Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
OMEROS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(unaudited)
June 30,
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
6,603
$
11,009
Short-term investments
334,680
183,909
OMIDRIA contract royalty asset, short-term
29,084
28,797
Receivables
11,190
213,221
Prepaid expense and other assets
7,001
6,300
Total current assets
388,558
443,236
OMIDRIA contract royalty asset
115,802
123,425
Right of use assets
20,258
21,762
Property and equipment, net
1,749
1,492
Restricted investments
1,054
1,054
Total assets
$
527,421
$
590,969
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
$
9,552
$
5,989
Accrued expenses
29,793
30,551
Current portion of unsecured convertible senior notes, net
94,730
94,381
Current portion of OMIDRIA royalty obligation
4,777
1,152
Current portion of lease liabilities
4,686
4,310
Total current liabilities
143,538
136,383
Unsecured convertible senior notes, net
221,516
220,906
OMIDRIA royalty obligation
120,939
125,126
Lease liabilities, non-current
20,422
22,426
Other accrued liabilities, non-current
496
444
Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized; none issued and outstanding at June 30, 2023 and December 31, 2022.
—
—
Common stock, par value $ 0.01 per share, 150,000,000 shares authorized at June 30, 2023 and December 31, 2022; 62,848,321 and 62,828,765 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.
628
628
Additional paid-in capital
726,594
720,773
Accumulated deficit
( 706,712 )
( 635,717 )
Total shareholders’ equity
20,510
85,684
Total liabilities and shareholders’ equity
$
527,421
$
590,969
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
Costs and expenses:
Research and development
$
29,639
$
23,516
$
54,249
$
47,603
Selling, general and administrative
11,260
13,922
22,363
24,881
Total costs and expenses
40,899
37,438
76,612
72,484
Loss from operations
( 40,899 )
( 37,438 )
( 76,612 )
( 72,484 )
Interest expense
( 7,932 )
( 4,927 )
( 15,865 )
( 9,868 )
Interest and other income
4,537
670
8,500
1,163
Net loss from continuing operations
( 44,294 )
( 41,695 )
( 83,977 )
( 81,189 )
Net income from discontinued operations
7,000
10,846
12,982
17,329
Net loss
$
( 37,294 )
$
( 30,849 )
$
( 70,995 )
$
( 63,860 )
Basic and diluted net income (loss) per share:
Net loss from continuing operations
$
( 0.70 )
$
( 0.66 )
$
( 1.34 )
$
( 1.30 )
Net income from discontinued operations
0.11
0.17
0.21
0.28
Net loss
$
( 0.59 )
$
( 0.49 )
$
( 1.13 )
$
( 1.02 )
Weighted-average shares used to compute basic and diluted net income (loss) per share
62,837,125
62,730,015
62,832,991
62,727,395
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(unaudited)
Additional
Common Stock
Paid-In
Accumulated
Shares
Amount
Capital
Deficit
Total
Balance at January 1, 2022
62,628,855
$
626
$
706,288
$
( 683,134 )
$
23,780
Exercise of stock options
101,160
1
413
—
414
Stock-based compensation expense
—
—
3,892
—
3,892
Net loss
—
—
—
( 33,011 )
( 33,011 )
Balance at March 31, 2022
62,730,015
627
710,593
( 716,145 )
( 4,925 )
Stock-based compensation expense
—
—
3,072
—
3,072
Net loss
—
—
—
( 30,849 )
( 30,849 )
Balance at June 30, 2022
62,730,015
$
627
$
713,665
$
( 746,994 )
$
( 32,702 )
Balance at January 1, 2023
62,828,765
$
628
$
720,773
$
( 635,717 )
$
85,684
Stock-based compensation expense
—
—
2,953
—
2,953
Net loss
—
—
—
( 33,701 )
( 33,701 )
Balance at March 31, 2023
62,828,765
628
723,726
( 669,418 )
54,936
Exercise of stock options
19,556
—
97
—
97
Stock-based compensation expense
—
—
2,771
—
2,771
Net loss
—
—
—
( 37,294 )
( 37,294 )
Balance at June 30, 2023
62,848,321
$
628
$
726,594
$
( 706,712 )
$
20,510
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended June 30,
2023
2022
Operating activities:
Net loss
$
( 70,995 )
$
( 63,860 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
5,724
6,964
Non-cash interest expense on unsecured convertible debt
959
900
Depreciation and amortization
518
469
Non-cash interest earned on OMIDRIA contract royalty asset
( 7,754 )
( 9,383 )
Remeasurement on OMIDRIA contract royalty asset
( 4,824 )
( 7,716 )
Accretion on U.S. government treasury bills, net
( 5,090 )
—
Early termination of operating lease
—
( 454 )
Changes in operating assets and liabilities:
Receivables
202,031
23,676
Prepaid expenses and other
( 1,044 )
( 3,668 )
OMIDRIA contract royalty asset
19,914
31,063
Accounts payable and accrued expense
2,759
( 12,653 )
Net cash provided by (used in) operating activities
142,198
( 34,662 )
Investing activities:
Purchases of investments and other
( 662,738 )
( 103,169 )
Proceeds from the sale and maturities of investments
517,057
51,200
Purchases of property and equipment
( 275 )
( 103 )
Net cash used in investing activities
( 145,956 )
( 52,072 )
Financing activities:
Principal payments on OMIDRIA royalty obligation
( 467 )
—
Principal payments on finance lease obligations
( 278 )
( 352 )
Proceeds upon exercise of stock options
97
414
Net cash provided by (used in) financing activities
( 648 )
62
Net decrease in cash and cash equivalents
( 4,406 )
( 86,672 )
Cash and cash equivalents at beginning of period
11,009
100,808
Cash and cash equivalents at end of period
$
6,603
$
14,136
Supplemental cash flow information
Cash paid for interest
$
15,865
$
8,998
Equipment acquired under finance lease
$
500
$
557
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Basis of Presentation
General
Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic 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 assets on December 23, 2021 (see “Sale of OMIDRIA Assets” below for additional information).
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”). 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 (the “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. Upon the achievement of the Milestone Event, our royalties on U.S. net sales were reduced from 50 % to 30 %, with royalties on any net sales outside the U.S. remaining unchanged at 15 %. 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
Our condensed consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Liquidity and Capital Resources
As of June 30, 2023, we had cash, cash equivalents and short-term investments of $ 341.3 million and outstanding accounts receivable of $ 11.2 million. Our loss for the quarter ended June 30, 2023 was $ 37.3 million and our cash
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provided by operations for the six months ended June 30, 2023 was $ 142.2 million, which included collection of the $ 200.0 million Milestone Payment in the first quarter of 2023.
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 approves narsoplimab for treatment of any indication within the next twelve months, then sales of narsoplimab may also provide funds for our operations . We have a sales agreement in place for 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 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 technologies.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include OMIDRIA contract royalty asset valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.
Note 2—Significant Accounting Policies
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 payment 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 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.
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To the extent our estimates of future royalties differ materially 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.
Inventory
We expense inventory costs related to product candidates as research and development expenses until regulatory approval is reasonably assured in the U.S. or the European Union (“EU”). Once approval is reasonably assured, costs, including amounts related to third-party manufacturing, transportation and internal labor and overhead, will be capitalized.
Right-of-Use Assets and Related Lease Liabilities
We record operating leases as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available. We recognize variable lease payments, when incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
We record finance 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 an operating expense .
Stock-Based Compensation
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.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized.
Note 3—Discontinued Operations
On December 23, 2021, we 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
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specific period in which OMIDRIA is no longer eligible for separate payment, the U.S. base royalty rate would be further reduced to 10 %. Pursuant to legislation enacted in late 2022, we expect separate payment for OMIDRIA under Medicare Part B to extend until at least January 1, 2028.
The sale of OMIDRIA and related assets 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):
OMIDRIA contract royalty asset at December 31, 2022
$
152,222
Royalties earned
( 19,914 )
Interest earned on OMIDRIA contract royalty asset
7,754
Remeasurement adjustments
4,824
OMIDRIA contract royalty asset at June 30, 2023
$
144,886
Net income from discontinued operations is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
(In thousands)
Interest earned on OMIDRIA contract royalty asset
$
3,829
$
4,545
$
7,754
$
9,383
Remeasurement adjustments
3,147
5,557
4,824
7,716
Other income (expense), net
24
744
404
230
Net income from discontinued operations, net of tax
$
7,000
$
10,846
$
12,982
$
17,329
Cash flow from discontinued operations is as follows:
Six Months Ended
June 30,
2023
2022
(In thousands)
Net cash provided by discontinued operations from operating activities
$
217,688
$
46,038
Net cash provided by discontinued operations primarily represents royalties received and the $ 200.0 million Milestone Payment that we collected from Rayner in February 2023.
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Note 4—Net Loss Per Share
Our potentially dilutive securities include potential common shares related to our stock options, RSUs and unsecured convertible senior notes. Diluted earnings per share (“Diluted EPS”) considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period.
Potentially dilutive securities excluded from Diluted EPS are as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
2026 Notes convertible to common stock (1)
12,172,008
12,172,008
12,172,008
12,172,008
2023 Notes convertible to common stock (1)
4,941,739
4,941,739
4,941,739
4,941,739
Outstanding options to purchase common stock
98,920
88
42,186
1,963
Outstanding restricted stock units
89,750
208,819
89,750
207,736
Total potentially dilutive shares excluded from net loss per share
17,302,417
17,322,654
17,245,683
17,323,446
(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
OMIDRIA Contract Royalty Asset
The OMIDRIA contract royalty asset consists of the following:
June 30,
December 31,
2023
2022
(In thousands)
Short-term contract royalty asset
$
29,084
$
28,797
Long-term contract royalty asset
115,802
123,425
Total OMIDRIA contract royalty asset
$
144,886
$
152,222
Receivables
Receivables consist of the following:
June 30,
December 31,
2023
2022
(In thousands)
OMIDRIA royalty
$
11,066
$
12,966
Sublease and other
124
255
OMIDRIA milestone
—
200,000
Total receivables
$
11,190
$
213,221
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Property and Equipment, Net
Property and equipment, net consists of the following:
June 30,
December 31,
2023
2022
(In thousands)
Equipment under finance lease obligations
$
6,477
$
6,204
Laboratory equipment
3,385
3,135
Computer equipment
1,101
1,076
Office equipment and furniture
625
625
Total cost
11,588
11,040
Less accumulated depreciation and amortization
( 9,839 )
( 9,548 )
Total property and equipment, net
$
1,749
$
1,492
For the three months ended June 30, 2023 and June 30, 2022, depreciation and amortization expense was $ 0.3 million and $ 0.2 million, respectively. For the six months ended June 30, 2023 and 2022, depreciation and amortization expense was $ 0.5 million for each period.
Accrued Expenses
Accrued expenses consists of the following:
June 30,
December 31,
2023
2022
(In thousands)
Employee compensation
$
7,342
$
6,665
Clinical trials
7,272
5,536
Interest payable
6,160
5,172
Contract research and development
4,043
3,209
Consulting and professional fees
2,901
4,425
Income taxes payable
1,228
4,871
Other accrued expenses
847
673
Total accrued expenses
$
29,793
$
30,551
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 is included as other income. Investment income for the three months ended June 30, 2023 and June 30, 2022 consists primarily of interest earned of $ 4.2 million and $ 0.2 million, respectively. Investment income for the six months ended June 30, 2023 and June 30, 2022 consists of interest earned of $ 7.6 million and $ 0.2 million, respectively.
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The following tables summarize our investments:
June 30, 2023
Amortized Cost
Gross Unrealized Gains/(Losses)
Estimated Fair Value
(In thousands)
U.S. government securities classified as short-term investments
$
225,983
$
( 89 )
$
225,894
Money-market funds classified as short-term investments
108,697
—
108,697
Total short-term investments
334,680
( 89 )
334,591
Certificate of deposit classified as non-current restricted investments
1,054
—
1,054
Total
$
335,734
$
( 89 )
$
335,645
December 31, 2022
Amortized Cost
Gross Unrealized Gains/(Losses)
Estimated Fair Value
(In thousands)
U.S. government securities classified as short-term investments
$
99,027
$
22
$
99,049
Money-market funds classified as short-term investments
84,882
—
84,882
Total short-term investments
183,909
22
183,931
Certificate of deposit classified as non-current restricted investments
1,054
—
1,054
Total
$
184,963
$
22
$
184,985
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
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Our fair value hierarchy for our financial assets and liabilities are as follows:
June 30, 2023
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
U.S. government securities classified as short-term investments
$
225,894
$
—
$
—
$
225,894
Money-market funds classified as short-term investments
108,697
—
—
108,697
Total short-term investments
334,591
—
—
334,591
Certificate of deposit classified as non-current restricted investments
1,054
—
—
1,054
Total
$
335,645
$
—
$
—
$
335,645
December 31, 2022
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
U.S. government securities classified as short-term investments
$
99,049
$
—
$
—
$
99,049
Money-market funds classified as short-term investments
84,882
—
—
84,882
Total short-term investments
183,931
—
—
183,931
Certificate of deposit classified as non-current restricted investments
1,054
—
—
1,054
Total
$
184,985
$
—
$
—
$
184,985
Cash held in demand deposit accounts of $ 6.6 million and $ 11.0 million is excluded from our fair-value hierarchy disclosure as of June 30, 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
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 June 30, 2023
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$
95,000
$
225,030
$
320,030
Unamortized debt issuance costs
( 270 )
( 3,514 )
( 3,784 )
Total unsecured convertible senior notes, net
$
94,730
$
221,516
$
316,246
Fair value of outstanding unsecured convertible senior notes (1)
$
93,575
$
157,359
Balance as of December 31, 2022
2023 Notes
2026 Notes
Total
(In thousands)
Principal amount
$
95,000
$
225,030
$
320,030
Unamortized discount
( 619 )
( 4,124 )
( 4,743 )
Total unsecured convertible senior notes, net
$
94,381
$
220,906
$
315,287
Fair value of outstanding unsecured convertible senior notes (1)
$
92,031
$
118,141
(1) The fair value is classified as Level 3 due to the limited trading activity for the unsecured convertible senior notes.
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2023 Unsecured Convertible Senior Notes
Our 2023 Notes are unsecured and accrue interest at an annual rate of 6.25 % per annum, payable semi-annually in arrears on May 15 and November 15 of each year. The 2023 Notes mature on November 15, 2023 unless earlier purchased, redeemed or converted in accordance with their terms.
The unamortized debt issuance costs of $ 0.3 million as of June 30, 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.
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. As of June 30, 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
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
(In thousands)
(In thousands)
Contractual interest expense
$
1,484
$
1,484
$
2,969
$
2,969
Amortization of debt issuance costs
176
164
349
325
Total
$
1,660
$
1,648
$
3,318
$
3,294
2026 Unsecured Convertible Senior Notes
Our 2026 Notes are unsecured and accrue interest at an annual rate of 5.25 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms.
The unamortized debt issuance costs of $ 3.5 million as of June 30, 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. The initial conversion rate is 54.0906 shares of our common stock per $ 1,000 of note principal (equivalent to an initial conversion price of approximately $ 18.4875 per share of common stock), which equals approximately 12.2 million shares of common stock issuable upon conversion, subject to adjustment in certain circumstances.
To reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions (the “2026 Capped Calls”), which cover the number of shares of our common stock underlying the 2026 Notes when our common stock share price is trading between the initial conversion price of $ 18.49 and $ 26.10 . However, should the market price of our common stock exceed the $ 26.10 cap, then the conversion of the 2026 Notes would have a dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price. A s of June 30, 2023, approximately 12.2 million shares remained outstanding on the 2026 Capped Call.
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The following table sets forth interest expense recognized related to the 2026 Notes:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2022
2021
(In thousands)
(In thousands)
Contractual interest expense
$
2,954
$
2,954
$
5,907
$
5,907
Amortization of debt issuance costs
307
290
610
575
Total
$
3,261
$
3,244
$
6,517
$
6,482
Future Minimum Principal Payments
Future minimum principal payments for the 2023 Notes and 2026 Notes as of June 30, 2023 are as follows (in thousands):
2023
$
95,000
2024
—
2025
—
2026
225,030
Total future minimum principal payments under the 2023 Notes and 2026 Notes
$
320,030
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, 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. DRI is not entitled to carry-forward nor 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. At June 30, 2023, the maximum remaining amount that DRI is entitled to receive through the term of the agreement (December 31, 2030) is $ 180.3 million, which, if fully paid, would be at an implied effective interest rate of 9.4 % over the entire payment period.
For the three months and six months ended June 30, 2023, we incurred $ 3.0 million and $ 5.9 million, respectively, of cash interest expense.
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We consider our OMIDRIA royalty obligation to be a Level 3 Held-to-Maturity obligation as its valuation relies on factors that are not easily observable in the market. As of June 30, 2023, the approximate fair value of our obligation is $ 117.1 million.
As of June 30, 2023, the maximum remaining scheduled principal and interest payments (based on an implied effective interest rate of 9.4 %) are as follows:
Total
Principal
Interest
Annual Cap
(In thousands)
2023
$
589
$
5,911
$
6,500
2024
8,576
11,424
20,000
2025
14,641
10,359
25,000
2026
16,081
8,919
25,000
2027
17,664
7,336
25,000
Thereafter
68,164
10,586
78,750
Total scheduled payments
$
125,715
$
54,535
$
180,250
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 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 lease obligations for laboratory equipment.
Supplemental lease information is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
(In thousands)
(In thousands)
Lease cost
Operating lease cost
$
1,616
$
1,663
$
3,249
$
2,870
Finance lease cost:
Amortization
271
122
389
320
Interest
41
36
92
92
Variable lease cost
757
722
1,547
1,582
Sublease income
( 375 )
( 453 )
( 750 )
( 945 )
Net lease cost
$
2,310
$
2,090
$
4,527
$
3,919
Cash paid for amounts included in the measurement of lease liabilities is as follows:
Six Months Ended
June 30,
2023
2022
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash payments for operating leases
$
3,568
$
3,562
Cash payments for financing leases
$
336
$
401
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Note 10—Commitments and Contingencies
Goods and Services Contracts
We have various agreements with third parties that collectively require payment of termination fees totaling $ 21.2 million as of June 30, 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 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 and six months ended June 30, 2023 and June 30, 2022, development milestone expenses were insignificant. Should narsoplimab be approved, we would owe milestone payments to development partners and could be obligated to pay low single-digit royalties on net sales of the product.
In July 2023, we achieved a clinical development milestone in our OMS906 program that triggered a $ 5.0 million milestone payment obligation to a third-party licensor, which we expect to pay in the third quarter of 2023. This amount is excluded from the commitment amount above.
Note 11—Shareholders’ Equity (Deficit)
Common Stock and Warrants
On March 1, 2021, we entered into a sales agreement to sell shares of our common stock having an aggregate offering price of up to $ 150.0 million, from time to time, through an “at the market” equity offering program. As of June 30, 2023, we have not sold any shares under this program.
On April 12, 2023, warrants to purchase 200,000 shares of our common stock with an exercise price of $ 23.00 per share expired without being exercised. We have no other warrants outstanding.
Amendment of 2017 Omnibus Incentive Compensation Plan
At our June 23, 2023 annual meeting, our shareholders approved a 5,000,000 share increase in the number of shares of our common stock available for grant under the 2017 Omnibus Incentive Compensation Plan, as amended and restated. The total number of shares of common stock available for grant as of June 30, 2023 was 10,175,852 .
Note 12—Stock-Based Compensation
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.
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Stock-based compensation is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
(In thousands)
Continuing operations
Research and development
$
1,133
$
1,389
$
2,405
$
3,104
Selling, general and administrative
1,680
1,793
3,402
3,970
Total stock-based compensation in continuing operations
2,813
3,182
5,807
7,074
Discontinued operations
( 42 )
( 110 )
( 83 )
( 110 )
Total stock-based compensation
$
2,771
$
3,072
$
5,724
$
6,964
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were applied to all stock option grants:
Three Months Ended
Six Months Ended
June 30, 2023
June 30, 2023
Estimated weighted-average fair value
$
4.66
$
4.21
Weighted-average assumptions:
Expected volatility
92
%
92
%
Expected life, in years
7.3
7.1
Risk-free interest rate
3.74
%
3.74
%
Expected dividend yield
—
%
—
%
Stock option activity for all stock plans and related information is as follows:
Weighted-
Average
Aggregate
Exercise
Remaining
Intrinsic
Options
Price per
Contractual Life
Value
Outstanding
Share
(In years)
(In thousands)
Balance at December 31, 2022
13,872,973
$
11.02
Granted
200,000
5.20
Exercised
( 19,556 )
4.98
Forfeited
( 437,821 )
10.46
Balance at June 30, 2023
13,615,596
$
10.96
5.3
$
4,095
Vested and expected to vest at June 30, 2023
13,290,618
$
11.04
5.2
$
3,793
Exercisable at June 30, 2023
10,508,263
$
11.89
4.3
$
1,280
Of the 13.6 million common stock options outstanding at June 30, 2023, 11.1 million have an exercise price per share above $ 5.44 which was the closing price of our common stock on the NASDAQ exchange on June 30, 2023.
As of June 30, 2023, there were 3.1 million unvested options outstanding that will vest over a weighted-average period of 1.9 years. The total estimated compensation expense yet to be recognized on outstanding options is $ 14.5 million.
The Company had 89,750 unvested RSUs outstanding as of June 30, 2023 that vest on December 1, 2023. The weighted average grant date fair value per share was $ 7.53 .
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.