OMEROS CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements ​ ​ ​ Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 60 Consolidated Balance Sheets 62 Consolidated Statements of Operations and Comprehensive Loss 63 Consolidated Statement of Shareholders’ Equity (Deficit) 64 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 66 ​ ​ ​ 59 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, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2022 expressed an unqualified opinion thereon. ​ Adoption of ASU No. 2020-06 ​ As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible instruments in 2021 due to the adoption of ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ​ 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 Matters ​ The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the 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 audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. ​ 60 Table of Contents ​ 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. 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. ​ OMIDRIA Contract Royalty Asset Description of the Matter As more fully described in Note 2 of the financial statements, the Company recorded a contract asset in connection with its sale of OMIDRIA to Rayner Surgical, Inc. on December 23, 2021. To measure that contract asset, the Company used the expected value approach, which is the sum of the probability-weighted royalty payments using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. ​ Auditing management’s forecasts is complex and requires judgment due to the level of estimation uncertainty and the sensitivity of the asset’s value to changes in assumptions. In particular, the value of the OMIDRIA contract royalty asset is sensitive to changes in significant assumptions such as forecasted royalties due from Rayner Surgical, Inc. in various scenarios, the probability-weighting of those scenarios, and the discount rate applied, which are affected by expectations about future market and regulatory conditions. ​ 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 measuring the OMIDRIA contract royalty asset. ​ To test the measurement of the OMIDRIA contract royalty asset, we performed audit procedures that included, among others, evaluating (1) the estimated future royalties in various scenarios, (2) management’s relative weighting of those scenarios, and (3) the discount rate applied. We compared estimated future royalties to the Company’s historical revenues and royalty rates in the asset purchase agreement. We evaluated the appropriateness and likelihood of occurrence of the various scenarios included in management’s calculation, given the Company’s experience and industry trends. We involved valuation specialists to assist in our testing of the discount rate and verified the clerical accuracy of the calculation. We also evaluated the Company’s disclosures in the consolidated financial statements related to these matters. ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 1998. Seattle, Washington March 1, 2022 61 Table of Contents OMEROS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Assets ​ ​ ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 100,808 ​ $ 10,501 Short-term investments ​ 56,458 ​ 124,452 OMIDRIA contract royalty asset, short-term ​ ​ 44,319 ​ ​ — Receivables, net ​ 38,155 ​ 3,841 Prepaid expense and other assets ​ 8,149 ​ 10,455 Current assets from discontinued operations ​ ​ — ​ ​ 2,036 Total current assets ​ 247,889 ​ 151,285 OMIDRIA contract royalty asset ​ ​ 140,251 ​ ​ — Property and equipment, net ​ 1,731 ​ 2,551 Right of use assets ​ ​ 28,276 ​ ​ 25,526 Restricted investments ​ 1,054 ​ 1,055 Advanced payments, non-current ​ 67 ​ 625 Total assets ​ $ 419,268 ​ $ 181,042 ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders’ equity (deficit) ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 13,400 ​ $ 4,199 Accrued expenses ​ 33,134 ​ 28,755 Current portion of lease liabilities ​ 5,255 ​ 3,782 Total current liabilities ​ 51,789 ​ 36,736 Lease liabilities, non-current ​ 29,126 ​ 28,770 Unsecured convertible senior notes, net ​ 313,458 ​ 236,288 Other accrued liabilities - noncurrent ​ 1,115 ​ — Commitments and contingencies (Note 11) ​ ​ Shareholders’ equity (deficit): ​ ​ Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized; none issued and outstanding at December 31, 2021 and December 31, 2020. ​ — ​ — Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at December 31, 2021 and December 31, 2020; 62,628,855 and 61,671,231 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. ​ 626 ​ 616 Additional paid-in capital ​ 706,288 ​ 751,304 Accumulated deficit ​ ( 683,134 ) ​ ( 872,672 ) Total shareholders’ equity (deficit) ​ 23,780 ​ ( 120,752 ) Total liabilities and shareholders’ equity (deficit) ​ $ 419,268 ​ $ 181,042 ​ See accompanying Notes to Consolidated Financial Statements ​ 62 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product sales, net ​ $ — ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ Cost of product sales ​ — ​ — ​ — Research and development ​ 118,775 ​ 107,612 ​ 106,324 Selling, general and administrative ​ 54,842 ​ 49,306 ​ 39,714 Total costs and expenses ​ 173,617 ​ 156,918 ​ 146,038 Loss from continuing operations ​ ( 173,617 ) ​ ( 156,918 ) ​ ( 146,038 ) Loss on early extinguishment of debt ​ — ​ ( 13,374 ) ​ — Interest expense ​ ( 19,669 ) ​ ( 26,751 ) ​ ( 22,657 ) Other income ​ 1,740 ​ 654 ​ 1,553 Loss from continuing operations before income tax benefit ​ ( 191,546 ) ​ ( 196,389 ) ​ ( 167,142 ) Income tax benefit ​ — ​ 23,256 ​ 19,774 Net loss from continuing operations ​ ​ ( 191,546 ) ​ ​ ( 173,133 ) ​ ​ ( 147,368 ) Net income from discontinued operations, net of tax ​ ​ 385,781 ​ ​ 35,072 ​ ​ 62,882 Net income (loss) ​ $ 194,235 ​ $ ( 138,061 ) ​ $ ( 84,486 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic and diluted net income (loss) per share ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss from continuing operations ​ $ ( 3.07 ) ​ $ ( 3.02 ) ​ $ ( 2.98 ) Net income from discontinued operations ​ ​ 6.19 ​ ​ 0.61 ​ ​ 1.27 Net income (loss) ​ $ 3.12 ​ $ ( 2.41 ) ​ $ ( 1.71 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares used to compute basic and diluted net income (loss) per share ​ ​ 62,344,100 ​ ​ 57,176,743 ​ ​ 49,523,444 ​ See accompanying Notes to Consolidated Financial Statements ​ 63 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Shareholders’ ​ ​ Shares ​ Amount ​ Capital ​ Deficit ​ Equity/(Deficit) Balance at December 31, 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 ) Issuance of common stock upon exercise of stock options and warrants 945,924 ​ ​ 10 ​ ​ 8,372 ​ ​ — ​ ​ 8,382 Issuance of common stock upon grant of restricted stock awards ​ 11,700 ​ ​ — ​ ​ 91 ​ ​ — ​ ​ 91 At the market offering fees ​ — ​ ​ — ​ ​ ( 241 ) ​ ​ — ​ ​ ( 241 ) Stock-based compensation — ​ ​ — ​ ​ 17,539 ​ ​ — ​ ​ 17,539 Cumulative effect of adopting ASU 2020-06 ​ — ​ ​ — ​ ​ ( 70,777 ) ​ ​ ( 4,697 ) ​ ​ ( 75,474 ) Net income — ​ ​ — ​ ​ — ​ ​ 194,235 ​ ​ 194,235 Balance at December 31, 2021 62,628,855 ​ $ 626 ​ $ 706,288 ​ $ ( 683,134 ) ​ $ 23,780 ​ See accompanying Notes to Consolidated Financial Statements ​ 64 Table of Contents OMEROS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 194,235 ​ $ ( 138,061 ) ​ $ ( 84,486 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ Stock-based compensation expense ​ ​ 17,630 ​ ​ 14,925 ​ ​ 13,785 Gain on the sale of OMIDRIA, gross ​ ​ ( 310,563 ) ​ ​ — ​ ​ — Non-cash interest expense ​ 1,696 ​ 11,649 ​ 9,232 Depreciation and amortization ​ 1,386 ​ 1,616 ​ 1,790 Loss on early extinguishment of debt ​ — ​ 13,374 ​ — Deferred income tax ​ — ​ ( 12,011 ) ​ — Fair value settlement upon termination of cap call contract ​ — ​ 838 ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ Receivables ​ ( 34,314 ) ​ 31,344 ​ ( 12,367 ) Prepaid expenses and other assets ​ 4,900 ​ ( 4,024 ) ​ ( 1,310 ) Accounts payable and other expense ​ 14,640 ​ ( 19,736 ) ​ 13,283 Other liabilities non-current ​ 668 ​ — ​ — Net cash used in operating activities ​ ( 109,722 ) ​ ( 100,086 ) ​ ( 60,073 ) Investing activities: ​ ​ ​ Cash proceeds for the sale of OMIDRIA ​ ​ 125,993 ​ ​ — ​ ​ — Purchases of property and equipment ​ ( 277 ) ​ ( 283 ) ​ ( 334 ) Purchases of investments ​ ( 32,006 ) ​ ( 133,194 ) ​ ( 58,217 ) Proceeds from the sale and maturities of investments ​ 100,000 ​ 66,446 ​ 55,150 Net cash provided by (used in) investing activities ​ 193,710 ​ ( 67,031 ) ​ ( 3,401 ) Financing activities: ​ ​ ​ Proceeds from issuance of convertible senior notes ​ ​ — ​ ​ 225,030 ​ ​ — Payments for debt issuance costs ​ ​ — ​ ​ ( 6,785 ) ​ ​ — Purchases of capped calls related to convertible senior notes ​ — ​ ( 23,223 ) ​ — Payments for repurchases of convertible senior notes ​ — ​ ( 125,638 ) ​ — Proceeds from termination of capped call contracts ​ — ​ 7,549 ​ — Proceeds from issuance of common stock, net ​ ​ — ​ ​ 93,675 ​ ​ 54,238 Release in restricted investments ​ — ​ 99 ​ — Proceeds upon exercise of stock options and warrants ​ 8,383 ​ 5,022 ​ 7,598 At the market offering costs ​ ( 241 ) ​ — ​ — Payments on finance lease obligations ​ ( 1,823 ) ​ ( 1,195 ) ​ ( 1,139 ) Net cash provided by financing activities ​ 6,319 ​ 174,534 ​ 60,697 Net increase (decrease) in cash and cash equivalents ​ 90,307 ​ 7,417 ​ ( 2,777 ) Cash and cash equivalents at beginning of period ​ 10,501 ​ 3,084 ​ 5,861 Cash and cash equivalents at end of period ​ $ 100,808 ​ $ 10,501 ​ $ 3,084 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow information ​ ​ ​ Cash paid for interest ​ $ 17,876 ​ $ 11,603 ​ $ 13,462 Property acquired under finance lease ​ $ 289 ​ $ 216 ​ $ 1,440 ​ See accompanying Notes to Consolidated Financial Statements ​ 65 Table of Contents OMEROS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1—Organization and Basis of Presentation General Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic diseases, including complement-mediated diseases and cancers related to dysfunction of the immune system, as well as addictive and compulsive disorders. Our first drug product, OMIDRIA ® (phenylephrine and ketorolac intraocular solution) 1% / 0.3%, is marketed in the United States (the “U.S.”) for use during cataract surgery or intraocular lens replacement. We sold OMIDRIA and related business assets on December 23, 2021. See “Sale of OMIDRIA Assets” below for additional information. ​ Our drug candidate narsoplimab is the subject of a biologics license application (“BLA”) pending before the U.S. Food and Drug Administration (“FDA”) for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”). On October 18, 2021, we announced the receipt of a Complete Response Letter (“CRL”) from FDA regarding the BLA. In the CRL, FDA expressed difficulty in estimating the treatment effect of narsoplimab in HSCT-TMA and asserted that additional information will be needed to support regulatory approval. In February 2022, we had a Type A meeting with FDA to discuss the CRL, including each of the review issues that FDA identified as presenting difficulties interpreting the treatment response in the pivotal trial. We are currently awaiting FDA’s response to our rebuttals to each of those review issues. We continue to believe that our BLA, as submitted, merits approval and that the data meet or exceed the threshold for substantial evidence of effectiveness. 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. Sale of OMIDRIA Assets On December 23, 2021, we closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc. (“Rayner”) for the sale of our commercial product OMIDRIA and certain related assets including inventory and prepaid expenses (the “Transaction”). Rayner paid us $ 126.0 million in cash at closing, and we retained all outstanding accounts receivable, accounts payable and accrued expenses as of the closing date. We will receive a royalty on worldwide sales of OMIDRIA and potentially a $ 200.0 million milestone payment if separate payment for OMIDRIA is secured in the U.S. for a continuous period of at least four years before January 1, 2025. ​ As a result of the divestiture, the results of OMIDRIA operations (e.g., revenues and operating costs) have been reclassified to discontinued operations in our consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented (See “Note 3 – Discontinued Operations”). ​ Basis of Presentation Our consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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 As of December 31, 2021, we had cash, cash equivalents and short-term investments of $ 157.3 million and outstanding accounts receivable of $ 38.2 million. Our loss from continuing operations for the year ended December 31, 66 Table of Contents 2021 was $ 191.5 million. This loss from operations does not include the $ 80.1 million in earnings from OMIDRIA included in discontinued operations which occurred prior to the sale, a large portion of which we expect to retain through royalties and expense reductions on a go forward basis. ​ We plan to continue to fund our operations for the next twelve months with our existing cash and investments, our current accounts receivable, and OMIDRIA royalties. There is also the potential for us to receive a $ 200.0 million milestone related to achievement of long-term OMIDRIA separate payment. If FDA approval is granted for narsoplimab for HSCT-TMA within the next twelve months, sales of narsoplimab will also provide funds for our operations . We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $ 150.0 million. Should it be determined to be strategically advantageous, we could pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technology. ​ Management believes the assets on hand along with expected royalties received are adequate to finance our operations at least through March 2, 2023. Accordingly, the accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ​ The 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 has had 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 the continued impact on our business, operations or financial results; however, the impact has been and could continue to be substantial. 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, OMIDRIA contract royalty asset valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors, 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 Discontinued Operations We review the presentation of planned or completed business dispositions in the consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business and, if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the consolidated statements 67 Table of Contents of operations and comprehensive loss. Results of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to discontinued operations. The OMIDRIA asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented. The Company included information regarding cash flows from discontinued operations (see “Note 3 – Discontinued Operations”). OMIDRIA Royalties and OMIDRIA Contract Royalty Assets Upon the closing of the Transaction, we have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualifies as an asset sale. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the sum of the discounted probability-weighted royalty payments, net of tax, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. Accordingly, the contract royalty asset excludes the achievement of the $ 200.0 million milestone payment and any foreign royalties to the extent it is probable that a significant reversal in the amount of cumulative income recognized will not occur. Royalties earned will be recorded as a reduction to the OMIDRIA contract royalty asset. The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset and any amounts received received different from the expected royalties recorded at closing. The OMIDRIA contract royalty asset will also be re-measured periodically using the expected value approach based on actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset will be recorded into discontinued operations. 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’ equity. 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, 2021 and 2020, 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 drug candidate is reasonably assured in the U.S. or the European Union (‘EU”). We expense inventory costs related to drug 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. Inventory with an alternative future use is capitalized. Receivables, Net Receivables relate primarily to sales of OMIDRIA made to wholesalers prior to the sale to Rayner and include reductions for estimated chargebacks and product returns that are expected to be settled through reductions in 68 Table of Contents receivables. Remaining receivables generally 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, 2021 and 2020. 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 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 On January 1, 2021, we adopted Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion Options (Subtopic 470.20 and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis. ASU 2020- 06 removes the separate liability and equity accounting for our convertible senior notes that was required under previous guidance and allows us to account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs increasing unsecured convertible senior notes and shareholders’ equity by $ 75.5 million. 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 are evaluated as a modification or an exchange transaction depending on whether the exchange is determined to have substantially different terms. The 6.25 % Convertible Senior Notes (the “2023 Notes”) repurchase and issuance of the 5.25 % Convertible Senior Notes (“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. (See “Note 9 – Unsecured Convertible Senior Debt”). 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 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, 2021, 2020 and 2019. 69 Table of Contents 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 our drug product. 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. 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. 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 70 Table of Contents 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 $ 7.8 million, $ 5.6 million and $ 8.0 million during the years ended December 31, 2021, 2020 and 2019, 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, 2021, 2020 or 2019. 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 Prior to the sale of OMIDRIA to Rayner, we sold 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 71 Table of Contents revenues for the years ended December 31, 2021, 2020 and 2019 and greater than 10% of accounts receivable as of December 31, 2021, 2020 and 2019 as noted below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 ​ 2019 ​ ​ 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 20 % ​ 16 % ​ 25 % ​ 36 % ​ 25 % ​ 23 % Distributor B 24 % ​ 20 % ​ 26 % ​ 31 % ​ 24 % ​ 19 % Distributor C 40 % ​ 46 % ​ 32 % ​ 10 % ​ 29 % ​ 33 % Distributor D 16 % ​ 18 % ​ 17 % ​ 23 % ​ 22 % ​ 25 % ​ Note 3—Discontinued Operations On December 23, 2021, we closed an Asset and Purchase Agreement for the sale of OMIDRIA and certain related assets including inventory and prepaid expenses. We retained the outstanding accounts receivable and all outstanding liabilities related to OMIDRIA as of the closing date. ​ Upon closing, we received an up-front cash payment of $ 126.0 million. We will also receive a 50 % royalty on OMIDRIA net sales in the U.S. between December 23, 2021 and the earlier of January 1, 2025 or the payment of the $ 200.0 million milestone described below. After such date, we will receive a 30 % royalty on OMIDRIA net sales in the U.S. (the “U.S. base royalty rate”) until the expiration or termination of the last issued and unexpired U.S. patent. The U.S. base royalty rate is reduced to 10 % upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for separate payment. We will also receive a royalty of 15 % on OMIDRIA net sales outside the U.S. on a country-by-country basis between the closing date and the expiration or termination of the last issued and unexpired OMIDRIA patent in such country. We will receive a $ 200.0 million milestone payment if, prior to January 1, 2025, separate payment for OMIDRIA is secured in the U.S. for a continuous period of at least four years . ​ The sale of OMIDRIA was recorded as an asset sale and all comparative periods presented are required to be reclassified in the consolidated balance sheets. Additionally, the results of operations for OMIDRIA are reclassified to income from discontinued operations for all periods presented in the consolidated statements of operations and comprehensive loss. ​ Net income from discontinued operations, net of tax is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ ​ (In thousands) Product sales, net ​ $ 110,735 ​ $ 73,813 ​ $ 111,805 Royalty income ​ ​ 1,035 ​ ​ — ​ ​ — OMIDRIA income ​ ​ 111,770 ​ ​ 73,813 ​ ​ 111,805 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ Cost of product sales ​ 1,364 ​ 902 ​ 865 Research and development ​ 3,839 ​ 3,205 ​ 3,372 Selling, general and administrative ​ 25,428 ​ 23,389 ​ 24,912 Total costs and expenses ​ 30,631 ​ 27,496 ​ 29,149 Income before income tax expense ​ 81,139 ​ 46,317 ​ 82,656 Income tax expense ​ ( 1,006 ) ​ ( 11,245 ) ​ ( 19,774 ) Net income from discontinued operations, net of tax ​ ​ 80,133 ​ ​ 35,072 ​ ​ 62,882 Gain on sale of OMIDRIA, net ​ 305,648 ​ — ​ — Net income from discontinued operations, net of tax ​ $ 385,781 ​ $ 35,072 ​ $ 62,882 ​ 72 Table of Contents The gain on the sale of OMIDRIA included in discontinued operations for the year ended December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ (In thousands) Cash proceeds ​ $ 125,993 OMIDRIA contract royalty asset ​ ​ 184,570 Gain on sale of OMIDRIA, gross ​ ​ 310,563 Transaction and closing costs ​ ​ ( 1,972 ) Restricted Stock Units ("RSUs") granted to transferred employees ​ ​ ( 1,419 ) Prepaid assets and inventory at cost ​ ​ ( 1,524 ) Gain on sale of OMIDRIA, net ​ $ 305,648 ​ Cash flow from discontinued operations is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ ​ (In thousands) Total operating cash flows from discontinued operations ​ $ 56,344 ​ $ 25,888 ​ $ ( 11,886 ) Total investing cash flows from discontinued operations ​ $ 125,993 ​ $ — ​ $ — ​ ​ Note 4—Net Loss Per Share Our potentially dilutive securities include potential common shares related to our stock options, warrants, restricted stock units 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, ​ 2021 2020 ​ 2019 2023 Notes convertible to common stock (1) 4,941,739 ​ 7,932,791 ​ 10,923,843 Outstanding options to purchase common stock 1,707,371 1,585,332 ​ 2,664,841 Outstanding restricted stock units 2,642 ​ — ​ — Outstanding warrants to purchase common stock — 10,792 ​ 16,153 Total potentially dilutive shares excluded from loss per share 6,651,752 9,528,915 ​ 13,604,837 ​ (1) The 2023 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 9 — Unsecured Convertible Senior Notes”. Any potential impact of the capped call arrangement is excluded from this table. ​ Note 5—Accounts Receivable, Net Accounts receivable, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 ​ ​ (In thousands) Trade receivables, net ​ $ 36,505 ​ $ 3,771 Sublease and other receivables ​ 1,650 ​ 70 Total accounts receivables, net ​ $ 38,155 ​ $ 3,841 ​ Trade receivables are shown net of $ 2.0 million and $ 1.2 million of chargeback and product return allowances as of December 31, 2021 and 2020, respectively. ​ ​ 73 Table of Contents ​ Note 6—Fair-Value Measurements As of December 31, 2021 and 2020, 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, 2021 ​ Level 1 Level 2 Level 3 Total ​ ​ (In thousands) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money-market funds classified as short-term investments ​ $ 56,458 ​ $ — ​ $ — ​ $ 56,458 Money-market funds classified as non-current restricted investments ​ 1,054 ​ — ​ — ​ 1,054 Total ​ $ 57,512 ​ $ — ​ $ — ​ $ 57,512 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Total ​ ​ (In thousands) Assets: ​ ​ ​ ​ ​ Money-market funds classified as short-term investments ​ $ 124,452 ​ $ — ​ $ — ​ $ 124,452 Money-market funds classified as non-current restricted investments ​ 1,055 ​ — ​ — ​ 1,055 Total ​ $ 125,507 ​ $ — ​ $ — ​ $ 125,507 ​ Cash held in demand deposit accounts of $ 100.8 million and $ 10.5 million is excluded from our fair-value hierarchy disclosure as of December 31, 2021 and 2020, respectively. There were no unrealized gains or losses associated with our short-term investments as of December 31, 2021 or 2020. 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 9--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. ​ 74 Table of Contents Note 7—Certain Balance Sheet Accounts Property and Equipment, Net Property and equipment, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 ​ ​ (In thousands) Finance leases ​ $ 5,979 ​ $ 5,690 Laboratory equipment ​ 3,091 ​ 2,898 Computer equipment ​ 1,069 ​ 985 Office equipment and furniture ​ 625 ​ 625 Total cost ​ 10,764 ​ 10,198 Less accumulated depreciation and amortization ​ ( 9,033 ) ​ ( 7,647 ) Total property and equipment, net ​ $ 1,731 ​ $ 2,551 ​ For the years ended December 31, 2021, 2020 and 2019, depreciation and amortization expenses were $ 1.4 million, $ 1.6 million and $ 1.8 million, respectively. Accrued Expenses Accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 ​ ​ (In thousands) Sales rebates, fees and discounts ​ $ 8,442 ​ $ 3,326 Consulting and professional fees ​ 7,455 ​ ​ 5,393 Interest payable ​ 5,172 ​ 5,205 Contract research and development ​ ​ 3,916 ​ ​ 7,952 Employee compensation ​ 3,706 ​ 3,948 Clinical trials ​ 2,430 ​ 2,121 Other accrued expenses ​ 2,013 ​ 810 Total accrued expenses ​ $ 33,134 ​ $ 28,755 ​ ​ Note 8—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”). The Line of Credit Agreement is secured by all our assets excluding intellectual property and development program inventories and matures in August 2022. In connection with the execution of the Asset Purchase Agreement, on December 1, 2021 the Company and SVB entered into a Consent and Second Amendment to the Line of Credit Agreement, under which SVB provided its consent to the Transaction and release of liens with respect to the transferred assets. In addition, the amendment revised the original Line of Credit Agreement to provide that the borrowing base will include 85 % of eligible monthly royalty payments, including those from the Rayner and its affiliates, less applicable discounts, credits and other offsets. ​ 75 Table of Contents 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 have paid additional commitment fees of $ 150,000 on each of the first and second anniversaries of the closing date. 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 Agreement, 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, 2021 and 2020, we had no outstanding borrowings under the Line of Credit Agreement. ​ Note 9—Unsecured Convertible Senior Notes On January 1, 2021, we adopted ASU 2020-06, Debt—Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis. ASU 2020- 06 removes the separate liability and equity accounting for our convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs increasing unsecured convertible senior notes and shareholders’ equity by $ 75.5 million. 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. 76 Table of Contents Unsecured convertible senior notes outstanding at December 31, 2021 and 2020, respectively, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2021 ​ 2023 Notes 2026 Notes Total ​ ​ (In thousands) Principal amount ​ $ 95,000 ​ $ 225,030 ​ $ 320,030 Unamortized debt issuance costs ​ ( 1,282 ) ​ ( 5,290 ) ​ ( 6,572 ) Total unsecured convertible senior notes, net ​ $ 93,718 ​ $ 219,740 ​ $ 313,458 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of outstanding unsecured convertible senior notes (1) ​ $ 87,163 ​ $ 171,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 unsecured convertible senior notes, net ​ $ 76,418 ​ $ 159,870 ​ $ 236,288 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of outstanding unsecured convertible senior notes (1) ​ $ 101,769 ​ $ 246,779 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount ​ $ 6,769 ​ $ 21,749 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity component ​ $ 25,854 ​ $ 63,544 ​ ​ ​ Unamortized issuance costs ​ ( 837 ) ​ ( 1,916 ) ​ ​ ​ Net carrying amount of equity component (2) ​ $ 25,017 ​ $ 61,628 ​ ​ ​ (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. 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). 77 Table of Contents 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, ​ 2021 2020 2019 ​ (In thousands) Contractual interest expense $ 5,938 ​ $ 10,410 ​ $ 13,089 Amortization of debt issuance costs 618 ​ 669 ​ 8,496 Amortization of debt discount — ​ 7,728 ​ 736 Total $ 6,556 ​ $ 18,807 ​ $ 22,321 ​ ​ 78 Table of Contents 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 ​ 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. 79 Table of Contents 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, 2021, approximately 12.2 million shares remained outstanding under the 2026 Capped Call. We evaluated the accounting for the issuance of the 2026 Notes and concluded that the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet, and that the cash conversion guidance applies. Therefore, proceeds of $ 225.0 million are allocated first to the liability component based on the fair value of non-convertible debt with the residual proceeds allocated to the equity component for the conversion features. The Company allocated $ 6.8 million in issuance costs associated with the 2026 Notes to the liability and equity component in the same proportion as the $ 225.0 million in proceeds. Further, we concluded the 2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet. Consequently, the fair value of the 2026 Capped Call of $ 23.2 million is classified as equity, not accounted for as derivatives, and will not be subsequently remeasured. In accounting for the issuance of the 2026 Notes, we separated the 2026 Notes into liability and equity components, using an effective interest rate of 12.5 % to determine the fair value of the liability component. The following table sets forth interest expense recognized related to the 2026 Notes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ (In thousands) Contractual interest expense $ 11,814 ​ $ 4,397 ​ $ — Amortization of debt issuance costs 1,078 ​ 230 ​ — Amortization of debt discount — ​ 3,022 ​ — Total $ 12,892 ​ $ 7,649 ​ $ — ​ Future minimum principal for the 2023 and 2026 Notes as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ (In thousands) 2022 $ — 2023 ​ 95,000 2024 ​ — 2025 ​ — 2026 ​ 225,030 Total future minimum principal payments under the convertible senior notes $ 320,030 ​ ​ Note 10—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 March 2025. 80 Table of Contents Lease-related assets and liabilities recorded on the balance sheet are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2021 2020 ​ ​ (In thousands) ​ Assets ​ ​ ​ ​ ​ ​ Operating lease assets $ 28,276 $ 25,526 ​ Finance lease assets, net 1,009 ​ 1,822 ​ Total lease assets $ 29,285 $ 27,348 ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Current: ​ ​ ​ ​ ​ ​ Operating leases $ 4,607 $ 2,740 ​ Finance leases 648 ​ 1,042 ​ Non-current: ​ ​ ​ ​ ​ ​ Operating leases 28,811 ​ 28,032 ​ Finance leases 315 ​ 738 ​ Total lease liabilities $ 34,381 $ 32,552 ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term ​ ​ ​ ​ ​ ​ Operating leases 5.9 years ​ 6.8 years ​ Finance leases 1.7 years ​ 1.9 years ​ Weighted-average discount rate ​ ​ ​ ​ ​ ​ Operating leases 12.81 % 12.85 % Finance leases 12.70 % 11.85 % ​ The components of total lease costs are as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, ​ 2021 2020 ​ (In thousands) Lease cost ​ ​ Operating lease cost $ 7,364 ​ $ 6,055 Finance lease cost: ​ ​ Amortization 1,102 ​ 1,367 Interest 181 ​ 295 Variable lease cost 3,519 ​ 2,893 Sublease income ( 1,776 ) ​ ( 1,300 ) Net lease cost $ 10,390 ​ $ 9,310 81 Table of Contents The supplemental cash flow information related to leases during 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, ​ 2021 2020 ​ (In thousands) Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ Cash payments for operating leases $ 10,162 ​ $ 10,103 Cash payments for financing leases $ 1,171 $ 1,490 ​ The future maturities of our lease liabilities as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance ​ Leases Leases ​ ​ (In thousands) 2022 ​ $ 7,118 ​ $ 702 2023 ​ 7,276 ​ 274 2024 ​ 7,438 ​ 71 2025 ​ 7,508 ​ — 2026 ​ 7,302 ​ — Thereafter ​ 6,264 ​ — Total undiscounted lease payments ​ ​ 42,906 ​ ​ 1,047 Less interest ​ ​ ( 9,488 ) ​ ​ ( 84 ) Total lease liabilities ​ $ 33,418 ​ $ 963 ​ In January 14, 2022, we entered into an agreement with our landlord to early terminate a portion of the rentable square footage of our office and lab premises. Effective December 31, 2021, the square footage was reduced by 13,904 square feet. ​ Note 11—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, 2021 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 or upon approval of commercial sale as well as low single to low double-digit royalties on the net income or net sales of the product. For the years ended December 31, 2021 and December 31, 2020, we paid $ 0.5 million and $ 5.5 million in technology access fees. ​ 82 Table of Contents Note 12—Shareholders’ Equity Common Stock As of December 31, 2021, we had reserved shares of common stock under our equity plans as follows: ​ ​ ​ ​ Options granted and outstanding 12,709,887 Restricted stock units granted and outstanding ​ 222,000 Common stock warrants ​ 200,000 Awards available under issuance under the 2017 Plan 6,046,652 Total shares reserved 19,178,539 ​ Securities Offerings – In August 2020, we sold 6.9 million shares of our common stock at a public offering price of $ 14.50 per share. After deducting underwriter discounts and offering expenses, we received net proceeds from the transaction of $ 93.7 million. In December 2019, we sold 4.4 million shares of our common stock at a public offering price of $ 13.10 per share. After deducting underwriter discounts and offering expense, we received net proceeds from the transaction of $ 54.2 million. At the Market Sales Agreement – We have a sales agreement to sell shares of our common stock having an aggregate offering price of up to $ 150.0 million, from time to time, through an “at the market” equity offering program. 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, 2021 ​ Expiration Date ​ Exercise Price 200,000 ​ April 12, 2023 ​ $ 23.00 ​ ​ Note 13—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 options grants 25 % at one-year anniversary, 1/48 monthly thereafter Employee recurring options grants 1/48 monthly Board member initial options grants 33 +% per year for 3 years Board member recurring options grants 100 % after one year Non-employee consultant options grants 1/12 or 1/48 monthly Employee RSUs ​ 50 % after one year, 50 % after two years ​ In November 2020, restricted stock awards (“RSA’s”) totaling 14,000 shares with a fair value of $ 11.05 per share were granted to OMIDRIA sales employees. The awards vested immediately upon grant. 83 Table of Contents In November 2021, RSA’s totaling 11,700 shares with a fair value of $ 7.80 per share were granted to OMIDRIA sales employees. The awards vested immediately upon grant. In December 2021, the Company granted 222,000 shares of RSUs with a fair value of $ 7.53 per share to employees of the Company who accepted offers to transition to Rayner after December 31, 2021. Stock-based compensation expense is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ (In thousands) Continuing operations ​ ​ ​ ​ ​ ​ ​ ​ Research and development $ 6,791 ​ $ 6,163 ​ $ 6,008 Selling, general and administrative 8,154 ​ 7,614 ​ 6,959 Total stock-based compensation in continuing operations ​ 14,945 ​ ​ 13,777 ​ ​ 12,967 Discontinued operations ​ 2,685 ​ ​ 1,148 ​ ​ 818 Total Stock-based compensation $ 17,630 ​ $ 14,925 ​ $ 13,785 ​ 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, ​ 2021 ​ 2020 ​ 2019 ​ Estimated weighted-average fair value $ 10.54 ​ $ 8.19 ​ $ 9.93 ​ Weighted-average assumptions: ​ ​ ​ ​ Expected volatility 81 % 77 % 80 % Expected life, in years 6.0 ​ 6.0 ​ 6.0 ​ Risk-free interest rate 1.06 % 1.06 % 2.41 % 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, 2020 11,938,528 ​ $ 11.92 ​ Granted 2,525,525 ​ 15.34 ​ Exercised ( 921,023 ) ​ 9.10 ​ Forfeited ( 833,143 ) ​ 14.85 ​ Balance at December 31, 2021 12,709,887 ​ $ 12.61 5.6 ​ $ 261 Vested and expected to vest at December 31, 2021 12,348,044 ​ $ 12.56 5.5 ​ $ 261 Exercisable at December 31, 2021 9,295,395 ​ $ 12.00 4.5 ​ $ 261 ​ The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 7.8 million, $ 5.6 million and $ 5.4 million, respectively. 84 Table of Contents At December 31, 2021, there were 3.4 million unvested options outstanding that vest over a weighted-average period of 2.6 years. The remaining estimated compensation expense to be recognized in connection with these unvested options is $ 27.7 million. ​ Note 14—Income Taxes The components of income tax benefit from continuing operations are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 2019 ​ ​ (In thousands) Current income tax expense: ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State ​ — ​ — ​ — Total current income tax expense ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred income tax expense (benefit) ​ ​ ​ Federal ​ — ​ ( 19,472 ) ​ ( 16,716 ) State ​ — ​ ( 3,784 ) ​ ( 3,058 ) Total deferred income tax expense (benefit) ​ — ​ ( 23,256 ) ​ ( 19,774 ) Income tax expense (benefit) ​ $ — ​ $ ( 23,256 ) ​ $ ( 19,774 ) ​ 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. ASU 2019-12 eliminates 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. As the Company prospectively adopted ASU 2019-12 January 1, 2021, we did not apply any intraperiod allocation rules to 2021. To reflect intra-period tax allocation rules in prior years, we reclassified the tax benefit of income from discontinued operations to offset losses from continuing operations. During 2020, we recorded an income tax benefit of $ 23.3 million comprising $ 12.0 million related to the issuance of our 2026 and 2023 Notes, and an additional $ 11.2 million income tax benefit related to the sale of OMIDRIA assets to Rayner into income from continuing operations. During 2019, we recorded $ 19.8 million of income tax benefit into continuing operations related to OMIDRIA assets sold to Rayner. Under intraperiod allocation rules, the deferred tax liability related to the convertible debt and income earned from the sale of assets to Rayner, 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 difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For the year ended December 31, 2021, we recorded state income tax expense of $ 1.0 million as a component of net income from discontinued operations, net of tax related to the sale of OMIDRIA to Rayner which could not be offset by net operating losses and tax credit carryforwards. The $ 0.3 million income tax payable is included in accrued expense in 85 Table of Contents our consolidated balance sheet as of December 31, 2021 and $ 0.7 million of deferred income tax liability is included in the table below. Significant components of deferred income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 ​ ​ (In thousands) Deferred tax assets: ​ ​ ​ Net operating loss carryforwards ​ $ 143,657 ​ $ 149,993 Research and development tax credits ​ 66,612 ​ 56,103 Stock-based compensation ​ 11,327 ​ 10,586 Lease liability ​ 9,995 ​ 8,646 Disallowed interest expense ​ ​ — ​ ​ 11,859 Other ​ 17,862 ​ 7,411 Total deferred tax assets ​ 249,453 ​ 244,598 Deferred tax liabilities: ​ ​ Property and equipment ​ ​ ( 102 ) ​ ​ ( 113 ) Gain on discontinued operations ​ ​ ( 42,212 ) ​ ​ — Equity component of Convertible Notes ​ — ​ ( 18,302 ) Right of use assets ​ ​ ( 6,467 ) ​ ​ ( 6,197 ) Total deferred tax liabilities ​ ( 48,781 ) ​ ( 24,612 ) Net deferred tax assets before valuation allowance ​ 200,672 ​ 219,986 Less valuation allowance ​ ( 201,340 ) ​ ( 219,986 ) Net deferred tax liabilities ​ $ ( 668 ) ​ $ — ​ Net deferred tax liabilities are are included as other accrued liabilities – noncurrent in our consolidated balance sheet as of December 31, 2021. As of December 31, 2021 and 2020, we had federal net operating loss carryforwards of approximately $ 630.6 million and $ 658.8 million, respectively, and state net operating losses of approximately $ 245.1 million and $ 257.1 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 $ 407.7 million generated prior to 2018 will expire between 2032 and 2037. The net operating loss of $ 251.5 million generated after 2018 should carryforward indefinitely. Unless previously utilized, research and development tax credit carryforward will expire between 2022 and 2041. We have established a 100 % valuation allowance due to the uncertainty of our ability to generate sufficient taxable income to realize the deferred tax assets. During 2021, our valuation allowance decreased $ 19.3 million due to utilizing NOLs to offset our income from discontinued operations. During 2020 our valuation allowance increased $ 37.8 million primarily due to incurring net operating losses during these periods. 86 Table of Contents Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes on continuing operations is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 U.S. Federal statutory rate on net loss ​ ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State tax, net of federal tax benefit ​ ( 1.6 ) % ( 3.1 ) % ( 2.8 ) % Change in valuation allowance ​ 27.9 % 19.3 % 14.3 % Tax credits ​ ( 5.5 ) % ( 6.2 ) % ( 3.0 ) % Other ​ 0.2 % ( 0.8 ) % 0.7 % Effective tax rate ​ ( 0.0 ) % ( 11.8 ) % ( 11.8 ) % ​ We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all our tax years remain open to federal and state tax examination. 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 15—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. ​ ​ ​ ​ 87 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ​