OMEROS CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements ​ ​ ​ Page Report of Independent Registered Public Accounting Firm 62 Consolidated Balance Sheets 64 Consolidated Statements of Operations and Comprehensive Loss 65 Consolidated Statement of Shareholders’ Deficit 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 68 ​ ​ ​ 61 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Omeros Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Omeros Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, shareholders' deficit and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 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. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Company has changed its method for accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit 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 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 62 Table of Contents 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 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 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 We have served as the Company’s auditor since 1998. Seattle, Washington March 1, 2021 63 Table of Contents OMEROS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 Assets ​ ​ ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 10,501 ​ $ 3,084 Short-term investments ​ 124,452 ​ 57,704 Receivables, net ​ 3,841 ​ 35,185 Inventory ​ 1,355 ​ 1,147 Prepaid expense and other assets ​ 11,136 ​ 6,625 Total current assets ​ 151,285 ​ 103,745 Property and equipment, net ​ 2,551 ​ 3,829 Right of use assets ​ ​ 25,526 ​ ​ 27,082 Restricted investments ​ 1,055 ​ 1,154 Advanced payments, non-current ​ 625 ​ 1,159 Total assets ​ $ 181,042 ​ $ 136,969 ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders’ deficit ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 4,199 ​ $ 5,328 Accrued expenses ​ 28,755 ​ 46,627 Current portion of lease liabilities ​ 3,782 ​ 3,504 Total current liabilities ​ 36,736 ​ 55,459 Lease liabilities, non-current ​ 28,770 ​ 32,318 Unsecured convertible senior notes, net ​ 236,288 ​ 158,213 Commitments and contingencies (Note 10) ​ ​ Shareholders’ deficit: ​ ​ Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized; none issued and outstanding at December 31, 2020 and December 31, 2019. ​ — ​ — Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at December 31, 2020 and December 31, 2019; 61,671,231 and 54,200,810 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively. ​ 616 ​ 542 Additional paid-in capital ​ 751,304 ​ 625,048 Accumulated deficit ​ ( 872,672 ) ​ ( 734,611 ) Total shareholders’ deficit ​ ( 120,752 ) ​ ( 109,021 ) Total liabilities and shareholders’ deficit ​ $ 181,042 ​ $ 136,969 ​ See accompanying Notes to Consolidated Financial Statements ​ 64 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Product sales, net $ 73,813 ​ $ 111,805 ​ $ 29,868 ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ Cost of product sales 902 ​ 865 ​ 512 Research and development 110,817 ​ 109,696 ​ 89,860 Selling, general and administrative 72,695 ​ 64,626 ​ 51,718 Total costs and expenses 184,414 ​ 175,187 ​ 142,090 Loss from operations ( 110,601 ) ​ ( 63,382 ) ​ ( 112,222 ) Loss on early extinguishment of debt ( 13,374 ) ​ — ​ ( 12,993 ) Interest expense ( 26,751 ) ​ ( 22,657 ) ​ ( 16,252 ) Other income 654 ​ 1,553 ​ 1,781 Loss before income tax benefit ( 150,072 ) ​ ( 84,486 ) ​ ( 139,686 ) Income tax benefit 12,011 ​ — ​ 12,929 Net loss $ ( 138,061 ) ​ $ ( 84,486 ) ​ $ ( 126,757 ) Comprehensive loss $ ( 138,061 ) ​ $ ( 84,486 ) ​ $ ( 126,757 ) Basic and diluted net loss per share $ ( 2.41 ) ​ $ ( 1.71 ) ​ $ ( 2.61 ) Weighted-average shares used to compute basic and diluted net loss per share 57,176,743 ​ 49,523,444 ​ 48,582,636 ​ See accompanying Notes to Consolidated Financial Statements ​ 65 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Shareholders’ ​ ​ Shares ​ Amount ​ Capital ​ Deficit ​ Deficit Balance at December 31, 2017 48,211,226 $ 482 $ 520,072 $ ( 523,368 ) $ ( 2,814 ) Issuance of common stock upon exercise of stock options 800,458 ​ 8 ​ 6,724 ​ — ​ 6,732 Issuance of warrants in connection with debt amendment ​ — ​ ​ — ​ ​ 1,424 ​ ​ — ​ ​ 1,424 Stock-based compensation — ​ — ​ 11,713 ​ — ​ 11,713 Purchase of 2023 Capped Calls ​ — ​ — ​ ( 33,180 ) ​ — ​ ​ ( 33,180 ) Equity component of 2023 Notes, net of issuance costs ​ — ​ — ​ 55,655 ​ — ​ ​ 55,655 Income tax benefit related to issuance of 2023 Notes ​ — ​ — ​ ( 12,929 ) ​ — ​ ​ ( 12,929 ) Net loss — ​ — ​ — ​ ( 126,757 ) ​ ( 126,757 ) Balance at December 31, 2018 49,011,684 ​ 490 ​ 549,479 ​ ( 650,125 ) ​ ( 100,156 ) Issuance of common stock in direct offering, net of offering costs 4,389,311 ​ ​ 44 ​ ​ 54,194 ​ ​ — ​ ​ 54,238 Issuance of common stock upon exercise of stock options 799,815 ​ ​ 8 ​ ​ 7,590 ​ ​ — ​ ​ 7,598 Stock-based compensation — ​ — ​ 13,785 ​ — ​ 13,785 Net loss — ​ — ​ — ​ ( 84,486 ) ​ ( 84,486 ) Balance at December 31, 2019 54,200,810 ​ 542 ​ 625,048 ​ ( 734,611 ) ​ ( 109,021 ) Issuance of common stock in direct offering, net of offering costs 6,900,000 ​ ​ 69 ​ ​ 93,606 ​ ​ — ​ ​ 93,675 Issuance of common stock upon exercise of stock options 556,421 ​ ​ 5 ​ ​ 5,017 ​ ​ — ​ ​ 5,022 Issuance of common stock upon grant of restricted stock awards ​ 14,000 ​ ​ — ​ ​ 155 ​ ​ — ​ ​ 155 Stock-based compensation — ​ ​ — ​ ​ 14,770 ​ ​ — ​ ​ 14,770 Equity component of 2026 Notes, net of issuance costs ​ — ​ ​ — ​ ​ 61,628 ​ ​ — ​ ​ 61,628 Purchase of 2026 Capped Calls ​ — ​ ​ — ​ ​ ( 23,223 ) ​ ​ — ​ ​ ( 23,223 ) Equity component of early extinguishment of 2023 Notes ​ — ​ ​ — ​ ​ ( 22,073 ) ​ ​ — ​ ​ ( 22,073 ) Termination of the 2023 Capped Call contracts related to debt repurchased ​ — ​ ​ — ​ ​ 8,387 ​ ​ — ​ ​ 8,387 Income tax benefit related to issuance of 2026 Notes ​ — ​ ​ — ​ ​ ( 12,011 ) ​ ​ — ​ ​ ( 12,011 ) Net loss — ​ ​ — ​ ​ — ​ ​ ( 138,061 ) ​ ​ ( 138,061 ) Balance at December 31, 2020 61,671,231 ​ $ 616 ​ $ 751,304 ​ $ ( 872,672 ) ​ $ ( 120,752 ) ​ See accompanying Notes to Consolidated Financial Statements ​ 66 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 138,061 ) ​ $ ( 84,486 ) ​ $ ( 126,757 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ Stock-based compensation expense ​ 14,925 ​ 13,785 ​ 11,713 Non-cash interest expense ​ 11,649 ​ 9,232 ​ 5,635 Depreciation and amortization ​ 1,616 ​ 1,790 ​ 962 Loss on early extinguishment of debt ​ 13,374 ​ — ​ 12,993 Deferred income tax ​ ( 12,011 ) ​ — ​ ( 12,929 ) Fair value settlement upon termination of cap call contract ​ 838 ​ — ​ 354 Changes in operating assets and liabilities: ​ ​ ​ ​ Receivables ​ 31,344 ​ ( 12,367 ) ​ ( 5,674 ) Inventory ​ ( 208 ) ​ ( 1,059 ) ​ 355 Prepaid expenses and other assets ​ ( 3,816 ) ​ ( 251 ) ​ ( 498 ) Accounts payable and accrued expenses ​ ( 19,736 ) ​ 13,283 ​ 10,109 Net cash used in operating activities ​ ( 100,086 ) ​ ( 60,073 ) ​ ( 103,737 ) Investing activities: ​ ​ ​ Purchases of property and equipment ​ ( 283 ) ​ ( 334 ) ​ ( 567 ) Purchases of investments ​ ( 133,194 ) ​ ( 58,217 ) ​ ( 68,782 ) Proceeds from the sale and maturities of investments ​ 66,446 ​ 55,150 ​ 94,500 Net cash (used in) provided by investing activities ​ ( 67,031 ) ​ ( 3,401 ) ​ 25,151 Financing activities: ​ ​ ​ Proceeds from issuance of convertible senior notes ​ 225,030 ​ — ​ 210,000 Payments for debt issuance costs ​ ​ ( 6,785 ) ​ ​ — ​ ​ ( 6,800 ) Proceeds from debt borrowings ​ ​ — ​ ​ — ​ ​ 44,550 Purchases of capped calls related to convertible senior notes ​ ( 23,223 ) ​ — ​ ( 33,180 ) Payments for repurchases of convertible senior notes ​ ( 125,638 ) ​ — ​ — Repayment of debt ​ — ​ — ​ ( 132,077 ) Payments on debt prepayment and extinguishment ​ ​ — ​ ​ — ​ ​ ( 11,902 ) Proceeds from termination of capped call contracts ​ 7,549 ​ — ​ — Proceeds from issuance of common stock, net ​ 93,675 ​ 54,238 ​ — Proceeds upon exercise of stock options and warrants ​ 5,022 ​ 7,598 ​ 6,732 Release in restricted investments ​ 99 ​ — ​ 4,681 Principal payments on finance lease liabilities ​ ( 1,195 ) ​ ( 1,139 ) ​ ( 951 ) Net cash provided by financing activities ​ 174,534 ​ 60,697 ​ 81,053 Net increase (decrease) in cash and cash equivalents ​ 7,417 ​ ( 2,777 ) ​ 2,467 Cash and cash equivalents at beginning of period ​ 3,084 ​ 5,861 ​ 3,394 Cash and cash equivalents at end of period ​ $ 10,501 ​ $ 3,084 ​ $ 5,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow information ​ ​ ​ Cash paid for interest ​ $ 11,603 ​ $ 13,462 ​ $ 8,896 Property acquired under finance lease ​ $ 216 ​ $ 1,440 ​ $ 2,118 Conversion of accrued interest to debt ​ $ — ​ $ — ​ $ 3,408 Fair value of warrants issued in connection with debt amendment ​ $ — ​ $ — ​ $ 1,424 ​ See accompanying Notes to Consolidated Financial Statements ​ 67 Table of Contents OMEROS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1—Organization and Basis of Presentation Organization 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 first drug product, OMIDRIA, is marketed in the United States (U.S.) for use during cataract surgery or intraocular lens replacement. Basis of Presentation Our consolidated financial statements include the financial position and results of operations of Omeros Corporation (Omeros) and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). 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. 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. in 2021. 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 68 Table of Contents 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. 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, or implementing other restructuring activities. Segments We operate in one segment. Management uses cash flow as the primary measure to manage our business and does not segment our business for internal reporting or decision-making. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include 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. ​ ​ Note 2—Significant Accounting Policies Cash and Cash Equivalents, Short-Term Investments and Restricted Investments Cash and cash equivalents include highly liquid investments with a maturity of three months or less on the date of purchase. Short-term investment securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses, if any, are reported as a separate component of shareholders’ deficit. Amortization, accretion, interest and dividends, realized gains and losses and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific-identification method. Investments in securities with maturities of less than one year, or those for which management intends to use the investments to fund current operations, are included in current assets. We evaluate whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. Restricted investments held in money-market funds include security deposits held by our landlord. As of December 31, 2020 and 2019, all investments are classified as short-term and available-for-sale. Investment income, which is included as a component of other income, consists primarily of interest earned. Inventory Inventory is stated at the lower of cost or market determined on a specific identification basis in a manner that approximates the first-in, first-out (FIFO) method. Costs include amounts related to third-party manufacturing, transportation and internal labor and overhead. 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). We expense inventory costs related to product candidates as research and development expenses prior to receiving regulatory approval in the respective territory. Inventory is reduced to net realizable value for excess and obsolete inventories based on forecasted demand. Receivables, Net Receivables relate primarily to sales of OMIDRIA to wholesalers and include reductions for estimated chargebacks and product returns that are expected to be settled through reductions in receivables. Remaining receivables consist of amounts from subleases for space in our facilities. Considering the nature and historic collectability of our receivables, we concluded an allowance for doubtful accounts is not necessary as of December 31, 2020 and 2019. 69 Table of Contents Property and Equipment, Net Property and equipment are stated at cost, and depreciation is calculated using the straight-line method over the estimated useful life of the assets, which is generally three to 10 years . Equipment acquired through finance leases is recorded as property and equipment and is amortized over the shorter of the useful lives of the related assets or the lease term. Expenditures for repairs and maintenance are expensed as incurred. Right-of-Use Assets and Related Lease Liabilities On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases, (Topic 842) using a modified retrospective approach versus recasting the prior periods presented. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical assessment of whether (i) contracts contain leases, (ii) lease classifications and (iii) initial direct costs. Upon adoption we recognized right-of-use assets and lease liabilities of $ 17.7 million and $ 26.4 million, respectively. The balance of the net right-of-use asset included the reversal of the outstanding balance of deferred rent of $ 8.7 million. We record operating leases as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available. We recognize variable lease payments, when incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. We record finance leases as a component of property and equipment and amortize these assets within operating expenses on a straight-line basis to their residual values over the shorter of the term of the underlying lease or the estimated useful life of the equipment. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term. We account for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term. Unsecured Convertible Senior Notes 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. 70 Table of Contents 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 We assess the impairment of long-lived assets, primarily property and equipment, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparing the carrying value to future undiscounted cash flows that the asset is expected to generate. If the asset is 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 ended December 31, 2020, 2019 and 2018. Revenue Recognition When we enter into a customer contract, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. Product Sales, Net 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. Accruals or allowances are established for these deductions in the same period when revenue is recognized, and actual amounts incurred are offset against the applicable accruals or allowances. We reflect each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount is expected to be settled. Chargebacks and Rebates Provisions for chargebacks are determined utilizing historical and projected payer mix and information regarding sell-through and inventory on-hand received directly from wholesalers. Chargebacks are generally settled within four weeks of recording product sales revenue. We provide reimbursement support services and financial assistance in the form of a rebate to patients whose commercial insurance is inadequate to cover the full cost of OMIDRIA. 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. We provide rebate payments for which ASCs qualify by meeting or exceeding purchase volumes of OMIDRIA under our purchase volume-discount program. We calculate rebate payment amounts due under this program based on actual qualifying purchase volumes and apply a contractual discount rate. 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. 71 Table of Contents Distribution Fees and Product Return Allowances We pay our wholesalers a distribution fee for services that they perform for us based on the wholesaler average cost value of their purchases of OMIDRIA. We record a provision against product sales for these charges at the time of sale to the wholesaler. 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 health care providers based on the frequency of their reorders. Research and Development Research and development expenses are comprised primarily of contracted research and manufacturing costs prior to approval; costs for personnel, including salaries, benefits and stock compensation; clinical study costs; contracted research; manufacturing costs prior to approval; consulting services; depreciation; materials and supplies; milestones; an allocation of our occupancy costs; and other expenses incurred to sustain our overall research and development programs. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and then recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided. All other research and development costs are expensed as incurred. Selling, General and Administrative Selling, general and administrative expenses are comprised primarily of salaries, benefits, and stock-compensation costs for sales, marketing, and other personnel not directly engaged in research and development. Additionally, selling, general and administrative expenses include marketing and selling expenses, professional and legal services; patent costs; depreciation, an allocation of our occupancy costs; and other general corporate expenses. Advertising costs, which we consider to be media and marketing materials, are expensed as incurred and were $ 5.6 million, $ 8.0 million and $ 2.5 million during the years ended December 31, 2020, 2019 and 2018, respectively. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized. Stock-Based Compensation Stock-based compensation expense is recognized for all share-based payments 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 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 Accumulated other comprehensive loss is comprised of net loss and certain changes in equity that are excluded from net loss. There was no difference between comprehensive loss and net loss for the years ended December 31, 2020, 2019 or 2018. 72 Table of Contents Financial Instruments and Concentrations of Credit Risk Cash and cash equivalents, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount or cost, approximate fair value based on the short-term nature of these financial instruments. The fair value of short-term investments is based on quoted market prices. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and receivables. Cash and cash equivalents are held by financial institutions and are federally insured up to certain limits. At times, our cash and cash equivalents balance held at a financial institution may exceeds the federally insured limits. To limit the credit risk, we invest our excess cash in high-quality securities such as money market mutual funds, certificates of deposit and commercial paper. Major Customers We sell OMIDRIA through a limited number of wholesalers. Each of these wholesalers, together with entities under their common control, accounted for greater than 10% of our total revenues for the years ended December 31, 2020, 2019 and 2018 and greater than 10% of accounts receivable as of December 31, 2020, 2019 and 2018 as noted below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ Percentage ​ Percentage ​ Percentage ​ Percentage ​ Percentage ​ Percentage ​ ​ of Total ​ of Accounts ​ of Total ​ of Accounts ​ of Total ​ of Accounts ​ ​ Revenue ​ Receivable ​ Revenue ​ Receivable ​ Revenue ​ Receivable Distributor A 25 % ​ 36 % ​ 25 % ​ 23 % ​ 31 % ​ 27 % Distributor B 26 % ​ 31 % ​ 24 % ​ 19 % ​ 27 % ​ 25 % Distributor C 32 % ​ 10 % ​ 29 % ​ 33 % ​ 22 % ​ 25 % Distributor D 17 % ​ 23 % ​ 22 % ​ 25 % ​ 20 % ​ 23 % ​ Major Suppliers We use a single contract manufacturer to supply the OMIDRIA drug product and a separate company to package OMIDRIA for commercial sale. We generally use different contract manufacturers to produce drug substance, drug product and to perform final packaging for our drug product candidates. We endeavor to maintain reasonable levels of drug supply for our commercial and clinical trial use and other manufacturers are available should we need to change suppliers. A change in suppliers, however, could cause a delay in delivery of OMIDRIA or our clinical trial material that would adversely affect our business. Recent Accounting Pronouncements 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. 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. 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. 73 Table of Contents 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 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, ​ 2020 2019 2018 Outstanding options to purchase common stock 1,585,332 ​ 2,664,841 ​ 2,856,342 Outstanding warrants to purchase common stock 10,792 ​ 16,153 ​ 16,851 Total potentially dilutive shares excluded from loss per share 1,596,124 2,680,994 2,873,193 ​ ​ Note 4—Accounts Receivable, Net Accounts receivable, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 ​ ​ (In thousands) Trade receivables, net ​ $ 3,771 ​ $ 35,074 Sublease and other receivables ​ 70 ​ 111 Total accounts receivables, net ​ $ 3,841 ​ $ 35,185 ​ Trade receivables are shown net of $ 1.2 million and $ 1.6 million of chargeback and product return allowances as of December 31, 2020 and 2019, respectively. ​ ​ ​ 74 Table of Contents Note 5—Fair-Value Measurements As of December 31, 2020 and 2019, all investments were classified as short-term and available-for-sale. Investment income, which was included as a component of other income, consists of interest earned. On a recurring basis, we measure certain financial assets at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required: Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets; Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use. Our fair-value hierarchy for our financial assets measured at fair value on a recurring basis are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Total ​ ​ (In thousands) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money-market funds classified as non-current restricted investments ​ $ 1,055 ​ $ — ​ $ — ​ $ 1,055 Money-market funds classified as short-term investments ​ 124,452 ​ — ​ — ​ 124,452 Total ​ $ 125,507 ​ $ — ​ $ — ​ $ 125,507 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ Level 1 Level 2 Level 3 Total ​ ​ (In thousands) Assets: ​ ​ ​ ​ ​ Money-market funds classified as non-current restricted investments ​ $ 1,154 ​ $ — ​ $ — ​ $ 1,154 Money-market funds classified as short-term investments ​ 57,704 ​ — ​ — ​ 57,704 Total ​ $ 58,858 ​ $ — ​ $ — ​ $ 58,858 ​ Cash held in demand deposit accounts of $ 10.5 million and $ 3.1 million is excluded from our fair-value hierarchy disclosure as of December 31, 2020 and 2019, respectively. 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 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 Inventory Inventory consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 ​ ​ (In thousands) Raw materials $ 109 $ 91 Work-in-progress ​ 462 ​ 338 Finished goods ​ 784 ​ 718 Total inventory $ 1,355 $ 1,147 ​ 75 Table of Contents Property and Equipment, Net Property and equipment, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2020 ​ 2019 ​ ​ (In thousands) Finance leases ​ $ 5,690 ​ $ 5,474 Laboratory equipment ​ 2,898 ​ 2,844 Computer equipment ​ 985 ​ 921 Office equipment and furniture ​ 625 ​ 625 Total cost ​ 10,198 ​ 9,864 Less accumulated depreciation and amortization ​ ( 7,647 ) ​ ( 6,035 ) Total property and equipment, net ​ $ 2,551 ​ $ 3,829 ​ For the years ended December 31, 2020, 2019 and 2018, depreciation and amortization expenses were $ 1.6 million, $ 1.8 million and $ 1.0 million, respectively. Accrued Expenses Accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2020 ​ 2019 ​ ​ (In thousands) Contract research and development ​ $ 7,952 ​ $ 24,107 Consulting and professional fees ​ 5,393 ​ 3,610 Interest payable ​ 5,205 ​ 1,640 Employee compensation ​ 3,948 ​ 3,546 Sales rebates, fees and discounts ​ ​ 3,326 ​ ​ 10,870 Clinical trials ​ 2,121 ​ 1,982 Other accrued expenses ​ 810 ​ 872 Total accrued expenses ​ $ 28,755 ​ $ 46,627 ​ ​ Note 7—Debt Note Payable 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 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 76 Table of Contents 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 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. The Line of Credit Agreement requires a lockbox arrangement whereby our trade accounts receivable collections are deposited into a control account. Amounts deposited in the account are transferred daily to our operating account, except that during periods of reduced liquidity or upon an event of default, the amounts received in the control account are applied to reduce the outstanding obligations under the Line of Credit Agreement. The Line of Credit Agreement includes customary events of default that include, among other things, breach, non-payment, inaccuracy of representations and warranties, the occurrence of a material adverse change in our business or prospects for repayment of the Line of Credit, cross default to material indebtedness or material agreements, bankruptcy and insolvency, material judgments and a change in control. In the event of default, SVB may require all obligations under the Line of Credit Agreement to be immediately due and payable and charge a default rate of interest thereon. Additionally, under the loan and security agreement with SVB, we have agreed not to pay any dividends. As of December 31, 2020, we had no outstanding borrowings under the Line of Credit Agreement. ​ 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. 77 Table of Contents Unsecured convertible senior notes outstanding at December 31, 2020 and 2019, respectively, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2020 ​ 2023 Notes 2026 Notes Total ​ ​ (In thousands) Principal amount ​ $ 95,000 ​ $ 225,030 ​ $ 320,030 Unamortized discount ​ ( 17,101 ) ​ ( 60,544 ) ​ ( 77,645 ) Unamortized issuance costs attributable to liability component ​ ( 1,481 ) ​ ( 4,616 ) ​ ( 6,097 ) Total Convertible Senior Notes, net ​ $ 76,418 ​ $ 159,870 ​ $ 236,288 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of outstanding Convertible Senior Notes (1) ​ $ 101,769 ​ $ 246,779 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount by which the Convertible Senior Notes if-converted value exceeds their principal amount ​ $ 6,769 ​ $ 21,749 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity component ​ $ 25,854 ​ $ 63,544 ​ ​ ​ Issuance costs ​ ( 837 ) ​ ( 1,916 ) ​ ​ ​ Net carrying amount of equity component (2) ​ $ 25,017 ​ $ 61,628 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ 2023 Notes ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ ​ ​ ​ Principal amount ​ $ 210,000 ​ ​ ​ ​ ​ ​ Unamortized discount ​ ( 47,660 ) ​ ​ ​ ​ ​ ​ Unamortized issuance costs attributable to liability component ​ ( 4,127 ) ​ ​ ​ ​ ​ ​ Total Convertible Senior Notes, net ​ $ 158,213 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of outstanding Convertible Senior Notes (1) ​ $ 208,163 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount by which the Convertible Senior Notes if-converted value exceeds their principal amount ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity component ​ $ 57,152 ​ ​ ​ ​ ​ ​ Issuance costs ​ ( 1,851 ) ​ ​ ​ ​ ​ ​ Net carrying amount of equity component (2) ​ $ 55,301 ​ ​ ​ ​ ​ ​ (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 ​ $ 210,000 Repayment of previously outstanding note payable (see "Note 7--Debt") ​ ( 146,046 ) Purchase of 2023 Capped Call ​ ( 33,180 ) Issuance costs ​ ( 6,800 ) Net proceeds available for corporate use ​ $ 23,974 ​ 78 Table of Contents The 2023 Notes are convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion. The initial conversion rate is 52.0183 shares of our common stock per $ 1,000 of note principal (equivalent to an initial conversion price of approximately $ 19.22 per share of common stock), subject to adjustment in certain circumstances. To reduce the dilutive impact or potential cash expenditure associated with conversion of the 2023 Notes, we entered into a capped call transaction (the 2023 Capped Call), which essentially covers the number of shares of our common stock underlying the 2023 Notes when our common stock is trading between the initial conversion price of $ 19.22 per share and $ 28.84 per share. However, should the market price of our common stock exceed the $ 28.84 cap, then the conversion of the 2023 Notes would have an additional dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price. In August and September 2020, we issued the 2026 Notes and used approximately $ 125.6 million of the net proceeds to repurchase $ 115.0 million principal amount of the 2023 Notes (see “2026 Convertible Senior Notes” below). 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, ​ 2020 2019 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contractual interest expense ​ $ 10,410 ​ $ 13,089 ​ $ 1,677 Amortization of debt issuance costs ​ 669 ​ 8,496 ​ 996 Amortization of debt discount ​ 7,728 ​ 736 ​ 86 Total ​ $ 18,807 ​ $ 22,321 ​ $ 2,759 ​ ​ 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) 2026 Notes principal amount issued ​ $ 225,030 Repurchase of 2023 Notes ​ ( 125,638 ) Purchase of 2026 Capped Call ​ ( 23,223 ) Termination of the 2023 Capped Call contracts related to debt repurchased ​ 7,549 Issuance costs ​ ( 6,785 ) Net proceeds available for corporate use ​ $ 76,933 ​ 79 Table of Contents The 2026 Notes are unsecured and accrue interest at an annual rate of 5.25 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms. The initial conversion rate is 54.0906 shares of our common stock per $ 1,000 of note principal (equivalent to an initial conversion price of approximately $ 18.4875 per share of common stock), which equals approximately 12.2 million shares issuable upon conversion, subject to adjustment in certain circumstances. The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026, the second scheduled trading day immediately before the stated maturity date of February 15, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if: (1) during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130 % of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five -consecutive-trading-day period (such five -consecutive-trading-day period, the “measurement period”) in which the trading price per $ 1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) there is an occurrence of one or more certain corporate events or distributions of our common stock; or (4) we call the 2026 Notes for redemption. 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. 80 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, 2020 ​ ​ (In thousands) Contractual interest expense ​ $ 4,397 Amortization of debt issuance costs ​ 230 Amortization of debt discount ​ 3,022 Total ​ $ 7,649 ​ Future minimum payments for the 2023 and 2026 Notes as of December 31, 2020 are as follows: ​ ​ ​ ​ ​ ​ (In thousands) 2021 ​ $ — 2022 ​ — 2023 ​ 95,000 2024 ​ — 2025 ​ — 2026 ​ 225,030 Total future minimum payments under the convertible senior notes $ 320,030 ​ ​ Note 9—Lease Liabilities We have operating leases related to our office and laboratory space. The initial term of the leases is through November 2027 and we have two options to extend the lease term, each by five years . We have finance leases for certain laboratory and office equipment that have lease terms expiring through December 2024. 81 Table of Contents Lease-related assets and liabilities recorded on the balance sheet are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 2019 ​ ​ (In thousands) ​ Assets ​ ​ ​ ​ ​ ​ Operating lease assets $ 25,526 $ 27,082 ​ Finance lease assets, net 1,822 ​ 2,973 ​ Total lease assets $ 27,348 $ 30,055 ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Current: ​ ​ ​ ​ ​ ​ Operating leases $ 2,740 $ 2,282 ​ Finance leases 1,042 ​ 1,222 ​ Non-current: ​ ​ ​ ​ ​ ​ Operating leases 28,032 ​ 30,772 ​ Finance leases 738 ​ 1,546 ​ Total lease liabilities $ 32,552 $ 35,822 ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term ​ ​ ​ ​ ​ ​ Operating leases 6.8 years ​ 7.8 years ​ Finance leases 1.9 years ​ 2.5 years ​ Weighted-average discount rate ​ ​ ​ ​ ​ ​ Operating leases 12.85 % 12.85 % Finance leases 11.85 % 12.17 % ​ The components of total lease costs are as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 ​ (In thousands) Lease cost ​ ​ Operating lease cost $ 6,055 ​ $ 4,604 Finance lease cost: ​ ​ Amortization 1,367 ​ 1,340 Interest 295 ​ 337 Variable lease cost 2,893 ​ 2,320 Sublease income ( 1,300 ) ​ ( 913 ) Net lease cost $ 9,310 ​ $ 7,688 ​ The supplemental cash flow information related to leases during 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 ​ (In thousands) Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ Operating cash flows used for operating leases $ 10,103 ​ $ 6,951 Operating cash flows used for finance leases $ 295 $ 337 Financing cash flows used for finance leases $ 1,195 $ 1,139 ​ 82 Table of Contents The future maturities of our lease liabilities as of December 31, 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance ​ Leases Leases ​ ​ (In thousands) 2021 ​ $ 6,536 ​ $ 1,205 2022 ​ 6,678 ​ 603 2023 ​ 6,823 ​ 168 2024 ​ 6,972 ​ 30 2025 ​ 6,998 ​ — Thereafter ​ 12,593 ​ — Total undiscounted lease payments ​ ​ 46,600 ​ ​ 2,006 Less interest ​ ​ ( 15,828 ) ​ ​ ( 226 ) Total lease liabilities ​ $ 30,772 ​ $ 1,780 ​ 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 Contracts We have various agreements with third parties that collectively require payment of termination fees totaling $ 32.0 million as of December 31, 2020 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services. Development Milestones and Product Royalties We have licensed a variety of intellectual property from third parties that we are currently developing or may develop in the future. These licenses may require milestone payments 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 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 Common Stock As of December 31, 2020, we had reserved shares of common stock under our equity plans as follows: ​ ​ ​ ​ Options granted and outstanding 11,938,528 Options available for future grant 4,089,584 Common stock warrants 243,115 Total shares reserved 16,271,227 ​ 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. 83 Table of Contents 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. Warrants In connection with various previously outstanding debt agreements we have issued warrants to purchase shares of our common stock as follows: ​ ​ ​ ​ ​ ​ ​ Outstanding At ​ ​ ​ December 31, 2020 ​ Expiration Date ​ Exercise Price 43,115 ​ May 18, 2023 ​ $ 9.94 200,000 ​ April 12, 2023 ​ $ 23.00 ​ ​ Note 12—Stock-Based Compensation Our equity plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, performance shares and other stock and cash awards to employees, 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: ​ ​ ​ Grant Type 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 ​ (In thousands) Research and development $ 6,331 ​ $ 6,095 ​ $ 4,961 Selling, general and administrative 8,594 ​ 7,690 ​ 6,752 Total $ 14,925 ​ $ 13,785 ​ $ 11,713 ​ 84 Table of Contents The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were applied to stock option grants during the periods ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 ​ 2019 ​ 2018 ​ Estimated weighted-average fair value $ 8.19 ​ $ 9.93 ​ $ 10.32 ​ Weighted-average assumptions: ​ ​ ​ ​ Expected volatility 77 % 80 % 78 % Expected life, in years 6.0 ​ 6.0 ​ 6.0 ​ Risk-free interest rate 1.06 % 2.41 % 2.68 % Expected dividend yield — % — % — % ​ Expected volatility is based on the historical volatility of our stock price weighted by grant issuances over the reporting period. We use the simplified method to calculate expected life used in the valuation of our stock options. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ Aggregate ​ ​ ​ ​ Exercise ​ Remaining ​ Intrinsic ​ ​ Options ​ Price per ​ Contractual Life ​ Value ​ ​ Outstanding ​ Share ​ (In years) ​ (In thousands) Balance at December 31, 2019 11,207,931 ​ $ 11.72 ​ Granted 2,237,535 ​ 12.29 ​ Exercised ( 556,421 ) ​ 9.03 ​ Canceled ( 950,517 ) ​ 12.14 ​ Balance at December 31, 2020 11,938,528 ​ $ 11.92 5.8 ​ $ 32,384 Vested and expected to vest at December 31, 2020 11,584,202 ​ $ 11.88 5.8 ​ $ 31,880 Exercisable at December 31, 2020 8,805,571 ​ $ 11.48 4.9 ​ $ 27,844 ​ 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, 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. ​ 85 Table of Contents Note 13—Income Taxes The components of income tax benefit are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 2018 ​ ​ (In thousands) Current income tax benefit: ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State ​ — ​ — ​ — Total current income tax benefit ​ — ​ — ​ — Deferred income tax benefit: ​ ​ ​ Federal ​ 10,149 ​ — ​ 11,261 State ​ 1,862 ​ — ​ 1,668 Total deferred income tax benefit ​ 12,011 ​ — ​ 12,929 Income tax benefit ​ $ 12,011 ​ $ — ​ $ 12,929 ​ We have a history of losses and therefore have historically not made a provision for income taxes. 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. 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. Significant components of deferred income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 ​ ​ (In thousands) Deferred tax assets: ​ ​ ​ Net operating loss carryforwards ​ $ 149,993 ​ $ 126,794 Research and development tax credits ​ 56,103 ​ 40,654 Stock-based compensation ​ 10,586 ​ 9,959 Lease liability ​ 8,646 ​ 7,908 Disallowed interest expense ​ ​ 11,859 ​ ​ 8,122 Other ​ 7,411 ​ 6,433 Total deferred tax assets ​ 244,598 ​ 199,870 Deferred tax liabilities: ​ ​ Property and equipment ​ ​ ( 113 ) ​ ​ — Equity component of Convertible Notes ​ ( 18,302 ) ​ ( 11,082 ) Right of use assets ​ ​ ( 6,197 ) ​ ​ ( 6,480 ) Total deferred tax liabilities ​ ( 24,612 ) ​ ( 17,562 ) Net deferred tax assets before valuation allowance ​ 219,986 ​ 182,308 Less valuation allowance ​ ( 219,986 ) ​ ( 182,308 ) Net deferred tax assets ​ $ — ​ $ — ​ As of December 31, 2020 and 2019, we had federal net operating loss carryforwards of approximately $ 658.8 million and $ 564.3 million, respectively, and state net operating losses of approximately $ 257.1 million and $ 170.5 million, respectively. 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 study. Unless previously utilized, net operating losses of $ 409.0 million generated prior to 2018 will expire between 86 Table of Contents 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. Our valuation allowance increased $ 37.8 million and $ 23.9 million in 2020 and 2019, respectively, primarily due to net operating losses incurred during these periods. Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 2019 2018 U.S. Federal statutory rate on net loss ​ ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State tax, net of federal tax benefit ​ ( 3.1 ) % ( 2.7 ) % ( 2.5 ) % Change in valuation allowance ​ 25.1 % 28.3 % 18.9 % Tax credits ​ ( 8.0 ) % ( 5.9 ) % ( 4.6 ) % Other ​ ( 1.0 ) % 1.3 % ( 0.1 ) % Effective tax rate ​ ( 8.0 ) % - % ( 9.3 ) % ​ We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all of our tax years remain open to federal and state tax examination. We recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been no 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 Our 401(k) retirement plan provides for an annual company discretionary match on employee contributions up to 4.0 % of each participating employee’s eligible earnings, with a maximum company match of $ 4,000 per employee per year. All employees are eligible to participate. ​ Note 15—Quarterly Information (Unaudited) The following table summarizes the unaudited statements of operations and comprehensive loss for each quarter of 2020 and 2019 (in thousands, except per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ For the Quarter Ended ​ ​ March 31, ​ June 30, ​ September 30, ​ December 31, Product sales, net (1) ​ $ 23,537 ​ $ 13,530 ​ $ 26,114 ​ $ 10,632 Total costs and expenses ​ 47,214 ​ 41,210 ​ 51,542 ​ 44,448 Loss from operations ​ ( 23,677 ) ​ ( 27,680 ) ​ ( 25,428 ) ​ ( 33,816 ) Net loss ​ ( 29,031 ) ​ ( 33,294 ) ​ ( 38,463 ) ​ ( 37,273 ) Basic and diluted net loss per share ​ $ ( 0.53 ) ​ $ ( 0.61 ) ​ $ ( 0.66 ) ​ $ ( 0.60 ) ​ 87 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ For the Quarter Ended ​ ​ March 31, ​ June 30, ​ September 30, ​ December 31, Product sales, net ​ $ 21,779 ​ $ 26,753 ​ $ 29,856 ​ $ 33,417 Total costs and expenses ​ 41,018 ​ 36,091 ​ 40,957 ​ 57,121 Loss from operations ​ ( 19,239 ) ​ ( 9,338 ) ​ ( 11,101 ) ​ ( 23,704 ) Net loss ​ ( 24,345 ) ​ ( 14,453 ) ​ ( 16,463 ) ​ ( 29,225 ) Basic and diluted net loss per share ​ $ ( 0.50 ) ​ $ ( 0.29 ) ​ $ ( 0.33 ) ​ $ ( 0.58 ) (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. ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ​