UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34475

OMEROS CORPORATION

(Exact name of registrant as specified in its charter)


Washington		91-1663741
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

201 Elliott Avenue West Seattle, Washington		98119
(Address of principal executive offices)		(Zip Code)
(206) 676-5000 (Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
(Title of each class)	(Trading symbol)	(Name of each exchange on which registered)
Common Stock, ~~$0.01~~ par value $0.01 per share	OMER	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of ~~November~~August 5, ~~2021,~~2022, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was ~~62,542,268.~~62,730,015.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are subject to the “safe harbor” created by those sections for such statements. Forward-looking statements are based on our management’s beliefs and assumptions and on ~~information~~ currently available ~~to our management.~~information. All statements other than statements of historical fact are “forward-looking statements.” Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and similar expressions and variations thereof are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying such statements. Examples of these statements include, but are not limited to, statements regarding:

●

our expectations and plans relating to future regulatory interactions and anticipated or potential paths to regulatory approval following the recent issuance by the U.S. Food and Drug Administration (“FDA”) of a Complete Response Letter (“CRL”) in relation to our biologics license application (“BLA”) for our lead MASP-2 inhibitor, narsoplimab, in hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”);

●

our ability to raise additional capital through the capital markets or through one or more corporate partnerships, equity offerings, debt financings, collaborations, licensing arrangements or asset sales;

●

~~our~~ estimates regarding how long our existing cash, cash equivalents, short-term investments and revenues will ~~be sufficient to~~ fund our anticipated operating expenses, capital expenditures and debt service obligations;

●

our expectations ~~relating~~related to ~~demand for~~future milestone and royalty payments potentially payable to us under the terms of the asset purchase agreement under which we divested our former commercial ophthalmology product OMIDRIA^® (phenylephrine and ketorolac intraocular solution) ~~1%/0.3%~~ ~~from wholesalers, ambulatory surgery centers and/or hospitals, and our expectations regarding OMIDRIA product sales;~~;

●

our expectations regarding clinical plans and anticipated or potential paths to regulatory approval of narsoplimab by ~~FDA and/or~~the U.S. Food and Drug Administration (“FDA”) and the European Medicines Agency ~~(“EMA”~~(the “EMA”) in ~~HSCT-TMA,~~hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”), immunoglobulin A (“IgA”) nephropathy, COVID-19 and atypical hemolytic uremic syndrome ~~and/or COVID-19;~~(“aHUS”);

●

our expectations regarding the clinical, therapeutic and competitive benefits and importance of our drug candidates, our ability to design, initiate and/or successfully complete clinical trials and other studies for our ~~products and product~~drug candidates, and our plans and expectations regarding our ongoing or planned clinical trials, including for MASP-2 inhibitors narsoplimab and OMS1029, and our lead MASP-3 inhibitor OMS906, and for our other investigational candidates, including ~~OMS527 and OMS906;~~OMS527;

●

whether and when a marketing authorization application (“MAA”) may be filed with the EMA for narsoplimab in any indication, and whether the EMA, the FDA, or regulatory agencies in any other jurisdiction will grant approval for narsoplimab in any indication;

●

our plans for the commercial launch of narsoplimab following any regulatory approval and our estimates and expectations regarding coverage ~~and/or~~and reimbursement for any approved products;

●

~~the severity and duration of the impact of the COVID-19 pandemic on our business, operations, clinical programs and financial results;~~

●

our expectations related to separate payment for OMIDRIA from the Centers for Medicare & Medicaid Services (“CMS”) and CMS’ separate payment policy for non-opioid pain management surgical drugs, and our expectations regarding reimbursement coverage for OMIDRIA by commercial and government payers;

●

~~our plans for marketing and distribution of OMIDRIA and our estimates of OMIDRIA chargebacks and rebates, distribution fees and product returns;~~

●

~~our expectations regarding the clinical, therapeutic and/or competitive benefits and importance of OMIDRIA and our product candidates;~~

●

our plans and expectations regarding development of narsoplimab for the treatment of critically ill COVID-19 patients, including statements regarding the therapeutic potential of narsoplimab for the treatment of COVID-19, discussions with government agencies regarding narsoplimab for the treatment of COVID-19, expectations

~~Table of Contents~~

for the treatment of additional COVID-19 patients in clinical trials or other settings and ~~our~~ expectations ~~for receiving any regulatory approval or authorization~~regarding the availability of data and the announcement of outcomes from ~~FDA or other regulatory body for~~a clinical trial evaluating narsoplimab in ~~the treatment of COVID-19 patients;~~COVID-19;

●

with respect to our ~~narsoplimab~~ongoing or planned clinical development programs, our expectations regarding: whether enrollment ~~or operation~~ in any ongoing or planned clinical trial will proceed as expected; whether we can capitalize on the financial and regulatory incentives provided by orphan drug designations granted by FDA, the European Commission (the “EC”), or the EMA; and whether we can capitalize on the regulatory incentives provided by fast-track or breakthrough therapy designations granted by FDA;

●

our expectation that ~~our~~we will rely on contract manufacturers ~~will reliably meet our requirements~~to manufacture narsoplimab, if approved, for commercial sale and to manufacture our other drug candidates, including OMS906 and OMS1029, for purposes of clinical supply and in anticipation of potential commercialization;

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●

the severity and duration of the impact of the COVID-19 pandemic on our business, operations, clinical programs and financial results;

●

our ability to ~~meet our supply requirements of our commercial and/~~raise additional capital through the capital markets or ~~development-stage products;~~through one or more corporate partnerships, equity offerings, debt financings, collaborations, licensing arrangements or asset sales;

●

our expectations about the commercial competition that ~~OMIDRIA and~~ our ~~product~~drug candidates, if commercialized, face or may face;

●

the expected course and costs of existing claims, legal proceedings and administrative actions, our involvement in potential claims, legal proceedings and administrative actions, and the merits, potential outcomes and effects of both existing and potential claims, legal proceedings and administrative actions, as well as regulatory determinations, on our business, prospects, financial condition and results of operations;

●

the extent of protection that our patents provide and that our pending patent applications will provide, if patents are issued from such applications, for our technologies, programs, ~~products~~ and ~~product~~drug candidates;

●

the factors on which we base our estimates for accounting purposes and our expectations regarding the effect of changes in accounting guidance or standards on our operating results; and

●

our expected financial position, performance, revenues, growth, costs and expenses, magnitude of net losses and the availability of resources.

Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks, uncertainties and other factors described in this Quarterly Report on Form 10-Q under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our other filings with the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”). Given these risks, uncertainties and other factors, actual results or anticipated developments may not be realized or, even if substantially realized, may not have the expected consequences to or effects on our company, business or operations. Accordingly, you should not place undue reliance on these forward-looking statements, which represent our estimates and assumptions only as of the date of the filing of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual results in subsequent periods may materially differ from current expectations. Except as required by applicable law, we assume no obligation to update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

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OMEROS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

INDEX


		Page
Part I — Financial Information		5
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	7
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2120
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3130
Item 4.	Controls and Procedures	3330
Part II — Other Information		3431
Item 1.	Legal Proceedings	3431
Item 1A.	Risk Factors	3431
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3431
Item 3.	Default Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	3431
Signatures		3533

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMEROS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(unaudited)

September 30,

December 31,


2021

2020
Assets


Current assets:




Cash and cash equivalents

$
7,415

$
10,501
Short-term investments

42,957

124,452
Receivables, net

33,898

3,841
Inventory

712

1,355
Prepaid expense and other assets

6,367

11,136
Total current assets

91,349

151,285
Property and equipment, net

1,831

2,551
Right of use assets

29,039

25,526
Restricted investments

1,054

1,055
Advanced payments, non-current

157

625
Total assets

$
123,430

$
181,042

Liabilities and shareholders’ deficit




Current liabilities:




Accounts payable

$
10,026

$
4,199
Accrued expenses

27,700

28,755
Current portion of lease liabilities

5,092

3,782
Total current liabilities

42,818

36,736
Lease liabilities, non-current

30,291

28,770
Unsecured convertible senior notes, net

313,018

236,288
Commitments and contingencies (Note 9)




Shareholders’ deficit:




Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; NaN issued and outstanding at September 30, 2021 and December 31, 2020.

—

—
Common stock, par value $0.01 per share, 150,000,000 shares authorized at September 30, 2021 and December 31, 2020; 62,542,268 and 61,671,231 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.

625

616
Additional paid-in capital

700,433

751,304
Accumulated deficit

(963,755)

(872,672)
Total shareholders’ deficit

(262,697)

(120,752)
Total liabilities and shareholders’ deficit

$
123,430

$
181,042


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	14,136	$	100,808
Short-term investments		108,427		56,458
OMIDRIA contract royalty asset, short-term		43,794		44,319
Receivables, net		14,479		38,155
Prepaid expense and other assets		11,886		8,216
Total current assets		192,722		247,956
OMIDRIA contract royalty asset		126,812		140,251
Property and equipment, net		1,921		1,731
Right of use assets		23,129		28,276
Restricted investments		1,054		1,054
Total assets	$	345,638	$	419,268

Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	10,876	$	13,400
Accrued expenses		23,480		33,134
Current portion of lease liabilities		4,145		5,255
Total current liabilities		38,501		51,789
Lease liabilities, non-current		24,520		29,126
Unsecured convertible senior notes, net		314,358		313,458
Other accrued liabilities - noncurrent		961		1,115
Commitments and contingencies (Note 10)
Shareholders’ equity (deficit):
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; NaN issued and outstanding at June 30, 2022 and December 31, 2021.		—		—
Common stock, par value $0.01 per share, 150,000,000 shares authorized at June 30, 2022 and December 31, 2021; 62,730,015 and 62,628,855 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.		627		626
Additional paid-in capital		713,665		706,288
Accumulated deficit		(746,994)		(683,134)
Total shareholders’ equity (deficit)		(32,702)		23,780
Total liabilities and shareholders’ equity (deficit)	$	345,638	$	419,268

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

Product sales, net	$	30,004	$	26,114	$	79,889	$	63,181

Costs and expenses:
Cost of product sales		333		401		938		815
Research and development		27,063		31,316		91,358		84,359	$	23,516	$	30,126	$	47,603	$	62,630
Selling, general and administrative		20,861		19,825		60,474		54,792		13,922		15,484		24,881		28,270
Total costs and expenses		48,257		51,542		152,770		139,966		37,438		45,610		72,484		90,900
Loss from operations		(18,253)		(25,428)		(72,881)		(76,785)
Loss on early extinguishment of debt		—		(13,374)		—		(13,374)
Loss from continuing operations										(37,438)		(45,610)		(72,484)		(90,900)
Interest expense		(4,911)		(6,882)		(14,719)		(18,763)		(4,927)		(4,910)		(9,868)		(9,807)
Other income		461		(633)		1,214		280		670		333		1,163		751
Loss before income tax benefit		(22,703)		(46,317)		(86,386)		(108,642)
Income tax benefit		—		7,854		—		7,854
Net loss from continuing operations										(41,695)		(50,187)		(81,189)		(99,956)
Net income from discontinued operations										10,846		21,594		17,329		36,273
Net loss	$	(22,703)	$	(38,463)	$	(86,386)	$	(100,788)	$	(30,849)	$	(28,593)	$	(63,860)	$	(63,683)
Comprehensive loss	$	(22,703)	$	(38,463)	$	(86,386)	$	(100,788)
Basic and diluted net loss per share	$	(0.36)	$	(0.66)	$	(1.39)	$	(1.81)
Weighted-average shares used to compute basic and diluted net loss per share		62,510,727		58,233,988		62,267,557		55,682,379

Basic and diluted net income (loss) per share
Net loss from continuing operations									$	(0.66)	$	(0.80)	$	(1.30)	$	(1.61)
Net income from discontinued operations										0.17		0.34		0.28		0.59
Net loss									$	(0.49)	$	(0.46)	$	(1.02)	$	(1.02)

Weighted-average shares used to compute basic and diluted net income (loss) per share										62,730,015		62,373,521		62,727,395		62,154,714

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY (DEFICIT)

(In ~~thousands)~~thousands, except share data)

(unaudited)


					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit		Total
Balance at January 1, 2021		61,671,231	$	616	$	751,304	$	(872,672)	$	(120,752)
Exercise of stock options and warrants		580,781		6		6,327		—		6,333
At the market offering costs		—		—		(241)		—		(241)
Cumulative effect of adopting ASU 2020-06		—		—		(70,779)		(4,697)		(75,476)
Stock-based compensation expense		—		—		3,271		—		3,271
Net loss		—		—		—		(35,090)		(35,090)
Balance at March 31, 2021		62,252,012		622		689,882		(912,459)		(221,955)
Exercise of stock options		238,928		2		1,133		—		1,135
Stock-based compensation expense		—		—		3,117		—		3,117
Net loss		—		—		—		(28,593)		(28,593)
Balance June 30, 2021		62,490,940	$	624	$	694,132	$	(941,052)	$	(246,296)

Nine Months Ended September 30,


2021

2020
Operating activities:

Net loss

$
(86,386)

$
(100,788)
Adjustments to reconcile net loss to net cash used in operating activities:


Stock-based compensation expense

12,082

11,122
Non-cash interest expense

1,256

8,169
Depreciation and amortization

1,062

1,218
Loss on early extinguishment of debt

—

13,374
Deferred income tax

—

(7,854)
Fair value settlement upon termination of cap call contract

—

838
Changes in operating assets and liabilities:


Receivables

(30,057)

(2,194)
Inventory

643

(395)
Prepaid expenses and other assets

5,097

3,533
Accounts payable and accrued expenses

4,796

(8,702)
Net cash used in operating activities

(91,507)

(81,679)
Investing activities:




Purchases of property and equipment

(203)

(283)
Purchases of investments

(5)

(133,190)
Proceeds from the sale and maturities of investments

81,500

58,446
Net cash provided by/(used in) investing activities

81,292

(75,027)
Financing activities:




At the market offering costs

(241)

—
Proceeds upon exercise of stock options and warrants

8,076

4,978
Payments on finance lease obligations

(706)

(889)
Proceeds from issuance of convertible senior notes

—

225,030
Payments for debt issuance costs

—

(6,785)
Purchases of capped calls related to convertible senior notes

—

(23,223)
Payments for repurchases of convertible senior notes

—

(125,638)
Proceeds from termination of capped call contracts

—

7,549
Proceeds from issuance of common stock, net

—

93,675
Net cash provided by financing activities

7,129

174,697
Net (decrease) increase in cash and cash equivalents

(3,086)

17,991
Cash and cash equivalents at beginning of period

10,501

3,084
Cash and cash equivalents at end of period

$
7,415

$
21,075

Supplemental cash flow information




Cash paid for interest

$
14,889

$
8,564
Property acquired under finance lease

$
139

$
216




Balance at January 1, 2022	62,628,855	$	626	$	706,288	$	(683,134)	$	23,780
Exercise of stock options	101,160		1		413		—		414
Stock-based compensation expense	—		—		3,892		—		3,892
Net loss	—		—		—		(33,011)		(33,011)
Balance at March 31, 2022	62,730,015		627		710,593	$	(716,145)		(4,925)
Stock-based compensation expense	—		—		3,072		—		3,072
Net loss	—		—		—		(30,849)		(30,849)
Balance June 30, 2022	62,730,015	$	627	$	713,665	$	(746,994)	$	(32,702)

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities:
Net loss	$	(63,860)	$	(63,683)
Adjustments to reconcile net loss to net cash used in operating activities:
Early termination of operating lease		(454)		—
Stock-based compensation expense		6,964		6,388
Non-cash interest expense		900		822
Depreciation and amortization		469		745
Changes in operating assets and liabilities:
Receivables		23,676		(27,997)
Prepaid expenses and other assets		(3,668)		6,010
OMIDRIA contract royalty asset		13,964		—
Accounts payable and accrued expense		(12,653)		9,869
Net cash used in operating activities		(34,662)		(67,846)
Investing activities:
Purchases of investments		(103,169)		(4)
Proceeds from the sale and maturities of investments		51,200		63,500
Purchases of property and equipment		(103)		(100)
Net cash provided by (used in) investing activities		(52,072)		63,396
Financing activities:
Proceeds upon exercise of stock options and warrants		414		7,468
Payments on finance lease obligations		(352)		(576)
At the market offering costs		—		(241)
Net cash provided by financing activities		62		6,651
Net decrease in cash and cash equivalents		(86,672)		2,201
Cash and cash equivalents at beginning of period		100,808		10,501
Cash and cash equivalents at end of period	$	14,136	$	12,702

Supplemental cash flow information
Cash paid for interest	$	8,998	$	9,012
Property acquired under finance lease	$	557	$	39

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—~~Description~~Organization and Basis of ~~Business~~Presentation

~~Description of Business~~General

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

~~Our~~compulsive disorders. We marketed our first drug product, OMIDRIA^® (phenylephrine and ketorolac intraocular solution) 1%/0.3%~~, is marketed in the United States (“U.S.”)~~ for use during cataract surgery or intraocular lens ~~replacement.~~replacement in the United States (the “U.S.”) until we sold OMIDRIA ~~qualifies~~and related business assets on December 23, 2021 (see “Sale of OMIDRIA Assets” below for separate payment when used on Medicare Part B patients in ambulatory surgery centers under a policy adopted by the Centers for Medicare and Medicaid Services (“CMS”) in 2019 and directed to non-opioid pain management surgical drugs.additional information).

Our drug candidate narsoplimab is the subject of a biologics license application (“BLA”) pending before the U.S. Food and Drug Administration (“FDA”) for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”). On October 18, 2021, we announced the receipt of a Complete Response Letter (“CRL”) from FDA regarding the BLA. ~~We are completing a briefing package~~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 ~~accompany a request for~~support regulatory approval. In February 2022, we had a Type A post-action meeting with FDA to discuss the CRL. Although we felt that we adequately addressed all of the issues noted in the CRL, the meeting minutes included a number of the review division’s critiques that we believe had already been addressed and/or were inaccurate. As a result, in June 2022, we submitted a Formal Dispute Resolution Request. Formal Dispute Resolution is an official pathway that enables a sponsor to appeal a decision by an FDA review division to a higher authority within FDA, in this case the Office of New Drugs (“OND”). We continue to believe that our BLA, as submitted, merits approval and ~~determine~~that the ~~most expeditious~~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 ~~forward for the~~to resubmission of our BLA, that resubmission will result in approval of ~~narsoplimab~~our BLA, or that any identified path to BLA resubmission will be satisfactory in terms of the ~~treatment of HSCT-TMA.~~information, time and/or expenditure required. We are currently awaiting a decision from OND on the dispute. Unless the deciding official asks us for more information or notifies us that more time is needed to complete the review, we expect a decision on the dispute to be rendered in August 2022.

We also have multiple late-stage clinical development programs in our pipeline, which are focused on: complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”) and COVID-19.

Sale of OMIDRIA Assets

On December 23, 2021, we completed the sale of OMIDRIA and certain related assets and liabilities to Rayner Surgical Inc. (“Rayner”) pursuant to an Asset Purchase Agreement dated December 1, 2021 (the “Asset Purchase Agreement”). We received a payment of $126.0 million at closing and receive royalty payments on worldwide sales of OMIDRIA and potentially a $200.0 million milestone payment if separate payment for OMIDRIA is secured in the U.S. for a continuous period of at least four years before January 1, 2025.

As a result of the divestiture, the results of OMIDRIA operations (e.g., revenues and operating costs) are included in discontinued operations in our condensed consolidated statements of operations and comprehensive loss for all periods presented (see “Note 3 – Discontinued Operations”).

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of Omeros ~~Corporation (“Omeros”)~~ and our wholly owned subsidiaries. All ~~intercompany~~inter-company transactions have been ~~eliminated, and we have determined we operate in 1 segment.~~eliminated. The accompanying ~~unaudited~~ condensed

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consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) ~~for interim financial information~~. Certain prior year amounts in the condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity (deficit) and ~~with~~statements of cash flows and the ~~instructions~~notes to ~~Form 10-Q and Rule 10-01 of Regulation S-X. The information as of September 30, 2021 and December 31, 2020 and for~~ the three and nine months ended September 30, 2021 and 2020 includes all adjustments, which include normal recurring adjustments, necessary to present fairly our interim financial information. The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from our audited financial statements but does not include all of the information and footnotes required by GAAP for audited annual financial information.

~~The accompanying unaudited~~ condensed consolidated financial statements ~~and related notes thereto should be read~~have been reclassified in ~~conjunction with~~ the ~~audited~~condensed consolidated financial statements ~~and related notes thereto that are included in our Annual Report on Form 10-K for~~to conform to the current year ~~ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2021.~~presentation.

Risks and Uncertainties

As of ~~September~~June 30, ~~2021,~~2022, we had cash, cash equivalents and short-term investments of ~~$50.4~~$122.6 million and ~~an accounts receivable-based line of credit that allows us to borrow up to the lesser of $50.0 million or 85%~~ ~~of our~~outstanding accounts receivable ~~borrowing base, less certain reserves. For~~of $14.5 million. Our loss for the ~~nine~~second quarter ended June 30, 2022 was $30.9 million and included $3.7 million of noncash operating expenses. Our loss for the six months ended ~~September~~June 30, ~~2021, we incurred losses from operations~~2022 was $63.9 million and included $7.9 million of ~~$72.9 million, including non-cash charges of $14.4~~ ~~million. For the three months ended September 30, 2021, we incurred losses from operations of~~ ~~$18.3 million, including non-cash charges of $6.4~~ ~~million. Cash used in~~

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noncash operating ~~activities was~~ ~~$91.5~~ ~~million for the nine months ended September 30, 2021. We will continue to incur losses from operating activities until our revenues exceed operating costs and debt service obligations.~~expenses.

~~We are unable to include in the determination regarding our prospects as a going concern amounts available under our accounts~~ receivable-based line of credit or any proceeds from debt transactions or other financing instruments despite our successful track record in accessing capital through these avenues. We also have not included any potential partnerships related to our products or product candidates. The conditions described above, when evaluated within the constraints of the accounting literature, raise substantial doubt with respect to our ability to meet our obligations through November 9, 2022 and, therefore, to continue as a going concern.

We plan to continue to fund our operations for the next twelve months with our existing cash and investments, ~~from sales~~our current accounts receivable, and OMIDRIA royalties. There is also the potential for us to receive a $200.0 million milestone related to achievement of long-term OMIDRIA ~~and potentially from sales of narsoplimab for HSCT-TMA, if~~separate payment. If FDA approval is granted for narsoplimab for HSCT-TMA within the next twelve months, we expect that sales of narsoplimab will also provide funds for our operations. We have a sales agreement to sell shares of our common stock, from time ~~period. In addition,~~to time, in an “at the market” equity offering facility through which we may ~~utilize funds available under~~offer and sell shares of our ~~line of credit which matures August 2, 2022.~~ common stock equaling an aggregate amount up to $150.0 million.Should it be ~~necessary or~~ 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. In this regard, in March 2021 we entered into 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 up to $150.0 million. In addition, should it be necessary to manage our operating expenses, we would reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

~~The~~

Management believes the assets on hand along with expected royalties to be received are adequate to finance our operations at least through August 9, 2023. Accordingly, the accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

The COVID-19 pandemic and the responses to it by various governmental authorities, the medical community and others had a significant impact on our business in the first six months of 2020. It is not possible to estimate precisely the future impact of the COVID-19 pandemic on our business, operations or financial results due to the unknown magnitude, duration and outcome of the pandemic.

We use a single contract manufacturer to supply the OMIDRIA drug product and a separate company to package OMIDRIA for commercial sale. We are completing the process of establishing a second OMIDRIA supplier. We generally use different contract manufacturers to produce drug substance, drug product and to perform final packaging for our drug product candidates.

We endeavor to maintain reasonable levels of drug supply for our commercial and clinical trial use and other manufacturers are available should we need to change suppliers. A change in suppliers; however, could cause a delay in delivery of OMIDRIA or our clinical trial material that would adversely affect our business.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include ~~revenue recognition,~~OMIDRIA contract royalty asset valuation, stock-based compensation expense, and accruals for clinical trials ~~as well as~~and manufacturing of drug product. We base our estimates on historical experience and on various other factors, including the impact of the COVID-19 pandemic, that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.

Note 2—Significant Accounting Policies

Discontinued Operations

We review the presentation of planned or completed business dispositions in the condensed consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business and, if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results.

Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, for all periods presented in the condensed consolidated statements of operations and comprehensive loss. Results of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to discontinued operations. The OMIDRIA

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~~Note 2—Significant Accounting Policies~~asset sale to Rayner qualifies as a discontinued operation. The Company included information regarding cash flows from discontinued operations (see “Note 3 – Discontinued Operations”).

OMIDRIA Royalties and OMIDRIA Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the sum of the discounted probability-weighted royalty payments, net of tax, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. Accordingly, the contract royalty asset excludes the achievement of the $200.0 million milestone payment and any foreign royalties to the extent it is probable that a significant reversal in the amount of cumulative income recognized will not occur. Royalties earned will primarily be recorded as a reduction to the OMIDRIA contract royalty asset. The amount recorded in discontinued operations will reflect interest earned on the outstanding OMIDRIA contract royalty asset and any amounts received that are different from the expected royalties recorded at closing. The OMIDRIA contract royalty asset will also be re-measured periodically using the expected value approach based on actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset will be recorded into discontinued operations.

OMIDRIA Revenue Recognition

~~When~~Prior to the sale of OMIDRIA on December 23, 2021, when we ~~enter~~entered into a customer contract, we ~~perform~~performed the following five steps: (i) ~~identify~~identified the contract with a customer; (ii) ~~identify~~identified the performance obligations in the contract; (iii) ~~determine~~determined the transaction price; (iv) ~~allocate~~allocated the transaction price to the performance obligations in the contract; and (v) ~~recognize~~recognized revenue when (or as) we satisfy a performance obligation.

We generally ~~record revenue from~~recorded OMIDRIA product sales when the product iswas delivered to our wholesalers. ~~Product~~OMIDRIA product sales ~~are~~were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances ~~are~~were established for these deductions in the same period when revenue iswas recognized, and actual amounts incurred ~~are~~were offset against the applicable accruals or allowances. We ~~reflect~~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 sell OMIDRIA through a limited number of wholesalers. We review the credit quality of our wholesalers on an annual basis by considering factors such as historical experience, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. Credit losses for all periods presented were immaterial.

Inventory

Inventory is stated at the lower of cost or market determined on a specific identification basis in a manner that approximates the first-in, first-out (“FIFO”) method. Costs include amounts related to third-party manufacturing, transportation and internal labor and overhead. Capitalization of costs as inventory begins when regulatory approval of the product candidate is reasonably assured in the U.S. or the European Union (“EU”). We expense inventory costs related to product candidates as research and development expenses ~~prior to receiving~~until regulatory approval is reasonably assured in the ~~respective territory. Inventory~~U.S. or the European Union (the “EU”). Once approval is ~~reduced~~reasonably assured, costs including amounts related to ~~net realizable value for excess~~third-party manufacturing, transportation and ~~obsolete inventories based on forecasted demand.~~internal labor and overhead will be capitalized.

Right of Use Assets and Related Lease Liabilities

We record operating leases as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available. We recognize variable lease payments, when incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

We record finance leases as a component of property and equipment and amortize these assets within operating expenses on a straight-line basis to their residual values over the shorter of the term of the underlying lease or the estimated useful life of the equipment. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term.

We account for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease ~~term.~~term.

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Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payments based on estimated fair ~~values as of the date of grant.~~values. The fair value of our stock options is calculated using the Black-Scholes option-pricing model which requires judgmental assumptions around volatility, forfeiture rates and expected option term. Compensation expense is recognized over the optionees’ requisite service periods, which is generally the vesting period, using the straight-line method. Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

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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.

~~Recently Adopted Pronouncements~~

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, ~~2021,~~2025 or the payment of the $200.0 million milestone described below. After such date, we ~~adopted Accounting Standard Update (“ASU”~~will receive a 30% royalty on OMIDRIA net sales in the U.S. (the “U.S. base royalty rate”) ~~2020-06,~~ ~~Debt—Debt with Conversion Options~~ ~~(Subtopic 470-20)~~until the expiration or termination of the last issued and ~~Derivatives and Hedging—Contracts~~unexpired U.S. patent. The U.S. base royalty rate is reduced to 10% upon the occurrence of certain events described in ~~Entity’s Own Equity~~ ~~(Subtopic 815-40)~~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 ~~modified retrospective basis. ASU 2020-06 removes~~country-by-country basis until the ~~separate liability~~expiration or termination of the last issued and equity accounting for our convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. (See “Note 3 – Net Loss Per Share” and “Note 7 – Unsecured Convertible Senior Notes” for further information)

Onunexpired OMIDRIA patent in such country. We will receive a $200.0 million milestone payment if, prior to January 1, ~~2021, we adopted ASU 2019-12,~~ ~~Income Taxes~~ ~~(Topic 740), which~~2025, separate payment for OMIDRIA is ~~intended to simplify various aspects~~secured in the U.S. for a continuous period of the income tax accounting guidance, including elimination of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example, other comprehensive income). We adopted the standard on a prospective basis and the impact to our consolidated financial statements forat least four years.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 was immaterial.~~2022, we earned royalties of $17.2 million and $31.1 million on sales of OMIDRIA which we recorded as a reduction from the OMIDRIA contract royalty asset. We also recorded $17.1 million of income in discontinued operations representing interest income and remeasurement adjustments to the OMIDRIA contract royalty asset. The following schedule presents a rollforward of the OMIDRIA contract royalty asset (in thousands):


OMIDRIA contract royalty asset at December 31, 2021	$	184,570
Royalties earned		(31,062)
Royalty interest income and remeasurement adjustments		17,098
OMIDRIA contract royalty asset at June 30, 2022	$	170,606

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Net income from discontinued operations is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(In thousands)
Product sales, net	$	—	$	28,823	$	—	$	49,884
Royalty interest income and remeasurement adjustments		10,102		—		17,098		—
Total		10,102		28,823		17,098		49,884
Other (income), costs and expenses, net		(744)		7,229		(231)		13,611
Net income from discontinued operations	$	10,846	$	21,594	$	17,329	$	36,273

Cash flow from discontinued operations is as follows:

Note 3—4—Net Loss Per Share

Our potentially dilutive securities include potential common shares related to our stock options, ~~warrant~~warrants, restricted stock units (“RSUs”) and unsecured convertible senior notes. Diluted earnings per share (“Diluted EPS”) considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. ~~Shares of our common stock issuable under the unsecured convertible notes are calculated using the if-converted method and are excluded from the below table as their impact is anti-dilutive.~~ 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		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2021	2020	2021	2020	2022	2021	2022	2021
2023 Notes convertible to common stock ⁽¹⁾					4,941,739	4,941,739	4,941,739	4,941,739
Outstanding options to purchase common stock	1,781,619	1,456,454	2,504,901	1,777,393	88	2,401,024	1,963	2,901,430
Outstanding warrants to purchase common stock	—	9,828	—	11,712
Total potentially dilutive shares excluded from loss per share	1,781,619	1,466,282	2,504,901	1,789,105
Outstanding restricted stock units					208,819	—	207,736	—
Total potentially dilutive shares excluded from net loss per share					5,150,646	7,342,763	5,151,438	7,843,169

(1)The 2023 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 8 — Unsecured Convertible Senior Notes.” Any potential impact of the capped call arrangement is excluded from this table.

Note 5—Certain Balance Sheet Accounts

OMIDRIA Contract Royalty Asset

OMIDRIA contract royalty asset consists of the following:


	June 30,		December 31,
	2022		2021

	(In thousands)
Short-term contract royalty asset	$	43,794	$	44,319
Long-term contract royalty asset		126,812		140,251
Total OMIDRIA contract royalty asset	$	170,606	$	184,570

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~~Note 4—Certain Balance Sheet Accounts~~

~~Accounts Receivable,~~Receivables, net

~~Accounts receivable,~~Receivables, net ~~consist~~consists of the following:


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021

	(In thousands)				(In thousands)
Trade receivables, net	$	33,624	$	3,771
Royalty and trade receivables, net					$	13,669	$	36,505
Sublease and other receivables		274		70		810		1,650
Total accounts receivables, net	$	33,898	$	3,841
Total receivables, net					$	14,479	$	38,155

Trade receivables are net of product return and chargeback allowances. Product returns and chargeback allowances ofwere $2.0 ~~million and $1.2~~ million as of ~~September 30, 2021 and~~ December 31, ~~2020, respectively.~~2021.

~~Inventory~~

~~Inventory consists of the following:~~

September 30,

December 31,

2021

2020

(In thousands)
Raw materials

$
463

$
109
Work-in-progress

65

462
Finished goods

184

784
Total inventory

$
712

$
1,355

Property and Equipment, Net

Property and equipment, net consists of the following:


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021

	(In thousands)				(In thousands)
Finance leases	$	5,829	$	5,690	$	6,537	$	5,979
Laboratory equipment		3,017		2,898		3,123		3,091
Computer equipment		1,069		985		1,076		1,069
Office equipment and furniture		625		625		625		625
Total cost		10,540		10,198		11,361		10,764
Less accumulated depreciation and amortization		(8,709)		(7,647)		(9,440)		(9,033)
Total property and equipment, net	$	1,831	$	2,551	$	1,921	$	1,731

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, depreciation and amortization expense was ~~$0.3~~$0.2 million and $0.4 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, depreciation and amortization expense was ~~$1.1~~$0.5 million and ~~$1.2~~$0.7 million, respectively.

Accrued Expenses

Accrued expenses consists of the following:


	June 30,		December 31,
	2022		2021

	(In thousands)
Employee compensation	$	6,017	$	3,706
Interest payable		5,172		5,172
Clinical trials		4,573		2,430
Consulting and professional fees		3,179		7,455
Contract research and development		2,889		3,916
Sales rebates, fees and discounts		255		8,442
Other accrued expenses		1,395		2,013
Total accrued expenses	$	23,480	$	33,134

Note 6—Fair-Value Measurements

As of June 30, 2022, and December 31, 2021, all investments were classified as short-term and available-for-sale on the accompanying condensed consolidated balance sheets. Investment income, which was included as a component of other income, consists of interest earned.

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~~Accrued Expenses~~

~~Accrued expenses consist of the following:~~

September 30,

December 31,

2021

2020

(In thousands)
Sales rebates, fees and discounts

$
7,650

$
3,326
Contract research and development

4,391

7,952
Consulting and professional fees

4,055

5,393
Interest payable

3,703

5,205
Employee compensation

3,971

3,948
Clinical trials

3,184

2,121
Other accrued expenses

746

810
Total accrued expenses

$
27,700

$
28,755

~~Note 5—Fair-Value Measurements~~

As of September 30, 2021, and December 31, 2020, 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:


	September 30, 2021								June 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(In thousands)								(In thousands)
Assets:
Money-market funds classified as short-term investments	$	42,957	$	—	$	—	$	42,957	$	108,427	$	—	$	—	$	108,427
Money-market funds classified as non-current restricted investments		1,054		—		—		1,054		1,054		—		—		1,054
Total	$	44,011	$	—	$	—	$	44,011	$	109,481	$	—	$	—	$	109,481


	December 31, 2020								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(In thousands)								(In thousands)
Assets:
Money-market funds classified as short-term investments	$	124,452	$	—	$	—	$	124,452	$	56,458	$	—	$	—	$	56,458
Money-market funds classified as non-current restricted investments		1,055		—		—		1,055		1,054		—		—		1,054
Total	$	125,507	$	—	$	—	$	125,507	$	57,512	$	—	$	—	$	57,512

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Cash held in demand deposit accounts of ~~$7.4~~$14.1 million and ~~$10.5~~$100.8 million is excluded from our fair-value hierarchy disclosure as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. There were 0 unrealized gains or losses associated with our investments as of ~~September~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021. The carrying amounts reported in the accompanying ~~Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets for receivables, accounts payable, other current monetary assets and liabilities approximate fair value.

See ~~“Note7—~~“Note 8—Unsecured Convertible Senior Notes” for the carrying amount and estimated fair value of our outstanding convertible senior notes.

Note 6—7—Line of Credit

~~We have~~As of June 30, 2022, we had a Loan and Security Agreement with Silicon Valley Bank ~~which provides~~(“SVB”) providing for a $50.0 million revolving line of credit facility (the “Line of Credit Agreement”). Under the Line of Credit Agreement, we may draw, on a revolving basis, up to the lesser of $50.0 million or 85.0% of our eligible accounts receivable, less certain reserves. Interest on amounts outstanding is payable monthly at the greater of 5.5% or the prime rate. The line of credit matures August 2, 2022 and is secured by all our assets excluding intellectual property and development program inventories.

As of ~~September~~June 30, ~~2021 and December 31, 2020,~~2022, we had 0 ~~amounts were~~ outstanding borrowings under the Line of Credit Agreement.The Line of Credit Agreement expired on August 2, 2022.

Note 7—8—Unsecured Convertible Senior Notes

~~On January 1, 2021,~~In November 2018, we ~~adopted ASU 2020-06~~issued $210.0 million in aggregate principal amount of our 6.25% Convertible Senior Notes (the “2023 Notes~~on amodified retrospective basis. ASU 2020-06 removes the separate liability~~”), and ~~equity accounting for~~in August and September 2020, we issued $225.0 million in aggregate principal amount of our ~~outstanding convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Adoption of ASU 2020-06 resulted in~~5.25% Convertible Senior Notes (the “2026 Notes”). We used a ~~cumulative effect adjustment of $75.5 million to restore our unsecured~~ ~~convertible~~ ~~notes and additional paid-in capital to the balances without an equity allocation component. The carrying value~~portion of the ~~notes are reflective~~proceeds from the 2026 Notes to repurchase $115.0 million principal amount of ~~their face value less unamortized debt issuance costs. Subsequent to~~ the ~~adoption date, interest expense is reduced as~~2023 Notes and terminate a ~~result~~corresponding portion of ~~accounting~~the related capped call for the ~~unsecured convertible notes wholly~~2023 Notes, as ~~a liability measured at amortized cost.~~

~~Unsecured convertible senior notes outstanding at September 30, 2021 and December 31, 2020 are as follows:~~

Balance as of September 30, 2021


2023 Notes

2026 Notes

Total

(In thousands)
Principal amount

$
95,000

$
225,030

$
320,030
Unamortized debt issuance costs

(1,440)

(5,572)

(7,012)
Total unsecured convertible senior notes, net

$
93,560

$
219,458

$
313,018

Fair value of outstanding unsecured convertible senior notes (1)

$
102,600

$
241,419

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount

$
7,600

$
16,389

described below.

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Balance as of December 31, 2020


2023 Notes

2026 Notes

Total

(In thousands)
Principal amount

$
95,000

$
225,030

$
320,030
Unamortized discount

(17,101)

(60,544)

(77,645)
Unamortized issuance costs attributable to liability component

(1,481)

(4,616)

(6,097)
Total unsecured convertible senior notes, net

$
76,418

$
159,870

$
236,288

Fair value of outstanding unsecured convertible senior notes (1)

$
101,769

$
246,779

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount

$
6,769

$
21,749

Equity component

$
25,854

$
63,544

Unamortized issuance costs

(837)

(1,916)

Net carrying amount of equity component (2)

$
25,017

$
61,628

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


	Balance as of June 30, 2022
	2023 Notes		2026 Notes		Total

	(In thousands)
Principal amount	$	95,000	$	225,030	$	320,030
Unamortized debt issuance costs		(956)		(4,716)		(5,672)
Total unsecured convertible senior notes, net	$	94,044	$	220,314	$	314,358

Fair value of outstanding unsecured convertible senior notes (1)	$	85,263	$	132,064



	Balance as of December 31, 2021
	2023 Notes		2026 Notes		Total

	(In thousands)
Principal amount	$	95,000	$	225,030	$	320,030
Unamortized discount		(1,282)		(5,290)		(6,572)
Total unsecured convertible senior notes, net	$	93,718	$	219,740	$	313,458

Fair value of outstanding unsecured convertible senior notes (1)	$	87,163	$	171,867

(1)	The fair value is classified as Level 3 due to the limited trading activity for the unsecured convertible senior notes.

~~(2)~~

Included in the Condensed Consolidated Balance Sheet within additional paid-in capital at December 31, 2020. With the adoption of ASU 2020-06 on January 1, 2021, amounts were reclassified to unsecured convertible senior notes, net.

2023 Unsecured Convertible Senior Notes

~~On November 15, 2018, we issued $210.0 million in aggregate principal amount of our 6.25% convertible senior notes due~~Our 2023 ~~(the “2023 Notes”). The 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. ~~As of September 30, 2021, the unamortized debt issuance costs of~~ ~~$1.4 million will be amortized to interest expense at~~ ~~an effective interest rate of 7.02% over the remaining term.~~ The 2023 Notes mature on November 15, 2023 unless earlier purchased, redeemed or converted in accordance with their terms. ~~On August 14, 2020, we issued~~

As of June 30, 2022, the ~~5.25% convertible senior notes due 2026 (the “2026 Notes”) and used approximately $125.6~~unamortized debt issuance costs of $1.0 million will be amortized to interest expense at an effective interest rate of 7.0% over the ~~net proceeds to repurchase $115.0 million principal amount of the 2023 Notes (see “2026 Unsecured Convertible Senior Notes” below).~~remaining term.

The 2023 Notes are convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion. The initial conversion rate is 52.0183 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $19.22 per share of common stock), which equals approximately 4.9 million shares of common stock issuable upon conversion, subject to adjustment in certain circumstances.

To reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2023 Notes, we entered into a capped call transaction (the “2023 Capped Call”), which covers the number of shares of our common stock underlying the 2023 Notes when our common stock share price is trading between the initial conversion price of $19.22 and $28.84. In connection with the partial repurchase of the 2023 Notes, we entered into a capped call termination contract to unwind a proportionate amount of the 2023 Capped Call. As of ~~September~~June 30, ~~2021,~~2022, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

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Table of Contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

	(In thousands)				(In thousands)				(In thousands)				(In thousands)
Contractual interest expense	$	1,484	$	2,363	$	4,453	$	8,925	$	1,484	$	1,484	$	2,969	$	2,969
Amortization of debt issuance costs		156		156		459		567		164		153		325		303
Amortization of debt discount		-		1,804		—		6,551
Total	$	1,640	$	4,323	$	4,912	$	16,043	$	1,648	$	1,637	$	3,294	$	3,272

~~-15-~~

~~Table of Contents~~

2026 Unsecured Convertible Senior Notes

~~The~~Our 2026 Notes are unsecured and accrue interest at an annual rate of 5.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms.

As of ~~September~~June 30, ~~2021,~~2022, the unamortized debt issuance costs of ~~$5.6~~$4.7 million will be amortized to interest expense at an effective interest rate of ~~5.89%~~5.9% over the remaining term.

The 2026 Notes are convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion. The initial conversion rate is 54.0906 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $18.4875 per share of common stock), which equals approximately 12.2 million shares of common stock issuable upon conversion, subject to adjustment in certain circumstances.

The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:

~~(1)~~

during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130% of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

~~(2)~~

~~during the~~ ~~five~~ ~~consecutive business days immediately after any~~ ~~five-consecutive-trading-day period (such~~ ~~five~~-consecutive-trading-day period, the “measurement period”) in which the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

~~(3)~~

~~there is an occurrence of one or more certain corporate events or distributions of our common stock; or~~

~~(4)~~

~~we call the 2026 Notes for redemption.~~

At our sole discretion, we may elect to convert the 2026 Notes into cash, shares of our common stock or a combination thereof at maturity. Subject to the satisfaction of certain conditions, beginning August 15, 2023, we may redeem in whole or in part the 2026 Notes at our option at a cash redemption price equal to the principal amount of the 2026 Notes plus any accrued and unpaid interest.

To reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions (the “2026 Capped Calls”). The 2026 Capped Calls will cover the number of shares of our common stock underlying the 2026 Notes when our common stock share price is trading between the initial conversion price of $18.49 and $26.10. However, should the market price of our common stock exceed the $26.10 cap, then the conversion of the 2026 Notes would have a dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)				(In thousands)
Contractual interest expense	$	2,954	$	2,954	$	5,907	$	5,907
Amortization of debt issuance costs		290		273		575		519
Total	$	3,244	$	3,227	$	6,482	$	6,426

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


	(In thousands)
2023	$	95,000
2024		—
2025		—
2026		225,030
2027		—
Total future minimum principal payments under the 2023 Notes and 2026 Notes	$	320,030

~~-16-~~-17-

Table of Contents

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

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(In thousands)

(In thousands)
Contractual interest expense

$
2,954

$
1,444

$
8,861

$
1,444
Amortization of debt issuance costs

277

74

797

74
Amortization of debt discount

—

976

—

976
Total

$
3,231

$
2,494

$
9,658

$
2,494

~~Future minimum payments for the 2023 and 2026 Notes as of September 30, 2021 are as follows:~~

(In thousands)
2021

$
—
2022

—
2023

95,000
2024

—
2025

—
2026

225,030
Total future minimum payments under the convertible senior notes

$
320,030

Note 8—9—Leases

We have an operating lease for our office and laboratory facilities with an initial term that ends in 2027 with 2 options to extend the lease term by five years. On January 14, 2022, we entered into an agreement with our landlord to early terminate a portion of the rentable square footage of our office and laboratory facilities, which reduced the right of use asset by $4.7 million and related liability by $5.2 million. We recorded a non-cash gain of $0.5 million to early terminate the lease. In addition, we carry various finance leases for laboratory equipment.

Supplemental lease information is as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

	(In thousands)				(In thousands)				(In thousands)				(In thousands)
Lease cost
Operating lease cost	$	1,961	$	1,480	$	5,528	$	4,540	$	1,663	$	1,984	$	2,870	$	3,567
Finance lease cost:
Amortization		243		336		854		1,039		122		288		320		611
Interest		40		79		127		224		36		40		92		89
Variable lease cost		863		648		2,667		1,715		722		992		1,582		1,804
Sublease income		(447)		(327)		(1,288)		(929)		(453)		(423)		(945)		(841)
Net lease cost	$	2,660	$	2,216	$	7,888	$	6,589	$	2,090	$	2,881	$	3,919	$	5,230

~~-17-~~

~~Table of Contents~~

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

Nine Months Ended

September 30,

2021

2020

(In thousands)
Cash payments for operating leases
$
7,348

$
6,490
Cash payments for financing leases
$
896

$
1,113


	Six Months Ended
	June 30,
	2022		2021

	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash payments for operating leases	$	3,562	$	3,578
Cash payments for financing leases	$	401	$	436

Note 9—10—Commitments and Contingencies

Contracts

We have various agreements with third parties that collectively require payment of termination fees totaling $30.5 million as of June 30, 2022 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.

Development Milestones and Product Royalties

We have licensed a variety of intellectual property from third parties that we are currently developing or may develop in the future. These licenses may require milestone payments ~~in connection with~~during the clinical development processes or upon approval of commercial ~~milestones~~sale as well as low ~~single~~single- to low double-digit royalties on the net income or net sales of the product. For the three months and ~~nine~~six months ended ~~September~~June 30, 2022 and June 30, 2021, ~~and 2020,~~ development ~~milestones~~milestone expenses were insignificant. ~~We do not owe any royalties on OMIDRIA.~~ Should narsoplimab be approved, ~~for HSCT-TMA in the U.S.,~~ we would owe milestone payments to development partners and be obligated to pay ~~approval milestones of~~ ~~$1.7 million and~~ low single-digit royalties on net sales of the product.

-18-

Table of Contents

Note ~~10—~~11—Shareholders’ Deficit

Common Stock and Warrants

On March 1, 2021, we entered into a sales agreement to sell shares of our common stock having an aggregate offering price of up to $150.0 million, from time to time, through an “at the market” equity offering program. As of ~~September~~June 30, ~~2021,~~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~~June 30, ~~2021,~~2022, 200,000 warrants remained outstanding with an exercise price of $23.00 per share. The warrants expire on April 12, 2023.

In conjunction with the issuance of our 2026 Notes, on August 14, 2020, we sold 6.9 million shares of our common stock at a public offering price of $14.50 per share. After deducting underwriter discounts and offering expenses, we received net proceeds from the transaction of $93.7 million.

~~Amendment of 2017 Omnibus Incentive Compensation Plan (the “Plan”)~~

~~At the June 11, 2021 annual meeting, shareholders approved the increase of the number of shares of common stock authorized for issuance under the Plan by~~ ~~4,000,000, to bring the total number of shares of common stock authorized for issuance under the plan to 12,600,000.~~

~~-18-~~

~~Table of Contents~~

~~Interim Condensed Consolidated Statements~~Note 12—Stock-Based Compensation

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

Stock-based compensation is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(In thousands)
Continuing operations
Research and development	$	1,389	$	1,390	$	3,104	$	2,840
Selling, general and administrative		1,793		1,522		3,970		3,132
Total stock-based compensation in continuing operations		3,182		2,912		7,074		5,972
Discontinued operations		(110)		205		(110)		416
Total stock-based compensation	$	3,072	$	3,117	$	6,964	$	6,388

The ~~changes in interim balances~~fair value of each option grant is estimated on the ~~components~~date of ~~our shareholders’ deficit are as follows:~~grant using the Black-Scholes option-pricing model. The following assumptions were applied to all stock option grants:

Additional

Common

Paid-In

Accumulated


Stock

Capital

Deficit

Total

(In thousands)
Balance January 1, 2021

$
616

$
751,304

$
(872,672)

$
(120,752)
Exercise of stock options and warrants

6

6,327

—

6,333
At the market offering costs

—

(241)

—

(241)
Cumulative effect of adopting ASU 2020-06

—

(70,779)

(4,697)

(75,476)
Stock-based compensation expense

—

3,271

—

3,271
Net loss

—

—

(35,090)

(35,090)
Balance March 31, 2021

622

689,882

(912,459)

(221,955)
Exercise of stock options

2

1,133

—

1,135
Stock-based compensation expense

—

3,117

—

3,117
Net loss

—

—

(28,593)

(28,593)
Balance June 30, 2021

624

694,132

(941,052)

(246,296)
Exercise of stock options

1

607

—

608
Stock-based compensation expense

—

5,694

—

5,694
Net loss

—

—

(22,703)

(22,703)
Balance September 30, 2021

$
625

$
700,433

$
(963,755)

$
(262,697)

Additional

Common

Paid-In

Accumulated


Stock

Capital

Deficit

Total

(In thousands)
Balance January 1, 2020

$
542

$
625,048

$
(734,611)

$
(109,021)
Exercise of stock options

3

2,709

—

2,712
Stock-based compensation expense

—

3,476

—

3,476
Net loss

—

—

(29,031)

(29,031)
Balance March 31, 2020

545

631,233

(763,642)

(131,864)
Exercise of stock options

—

66

—

66
Stock-based compensation expense

—

3,822

—

3,822
Net loss

—

—

(33,294)

(33,294)
Balance June 30, 2020

545

635,121

(796,936)

(161,270)
Issuance of common stock in direct offering, net of offering costs

69

93,606

—

93,675
Exercise of stock options

2

2,198

—

2,200
Stock-based compensation expense

—

3,824

—

3,824
Equity component of 2026 Notes, net of issuance costs

—

61,628

—

61,628
Purchases of 2026 Capped Calls

—

(23,223)

—

(23,223)
Equity component of early extinguishment of 2023 Notes

—

(22,073)

—

(22,073)
Termination of the 2023 Capped Call contracts related to debt repurchased

—

8,387

—

8,387
Tax benefit related to issuance of 2026 Notes, net of extinguishment

—

(12,011)

—

(12,011)
Net loss

—

—

(38,463)

(38,463)
Balance September 30, 2020

$
616

$
747,457

$
(835,399)

$
(87,326)


	Three Months Ended			Six Months Ended
	June 30, 2022			June 30, 2022
Estimated weighted-average fair value	$	1.90		$	2.19
Weighted-average assumptions:
Expected volatility		82	%		82	%
Expected life, in years		5.8			5.8
Risk-free interest rate		2.51	%		2.46	%
Expected dividend yield		0	%		0	%

-19-

Table of Contents

~~Note 11—Stock-Based Compensation~~

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

~~Stock-based compensation expense is as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

(In thousands)
Research and development

$
2,477

$
1,636

$
5,367

$
4,714
Selling, general and administrative

3,217

2,188

6,715

6,408
Total

$
5,694

$
3,824

$
12,082

$
11,122

~~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

Nine Months Ended

September 30, 2021

September 30, 2021
Estimated weighted-average fair value

$
10.30

$
10.62

Weighted-average assumptions:

Expected volatility

81
%

81
%
Expected life, in years

6.0

6.0

Risk-free interest rate

0.99
%

0.97
%
Expected dividend yield

0
%

0
%

Stock option activity for all stock plans and related information is as follows:


		Weighted-						Weighted-
		Average			Aggregate			Average			Aggregate
		Exercise		Remaining	Intrinsic			Exercise		Remaining	Intrinsic
	Options	Price per		Contractual Life	Value		Options	Price per		Contractual Life	Value
	Outstanding	Share		(In years)	(In thousands)		Outstanding	Share		(In years)	(In thousands)
Balance at December 31, 2020	11,938,528	$	11.92
Balance at December 31, 2021							12,709,887	$	12.61
Granted	2,493,450		15.44				125,534		7.29
Exercised	(846,136)		9.54				(101,160)		4.10
Forfeited	(348,258)		14.97				(367,273)		13.96
Balance at September 30, 2021	13,237,584	$	12.66	6.0	$	23,004
Vested and expected to vest at September 30, 2021	12,792,270	$	12.60	5.9	$	22,765
Exercisable at September 30, 2021	9,146,070	$	11.92	4.7	$	20,786
Balance at June 30, 2022							12,366,988	$	12.55	5.1	$	46
Vested and expected to vest at June 30, 2022							12,106,495	$	12.53	5.0	$	42
Exercisable at June 30, 2022							9,865,506	$	12.26	4.3	$	—

As of ~~September~~June 30, ~~2021,~~2022, there were ~~4.1~~2.5 million unvested options outstanding that will vest over a weighted-average period of ~~2.7~~2.2 years. The total estimated compensation expense yet to be recognized on outstanding options is ~~$33.6~~$20.0 million.

~~-20-~~

~~Table~~The Company has 204,500 shares of ~~Contents~~unvested RSUs outstanding as of June 30, 2022 that vest 50% on December 1, 2022 and 50% on December 1, 2023.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

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

Our drug ~~product OMIDRIA~~^®candidate narsoplimab is ~~marketed in~~ the ~~United States~~subject of a biologics license application (“BLA”) pending before the U.S. Food and Drug Administration (“FDA”) for ~~use during cataract surgery or intraocular lens replacement for adult and pediatric patients.~~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 the U.S. Food and Drug Administration (“FDA”) regarding the biologics license application (“BLA”) for our drug candidate narsoplimab for treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”). Our BLA remains pending and we are engaged in discussions with FDA regarding the BLA. In the CRL, ~~and~~FDA expressed difficulty in estimating the ~~path to approval~~treatment effect of narsoplimab in ~~HSCT-TMA.~~ HSCT-TMA and asserted that additional information will be needed to support regulatory approval. In February 2022, we had a Type A post-action meeting with FDA to discuss the CRL. Although we felt that we adequately addressed all of the issues noted in the CRL, the meeting minutes included a number of the review division’s critiques that we believe had already been addressed and/or were inaccurate. As a result, in June 2022, we submitted a Formal Dispute Resolution Request. Formal Dispute Resolution is an official pathway that enables a sponsor to appeal a decision by an FDA review division to a higher authority within FDA, in this case the Office of New Drugs. We continue to believe that our BLA, as submitted, merits approval and that the data meet or exceed the threshold for substantial evidence of effectiveness; however, there can be no assurances that the Formal Dispute Resolution process will provide a clear path to resubmission of our BLA, that resubmission will result in approval of our BLA, or that any identified path to BLA resubmission will be satisfactory in terms of the information, time and/or expenditure required. Unless the deciding official asks us for more information or notifies us that more time is needed to complete the review, we expect a decision on the dispute in August 2022.

-20-

Table of Contents

We also have multiple ~~late-stage clinical~~Phase 3 and Phase 2 clinical-stage development programs in ~~our pipeline,~~progress with narsoplimab, which are focused onon: complement-mediated disorders, including immunoglobulin A (“IgA”) nephropathy, atypical hemolytic uremic syndrome (“aHUS”) and COVID-19. We have ~~also initiated~~successfully completed a Phase 1 ~~clinical program for~~study of OMS906, our lead MASP-3 inhibitor ~~OMS906~~ targeting the alternative pathway of complement. We are initiating a Phase 1b clinical trial in patients with paroxysmal nocturnal hemoglobinuria (“PNH”) who have had an unsatisfactory response to the C5 inhibitor ravulizumab. We are also working to expand our program of OMS906 clinical trials to include treatment-naïve PNH patients and complement 3 (“C3”) glomerulopathy patients, as well as one or more related indications. In August, 2022, we began dosing in a Phase 1 clinical trial of OMS1029, our long-acting, next-generation MASP-2 inhibitor and have successfully completed a Phase 1 study in our phosphodiesterase 7 (“PDE7”) program focused on addiction. ~~In addition, we~~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. ~~Small-molecule and antibody inhibitors~~Inhibitors of GPR174 are part of our proprietary G protein-coupled receptor (“GPCR”) platform through which we control 54 GPCR drug targets and their corresponding compounds. ~~We also have a proprietary-asset-enabled antibody-generating technology. We have retained control of all commercial rights for OMIDRIA and each~~Also as part of our ~~product candidates~~immuno-oncology platform, we are developing other novel anti-cancer therapeutics as well as adoptive T cell/CAR-T therapies.

We previously developed and ~~programs.~~

~~Impact of Global Pandemic~~

The COVID-19 pandemic had a significant impact on OMIDRIA revenues in 2020. In March 2020, ambulatory surgery centers (“ASCs”) and hospitals using OMIDRIA postponed nearly all cataract surgery in response to recommendations from government and medical organizations. As a result, we did not record any sales of OMIDRIA to our wholesalers from March 25 to May 19, 2020. However, by the end of June 2020, the run rate of weekly OMIDRIA sales had recovered to levels approximating those seen prior to the pandemic. We are optimistic about the future of OMIDRIA as sales revenues continue to increase.

The pandemic has also resulted in delays or disruptions in our clinical and preclinical activities. It is not possible to estimate precisely the future impact of the COVID-19 pandemic on our business, operations or financial results due to the unknown magnitude, duration and outcome of the pandemic, especially in light of the severity and transmissibility of virus variants and possible governmental responses across the U.S.

~~Commercial Product -~~commercialized OMIDRIA^®~~(phenylephrine~~ (phenylephrine and ketorolac intraocular solution) 1%/0.3%

~~OMIDRIA~~, which is approved by FDA for use during cataract surgery or intraocular lens (“IOL”) replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain. ~~Outside the U.S., we maintain authorization from the European Commission (“EC”) to market~~We marketed OMIDRIA in the ~~European Economic Area (“EEA”~~United States (the “U.S.”) ~~for use~~from the time of its commercial launch in adults during cataract surgery and other IOL replacement procedures for maintenance of intraoperative mydriasis (pupil dilation), prevention of intraoperative miosis and reduction of acute postoperative ocular pain. Sales2015 until December 2021.

On December 23, 2021, we completed the sale of OMIDRIA ~~within~~and certain related assets and liabilities to Rayner Surgical Inc. (“Rayner”) pursuant to an Asset Purchase Agreement dated December 1, 2021 (the “Asset Purchase Agreement”). We received $126.0 million in cash at the ~~EEA~~closing and we receive a royalty of 50% of the net revenue, as defined in the Asset Purchase Agreement, from sales of OMIDRIA in the U.S. between the closing date and the earlier of January 1, 2025 or ~~other international territories have not been significant.~~

the payment of the $200.0 million milestone described below. After such date, we will receive a royalty of 30% of the net revenue from sales of OMIDRIA in the U.S. until the expiration or termination of the last issued and unexpired patent with respect to OMIDRIA in the U.S. The U.S. base royalty rate is subject to a reduction down to 10% upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is a proprietary drug product containing two active pharmaceutical ingredients: ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic, or pupil dilating, agent. Cataract and other lens replacement surgery

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involves replacement of the original lens of the eye with an artificial intraocular lens. OMIDRIA is added to standard irrigation solution used during cataract and lens replacement surgery and is delivered intracamerally, or within the anterior chamber of the eye, to the site of the surgical trauma throughout the procedure. Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging structures within the eye and other complications increases, as does the operating time required to perform the procedure.

We sell OMIDRIA primarily through wholesalers which, in turn, sell to ASCs and hospitals. The Centers for Medicare & Medicaid Services (“CMS”), the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA from January 1, 2015 through December 31, 2017. Pass-through status allowsno longer eligible for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B. We will also will receive a royalty of 15% of the net revenue from sales of OMIDRIA outside the U.S. on a country-by-country basis between the closing date and the expiration or termination of the last issued and unexpired patent with respect to OMIDRIA in such country. In ~~March 2018, Congress extended pass-through reimbursement status~~addition, we will receive a $200.0 million milestone payment if, prior to January 1, 2025, separate payment for OMIDRIA ~~through September 30, 2020 when used during procedures performed on Medicare Part B fee-for-service patients.~~ ~~Pass-through reimbursement for OMIDRIA~~is secured under Medicare Part B ~~expired on October 1, 2020.~~ In December 2020, in its calendar year 2021 Outpatient Prospective Payments System (“OPPS”) and ASC Payments System final rule, CMS determined that, under its policy applicable to certain non-opioid pain management surgical drugs, OMIDRIA qualifies for ~~separate payment when used on Medicare Part B patients in the ASC setting. CMS’ policy~~a continuous period of separately reimbursing non-opioid pain management surgical drugs was first adopted in 2019 and became applicable to OMIDRIA upon the expiration of the drug’s pass-through reimbursement on October 1, 2020. In November 2021, CMS issued its final OPPS and ASC Payments Systems rule for calendar year 2022. The 2022 final rule reconfirmed CMS’ policy regarding non-opioid pain management surgical drugs and states that OMIDRIA will continue to receive separate payment when used on Medicare Part B patients in the ASC setting.at least four years.

Clinical Development Programs

Our clinical stage development programs include:

●

MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders. Narsoplimab, also referred to as OMS721, is our lead fully human monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (“MASP-2”), a novel pro-inflammatory protein target involved in activation of the lectin pathway of ~~complement.~~the complement system. The lectin pathway plays an important role in the body’s inflammatory response and becomes activated as a result of tissue damage or microbial pathogen invasion. Inappropriate or uncontrolled activation of the lectin pathway can cause serious diseases and disorders. MASP-2 is the effector enzyme of the lectin pathway, and the current development focus for narsoplimab is diseases that are strongly associated with activation of the lectin pathway.

In October 2020, we reported final clinical data from our pivotal trial of narsoplimab in HSCT-TMA, a frequently lethal complication of HSCT. In November 2020, we completed the rolling submission of our BLA for narsoplimab for the treatment of HSCT-TMA, and FDA accepted the BLA for filing in January 2021 under its Priority Review program. InOn October 18, 2021, we ~~received~~announced the receipt of a ~~complete response letter (“CRL”)~~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. ~~We intend to request a Type A meeting~~As described above, we

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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 ~~discuss~~complete the ~~CRL~~review, we expect a decision on the dispute in August 2022.

In the EU, the EMA has confirmed narsoplimab’s eligibility for EMA’s centralized review of a single marketing authorization application (“MAA”) that, if approved, would authorize the product to be marketed in all EU member states and ~~determine the most expeditious path forward for the~~EEA countries. Although our resources are currently focused primarily on BLA approval ~~of narsoplimab~~ in the ~~treatment~~U.S., we continue to advance toward submission of ~~HSCT-TMA.~~our MAA.

Phase 3 clinical programs are also ongoing for narsoplimab in IgA nephropathy and aHUS. In addition, narsoplimab is ~~being evaluated for treatment of COVID-19~~the only complement inhibitor included in a nationwide, late-stage adaptive platform trial ~~and~~evaluating multiple agents as potential treatments for COVID-19. Narsoplimab also has been administered under compassionate use to treat COVID-19 patients in Italy and in the U.S.

Narsoplimab has received multiple designations from FDA and from the EMA across three current indications. These include:

●

HSCT-TMA: In the U.S., ~~the~~ FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy and (2) orphan

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drug designation for the treatment of HSCT-TMA. In the EU, narsoplimab has been granted designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation.

●

IgA nephropathy: In the U.S., ~~narsoplimab~~FDA has ~~received from the FDA~~granted narsoplimab (1) breakthrough therapy designation for the treatment of IgA nephropathy and (2) orphan drug designation in IgA nephropathy. In the EU, narsoplimab has been granted designation as an orphan medicinal product for the treatment of primary IgA nephropathy.

●

aHUS: In the U.S., ~~narsoplimab~~FDA has ~~received from the FDA (1) fast-track designation for the treatment of patients with aHUS and (2)~~granted narsoplimab orphan drug designation for the prevention (inhibition) of complement-mediated ~~thrombotic microangiopathies.~~TMAs and fast-track designation for the treatment of patients with aHUS.

In our IgA nephropathy program, patient enrollment ~~continues~~ in the narsoplimab Phase 3 clinical trial, ~~ARTEMIS-IGAN.~~ARTEMIS-IGAN, continues to progress toward an anticipated readout of 9-month proteinuria data by mid-2023. The single Phase 3 trial design is a randomized, double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and ~~with~~ 24-hour urine protein excretion greater than ~~one gram per~~ 1 g/day at baseline on optimized renin-angiotensin system blockade. This trial includes a run-in period. Initially, patients are expected to receive an IV dose of study drug each week for 12 weeks; additional weekly dosing can be administered to achieve optimal response. The primary endpoint, which ~~we believe~~ could suffice for ~~full~~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 ~~(78 per arm)~~ with high levels of proteinuria ~~(i.e.~~(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 ~~full~~regular or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients. In the event of regular approval, estimated glomerular filtration rate (“eGFR”) becomes a safety endpoint only. In the event that the primary endpoint at 36 weeks results in accelerated approval from FDA, change in eGFR is expected to be assessed at approximately 144 weeks after the start of dosing. These eGFR data, if satisfactory, would then likely form the basis for subsequent regular approval. In response to investigators’ concerns about extended withholding of narsoplimab treatment from any high-proteinuria patient initially randomized to the placebo-treated group, FDA will allow patients in that sub-population to receive open-label treatment with narsoplimab after at least 18 months of blinded treatment.

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The Phase 3 clinical program in patients with aHUS, in which patient recruitment is ongoing, consists of one Phase 3 clinical trial – a single-arm (i.e., no control arm), open-label trial in patients with newly diagnosed or ongoing aHUS. This trial is targeting approximately 40 patients for ~~full~~regular approval in the EU and accelerated approval in the U.S. and, as required by FDA, approximately 80 total patients for ~~full~~regular approval in the U.S. The trial includes multiple sites in the U.S., Asia and Europe; however, enrollment has been slow in part due to prioritizing the use of resources within our narsoplimab programs on HSCT-TMA, COVID-19 and IgA nephropathy.

●

~~MASP-2 - narsoplimab (OMS721) -~~ ~~COVID-19~~. In March 2020, in response to a request from physicians at the Papa Giovanni XXIII Hospital in Bergamo, Italy, we initiated a compassionate use program for narsoplimab to treat patients with severe COVID-19 requiring mechanical ventilation.

The initial cohort treated under this compassionate use program included a total of six COVID-19 patients treated with narsoplimab, all with acute respiratory distress syndrome (“ARDS”) and requiring continuous positive airway pressure (“CPAP”) or intubation. At baseline, circulating endothelial cell (“CEC”) counts and serum levels of interleukin-6 (“IL-6”), IL-8, C-reactive protein (“CRP”), LDH, D-dimer and aspartate aminotransferase (“AST”) were markedly elevated. During the course of the compassionate use program, institutional guidelines at the treating hospital were updated to require that all COVID-19 patients in the hospital receive steroids. One patient treated with narsoplimab did not receive steroids. Of the five narsoplimab-treated patients who received steroids, two initiated them after already improving such that CPAP was no longer required or was discontinued the following day. The study evaluated CEC counts in a separate group of four patients receiving only steroids for a short duration, and the counts were found to be unaffected by steroid administration. This suggests that any beneficial effect of steroids on COVID-19-associated endothelial damage

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~~may be delayed and had little effect on the recovery course of the narsoplimab-treated patients who initiated steroid treatment after improving.~~

Narsoplimab treatment was associated with rapid and sustained reduction across all of the above-named markers of endothelial damage and inflammation. In addition, massive bilateral pulmonary thromboses, seen in two of the patients, resolved while on narsoplimab. All six narsoplimab-treated patients recovered, survived and were discharged. Narsoplimab was well tolerated and no adverse drug reactions were reported. Two control groups with similar baseline characteristics were used for retrospective comparison and showed substantial mortality rates of 32% and 53%. A manuscript detailing the results of the initial cohort of Bergamo patients treated with narsoplimab was published in the peer-reviewed journal ~~Immunobiology~~.

All six patients were evaluated five to six months after cessation of narsoplimab treatment. None of them showed any clinical or laboratory evidence of long-term effects of COVID-19, such as cognitive impairment or cardiac, pulmonary or other organ disorder, commonly seen following resolution of initial COVID-19 symptoms.

Following treatment of the initial six patients under the compassionate use program in Italy, we continued compassionate-use treatment in the U.S. and have provided treatment for an additional ten critically ill COVID-19 patients in Italy. Prior to receiving narsoplimab, all of the patients in this second cohort were severely ill, mechanically ventilated, had multiple comorbidities, and had failed other therapies, including anti-virals, targeted anti-inflammatory therapeutics, convalescent plasma and steroids. Following treatment with narsoplimab, the laboratory improvements and clinical outcomes of these patients were similar to those seen in the initial cohort of Bergamo patients.

Endothelial damage and resultant thromboses are significant to the pathophysiology of COVID-19, and we believe these data illustrate the importance of inhibiting the lectin pathway to treat critically ill COVID-19 patients. Endothelial damage activates the lectin pathway of complement. We believe the results observed following narsoplimab treatment in critically ill COVID-19 patients at Papa Giovanni were consistent with those seen in HSCT-TMA and underscore the pathophysiologic similarities between these two disorders. Narsoplimab has been shown to inhibit lectin pathway activation and to block the MASP-2-mediated conversion of prothrombin to thrombin, microvascular injury-associated thrombus formation and the activation of factor XII as well as the MASP-2-mediated activation of kallikrein. We believe that the anticoagulant effects of narsoplimab may provide therapeutic benefits in both HSCT-TMA and COVID-19.

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 ~~therapies~~products for the treatment of critically ill COVID-19 patients. The ~~trial utilizes~~narsoplimab treatment arm has concluded and we look forward to Quantum ~~Leap Healthcare Collaborative's adaptive platform trial design, which is intended to increase trial efficiency by minimizing~~Leap’s disclosure of the ~~number of participants and time required to evaluate potential treatments.~~narsoplimab results.

~~Discussions are ongoing regarding the use of narsoplimab in COVID-19 with leaders across various government agencies, both in the U.S. and internationally.~~

●

MASP 2 – OMS1029 - Lectin Pathway Disorders. We are also developing a longer-acting second-generation antibody targeting MASP-2. This program is designated “OMS1029.” A Phase 1 clinical trial assessing safety, tolerability and pharmacokinetics/pharmacodynamics (“PK/PD”) of OMS1029 in healthy subjects began dosing in August 2022. Designed for longer duration of pharmacologic activity than narsoplimab, we anticipate that OMS1029 will enable us to pursue a range of indications complementary to those for narsoplimab. Based on animal PK/PD data to date, dosing in humans is expected to be once-monthly to once-quarterly by subcutaneous or intravenous administration.

●

MASP-3 - OMS906 - Alternative Pathway Disorders. As part of our MASP program, we have identified mannan-binding lectin-associated serine ~~protease-3~~protease 3 (“MASP-3”), which has been shown to be the key activator of the complement system’s alternative pathway (“APC”), and we believe that we are the first to make this and related discoveries associated with the APC. The complement system is part of the immune system’s innate response, and the APC is considered the amplification loop within the complement system. MASP-3 is responsible for the conversion of pro-factor D to factor D; converted factor D is necessary for the activation of the APC. Based on our alternative pathway-related discoveries, we have expanded our intellectual property position to protect our inventions stemming from these discoveries beyond ~~MASP-2-associated~~MASP-2 associated inhibition of the lectin pathway to include inhibition of the alternative pathway. Our current primary focus in this program is developing MASP-3 inhibitors for the treatment of disorders related to the APC. ~~We believe that MASP-3 inhibitors have the potential to treat patients suffering from a wide range of diseases and conditions, including:~~

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paroxysmal nocturnal hemoglobinuria (“PNH”); multiple sclerosis; neuromyelitis optica; age-related macular degeneration; Alzheimer’s disease; systemic lupus erythematosus; diabetic retinopathy; chronic obstructive pulmonary disease; antineutrophil cytoplasmic antibody-associated vasculitis; anti-phospholipid syndrome; atherosclerosis; myasthenia gravis and others. Our OMS906 monoclonal antibody program has generated positive data in well-established animal models of PNH and rheumatoid arthritis as well as strong pharmacodynamic activity in non-human primates.

~~In September 2020 we began enrollment and dosing~~OMS906 received designation from FDA as an orphan drug for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”) in July 2022.

We have completed a placebo-controlled, double-blind, single-ascending-dose ~~and multiple-ascending-dose~~ Phase 1 clinical trial to evaluate the safety, tolerability, pharmacodynamics and pharmacokinetics of ~~OMS906. We have dosed subjects across all dosing cohorts~~OMS906 in ~~the single-ascending dose study and reported preliminary~~healthy subjects. Preliminary data from the Phase 1 trial ~~in June 2021.~~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 ~~recent~~every-other-month or less frequent IV dosing. Recent data show high level suppression of alternative pathway activity.

We ~~have determined to forego the multiple-ascending dose portion of our~~are initiating a Phase 11b clinical trial in ~~healthy subjects and plan to move directly into~~ patients with ~~paroxysmal nocturnal hematuria, or~~ PNH who have had an unsatisfactory response to the C5 inhibitor ravulizumab. We ~~expect that this will accelerate~~are also working to expand our ~~overall~~program of OMS906 clinical ~~development program for OMS906 in PNH.~~trials to include treatment-naïve PNH patients and C3 glomerulopathy patients, as well as one or more related indications.

●

PDE7 - OMS527. ~~In our~~Our PDE7 program ~~we are developing proprietary compounds~~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 ~~treat~~modulate the dopaminergic system, which plays a significant role in regulating both addiction and ~~compulsive disorders~~movement. We believe that PDE7 inhibitors could be effective therapeutics for the treatment of addictions and compulsions as well as for movement disorders. ~~In September 2019 we reported positive results from our Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed to assess safety, tolerability and pharmacokinetics~~Data generated in preclinical studies support the use of ~~our lead compound~~PDE7 inhibitors in ~~healthy subjects.~~both of these therapeutic areas.

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In September 2019, we reported positive results from our completed Phase 1 clinical trial designed to assess the safety, tolerability and pharmacokinetics of the compound in healthy subjects. In the double blind, randomized Phase 1 study, the study drug, referred to as OMS182399, met the primary endpoints of safety and tolerability and showed a favorable and dose-proportional pharmacokinetic profile supporting once-daily dosing. There was no apparent food effect on plasma exposure to OMS182399. ~~A manuscript detailing the mechanism of action of PDE7 inhibition in nicotine addiction was published in the peer-reviewed~~ ~~Journal of Neuroscience~~ ~~in July 2021.~~ Continued clinical development in our PDE7 program is currently subject to allocation of internal financial and other resources, which at present are ~~currently~~ prioritized for other ~~programs.~~programs, and/or accessing external funding.

In addition to our work in addiction, researchers at Emory University are evaluating, in clinically predictive primate models, the potential of our PDE7 inhibitors to improve levodopa-induced dyskinesias. More than 50% of Parkinson’s patients develop dyskinesias following prolonged levodopa treatment.

Preclinical Development Programs and Platforms

Our preclinical programs and platforms include:

●

Other MASP Inhibitor Preclinical Programs. We have generated positive preclinical data from MASP-2 inhibition in in vivo models of age-related macular degeneration, myocardial infarction, diabetic neuropathy, stroke, traumatic brain injury, ischemia-reperfusion injury, and other diseases and disorders. ~~We are also developing~~ In our OMS906 monoclonal antibody program, we have generated positive data from MASP-3 inhibition in a ~~longer-acting second generation antibody targeting MASP-2 for which we expect to initiate clinical trials~~well-established animal model associated with PNH as well as positive data in ~~2022. This program is designated “OMS1029.”~~ a well-established animal model of arthritis. Development efforts are also directed to a small-molecule inhibitor of MASP-2 designed for oral administration as well as to small-molecule inhibitors of MASP-3 and bispecific small- and large-molecule inhibitors of MASP-2/-3.

●

GPR174, GPCR Platform and ~~GPCR~~Immuno-oncology Platform. We have developed a proprietary cellular redistribution assay which we use in a high-throughput manner to identify synthetic ligands, including antagonists, agonists and inverse agonists, that bind to and affect the function of orphan GPCRs. We have screened Class A orphan GPCRs against our small-molecule chemical libraries using the cellular redistribution assay and have identified and confirmed compounds that interact with 54 of the 81 Class A orphan GPCRs linked to a wide range of indications including cancer as well as metabolic, cardiovascular, immunologic, inflammatory and central nervous system disorders. One of our priorities in this program is GPR174, which is involved in the modulation of the immune system. In ex vivo human studies, our small-molecule inhibitors targeting GPR174 upregulate the production of cytokines, block multiple checkpoints and tumor promoters, and suppress regulatory ~~T-cells.~~T cells. Based on our data, we believe that GPR174 controls a major, previously unrecognized pathway in cancer and modulation of the receptor could provide a seminal advance in immuno-oncologic treatments for a wide range of tumors. Our studies in mouse models of melanoma and colon carcinoma found that GPR174-deficiency resulted in

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significantly reduced tumor growth and improved survival of the animals versus normal mice. Our discoveries suggest a new approach to cancer immunotherapy that targets inhibition of GPR174 and can be combined with and significantly improve the tumor-killing effects of other oncologic agents, including radiation, adenosine pathway inhibitors and checkpoint inhibitors. These discoveries include (1) identification of cancer-immunity pathways controlled by GPR174, (2) the identification of phosphatidylserine as a natural ligand for GPR174, (3) a collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic enhancement of “tumor-fighting” cytokine production by T cells following the combined inhibition of both GPR174 and the adenosine pathway, another key metabolic pathway that regulates tumor immunity. We are developing, ~~both small-molecule~~ and ~~antibody~~plan to advance to clinical trials, inhibitors of GPR174 ~~with~~and of the ~~objective of moving compounds into human trials. We are also exploring several of our other GPCR targets.~~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

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

Financial Summary

On December 23, 2021, we completed the sale of our commercial product OMIDRIA and certain related assets, including inventory and prepaid expenses, to Rayner. We ~~recognized~~will receive a royalty on world-wide sales of OMIDRIA and potentially a $200.0 million milestone payment if separate payment for OMIDRIA is secured in the U.S. for a continuous period of at least four years before January 1, 2025.

As a result of the OMIDRIA divestiture, all the revenues and expenses related to OMIDRIA have been reclassified to net ~~losses~~income from discontinued operations in our condensed consolidated statements of ~~$22.7 million~~operations and ~~$38.5 million~~comprehensive loss and excluded from continuing operations for ~~the three months ended September 30, 2021 and 2020, respectively, and our OMIDRIA net revenues were $30.0 million and $26.1 million~~all periods presented (see “Net Income from Discontinued Operations” below for ~~the same periods.~~ additional information).

As of ~~September~~June 30, ~~2021,~~2022, we had ~~$50.4~~$122.6 million in cash and cash equivalents and short-term investments available for general corporate use and ~~$33.9~~$14.5 million in ~~accounts receivable, net.~~receivables.

~~Fiscal quarters with significantly reduced cataract procedures due to the COVID-19 pandemic~~

~~Pass-through reimbursement expired on October 1, 2020. In December 2020, separate payment was confirmed for OMIDRIA, effective retroactively as of October 1, 2020.~~

~~Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020, which negatively affected our net revenues for the period September 2020 through the first quarter of 2021.~~ In December 2020, CMS determined that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ASCs under its policy of separately reimbursing non-opioid pain management surgical drugs. In November 2021, CMS issued its final OPPS and ASC Payments Systems rule for calendar year 2022. The 2022 final rule reconfirmed CMS’ policy regarding non-opioid pain management surgical drugs and states that OMIDRIA will continue to receive separate payment when used on Medicare Part B patients in the ASC setting.

We expect our net losses will continue until such time as we derive sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing, product sales and other revenues from our product candidates, that are sufficient to cover our operating expenses and debt service obligations.

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Results of Operations

~~Revenue~~

~~Our revenue consists of OMIDRIA product sales to ASCs and hospitals in the U.S. Our product sales, net are as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

(In thousands)
Product sales, net

$
30,004

$
26,114

$
79,889

$
63,181

During the three months and nine months ended September 30, 2021, OMIDRIA net revenue was $30.0 million and $79.9 million as compared to $26.1 million and $63.2 million for the three months and nine months ended September 30, 2020. The $3.9 million increase in revenue during the three-months ended September 30, 2021 compared to the same period in the prior year was due to the change in status of OMIDRIA reimbursement under Medicare Part B following expiration of the pass-through extension period for OMIDRIA. Specifically, on October 1, 2020, OMIDRIA lost separate payment and this negatively affected our revenues for the three months ended September 30, 2020 as customers significantly reduced their purchases late in the third quarter. In December 2020, separate payment for OMIDRIA was reinstated for cataract procedures performed in the ASC setting.

The increase in revenue for the nine months ended September 30, 2021 compared to the prior year period is due to separate payment for OMIDRIA being available under Medicare Part B throughout the current year whereas in the prior year customers reduced purchases late in the third quarter due to the impending loss of Medicare Part B reimbursement on October 1, 2020. Additionally, during the current year period, we did not experience a shut-down of elective surgical procedures due to the COVID-19 pandemic, which occurred during the first two quarters of 2020.

~~Gross-to-Net Deductions~~

We record OMIDRIA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provision for the three and nine months ended September 30, 2021 was 29.3% and 29.7% of gross OMIDRIA product sales, respectively. This compares to 46.8% and 36.6% for the three and nine months ended September 30, 2020, respectively. The decrease in gross-to-net deductions as a percentage of sales in 2021 compared to 2020 is largely due to the OMIDRIA return provision recorded in the third quarter of 2020 related to the temporary loss of OMIDRIA separate payment on October 1, 2020.

~~A summary of our gross-to-net related accruals for the nine months ended September 30, 2021 is as follows:~~

Distribution


Fees and

Product

Chargebacks

Return

and Rebates

Allowances

Total

(In thousands)
Balance as of December 31, 2020

$
3,740

$
948

$
4,688
Provisions

29,523

4,178

33,701
Payments

(25,335)

(3,427)

(28,762)
Balance as of September 30, 2021

$
7,928

$
1,699

$
9,627

~~Chargebacks and Rebates~~

We record a provision for estimated chargebacks and rebates at the time we recognize OMIDRIA product sales revenue and reduce the accrual when payments are made or credits are granted. Our chargebacks are related to a pharmaceutical pricing agreement, a federal supply schedule agreement, a Medicaid drug rebate agreement and an

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upfront discount to our ASC and hospital customers. We also record a provision for our OMIDRIAssure patient assistance and reimbursement program and for rebates under our purchase volume-discount programs.

~~Distribution Fees and Product Return Allowances~~

We pay our wholesalers a distribution fee for services they perform for us based on the dollar value of their purchases of OMIDRIA. We record a provision for these charges as a reduction to revenue at the time of sale to the wholesaler and make payments to our wholesalers based on contractual terms.

We allow for the return of product up to 12 months past its expiration date or for product that is damaged or not used by our customers. We record a provision for returns upon sale of OMIDRIA to our wholesaler. When a return or claim is received, we issue a credit memo to the wholesaler against its outstanding receivable to us or we reimburse the ASC or hospital customer.

Research and Development Expenses

Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development and preclinical research and development activities; internal, overhead and other expenses; and stock-based compensation expense. Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing organizations prior to receiving regulatory approval for a drug candidate, contract research organizations (“CROs”), clinical trial sites, collaborators, and licensors and consultants. Costs are reported in preclinical research and development until the program enters the clinic. Internal, overhead and other expenses consist of personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs. The following table illustrates our expenses associated with these activities:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

	(In thousands)								(In thousands)
Continuing research and development expenses:
Direct external expenses:
Clinical research and development:
MASP-2 program - OMS721 (narsoplimab)	$	10,056	$	10,624	$	36,652	$	33,559	$	8,498	$	9,564	$	17,742	$	26,595
MASP-3 program - OMS906		1,582		6,172		4,743		6,172		680		1,390		1,982		3,161
OMIDRIA - Ophthalmology		983		206		2,168		1,090
PDE7 - OMS527		200		134		463		1,730
Other										91		121		218		263
Total clinical research and development		12,821		17,136		44,026		42,551		9,269		11,075		19,942		30,019
Preclinical research and development		1,998		2,012		10,091		8,846		2,505		5,382		5,249		8,093
Total direct external expenses		14,819		19,148		54,117		51,397		11,774		16,457		25,191		38,112
Internal overhead and other expenses		9,767		10,532		31,874		28,248		10,353		12,279		19,308		21,678
Stock-based compensation expense		2,477		1,636		5,367		4,714
Total research and development expenses	$	27,063	$	31,316	$	91,358	$	84,359
Stock-based compensation expenses										1,389		1,390		3,104		2,840
Total continuing research and development expenses									$	23,516	$	30,126	$	47,603	$	62,630

Clinical research and development expenses decreased ~~$4.3~~$1.8 million and $10.1 million for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~same period in 2020 as the~~ prior year ~~included a $5.0 million license fee related~~period due primarily to the manufacturing of narsoplimab and OMS906. ~~This decrease was partially offset by a $0.7 million increase in OMIDRIA~~We expense inventory costs related to ~~establishing a second drug~~ product ~~manufacturing site. Clinical~~candidates as research and development ~~expenses for~~until regulatory approval is reasonably assured in either the U.S. or EU.~~nine months ended September 30, 2021~~ compared to the same period in 2020 increased $1.5 million due to higher costs associated with narsoplimab manufacturing and medical affairs. In addition, OMS906 expenses were included in preclinical research and development costs until the third quarter of 2020 when we initiated a Phase 1 clinical trial.

Preclinical research and development expenses were similar for the three months ended September 30, 2021 and the same period in 2020. The $1.2 million increase in preclinical research and development expenses for the nine months ended September 30, 2021 as compared to the same period in 2020 reflect increased manufacturing costs related to our OMS1029 program, partially offset by the migration of OMS906 program expenses in the third quarter of 2020 to clinical research and development following initiation of a Phase 1 clinical trial.

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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 ~~increased~~decreased $1.9 million and $2.4 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~same period in 2020~~three and six months ended June 30, 2021 due to ~~additional~~a reduction in employee-related costs and ~~additional~~returning a small portion of our leased ~~laboratory facilities~~building to ~~support our research and development activities.~~the landlord in the first quarter of the current year.

The increases in stock-based compensation for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same periods in the prior year ~~period~~ are due to the ~~increase in the overall number of employees between the periods~~valuation and ~~the~~ timing of ~~annual~~the vesting of employee stock ~~option grants to employees.~~options.

We expect overall research and development costs will ~~remain relatively unchanged~~increase modestly in ~~the fourth quarter of 2021 compared to~~ the third quarter of ~~2021.~~2022 compared to the second quarter of 2022.

At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our ~~product~~drug candidates due to the inherently unpredictable nature of our preclinical and clinical development ~~activities as well as to the potential impacts of the COVID-19 pandemic.~~activities. Clinical development timelines, the probability of success and development costs can ~~differ~~change materially ~~from expectations~~ as new data become available ~~or unforeseen difficulties emerge.~~and as expectations change. Our future research and development expenses will depend, in part, on the preclinical or clinical success of each ~~product~~drug candidate as well as on ongoing assessments of each program’s commercial potential. In addition, we cannot forecast with precision which ~~product~~drug candidates, if any, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

We are required to expend substantial resources in the development of our ~~product~~drug candidates due to the lengthy process of completing clinical trials and seeking regulatory approval. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses.

Selling, General and Administrative Expenses


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

	(In thousands)								(In thousands)
Continuing selling, general and administrative expense:
Selling, general and administrative expenses, excluding stock-based compensation expense	$	17,644	$	17,637	$	53,759	$	48,384	$	12,129	$	13,962	$	20,911	$	25,138
Stock-based compensation expense		3,217		2,188		6,715		6,408		1,793		1,522		3,970		3,132
Total selling, general and administrative expenses	$	20,861	$	19,825	$	60,474	$	54,792
Total continuing selling, general and administrative expense									$	13,922	$	15,484	$	24,881	$	28,270

Total selling, general and administrative expenses ~~increased~~decreased by ~~$1.0~~$1.6 million and $3.4 million for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the same periods in the prior ~~period~~year. The decreases were primarily related to narsoplimab pre-launch sales and marketing development costs in the prior year quarters and the timing of legal costs.

The increases in stock-based compensation for the three and six months ended June 30, 2022 compared to the same periods in the prior year are due to the valuation and timing of ~~annual~~the vesting of employee stock option grants to employees. Total selling, general and administrative expenses increased $5.7 million for the nine months ended September 30, 2021 compared to the prior year period due to increased marketing activities and employee-related costs in preparation for the anticipated U.S. commercial launch of narsoplimab.options.

We expect that our third quarter 2022 selling, general and administrative expenses will be similar ~~during~~to the ~~fourth~~second quarter of ~~2021 as compared to the third quarter of 2021.~~

~~Interest Expense~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020


(In thousands)

Interest expense

$
4,911

$
6,882

$
14,719

$
18,763

2022.

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Interest Expense


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(In thousands)
Interest expense	$	4,927	$	4,910	$	9,868	$	9,807

Interest expense is primarily comprised of contractual interest and amortization of debt issuance and debt discount related to our ~~2023~~6.25% Convertible Senior Notes (the “2023 Notes”) and ~~2026~~5.25% Convertible Senior Notes (the “2026 Notes”) as well as interest on our finance ~~leases. Interest expense decreased $2.0 million~~leases (see “Note 8— Unsecured Convertible Senior Notes”).

Other Income


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(In thousands)
Other income	$	670	$	333	$	1,163	$	751

Other income principally includes sublease rental income and ~~$4.0 million~~interest earned on our cash and investments. The increases in other income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same periods in the prior year are due to increased interest earned on our investments and increased sublease income.

OMIDRIA Royalties

On December 23, 2021, we sold our commercial drug, OMIDRIA, to Rayner. We currently receive royalty payments of 50% of Rayner’s U.S. net sales of OMIDRIA (see the ~~January 1, 2021 adoption of ASU 2020-06, which eliminated the amortization~~“Overview” section of the ~~non-cash debt discount~~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 2023 and 2026 Notes. This decrease was partially offset by the increase in interest related to our 2026 Notes, which were issued in August and September 2020 (for more information, see “Note 7—Unsecured Convertible Senior Notes”).

~~Loss on Early Extinguishment of Debt~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020


2021

2020

(In thousands)

(In thousands)
Loss on early extinguishment of debt

$
—

$
(13,374)

$
—

$
(13,374)

~~In August 2020, we repurchased $115.0~~OMIDRIA contract royalty asset. We also recorded $17.1 million of ~~the previously outstanding 2023 Notes. We recorded a $13.4 million loss on early extinguishment of debt~~income in discontinued operations representing interest income and remeasurement adjustments related to the ~~unamortized discount~~OMIDRIA contract royalty asset. The following schedule presents a rollforward of the OMIDRIA contract royalty asset (in thousands):


OMIDRIA contract royalty asset at December 31, 2021	$	184,570
Royalties earned		(31,062)
Royalty interest income and remeasurement adjustments		17,098
OMIDRIA contract royalty asset at June 30, 2022	$	170,606

Net Income from Discontinued Operations

As a result of the OMIDRIA divestiture, all the revenue and ~~issuance costs~~expenses related to ~~the repurchased 2023 Notes~~OMIDRIA have been reclassified to discontinued operations in ~~the three~~our condensed consolidated statements of operations and ~~nine months ended September 30, 2020.~~comprehensive loss for all periods presented.

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~~Income Tax Benefit~~Net income from discontinued operations is as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

	(In thousands)								(In thousands)
Income tax benefit	$	—	$	7,854	$	—	$	7,854
Product sales, net									$	—	$	28,823	$	—	$	49,884
Royalty interest income and remeasurement adjustments										10,102		—		17,098		—
Total										10,102		28,823		17,098		49,884
Other (income), costs and expenses, net										(744)		7,229		(231)		13,611
Net income from discontinued operations									$	10,846	$	21,594	$	17,329	$	36,273

In ~~August 2020, we~~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 ~~2026 Notes which created an income tax benefit of $7.9 million.~~CMS’ policy regarding non-opioid pain management surgical drugs when used in ambulatory surgical centers (ASCs). If the proposed rule is adopted as final, OMIDRIA would continue to be paid separately in the ASCs under Medicare Part B at least throughout calendar year 2023.

Financial Condition - Liquidity and Capital Resources

As of ~~September~~June 30, ~~2021,~~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 ~~$50.4~~$19.7 million and ~~an accounts receivable-based line of credit that allows us to borrow up to the lesser of $50.0 million or 85%~~ ~~of our accounts receivable borrowing base, less certain reserves.~~$34.7, respectively. For the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, we incurred ~~losses~~a net loss from operations of ~~$72.9~~$30.9 million, including non-cash charges of ~~$14.4~~$3.7 million. For the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, we incurred ~~losses~~a net loss from operations of ~~$18.3~~$63.9 million, including non-cash charges of ~~$6.4~~$7.9 million. Cash used in operating activities was $91.5 million for the nine months ended September 30, 2021. We will continue to incur losses from operating activities until our revenues exceed operating costs and debt service obligations.

We are unable to include in the determination regarding our prospects as a going concern amounts available under our accounts receivable-based line of credit or any proceeds from debt transactions or other financing instruments despite our successful track record in accessing capital through these avenues. We also have not included any potential partnerships related to our products or product candidates. The conditions described above, when evaluated within the constraints of the accounting literature, raise substantial doubt with respect to our ability to meet our obligations through November 9, 2022 and, therefore, to continue as a going concern.

We plan to continue to fund our operations ~~for the next twelve months~~ with our cash and investments, ~~from sales~~realization of our outstanding accounts receivable, OMIDRIA royalties and, potentially, ~~from sales of narsoplimab for HSCT-TMA, if~~the $200.0 million milestone related to achieving long-term OMIDRIA separate payment. If FDA approval is granted ~~within~~for narsoplimab for HSCT-TMA, we expect that ~~timeframe.~~sales of narsoplimab would also provide funds for our operations. In addition, we may utilize funds available under our line of credit which matures August 2, 2022. As of September 30, 2021, the amount available under our line of credit was approximately $30.0 million. Should it be necessary or 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. In this regard, in March 2021 we entered into 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. In

~~-30-~~

~~Table~~Should it be determined to be strategically advantageous, we could also pursue debt financings as well as public and private offerings of ~~Contents~~

~~addition, should~~our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technology. Should it be necessary to manage our operating expenses, we ~~would~~could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities. We have $95.0 million of 2023 Notes that will mature and become due in November 2023. Unless the debt is converted to equity at or prior to maturity, we plan to fund the repayment of the 2023 Notes through a combination of cash from operations, including narsoplimab HSCT-TMA revenues should approval be granted by FDA, the $200.0 million milestone related to OMIDRIA, if long-term separate payment is achieved for OMIDRIA, strategic transactions, sales of stock or through issuance of additional debt.

Cash Flow Data


					Six Months Ended
	Nine Months Ended September 30,				June 30,
	2021		2020		2022		2021

	(In thousands)				(In thousands)
Selected cash flow data
Cash provided by (used in):
Operating activities	$	(91,507)	$	(81,679)	$	(34,662)	$	(67,846)
Investing activities	$	81,292	$	(75,027)	$	(52,072)	$	63,396
Financing activities	$	7,129	$	174,697	$	62	$	6,651

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Operating Activities. Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021 increased~~2022 decreased by ~~$9.8~~$33.2 million as compared to the same period in ~~2020.~~2021. The ~~net increase is~~decrease in cash used was primarily due to a ~~$27.9~~$51.7 million ~~increase~~change in ~~accounts receivable~~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 ~~by CMS~~ in December 2020, ~~following expiration~~which resulted in increased sales and receivables during the first half of 2021. Other changes in operating activities between the ~~pass-through extension and temporary loss of separate payment~~periods included a $14.0 million decrease in the OMIDRIA contract royalty asset resulting from royalties earned on ~~October 1, 2020. We are also seeing the impact of~~OMIDRIA net ~~loss adjusted for non-cash charges of $12.5~~sales, a $22.5 million ~~due to the adoption of ASU 2020-06,~~ ~~Debt—Debt with Conversion Options~~ ~~(Subtopic 470-20)~~ ~~and Derivatives and Hedging—Contracts in Entity’s Own Equity~~ ~~(Subtopic 815-40) and prior year effects related to the repurchase of the 2023 Notes and the issuance of the 2026 Notes. These uses of cash are partially offset by a $13.5 million increase~~decrease in accounts payable and accrued expenses ~~as well as~~and a ~~$1.6~~$9.3 million decrease in ~~prepaid expenses.~~prepaids and other.

Investing Activities. Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the sale of short-term investments, thus causing a shift between our cash and cash equivalents and short-term investment balances. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not consider fluctuations in cash flows from investing activities to be important to the understanding of our liquidity and capital resources.

Net cash used by investing activities during the six months ended June 30, 2022 was $52.1 million compared to net cash provided by investing activities ~~during the nine months ended September 30, 2021 was $81.3~~of $63.4 million ~~compared to a $75.0 million use of cash~~ for the same period in the preceding year. The ~~$156.3~~$115.5 million change between years is ~~primarily~~ due to ~~purchasing~~the purchase of short-term investments with a portion of the ~~net proceeds from 2020 debt and equity financing activities. In both years, sales~~cash received upon the sale of ~~investments were used~~OMIDRIA to ~~fund operating activities.~~Rayner.

Financing Activities. Net cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2021 was $7.1 million, a decrease of $167.6~~2022 decreased $6.6 million compared to the same period in ~~2020. The decrease~~2021 due to a reduction in proceeds from the ~~prior year period was primarily due to receiving net cash proceeds~~exercise of $218.2 million in August 2020 from the issuance of our 2026 Notes and $7.5 million from the termination of the 2023 Capped Call contract offset by $125.6 million to repurchase a portion of our 2023 Notes and $23.2 million to purchase the 2026 Capped Call. In conjunction with the issuance of the 2026 Notes, we sold 6.9 million shares of our commonemployee stock ~~in a public offering and received net proceeds of $93.7 million.~~

~~At the Market Sales Agreement.~~ On March 1, 2021, we entered into a sales agreement to sell shares of our common stock, from time to time and having an aggregate offering price of up to $150.0 million, through an “at the market” equity offering program. As of September 30, 2021, we have not sold any shares under this agreement.options.

Line of Credit ~~Agreement.~~ Agreement~~Our Line~~

As of ~~Credit~~June 30, 2022, we had a Loan and Security Agreement with Silicon Valley Bank ~~provides~~(“SVB”) providing for a $50.0 million revolving line of credit ~~facility. Under the Line~~facility (the “Line of Credit Agreement, we may draw, on a revolving basis, up to the lesser of $50.0 million or 85.0% of our eligible accounts receivable, less certain reserves. The Line of Credit Agreement is secured by all of our assets, excluding intellectual property and development program inventories, and matures on August 2, 2022. Agreement”). As of ~~September~~June 30, ~~2021,~~2022, we had no outstanding borrowings under the Line of Credit Agreement. The Line of Credit Agreement ~~and we were in compliance with all covenants in all material respects.~~expired on August 2, 2022.

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Contractual Obligations and Commitments

Our future minimum contractual commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported.

~~Lease Agreements~~Operating Leases

Our lease for our office and laboratory space ends in November 2027. We have two five-year options to extend the lease term. On January 14, 2022, we entered into an agreement with our landlord to early terminate a portion of the rentable square footage of our office and laboratory facilities. In addition, we carry various finance leases for laboratory equipment. As of ~~September~~June 30, ~~2021,~~2022, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is ~~$51.3~~$38.8 million.

Convertible Notes

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

Goods and Services

We have certain other non-cancelable obligations under various agreements that relate to goods and services. As of ~~September~~June 30, ~~2021,~~2022, our aggregate firm commitments were ~~$34.8~~$30.5 million.

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We may be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur. Therefore, such payments are not included in the amounts described above.

Critical Accounting Policies and Significant Judgments and Estimates

~~On January 1, 2021, we adopted~~ ~~ASU 2020-06,~~ ~~Debt—Debt with Conversion Options~~ ~~(Subtopic 470-20)~~ ~~and Derivatives and Hedging—Contracts in Entity’s Own Equity~~ ~~(Subtopic 815-40) on a modified retrospective basis (for more information, see “Note 2—Significant Accounting Policies,~~ ~~Recently Adopted Pronouncements~~~~”).~~

~~Other than the adoption of ASU 2020-06, there~~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, ~~2020.~~2021, which was filed with the SEC on March 1, 2022.

~~Off-Balance Sheet Arrangements~~

~~We have not engaged in any off-balance sheet arrangements.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is primarily confined to our investment securities. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-quality securities. As of ~~September~~June 30, ~~2021,~~2022, we had cash, cash equivalents and short-term investments of ~~$50.4 million.~~$122.6 million and $14.5 million in receivables, net. In accordance with our investment policy, we invest funds in highly liquid, investment-grade securities. These securities in our investment portfolio are not leveraged and are classified as available-for-sale. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a materially negative impact on the realized value of our investment portfolio. We actively monitor changes in interest rates and, with our current portfolio of short-term investments, we are not exposed to potential loss due to changes in interest rates.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of ~~September~~June 30, ~~2021.~~2022. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2021,~~2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, in the ordinary course of business, we may be involved in various claims, lawsuits and other proceedings. As of the date of filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

ITEM 1A. RISK FACTORS

We operate in an environment that involves a number of risks and uncertainties. Before making an investment decision you should carefully consider the risks described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC on March 1, ~~2021.~~2022. In assessing the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, you should also refer to the other information included therein and in this Quarterly Report on Form 10-Q. In addition, we may be adversely affected by risks that we currently deem to be immaterial or by other risks that are not currently known to us. Due to ~~the~~these risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


Exhibit Number		Description

~~10.1~~†		~~Master Service Agreement dated July 28, 2019, as amended, between Omeros Corporation and Lonza Biologics Tuas Pte Ltd.~~
31.1		Certification of Principal Executive Officer Pursuant to Rule 13-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer Pursuant to Rule 13-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Link base Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

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101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.1		Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)

† Confidential portions of this Exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and the Company agrees to furnish supplementary to the Securities and Exchange Commission a copy of any redacted information or omitted schedule and/or exhibit upon request. The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Omeros Corporation under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	OMEROS CORPORATION

Dated: ~~November~~August 9, ~~2021~~2022	/s/ Gregory A. Demopulos
	Gregory A. Demopulos, M.D.
	President, Chief Executive Officer and Chairman of the Board of Directors

Dated: ~~November~~August 9, ~~2021~~2022	/s/ Michael A. Jacobsen
	Michael A. Jacobsen
	Vice President, Finance, Chief Accounting Officer and Treasurer

~~-35-~~-33-


	Balance as of September 30, 2021
	2023 Notes		2026 Notes		Total

	(In thousands)
Principal amount	$	95,000	$	225,030	$	320,030
Unamortized debt issuance costs		(1,440)		(5,572)		(7,012)
Total unsecured convertible senior notes, net	$	93,560	$	219,458	$	313,018

Fair value of outstanding unsecured convertible senior notes (1)	$	102,600	$	241,419

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount	$	7,600	$	16,389



	Balance as of December 31, 2020
	2023 Notes		2026 Notes		Total

	(In thousands)
Principal amount	$	95,000	$	225,030	$	320,030
Unamortized discount		(17,101)		(60,544)		(77,645)
Unamortized issuance costs attributable to liability component		(1,481)		(4,616)		(6,097)
Total unsecured convertible senior notes, net	$	76,418	$	159,870	$	236,288

Fair value of outstanding unsecured convertible senior notes (1)	$	101,769	$	246,779

Amount by which the unsecured convertible senior notes if-converted value exceeds their principal amount	$	6,769	$	21,749

Equity component	$	25,854	$	63,544
Unamortized issuance costs		(837)		(1,916)
Net carrying amount of equity component (2)	$	25,017	$	61,628


	(In thousands)
2021	$	—
2022		—
2023		95,000
2024		—
2025		—
2026		225,030
Total future minimum payments under the convertible senior notes	$	320,030


			Additional
	Common		Paid-In		Accumulated
	Stock		Capital		Deficit		Total

		(In thousands)
Balance January 1, 2021	$	616	$	751,304	$	(872,672)	$	(120,752)
Exercise of stock options and warrants		6		6,327		—		6,333
At the market offering costs		—		(241)		—		(241)
Cumulative effect of adopting ASU 2020-06		—		(70,779)		(4,697)		(75,476)
Stock-based compensation expense		—		3,271		—		3,271
Net loss		—		—		(35,090)		(35,090)
Balance March 31, 2021		622		689,882		(912,459)		(221,955)
Exercise of stock options		2		1,133		—		1,135
Stock-based compensation expense		—		3,117		—		3,117
Net loss		—		—		(28,593)		(28,593)
Balance June 30, 2021		624		694,132		(941,052)		(246,296)
Exercise of stock options		1		607		—		608
Stock-based compensation expense		—		5,694		—		5,694
Net loss		—		—		(22,703)		(22,703)
Balance September 30, 2021	$	625	$	700,433	$	(963,755)	$	(262,697)


			Distribution
			Fees and
			Product
	Chargebacks		Return
	and Rebates		Allowances		Total

	(In thousands)
Balance as of December 31, 2020	$	3,740	$	948	$	4,688
Provisions		29,523		4,178		33,701
Payments		(25,335)		(3,427)		(28,762)
Balance as of September 30, 2021	$	7,928	$	1,699	$	9,627

Six Months Ended June 30,

(In thousands)

Total operating cash flows from discontinued operations