolidated balance sheet.

As of December 31, 2020, approximately 12.2 million shares remained outstanding under the 2026 Capped Call.

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

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

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

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

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

In accounting for the issuance of the 2026 Notes, we separated the 2026 Notes into liability and equity components, using an effective interest rate of 12.5 % to determine the fair value of the liability component.

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

December 31, 2020

(In thousands)

Contractual interest expense

Amortization of debt issuance costs

Amortization of debt discount

Future minimum payments for the 2023 and 2026 Notes as of December 31, 2020 are as follows:

(In thousands)

Total future minimum payments under the convertible senior notes

Note 9—Lease Liabilities

2 unchanged sentences

We have finance leases for certain laboratory and office equipment that have lease terms expiring through December 2024.

As described further in “Note 2--Significant Accounting Policies”, on January 1, 2019, we adopted ASU 2016-02, Leases, (Topic 842) using a modified retrospective approach versus recasting the prior periods presented.

The lease-related assets and liabilities recorded on the balance sheet are as follows.

Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.

Classification on the Balance Sheet

December 31, 2019

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

(In thousands)

Operating lease assets

Right of use assets

Finance lease assets

Property and equipment, net

Finance lease assets, net

Total lease assets

Operating leases

Current portion of lease liabilities

Finance leases

Current portion of lease liabilities

Operating leases

Lease liabilities, non-current

Finance leases

Lease liabilities, non-current

Total lease liabilities

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The components of total lease costs are as follows:

December 31, 2019

Year Ended December 31,

(In thousands)

1 unchanged sentence

Finance lease cost:

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

Net lease cost

The supplemental cash flow information related to leases during 2020 is as follows:

Year Ended December 31,

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities

6 unchanged sentences

Less interest

Lease liabilities

In 2019 , we leased additional office and laboratory space in our headquarters building, which qualified as an operating lease, and recorded additional right-of-use assets and lease liabilities of $ 10.4 million.

Total lease liabilities

As of December 31, 2020, we have committed to additional leased space in the building located at 201 Elliott Avenue West, Seattle, Washington (the “Omeros Building”) that will commence in February 2021.

The lease terms are consistent with our existing leases in The Omeros Building, and the monthly lease payments are approximately $ 0.1 million.

Note 10—Commitments and Contingencies

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

For the years ended

December 31, 2019, 2018 and 2017, development milestones incurred were immaterial and we did not owe any royalties.

For the year ended December 31, 2020, we paid $ 5.5 million in technology access fees upon entering new agreements.

Milestone payments were not material for the years ended December 31, 2019 and 2018.

Note 11—Shareholders’ Equity

As of December 31, 2019, we had reserved shares of common stock for the following purposes:

As of December 31, 2020, we had reserved shares of common stock under our equity plans as follows:

Options granted and outstanding

2 unchanged sentences

Total shares reserved

Securities Offerings – In December 2019, we sold 4.4 million shares of our common stock at a public offering price of $ 13.10 per share.

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

In August 2017, we sold 3.0 million shares of our common stock at a public offering price of $ 22.75 per share.

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

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

In December 2019, we sold 4.4 million shares of our common stock at a public offering price of $ 13.10 per share.

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

At the Market Sales Agreement – On March 1, 2021, we entered into 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.

In connection with various previously outstanding debt agreements we have issued warrants to purchase shares of our common stock as follows:

5 unchanged sentences

Note 12—Stock-Based Compensation

Our stock option plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other stock and cash awards to employees, directors and consultants and subsidiary corporations’ employees and consultants.

Stock options must be granted with exercise prices not less than the fair market value of the common stock subject to the stock option on the date of the grant and the options may not exceed 10 years .

Any unvested stock options granted which are subsequently canceled become available for future grant.

As of December 31, 2019, a total of 16.9 million shares were reserved for issuance under our stock plans and outstanding warrants, of which 5.4 million were available for future grants which includes shares registered in June 2019 under the Omeros Corporation 2017 Omnibus Incentive Compensation Plan, as amended and restated effective June 7, 2019.

[In March 2020, annual stock option grants totaling approximately 1.6 million shares with an exercise price of $ 11.91 per share were granted to all eligible employees.

The options vest monthly on a straight-line basis over four years .]

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, directors 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:

Vesting Schedule

Employee initial grants

25 % at one-year anniversary, 1 /48 monthly thereafter

Employee recurring grants

1 /48 monthly

Board member initial grants

33 +% per year for 3 years

Board member recurring grants

100 % after one year

Non-employee consultant grants

1 /12 monthly

Non-employee consultant grants

1 /48 monthly

In November 2020, restricted stock awards totaling 14,000 shares with a fair value of $ 11.05 per share were granted to sales employees.

The awards vested immediately upon grant.

Stock-based compensation expense is as follows:

9 unchanged sentences

Expected volatility

Expected term, in years

Expected life, in years

Risk-free interest rate

Expected dividend yield

During the years ended December 31, 2019 and 2018, we granted to non-employees options to purchase 20,000 shares and 20,000 shares of common stock, respectively.

In connection with the non-employee options, we recognized expense of $ 0.2 million, $ 0.2 million, and $ 0.5 million during the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

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.

Stock option activity for all stock plans is as follows:

6 unchanged sentences

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 5.6 million, $ 5.4 million and $ 11.4 million, respectively.

At December 31, 2019, there were 3.0 million unvested options outstanding that will vest over a weighted-average period of 2.6 years.

At December 31, 2020, there were 3.1 million unvested options outstanding that vest over a weighted-average period of 2.5 years.

The remaining estimated compensation expense to be recognized in connection with these unvested options is $ 23.2 million.

8 unchanged sentences

We have a history of losses and therefore have historically not made a provision for income taxes.

However, in 2018 we recorded an income tax benefit of $ 12.9 million related to the issuance of our Convertible Notes.

However, in 2020 and 2018 we recorded an income tax benefit of $ 12.0 million and $ 12.9 million related to the issuance of our 2026 and 2023 Notes, respectively.

In accordance with intra-period tax allocation rules, the deferred tax liability related to the equity component of convertible debt is a source of income that can be used to recognize the tax benefit of the current year loss through continuing operations.

The tax benefit related to the issuance of our Convertible Notes occurred in 2018 and does not recur in subsequent years.

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

5 unchanged sentences

Stock-based compensation

Deferred rent

Lease liability

Disallowed interest expense

Total deferred tax assets

Deferred tax liabilities:

Property and equipment

Equity component of Convertible Notes

6 unchanged sentences

In certain circumstances, due to ownership changes, our net operating loss and tax credit carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code.

To date, we have not completed a Section 382

Unless previously utilized, our net operating loss and research and development tax credit carryforwards expire between 2020 and 2039.

To date, we have not completed a Section 382 study.

Unless previously utilized, net operating losses of $ 409.0 million generated prior to 2018 will expire between

2021 and 2037.

The net operating loss of $ 144.5 million generated after 2018 should carryforward indefinitely.

Unless previously utilized, research and development tax credit carryforward will expire between 2021 and 2040.

We have established a valuation allowance due to the uncertainty of our ability to generate sufficient taxable income to realize the deferred tax assets.

4 unchanged sentences

State tax, net of federal tax benefit

Effects of statutory rate change

Change in valuation allowance

4 unchanged sentences

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

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted and signed into law in response to COVID-19.

The CARES Act, among other things, includes several significant provisions which impact corporate taxpayers' accounting for income taxes, including a modification to the utilization of net operating losses and interest expense deduction limitations.

The provisions of the CARES Act do not impact our tax provision.

Note 14—401(k) Retirement Plan

5 unchanged sentences

September 30,

Product sales, net (1)

Total costs and expenses

3 unchanged sentences

September 30,

Product sales, net

Total costs and expenses

1 unchanged sentence

Basic and diluted net loss per share

(1) As further described in Note 1, OMIDRIA was reimbursed under Medicare Part B from January 1, 2015 through December 31, 2017.

For the period January 1, 2018 through September 30, 2018, OMIDRIA was not reimbursed separately for procedures covered under Medicare Part B.

Beginning October 1, 2018, OMIDRIA was again reimbursed separately under Medicare Part B.

(1) The COVID-19 pandemic led to a reduction in the number of elective cataract procedures from mid-March 2020 through late June 2020.

In August 2020, the Centers for Medicare and Medicaid Services, the federal agency responsible for administering the Medicare program, confirmed the October 1, 2020 expiration of pass-through reimbursement for OMIDRIA under Medicare Part B, and consequently, our net revenues for September and the fourth quarter of 2020 were significantly reduced.

In December 2020, CMS confirmed that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in the ASC setting under CMS’ policy for non-opioid pain management surgical drugs, effective retroactive as of October 1, 2020.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data