Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
OMEROS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(unaudited)
June 30,
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
14,136
$
100,808
Short-term investments
108,427
56,458
OMIDRIA contract royalty asset, short-term
43,794
44,319
Receivables, net
14,479
38,155
Prepaid expense and other assets
11,886
8,216
Total current assets
192,722
247,956
OMIDRIA contract royalty asset
126,812
140,251
Property and equipment, net
1,921
1,731
Right of use assets
23,129
28,276
Restricted investments
1,054
1,054
Total assets
$
345,638
$
419,268
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable
$
10,876
$
13,400
Accrued expenses
23,480
33,134
Current portion of lease liabilities
4,145
5,255
Total current liabilities
38,501
51,789
Lease liabilities, non-current
24,520
29,126
Unsecured convertible senior notes, net
314,358
313,458
Other accrued liabilities - noncurrent
961
1,115
Commitments and contingencies (Note 10)
Shareholders’ equity (deficit):
Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized; none issued and outstanding at June 30, 2022 and December 31, 2021.
—
—
Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at June 30, 2022 and December 31, 2021; 62,730,015 and 62,628,855 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.
627
626
Additional paid-in capital
713,665
706,288
Accumulated deficit
( 746,994 )
( 683,134 )
Total shareholders’ equity (deficit)
( 32,702 )
23,780
Total liabilities and shareholders’ equity (deficit)
$
345,638
$
419,268
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Costs and expenses:
Research and development
$
23,516
$
30,126
$
47,603
$
62,630
Selling, general and administrative
13,922
15,484
24,881
28,270
Total costs and expenses
37,438
45,610
72,484
90,900
Loss from continuing operations
( 37,438 )
( 45,610 )
( 72,484 )
( 90,900 )
Interest expense
( 4,927 )
( 4,910 )
( 9,868 )
( 9,807 )
Other income
670
333
1,163
751
Net loss from continuing operations
( 41,695 )
( 50,187 )
( 81,189 )
( 99,956 )
Net income from discontinued operations
10,846
21,594
17,329
36,273
Net loss
$
( 30,849 )
$
( 28,593 )
$
( 63,860 )
$
( 63,683 )
Basic and diluted net income (loss) per share
Net loss from continuing operations
$
( 0.66 )
$
( 0.80 )
$
( 1.30 )
$
( 1.61 )
Net income from discontinued operations
0.17
0.34
0.28
0.59
Net loss
$
( 0.49 )
$
( 0.46 )
$
( 1.02 )
$
( 1.02 )
Weighted-average shares used to compute basic and diluted net income (loss) per share
62,730,015
62,373,521
62,727,395
62,154,714
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(unaudited)
Additional
Common Stock
Paid-In
Accumulated
Shares
Amount
Capital
Deficit
Total
Balance at January 1, 2021
61,671,231
$
616
$
751,304
$
( 872,672 )
$
( 120,752 )
Exercise of stock options and warrants
580,781
6
6,327
—
6,333
At the market offering costs
—
—
( 241 )
—
( 241 )
Cumulative effect of adopting ASU 2020-06
—
—
( 70,779 )
( 4,697 )
( 75,476 )
Stock-based compensation expense
—
—
3,271
—
3,271
Net loss
—
—
—
( 35,090 )
( 35,090 )
Balance at March 31, 2021
62,252,012
622
689,882
( 912,459 )
( 221,955 )
Exercise of stock options
238,928
2
1,133
—
1,135
Stock-based compensation expense
—
—
3,117
—
3,117
Net loss
—
—
—
( 28,593 )
( 28,593 )
Balance June 30, 2021
62,490,940
$
624
$
694,132
$
( 941,052 )
$
( 246,296 )
Balance at January 1, 2022
62,628,855
$
626
$
706,288
$
( 683,134 )
$
23,780
Exercise of stock options
101,160
1
413
—
414
Stock-based compensation expense
—
—
3,892
—
3,892
Net loss
—
—
—
( 33,011 )
( 33,011 )
Balance at March 31, 2022
62,730,015
627
710,593
$
( 716,145 )
( 4,925 )
Stock-based compensation expense
—
—
3,072
—
3,072
Net loss
—
—
—
( 30,849 )
( 30,849 )
Balance June 30, 2022
62,730,015
$
627
$
713,665
$
( 746,994 )
$
( 32,702 )
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended June 30,
2022
2021
Operating activities:
Net loss
$
( 63,860 )
$
( 63,683 )
Adjustments to reconcile net loss to net cash used in operating activities:
Early termination of operating lease
( 454 )
—
Stock-based compensation expense
6,964
6,388
Non-cash interest expense
900
822
Depreciation and amortization
469
745
Changes in operating assets and liabilities:
Receivables
23,676
( 27,997 )
Prepaid expenses and other assets
( 3,668 )
6,010
OMIDRIA contract royalty asset
13,964
—
Accounts payable and accrued expense
( 12,653 )
9,869
Net cash used in operating activities
( 34,662 )
( 67,846 )
Investing activities:
Purchases of investments
( 103,169 )
( 4 )
Proceeds from the sale and maturities of investments
51,200
63,500
Purchases of property and equipment
( 103 )
( 100 )
Net cash provided by (used in) investing activities
( 52,072 )
63,396
Financing activities:
Proceeds upon exercise of stock options and warrants
414
7,468
Payments on finance lease obligations
( 352 )
( 576 )
At the market offering costs
—
( 241 )
Net cash provided by financing activities
62
6,651
Net decrease in cash and cash equivalents
( 86,672 )
2,201
Cash and cash equivalents at beginning of period
100,808
10,501
Cash and cash equivalents at end of period
$
14,136
$
12,702
Supplemental cash flow information
Cash paid for interest
$
8,998
$
9,012
Property acquired under finance lease
$
557
$
39
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. 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. 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 post-action meeting with FDA to discuss the CRL. Although we felt 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, in June 2022, we submitted 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 (“OND”). 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 provide a clear path to resubmission of our BLA, that resubmission will result in approval of our BLA, or that any identified path to BLA resubmission will be satisfactory in terms of the information, time and/or expenditure required. We are currently awaiting a decision from OND on the dispute. Unless the deciding official asks us for more information or notifies us that more time is needed to complete the review, we expect a decision on the dispute to be rendered in August 2022.
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 and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying condensed
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consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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 June 30, 2022, we had cash, cash equivalents and short-term investments of $ 122.6 million and outstanding accounts receivable of $ 14.5 million. Our loss for the second quarter ended June 30, 2022 was $ 30.9 million and included $ 3.7 million of noncash operating expenses. Our loss for the six months ended June 30, 2022 was $ 63.9 million and included $ 7.9 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 to be received are adequate to finance our operations at least through August 9, 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 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 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
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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.
Inventory
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
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 .
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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.
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.
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. (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 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 and six months ended June 30, 2022, we earned royalties of $ 17.2 million and $ 31.1 million on sales of OMIDRIA which we recorded as a reduction from the OMIDRIA contract royalty asset. We also recorded $ 17.1 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
$
184,570
Royalties earned
( 31,062 )
Royalty interest income and remeasurement adjustments
17,098
OMIDRIA contract royalty asset at June 30, 2022
$
170,606
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Net income from discontinued operations is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(In thousands)
Product sales, net
$
—
$
28,823
$
—
$
49,884
Royalty interest income and remeasurement adjustments
10,102
—
17,098
—
Total
10,102
28,823
17,098
49,884
Other (income), costs and expenses, net
( 744 )
7,229
( 231 )
13,611
Net income from discontinued operations
$
10,846
$
21,594
$
17,329
$
36,273
Cash flow from discontinued operations is as follows:
Six Months Ended June 30,
2022
2021
(In thousands)
Total operating cash flows from discontinued operations
$
13,983
$
( 22,821 )
Note 4—Net Loss Per Share
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. 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
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
2023 Notes convertible to common stock (1)
4,941,739
4,941,739
4,941,739
4,941,739
Outstanding options to purchase common stock
88
2,401,024
1,963
2,901,430
Outstanding restricted stock units
208,819
—
207,736
—
Total potentially dilutive shares excluded from net loss per share
5,150,646
7,342,763
5,151,438
7,843,169
(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
OMIDRIA Contract Royalty Asset
OMIDRIA contract royalty asset consists of the following:
June 30,
December 31,
2022
2021
(In thousands)
Short-term contract royalty asset
$
43,794
$
44,319
Long-term contract royalty asset
126,812
140,251
Total OMIDRIA contract royalty asset
$
170,606
$
184,570
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Receivables, net
Receivables, net consists of the following:
June 30,
December 31,
2022
2021
(In thousands)
Royalty and trade receivables, net
$
13,669
$
36,505
Sublease and other receivables
810
1,650
Total receivables, net
$
14,479
$
38,155
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:
June 30,
December 31,
2022
2021
(In thousands)
Finance leases
$
6,537
$
5,979
Laboratory equipment
3,123
3,091
Computer equipment
1,076
1,069
Office equipment and furniture
625
625
Total cost
11,361
10,764
Less accumulated depreciation and amortization
( 9,440 )
( 9,033 )
Total property and equipment, net
$
1,921
$
1,731
For the three months ended June 30, 2022 and 2021, depreciation and amortization expense was $ 0.2 million and $ 0.4 million, respectively. For the six months ended June 30, 2022 and 2021, depreciation and amortization expense was $ 0.5 million and $ 0.7 million, respectively.
Accrued Expenses
Accrued expenses consists of the following:
June 30,
December 31,
2022
2021
(In thousands)
Employee compensation
$
6,017
$
3,706
Interest payable
5,172
5,172
Clinical trials
4,573
2,430
Consulting and professional fees
3,179
7,455
Contract research and development
2,889
3,916
Sales rebates, fees and discounts
255
8,442
Other accrued expenses
1,395
2,013
Total accrued expenses
$
23,480
$
33,134
Note 6—Fair-Value Measurements
As of June 30, 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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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 and liabilities measured at fair value on a recurring basis are as follows:
June 30, 2022
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Money-market funds classified as short-term investments
$
108,427
$
—
$
—
$
108,427
Money-market funds classified as non-current restricted investments
1,054
—
—
1,054
Total
$
109,481
$
—
$
—
$
109,481
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
Cash held in demand deposit accounts of $ 14.1 million and $ 100.8 million is excluded from our fair-value hierarchy disclosure as of June 30, 2022 and December 31, 2021, respectively. There were no unrealized gains or losses associated with our investments as of June 30, 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.
See “Note 8—Unsecured Convertible Senior Notes” for the carrying amount and estimated fair value of our outstanding convertible senior notes.
Note 7—Line of Credit
As of June 30, 2022, we had a Loan and Security Agreement with Silicon Valley Bank (“SVB”) providing for a $ 50.0 million revolving line of credit facility (the “Line of Credit Agreement”). As of June 30, 2022, we had no outstanding borrowings under the Line of Credit Agreement. The Line of Credit Agreement expired on August 2, 2022.
Note 8—Unsecured Convertible Senior Notes
In November 2018, we issued $ 210.0 million in aggregate principal amount of our 6.25 % Convertible Senior Notes (the “2023 Notes ”) , and in August and September 2020, we issued $ 225.0 million in aggregate principal amount of our 5.25 % Convertible Senior Notes (the “2026 Notes”). We used a portion of the proceeds from the 2026 Notes to repurchase $ 115.0 million principal amount of the 2023 Notes and terminate a corresponding portion of the related capped call for the 2023 Notes, as described below.
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Unsecured convertible senior notes outstanding at June 30, 2022 and December 31, 2021 are as follows:
Balance as of June 30, 2022
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$
95,000
$
225,030
$
320,030
Unamortized debt issuance costs
( 956 )
( 4,716 )
( 5,672 )
Total unsecured convertible senior notes, net
$
94,044
$
220,314
$
314,358
Fair value of outstanding unsecured convertible senior notes (1)
$
85,263
$
132,064
Balance as of December 31, 2021
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$
95,000
$
225,030
$
320,030
Unamortized discount
( 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
(1) The fair value is classified as Level 3 due to the limited trading activity for the unsecured convertible senior notes.
2023 Unsecured Convertible Senior Notes
Our 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.
As of June 30, 2022, the unamortized debt issuance costs of $ 1.0 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. 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), which equals approximately 4.9 million shares of common stock issuable upon conversion, subject to adjustment in certain circumstances.
To reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2023 Notes, we entered into a capped call transaction (the “2023 Capped Call”), which covers the number of shares of our common stock underlying the 2023 Notes when our common stock share price is trading between the initial conversion price of $ 19.22 and $ 28.84 . 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 June 30, 2022, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.
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The following table sets forth total interest expense recognized in connection with the 2023 Notes:
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
(In thousands)
(In thousands)
Contractual interest expense
$
1,484
$
1,484
$
2,969
$
2,969
Amortization of debt issuance costs
164
153
325
303
Total
$
1,648
$
1,637
$
3,294
$
3,272
2026 Unsecured Convertible Senior Notes
Our 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.
As of June 30, 2022, the unamortized debt issuance costs of $ 4.7 million will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.
The 2026 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 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.
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”). The 2026 Capped Calls will cover the number of shares of our common stock underlying the 2026 Notes when our common stock share price is trading between the initial conversion price of $ 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 a dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price.
The following table sets forth interest expense recognized related to the 2026 Notes:
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
(In thousands)
(In thousands)
Contractual interest expense
$
2,954
$
2,954
$
5,907
$
5,907
Amortization of debt issuance costs
290
273
575
519
Total
$
3,244
$
3,227
$
6,482
$
6,426
Future minimum payments for the 2023 Notes and 2026 Notes as of June 30, 2022 are as follows:
(In thousands)
2023
$
95,000
2024
—
2025
—
2026
225,030
2027
—
Total future minimum principal payments under the 2023 Notes and 2026 Notes
$
320,030
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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 . 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
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(In thousands)
(In thousands)
Lease cost
Operating lease cost
$
1,663
$
1,984
$
2,870
$
3,567
Finance lease cost:
Amortization
122
288
320
611
Interest
36
40
92
89
Variable lease cost
722
992
1,582
1,804
Sublease income
( 453 )
( 423 )
( 945 )
( 841 )
Net lease cost
$
2,090
$
2,881
$
3,919
$
5,230
Cash paid for amounts included in the measurement of lease liabilities is as follows:
Six Months Ended
June 30,
2022
2021
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash payments for operating leases
$
3,562
$
3,578
Cash payments for financing leases
$
401
$
436
Note 10—Commitments and Contingencies
Contracts
We have various agreements with third parties that collectively require payment of termination fees totaling $ 30.5 million as of June 30, 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 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 and six months ended June 30, 2022 and June 30, 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.
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Note 11—Shareholders’ Deficit
Common Stock and Warrants
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 June 30, 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 June 30, 2022, 200,000 warrants remained outstanding with an exercise price of $ 23.00 per share. The warrants expire on April 12, 2023.
Note 12—Stock-Based Compensation
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 is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(In thousands)
Continuing operations
Research and development
$
1,389
$
1,390
$
3,104
$
2,840
Selling, general and administrative
1,793
1,522
3,970
3,132
Total stock-based compensation in continuing operations
3,182
2,912
7,074
5,972
Discontinued operations
( 110 )
205
( 110 )
416
Total stock-based compensation
$
3,072
$
3,117
$
6,964
$
6,388
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 all stock option grants:
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2022
Estimated weighted-average fair value
$
1.90
$
2.19
Weighted-average assumptions:
Expected volatility
82
%
82
%
Expected life, in years
5.8
5.8
Risk-free interest rate
2.51
%
2.46
%
Expected dividend yield
—
%
—
%
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Stock option activity for all stock plans and related information 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, 2021
12,709,887
$
12.61
Granted
125,534
7.29
Exercised
( 101,160 )
4.10
Forfeited
( 367,273 )
13.96
Balance at June 30, 2022
12,366,988
$
12.55
5.1
$
46
Vested and expected to vest at June 30, 2022
12,106,495
$
12.53
5.0
$
42
Exercisable at June 30, 2022
9,865,506
$
12.26
4.3
$
—
As of June 30, 2022, there were 2.5 million unvested options outstanding that will vest over a weighted-average period of 2.2 years. The total estimated compensation expense yet to be recognized on outstanding options is $ 20.0 million.
The Company has 204,500 shares of unvested RSUs outstanding as of June 30, 2022 that vest 50 % on December 1, 2022 and 50 % on December 1, 2023.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.