What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 154 added, 95 removed, 184 unchanged (58% of the section changed)

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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 the CRL, FDA expressed difficulty in estimating the treatment effect of narsoplimab in HSCT-TMA and asserted that additional information would 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.

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

As a result, in June 2022, we submitted a Formal Dispute Resolution Request appealing the issuance of the CRL to a higher level within FDA, in this case the Office of New Drugs (“OND”), and requesting that OND direct the review division to accept a Class 1 resubmission of the BLA and to commence labeling discussions with Omeros immediately thereafter.

In November 2022, we received OND’s decision denying our appeal.

Although our request for immediate resubmission of the BLA and commencement of labeling discussions was denied, the decision proposes a path forward to a resubmission of the BLA based on survival data from the completed pivotal trial versus a historical control group.

Specifically, the decision proposes the resubmission of the narsoplimab BLA including a comparison of the existing response data from the completed pivotal trial to a threshold derived from an independent literature analysis and evidence of increased survival from patients in the pivotal trial compared to an appropriate historical control group.

The decision also notes that persuasive evidence of superior survival versus a well-matched historical control group could be sufficient even in the absence of the independent literature analysis.

The specific approach to resubmission and its details would be determined through discussion with the review division.

We are currently evaluating the decision and potential next steps in relation to the narsoplimab BLA and there can be no assurances that the potential paths proposed by OND in its decision will be satisfactory in terms of the information, time and/or expenditure required for resubmission, or that any resubmission will result in approval of narsoplimab for HSCT-TMA.

We also have multiple late clinical-stage development programs ongoing 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 initiating a Phase 1b clinical trial evaluating OMS906 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.

Dosing in a Phase 1 clinical trial of OMS1029, our long-acting, next-generation MASP-2 inhibitor began in August 2022 and continues on track.

We have successfully completed a Phase 1 study in our phosphodiesterase 7 (“PDE7”) inhibitor program focused on addiction and in non-clinical evaluation for treatment of dyskinesias related to levodopa treatment of Parkinson’s disease.

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.

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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.

On September 30, 2022, we sold to DRI Healthcare Acquisitions LP (“DRI”) an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration.

DRI receives their prorated monthly cap amount before we receive any royalty proceeds.

DRI is not entitled to carry-forward or to recoup any shortfall if the royalties paid by Rayner for an annual period are less than the cap amount applicable to each discrete calendar year.

Additionally, DRI has no recourse to or security interest in our assets other than our OMIDRIA royalty receipts and we retain all royalty receipts in excess of the respective cap in any given calendar year.

The maximum payout DRI is entitled to receive is $188.4 million which, if fully paid, is an effective interest rate of 9.4%.

The annual caps are as follows:

● $1.7 million for the remainder of calendar year 2022

● $13.0 million for calendar year 2023

● $20.0 million for calendar year 2024

● $25.0 million for calendar years 2025 through 2028

● $26.3 million for calendar year 2029

● $27.5 million for calendar year 2030

Clinical Development Programs

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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

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.

On October 18, 2021, we announced the receipt of a CRL from FDA regarding the

In the CRL, the FDA review division expressed difficulty in estimating the treatment effect of narsoplimab in HSCT-TMA and asserted that additional information would be needed to support regulatory approval.

In June 2022, we appealed the issuance of the CRL through a formal dispute resolution process and requested that OND direct the FDA review division to accept a Class 1 resubmission of the existing BLA and to commence labeling discussions with Omeros immediately thereafter.

As described above, in November 2022 we received OND’s decision denying our appeal.

Although the decision denied our request for immediate resubmission of the BLA and commencement of labeling discussions, it also proposed a path forward to resubmission based on submission of survival data from a historical control group, with or without an independent literature analysis.

We are currently evaluating the decision and next steps with respect to the narsoplimab BLA.

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.

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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.

The primary endpoint, which we believe may suffice for regular or accelerated approval depending on the effect size, is reduction in proteinuria at 36 weeks after the start of dosing.

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.

In the event that the primary endpoint at 36 weeks results in accelerated approval from FDA, we expect to assess change in eGFR at approximately 144 weeks after the start of dosing.

These eGFR data, if satisfactory, would then likely form the basis for subsequent regular approval.

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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.

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 also has been administered under compassionate use to treat COVID-19 patients in Italy and in the U.S.

and was the only complement inhibitor included in the I-SPY COVID-19 trial, a nationwide, late-stage adaptive platform trial evaluating multiple agents as potential treatments for COVID-19, sponsored by Quantum Leap Healthcare Collaborative (“Quantum Leap”), in which results of the narsoplimab treatment arm were reported in September 2022.

The I-SPY COVID-19 trial was designed for rapid screening of agents that show promise for two primary endpoints in critically ill COVID-19 patients:

the time to recovery (defined as reduction in oxygen demand) and the risk of mortality.

The study utilized Quantum Leap’s adaptive platform trial design methodology, which focuses on the simultaneous, efficient assessment of multiple investigational agents.

To streamline enrollment and allow rapid assessment of multiple drugs as required during the pandemic, the platform trial’s initial design included a requirement that patients be randomized prior to consenting to trial participation.

Because such analyses are known to create a risk of bias, Quantum Leap also prespecified analyses based on all randomized patients (the industry-standard intent-to-treat population).

Substantial imbalance in the consented population was detected and created a marked and statistically significant bias against the narsoplimab arm, rendering analysis of the consented population meaningless.

However, as pre-specified by the analysis plan, the I-SPY trial’s data monitoring committee terminated the narsoplimab arm based on this analysis prior to reaching the maximum of 125 patients.

Quantum Leap subsequently revised the protocol for its I-SPY COVID trial to obtain patient consent prior to randomization.

Neither the trial’s futility nor graduation criteria had been met in the analysis of the randomized population at the time the narsoplimab arm was terminated.

Narsoplimab was to be administered at a dose of 4 mg/kg given as a 30-minute intravenous infusion (up to a maximum of 370 mg per infusion) twice weekly for the earlier of a total of 4 weeks (i.e., 9 doses) or until hospital discharge.

There were 91 patients randomized to the narsoplimab arm of the trial across 27 participating US sites.

The 91 randomized patients were compared to the 116 patients concurrently randomized to the control arm.

All patients received standard of care including dexamethasone and remdesivir.

Bayesian statistics were prespecified and employed for analyses.

Analysis in the randomized patient population showed that the addition of narsoplimab to treatment of critically ill patients with COVID-19 reduces the mortality risk (hazard ratio [HR]=0.81, with probability [HR <1] equal to 0.77).

Narsoplimab showed the largest reduction in mortality risk to date across all drugs reported from the I-SPY COVID Trial.

Narsoplimab was not observed to shorten the time to recovery in critically ill patients with COVID-19 in this study.

The study did not identify any new safety signals for narsoplimab in the setting of critically ill COVID-19 patients.

Next steps in the development of narsoplimab for COVID-19 are dependent on the availability of government or other external funding and support.

We continue to engage in discussions with the U.S.

government regarding its preparedness strategy for the current and potential future pandemics, including anticipated future funding programs and opportunities intended to advance development of therapeutics for COVID-19 and other infective diseases.

● 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.

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● 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.

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 (the “APC”).

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.

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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.

OMS906 received designation from FDA as an orphan drug for the treatment of 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.

Preliminary data from the Phase 1 trial were previously reported.

OMS906 was well-tolerated at all doses tested and preliminary human pharmacokinetic and pharmacodynamic data were consistent with once-monthly subcutaneous dosing and every-other-month or less frequent IV dosing.

The data also showed high level suppression of alternative pathway activity.

Clinical results of the Phase 1 study are scheduled to be presented at the annual meeting of the American Society of Hematology to be held in December 2022.

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.

We are also initiating clinical trials in our OMS906 program 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.

Our PDE7 inhibitor 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 .

Data generated in preclinical studies support the continued study of PDE7 inhibitors in both of these therapeutic areas .

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.

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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 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.

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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

or solid tumors and are continuing to explore the application of this technology to human CAR-T and adoptive T cell therapy systems.

Additionally, we are advancing preclinical research on potential molecular and cellular therapies for cancer.

On the molecular front, we are generating potential drug candidates that could specifically target cancer cells and kill them directly or indirectly through the potentiation of the immune system.

On the cellular front, we are evaluating novel approaches for both CAR T and adoptive T cell therapies.

Our proprietary technology resulted in preferential expansion of tumor specific T cells with enhanced tumor killing ability.

It also increased cytokine production and skewed T cells towards a central memory phenotype, preventing potential relapse associated with a lack of memory T cells.

We continue to develop and validate our novel approach, which we believe could improve response rates for patients receiving either engineered or native T cell therapies for liquid or solid tumors.

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.

We are entitled to royalties 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.

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration.

The maximum payout DRI is entitled to receive is $188.4 million.

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.

As of September 30, 2022, we had $221.0 million in cash and cash equivalents and short-term investments available for general corporate use.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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MASP-3 program - OMS906

MASP-2 program - OMS1029

Total clinical research and development

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Total continuing research and development expenses

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.

Clinical research and development expenses increased $14.9 million for the three months ended September 30, 2022 compared to the prior year period due primarily to the manufacturing of narsoplimab drug substance in the third quarter of 2022 for future commercial or clinical use and the transitioning of OMS1029 from preclinical research and development to clinical research and development upon the initiation of human trials during the third quarter of 2022.

For the nine months ended September 30, 2022 compared to the prior year period, the $4.9 million increase in clinical research and development was primarily due to higher commercial and clinical narsoplimab drug substance manufacturing costs in 2022.

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

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.

The $0.9 million decrease in our preclinical research and development expenses for the three months ended September 30, 2022 as compared to the same period in 2021 is due primarily to the transitioning of OMS1029 from preclinical research and development to clinical research and development during the third quarter of 2022.

The $3.7 million decrease in our preclinical research and development expenses for the nine months ended September 30, 2022 as compared to the same period in 2021 is due primarily to third-party manufacturing costs and animal toxicology studies related to our OMS1029 development program in 2021 that were not incurred in 2022.

The migration of OMS1029 from preclinical research and development to clinical research and development during the third quarter of 2022 also contributed to the decrease.

Internal overhead and other expenses decreased $0.6 million and $2.9 million for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 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 decreases in stock-based compensation for the three and nine months ended September 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 decrease in the fourth quarter of 2022 compared to the third quarter of 2022 as we do not expect to manufacture additional narsoplimab drug substance in the fourth 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Continuing selling, general and administrative expense:

Continuing selling, general and administrative expenses:

Selling, general and administrative expenses, excluding stock-based compensation expense

Stock-based compensation expense

Total continuing selling, general and administrative expense

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.

We expect that our third quarter 2022 selling, general and administrative expenses will be similar to the second quarter of 2022.

Total continuing selling, general and administrative expenses

Total selling, general and administrative expenses decreased by $1.8 million and $5.2 million for the three and nine months ended September 30, 2022, respectively, 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 and the timing of legal costs.

The changes in stock-based compensation expense for the three and nine months ended September 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 selling, general and administrative expenses in the fourth quarter of 2022 will be similar to the third quarter.

Interest Expense

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Six Months Ended

Nine Months Ended

September 30,

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Interest expense

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”).

Interest and Other Income

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Six Months Ended

Nine Months Ended

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(In thousands)

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.

Interest and other income

Other income principally includes interest earned on our cash and investments and sublease rental income.

The increases in other income for the three and nine months ended September 30, 2022 compared to the same periods in the prior year are due primarily to increased interest earned on our cash and investments.

OMIDRIA Royalties

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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.

net sales of OMIDRIA (see the “Overview” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional details).

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration.

The $125.0 million cash consideration obtained is classified as a liability and is recorded as an “OMIDRIA royalty obligation” on our condensed consolidated balance sheet.

DRI is entitled to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, up to the amount of a fixed annual cap.

DRI receives payment of royalties monthly, as received from Rayner, up to the amount of a prorated monthly cap amount before we receive any royalty proceeds.

(See the “Overview” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 8 – OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional details.)

During the nine months ended September 30, 2022, we earned royalties of $47.6 million on sales of OMIDRIA which we recorded as a reduction from the OMIDRIA contract royalty asset.

We also recorded $54.7 million of income in discontinued operations representing interest income and remeasurement adjustments related to the OMIDRIA contract royalty asset.

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Royalties earned

Royalty interest income and remeasurement adjustments

OMIDRIA contract royalty asset at June 30, 2022

Royalty interest income and other

Remeasurement adjustments

OMIDRIA contract royalty asset at September 30, 2022

Net Income from Discontinued Operations

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Product sales, net

Royalty interest income and remeasurement adjustments

Other (income), costs and expenses, net

Royalty interest income and other

Remeasurement adjustments

Other income (expenses), net

Net income from discontinued operations

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.

In November 2022, CMS issued its final Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems rule for calendar year 2023.

The rule continues CMS’ established policy regarding separate payment for non-opioid pain management surgical drugs and confirms that for calendar year 2023 CMS will continue to pay separately for OMIDRIA when used in ambulatory surgical centers.

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.

For the three months ended September 30, 2022, we incurred a net loss of $17.5 million, including non-cash charges of $4.6 million and a $29.0 million non-cash gain on the remeasurement of the OMIDRIA contract royalty asset.

For the nine months ended September 30, 2022, we incurred a net loss of $81.3 million, including non-cash charges of $12.5 million and a $30.5 million non-cash gain on the remeasurement of the OMIDRIA contract royalty asset.

As of September 30, 2022, we had $221.0 million in cash, cash equivalents and short-term investments available for general corporate use.

This is a $98.4 million dollar increase from June 30, 2022.

Excluding the $125.0 million in proceeds we received from the DRI transaction, our third quarter decrease in cash, cash equivalents and short-term investments was $26.6 million.

We plan to continue to fund our operations with our cash and investments, 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.

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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.

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 on hand, cash generated from operations, including through sales of narsoplimab for HSCT-TMA, if approved 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

Nine Months Ended

September 30,

(In thousands)

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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.

Net cash used in operating activities for the nine months ended September 30, 2022 decreased by $30.4 million as compared to the same period in 2021.

The decrease in cash used was primarily due to a $54.4 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.

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 nine months of 2021.

Other changes in operating activities between the periods included a $5.1 million decrease in our net loss, a $6.8 million decrease in the OMIDRIA contract royalty asset, a $16.3 million decrease in accounts payable and accrued expenses and a $5.9 million decrease in prepaids and other.

Investing Activities.

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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.

Net cash used by investing activities during the nine months ended September 30, 2022 was $19.1 million compared to net cash provided by investing activities of $81.3 million for the same period in the preceding year.

The $100.4 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.

Net cash provided by financing activities during the nine months ended September 30, 2022 increased $117.8 million compared to the same period in 2021 primarily due to payment received from DRI in relation to the sale of future royalties, partially offset by a reduction in proceeds from the exercise of employee stock options.

Contractual Obligations and Commitments

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

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

We have two options to extend the lease term by five years each.

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.

As of September 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 $36.1 million.

Convertible Notes

See “Financial Condition—Liquidity and Capital Resources—Convertible Notes” above.

See “Note 7 – Unsecured Convertible Senior Notes” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

OMIDRIA Royalty Obligation

See “Note 8 – OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

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.

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.

As of September 30, 2022, our aggregate firm commitments were $20.6 million.

We may be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments.

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.

Aside from using the catch-up method to account for our OMIDRIA royalty obligation (see “Note 2 – Significant Accounting Policies – OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q), 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis