OMEROS CORP [OMER] Filings

10-Q 1 omer20240930_10q.htm FORM 10-Q omer20240930_10q.htm

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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 30, 2024

☐	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, par value $0.01 per share	OMER	The Nasdaq Stock Market LLC

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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 8, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 57,949,760.

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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 currently available 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 estimates of future operating expenses and projections regarding how long our existing cash, cash equivalents and short-term investments will fund our anticipated operating expenses, capital expenditures and debt service obligations;

● our ability to raise additional capital through the capital markets or one or more future equity offerings, debt financings, industry collaborations, licensing arrangements, asset sales or other means;

● our ability to comply with the terms of our secured credit facility and our expectations regarding the effect on our operations of compliance with the restrictive covenants and other obligations applicable under our secured credit facility;

● our expectations regarding amounts potentially payable to us based on sales of our former commercial ophthalmology product OMIDRIA^®;

● our expectations regarding anticipated or potential paths to regulatory approval of narsoplimab by the U.S. Food and Drug Administration (“FDA”) and/or the European Medicines Agency (“EMA”), including whether and when our biologics license application (“BLA”) for narsoplimab in hematopoietic stem cell transplant-associated thrombotic microangiopathy (“TA-TMA”) may be resubmitted to FDA, whether and when a marketing authorization application (“MAA”) may be submitted to the EMA for narsoplimab in any indication, and whether and when FDA, the EMA or any other regulatory authority will grant approval for narsoplimab in TA-TMA or in any other indication;

● our expectation that our contract manufacturer will manufacture narsoplimab when needed to support any regulatory inspection, if required by FDA in connection with its review of any resubmission of our BLA for narsoplimab in TA-TMA and, if approved, to support commercial sale of narsoplimab;

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

● our expectations regarding the clinical, therapeutic and competitive benefits and importance of our product candidates, including narsoplimab and zaltenibart;

● our ability to design, initiate and/or successfully complete clinical trials and other studies for our product candidates and our plans and expectations regarding our ongoing or planned clinical trials;

● our expectations regarding: our ability to recruit and enroll patients in any ongoing or planned clinical trial; whether we can capitalize on the financial and regulatory incentives provided by orphan drug designations granted by FDA, the European Commission (“EC”), or the EMA; and whether we can utilize the opportunities for expedited development and review that may be provided by fast-track or breakthrough therapy designations granted by FDA;

● our expectations about the commercial competition that our product candidates, if commercialized, face or may face;

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● our involvement in existing or 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, and product 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 (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 differ materially 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 30, 2024

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	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
Part II — Other Information		26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Default Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signatures		28

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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,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	1,521		$	7,105
Short-term investments		121,636			164,743
OMIDRIA contract royalty asset, current		29,243			29,373
Receivables		6,394			8,096
Prepaid expense and other assets		6,127			8,581
Total current assets		164,921			217,898
OMIDRIA contract royalty asset, non-current		129,488			138,736
Right of use assets		15,933			18,631
Property and equipment, net		1,939			1,950
Restricted investments		1,054			1,054
Total assets	$	313,335		$	378,269

Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	7,723		$	7,712
Accrued expenses		23,246			31,868
OMIDRIA royalty obligation, current		18,884			8,576
Lease liabilities, current		5,770			5,160
Total current liabilities		55,623			53,316
Convertible senior notes, net		97,032			213,155
Long-term debt, net		92,427			—
OMIDRIA royalty obligation, non-current		205,089			116,550
Lease liabilities, non-current		14,242			18,143
Other accrued liabilities, non-current		3,094			2,088
Commitments and contingencies (Note 10)
Shareholders’ equity (deficit):
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; none issued and outstanding at September 30, 2024 and December 31, 2023.		—			—
Common stock, par value $0.01 per share, 150,000,000 shares authorized at September 30, 2024 and December 31, 2023; 57,949,760 and 61,128,597 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively.		579			611
Additional paid-in capital		724,236			727,936
Accumulated deficit		(878,987	)		(753,530	)
Total shareholders’ deficit		(154,172	)		(24,983	)
Total liabilities and shareholders’ equity (deficit)	$	313,335		$	378,269

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
	September 30,						September 30,
	2024			2023			2024			2023

Costs and expenses:
Research and development	$	24,084		$	31,731		$	96,203		$	85,980
Selling, general and administrative		11,323			16,422			37,395			38,785
Total costs and expenses		35,407			48,153			133,598			124,765
Loss from operations		(35,407	)		(48,153	)		(133,598	)		(124,765	)
Interest expense		(4,052	)		(7,916	)		(21,498	)		(23,781	)
Interest and other income		2,346			4,413			9,008			12,913
Net loss from continuing operations		(37,113	)		(51,656	)		(146,088	)		(135,633	)
Net income from discontinued operations, net of tax		4,881			13,906			20,631			26,888
Net loss	$	(32,232	)	$	(37,750	)	$	(125,457	)	$	(108,745	)

Basic and diluted net income (loss) per share:
Net loss from continuing operations	$	(0.64	)	$	(0.82	)	$	(2.51	)	$	(2.16	)
Net income from discontinued operations		0.08			0.22			0.36			0.43
Net loss	$	(0.56	)	$	(0.60	)	$	(2.15	)	$	(1.73	)

Weighted-average shares used to compute basic and diluted net income (loss) per share		57,948,093			62,856,721			58,232,007			62,840,990

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

(unaudited)

							Additional
	Common Stock						Paid-In			Accumulated
	Shares			Amount			Capital			Deficit			Total
Balance at January 1, 2024		61,128,597		$	611		$	727,936		$	(753,530	)	$	(24,983	)
Issuance of common stock upon exercise of stock options		9,339			—			32			—			32
Repurchases of common stock		(3,195,241	)		(32	)		(11,819	)		—			(11,851	)
Stock-based compensation expense		—			—			2,658			—			2,658
Net loss		—			—			—			(37,184	)		(37,184	)
Balance at March 31, 2024		57,942,695			579			718,807			(790,714	)		(71,328	)
Issuance of common stock upon exercise of stock options		1,464			—			3			—			3
Stock-based compensation expense		—			—			2,768			—			2,768
Net loss		—			—			—			(56,041	)		(56,041	)
Balance at June 30, 2024		57,944,159			579			721,578			(846,755	)		(124,598	)
Issuance of common stock upon exercise of stock options		5,601			—			17			—			17
Stock-based compensation expense		—			—			2,641			—			2,641
Net loss		—			—			—			(32,232	)		(32,232	)
Balance at September 30, 2024		57,949,760		$	579		$	724,236		$	(878,987	)	$	(154,172	)

Balance at January 1, 2023		62,828,765		$	628		$	720,773		$	(635,717	)	$	85,684
Stock-based compensation expense		—			—			2,953			—			2,953
Net loss		—			—			—			(33,701	)		(33,701	)
Balance at March 31, 2023		62,828,765			628			723,726			(669,418	)		54,936
Issuance of common stock upon exercise of stock options		19,556			—			97			—			97
Stock-based compensation expense		—			—			2,771			—			2,771
Net loss		—			—			—			(37,294	)		(37,294	)
Balance at June 30, 2023		62,848,321			628			726,594			(706,712	)		20,510
Issuance of common stock upon exercise of stock options		17,170			—			53			—			53
Stock-based compensation expense		—			—			3,235			—			3,235
Net loss		—			—			—			(37,750	)		(37,750	)
Balance at September 30, 2023		62,865,491		$	628		$	729,882		$	(744,462	)	$	(13,952	)

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Nine Months Ended September 30,
	2024			2023
Operating activities:
Net loss	$	(125,457	)	$	(108,745	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		8,067			8,959
Amortization of discount and issuance costs on convertible notes		713			1,450
Depreciation and amortization		649			715
Amortization of non-cash interest and issuance costs on long-term debt		488			—
Non-cash interest earned on OMIDRIA contract royalty asset		(12,824	)		(11,484	)
Remeasurement of OMIDRIA contract royalty asset		(7,384	)		(14,924	)
Accretion on U.S. government treasury bills, net		(4,295	)		(7,280	)
Non-cash interest on royalty obligation		(1,553	)		—
Changes in operating assets and liabilities:
OMIDRIA contract royalty asset		29,586			29,900
Prepaid expenses and other		1,790			876
Receivables		1,702			206,343
Accounts payable and accrued expense		(11,305	)		3,741
Net cash provided by (used in) operating activities		(119,823	)		109,551
Investing activities:
Proceeds from the sale and maturities of investments		969,221			751,114
Purchases of investments		(921,819	)		(839,595	)
Purchases of property and equipment		(139	)		(308	)
Net cash provided by (used in) investing activities		47,263			(88,789	)
Financing activities:
Proceeds from sale of future royalties		115,525			—
Proceeds upon exercise of stock options		52			150
Cash paid to repurchase 2026 convertible senior notes		(21,179	)		—
Principal payments on OMIDRIA royalty obligation		(15,125	)		(854	)
Repurchases of common stock		(11,851	)		—
Principal payments on finance lease obligations		(446	)		(427	)
Net cash provided by (used in) financing activities		66,976			(1,131	)
Net increase (decrease) in cash and cash equivalents		(5,584	)		19,631
Cash and cash equivalents at beginning of period		7,105			11,009
Cash and cash equivalents at end of period	$	1,521		$	30,640

Supplemental cash flow information
Cash paid for interest	$	28,122		$	23,801
Cash paid (received) for income taxes, net	$	(109	)	$	3,776
Equipment acquired under finance lease	$	509		$	632

See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Organization and Basis of Presentation

General

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

Our clinical-stage development programs include: narsoplimab, our antibody targeting mannan-binding lectin-associated serine protease 2 (“MASP-2”), the effector enzyme of the lectin pathway of complement; OMS1029, our long-acting antibody targeting MASP-2; zaltenibart, also known as OMS906, our antibody targeting mannan-binding lectin-associated serine protease-3 (“MASP-3”), the key activator of the alternative pathway of complement; and OMS527, our phosphodiesterase 7 (“PDE7”) inhibitor program.

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“TA-TMA”). We successfully completed a pivotal clinical trial for narsoplimab in TA-TMA and previously submitted to FDA a biologics license application (“BLA”) seeking marketing approval for narsoplimab in this indication. In late 2021, FDA issued a complete response letter (“CRL”) with respect to the BLA in which the agency indicated that additional information would be needed to support regulatory approval. We appealed FDA’s decision to issue the CRL through a formal dispute resolution process that concluded in late 2022. Although our appeal was denied, the decision identified potential paths for resubmission of the BLA, including paths based on comparison of survival data from our completed pivotal trial previously submitted to FDA an analysis plan to assess survival data from our completed clinical trial, existing data from a historical control population available from an external source, and data from the narsoplimab expanded access program. As a part of our most recent meeting with FDA, in September 2024, we received minor feedback on our proposed statistical analysis plan for the primary endpoint – patient survival in our pivotal narsoplimab trial compared to that in an external registry of TA-TMA patients – which was a limited request to include certain additional sensitivity analyses. Additional sensitivity analyses were quickly incorporated into the plan and sent back to FDA. FDA’s reply is expected in November 2024. We have no other information requests pending and are not aware of any other impediment to resubmitting our narsoplimab BLA. After receiving FDA’s response and, assuming general alignment on the revised plan, we intend to proceed with conducting the primary and secondary efficacy analyses. If the results support resubmission, then we intend to finalize and resubmit our BLA as soon as possible. We are currently unable to provide a specific estimate of when or if we will resubmit the BLA or, subsequently, FDA’s timing for a decision regarding approval. Even if the results of the efficacy analysis are favorable and FDA accepts our resubmitted BLA for review, as with any BLA or new drug application, there can be no guarantee that FDA will approve narsoplimab for TA-TMA.

Our lectin pathway program also includes OMS1029, our long-acting antibody targeting MASP-2. We have completed Phase 1 clinical trials evaluating both single-ascending and multiple ascending doses of OMS1029. Results of these studies support once-quarterly dosing administered either intravenously or subcutaneously. OMS1029 has been well tolerated to date with no safety concerns identified. We are evaluating several potential indications for Phase 2 clinical development of OMS1029.

Our pipeline of clinical-stage complement-targeted therapeutic candidates also includes zaltenibart, a proprietary, patented monoclonal antibody targeting MASP-3, the key activator of the alternative pathway of complement. We have three ongoing clinical trials evaluating zaltenibart for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”). The first is in PNH patients who have not previously been treated with a complement inhibitor, and the second is in PNH patients who have had an unsatisfactory response to the C5 inhibitor ravulizumab. The third clinical trial is an open-label extension study to assess the long-term efficacy and safety of zaltenibart in patients who have completed either of the other two PNH Phase 2 clinical trials. We also have an ongoing clinical program evaluating zaltenibart for the treatment of C3G, a rare and debilitating renal disease driven by complement dysregulation.

Our phosphodiesterase 7 (“PDE7”) inhibitor program, which we refer to as OMS527, comprises multiple PDE7 inhibitor compounds and is based on our discoveries of previously unknown links between PDE7 and any addiction or compulsive disorder, and between PDE7 and any movement disorders. In April 2023, we were awarded a grant from the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, to develop, at NIDA’s request, our lead orally administered PDE7 inhibitor compound, for which we have successfully completed a Phase 1 study, for the treatment of cocaine use disorder (“CUD”). NIDA awarded the grant to us for a total of $6.69 million over three years, of which we have claimed and received $1.0 million of funding to date and recognized $0.8 million into Other Income in our condensed consolidated statement of operations and comprehensive loss. The grant is intended to support preclinical cocaine interaction/toxicology studies to assess safety of the therapeutic candidate in the presence of concomitant cocaine administration, as well as an in-patient, placebo-controlled clinical study evaluating the safety and effectiveness of OMS527 in adults with CUD who receive concurrent intravenous cocaine. The preclinical study is intended to provide the toxicology data necessary to support the human study of OMS527 in CUD. The toxicology study is underway and is expected to be completed later this year. Assuming that the results support further development, we expect enrollment in the study evaluating OMS527 in adult patients with CUD to begin in 2025, also fully funded by NIDA.

We also have various programs in preclinical research and development.

OMIDRIA Sale and Royalty Monetization Transactions

On December 23, 2021, we closed an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc. (“Rayner”) for the sale of our commercial product OMIDRIA and certain related assets including inventory and prepaid expenses. As a result of the divestiture, the results of OMIDRIA activities are classified as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented (See “Note 7 — Discontinued Operations – Sale of OMIDRIA”).

On September 30, 2022, we sold an interest in a portion of our future OMIDRIA royalty receipts to DRI Healthcare Acquisition LP (“DRI”) and received $125.0 million in cash consideration, which we recorded as an OMIDRIA royalty obligation on our condensed consolidated balance sheet. Interest expense on the royalty obligation is recorded as a component of continuing operations.

On February 1, 2024, we sold an expanded interest in our OMIDRIA royalties to DRI and received $115.5 million in cash consideration, which we recorded as an addition to the OMIDRIA royalty obligation. The amended and restated royalty purchase agreement with DRI (the “DRI Amendment”) eliminates the previously existing annual caps on royalty payments after January 1, 2024, and provides that DRI now receives all royalties on U.S. net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031. We are entitled to retain all royalties on net sales of OMIDRIA outside of the United States. (See “Note 8 — OMIDRIA Royalty Obligation”).

Term Loan and Repurchase of 2026 Notes

On June 3, 2024, we, with certain subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with funds managed by Athyrium Capital Management LP (collectively, “Athyrium”) and funds managed by Highbridge Capital Management, LLC (collectively, “Highbridge”) as lenders (the “Lenders”). The Credit Agreement provides for a senior secured term loan facility of up to $92.1 million, consisting of an initial term loan of $67.1 million (the “Initial Term Loan”) and a $25.0 million delayed draw term loan (the “Delayed Draw Term Loan”), which may be drawn once in full upon notice delivered on or prior to June 3, 2025, conditioned on receipt of FDA approval of narsoplimab in TA-TMA within 30 days of the notice.

Also on June 3, 2024, we used the Initial Term Loan along with $21.2 million of cash on hand, to repurchase from the Lenders $118.1 million aggregate principal amount of our existing 5.25% convertible senior notes due on February 15, 2026 (the “2026 Notes” and such repurchase, the “2026 Note Repurchase Transaction”), which resulted in a $51.0 million reduction in outstanding debt. In addition, we paid accrued and unpaid interest on the repurchased 2026 Notes through the closing date of the transaction. As a post-closing adjustment, we accrued $0.6 million which was paid in July 2024 in additional consideration to a certain Lender. (See “Note 6 — Debt” for a description of the Credit Agreement provisions).

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and non-recurring adjustments, considered necessary for the fair presentation of such information. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, from which the December 31, 2023, condensed consolidated balance sheet has been derived.

Liquidity and Capital Resources

As of September 30, 2024, we had cash, cash equivalents and short-term investments of $123.2 million. For the nine months ended September 30, 2024, our cash used in operations was $119.8 million. This includes an $18.4 million charge for delivery of narsoplimab drug substance. In addition, we made a $21.2 million payment to repurchase $118.1 million of our 2026 Notes. Pursuant to a covenant in the Credit Agreement entered on June 3, 2024, we must maintain $25.0 million of unrestricted cash and cash equivalents at all times.

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In recent years, Omeros has incurred net losses from continuing operations and negative cash flows from operations. The recurring losses, in combination with our cash and investment balances as of September 30, 2024, and an expected repayment of a portion of our outstanding debt on or prior to November 2025, raises substantial doubt about our ability to continue as a going concern. The accompanying condensed 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.

As we currently do not have an ongoing source of revenue sufficient to cover our operating costs, we will need to raise additional capital to accomplish our business plan. We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount of up to $150.0 million. In addition, our Delayed Draw Term Loan of $25.0 million may be drawn once in full upon notice delivered on or prior to June 3, 2025, conditioned on receipt of FDA approval of narsoplimab in TA-TMA within 30 days of the notice. Proceeds of the Delayed Draw Term Loan may only be used towards any related transaction costs and for commercialization of narsoplimab efforts of TA-TMA.

We may pursue additional debt financings to retire the 2026 Notes that remain outstanding and to fund operations. Should it be necessary or determined to be strategically advantageous, we may also pursue public and private offerings of our equity securities, additional debt transactions/restructuring, future royalty sales, or other strategic transactions, which may include licensing or selling a portion or all of one or more of our existing technologies . However, pursuing debt financings, certain equity offerings or other strategic transactions may result in mandatory prepayments of the Initial Term Loan to the Credit Agreement. (See “Note 6 — Debt” for further details).

If these capital resources, for any reason, are needed but inaccessible, it would have a significantly negative impact on our financial condition. For purposes of determining available capital resources, royalty and/or milestone receipts are excluded. Should it be necessary, we plan to manage our operating expenses and reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

The conditions described above, when evaluated in accordance with the relevant accounting literature, raise substantial doubt with respect to our ability to meet our obligations through November 13, 2025.

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 the OMIDRIA contract royalty asset valuation, the OMIDRIA royalty obligation valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.

Note 2—Significant Accounting Policies

Segment Reporting

We operate in one business segment and focus on the research, discovery, development and commercialization of small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, as well as cancers and addictive and compulsive disorders.

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 condensed consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the condensed consolidated statements of operations and comprehensive income (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 asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented.

OMIDRIA Royalties, Milestones and Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we use the expected value approach which is the sum of the discounted probability-weighted royalty payments we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. The royalty rate applicable to U.S. net sales of OMIDRIA is 30% until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2035. Royalties earned are recorded as a reduction to the OMIDRIA contract royalty asset. All royalties received from Rayner, other than royalties related to any sales outside the U.S. and any royalties received after December 31, 2031, U.S. or ex-U.S. are passed through directly to DRI and are accounted for as interest expense and a reduction of the OMIDRIA royalty obligation. The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset at 11.0% and any amounts we receive that are different from the expected royalties. The OMIDRIA contract royalty asset is re-measured quarterly using the expected value approach, which incorporates actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset is recorded in discontinued operations.

OMIDRIA Royalty Obligation

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $125.0 million, which was recorded as an “OMIDRIA royalty obligation” on our condensed consolidated balance sheet. On February 1, 2024, we sold to DRI our remaining U.S. OMIDRIA royalty receipts through December 31, 2031 for $115.5 million in cash, which increased the OMIDRIA royalty obligation by the same amount. The OMIDRIA royalty obligation is valued based on our estimates of future OMIDRIA royalties and is amortized through December 31, 2031 using the implied effective interest rate of 10.27%. Interest expense is recorded in continuing operations.

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To the extent our estimates of future royalties differ materially from previous estimates, we will adjust the carrying amount of the liability for future OMIDRIA royalties to the present value of the revised estimated cash flows, discounted at the implied effective interest rate of 10.27% utilizing the cumulative catch-up method. The offset to the adjustment would be recognized as a component of net income (loss) from continuing operations and is recorded as a non-cash adjustment to interest expense (see “Note 8 — OMIDRIA Royalty Obligation”).

Repurchase of 2026 Notes

We performed an assessment of the Credit Agreement and 2026 Note Repurchase Transaction we entered into on June 3, 2024 and determined that it met the criteria to be accounted for as a troubled debt restructuring. As a result, the $29.8 million difference between the $118.1 million aggregate principal amount of the 2026 Notes and the $88.3 million aggregate repurchase price (consisting of the $67.1 million Initial Term Loan and $21.2 million from cash on hand) was recorded as a premium (i.e., an increase) to the long-term debt recorded on the Company’s condensed consolidated balance sheet instead of being recognized as a gain on early extinguishment of debt. The premium will be amortized as both a reduction of long-term debt in the condensed consolidated balance sheets and interest expense in the condensed consolidated statement of operations and comprehensive loss over the duration of the term loan.

Inventory

We expense inventory costs related to product candidates as research and development expenses until regulatory approval is reasonably assured in the U.S. or the European Union (“EU”). Once approval is reasonably assured, costs, including amounts related to third-party manufacturing, transportation and internal labor and overhead, will be capitalized.

Right-of-Use Assets and Related Lease Liabilities

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

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

We account for leases with initial terms of 12 months or less as an operating expense.

Stock-Based Compensation

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

Common Stock Repurchases

Historically, we have repurchased shares of our common stock from time to time under authorization made by our Board of Directors. Under Washington State law, repurchased shares are retired and not presented as treasury stock on the condensed consolidated financial statements. The terms of the Credit Agreement prohibit us from repurchasing our common stock, unless expressly agreed to by the Lenders. Consequently, the Board of Directors terminated the share repurchase program effective upon execution of the Credit Agreement.

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 basis. 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.

Financial Instruments and Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. Cash and cash equivalents are deposited in checking and sweep accounts at financial institutions. At times, our cash and cash equivalents balance held at a financial institution may exceed the federally insured limits. To limit the credit risk, we invest our excess cash in high-quality securities such as money market mutual funds, certificates of deposit and U.S. treasury bills. The Company has not experienced any losses on its deposits of cash and cash equivalents. Management believes that the Company is not currently exposed to significant credit risk as the Company’s short-term investments are held in custody at third-party financial institutions. The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments, and issuers of the investments to the extent recorded on the unaudited condensed consolidated balance sheets. As of September 30, 2024, the Company has no off-balance sheet concentrations of credit risk.

Note 3—Net Loss Per Share

Basic net income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period using the treasury stock method. We do not compute Diluted EPS for periods in which we have overall net income and a net loss from continuing operations.

Potentially dilutive securities are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
2026Notes convertible to common stock ⁽¹⁾⁽²⁾		5,293,414		12,172,008		8,882,651		12,172,008
2023Notes convertible to common stock ⁽³⁾		—		4,941,739		—		4,941,739
Outstanding options to purchase common stock		176,121		34,450		108,507		37,394
Outstanding restricted stock units⁽⁴⁾		—		70,250		—		70,250
Total potentially dilutive shares excluded from net loss per share		5,469,535		17,218,447		8,991,158		17,221,391

	(1)	The 2026 Notes are subject to a capped call arrangements that potentially reduces the dilutive effect of conversion as described in “Note 6 — Debt.” Any potential impact of the capped call arrangement is excluded from this table.
	(2)	On June 3, 2024, we repurchased $118.1 million of our 2026 Notes reducing any effect of dilution related to those notes. For further details refer to “Note 6 — Debt.”
	(3)	The 2023 Notes (defined below) were fully extinguished upon maturity on November 15, 2023.
	(4)	The outstanding restricted stock units were vested and converted to shares of common stock on December 1, 2023.

Note 4—Investments and Fair-Value Measurements

All of our investments are held in our name and are classified as short-term and held-to-maturity on the accompanying condensed consolidated balance sheets. Interest income is included as a component of other income on our condensed consolidated statement of operations and comprehensive loss. Interest and other income for the three months ended September 30, 2024 and September 30, 2023 consists primarily of interest earned of $1.8 million and $4.0 million, respectively. Interest and other income for the nine months ended September 30, 2024 and September 30, 2023 consists primarily of interest earned of $7.1 million and $11.7 million, respectively.

The following tables summarize our investments:

	September 30, 2024
			Gross Unrealized
	Amortized Cost		Gains/(Losses)		Estimated Fair Value
	(In thousands)

U.S. government securities classified as short-term investments	$	19,924	$	4	$	19,928
Money-market funds classified as short-term investments		101,712		—		101,712
Total short-term investments		121,636		4		121,640
Certificate of deposit classified as non-current restricted investments		1,054		—		1,054
Total investments	$	122,690	$	4	$	122,694

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	December 31, 2023
			Gross Unrealized
	Amortized Cost		Gains/(Losses)		Estimated Fair Value
	(In thousands)

U.S. government securities classified as short-term investments	$	102,100	$	19	$	102,119
Money-market funds classified as short-term investments		62,643		—		62,643
Total short-term investments		164,743		19		164,762
Certificate of deposit classified as non-current restricted investments		1,054		—		1,054
Total investments	$	165,797	$	19	$	165,816

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 are as follows:

	September 30, 2024
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
U.S. government securities classified as short-term investments	$	—	$	19,928	$	—	$	19,928
Money-market funds classified as short-term investments		101,712		—		—		101,712
Total short-term investments		101,712		19,928		—		121,640
Certificate of deposit classified as non-current restricted investments		1,054		—		—		1,054
Total investments	$	102,766	$	19,928	$	—	$	122,694

	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
U.S. government securities classified as short-term investments	$	—	$	102,119	$	—	$	102,119
Money-market funds classified as short-term investments		62,643		—		—		62,643
Total short-term investments		62,643		102,119		—		164,762
Certificate of deposit classified as non-current restricted investments		1,054		—		—		1,054
Total investments	$	63,697	$	102,119	$	—	$	165,816

Cash held in demand deposit accounts of $1.5 million and $7.1 million is excluded from our fair-value hierarchy disclosure as of September 30, 2024 and December 31, 2023, respectively. The carrying amounts reported in the accompanying condensed consolidated balance sheets for receivables, accounts payable and accrued liabilities, and other current monetary assets and liabilities approximate fair value.

See “Note 6 — Debt” and “Note 8 — OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our outstanding term loan, convertible senior notes and the OMIDRIA royalty obligation.

Note 5 — Certain Balance Sheet Accounts

OMIDRIA Contract Royalty Asset

The OMIDRIA contract royalty asset consists of the following:

	September 30,		December 31,
	2024		2023
	(In thousands)
Short-term contract royalty asset	$	29,243	$	29,373
Long-term contract royalty asset		129,488		138,736
Total OMIDRIA contract royalty asset	$	158,731	$	168,109

See “Note 7 — Discontinued Operations – Sale of OMIDRIA” for discussion regarding the estimated fair value of our OMIDRIA contract royalty asset.

Receivables

Receivables consist of the following:

	September 30,		December 31,
	2024		2023
	(In thousands)
OMIDRIA royalty receivables	$	6,095	$	6,724
Other receivables		299		1,372
Total receivables	$	6,394	$	8,096

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Property and Equipment, Net

Property and equipment, net consists of the following:

	September 30,			December 31,
	2024			2023
	(In thousands)
Equipment under finance lease obligations	$	7,309		$	6,929
Laboratory equipment		3,664			3,525
Computer equipment		1,113			1,113
Office equipment and furniture		624			624
Total cost		12,710			12,191
Less accumulated depreciation and amortization		(10,771	)		(10,241	)
Total property and equipment, net	$	1,939		$	1,950

For the three months ended September 30, 2024 and 2023, depreciation and amortization expense was $0.2 million for both periods. For the nine months ended September 30, 2024 and 2023, depreciation and amortization expense was $0.6 million and $0.7 million, respectively.

Accrued Expenses

Accrued expenses consists of the following:

	September 30,		December 31,
	2024		2023
	(In thousands)
Clinical trials	$	8,404	$	10,168
Employee compensation		6,930		7,380
Contract research and development		4,453		6,223
Interest payable		1,356		4,242
Consulting and professional fees		1,296		3,539
Other accrued expenses		807		316
Total accrued expenses	$	23,246	$	31,868

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Note 6—Debt

2024 Secured Term Loan

On June 3, 2024, we entered into a Credit Agreement with the Lenders, which provides for a term loan credit facility of up to $92.1 million, in aggregate, consisting of an Initial Term Loan of $67.1 million and a Delayed Draw Term Loan of $25.0 million. The Delayed Draw Term Loan may be drawn once in full upon notice delivered on or prior to June 3, 2025, conditioned on receipt of FDA approval of narsoplimab in TA-TMA within 30 days of the notice. The Delayed Draw Term Loan would be issued with an original issue discount of 3.0% and the proceeds may be used only for commercialization of narsoplimab in TA-TMA and transaction costs associated with the Delayed Draw Term Loan. Until the earlier of November 1, 2025 and the date we elect to utilize the Delayed Draw Term Loan, the Company, at its sole discretion, may exchange up to $14.9 million aggregate principal amount of outstanding 2026 Notes for cash and/or additional term loan amounts, with the holders of such notes becoming Lenders under the Credit Agreement (any such additional term loans, together with the Initial Term Loan and the Delayed Draw Term Loan, the “Loans”). As of November 13, 2024, no such additional exchanges have occurred. All indebtedness under the Credit Agreement is secured by a first-priority security interest in and lien on substantially all our tangible and intangible property, subject to customary exceptions, and excluding royalty interests in OMIDRIA^® and certain related rights.

In connection with our entry into the Credit Agreement, we used the Initial Term Loan along with $21.2 million of cash on hand to repurchase $118.1 million aggregate principal amount of the 2026 Notes held by the Lenders. The total consideration paid at closing of $88.3 million represents a purchase price equal to approximately 75% of the par value of the 2026 Notes retired in the transaction. The reduction in the aggregate outstanding principal balance of our 2026 Notes and incurrence of a new Initial Term Loan resulted in a $51.0 million reduction of our outstanding debt. The $29.8 million difference between the $118.1 million aggregate principal amount of the 2026 Notes and the $88.3 million aggregate repurchase price was recorded as a premium (i.e., an increase) to the long-term debt on the Company’s condensed consolidated balance sheet instead of being recognized as a gain on early extinguishment of debt. The premium is being amortized as both a non-cash reduction of long-term debt in the condensed consolidated balance sheets and interest expense in the condensed consolidated statement of operations and comprehensive loss over the duration of the term loan. As a post-closing adjustment, we accrued $0.6 million which was paid in July 2024 in additional cash consideration to a certain Lender.

The amount outstanding on the Initial Term Loan is as follows:

	September 30,
	2024
	(In thousands)
Principal amount	$	67,077
Unamortized debt premium, net of issuance costs and other		25,350
Total long-term debt	$	92,427

The Loans have a stated maturity date of June 3, 2028 and bear interest at an adjusted secured overnight financing rate (“adjusted SOFR”), subject to a 3.0% floor, plus 8.75% per annum, payable quarterly from the closing date. As of September 30, 2024, the contractual interest rate on the Loans was 13.87%. We have the option to pay all of the interest in cash or to pay 50% in cash and pay-in-kind (“PIK”), the remaining interest. When this provision is elected, interest for the quarter, including both the cash interest and PIK interest, is calculated based on adjusted SOFR plus a 10.25% PIK margin (instead of the customary 8.75% margin). The PIK interest is then added to the outstanding principal balance and interest is computed using the original adjusted SOFR plus 8.75% margin rate. Due to the premium amortization on the Initial Term Loan, interest expense is currently being recognized at an implied effective interest rate of 1.52%.

The following table sets forth interest expense recognized related to the Initial Term Loan:

	Three Months Ended			Nine Months Ended
	September 30, 2024
	(In thousands)
Contractual interest expense	$	2,433		$	3,147
Amortization of premium and debt issuance costs		(2,060	)		(2,659	)
Total interest expense	$	373		$	488

We may elect to prepay the Loans, in whole or in part, in cash, plus an applicable prepayment and/or make-whole premium. Under certain circumstances, we are required to prepay all or a portion of the outstanding Loans, plus an applicable prepayment and/or make-whole premium, as described below.

(1) If, on November 1, 2025, (i) the aggregate outstanding principal amount of the outstanding 2026 Notes that is not held by the Lenders equals or exceeds $38.5 million and (ii) we have not made or delivered notice that we expect to make certain voluntary or mandatory prepayments under the Credit Agreement of at least $20.0 million in the aggregate, then we would be required, on or prior to November 15, 2025, to make a $20.0 million mandatory prepayment, together with a $1.0 million prepayment premium.

(2) Upon the occurrence of a change in control, we must prepay the entire outstanding amount of the Loans, plus the applicable make-whole or prepayment premium.

(3) We must prepay the Loans in an amount equal to: (i) 25.0% of any milestone payments received from DRI or its affiliates on the basis of net sales of OMIDRIA; (ii) 60.0% of the net cash proceeds (excluding transaction expenses and certain milestone payments) received by Omeros from the sale or license of our assets (or in the case of an asset sale or license involving narsoplimab that occurs while any Delayed Draw Term Loan is outstanding, an amount equal to 100% of the net cash proceeds from such transaction); (iii) 100.0% of net cash proceeds of indebtedness incurred by the Company other than as permitted by the Credit Agreement; and (iv) 100% of the net cash proceeds of insurance recoveries on loss of property, except to the extent utilized to repair or replace the relevant assets within a specified time.

Voluntary and mandatory prepayments of the Loans are subject to payment of the following premiums: (i) during the first year of such Loans, a make-whole premium plus 5.0% of the applicable prepayment amount (unless the prepayment is made in contemplation of a change of control, in which case only the make-whole premium would be payable); (ii) during the second year, a prepayment premium equal to 5.0% of the applicable prepayment amount; and (iii) during the third year, a prepayment premium equal to 3.0% of the applicable prepayment amount.

The Credit Agreement contains certain customary default provisions, representations and warranties and affirmative and negative covenants. These include a covenant requiring us to maintain at all times unrestricted cash and cash equivalents of at least $25.0 million in accounts subject to control agreements and a covenant limiting the use of cash for open market or privately negotiated repurchases of any outstanding 2026 Notes to: (i) an initial amount not exceeding $25.0 million, which may be increased by up to an additional $10.0 million subject to the satisfaction of certain conditions; (ii) an unlimited amount, if the amount of the Loans outstanding at the time of repurchase does not exceed $38.5 million; and (iii) an additional amount not to exceed 50% of the net cash proceeds from an equity offering, provided that the Company offers to prepay an equal amount of the Loans with the net cash proceeds of such offering. As of September 30, 2024, the Company was in compliance with the covenants under the Credit Agreement. After review of the customary default provisions, affirmative and negative covenants, and voluntary and mandatory prepayment options, this resulted in a net derivative asset that was not significant as of September 30, 2024.

The fair value of the Loans is classified as a Level 3 liability. As of September 30, 2024, the approximate fair value of our Loan obligations was $69.5 million. We determined the fair market value by discounting the future cash flows based on adjusted SOFR at each measurement date.

2023 Unsecured Convertible Senior Notes

We extinguished the $95.0 million outstanding on our 6.25% convertible senior notes (the “2023 Notes”) at par upon maturity on November 15, 2023. The following table sets forth interest expense recognized related to the 2023 Notes.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
	(In thousands)				(In thousands)
Contractual interest expense	$	—	$	1,484	$	—	$	4,453
Amortization of debt issuance costs		—		179		—		528
Total	$	—	$	1,663	$	—	$	4,981

2026 Unsecured Convertible Senior Notes

We have outstanding unsecured convertible senior notes which 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. On June 3, 2024, we completed the 2026 Note Repurchase Transaction, through which we repurchased $118.1 million of principal amount outstanding on our 2026 Notes for total consideration of $88.3 million (approximately 75% of par value), consisting of the Initial Term Loan of $67.1 million and $21.2 million of cash on hand. As discussed above, we paid an additional $0.6 million in cash in July 2024 to certain Lenders as a post-closing adjustment under the 2026 Note Repurchase Transaction.

Amounts outstanding on our 2026 Notes are as follows:

	September 30,			December 31,
	2024			2023
	(In thousands)
Principal amount	$	97,862		$	215,924
Unamortized debt issuance costs		(830	)		(2,769	)
Total unsecured convertible senior notes, net	$	97,032		$	213,155

Fair value of outstanding unsecured convertible senior notes ⁽¹⁾	$	66,668		$	131,444

(1)

The fair value is classified as Level 2 liability due to the limited trading activity for the unsecured convertible senior notes. The fair value of the 2026 Notes is determined based on quoted prices in an over-the counter market using the most recent trading information at the end of the reporting period. The value of the conversion feature of the 2026 Notes is not deemed to be significant as the current market price of our common stock is below the initial conversion price of $18.49 per share of common stock.

Unamortized debt issuance costs of $0.8 million as of September 30, 2024 are amortized to interest expense at an effective interest rate of 5.89% over the remaining term.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
	(In thousands)				(In thousands)
Contractual interest expense	$	1,284	$	2,954	$	6,488	$	8,861
Amortization of debt issuance costs		144		312		713		922
Total interest expense	$	1,428	$	3,266	$	7,201	$	9,783

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 equaled approximately 12.2 million shares 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, the second scheduled trading day immediately before the stated maturity date of February 15, 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, 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, whether or not consecutive, 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.

We will settle any conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate(s).

Subject to the satisfaction of certain conditions, we may redeem in whole or in part the 2026 Notes at our option through the 50th scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. The 2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice and (ii) the trading day immediately before the date we send such notice.

In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions in connection with the issuances of the 2026 Notes (the “2026 Capped Call”). The 2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes, the number of shares of common stock underlying the 2026 Notes when our common stock is trading within the range of approximately $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 an additional dilutive impact or may require a cash expenditure to the extent the market price of our common stock exceeds the cap price. The 2026 Capped Call will expire on various dates over the 50-trading-day period ranging from December 2, 2025 to February 12, 2026, if not exercised earlier. The 2026 Capped Call is a separate transaction and not part of the terms of the 2026 Notes and was executed separately from the issuance of the 2026 Notes. The amount paid for the 2026 Capped Call was recorded as a reduction to additional paid-in capital in the condensed consolidated balance sheet. The Company also retains all potential future value of the capped calls associated with the repurchased 2026 Notes. As of September 30, 2024, approximately 12.2 million shares remained outstanding under the 2026 Capped Call.

Further, we concluded the 2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet. Consequently, the fair value of the 2026 Capped Call of $23.2 million is classified as equity, not accounted for as derivatives, and will not be subsequently remeasured.

Minimum Commitments

As of September 30, 2024, the most probable principal payments on our 2026 Notes and Term Loan are as follows.

	2026 Notes			Term Loan		Total
	(In thousands)
2025	$	—		$	20,000	$	20,000
2026		97,862			—		97,862
2027		—			—		—
2028		—			47,077		47,077
2029 and thereafter		—			—		—
Total principal payments		97,862			67,077		164,939
Unamortized premiums, discounts and issuance costs and other		(830	)		25,350		24,520
Carrying value of debt	$	97,032		$	92,427	$	189,459

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Note 7—Discontinued Operations - Sale of OMIDRIA

On December 23, 2021, we sold the rights to OMIDRIA and related assets to Rayner, which is reported as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented.

In December 2022, we earned a $200.0 million milestone payment upon the occurrence of an event specified in the Asset Purchase Agreement with Rayner. The milestone payment was received in February 2023.

Net income from discontinued operations is as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2024			2023		2024		2023
	(In thousands)
Interest earned on OMIDRIA contract royalty asset	$	4,210		$	3,730	$	12,824	$	11,484
Remeasurement adjustments		731			10,100		7,384		14,924
Other income, net		(60	)		76		423		480
Net income from discontinued operations, net of tax	$	4,881		$	13,906	$	20,631	$	26,888

The following is a roll forward of the OMIDRIA contract royalty asset (in thousands):

OMIDRIA contract royalty asset at December 31, 2023	$	168,109
Royalties earned		(29,586	)
Interest earned on OMIDRIA contract royalty asset		12,824
Remeasurement adjustments		7,384
OMIDRIA contract royalty asset at September 30, 2024	$	158,731

We remeasure the OMIDRIA contract royalty asset on a quarterly basis using the expected value approach, which incorporates actual results and future expectations.

Cash flow from discontinued operations is as follows:

	Nine Months Ended
	September 30,
	2024		2023
	(In thousands)
Net cash provided by discontinued operations from operating activities	$	30,619	$	232,081

Net cash provided by discontinued operations primarily represents royalties received and the $200.0 million milestone payment that we collected from Rayner in February 2023. All royalties earned on OMIDRIA sales within the U.S. through December 31, 2031 are remitted by Rayner to DRI via an escrow arrangement.

Note 8—OMIDRIA Royalty Obligation

In September 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $125.0 million in cash consideration, which was recorded as an OMIDRIA royalty obligation on our condensed consolidated balance sheet. DRI was entitled to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, subject to annual caps.

In February 2024, Omeros and DRI expanded their royalty purchase agreement under the DRI Amendment, resulting in Omeros receiving an additional $115.5 million in cash consideration, which we accounted for as a modification of our existing debt from DRI. The DRI Amendment eliminated the annual caps on royalty payments and provides that DRI will receive all royalties on U.S. net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031.

We retain the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable after January 1, 2024, as well as royalties on global net sales of OMIDRIA payable from and after December 31, 2031. To date, international royalties have not been significant. DRI has no recourse to our assets other than its interest in OMIDRIA royalties.

We are also entitled to receive a milestone payment ranging between $10.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $156.0 million and $160.0 million for any period of four consecutive quarters prior to January 1, 2026. In addition, we are entitled to receive a separate milestone payment ranging between $8.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $181.0 million and $185.0 million for any period of four consecutive quarters prior to January 1, 2028.

The following schedule is a roll forward of the OMIDRIA royalty obligation (in thousands):

Balance at December 31, 2023	$	125,126
Additional proceeds		115,525
Non-cash interest		(1,553	)
Principal payments		(15,125	)
Balance at September 30, 2024	$	223,973

We account for the OMIDRIA royalty obligation under the catch-up method. The catch-up method requires that we adjust the carrying amount to match the present value of revised estimated cash flows of Rayner’s U.S. net sales of OMIDRIA. We discounted the OMIDRIA royalty obligation at an implied effective interest rate of 10.27%.

The OMIDRIA royalty obligation is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. As of September 30, 2024, the approximate fair value of our obligation was $213.4 million. We determined the fair market value by discounting the estimated future cash flows based on the initial contractual rate adjusted for any changes in the prime rate through to the measurement date.

For the three months ended September 30, 2024 and 2023, we incurred interest expense of $2.2 million and $3.0 million, respectively. For the nine months ended September 30, 2024 and 2023, we incurred interest expense of $13.7 million and $8.9 million, respectively.

As of September 30, 2024, future expected principal and interest payments are as follows:


	Principal		Interest		Total
	(In thousands)
2024	$	3,806	$	5,403	$	9,209
2025		20,546		20,468		41,014
2026		23,778		18,324		42,102
2027		27,069		15,875		42,944
2028		30,711		13,091		43,802
Thereafter		118,063		18,672		136,735
Total scheduled payments	$	223,973	$	91,833	$	315,806

Note 9—Leases

We have an operating lease for our office and laboratory facilities with an initial term that ends in November 2027 and two options to extend the lease term by an additional five years each. Restricted investments of $1.1 million represent the security deposit on our office and laboratory facilities. We have finance leases for certain laboratory and office equipment that have lease terms expiring through November 2026.

Supplemental lease information is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
	(In thousands)
Lease cost
Operating lease cost	$	1,610		$	1,603		$	4,822		$	4,852
Finance lease cost:
Amortization		173			140			468			529
Interest		26			29			122			121
Variable lease cost		824			807			2,622			2,354
Sublease income		(364	)		(375	)		(1,138	)		(1,125	)
Net lease cost	$	2,269		$	2,204		$	6,896		$	6,731

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

	Nine Months Ended
	September 30,
	2024		2023
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash payments for operating leases	$	5,272	$	5,356
Cash payments for financing leases		534		499

Note 10—Commitments and Contingencies

Good and Service Contracts

We have various agreements with third parties that collectively require payment of termination fees totaling $5.6 million as of September 30, 2024 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 entered a variety of development, collaboration, licensing or similar agreements with third parties under which we have accessed technology or services in connection with our development assets and programs. Some of these agreements require milestone payments based on achievements of development, regulatory or sales milestones, and/or low-single to low-double digit royalties on net income or net sales of the relevant product. For the three and nine months ended September 30, 2024, development milestone expenses were not significant. In the three and nine months ended September 30, 2023, we paid a third-party licensor $5.0 million in connection with achievement of a development milestone in our zaltenibart program.

Note 11—Shareholders’ Equity (Deficit)

Common Stock

At the Market Sales Agreement - We have a sales agreement to sell shares of our common stock having an aggregate offering price of up to $150.0 million, from time to time, through an “at the market” equity offering program. As of September 30, 2024, we have not sold any shares under this program.

Share Repurchase Program - On November 9, 2023, the Board of Directors approved an indefinite term share repurchase program under which we were authorized to repurchase from time to time up to $50.0 million of our common stock in the open market or through privately negotiated transactions. Since inception of the program, we have repurchased and retired 5.0 million shares at an average price of $3.30 per share. During the first quarter of 2024, we repurchased and retired 3.2 million shares of common stock at an average share price of $3.71 at an aggregate cost of $11.9 million. The terms of the Credit Agreement prohibit us from repurchasing our common stock unless expressly agreed to by the Lenders. Consequently, the Board of Directors terminated the share repurchase program effective upon execution of the Credit Agreement.

Note 12—Stock-Based Compensation

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

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Stock-based compensation is as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2024		2023			2024		2023
	(In thousands)					(In thousands)
Continuing operations
Research and development	$	1,063	$	1,305		$	3,146	$	3,710
Selling, general and administrative		1,578		2,054			4,921		5,456
Total stock-based compensation in continuing operations		2,641		3,359			8,067		9,166
Discontinued operations		—		(124	)		—		(207	)
Total stock-based compensation	$	2,641	$	3,235		$	8,067	$	8,959

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, 2024			September 30, 2024
Estimated weighted-average fair value	$	3.06		$	2.60
Weighted-average assumptions:
Expected volatility		96	%		95	%
Expected life, in years		7.4			7.2
Risk-free interest rate		4.22	%		4.36	%
Expected dividend yield		—	%		—	%

Expected volatility is based on the historical volatility of our stock price weighted by grant issuances over the reporting period. We estimated the expected life of the stock options granted using the historical exercise behavior of option holders. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

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

Weighted-

Average

Aggregate

Exercise

Remaining

Intrinsic

Options

Price per

Contractual Life

Value

Outstanding

Share

(In years)

(In thousands)

Balance at December 31, 2023

15,255,154

9.50

Granted

3,280,500