OMEROS CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Overview Omeros Corporation (“Omeros,” the “Company” or “we”) is an innovative biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market and orphan indications targeting immunologic diseases, including complement-mediated diseases and cancers related to dysfunction of the immune system, as well as addictive and compulsive disorders. Our 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. 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. 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 in August 2022. -20- Table of Contents We also have multiple Phase 3 and Phase 2 clinical-stage development programs in progress with narsoplimab, which are focused on: complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”) and COVID-19. We have successfully completed a Phase 1 study of OMS906, our lead MASP-3 inhibitor targeting the alternative pathway of complement. We are initiating a Phase 1b clinical trial in patients with paroxysmal nocturnal hemoglobinuria (“PNH”) who have had an unsatisfactory response to the C5 inhibitor ravulizumab. We are also working to expand our program of OMS906 clinical trials to include treatment-naïve PNH patients and complement 3 (“C3”) glomerulopathy patients, as well as one or more related indications. In August, 2022 , we began dosing in a Phase 1 clinical trial of OMS1029, our long-acting, next-generation MASP-2 inhibitor and have successfully completed a Phase 1 study in our phosphodiesterase 7 (“PDE7”) program focused on addiction. We also have a diverse group of preclinical programs, including GPR174, a novel target in immuno-oncology that modulates a new cancer immunity axis that we discovered. Inhibitors of GPR174 are part of our proprietary G protein-coupled receptor (“GPCR”) platform through which we control 54 GPCR drug targets and their corresponding compounds. Also as part of our immuno-oncology platform, we are developing other novel anti-cancer therapeutics as well as adoptive T cell/CAR-T therapies. ​ We previously developed and commercialized OMIDRIA ® (phenylephrine and ketorolac intraocular solution) 1%/0.3%, which is approved by FDA for use during cataract surgery or intraocular lens (“IOL”) replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain. We marketed OMIDRIA in the United States (the “U.S.”) from the time of its commercial launch in 2015 until December 2021. ​ 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 $126.0 million in cash at the closing and we receive a royalty of 50% of the net revenue, as defined in the Asset Purchase Agreement, from sales of OMIDRIA in the U.S. between the closing date and the earlier of January 1, 2025 or the payment of the $200.0 million milestone described below. After such date, we will receive a royalty of 30% of the net revenue from sales of OMIDRIA in the U.S. until the expiration or termination of the last issued and unexpired patent with respect to OMIDRIA in the U.S. The U.S. base royalty rate is subject to a reduction down 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 (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B. We will also will receive a royalty of 15% of the net revenue from sales of OMIDRIA outside the U.S. on a country-by-country basis between the closing date and the expiration or termination of the last issued and unexpired patent with respect to OMIDRIA in such country. In addition, we will receive a $200.0 million milestone payment if, prior to January 1, 2025, separate payment for OMIDRIA is secured under Medicare Part B for a continuous period of at least four years. Clinical Development Programs Our clinical stage development programs include: ● MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders . Narsoplimab, also referred to as OMS721, is our lead fully human monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (“MASP-2”), a novel pro-inflammatory protein target involved in activation of the lectin pathway of the complement system. The lectin pathway plays an important role in the body’s inflammatory response and becomes activated as a result of tissue damage or microbial pathogen invasion. Inappropriate or uncontrolled activation of the lectin pathway can cause serious diseases and disorders. MASP-2 is the effector enzyme of the lectin pathway, and the current development focus for narsoplimab is diseases that are strongly associated with activation of the lectin pathway. In October 2020, we reported final clinical data from our pivotal trial of narsoplimab in HSCT-TMA, a frequently lethal complication of HSCT. In November 2020, we completed the rolling submission of our BLA for narsoplimab for the treatment of HSCT-TMA, and FDA accepted the BLA for filing in January 2021 under its Priority Review program. On October 18, 2021, we announced the receipt of a 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. As described above, we -21- Table of Contents are engaged with FDA in a Formal Dispute Resolution regarding the BLA for narsoplimab. We are currently awaiting a decision on the dispute from FDA. 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 in August 2022. In the EU, the EMA has confirmed narsoplimab’s eligibility for EMA’s centralized review of a single marketing authorization application (“MAA”) that, if approved, would authorize the product to be marketed in all EU member states and EEA countries. Although our resources are currently focused primarily on BLA approval in the U.S., we continue to advance toward submission of our MAA. Phase 3 clinical programs are also ongoing for narsoplimab in IgA nephropathy and aHUS. In addition, narsoplimab is the only complement inhibitor included in a nationwide, late-stage adaptive platform trial evaluating multiple agents as potential treatments for COVID-19. Narsoplimab also has been administered under compassionate use to treat COVID-19 patients in Italy and in the U.S. Narsoplimab has received multiple designations from FDA and from the EMA across three current indications. These include: ● HSCT-TMA: In the U.S., FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy and (2) orphan drug designation for the treatment of HSCT-TMA. In the EU, narsoplimab has been granted designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation. ● IgA nephropathy: In the U.S., FDA has granted narsoplimab (1) breakthrough therapy designation for the treatment of IgA nephropathy and (2) orphan drug designation in IgA nephropathy. In the EU, narsoplimab has been granted designation as an orphan medicinal product for the treatment of primary IgA nephropathy. ● aHUS: In the U.S., FDA has granted narsoplimab orphan drug designation for the prevention (inhibition) of complement-mediated TMAs and fast-track designation for the treatment of patients with aHUS. In our IgA nephropathy program, patient enrollment in the narsoplimab Phase 3 clinical trial, ARTEMIS-IGAN, continues to progress toward an anticipated readout of 9-month proteinuria data by mid-2023. The single Phase 3 trial design is a randomized, double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and 24-hour urine protein excretion greater than 1 g/day at baseline on optimized renin-angiotensin system blockade. This trial includes a run-in period. Initially, patients are expected to receive an IV dose of study drug each week for 12 weeks; additional weekly dosing can be administered to achieve optimal response. The primary endpoint, which could suffice for regular or accelerated approval depending on the effect size, is reduction in proteinuria at 36 weeks after the start of dosing. The trial is designed to allow intra-trial adjustment in sample size. For the purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups. This will include a subset of patients with high levels of proteinuria ( i.e. , equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval. We believe that the trial design will allow assessment for either regular or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients. In the event of regular approval, estimated glomerular filtration rate (“eGFR”) becomes a safety endpoint only. In the event that the primary endpoint at 36 weeks results in accelerated approval from FDA, change in eGFR is expected to be assessed at approximately 144 weeks after the start of dosing. These eGFR data, if satisfactory, would then likely form the basis for subsequent regular approval. In response to investigators’ concerns about extended withholding of narsoplimab treatment from any high-proteinuria patient initially randomized to the placebo-treated group, FDA will allow patients in that sub-population to receive open-label treatment with narsoplimab after at least 18 months of blinded treatment. -22- Table of Contents The Phase 3 clinical program in patients with aHUS, in which patient recruitment is ongoing, consists of one Phase 3 clinical trial – a single-arm ( i.e. , no control arm), open-label trial in patients with newly diagnosed or ongoing aHUS. This trial is targeting approximately 40 patients for regular approval in the EU and accelerated approval in the U.S. and, as required by FDA, approximately 80 total patients for regular approval in the U.S. The trial includes multiple sites in the U.S., Asia and Europe; however, enrollment has been slow in part due to prioritizing the use of resources within our narsoplimab programs on HSCT-TMA, COVID-19 and IgA nephropathy. Narsoplimab is also the only complement inhibitor included in the I-SPY COVID-19 adaptive platform trial sponsored by Quantum Leap Healthcare Collaborative, (“Quantum Leap”), which is evaluating drugs and investigational products for the treatment of critically ill COVID-19 patients. The narsoplimab treatment arm has concluded and we look forward to Quantum Leap’s disclosure of the narsoplimab results. ​ ● MASP 2 – OMS1029 - Lectin Pathway Disorders . We are also developing a longer-acting second-generation antibody targeting MASP-2. This program is designated “OMS1029.” A Phase 1 clinical trial assessing safety, tolerability and pharmacokinetics/pharmacodynamics (“PK/PD”) of OMS1029 in healthy subjects began dosing in August 2022. Designed for longer duration of pharmacologic activity than narsoplimab, we anticipate that OMS1029 will enable us to pursue a range of indications complementary to those for narsoplimab. Based on animal PK/PD data to date, dosing in humans is expected to be once-monthly to once-quarterly by subcutaneous or intravenous administration. ​ ● MASP-3 - OMS906 - Alternative Pathway Disorders . As part of our MASP program, we have identified mannan-binding lectin-associated serine protease 3 (“MASP-3”), which has been shown to be the key activator of the complement system’s alternative pathway (“APC”), and we believe that we are the first to make this and related discoveries associated with the APC. The complement system is part of the immune system’s innate response, and the APC is considered the amplification loop within the complement system. MASP-3 is responsible for the conversion of pro-factor D to factor D; converted factor D is necessary for the activation of the APC. Based on our alternative pathway-related discoveries, we have expanded our intellectual property position to protect our inventions stemming from these discoveries beyond MASP-2 associated inhibition of the lectin pathway to include inhibition of the alternative pathway. Our current primary focus in this program is developing MASP-3 inhibitors for the treatment of disorders related to the APC. OMS906 received designation from FDA as an orphan drug for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”) in July 2022. We have completed a placebo-controlled, double-blind, single-ascending-dose Phase 1 clinical trial to evaluate the safety, tolerability, pharmacodynamics and pharmacokinetics of OMS906 in healthy subjects. Preliminary data from the Phase 1 trial were previously reported and we plan to present the results of the Phase 1 study at an upcoming medical congress. OMS906 has been well tolerated at all doses tested and preliminary human pharmacokinetic and pharmacodynamic data are consistent with once-monthly subcutaneous dosing and every-other-month or less frequent IV dosing. Recent data show high level suppression of alternative pathway activity. We are initiating a Phase 1b clinical trial in patients with PNH who have had an unsatisfactory response to the C5 inhibitor ravulizumab. We are also working to expand our program of OMS906 clinical trials to include treatment-naïve PNH patients and C3 glomerulopathy patients, as well as one or more related indications. ​ ● PDE7 - OMS527 . Our PDE7 program is based on our discoveries of previously unknown links between PDE7 and any addiction or compulsive disorder, and between PDE7 and any movement disorders, such as Parkinson’s disease. PDE7 appears to modulate the dopaminergic system, which plays a significant role in regulating both addiction and movement. We believe that PDE7 inhibitors could be effective therapeutics for the treatment of addictions and compulsions as well as for movement disorders. Data generated in preclinical studies support the use of PDE7 inhibitors in both of these therapeutic areas . -23- Table of Contents In September 2019, we reported positive results from our completed Phase 1 clinical trial designed to assess the safety, tolerability and pharmacokinetics of the compound in healthy subjects. In the double blind, randomized Phase 1 study, the study drug, referred to as OMS182399, met the primary endpoints of safety and tolerability and showed a favorable and dose-proportional pharmacokinetic profile supporting once-daily dosing. There was no apparent food effect on plasma exposure to OMS182399. Continued clinical development in our PDE7 program is currently subject to allocation of internal financial and other resources, which at present are prioritized for other programs, and/or accessing external funding. In addition to our work in addiction, researchers at Emory University are evaluating, in clinically predictive primate models, the potential of our PDE7 inhibitors to improve levodopa-induced dyskinesias. More than 50% of Parkinson’s patients develop dyskinesias following prolonged levodopa treatment. Preclinical Development Programs and Platforms Our preclinical programs and platforms include: ● Other MASP Inhibitor Preclinical Programs . We have generated positive preclinical data from MASP-2 inhibition in in vivo models of age-related macular degeneration, myocardial infarction, diabetic neuropathy, stroke, traumatic brain injury, ischemia-reperfusion injury, and other diseases and disorders. In our OMS906 monoclonal antibody program, we have generated positive data from MASP-3 inhibition in a well-established animal model associated with PNH as well as positive data in a well-established animal model of arthritis. Development efforts are also directed to a small-molecule inhibitor of MASP-2 designed for oral administration as well as to small-molecule inhibitors of MASP-3 and bispecific small- and large-molecule inhibitors of MASP-2/-3. ● GPR174, GPCR Platform and Immuno-oncology Platform . We have developed a proprietary cellular redistribution assay which we use in a high-throughput manner to identify synthetic ligands, including antagonists, agonists and inverse agonists, that bind to and affect the function of orphan GPCRs. We have screened Class A orphan GPCRs against our small-molecule chemical libraries using the cellular redistribution assay and have identified and confirmed compounds that interact with 54 of the 81 Class A orphan GPCRs linked to a wide range of indications including cancer as well as metabolic, cardiovascular, immunologic, inflammatory and central nervous system disorders. One of our priorities in this program is GPR174, which is involved in the modulation of the immune system. In ex vivo human studies, our small-molecule inhibitors targeting GPR174 upregulate the production of cytokines, block multiple checkpoints and tumor promoters, and suppress regulatory T cells. Based on our data, we believe that GPR174 controls a major, previously unrecognized pathway in cancer and modulation of the receptor could provide a seminal advance in immuno-oncologic treatments for a wide range of tumors. O ur studies in mouse models of melanoma and colon carcinoma found that GPR174-deficiency resulted in significantly reduced tumor growth and improved survival of the animals versus normal mice. Our discoveries suggest a new approach to cancer immunotherapy that targets inhibition of GPR174 and can be combined with and significantly improve the tumor-killing effects of other oncologic agents, including radiation, adenosine pathway inhibitors and checkpoint inhibitors. These discoveries include (1) identification of cancer-immunity pathways controlled by GPR174, (2) the identification of phosphatidylserine as a natural ligand for GPR174, (3) a collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic enhancement of “tumor-fighting” cytokine production by T cells following the combined inhibition of both GPR174 and the adenosine pathway, another key metabolic pathway that regulates tumor immunity. We are developing, and plan to advance to clinical trials, inhibitors of GPR174 and of the pathways affected by this receptor and/or adenosine receptors. Additionally, we are advancing research on a technology that may improve the potency and durability of adoptive T cell therapies. We validated our novel approach – which enforces memory phenotypes in cultured T cells through a previously unexplored pathway – in an aggressive mouse tumor model and are building a broad and exclusive intellectual property position around our platform. We believe that our novel approach has the potential to improve response rates for patients receiving either engineered or native T cell therapies for liquid -24- Table of Contents or solid tumors and are continuing to explore the application of this technology to human CAR-T and adoptive T cell therapy systems. Financial Summary On December 23, 2021, we completed the sale of our commercial product OMIDRIA and certain related assets, including inventory and prepaid expenses, to Rayner. We will receive a royalty on world-wide 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 OMIDRIA divestiture, all the revenues and expenses related to OMIDRIA have been reclassified to net income from discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented (see “Net Income from Discontinued Operations” below for additional information). ​ As of June 30, 2022, we had $122.6 million in cash and cash equivalents and short-term investments available for general corporate use and $14.5 million in receivables. ​ Results of Operations Research and Development Expenses Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development and preclinical research and development activities; internal, overhead and other expenses; and stock-based compensation expense. Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing organizations prior to receiving regulatory approval for a drug candidate, contract research organizations (“CROs”), clinical trial sites, collaborators, and licensors and consultants. Costs are reported in preclinical research and development until the program enters the clinic. Internal, overhead and other expenses consist of personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs. The following table illustrates our expenses associated with these activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2022 2021 2022 2021 ​ ​ (In thousands) Continuing research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct external expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Clinical research and development: ​ ​ ​ ​ MASP-2 program - OMS721 (narsoplimab) ​ $ 8,498 ​ $ 9,564 ​ $ 17,742 ​ $ 26,595 MASP-3 program - OMS906 ​ ​ 680 ​ ​ 1,390 ​ ​ 1,982 ​ ​ 3,161 Other ​ 91 ​ 121 ​ 218 ​ 263 Total clinical research and development ​ 9,269 ​ 11,075 ​ 19,942 ​ 30,019 Preclinical research and development ​ 2,505 ​ 5,382 ​ 5,249 ​ 8,093 Total direct external expenses ​ 11,774 ​ 16,457 ​ 25,191 ​ 38,112 Internal overhead and other expenses ​ 10,353 ​ 12,279 ​ 19,308 ​ 21,678 Stock-based compensation expenses ​ 1,389 ​ 1,390 ​ 3,104 ​ 2,840 Total continuing research and development expenses ​ $ 23,516 ​ $ 30,126 ​ $ 47,603 ​ $ 62,630 ​ Clinical research and development expenses decreased $1.8 million and $10.1 million for the three and six months ended June 30, 2022 compared to the prior year period due primarily to the manufacturing of narsoplimab and OMS906. We expense inventory costs related to product candidates as research and development until regulatory approval is reasonably assured in either the U.S. or EU. -25- Table of Contents The $2.9 million and $2.8 million decreases in our preclinical research and development expenses for the three and six months ended June 30, 2022 as compared to the same periods in 2021 reflect timing of third-party manufacturing costs and preclinical animal toxicology safety studies related to our OMS1029 development program. Internal overhead and other expenses decreased $1.9 million and $2.4 million for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 due to a reduction in employee-related costs and returning a small portion of our leased building to the landlord in the first quarter of the current year. The increases in stock-based compensation for the three and six months ended June 30, 2022 compared to the same periods in the prior year are due to the valuation and timing of the vesting of employee stock options. ​ We expect overall research and development costs will increase modestly in the third quarter of 2022 compared to the second quarter of 2022. ​ At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our drug candidates due to the inherently unpredictable nature of our preclinical and clinical development activities. Clinical development timelines, the probability of success and development costs can change materially as new data become available and as expectations change. Our future research and development expenses will depend, in part, on the preclinical or clinical success of each drug candidate as well as ongoing assessments of each program’s commercial potential. In addition, we cannot forecast with precision which drug candidates, if any, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We are required to expend substantial resources in the development of our drug candidates due to the lengthy process of completing clinical trials and seeking regulatory approval. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses. Selling, General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2022 2021 2022 2021 ​ ​ (In thousands) Continuing selling, general and administrative expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses, excluding stock-based compensation expense ​ $ 12,129 ​ $ 13,962 ​ $ 20,911 ​ $ 25,138 Stock-based compensation expense ​ 1,793 ​ 1,522 ​ 3,970 ​ 3,132 Total continuing selling, general and administrative expense ​ $ 13,922 ​ $ 15,484 ​ $ 24,881 ​ $ 28,270 ​ Total selling, general and administrative expenses decreased by $1.6 million and $3.4 million for the three and six months ended June 30, 2022 compared to the same periods in the prior year. The decreases were primarily related to narsoplimab pre-launch sales and marketing development costs in the prior year quarters and the timing of legal costs. The increases in stock-based compensation for the three and six months ended June 30, 2022 compared to the same periods in the prior year are due to the valuation and timing of the vesting of employee stock options. We expect that our third quarter 2022 selling, general and administrative expenses will be similar to the second quarter of 2022. -26- Table of Contents Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2022 2021 2022 2021 ​ ​ (In thousands) Interest expense ​ $ 4,927 ​ $ 4,910 ​ $ 9,868 ​ $ 9,807 Interest expense is primarily comprised of contractual interest and amortization of debt issuance and debt discount related to our 6.25% Convertible Senior Notes (the “2023 Notes”) and 5.25% Convertible Senior Notes (the “2026 Notes”) as well as interest on our finance leases (see “Note 8— Unsecured Convertible Senior Notes”). Other Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2022 2021 2022 2021 ​ ​ (In thousands) Other income ​ $ 670 ​ $ 333 ​ $ 1,163 ​ $ 751 Other income principally includes sublease rental income and interest earned on our cash and investments. The increases in other income for the three and six months ended June 30, 2022 compared to the same periods in the prior year are due to increased interest earned on our investments and increased sublease income. OMIDRIA Royalties On December 23, 2021, we sold our commercial drug, OMIDRIA, to Rayner. We currently receive royalty payments of 50% of Rayner’s U.S. net sales of OMIDRIA (see the “Overview” section of the Management’s Discussion and Analysis for additional details). During the six months ended June 30, 2022, we earned royalties of $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 related 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 Net Income from Discontinued Operations As a result of the OMIDRIA divestiture, all the revenue and expenses related to OMIDRIA have been reclassified to discontinued operations in our condensed consolidated statements of operations and comprehensive loss for all periods presented. -27- Table of Contents 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 ​ In July 2022, CMS issued its proposed Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems rule for calendar year 2023. The rule includes confirmation that OMIDRIA continues to qualify for separate payment under the CMS’ policy regarding non-opioid pain management surgical drugs when used in ambulatory surgical centers (ASCs). If the proposed rule is adopted as final, OMIDRIA would continue to be paid separately in the ASCs under Medicare Part B at least throughout calendar year 2023. Financial Condition - Liquidity and Capital Resources As of June 30, 2022, we had $122.6 million in cash, cash equivalents and short-term investments available for general corporate use held primarily in money-market accounts. During the three and six months ended June 30, 2022 we had an overall decrease in our cash, cash equivalents and short-term investments of $19.7 million and $34.7, respectively. For the three months ended June 30, 2022, we incurred a net loss from operations of $30.9 million, including non-cash charges of $3.7 million. For the six months ended June 30, 2022, we incurred a net loss from operations of $63.9 million, including non-cash charges of $7.9 million. ​ We plan to continue to fund our operations with our cash and investments, realization of our outstanding accounts receivable, OMIDRIA royalties and, potentially, the $200.0 million milestone related to achieving long-term OMIDRIA separate payment. If FDA approval is granted for narsoplimab for HSCT-TMA, we expect that sales of narsoplimab would also provide funds for our operations. In addition, 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 having an aggregate amount of up to $150.0 million. Should it be determined to be strategically advantageous, we could also pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technology. Should it be necessary to manage our operating expenses, we could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities. We have $95.0 million of 2023 Notes that will mature and become due in November 2023. Unless the debt is converted to equity at or prior to maturity, we plan to fund the repayment of the 2023 Notes through a combination of cash from operations, including narsoplimab HSCT-TMA revenues should approval be granted by FDA, the $200.0 million milestone related to OMIDRIA, if long-term separate payment is achieved for OMIDRIA, strategic transactions, sales of stock or through issuance of additional debt. Cash Flow Data ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, ​ 2022 2021 ​ ​ (In thousands) Selected cash flow data ​ ​ ​ ​ ​ ​ Cash provided by (used in): ​ ​ ​ ​ ​ ​ Operating activities ​ $ (34,662) ​ $ (67,846) Investing activities ​ $ (52,072) ​ $ 63,396 Financing activities ​ $ 62 ​ $ 6,651 ​ -28- Table of Contents Operating Activities. Net cash used in operating activities for the six months ended June 30, 2022 decreased by $33.2 million as compared to the same period in 2021. The decrease in cash used was primarily due to a $51.7 million change in cash provided from receivables resulting from collecting and not replacing trade receivables outstanding at December 31, 2021 due to the sale of OMIDRIA to Rayner in December 2021. In the prior year period, receivables increased due to reinstatement of OMIDRIA separate payment in December 2020, which resulted in increased sales and receivables during the first half of 2021. Other changes in operating activities between the periods included a $14.0 million decrease in the OMIDRIA contract royalty asset resulting from royalties earned on OMIDRIA net sales, a $22.5 million decrease in accounts payable and accrued expenses and a $9.3 million decrease in prepaids and other. ​ Investing Activities. Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the sale of short-term investments, thus causing a shift between our cash and cash equivalents and short-term investment balances. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not consider fluctuations in cash flows from investing activities to be important to the understanding of our liquidity and capital resources. Net cash used by investing activities during the six months ended June 30, 2022 was $52.1 million compared to net cash provided by investing activities of $63.4 million for the same period in the preceding year. The $115.5 million change between years is due to the purchase of short-term investments with a portion of the cash received upon the sale of OMIDRIA to Rayner. Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2022 decreased $6.6 million compared to the same period in 2021 due to a reduction in proceeds from the exercise of employee stock options. Line of Credit Agreement ​ 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. Contractual Obligations and Commitments Our future minimum contractual commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2021. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported. Operating Leases Our lease for our office and laboratory space ends in November 2027. We have two five-year options to extend the lease term. 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. In addition, we carry various finance leases for laboratory equipment. As of June 30, 2022, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $38.8 million. Convertible Notes See “Financial Condition—Liquidity and Capital Resources—Convertible Notes” above. Goods and Services We have certain other non-cancelable obligations under various agreements that relate to goods and services. As of June 30, 2022, our aggregate firm commitments were $30.5 million. -29- Table of Contents We may be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur. Therefore, such payments are not included in the amounts described above. Critical Accounting Policies and Significant Judgments and Estimates There have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022.