What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-09 · 201 added, 240 removed, 209 unchanged (68% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Short-term investments

OMIDRIA contract royalty asset, short-term

Receivables, net

1 unchanged sentence

Total current assets

OMIDRIA contract royalty asset

Property and equipment, net

1 unchanged sentence

Restricted investments

Advanced payments, non-current

Liabilities and shareholders’ deficit

Liabilities and shareholders’ equity (deficit)

Current liabilities:

5 unchanged sentences

Unsecured convertible senior notes, net

Other accrued liabilities - noncurrent

Commitments and contingencies (Note 10)

Shareholders’ deficit:

Shareholders’ equity (deficit):

Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized;

none issued and outstanding at September 30, 2021 and December 31, 2020.

Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at September 30, 2021 and December 31, 2020;

62,542,268 and 61,671,231 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.

none issued and outstanding at March 31, 2022 and December 31, 2021.

Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at March 31, 2022 and December 31, 2021;

62,730,015 and 62,628,855 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

Additional paid-in capital

Accumulated deficit

Total shareholders’ deficit

Total liabilities and shareholders’ deficit

Total shareholders’ equity (deficit)

Total liabilities and shareholders’ equity (deficit)

See accompanying Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Product sales, net

Costs and expenses:

Cost of product sales

Research and development

1 unchanged sentence

Total costs and expenses

Loss from operations

Loss on early extinguishment of debt

Loss from continuing operations

Interest expense

Loss before income tax benefit

Income tax benefit

Comprehensive loss

Basic and diluted net loss per share

Weighted-average shares used to compute basic and diluted net loss per share

Net loss from continuing operations

Net income from discontinued operations

Basic and diluted net income (loss) per share:

Net loss from continuing operations

Net income from discontinued operations

Weighted-average shares used to compute basic and diluted net income (loss) per share

See accompanying Notes to Condensed Consolidated Financial Statements

OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

Balance at January 1, 2021

Exercise of stock options and warrants

At the market offering costs

Cumulative effect of adopting ASU 2020-06

Stock-based compensation expense

Balance at March 31, 2021

Balance at January 1, 2022

Exercise of stock options and warrants

Stock-based compensation expense

Balance at March 31, 2022

See accompanying Notes to Condensed Consolidated Financial Statements

OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Early termination of operating lease

Stock-based compensation expense

1 unchanged sentence

Depreciation and amortization

Loss on early extinguishment of debt

Deferred income tax

Fair value settlement upon termination of cap call contract

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

OMIDRIA contract royalty asset

Accounts payable and accrued expense

Net cash used in operating activities

Investing activities:

Purchases of property and equipment

Purchases of investments

Proceeds from the sale and maturities of investments

Purchases of property and equipment

Net cash provided by (used in) investing activities

Financing activities:

At the market offering costs

Proceeds upon exercise of stock options and warrants

Payments on finance lease obligations

Proceeds from issuance of convertible senior notes

Payments for debt issuance costs

Purchases of capped calls related to convertible senior notes

Payments for repurchases of convertible senior notes

Proceeds from termination of capped call contracts

Proceeds from issuance of common stock, net

At the market offering costs

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash paid for interest

Property acquired under finance lease

See accompanying Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Description of Business

Description of Business

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

Our first drug product, OMIDRIA ® (phenylephrine and ketorolac intraocular solution) 1%/0.3% , is marketed in the United States (“U.S.”) for use during cataract surgery or intraocular lens replacement.

OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ambulatory surgery centers under a policy adopted by the Centers for Medicare and Medicaid Services (“CMS”) in 2019 and directed to non-opioid pain management surgical drugs.

Note 1—Organization and Basis of Presentation

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.

We marketed our first drug product, OMIDRIA ® (phenylephrine and ketorolac intraocular solution) 1% / 0.3% for use during cataract surgery or intraocular lens replacement in the United States (the “U.S.”) until 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.

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On October 18, 2021, we announced the receipt of a Complete Response Letter (“CRL”) from FDA regarding the BLA.

We are completing a briefing package to accompany a request for a Type A meeting with FDA to discuss the CRL and determine the most expeditious path forward for the approval of narsoplimab in the treatment of HSCT-TMA.

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 end-of-review 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.

Although we feel that we adequately addressed all of the issues noted in the CRL, the meeting minutes included a number of the review division’s critiques that we believe had already been addressed and/or were inaccurate.

As a result, we currently plan to submit a Formal Dispute Resolution Request.

Formal dispute resolution is an official pathway that enables a sponsor to appeal a decision by an FDA review division to a higher authority within FDA, in this case the Office of New Drugs.

Our request is for regular approval based on the data in our existing BLA.

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;

however, there can be no assurances that the Formal Dispute Resolution process will result in approval of our BLA, will provide a clear path to resubmission of our BLA, or that any identified path to BLA resubmission will be satisafactory in terms of the information, time and/or expenditure required.

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 completed the sale of OMIDRIA and certain related assets and liabilities to Rayner Surgical Inc.

(“Rayner”) pursuant to an Asset Purchase Agreement dated December 1, 2021 (the “Asset Purchase Agreement”).

We received a payment of $ 126.0 million at closing and receive royalty payments 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) are included in discontinued operations in our condensed consolidated statements of operations and comprehensive loss for all periods presented (see “Note 3 – Discontinued Operations”).

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of Omeros Corporation (“Omeros”) and our wholly owned subsidiaries.

All intercompany transactions have been eliminated, and we have determined we operate in one segment.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

The information as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020 includes all adjustments, which include normal recurring adjustments, necessary to present fairly our interim financial information.

The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from our audited financial statements but does not include all of the information and footnotes required by GAAP for audited annual financial information.

The accompanying unaudited condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S.

Securities and Exchange Commission (“SEC”) on March 1, 2021.

Our condensed 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 condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles

Certain prior year amounts in the condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity (deficit) and statements of cash flows and the notes to the condensed consolidated financial statements have been reclassified in the condensed consolidated financial statements to conform to the current year presentation.

Risks and Uncertainties

As of September 30, 2021, we had cash, cash equivalents and short-term investments of $ 50.4 million and an accounts receivable-based line of credit that allows us to borrow up to the lesser of $ 50.0 million or 85 % of our accounts receivable borrowing base, less certain reserves.

For the nine months ended September 30, 2021, we incurred losses from operations of $ 72.9 million, including non-cash charges of $ 14.4 million.

For the three months ended September 30, 2021, we incurred losses from operations of $ 18.3 million, including non-cash charges of $ 6.4 million.

operating activities was $ 91.5 million for the nine months ended September 30, 2021.

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

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

We also have not included any potential partnerships related to our products or product candidates.

The conditions described above, when evaluated within the constraints of the accounting literature, raise substantial doubt with respect to our ability to meet our obligations through November 9, 2022 and, therefore, to continue as a going concern.

We plan to continue to fund our operations for the next twelve months with our cash and investments, from sales of OMIDRIA and potentially from sales of narsoplimab for HSCT-TMA, if FDA approval is granted within that time period.

In addition, we may utilize funds available under our line of credit which matures August 2, 2022.

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.

In this regard, in March 2021 we entered into 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 having an aggregate amount up to $ 150.0 million.

In addition, should it be necessary to manage our operating expenses, we would reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

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

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

The COVID-19 pandemic and the responses to it by various governmental authorities, the medical community and others had a significant impact on our business in the first six months of 2020.

It is not possible to estimate precisely the future impact of the COVID-19 pandemic on our business, operations or financial results due to the unknown magnitude, duration and outcome of the pandemic.

We use a single contract manufacturer to supply the OMIDRIA drug product and a separate company to package OMIDRIA for commercial sale.

We are completing the process of establishing a second OMIDRIA supplier.

We generally use different contract manufacturers to produce drug substance, drug product and to perform final packaging for our drug product candidates.

We endeavor to maintain reasonable levels of drug supply for our commercial and clinical trial use and other manufacturers are available should we need to change suppliers.

A change in suppliers;

however, could cause a delay in delivery of OMIDRIA or our clinical trial material that would adversely affect our business.

As of March 31, 2022, we had cash, cash equivalents and short-term investments of $ 142.2 million and outstanding accounts receivable of $ 16.3 million.

Our loss for the quarter ended March 31, 2022 was $ 33.0 million and included $ 4.2 million of noncash operating expenses.

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, we expect that 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 May 10, 2023.

Accordingly, the accompanying condensed 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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Significant items subject to such estimates include revenue recognition, stock-based compensation expense and accruals for clinical trials as well as manufacturing of drug product.

Significant items subject to such estimates include 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;

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Note 2—Significant Accounting Policies

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.

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

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.

We sell OMIDRIA through a limited number of wholesalers.

We review the credit quality of our wholesalers on an annual basis by considering factors such as historical experience, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Credit losses for all periods presented were immaterial.

Inventory is stated at the lower of cost or market determined on a specific identification basis in a manner that approximates the first-in, first-out (“FIFO”) method.

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

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

or the European Union (“EU”).

We expense inventory costs related to product candidates as research and development expenses prior to receiving regulatory approval in the respective territory.

Inventory is reduced to net realizable value for excess and obsolete inventories based on forecasted demand.

Discontinued Operations

We review the presentation of planned or completed business dispositions in the condensed 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, for all periods presented in the condensed consolidated statements 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.

The Company included information regarding cash flows from discontinued operations (see “Note 3 – Discontinued Operations”).

OMIDRIA Royalties and OMIDRIA Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at rates that vary based on geography and certain regulatory contingencies.

Therefore, future OMIDRIA royalties are treated as variable consideration.

The sale of OMIDRIA qualified as an asset sale under GAAP.

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 primarily be recorded as a reduction to the OMIDRIA contract royalty asset.

The amount recorded in discontinued operations will reflect interest earned on the outstanding OMIDRIA contract royalty asset and any amounts received that are 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.

OMIDRIA Revenue Recognition

Prior to the sale of OMIDRIA on December 23, 2021, when we entered into a customer contract, we performed the following five steps:

(i) identified the contract with a customer;

(ii) identified the performance obligations in the contract;

(iii) determined the transaction price;

(iv) allocated the transaction price to the performance obligations in the contract;

and (v) recognized revenue when (or as) we satisfy a performance obligation.

We generally recorded OMIDRIA product sales when the product was delivered to our wholesalers.

OMIDRIA product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts.

Accruals or allowances were established for these deductions in the same period when revenue was recognized, and actual amounts incurred were offset against the applicable accruals or allowances.

We reflected 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.

We expense inventory costs related to product candidates as research and development expenses until regulatory approval is reasonably assured in the U.S.

or the European Union (the “EU”).

Once approval is reasonably assured, costs including amounts related to third-party manufacturing, transportation and internal labor and overhead will be capitalized.

Right of Use Assets and Related Lease Liabilities

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Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payments based on estimated fair values as of the date of grant.

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.

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A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized.

Recently Adopted Pronouncements

On January 1, 2021, we adopted Accounting Standard Update (“A SU”) 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.

(See “Note 3 – Net Loss Per Share” and “Note 7 – Unsecured Convertible Senior Notes” for further information)

On January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740), which is intended to simplify various aspects of the income tax accounting guidance, including elimination of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example, other comprehensive income).

We adopted the standard on a prospective basis and the impact to our consolidated financial statements for the three and nine months ended September 30, 2021 was immaterial.

Note 3—Discontinued Operations

On December 23, 2021, we completed 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 receive a 50 % royalty on OMIDRIA net sales in the U.S.

until 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.

base royalty rate”) until the expiration or termination of the last issued and unexpired 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 until 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 .

During the three months ended March 31, 2022, we earned royalties of $ 13.8 million on sales of OMIDRIA which we recorded as a reduction to the OMIDRIA contract royalty asset.

We also recorded $ 7.0 million of income in discontinued operations representing interest income and remeasurement adjustments to the OMIDRIA contract royalty asset.

The following schedule presents a rollforward of the OMIDRIA contract royalty asset (in thousands):

OMIDRIA contract royalty asset at December 31, 2021

Royalties earned

Royalty interest income and remeasurement adjustments

OMIDRIA contract royalty asset at March 31, 2022

Net income from discontinued operations is as follows:

Three Months Ended

(In thousands)

Product sales, net

Royalty interest income and remeasurement adjustments

Costs and expenses

Net income from discontinued operations

Cash flow from discontinued operations is as follows:

Three Months Ended March 31,

(In thousands)

Total operating cash flows from discontinued operations

Note 4—Net Loss Per Share

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

Our potentially dilutive securities include potential common shares related to our stock options, warrants, restricted stock units (“RSUs”) 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.

Shares of our common stock issuable under the unsecured convertible notes are calculated using the if-converted method and are excluded from the below table as their impact is anti-dilutive.

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:

Three Months Ended

Nine Months Ended

September 30,

2023 Notes convertible to common stock (1)

Outstanding options to purchase common stock

Outstanding warrants to purchase common stock

Total potentially dilutive shares excluded from loss per share

Outstanding restricted stock units

Total potentially dilutive shares excluded from net loss per share

(1) The 2023 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 8 — Unsecured Convertible Senior Notes.” Any potential impact of the capped call arrangement is excluded from this table.

Note 5—Certain Balance Sheet Accounts

Accounts Receivable, net

Accounts receivable, net consist of the following:

September 30,

OMIDRIA Contract Royalty Asset

OMIDRIA contract royalty asset consists of the following:

(In thousands)

Trade receivables, net

Sublease and other receivables

Total accounts receivables, net

Trade receivables are net of product return and chargeback allowances of $ 2.0 million and $ 1.2 million as of September 30, 2021 and December 31, 2020, respectively.

Inventory consists of the following:

September 30,

Short-term contract royalty asset

Long-term contract royalty asset

Total OMIDRIA contract royalty asset

Receivables, net

Receivables, net consists of the following:

(In thousands)

Raw materials

Work-in-progress

Finished goods

Total inventory

Royalty and trade receivables, net

Sublease and other receivables

Total receivables, net

Trade receivables are net of product return and chargeback allowances.

Product returns and chargeback allowances were $ 2.0 million as of December 31, 2021.

Property and Equipment, Net

Property and equipment, net consists of the following:

September 30,

(In thousands)

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Total property and equipment, net

For the three months ended September 30, 2021 and 2020, depreciation and amortization expense was $ 0.3 million and $ 0.4 million, respectively.

For the nine months ended September 30, 2021 and 2020, depreciation and amortization expense was $ 1.1 million and $ 1.2 million, respectively.

For the three months ended March 31, 2022 and 2021, depreciation and amortization expense was $ 0.3 million and $ 0.4 million, respectively.

Accrued Expenses

Accrued expenses consist of the following:

September 30,

Accrued expenses consists of the following:

(In thousands)

Sales rebates, fees and discounts

Contract research and development

Consulting and professional fees

Contract research and development

Interest payable

Employee compensation

Clinical trials

Employee compensation

Sales rebates, fees and discounts

Other accrued expenses

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Note 6—Fair-Value Measurements

As of September 30, 2021, and December 31, 2020, all investments were classified as short-term and available-for-sale on the accompanying Condensed Consolidated Balance Sheets.

As of March 31, 2022, and December 31, 2021, all investments were classified as short-term and available-for-sale on the accompanying condensed consolidated balance sheets.

Investment income, which was included as a component of other income, consists of interest earned.

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Our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:

September 30, 2021

March 31, 2022

(In thousands)

5 unchanged sentences

Money-market funds classified as non-current restricted investments

Cash held in demand deposit accounts of $ 7.4 million and $ 10.5 million is excluded from our fair-value hierarchy disclosure as of September 30, 2021 and December 31, 2020, respectively.

There were no unrealized gains or losses associated with our investments as of September 30, 2021 or December 31, 2020.

Cash held in demand deposit accounts of $ 9.0 million and $ 100.8 million is excluded from our fair-value hierarchy disclosure as of March 31, 2022 and December 31, 2021, respectively.

There were no unrealized gains or losses associated with our investments as of March 31, 2022 or December 31, 2021.

The carrying amounts reported in the accompanying condensed consolidated balance sheets for receivables, accounts payable, other current monetary assets and liabilities approximate fair value.

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Note 7—Line of Credit

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

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.

Interest on amounts outstanding is payable monthly at the greater of 5.5 % or the prime rate.

The line of credit matures August 2, 2022 and is secured by all our assets excluding intellectual property and development program inventories.

As of September 30, 2021 and December 31, 2020, no amounts were outstanding under the Line of Credit Agreement.

We have a Loan and Security Agreement with Silicon Valley Bank (“SVB”), which provides for a $ 50.0 million revolving line of credit facility (the “Line of Credit Agreement”) based on 85 % of our eligible royalty and trade receivables, net.

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

As of March 31, 2022 and December 31, 2021, no amounts were outstanding under the Line of Credit Agreement.

Note 8—Unsecured Convertible Senior Notes

On January 1, 2021, we adopted ASU 2020-06 on a modified retrospective basis.

ASU 2020-06 removes the separate liability and equity accounting for our outstanding convertible senior notes.

Consequently, we now account for our convertible senior notes wholly as debt.

Adoption of ASU 2020-06 resulted in a cumulative effect adjustment of $ 75.5 million to restore our unsecured convertible notes and additional paid-in capital to the balances without an equity allocation component.

The carrying value of the notes are reflective of their face value less unamortized debt issuance costs.

Subsequent to the adoption date, interest expense is reduced as a result of accounting for the unsecured convertible notes wholly as a liability measured at amortized cost.

Unsecured convertible senior notes outstanding at September 30, 2021 and December 31, 2020 are as follows:

Balance as of September 30, 2021

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

of our 5.25 % Convertible Senior Notes (the “2026 Notes”).

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

Unsecured convertible senior notes outstanding at March 31, 2022 and December 31, 2021 are as follows:

Balance as of March 31, 2022

(In thousands)

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Fair value of outstanding unsecured convertible senior notes (1)

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount

Balance as of December 31, 2021

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Unamortized discount

Unamortized issuance costs attributable to liability component

Total unsecured convertible senior notes, net

Fair value of outstanding unsecured convertible senior notes (1)

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount

Equity component

Unamortized issuance costs

Net carrying amount of equity component (2)

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

(2) Included in the Condensed Consolidated Balance Sheet within additional paid-in capital at December 31, 2020.

With the adoption of ASU 2020-06 on January 1, 2021, amounts were reclassified to unsecured convertible senior notes, net.

2023 Unsecured Convertible Senior Notes

On November 15, 2018, we issued $ 210.0 million in aggregate principal amount of our 6.25 % convertible senior notes due 2023 (the “2023 Notes”).

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

As of September 30, 2021, the unamortized debt issuance costs of $ 1.4 million will be amortized to interest expense at an effective interest rate of 7.02 % over the remaining term.

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

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

On August 14, 2020, we issued the 5.25 % convertible senior notes due 2026 (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 Unsecured Convertible Senior Notes” below).

As of March 31, 2022, the unamortized debt issuance costs of $ 1.1 million will be amortized to interest expense at an effective interest rate of 7.0 % over the remaining term.

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

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In connection with the partial repurchase of the 2023 Notes, we entered into a capped call termination contract to unwind a proportionate amount of the 2023 Capped Call.

As of September 30, 2021, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

As of March 31, 2022, 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:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three Months Ended March 31,

(In thousands)

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Amortization of debt issuance costs

Amortization of debt discount

2026 Unsecured Convertible Senior Notes

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The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms.

As of September 30, 2021, the unamortized debt issuance costs of $ 5.6 million will be amortized to interest expense at an effective interest rate of 5.89 % over the remaining term.

As of March 31, 2022, the unamortized debt issuance costs of $ 5.0 million will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.

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 of common stock 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.

Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:

(1) during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130 % of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the five consecutive business days immediately after any five -consecutive-trading-day period (such five -consecutive-trading-day period, the “measurement period”) in which the trading price per $ 1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

(3) there is an occurrence of one or more certain corporate events or distributions of our common stock;

(4) we call the 2026 Notes for redemption.

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

Subject to the satisfaction of certain conditions, beginning August 15, 2023, we may redeem in whole or in part the 2026 Notes at our option at a cash redemption price equal to the principal amount of the 2026 Notes plus any accrued and unpaid interest.

To reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions (the “2026 Capped Calls”).

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Amortization of debt issuance costs

Amortization of debt discount

Future minimum payments for the 2023 and 2026 Notes as of September 30, 2021 are as follows:

Future minimum payments for the 2023 Notes and 2026 Notes as of March 31, 2022 are as follows:

(In thousands)

Total future minimum payments under the convertible senior notes

Total future minimum principal payments under the 2023 Notes and 2026 Notes

Note 9—Leases

We have an operating lease for our office and laboratory facilities with an initial term that ends in 2027 with two options to extend the lease term by five years .

We carry various finance leases for laboratory equipment.

On 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 laboratory facilities, which reduced the right of use asset by $ 4.7 million and related liability by $ 5.2 million.

We recorded a non-cash gain of $ 0.5 million to early terminate the lease.

In addition, we carry various finance leases for laboratory equipment.

Supplemental lease information is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Operating lease cost

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Cash paid for amounts included in the measurement of lease liabilities is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities

Cash payments for operating leases

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Note 10—Commitments and Contingencies

We have various agreements with third parties that collectively require payment of termination fees totaling $ 31.0 million as of March 31, 2022 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 in connection with clinical development or commercial milestones as well as low single to low double-digit royalties on the net income or net sales of the product.

For the three and nine months ended September 30, 2021 and 2020, development milestones were insignificant.

We do not owe any royalties on OMIDRIA.

Should narsoplimab be approved for HSCT-TMA in the U.S., we would be obligated to pay approval milestones of $ 1.7 million and low single-digit royalties on net sales of the product.

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 three months ended March 31, 2022 and March 31, 2021, development milestone expenses were insignificant.

Should narsoplimab be approved, we would owe milestone payments to development partners and be obligated to pay low single-digit royalties on net sales of the product.

Note 11—Shareholders’ Deficit

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

As of September 30, 2021, we have not sold any shares under this program.

As of March 31, 2022, we have not sold any shares under this program.

In March 2021, a cashless exercise was executed for 43,115 warrants, resulting in the issuance of 24,901 shares of our common stock.

As of September 30, 2021, 200,000 warrants remained outstanding with an exercise price of $ 23.00 per share.

As of March 31, 2022, 200,000 warrants remained outstanding with an exercise price of $ 23.00 per share.

The warrants expire on April 12, 2023.

In conjunction with the issuance of our 2026 Notes, on August 14, 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.

Amendment of 2017 Omnibus Incentive Compensation Plan (the “Plan”)

At the June 11, 2021 annual meeting, shareholders approved the increase of the number of shares of common stock authorized for issuance under the Plan by 4,000,000 , to bring the total number of shares of common stock authorized for issuance under the plan to 12,600,000 .

Interim Condensed Consolidated Statements of Shareholders’ Deficit

The changes in interim balances of the components of our shareholders’ deficit are as follows:

(In thousands)

Balance January 1, 2021

Exercise of stock options and warrants

At the market offering costs

Cumulative effect of adopting ASU 2020-06

Stock-based compensation expense

Balance March 31, 2021

Exercise of stock options

Stock-based compensation expense

Balance June 30, 2021

Exercise of stock options

Stock-based compensation expense

Balance September 30, 2021

(In thousands)

Balance January 1, 2020

Exercise of stock options

Stock-based compensation expense

Balance March 31, 2020

Exercise of stock options

Stock-based compensation expense

Balance June 30, 2020

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

Exercise of stock options

Stock-based compensation expense

Equity component of 2026 Notes, net of issuance costs

Purchases of 2026 Capped Calls

Equity component of early extinguishment of 2023 Notes

Termination of the 2023 Capped Call contracts related to debt repurchased

Tax benefit related to issuance of 2026 Notes, net of extinguishment

Balance September 30, 2020

Note 12—Stock-Based Compensation

Our stock option plans provide for the grant of incentive and non-qualified stock options, restricted stock awards, warrants and other stock awards to employees, non-employee directors and consultants.

Our stock option plans provide for the grant of incentive and non-qualified stock options, restricted stock awards, RSUs, warrants and other stock awards to employees, non-employee directors and consultants.

Stock-based compensation expense is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Continuing operations

Research and development

Selling, general and administrative

Total stock-based compensation in continuing operations

Discontinued operations

Total stock-based compensation

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

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Three Months Ended

Nine Months Ended

September 30, 2021

March 31, 2022

Estimated weighted-average fair value

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Balance at December 31, 2021

Balance at September 30, 2021

Vested and expected to vest at September 30, 2021

Exercisable at September 30, 2021

As of September 30, 2021, there were 4.1 million unvested options outstanding that will vest over a weighted-average period of 2.7 years.

Balance at March 31, 2022

Vested and expected to vest at March 31, 2022

Exercisable at March 31, 2022

As of March 31, 2022, there were 2.8 million unvested options outstanding that will vest over a weighted-average period of 2.4 years.

The total estimated compensation expense yet to be recognized on outstanding options is $ 23.0 million.

The Company has 222,000 shares of unvested RSUs outstanding as of March 31, 2022 that vest 50 % on December 1, 2022 and 50 % on December 1, 2023.

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 1. Financial Statements