What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 140 added, 234 removed, 176 unchanged (68% of the section changed)

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

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

Food and Drug Administration (“FDA”) for narsoplimab for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”), which will be submitted in mid-November.

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

complement-mediated disorders, including Immunoglobulin A (“IgA”) nephropathy and atypical hemolytic uremic syndrome (“aHUS”), as well as addiction.

We also initiated a Phase 1 clinical program for our MASP-3 inhibitor OMS906 targeting the alternative pathway of complement.

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

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

We also exclusively possess a novel antibody-generating platform.

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

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

We also have multiple late-stage clinical development programs in our pipeline, which are focused on complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”) and COVID-19.

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

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

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

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

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

OMIDRIA Separate Payment

As of October 1, 2020, OMIDRIA pass-through status expired.

We are currently seeking separate payment for OMIDRIA through administrative and legislative means as more fully described under “Commercial Product—OMIDRIA” below.

Impact of Global Pandemic

The outbreak of the novel strain of coronavirus (SARS-CoV-2), which 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.

The COVID-19 pandemic and the responses to it by various governmental authorities, the medical community and others continue to have a significant impact on our business.

In March 2020, ambulatory surgery centers (“ASCs”) and hospitals using OMIDRIA postponed nearly all cataract surgery in response to recommendations from government and medical organizations.

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However, by the end of June 2020, the run rate of weekly OMIDRIA sales had recovered to levels approximating those seen prior to the pandemic.

COVID-19 and the corresponding government response could have a continuing adverse impact on our business, operations and financial results.

If the number of cataract procedures once again becomes limited, either by a need for time-consuming safety protocols, reduction in patient demand, or prohibition on elective surgical procedures in some localities, then we would expect a corresponding reduction in demand for OMIDRIA.

Additionally, new or continued restrictions on visits to customer facilities by our field sales representatives could lead to a further reduction in our OMIDRIA revenues.

Due to the unknown magnitude, duration and outcome of the COVID-19 pandemic, especially in light of the variances both in the severity of and in the local governmental responses to the COVID-19 pandemic across the U.S., 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 material.

It is not possible to estimate precisely the future impact of COVID-19 on our business, operations or financial results due to the unknown magnitude, duration and outcome of the pandemic, especially in light of the severity and transmissibility of virus variants and possible local governmental responses across the U.S.

Commercial Product - OMIDRIA ® (phenylephrine and ketorolac intraocular solution) 1%/0.3%

OMIDRIA is approved by the FDA for use during cataract surgery or intraocular lens replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain.

OMIDRIA is approved by FDA for use during cataract surgery or intraocular lens replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain.

Outside the U.S., we have received approval from the European Commission (“EC”) to market OMIDRIA in the European Economic Area (“EEA”) for use during cataract surgery and other IOL replacement procedures for maintenance of intraoperative mydriasis (pupil dilation), prevention of intraoperative miosis and reduction of acute postoperative ocular pain.

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Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging structures within the eye and other complications increases, as does the operating time required to perform the procedure.

We launched OMIDRIA in the U.S.

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

The Centers for Medicare & Medicaid Services (“CMS”), a part of the Department of Health and Human Services (“HHS”) and the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA in 2014, effective from January 1, 2015 through December 31, 2017.

We sell OMIDRIA primarily through wholesalers which, in turn, sell to ASCs and hospitals.

The Centers for Medicare & Medicaid Services (“CMS”), the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA from January 1, 2015 through December 31, 2017.

Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B.

In March 2018, Congress extended pass-through reimbursement status for a small number of drugs, including OMIDRIA, used during procedures performed on Medicare Part B fee-for-service patients through September 30, 2020.

In its 2021 outpatient prospective payment system (“OPPS”) proposed rule, CMS confirmed the October 1, 2020 expiration of pass-through reimbursement for OMIDRIA and indicated an intention to package payment for OMIDRIA with payment for the associated surgical procedure in both the hospital outpatient department and ASC settings.

CMS is required under the Substance Use–Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act to review OPPS payments for opioids and evidence-based non-opioid alternatives for pain management with a goal to ensure that there are not financial incentives to use opioids instead of non-opioid alternatives, and in 2019 it codified revisions to the ASC payment system pursuant to its policy to “unpackage and pay separately at ASP+6 percent for the cost of non-opioid pain management drugs that function as surgical supplies when they are furnished in the ASC setting.” CMS continued this policy, without change, in 2020 and has proposed to extend it again in 2021.

During the time that these revisions to the ASC payment system have been in force, they have not applied to OMIDRIA because OMIDRIA has had pass-through status and, accordingly, has not been separately packaged.

OMIDRIA does not contain an opioid, has an FDA-approved label indication for postoperative pain reduction and CMS considers the drug to function as a surgical supply.

Because OMIDRIA is subject to packaged payment following expiration of its pass-through status, we believe that OMIDRIA now satisfies the criteria for separate payment when provided in the ASC setting and that CMS is required to comply with regulatory law and pay separately for OMIDRIA in the ASC setting.

Although we can provide no assurance regarding whether or when separate payment for OMIDRIA in the ASC setting will be effective, if we are successful in securing separate payment for OMIDRIA for the fourth quarter of 2020, we expect that OMIDRIA will receive similar separate payment in the ASC setting throughout 2021.

We also are continuing to pursue other administrative and legislative avenues to secure separate payment for OMIDRIA for the remainder of 2020 and beyond;

however, we cannot provide assurance that these efforts will be successful.

If continued separate payment is determined not to be reasonably achievable in the near term, we have developed a commercial strategy that can be quickly implemented to lower the per-vial sales price of OMIDRIA to achieve substantially larger sales volumes.

We believe that this approach would result in substantial revenues from sales of OMIDRIA, in part because CMS Medicare Part B beneficiaries only represent approximately 45% of cataract surgery

procedures annually.

However, we are likely to have significantly reduced sales of OMIDRIA until we are able to implement such strategy.

For more information regarding OMIDRIA reimbursement, see “Financial Summary” below.

In July 2018, we placed OMIDRIA on the market in the European Union (“EU”) on a limited basis and continue to maintain the ongoing validity of the Marketing Authorization for OMIDRIA in Europe.

At this time, we do not expect to see significant sales of OMIDRIA in any countries within the EEA or other international territories.

In March 2018, Congress extended pass-through reimbursement status for OMIDRIA through September 30, 2020 when used during procedures performed on Medicare Part B fee-for-service patients.

Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020.

In December 2020, in its annual rule on Outpatient Prospective Payments System (“OPPS”) and ASC payments, CMS confirmed that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ASCs under CMS’ policy for non-opioid pain management surgical drugs.

We believe that CMS will not change its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019.

Clinical Development Programs

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● MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders .

Narsoplimab, also referred to as OMS721, is our lead fully human monoclonal antibody targeting monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (“MASP-2”), a novel pro-inflammatory protein target involved in activation of the lectin pathway of complement.

The lectin pathway plays a role in the body’s inflammatory response and becomes activated as a result of tissue damage or trauma or microbial pathogen invasion.

Narsoplimab, also referred to as OMS721, is our lead fully human monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (“MASP-2”), a novel pro-inflammatory protein target involved in activation of the lectin pathway of complement.

The lectin pathway plays an important role in the body’s inflammatory response and becomes activated as a result of tissue damage or microbial pathogen invasion.

Inappropriate or uncontrolled activation of the lectin pathway can cause serious diseases and disorders.

MASP-2 is the effector enzyme of the lectin pathway of the complement system, and the current development focus for narsoplimab is diseases that are strongly associated with activation of the lectin pathway.

We have completed our pivotal clinical trial for narsoplimab in HSCT-TMA, and Phase 3 clinical programs are underway for narsoplimab in IgA nephropathy and aHUS.

Narsoplimab has received multiple designations from the FDA and from the EMA across the three current indications.

MASP-2 is the effector enzyme of the lectin pathway, and the current development focus for narsoplimab is diseases that are strongly associated with activation of the lectin pathway.

FDA is currently reviewing our BLA for narsoplimab in HSCT-TMA, and Phase 3 clinical programs are in process for narsoplimab in IgA nephropathy and aHUS.

Narsoplimab is also being evaluated for treatment of COVID-19 in a late-stage adaptive platform trial and has been administered under compassionate use to treat COVID-19 patients in Italy and in the U.S.

Narsoplimab has received multiple designations from FDA and from the EMA across three current indications.

These include:

In the U.S., the FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy, (2) orphan drug designation for the prevention (inhibition) of complement-mediated TMAs, and (3) orphan drug designation for the treatment of HSCT-TMA.

In the U.S., the FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy and (2) orphan drug designation for the treatment of HSCT-TMA.

The EC also granted narsoplimab a designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation.

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In the U.S., narsoplimab has received from the FDA (1) breakthrough therapy designation for the treatment of IgA nephropathy and (2) orphan drug designation in IgA nephropathy.

In Europe, narsoplimab has designation as an orphan medicinal product for the treatment of primary IgA nephropathy.

In Europe, narsoplimab has been granted designation as an orphan medicinal product for the treatment of primary IgA nephropathy.

In the U.S., narsoplimab has received from the FDA (1) fast-track designation for the treatment of patients with aHUS and (2) orphan drug designation for the prevention (inhibition) of complement-mediated thrombotic microangiopathies.

We plan to complete in mid-November the submission to FDA of our rolling BLA for narsoplimab for the treatment of HSCT-TMA, a frequently lethal complication of HSCT.

A rolling submission enables us to submit sections of the BLA as they are completed, which can accelerate the time to approval by allowing FDA to review completed sections of the application as they are submitted rather than waiting for the entire BLA to be received before beginning its review.

The nonclinical sections, including pharmacology, pharmacokinetics and toxicology data, and the chemistry, manufacturing and controls (“CMC”) sections for narsoplimab have already been submitted.

In October 2020, we reported the final clinical data from our pivotal trial of narsoplimab in HSCT-TMA, which are included in our BLA.

The single-arm, open-label trial included safety and efficacy endpoints that were previously agreed with FDA.

The efficacy endpoints were assessed for (1) all 28 patients who received at least one dose of narsoplimab and (2) patients who received the protocol-specified dosing of at least four weeks of narsoplimab.

In October 2020, we reported final clinical data from our pivotal trial of narsoplimab in HSCT-TMA, a frequently lethal complication of HSCT.

The single-arm, open-label trial included safety and efficacy endpoints that were assessed for (1) all 28 patients who received at least one dose of narsoplimab and (2) patients who received the protocol-specified dosing of at least four weeks of narsoplimab.

The primary efficacy endpoint in the trial was the proportion of patients who achieved designated “responder” status based on improvement in HSCT-TMA laboratory markers and clinical status.

This is referred to as the “complete response rate.” The primary laboratory markers that were evaluated were platelet count and lactase dehydrogenase (“LDH”), levels, while improvement in clinical status was evaluated based on organ function and transfusions.

Patients were required to show improvement in both laboratory markers and clinical status to be considered a responder.

This is referred to as the

“complete response rate.” The primary laboratory markers that were evaluated were platelet count and lactate dehydrogenase (“LDH”) levels, while improvement in clinical status was evaluated based on organ function and transfusions.

Each patient was required to show improvement in both laboratory markers and clinical status to be considered a responder.

All others were considered non-responders.

The FDA-agreed efficacy threshold for the primary endpoint is a complete response rate of 15%, meaning that a lower bound of the 95% confidence interval on the observed response rate greater than 15% is sufficient evidence of efficacy of narsoplimab in the treatment of the targeted patient population.

Among patients who received at least one dose of narsoplimab, the complete response rate was 61% (p<0.0001), while the complete response rate among patients who received the protocol-specified narsoplimab treatment of at least four weeks of dosing was 74% (p<0.0001).

The lower limit of the 95% confidence interval for both groups is a multiple of the 15% efficacy threshold.

Among patients who received at least one dose of narsoplimab, the complete response rate was 61% (95% confidence interval [CI] 40.6 to 78.5;

p<0.0001), while the complete response rate among patients who received the protocol-specified narsoplimab treatment of at least four weeks of dosing was 74% (95% CI 51.6 to 89.8;

The response rates and their respective lower levels of the 95% confidence intervals are a multiple of the pre-specified efficacy threshold of 15%.

Secondary endpoints in the trial were survival rates and change from baseline in HSCT-TMA laboratory markers.

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Six deaths occurred during the trial.

These were due to sepsis, progression of the underlying disease, and graft-versus-host disease.

These were due to sepsis, progression of the underlying disease, and graft-versus-host disease with TMA.

All of these are common causes of death in this patient population.

In Europe, EMA has confirmed narsoplimab’s eligibility for EMA’s centralized review of a single MAA that, if approved, authorizes the product to be marketed in all EU member states and EEA countries.

In November 2020, we completed the rolling submission to FDA of our BLA for narsoplimab for the treatment of HSCT-TMA.

The BLA was accepted for filing by FDA and granted priority review, and we have responded to all information requests received to date.

The FDA action date under the Prescription Drug User Fee Act (“PDUFA”) is July 17, 2021.

In Europe, the EMA has confirmed narsoplimab’s eligibility for EMA’s centralized review of a single marketing authorization application (“MAA”) that, if approved, authorizes the product to be marketed in all EU member states and EEA countries.

We are targeting to complete our MAA submission in 2021.

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For the purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups.

This will include a subset of patients with high levels of proteinuria (i.e., equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval.

This will include a subset of patients (78 per arm) with high levels of proteinuria (i.e., equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval.

We believe that the trial design will allow assessment for either full or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.

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with approximately 80 total patients required by FDA for full approval in the U.S.

● Compassionate Use of Narsoplimab in COVID-19 Patients .

In March 2020, in response to a request from physicians at the Papa Giovanni XXIII Hospital in Bergamo, Italy, we initiated a compassionate use program for narsoplimab to treat COVID-19 patients with ARDS, a severe and life-threatening component of COVID-19.

The study included a total of six COVID-19 patients treated with narsoplimab under compassionate use, all with ARDS and requiring continuous positive airway pressure (CPAP) or intubation.

At baseline, circulating endothelial cell (CEC) counts and serum levels of interleukin-6 (IL-6), interleukin-8 (IL-8), C-reactive protein (CRP), lactate dehydrogenase (LDH), D-dimer and aspartate aminotransferase (AST) were markedly elevated.

During the course of the study, institutional guidelines at the treating hospital were updated to require that all COVID-19 patients in the hospital receive steroids.

includes multiple sites in the U.S., Asia and Europe, though enrollment has been slow in part due to prioritizing the use of resources within our narsoplimab programs on HSCT-TMA, COVID-19 and IgA nephropathy.

● MASP-2 - narsoplimab (OMS721) - COVID-19 .

In March 2020, in response to a request from physicians at the Papa Giovanni XXIII Hospital in Bergamo, Italy, we initiated a compassionate use program for narsoplimab to treat patients with severe COVID-19 requiring mechanical ventilation.

The initial cohort treated under this compassionate use program included a total of six COVID-19 patients treated with narsoplimab, all with acute respiratory distress syndrome (“ARDS”) and requiring continuous positive airway pressure (“CPAP”) or intubation.

At baseline, circulating endothelial cell (“CEC”) counts and serum levels of interleukin-6 (IL-6), IL-8, C-reactive protein (CRP), LDH, D-dimer and aspartate aminotransferase (AST) were markedly elevated.

During the course of the compassionate use program, institutional guidelines at the treating hospital were updated to require that all COVID-19 patients in the hospital receive steroids.

One patient treated with narsoplimab did not receive steroids.

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This suggests that any beneficial effect of steroids on COVID-19-associated endothelial damage may be delayed and had little effect on the recovery course of the narsoplimab-treated patients who initiated steroid treatment after improving.

Narsoplimab treatment was associated with rapid and sustained reduction across all of these markers of endothelial damage and inflammation.

Narsoplimab treatment was associated with rapid and sustained reduction across all of the above-named markers of endothelial damage and inflammation.

In addition, massive bilateral pulmonary thromboses, seen in two of the patients, resolved while on narsoplimab.

All six narsoplimab-treated patients recovered, survived and were discharged.

Narsoplimab was well tolerated in the study and no adverse drug reactions were reported.

Two control groups with similar baseline characteristics were used for retrospective comparison, both showing substantial mortality rates of 32% and 53%.

A manuscript detailing the results of the study evaluating narsoplimab in patients with severe COVID-19 was published in the peer-reviewed journal Immunobiology .

Narsoplimab was well tolerated and no adverse drug reactions were reported.

Two control groups with similar baseline characteristics were used for retrospective comparison and showed substantial mortality rates of 32% and 53%.

A manuscript detailing the results of the initial cohort of Bergamo patients treated with narsoplimab was published in the peer-reviewed journal Immunobiology .

All six patients were evaluated five to six months after cessation of narsoplimab treatment.

None of them showed any clinical or laboratory evidence of long-term effects of COVID-19, such as cognitive impairment or cardiac, pulmonary or other organ disorder, commonly seen following resolution of initial COVID-19 symptoms.

Endothelial damage and resultant thromboses are significant to the pathophysiology of COVID-19, and we believe these data illustrate the importance of inhibiting the lectin pathway to treat critically ill COVID-19 patients.

Endothelial damage activates the lectin pathway of complement.

We believe the results observed following narsoplimab treatment in severe COVID-19 patients with ARDS at Papa Giovanni were consistent with those seen in HSCT-TMA and underscore the pathophysiologic similarities between these two disorders.

We believe the results observed following narsoplimab treatment in critically ill COVID-19 patients at Papa Giovanni were consistent with those seen in HSCT-TMA and underscore the pathophysiologic similarities between these two disorders.

Narsoplimab has been shown to inhibit lectin pathway activation and to block the MASP-2-mediated conversion of prothrombin to thrombin, microvascular injury-associated thrombus formation and the activation of factor XII as well as the MASP-2-mediated activation of kallikrein.

We believe that the anticoagulant effects of narsoplimab may provide therapeutic benefits in both HSCT-TMA and COVID-19.

Following treatment of the initial six patients under the compassionate use study in Italy, we have continued compassionate-use treatment in the U.S.

Our discussions regarding the use of narsoplimab in COVID-19 have progressed with leaders across various government agencies.

We have also received requests and are in discussions to include narsoplimab in platform trials for COVID-19.

Following treatment of the initial six patients under the compassionate use program in Italy, we continued compassionate-use treatment in the U.S.

Prior to receiving narsoplimab, all of the patients in this second cohort were severely ill, mechanically ventilated, had multiple comorbidities, and had failed other therapies, including anti-virals, targeted anti-inflammatory therapeutics, convalescent plasma and steroids.

Following treatment with narsoplimab, the laboratory improvements and clinical outcomes of these patients are similar to those seen in the initial cohort of Bergamo patients.

Narsoplimab is also the only complement inhibitor included in the I-SPY COVID-19 platform trial sponsored by Quantum Leap Healthcare Collaborative, which is evaluating investigational therapies for the treatment of critically ill COVID-19 patients.

The trial utilizes Quantum Leap Healthcare Collaborative's adaptive platform

trial design, which is intended to increase trial efficiency by minimizing the number of participants and time required to evaluate potential treatments.

Discussions regarding the use of narsoplimab in COVID-19 with leaders across various government agencies, both in the U.S.

and internationally, continue to progress.

● MASP-3 - OMS906 - Alternative Pathway Disorders .

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paroxysmal nocturnal hemoglobinuria (“PNH”);

C3 glomerulopathy;

multiple sclerosis;

traumatic brain injury;

neuromyelitis optica;

pauci-immune necrotizing crescentic glomerulonephritis;

intravascular coagulation;

age-related macular degeneration;

dense deposit disease;

Bechet’s disease;

aspiration pneumonia;

ischemia-reperfusion injury;

Guillain Barre syndrome;

Alzheimer’s disease;

amylotrophic lateral sclerosis;

systemic lupus erythematosus;

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chronic obstructive pulmonary disease;

transplant rejection;

acute respiratory distress syndrome;

antineutrophil cytoplasmic antibody-associated vasculitis;

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myasthenia gravis and others.

Our OMS906 monoclonal antibody program has generated positive data in a well-established animal model associated with PNH, as well as strong pharmacodynamic activity in non-human primates.

The program has also generated positive data in a well-established animal model of arthritis.

In August 2020, we submitted to FDA an Investigational New Drug Application (“IND”) to initiate clinical trials evaluating OMS906, our lead human monoclonal antibody from our MASP-3 program, in the U.S.

Our OMS906 monoclonal antibody program has generated positive data in well-established animal models of PNH and rheumatoid arthritis as well as strong pharmacodynamic activity in non-human primates.

In September 2020 we began enrollment and dosing in a placebo-controlled, double-blind, single-ascending-dose and multiple-ascending-dose Phase 1 clinical trial to evaluate the safety, tolerability, pharmacodynamics and pharmacokinetics of OMS906.

Dosing is complete in the first cohort and has started in the second cohort of this Phase 1 trial.

The third and fourth cohorts are currently enrolling.

Initial data from the Phase 1 trial are expected next year.

We have completed dosing all of the intravenous dosing cohorts and the first subcutaneous dosing cohort in the single-ascending dose study.

Initial data from the Phase 1 trial are expected in the second quarter of 2021.

● PDE7 - OMS527 .

In our phosphodiesterase 7 (“PDE7”) program, we are developing proprietary compounds to treat addiction and compulsive disorders as well as movement disorders.

In our PDE7 program, we are developing proprietary compounds to treat addiction and compulsive disorders as well as movement disorders.

In September 2019 we reported positive results from our Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed to assess safety, tolerability and pharmacokinetics of our lead compound in healthy subjects.

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There was no apparent food effect on plasma exposure to OMS182399.

Our focus is nicotine addiction, and we are planning our Phase 2 development program.

Initiation of a Phase 2 study in our PDE7 program is dependent on availability of financial and other resources, which are currently prioritized for other programs.

Continued clinical development in our PDE7 program is subject to allocation of financial and other resources, which are currently prioritized for other programs.

A manuscript detailing the mechanism of action of PDE7 inhibition in nicotine addiction has been accepted for publication in the peer-reviewed Journal of Neuroscience .

Preclinical Development Programs and Platforms

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We have generated positive preclinical data from MASP-2 inhibition in in vivo models of age-related macular degeneration, myocardial infarction, diabetic neuropathy, stroke, traumatic brain injury, ischemia-reperfusion injury, and other diseases and disorders.

We are also developing a longer-acting second generation antibody targeting MASP-2, which we are targeting for initiation of clinical trials in early 2022.

This program is designated as “OMS1029.” Development efforts are also directed to a small-molecule inhibitor of MASP-2 designed for oral administration, as well as small-molecule inhibitors of MASP-3 and bispecific small- and large-molecule inhibitors of MASP-2/-3.

We are also developing a longer-acting second generation antibody targeting MASP-2 for which we expect to initiate clinical trials in 2022.

This program is designated “OMS1029.” Development efforts are also directed to a small-molecule inhibitor of MASP-2 designed for oral administration as well as to small-molecule inhibitors of MASP-3 and bispecific small- and large-molecule inhibitors of MASP-2/-3.

● GPR174 and GPCR Platform .

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In ex vivo human studies, our small-molecule inhibitors targeting GPR174 upregulate the production of cytokines, block multiple checkpoints and tumor promoters, and suppress regulatory T-cells.

Based on our data, we believe that GPR174 controls a major pathway in cancer and modulation of the receptor could provide a seminal advance in immuno-oncologic treatments for a wide range of tumors.

Based on our data, we believe that GPR174 controls a major, previously unrecognized pathway in cancer and modulation of the receptor could provide a seminal advance in immuno-oncologic treatments for a wide range of tumors.

O ur studies in mouse models of melanoma and colon carcinoma found that GPR174-deficiency resulted in significantly reduced tumor growth and improved survival of the animals versus normal mice.

Our recent discoveries suggest a new approach to

cancer immunotherapy that targets inhibition of GPR174 and can be combined with and significantly improve the tumor-killing effects of adenosine pathway inhibitors and/or checkpoint inhibitors.

These discoveries include (1) identification of cancer-immunity pathways controlled by GPR174, (2) the identification of phosphatidylserine as a natural ligand for GPR174, (3) a collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic enhancement of “tumor-fighting” cytokine production by T cells following the combined inhibition of both GPR174 and the adenosine pathway (e.g., A2A and/or A2B), another key metabolic pathway that regulates tumor immunity.

We continue to focus on GPR174 and several other of our GPCR targets with the objective of moving compounds targeting them into human trials.

Our discoveries suggest a new approach to cancer immunotherapy that targets inhibition of GPR174 and can be combined with and significantly improve the tumor-killing effects of other oncologic agents, including radiation, adenosine pathway inhibitors and checkpoint inhibitors.

These discoveries include (1) identification of cancer-immunity pathways controlled by GPR174, (2) the identification of phosphatidylserine as a natural ligand for GPR174, (3) a collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic enhancement of “tumor-fighting” cytokine production by T cells following the combined inhibition of both GPR174 and the adenosine pathway, another key metabolic pathway that regulates tumor immunity.

We are developing both small-molecule and antibody inhibitors of GPR174 with the objective of moving compounds into human trials and exploring several of our other GPCR targets as well.

Financial Summary

We recognized net losses of $38.5 million and $16.5 million for the three months ended September 30, 2020 and 2019, respectively, and our OMIDRIA revenues were $26.1 million and $29.9 million for the same periods.

During the three months ended September 30, 2020, we recorded a $13.4 million loss on early extinguishment of debt and a related tax benefit of $7.9 million associated with the repurchase of $115.0 million principal amount of our 6.25% Convertible Senior Notes (the “2023 Notes”).

As of September 30, 2020, we had $153.5 million in cash and cash equivalents and short-term investments available for general corporate use and $37.4 million in accounts receivable, net.

We expect our net losses will continue until such time as we derive sufficient revenues from sales of OMIDRIA, narsoplimab and/or other sources, such as licensing, product sales and other revenues from our product candidates including narsoplimab for HSCT-TMA, that are sufficient to cover our operating expenses and debt service obligations.

Fiscal quarters without pass-through reimbursement

Fiscal quarters with reduced cataract procedures due to COVID-19

We recognized net losses of $35.1 million and $29.0 million for the three months ended March 31, 2021 and 2020, respectively, and our OMIDRIA net revenues were $21.1 million and $23.5 million for the same periods.

As of March 31, 2021, we had $100.5 million in cash and cash equivalents and short-term investments available for general corporate use and $24.8 million in accounts receivable, net.

Fiscal quarters with significantly reduced cataract procedures due to COVID-19

Pass-through reimbursement expired on October 1, 2020.

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

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

Due to the postponement of elective surgical procedures, including cataract surgery, we did not make any sales of OMIDRIA to our wholesalers from March 25 to May 19, 2020.

However, by the end of June 2020, the run rate of weekly OMIDRIA sales approximated those seen prior to the pandemic.

In its 2021 OPPS proposed rule, CMS confirmed the October 1, 2020 expiration of pass-through reimbursement for OMIDRIA and consequently, pass-through reimbursement for OMIDRIA under Medicare Part B ended on October 1, 2020 and our net revenues for September were significantly reduced.

CMS is expected to publish the final 2021 OPPS

rule later in 2020.

However, we can provide no guarantee that CMS’ final 2021 OPPS rule will provide separate reimbursement for OMIDRIA.

In 2019 CMS codified revisions to the ASC payment system pursuant to its policy to “unpackage and pay separately at ASP+6 percent for the cost of non-opioid pain management drugs that function as surgical supplies when they are furnished in the ASC setting.” CMS continued this policy, without change, in 2020 and has proposed to extend it again in 2021.

During the time that these revisions to the ASC payment system have been in force, they have not applied to OMIDRIA because OMIDRIA had pass-through status and, accordingly, has not been packaged.

OMIDRIA does not contain an opioid, has an FDA-approved label indication for pain reduction and CMS considers it to function as a surgical supply.

Because OMIDRIA is subject to packaged payment following expiration of its pass-through status, we believe that OMIDRIA now satisfies these criteria for separate payment when provided in the ASC setting.

In September 2020, we submitted to CMS a comment letter on the 2021 OPPS proposed rule and a legal memorandum outlining our position that OMIDRIA meets all of the regulatory criteria established by CMS for separate payment in the ASC setting and by law should be separately paid when used in the ASC in the fourth quarter of 2020 and throughout calendar year 2021.

We are also continuing to pursue other administrative and legislative avenues to secure separate payment for OMIDRIA for the remainder of 2020 and beyond.

If these efforts are not successful, we expect to implement an alternative market approach, however we are likely to have significantly reduced sales of OMIDRIA until we are able to implement such strategy.

We may face difficulties or delays in implementing such a strategy and, even if successfully implemented, we cannot predict whether, or to what extent, our customers would maintain or increase their utilization of OMIDRIA.

See “Commercial Product - OMIDRIA” earlier in this section for additional details regarding the separate payment status for OMIDRIA.

The uncertainty around pass-through reimbursement or other separate payment status for OMIDRIA and COVID-19 will likely have a continuing adverse impact on our business, operations and financial results, limiting the number of cataract procedures which may be performed and significantly reducing demand for our commercial drug product, OMIDRIA.

COVID-19 and the corresponding governmental response has and may continue to lead to disruptions in commercial sales activities, delays in our clinical trials or in the submission or review of regulatory applications.

Due to the ongoing impact of the global pandemic on OMIDRIA sales, as well as the uncertain reimbursement status for OMIDRIA for the remainder of 2020 and beyond, we are unable to predict future OMIDRIA product sales, net.

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

Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020, which negatively affected our net revenues for September, the fourth quarter of 2020 and the first quarter of 2021.

In December 2020, CMS confirmed that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ASCs.

CMS’ current non-opioid separate payment policy can be changed by CMS through its OPPS/ASC annual rulemaking and

comment process.

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

We expect our net losses will continue until such time as we derive sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing, product sales and other revenues from our product candidates, that are sufficient to cover our operating expenses and debt service obligations.

Results of Operations

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Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Product sales, net

During the three and nine months ended September 30, 2020, OMIDRIA revenue was $26.1 million and $63.2 million as compared to $29.9 million and $78.4 million for the three and nine months ended September 30, 2019.

The decrease in revenue during the three months ended September 30, 2020 compared to the same period in the prior year was due to recording an $8.7 million deduction for product returns from wholesalers, ASCs and hospitals related to the expiration of pass-through reimbursement for OMIDRIA on October 1, 2020.

The additional decrease in revenue during the nine months ended September 30, 2020 compared to the same period in the prior year was due to COVID-19 related closings of ASCs and hospitals to elective cataract procedures from mid-March 2020 through to late June 2020.

By the end of June 2020, the weekly run rate of OMIDRIA sales had returned to levels approaching those seen prior to the pandemic and continued to increase during the third quarter prior to recording the OMIDRIA return reserve.

Given the uncertainty and local variances in the severity and response to the COVID-19 pandemic across the U.S., and whether OMIDRIA will receive separate payment, we are not able to predict future OMIDRIA revenue.

During the three months ended March 31, 2021, OMIDRIA net revenue was $21.1 million as compared to $23.5 million for the three months ended March 31, 2020.

The decrease in revenue during the three months ended March 31, 2021 compared to the same period in the prior year was due to the timing of ASCs’ ability to verify reimbursement status following the December confirmation by CMS of separate payment for OMIDRIA before resuming their OMIDRIA usage.

The lack of Medicare Part B reimbursement in the hospital setting during the quarter ended March 31, 2021 also contributed to the decrease in revenues.

The ongoing COVID-19 pandemic negatively affected the number of cataract procedures performed in the quarter ended March 31, 2020 and, to a lesser extent, the quarter ended March 31, 2021.

With separate payment for OMIDRIA established, we expect OMIDRIA revenues to increase during the second quarter.

Gross-to-Net Deductions

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These deductions are generally referred to as gross-to-net deductions.

Our total gross-to-net provision for the three and nine months ended September 30, 2020 was 46.8% and 36.6% of gross OMIDRIA product sales, respectively.

This compares to 28.5% and 28.0% for the three and nine months ended September 30, 2019, respectively.

The increase in gross-to-net deductions as a percentage of sales in 2020 compared to 2019 is due to the OMIDRIA return provision recorded in the third quarter of 2020.

A summary of our gross-to-net related accruals for the nine months ended September 30, 2020 is as follows:

Our total gross-to-net provision for the three months ended March 31, 2021 was 31.5% of gross OMIDRIA product sales compared to 32.3% for the three months ended March 31, 2020.

The decrease in gross-to-net deductions as a percentage of sales in 2021 compared to 2020 is due to a reduction in sales returns during the first quarter of 2021 partially offset by an increase in our OMIDRIAssure ® patient assistance and reimbursement program.

A summary of our gross-to-net related accruals for the three months ended March 31, 2021 is as follows:

(In thousands)

Balance as of December 31, 2020

Balance as of September 30, 2020

Balance as of March 31, 2021

Chargebacks and Rebates

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

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

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

Our chargebacks are related to a

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

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

Distribution Fees and Product Return Allowances

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

During the three months ended September 30, 2020 we estimated and recorded an $8.7 million provision for potential returns from our wholesalers, ASCs and hospital customers due to the October 1, 2020 expiration of pass-through reimbursement for OMIDRIA.

Research and Development Expenses

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and stock-based compensation expense.

Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing organizations prior to receiving regulatory approval for a product candidate, contract research organizations, clinical trial sites, collaborators, consultants, and licensors consultants.

Costs are reported in preclinical research and development until the program enters the clinic.

Internal, overhead and other expenses consist of personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs.

We do not generally allocate our internal resources, employees and infrastructure to any individual research project because we deploy them across multiple clinical and preclinical projects that we are advancing in parallel.

The following table illustrates our expenses associated with these activities:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total research and development expenses

Total direct research and development expenses increased $4.3 million and $11.2 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

The $4.3 million increase for the three months ended September 30, 2020 is due to a $5.0 million access fee payable upon entry into a newly signed technology license agreement with a third party related to the MASP-3 program, which began clinical trials in the third quarter of 2020.

The $11.2 million increase for the nine months ended September 30, 2020 is primarily due to the $5.0 million access fee payable under the technology license agreement related to the MASP-3 program entered into during the third quarter of 2020, increased IgA nephropathy clinical trial costs, and additional HSCT-TMA costs related to the preparation of our rolling BLA and disease awareness activities.

We expect the majority of our research and development expenses for the remainder of 2020 to be related to our narsoplimab and MASP-3 programs.

We expect overall research and development costs in the fourth quarter 2020 to increase slightly from current levels as we manufacture additional drug substance and expand our disease awareness activities in preparation for the anticipated U.S.

commercial launch of narsoplimab in HSCT-TMA.

These increases will be partially offset by the absence of technology license agreement costs in the fourth quarter of 2020.

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

Total clinical research and development expenses increased $4.3 million for the three months ended March 31, 2021 compared to the same period in the prior year due to timing of narsoplimab drug manufacturing and medical affairs-related activities surrounding the commercial launch of narsoplimab.

During the first quarter of 2021, OMS906 clinical research and development expenses were $1.8 million, which also contributed to the increase in total clinical research and development expenses.

In the prior year quarter, OMS906 expenses of $2.3 million were included as preclinical research and development.

The decrease in preclinical research and development expenses for the three months ended March 31, 2021 compared to the same period in the prior year is primarily due to the migration of OMS906 from preclinical research and development to clinical research and development beginning in the third quarter of 2020 when OMS906 entered Phase 1 clinical trials.

The increases in internal, overhead and other expenses are primarily due to additional employee-related costs and additional leased laboratory facilities to support our research and development activities.

We expect overall research and development costs in the second quarter of 2021 to be comparable to the quarter ended March 31, 2021.

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

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

Our future research and development expenses will depend, in part, on the preclinical or clinical success of each product candidate as well as ongoing assessments of each program’s commercial potential.

Our future research and development expenses will depend, in part, on the preclinical or clinical success of each product candidate as well as on ongoing assessments of each program’s commercial potential.

In addition, we cannot forecast with precision which product candidates, if any, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total selling, general and administrative expenses

Total selling, general and administrative expenses increased $2.9 million and $6.3 million, respectively, for the three and nine months ended September 30, 2020.

The increase in selling, general and administrative expenses during the three and nine months ended September 30, 2020 compared to the same periods in 2019 was primarily due to increased pre-commercialization activities for narsoplimab, including costs related to product training.

We expect that our selling, general and administrative expenses will increase during the fourth quarter of 2020 compared to current levels, primarily due to increased pre-commercialization activities for narsoplimab.

Total selling, general and administrative expenses did not increase significantly compared to the same period in the prior year.

We expect that our selling, general and administrative expenses will increase during the second quarter of 2021 due to increased pre-commercialization activities for narsoplimab.

Interest Expense

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Interest expense

Interest expense is comprised of contractual interest and amortization of debt issuance and debt discount related to our 2023 and 2026 Notes, as well as interest on our finance leases.

We expect that our fourth quarter 2020 interest expense will be approximately $8.0 million.

For more information, see “Note 6—Unsecured Convertible Senior Notes.”

Loss on Early Extinguishment of Debt

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Loss on early extinguishment of debt

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

We recorded a $13.4 million loss on early extinguishment of debt related to the unamortized discount and issuance costs related to the repurchased 2023 Notes in the three and nine months ended September 30, 2020.

Income Tax Benefit

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Income tax benefit

During the third quarter of 2020, we issued the 2026 Notes which created an income tax benefit of $7.9 million.

We anticipate that we will recognize an additional income tax benefit of $4.1 million during the fourth quarter of 2020.

See “Note 6 —Unsecured Convertible Senior Notes.”

Interest expense is comprised of contractual interest and amortization of debt issuance and debt discount related to our 2023 and 2026 Notes as well as to interest on our finance leases.

Interest expense decreased $1.0 million for the three months ended March 31, 2021 compared to the same period in the prior year due to the early adoption of ASU 2020-06, which eliminated the amortization of the non-cash debt discount on the 2023 and 2026 Notes.

This decrease was partially offset by the increase in interest related to our 2026 Notes, which were issued in August and September 2020 (for more information, see “Note 7—Unsecured Convertible Senior Notes”).

Financial Condition - Liquidity and Capital Resources

As of September 30, 2020, we had $153.5 million in cash, cash equivalents and short-term investments available for general corporate use held primarily in money-market accounts.

In addition, as of September 30, 2020, we had $37.4 million in accounts receivable, net.

As of March 31, 2021, we had $100.5 million in cash, cash equivalents and short-term investments available for general corporate use held primarily in money-market accounts as compared to $135.0 million at December 31, 2020.

In addition, as of March 31, 2021, we had $24.8 million in accounts receivable, net.

We have historically generated net losses and incurred negative cash flows from operations and debt service.

For the nine months ended September 30, 2020, we incurred net losses of $100.8 million and incurred negative cash flows from operations of $81.7 million.

We expect to continue to incur losses from operations until our revenues exceed operating costs and debt service obligations.

OMIDRIA pass-through reimbursement from CMS expired on October 1, 2020.

We believe that this approach would result in substantial revenues from OMIDRIA, in part because CMS Medicare Part B beneficiaries only represent approximately 45% of cataract surgery procedures annually.

We anticipate narsoplimab for HSCT-TMA will receive FDA approval and will launch in early to mid-2021.

Currently we cannot fully predict 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 accelerated or delayed.

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

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

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

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

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 a portion of our existing technology.

For the three months ended March 31, 2021,

we incurred a net loss of $35.1 million and incurred negative cash flows from operations of $40.3 million.

The net loss and the negative cash flows from operations in the quarter ended March 31, 2021 were significantly affected by (1) reduced OMIDRIA revenues following expiration of the drug’s pass-through status and the delayed posting by Medicare Administrative Contractors of CMS’ December 2020 determination that OMIDRIA be paid separately under Medicare Part B in the ASC setting, and (2) the COVID-19-related decrease in the number of cataract procedures performed nationally.

FDA accepted our BLA for narsoplimab in HSCT-TMA for priority review with a PDUFA action date of July 17, 2021.

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

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

Our sales and marketing strategies for the launch of narsoplimab for HSCT-TMA include various milestones at which we commit to incremental spending, such as for field sales hiring, providing for flexibility in the timing of costs incurred should the approval of narsoplimab be delayed.

We plan to fund our operations for 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 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 also entered into a sales agreement to sell shares of our common stock, from time to time, up to an aggregate offering amount of $150.0 million through an “at the market” equity offering program.

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

Should it be necessary to manage our operating expenses, we 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.

Cash Flow Data

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

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Operating Activities.

Net cash used in operating activities for the nine months ended September 30, 2020 increased by $44.6 million as compared to the same period in 2019.

The net increase is primarily due to an increase in our net loss of $45.5 million, which was partially offset by an increase in non-cash charges of $8.3 million.

In addition, cash used in accounts payable and accrued expense increased by $15.6 million.

These increases were partially offset by a $4.9 million increase in cash provided from collections of accounts receivable.

Net cash used in operating activities for the three months ended March 31, 2021 increased by $31.1 million as compared to the same period in 2020.

The net increase is primarily due to a $32.1 million reduction in accounts receivable cash collections, a $6.1 million increase in our net loss and a $2.3 million decrease in non-cash charges offset by $4.4 million decrease in prepaids and a $4.7 million increase in accounts payable and accrued expenses.

Investing Activities.

Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the sale of short-term investments, thus causing a shift between our cash and cash equivalents and short-term investment balances.

Because we manage our cash usage with respect to our total cash, cash

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

Net cash used in investing activities during the nine months ended September 30, 2020 was $75.0 million, a decrease of $110.9 million for the same period in 2019 driven by an increase in purchases of investments of $132.6 million offset by proceeds from sale and maturities of investments of $21.7 million.

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

Net cash provided by investing activities during the three months ended March 31, 2021 was $33.0 million, an increase of $22.2 million for the same period in 2020 due to net proceeds from investment maturities exceeding investment purchases.

Financing Activities.

Net cash provided by financing activities during the nine months ended September 30, 2020 was $174.7 million, an increase of $170.5 million compared to the same period in 2019.

The increase for the nine months ended September 30, 2020 compared to the prior year was due to receiving cash proceeds of $218.2 million from the issuance of our 2026 Notes and $7.5 million from the termination of the 2023 Capped Call contract offset by $125.6 million to repurchase our 2023 Notes and $23.2 million to purchase the 2026 Capped Call.

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

Net cash provided by financing activities during the three months ended March 31, 2021 was $5.8 million, an increase of $3.4 million compared to the same period in 2020.

The increase was due to incremental cash proceeds from the exercise of our common stock.

At the Market Sales Agreement.

On March 1, 2021, we entered into a sales agreement to sell shares of our common stock, from time to time and having an aggregate offering price of up to $150.0 million, through an “at the market” equity offering program.

As of March 31, 2021, we have not sold any shares under this agreement.

Line of Credit Agreement.

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

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

As of September 30, 2020, we had no outstanding borrowings under the Line of Credit Agreement, and we were in compliance with all covenants in all material respects.

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

As of March 31, 2021, we had no outstanding borrowings under the Line of Credit Agreement, and we were in compliance with all covenants in all material respects.

See earlier discussion under “Liquidity and Capital Resources” for further detail regarding the availability of the line of credit.

Contractual Obligations and Commitments

The following table presents a summary of our contractual obligations and commitments as of September 30, 2020.

Payments Due Within

(In thousands)

Operating leases

Finance leases (principal and interest)

Unsecured convertible senior notes

Goods & services

Our future minimum contractual commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2020.

Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported.

Lease Agreements

We lease our office and laboratory space in The Omeros Building under a lease agreement with BMR - 201 Elliott Avenue LLC.

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

As of September 30, 2020, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $48.2 million.

Unsecured Convertible Senior Notes

For more information, see “Note 6—Unsecured Convertible Senior Notes.”

Our lease for our office and laboratory space ends in November 2027.

We have two five-year options to extend the lease term.

As of March 31, 2021, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $53.8 million.

Goods and Services

We have certain other non-cancelable obligations under various agreements that relate to goods and services.

As of September 30, 2020, our aggregate firm commitments were $35.9 million.

As of March 31, 2021, our aggregate firm commitments were $30.9 million.

We may be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur.

Therefore, such payments are not included in the amount above.

Therefore, such payments are not included in the amounts described above.

Critical Accounting Policies and Significant Judgments and Estimates

There have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019.

On January 1, 2021, we adopted ASU 2020-06, Debt—Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis (for more information, see “ Note 2—Significant Accounting Policies, Recently Adopted Pronouncements ”).

Other than the adoption of ASU 2020-06, there have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

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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-Q

Item 2. Management’s Discussion and Analysis