What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-09 · 168 added, 224 removed, 253 unchanged (61% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

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OMIDRIA contract royalty asset, short-term

Receivables, net

Prepaid expense and other assets

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Restricted investments

Liabilities and shareholders’ equity (deficit)

Liabilities and shareholders’ equity

Current liabilities:

1 unchanged sentence

Accrued expenses

Current portion of unsecured convertible senior notes, net

Current portion of OMIDRIA royalty obligation

Current portion of lease liabilities

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Lease liabilities, non-current

Other accrued liabilities - noncurrent

Other accrued liabilities, non-current

Commitments and contingencies (Note 10)

Shareholders’ equity (deficit):

Shareholders’ equity:

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

none issued and outstanding at September 30, 2022 and December 31, 2021.

Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at September 30, 2022 and December 31, 2021;

62,730,015 and 62,628,855 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.

none issued and outstanding at March 31, 2023 and December 31, 2022.

Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at March 31, 2023 and December 31, 2022;

62,828,765 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.

Additional paid-in capital

Accumulated deficit

Total shareholders’ equity (deficit)

Total liabilities and shareholders’ equity (deficit)

Total shareholders’ equity

Total liabilities and shareholders’ equity

See accompanying Notes to Condensed Consolidated Financial Statements

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Three Months Ended

Nine Months Ended

September 30,

Costs and expenses:

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Total costs and expenses

Loss from continuing operations

Loss from operations

Interest expense

1 unchanged sentence

Net loss from continuing operations

Net income from discontinued operations

Net income from discontinued operations, net of tax

Basic and diluted net income (loss) per share:

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Exercise of stock options and warrants

At the market offering costs

Cumulative effect of adopting ASU 2020-06

Stock-based compensation expense

Balance at March 31, 2022

Exercise of stock options

Stock-based compensation expense

Balance June 30, 2021

Exercise of stock options

Stock-based compensation expense

Balance September 30, 2021

Balance at January 1, 2023

Exercise of stock options

Stock-based compensation expense

Balance at March 31, 2023

Stock-based compensation expense

Balance June 30, 2022

Stock-based compensation expense

Balance September 30, 2022

See accompanying Notes to Condensed Consolidated Financial Statements

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(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

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

Early termination of operating lease

Stock-based compensation expense

Non-cash interest expense

Non-cash interest expense on unsecured convertible debt

Depreciation and amortization

Non-cash interest earned on OMIDRIA contract royalty asset

Remeasurement on OMIDRIA contract royalty asset

Accretion on U.S.

government treasury bills, net

Early termination of operating lease

Changes in operating assets and liabilities:

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Accounts payable and accrued expense

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities:

Purchases of investments

Purchases of investments and other

Proceeds from the sale and maturities of investments

Purchases of property and equipment

Net cash provided by (used in) investing activities

Net cash used in investing activities

Financing activities:

Proceeds from OMIDRIA liability for future royalties

Principal payments on OMIDRIA royalty obligation

Principal payments on finance lease obligations

Proceeds upon exercise of stock options and warrants

Payments on finance lease obligations

At the market offering costs

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

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Cash paid for interest

Property acquired under finance lease

See accompanying Notes to Condensed Consolidated Financial Statements

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Note 1—Organization and Basis of Presentation

Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic diseases, including complement-mediated diseases and cancers related to dysfunction of the immune system, as well as addictive and compulsive disorders.

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 disorders, including complement-mediated diseases, cancers and 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, targeting mannan-binding lectin-associated serine protease-2 (“MASP-2”) and the lectin pathway of complement, 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 indicating that the BLA could not be approved as submitted.

In November 2022, we received the decision by FDA’s Office of New Drugs (“OND”) denying our appeal of the CRL.

Although our appeal was denied, the decision proposes a path forward for resubmission of the BLA based on survival data from the completed pivotal trial versus a historical control group, with or without an independent literature analysis.

Clinical development of narsoplimab also includes programs focused on complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”) and COVID-19.

Our pipeline of investigational agents also includes:

our long-acting MASP-2 inhibitor OMS1029, which is currently in a Phase 1 clinical trial, and OMS906, our inhibitor of mannan-binding lectin-associated serine protease 3 (“MASP-3”) targeting the alternative pathway of complement, which has completed a Phase 1 clinical trial and is being advanced into clinical programs for paroxysmal nocturnal hemoglobinuria (“PNH”) and complement 3 (“C3”) glomerulopathy.

The lead drug candidate in our pipeline of complement-targeted therapeutics is narsoplimab, a proprietary, patented human monoclonal antibody targeting mannan-binding lectin-associated serine protease 2 (“MASP-2”), the key activator of the lectin pathway of complement.

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”) and immunoglobulin A (“IgA”) nephropathy.

Our pipeline of clinical-stage development programs includes:

our long-acting MASP-2 inhibitor OMS1029, our inhibitor of mannan-binding lectin-associated serine protease-3 (“MASP-3”) OMS906 and our phophodiesterase 7 (PDE7) inhibitor OMS527.

Sale of OMIDRIA Assets

On December 23, 2021, we sold our commercial product OMIDRIA and certain related assets including inventory and prepaid expenses to Rayner Surgical Inc.

Rayner paid us $ 126.0 million in cash at closing, and we retained all outstanding accounts receivable, accounts payable and accrued expenses as of the closing date.

Under the Asset Purchase Agreement with Rayner (“Asset Purchase Agreement”), we were entitled to receive a milestone payment of $ 200.0 million (the “Milestone Payment”) within 30 days following an event (the “Milestone Event”) that establishes separate payment for OMIDRIA for a continuous period of at least four years when furnished in the ambulatory surgery center (“ASC”) setting.

In December 2022, the Milestone Event occurred and we recorded a $ 200.0 million milestone receivable.

We received the Milestone Payment together with accrued interest in February 2023.

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 and excluded from continuing operations for all periods presented (See “Note 3 – Discontinued Operations”).

Basis of Presentation

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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.

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”).

Risks and Uncertainties

As of September 30, 2022, we had cash, cash equivalents and short-term investments of $ 221.0 million and outstanding accounts receivable of $ 13.9 million.

Our loss for the quarter ended September 30, 2022 was $ 17.5 million.

Included in our loss for the quarter was a $ 29.0 million noncash benefit related to the revaluation of our OMIDRIA contract royalty asset, which was partially offset by $ 4.6 million of noncash operating expenses.

Our loss for the nine months ended September 30, 2022 was $ 81.3 million and included $ 30.5 million of noncash benefit related to the revaluation of our OMIDRIA contract royalty asset along with differences between actual and estimated royalties in the third quarter, which was partially offset by $ 12.5 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 our portion of 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, prior to January 1, 2025, separate payment for OMIDRIA is secured under Medicare Part B for at least four continuous years.

If FDA approval is granted for narsoplimab for HSCT-TMA, we expect that sales of narsoplimab will also provide funds for our operations .

We have a sales agreement through which we may, from time to time, offer and sell shares of our common stock in an “at the market” equity offering for aggregate sales proceeds of up to $ 150.0 million.

Liquidity and Capital Resources

As of March 31, 2023, we had cash, cash equivalents and short-term investments of $ 371.4 million and outstanding accounts receivable of $ 10.0 million.

Our loss for the quarter ended March 31, 2023 was $ 33.7 million and our cash provided by operations was $ 174.5 million.

Included in our cash provided by operations was the $ 200.0 million collection of the Milestone Payment.

Historically, we have incurred net losses from continuing operations and negative operating cash flows.

We have not yet established an ongoing source of revenue sufficient to cover our operating costs and, therefore, could need to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in 2026.

We plan to continue to fund our operations for at least the next twelve months with our existing cash and investments, royalties from Rayner and our outstanding accounts receivable.

If FDA approval is granted for narsoplimab for treatment of HSCT-TMA within the next twelve months, sales of narsoplimab may 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 our portion of expected OMIDRIA royalties to be received are adequate to finance our operations at least through November 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

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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;

We base our estimates on historical experience and on various other factors 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 assets sold to Rayner qualify as a discontinued operation (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.

OMIDRIA Royalties, Milestones and Contract Royalty Assets

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

Therefore, future OMIDRIA royalties are treated as variable consideration.

The sale of OMIDRIA 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 potential $ 200.0 million milestone payment and any non-U.S.

royalties to the extent it is probable that a significant reversal in the amount of cumulative income recognized will not occur.

Royalties earned are primarily recorded as a reduction to the OMIDRIA contract royalty asset.

The amounts 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 is 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.

To measure the OMIDRIA contract royalty asset we used the expected value approach which is the sum of the discounted probability-weighted royalty payments 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.

As contemplated by the Asset Purchase Agreement, the royalty rate applicable to U.S.

net sales of OMIDRIA was reduced from 50 % to 30 % upon the occurrence, in December 2022, of the event triggering the $ 200.0 million Milestone Payment.

Consequently, in December 2022, we revalued the OMIDRIA contract royalty asset using the 30 % royalty rate on U.S.

net sales and adjusted the probability-weighted outcomes to reflect the occurrence of the Milestone Event.

Royalties earned are recorded as a reduction to the OMIDRIA contract royalty asset.

The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset at an effective interest rate of 11.0 % and any amounts we receive that are different from the expected royalties.

The OMIDRIA contract royalty asset will 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 in discontinued operations.

OMIDRIA Royalty Obligation

On September 30, 2022, we sold to DRI Healthcare Acquisitions LP (“DRI”) an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $ 125.0 million in cash (see “Note 8 – OMIDRIA Royalty Obligation”).

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

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.

The liability is being amortized over the term of the arrangement using the implied effective interest rate of 9.4 % and interest expense is recorded as a component of continuing operations.

To the extent our estimates of future royalties are greater or less than previous estimates, we will adjust the carrying amount of the liability for future OMIDRIA royalties to the present value of the revised estimated cash flows, discounted at the original effective interest rate utilizing the cumulative catch-up method.

To the extent our estimates of future royalties differ from previous estimates, we will adjust the carrying amount of the liability for future OMIDRIA royalties to the present value of the revised estimated cash flows, discounted at the original effective interest rate of 9.4 % utilizing the cumulative catch-up method.

The offset to the adjustment would be recognized as a component of net income (loss) from continuing operations.

OMIDRIA Revenue Recognition

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

(i) identified the contract with a customer;

(ii) identified the performance obligations in the contract;

(iii) determined the transaction price;

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

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

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

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

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

We reflected each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability, depending on how the amount is expected to be settled.

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

or the European Union (the “EU”).

or the European Union (“EU”).

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

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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 record finance lease obligations 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 finance lease obligations 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 .

Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payments, including grants of stock option awards and restricted stock unit awards (“RSU”), 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.

Stock-based compensation expense is recognized for all share-based payments, including grants of stock option awards and restricted stock units (“RSU”) based on estimated fair values.

The fair value of our stock is calculated using the Black-Scholes valuation model, which requires judgmental assumptions around volatility, risk-free rates, forfeiture rates and expected option life.

Compensation expense is recognized over the 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.

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Note 3—Discontinued Operations

On December 23, 2021, we completed the sale of OMIDRIA and certain related assets, including inventory and prepaid expenses.

We retained the outstanding accounts receivable and all outstanding liabilities related to OMIDRIA as of the closing date.

Upon closing, we received an up-front cash payment of $ 126.0 million.

We receive a 50 % royalty on OMIDRIA net sales in the U.S.

until the earlier of January 1, 2025 or the payment of the $ 200.0 million milestone described below.

After such date, we will receive a 30 % royalty on OMIDRIA net sales in the U.S.

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

base royalty rate is reduced to 10 % upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for separate payment.

We will also receive a royalty of 15 % on OMIDRIA net sales outside the U.S.

on a country-by-country basis until the expiration or termination of the last issued and unexpired OMIDRIA patent in such country.

We will receive a $ 200.0 million milestone payment if, prior to January 1, 2025, separate payment for OMIDRIA is secured in the U.S.

for a continuous period of at least four years .

During the three and nine months ended September 30, 2022, we earned royalties of $ 16.5 million and $ 47.6 million, respectively, on sales of OMIDRIA which we recorded as a reduction from the OMIDRIA contract royalty asset.

During the three and nine months ended September 30, 2022, we also recorded $ 37.3 million and $ 54.7 million, respectively, of

income in discontinued operations representing interest income and remeasurement adjustments to the OMIDRIA contract royalty asset.

On December 23, 2021, we sold OMIDRIA and certain related assets including inventory and prepaid expenses to Rayner.

Under the Asset Purchase Agreement, the achievement of the Milestone Event in December 2022 triggered a $ 200.0 million Milestone Payment from Rayner and a reduction in the U.S.

royalty rate from 50 % to 30 % on OMIDRIA net sales until the expiration or termination of the last issued and unexpired U.S.

patent, which we expect to occur no earlier than 2033.

The Milestone Event resulted in recognition of the $ 200.0 million Milestone Payment, which we received in

February 2023.

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, the U.S.

base royalty rate would be further reduced to 10 %.

The sale of OMIDRIA was recorded as an asset sale.

Additionally, the results of operations related to OMIDRIA are recorded as income from discontinued operations for all periods presented in the condensed consolidated statements of operations and comprehensive loss.

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

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Royalties earned

Royalty interest income and other

Interest earned on OMIDRIA contract royalty asset

Remeasurement adjustments

OMIDRIA contract royalty asset at September 30, 2022

OMIDRIA contract royalty asset at March 31, 2023

Net income from discontinued operations is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Product sales, net

Royalty interest income and other

Interest earned on OMIDRIA contract royalty asset

Remeasurement adjustments

Other income (expenses), net

Net income from discontinued operations

Other income (expense), net

Net income from discontinued operations, net of tax

Cash flow from discontinued operations is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Total operating inflows (outflows) from discontinued operations

Net cash provided by discontinued operations from operating activities

Net cash provided by discontinued operations primarily represents royalties earned and the $ 200.0 million Milestone Payment that we received from Rayner in February 2023.

Note 4—Net Loss Per Share

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Three Months Ended

Nine Months Ended

September 30,

2026 Notes convertible to common stock (1)

2023 Notes convertible to common stock (1)

Outstanding options to purchase common stock

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Total potentially dilutive shares excluded from net loss per share

(1) The 2023 Notes (defined below) are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 7 — Unsecured Convertible Senior Notes.” Any potential impact of the capped call arrangement is excluded from this table.

(1) The 2023 Notes and 2026 Notes (defined below) are subject to capped call arrangements that potentially reduce the dilutive effect as described in “Note 7 — Unsecured Convertible Senior Notes.” Any potential impact of the capped call arrangements is excluded from this table.

Note 5—Certain Balance Sheet Accounts

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The OMIDRIA contract royalty asset consists of the following:

September 30,

(In thousands)

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Total OMIDRIA contract royalty asset

Receivables, net

Receivables, net consists of the following:

September 30,

Receivables consist of the following:

(In thousands)

Royalty and trade receivables, net

Sublease and other receivables

Total receivables, net

Trade receivables are net of product return and chargeback allowances.

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

OMIDRIA royalty

Employee retention tax credit

Sublease and other

OMIDRIA milestone

Total receivables

In March 2023, we received notification of an employee retention tax credit of $ 2.1 million from the Internal Revenue Service due to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

We received an amount equal to the tax credit in April 2023.

Property and Equipment, Net

Property and equipment, net consists of the following:

September 30,

(In thousands)

Finance leases

Equipment under finance lease obligations

Laboratory equipment

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Total property and equipment, net

For each of the three months ended September 30, 2022 and September 30, 2021, depreciation and amortization expense was $ 0.3 million.

For the nine months ended September 30, 2022 and September 30, 2021, depreciation and amortization expense was $ 0.8 million and $ 1.1 million, respectively.

For the three months ended March 31, 2023 and 2022, depreciation and amortization expense was $ 0.2 million and $ 0.3 million, respectively.

Accrued Expenses

Accrued expenses consists of the following:

September 30,

(In thousands)

Employee compensation

Clinical trials

Income taxes payable

Interest payable

Employee compensation

Contract research and development

Consulting and professional fees

Sales rebates, fees and discounts

Contract research and development

Other accrued expenses

Total accrued expenses

Note 6—Fair-Value Measurements

As of September 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.

On a recurring basis, we measure certain financial assets at fair value.

Note 6—Investments and Fair-Value Measurements

All of our investments are held in our name and are classified as short-term and held-to-maturity on the accompanying condensed consolidated balance sheets.

Investment income for the three months ended March 31, 2023 and December 31, 2022 consists of interest earned of $ 3.4 million and $ 2.2 million, respectively, and is included in other income.

The following tables summarize our investments:

March 31, 2023

Amortized Cost

Gross Unrealized Gains/(Losses)

Estimated Fair Value

(In thousands)

government securities classified as short-term investments

Money-market funds classified as short-term investments

Total short-term investments

Certificate of deposit classified as non-current restricted investments

December 31, 2022

Amortized Cost

Gross Unrealized Gains/(Losses)

Estimated Fair Value

(In thousands)

government securities classified as short-term investments

Money-market funds classified as short-term investments

Total short-term investments

Certificate of deposit classified as non-current restricted investments

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.

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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:

September 30, 2022

Our fair value hierarchy for our financial assets and liabilities are as follows:

March 31, 2023

(In thousands)

government securities classified as short-term investments

Money-market funds classified as short-term investments

Money-market funds classified as non-current restricted investments

Total short-term investments

Certificate of deposit classified as non-current restricted investments

December 31, 2022

(In thousands)

government securities classified as short-term investments

Money-market funds classified as short-term investments

Money-market funds classified as non-current restricted investments

Cash held in demand deposit accounts of $ 145.5 million and $ 100.8 million is excluded from our fair-value hierarchy disclosure as of September 30, 2022 and December 31, 2021, respectively.

There were no unrealized gains or losses associated with our investments as of September 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 7—Unsecured Convertible Senior Notes” for the carrying amount and estimated fair value of our outstanding convertible senior notes.

Total short-term investments

Certificate of deposit classified as non-current restricted investments

Cash held in demand deposit accounts of $ 3.8 million and $ 11.0 million is excluded from our fair-value hierarchy disclosure as of March 31, 2023 and December 31, 2022, respectively.

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

See “Note 7—Unsecured Convertible Senior Notes” and “Note 8—OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our outstanding convertible senior notes and the OMIDRIA royalty obligation.

Note 7—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.

Unsecured convertible senior notes outstanding at September 30, 2022 and December 31, 2021 are as follows:

Balance as of September 30, 2022

We carry $ 95.0 million in aggregate principal on our 6.25 % Convertible Senior Notes (the “2023 Notes” ) and $ 225.0 million in aggregate principal on our 5.25 % Convertible Senior Notes (the “2026 Notes”) as shown below:

Balance as of March 31, 2023

(In thousands)

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

As of September 30, 2022, the unamortized debt issuance costs of $ 0.8 million will be amortized to interest expense at an effective interest rate of 7.0 % over the remaining term.

The unamortized debt issuance costs of $ 0.4 million as of March 31, 2023 will be amortized to interest expense at an effective interest rate of 7.0 % over the remaining term.

Subject to the satisfaction of certain conditions, 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.

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 .

However, should the market price of our common stock exceed the $ 28.84 cap, then the conversion of the 2023 notes could have a dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price.

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

As of September 30, 2022, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

As of March 31, 2023, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

The following table sets forth total interest expense recognized in connection with the 2023 Notes:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Contractual interest expense

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

As of September 30, 2022, the unamortized debt issuance costs of $ 4.4 million will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.

The unamortized debt issuance costs of $ 3.8 million as of March 31, 2023 will be amortized to interest expense at an effective interest rate of 5.9 % over the remaining term.

Subject to the satisfaction of certain conditions, the 2026 Notes are convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion.

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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.

A s of March 31, 2023, approximately 12.2 million shares remained outstanding on the 2026 Capped Call.

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Contractual interest expense

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Future Minimum Principal Payments

Future minimum principal payments for the 2023 Notes and 2026 Notes as of September 30, 2022 are as follows:

(In thousands)

Future minimum principal payments for the 2023 Notes and 2026 Notes as of March 31, 2023 are as follows (in thousands):

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

Note 8—OMIDRIA Royalty Obligation

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

DRI is entitled to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, subject to annual caps.

On September 30, 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $ 125.0 million in cash consideration which was recorded as an OMIDRIA royalty obligation on our condensed consolidated balance sheet.

DRI is entitled to receive royalties on OMIDRIA net sales through December 31, 2030, subject to annual caps.

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

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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, would be 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

The OMIDRIA royalty obligation is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market.

As of September 30, 2022, the carrying value approximates its estimated fair value.

At March 31, 2023, the maximum remaining amount that DRI is entitled to receive through the term of the agreement (December 31, 2030) is $ 183.5 million, which, if fully paid, would be at an implied effective interest rate of 9.4 % over the entire term of the loan.

As of March 31, 2023, the OMIDRIA royalty obligation’s carrying value approximates fair value, which is a Level 3 estimate as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market.

As of March 31, 2023, the obligation’s carrying value approximates fair value.

For the three months ended March 31, 2023, we incurred $ 3.0 million of cash interest expense.

As of March 31, 2023, the maximum scheduled principal and interest payments (based on an implied effective interest rate of 9.4 %) are as follows:

(In thousands)

Total scheduled payments

Note 9—Leases

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

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

Restricted investments of $ 1.1 million represent the security deposit on our office and laboratory facilities.

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 upon early termination of this portion of the lease.

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

In addition, we carry various finance lease obligations for laboratory equipment.

Supplemental lease information is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Operating lease cost

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Note 10—Commitments and Contingencies

We have various agreements with third parties that collectively require payment of termination fees totaling $ 20.6 million as of September 30, 2022 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services .

We have various agreements with third parties that collectively require payment of termination fees totaling $ 26.1 million as of March 31, 2023 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 nine months ended September 30, 2022 and September 30, 2021, development milestone expenses were insignificant.

These licenses may require milestone payments during the clinical development processes or on approval of commercial sale as well as low single- to low double-digit royalties on the net income or net sales of the product.

For the three months ended March 31, 2023 and March 31, 2022, 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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On March 1, 2021, we entered into a sales agreement to sell shares of our common stock having an aggregate offering price of up to $ 150.0 million, from time to time, through an “at the market” equity offering program.

As of September 30, 2022, we have not sold any shares under this program.

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

As of September 30, 2022, warrants to purchase 200,000 shares of our common stock remained outstanding with an exercise price of $ 23.00 per share.

The warrants expire on April 12, 2023.

As of March 31, 2023, we have not sold any shares under this program.

As of March 31, 2023, warrants to purchase 200,000 shares of our common stock remained outstanding with an exercise price of $ 23.00 per share.

The warrants expired without being exercised 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.

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

Stock-based compensation is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Three Months Ended

Nine Months Ended

September 30, 2022

March 31, 2023

Estimated weighted-average fair value

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Balance at December 31, 2022

Balance at September 30, 2022

Vested and expected to vest at September 30, 2022

Exercisable at September 30, 2022

As of September 30, 2022, there were 4.4 million unvested options outstanding that will vest over a weighted-average period of 2.4 years.

Balance at March 31, 2023

Vested and expected to vest at March 31, 2023

Exercisable at March 31, 2023

As of March 31, 2023, there were 3.6 million unvested options outstanding that will vest over a weighted-average period of 2.1 years.

The total estimated compensation expense yet to be recognized on outstanding options is $ 17.0 million.

The Company has 200,000 unvested RSUs outstanding as of September 30, 2022 that vest 50 % on December 1, 2022 and 50 % on December 1, 2023.

The Company had 92,250 unvested RSUs outstanding as of March 31, 2023 that vest on December 1, 2023.

The weighted average grant date fair value per share was $ 7.53 .

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

What changed 10-Q

Item 1. Financial Statements