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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 June 30, 2021

or

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)

(206676-5000

(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 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 August 5, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 62,495,645.

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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. 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,” “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:

whether and when the U.S. Food and Drug Administration (“FDA”) will approve the BLA for our lead MASP-2 inhibitor, narsoplimab in hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”);
our expectations regarding clinical plans and anticipated or potential paths to regulatory approval of narsoplimab by FDA and/or the European Medicines Agency (“EMA”) in HSCT-TMA, immunoglobulin A nephropathy, atypical hemolytic uremic syndrome and/or COVID-19;
whether and when a marketing authorization application will be filed with the EMA for narsoplimab in any indication, and whether the EMA 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 reimbursement for any approved products;
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 to demand for OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1%/0.3% from wholesalers, ambulatory surgery centers and/or hospitals, and our expectations regarding OMIDRIA product sales;
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 ability to design, initiate and/or successfully complete clinical trials and other studies for our products and product candidates and our plans and expectations regarding our ongoing or planned clinical trials, including for narsoplimab, and for our other investigational candidates, including OMS527 and OMS906;
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 for the treatment of additional COVID-19 patients in clinical trials or other settings and our expectations for

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receiving any regulatory approval or authorization from FDA or other regulatory body for narsoplimab in the treatment of COVID-19 patients;
with respect to our narsoplimab clinical 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, or 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 contract manufacturers will reliably meet our requirements for commercial supply and to meet our supply requirements of our commercial and/or development-stage products;
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 expectations about the commercial competition that OMIDRIA and our product 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 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”). 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 JUNE 30, 2021

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 Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

Part II — Other Information

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 6.

Exhibits

31

Signatures

32

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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)

June 30, 

December 31, 

    

2021

    

2020

Assets

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

12,702

$

10,501

Short-term investments

 

60,956

 

124,452

Receivables, net

 

31,838

 

3,841

Inventory

 

978

 

1,355

Prepaid expense and other assets

 

5,927

 

11,136

Total current assets

 

112,401

 

151,285

Property and equipment, net

 

1,907

 

2,551

Right of use assets

29,824

25,526

Restricted investments

 

1,054

 

1,055

Advanced payments, non-current

 

205

 

625

Total assets

$

145,391

$

181,042

Liabilities and shareholders’ deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

9,502

$

4,199

Accrued expenses

 

33,321

 

28,755

Current portion of lease liabilities

 

4,874

 

3,782

Total current liabilities

 

47,697

 

36,736

Lease liabilities, non-current

 

31,405

 

28,770

Unsecured convertible senior notes, net

 

312,585

 

236,288

Commitments and contingencies (Note 9)

 

  

 

  

Shareholders’ deficit:

 

  

 

  

Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; none issued and outstanding at June 30, 2021 and December 31, 2020.

 

 

Common stock, par value $0.01 per share, 150,000,000 shares authorized at June 30, 2021 and December 31, 2020; 62,490,940 and 61,671,231 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively.

 

624

 

616

Additional paid-in capital

 

694,132

 

751,304

Accumulated deficit

 

(941,052)

 

(872,672)

Total shareholders’ deficit

 

(246,296)

 

(120,752)

Total liabilities and shareholders’ deficit

$

145,391

$

181,042

See accompanying Notes to Condensed Consolidated Financial Statements

-5-

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Product sales, net

$

28,823

$

13,530

$

49,885

$

37,067

Costs and expenses:

 

 

  

 

 

  

Cost of product sales

 

342

 

147

 

606

 

414

Research and development

 

30,937

 

24,132

 

64,309

 

53,043

Selling, general and administrative

 

21,560

 

16,931

 

39,598

 

34,967

Total costs and expenses

 

52,839

 

41,210

 

104,513

 

88,424

Loss from operations

 

(24,016)

 

(27,680)

 

(54,628)

 

(51,357)

Interest expense

 

(4,910)

 

(5,978)

 

(9,808)

 

(11,880)

Other income

 

333

 

364

 

753

 

912

Net loss

$

(28,593)

$

(33,294)

$

(63,683)

$

(62,325)

Comprehensive loss

$

(28,593)

$

(33,294)

$

(63,683)

$

(62,325)

Basic and diluted net loss per share

$

(0.46)

$

(0.61)

$

(1.02)

$

(1.14)

Weighted-average shares used to compute basic and diluted net loss per share

 

62,373,521

 

54,513,337

 

62,154,714

 

54,406,575

See accompanying Notes to Condensed Consolidated Financial Statements

-6-

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

Six Months Ended June 30, 

    

2021

    

2020

Operating activities:

Net loss

$

(63,683)

$

(62,325)

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

 

 

  

Stock-based compensation expense

 

6,388

 

7,298

Non-cash interest expense

 

822

 

5,159

Depreciation and amortization

 

745

 

814

Changes in operating assets and liabilities:

 

 

  

Receivables

 

(27,997)

 

19,405

Inventory

 

377

 

(745)

Prepaid expenses and other assets

 

5,633

 

1,881

Accounts payable and accrued expenses

 

9,869

 

(18,225)

Net cash used in operating activities

 

(67,846)

 

(46,738)

Investing activities:

 

  

 

  

Purchases of property and equipment

 

(100)

 

(210)

Purchases of investments

 

(4)

 

(3,188)

Proceeds from the sale and maturities of investments

 

63,500

 

46,768

Net cash provided by investing activities

 

63,396

 

43,370

Financing activities:

 

  

 

  

Proceeds upon exercise of stock options and warrants

 

7,468

 

2,778

At the market offering costs

 

(241)

 

Payments on finance lease obligations

 

(576)

 

(530)

Net cash provided by financing activities

 

6,651

 

2,248

Net (decrease) increase in cash and cash equivalents

 

2,201

 

(1,120)

Cash and cash equivalents at beginning of period

 

10,501

 

3,084

Cash and cash equivalents at end of period

$

12,702

$

1,964

Supplemental cash flow information

 

  

 

  

Cash paid for interest

$

9,012

$

6,721

Property acquired under finance lease

$

39

$

44

See accompanying Notes to Condensed Consolidated Financial Statements

-7-

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OMEROS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Description of Business

Description of Business

We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, addiction and immune-related diseases, including cancers.

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. OMIDRIA qualifies 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.

Our drug candidate narsoplimab is the subject of a biologics license application (“BLA”) under priority review by the U.S. Food and Drug Administration (“FDA”) for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”). 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.

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 transactions have been eliminated, and we have determined we operate in one segment. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 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 in conjunction with the audited consolidated financial statements and related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2021.

Risks and Uncertainties

The COVID-19 pandemic and the responses to it by various governmental authorities, the medical community and others have had a significant impact on our business. 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 have filed with FDA our BLA for narsoplimab in HSCT-TMA, which has been granted priority review with an FDA action date of October 17, 2021 under the Prescription Drug User Fee Act (“PDUFA”). We anticipate, but cannot guarantee, that narsoplimab will receive FDA approval and will commercially launch in the U.S. in 2021. Our sales and marketing strategies for the commercial launch of narsoplimab for HSCT-TMA include various milestones at which we

-8-

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commit to incremental spending, providing for flexibility in the timing of costs incurred should the approval of narsoplimab be delayed. If approved, we cannot fully predict the timing or the magnitude of narsoplimab revenues.

We plan to continue to fund our operations for the next twelve months with our cash and investments from sales of OMIDRIA and, if FDA approval is granted, from sales of narsoplimab for HSCT-TMA. In addition, we may utilize funds available under our line of credit, which allows us to borrow up to 85% of our available accounts receivable borrowing base, less certain reserves, or $50.0 million, whichever is less. The line of credit matures August 2, 2022. We also entered into a sales agreement to sell shares of our common stock, from time to time, up to an aggregate offering amount of $150.0 million through an “at the market” equity offering program. 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. 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.

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, stock-based compensation expense and accruals for clinical trials as well as 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

Revenue Recognition

When we enter into a customer contract, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.

We generally record revenue from product sales when the product is delivered to our wholesalers. Product sales are recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances are established for these deductions in the same period when revenue is recognized, and actual amounts incurred are offset against the applicable accruals or allowances. We reflect 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.

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 regulatory approval in the respective territory. Inventory is reduced to net realizable value for excess and obsolete inventories based on forecasted demand.

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

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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.

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. 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.

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

On January 1, 2021, we adopted Accounting Standard Update (“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. ASU 2020-06 removes the separate liability 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)

On January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740), which is intended to simplify various aspects 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 for the three and six months ended June 30, 2021 was immaterial.

Note 3—Net Loss Per Share

Our potentially dilutive securities include potential common shares related to our stock options, warrant 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.

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Potentially dilutive securities excluded from Diluted EPS are as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2021

    

2020

2021

    

2020

Outstanding options to purchase common stock

2,401,024

 

2,216,697

2,901,430

 

1,937,863

Outstanding warrants to purchase common stock

 

14,406

 

12,654

Total potentially dilutive shares excluded from loss per share

2,401,024

 

2,231,103

2,901,430

 

1,950,517

Note 4—Certain Balance Sheet Accounts

Accounts Receivable, net

Accounts receivable, net consist of the following:

June 30, 

December 31, 

    

2021

    

2020

(In thousands)

Trade receivables, net

$

31,418

$

3,771

Sublease and other receivables

 

420

 

70

Total accounts receivables, net

$

31,838

$

3,841

Trade receivables are net of product return and chargeback allowances of $1.9 million and $1.2 million as of June 30, 2021 and December 31, 2020, respectively.

Inventory

Inventory consists of the following:

June 30, 

December 31, 

    

2021

    

2020

 (In thousands)

Raw materials

 

$

361

 

$

109

Work-in-progress

 

230

 

462

Finished goods

 

387

 

784

Total inventory

 

$

978

 

$

1,355

Property and Equipment, Net

Property and equipment, net consists of the following:

    

June 30, 

    

December 31, 

2021

2020

(In thousands)

Finance leases

$

5,690

$

5,690

Laboratory equipment

 

2,998

 

2,898

Computer equipment

 

985

 

985

Office equipment and furniture

 

625

 

625

Total cost

 

10,298

 

10,198

Less accumulated depreciation and amortization

 

(8,391)

 

(7,647)

Total property and equipment, net

$

1,907

$

2,551

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For the three months ended June 30, 2021 and 2020, depreciation and amortization expenses were $0.4 million for each of the two periods. For the six months ended June 30, 2021 and 2020, depreciation and amortization expenses were $0.7 million and $0.8 million, respectively.

Accrued Expenses

Accrued expenses consist of the following:

    

June 30, 

    

December 31, 

2021

2020

(In thousands)

Sales rebates, fees and discounts

$

7,572

$

3,326

Contract research and development

5,576

 

7,952

Consulting and professional fees

 

4,770

5,393

Interest payable

 

5,173

 

5,205

Employee compensation

 

7,872

 

3,948

Clinical trials

 

1,874

 

2,121

Other accrued expenses

 

484

 

810

Total accrued expenses

$

33,321

$

28,755

Note 5—Fair-Value Measurements

As of June 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:

    

June 30, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

(In thousands)

Assets:

Money-market funds classified as short-term investments

$

60,956

$

$

$

60,956

Money-market funds classified as non-current restricted investments

 

1,054

 

 

 

1,054

Total

$

62,010

$

$

$

62,010

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December 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

(In thousands)

Assets:

  

 

  

 

  

 

  

Money-market funds classified as short-term investments

$

124,452

$

$

$

124,452

Money-market funds classified as non-current restricted investments

 

1,055

 

 

 

1,055

Total

$

125,507

$

$

$

125,507

Cash held in demand deposit accounts of $12.7 million and $10.5 million is excluded from our fair-value hierarchy disclosure as of June 30, 2021 and December 31, 2020, respectively. There were no unrealized gains or losses associated with our investments as of June 30, 2021 or December 31, 2020. The carrying amounts reported in the accompanying Condensed Consolidated Balance Sheets for receivables, accounts payable, other current monetary assets and liabilities approximate fair value.

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

Note 6—Line of Credit

We have a Loan and Security Agreement with Silicon Valley Bank, which provides 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 June 30, 2021 and December 31, 2020, no amounts were outstanding under the Line of Credit Agreement.

Note 7—Unsecured Convertible Senior Notes

On January 1, 2021, we adopted ASU 2020-06 on a modified retrospective basis. ASU 2020-06 removes the separate liability and equity accounting for our outstanding convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Adoption of ASU 2020-06 resulted in 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 of the notes are reflective of their face value less unamortized debt issuance costs. Subsequent to the adoption date, interest expense is reduced as a result of accounting for the unsecured convertible notes wholly as a liability measured at amortized cost.

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

Balance as of June 30, 2021

    

2023 Notes

    

2026 Notes

    

Total

(In thousands)

Principal amount

$

95,000

$

225,030

$

320,030

Unamortized debt issuance costs

 

(1,596)

 

(5,849)

 

(7,445)

Total unsecured convertible senior notes, net

$

93,404

$

219,181

$

312,585

Fair value of outstanding unsecured convertible senior notes (1)

$

104,856

$

251,192

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

$

9,856

$

26,162

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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

(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 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 2023 (the “2023 Notes”). The 2023 Notes accrue interest at an annual rate of 6.25% per annum, payable semi-annually in arrears on May 15 and November 15 of each year. The 2023 Notes mature on November 15, 2023 unless earlier purchased, redeemed or converted in accordance with their terms. On August 14, 2020, we issued the 5.25% convertible senior notes due 2026 (the “2026 Notes”) and used approximately $125.6 million of the net proceeds to repurchase $115.0 million principal amount of the 2023 Notes (see “2026 Unsecured Convertible Senior Notes” below).

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), 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 June 30, 2021, approximately 4.9 million shares remained outstanding on the 2023 Capped Call.

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

    

Three Months Ended June 30,

Six Months Ended June 30,

2021

    

2020

    

2021

    

2020

    

(In thousands)

(In thousands)

Contractual interest expense

$

1,484

$

3,281

$

2,969

$

6,563

Amortization of debt issuance costs

 

153

 

209

 

303

 

411

Amortization of debt discount

 

-

 

2,417

 

 

4,748

Total

$

1,637

$

5,907

$

3,272

$

11,722

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2026 Unsecured Convertible Senior Notes

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

The 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,

2021

2020

2021

2020

(In thousands)

(In thousands)

Contractual interest expense

$

2,954

$

$

5,907

$

Amortization of debt issuance costs

273

 

519

 

Total

$

3,227

$

$

6,426

$

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Future minimum payments for the 2023 and 2026 Notes as of June 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—Leases

We have an operating lease for our office and laboratory facilities with an initial term that ends in 2027 with two options to extend the lease term by five years. We carry various finance leases for laboratory equipment.

Supplemental lease information is as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2021

2020

2021

 

2020

(In thousands)

(In thousands)

Lease cost

  

    

  

Operating lease cost

$

1,984

$

1,551

$

3,567

$

3,024

Finance lease cost:

 

 

 

 

  

Amortization

 

288

 

345

 

611

 

703

Interest

 

40

 

70

 

89

 

159

Variable lease cost

 

992

 

565

 

1,804

 

1,102

Sublease income

 

(423)

 

(309)

 

(841)

 

(602)

Net lease cost

$

2,881

$

2,222

$

5,230

$

4,386

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

Six Months Ended

June 30, 

2021

 

2020

(In thousands)

Cash payments for operating leases

$

3,817

$

4,284

Cash payments for financing leases

$

665

 

$

689

Note 9—Commitments and Contingencies

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 clinical development or commercial milestones as well as low single to low double-digit royalties on the net income or net sales of the product. For the three and six months ended June 30, 2021 and 2020, development milestone expenses were insignificant. We do

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not owe any royalties on OMIDRIA. Should narsoplimab be approved for HSCT-TMA, we would be obligated to pay low single-digit royalties on net sales of the product.

Note 10—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 June 30, 2021, 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 June 30, 2021, 200,000 warrants remained outstanding with an exercise price of $23.00 per share. The warrants expire on April 12, 2023.

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 to 12,600,000.

Interim Condensed Consolidated Statements of Shareholders’ Deficit

The changes in interim balances of the components of our shareholders’ deficit are as follows:

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)

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)

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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.

In July 2021, annual stock option grants exercisable for a total of approximately 2.1 million shares of common stock were awarded to eligible participants for the 2020 annual performance period. The options have an exercise price of $14.99 per share and vest monthly on a straight-line basis over four years.

Stock-based compensation expense is as follows:

    

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

(In thousands)

Research and development

$

1,410

$

1,631

$

2,890

$

3,078

Selling, general and administrative

 

1,707

 

2,191

 

3,498

 

4,220

Total

$

3,117

$

3,822

$

6,388

$

7,298

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were applied to all stock option grants:

    

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2021

Estimated weighted-average fair value

$

11.29

$

12.79

Weighted-average assumptions:

 

 

Expected volatility

 

81

%  

 

81

%

Expected life, in years

 

6.1

 

6.1

Risk-free interest rate

 

0.98

%  

 

0.89

%

Expected dividend yield

 

%  

 

%

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

    

    

Weighted- 

    

    

Average 

Aggregate 

Exercise 

Remaining 

Intrinsic 

Options 

Price per 

Contractual Life 

Value 

Outstanding

Share

(In years)

(In thousands)

Balance at December 31, 2020

 

11,938,528

$

11.92

 

  

 

  

Granted

 

307,450

 

18.53

 

  

 

  

Exercised

 

(794,808)

 

9.40

 

  

 

  

Forfeited

 

(135,617)

 

15.42

 

  

 

  

Balance at June 30, 2021

 

11,315,553

$

12.24

 

5.7

$

33,730

Vested and expected to vest at June 30, 2021

 

11,019,841

$

12.20

 

5.6

$

33,217

Exercisable at June 30, 2021

 

8,719,802

$

11.82

 

4.9

$

29,075

As of June 30, 2021, there were 2.6 million unvested options outstanding that will vest over a weighted-average period of 2.3 years. The total estimated compensation expense yet to be recognized on outstanding options is $20.2 million.

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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 biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers.

Our drug product OMIDRIA® is marketed in the United States for use during cataract surgery or intraocular lens replacement for adult and pediatric patients. Our drug candidate narsoplimab is the subject of a biologics license application (“BLA”) under priority review by the U.S. Food and Drug Administration (“FDA”) for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”). 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. We have also initiated a Phase 1 clinical program for our MASP-3 inhibitor OMS906 targeting the alternative pathway of complement and have successfully completed a Phase 1 study in our phosphodiesterase 7 (“PDE7”) program focused on addiction. In addition, we 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 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 of our product candidates 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 pre-clinical 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 local governmental responses across the U.S.

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

OMIDRIA is approved by FDA for use during cataract surgery or intraocular lens 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 OMIDRIA in the European Economic Area (“EEA”) for use 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. Sales of OMIDRIA within the EEA or other international territories have not been significant.

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 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

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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 allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B. In March 2018, Congress extended pass-through reimbursement status for OMIDRIA through September 30, 2020 when used during procedures performed on Medicare Part B fee-for-service patients. Pass-through reimbursement for OMIDRIA 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 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. CMS’ OPPS and ASC Payments Systems proposed rule for calendar year 2022 was released in July 2021 and reconfirmed this policy. CMS is expected to adopt the final rule in late 2021.

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 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. On May 19, 2021, following our response to an information request, FDA informed us that it had extended its initial review period and that the new action date under the Prescription Drug User Fee Act (“PDUFA”) is October 17, 2021. 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 in a nationwide, late-stage adaptive platform trial and 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 drug designation for the treatment of HSCT-TMA. The EC also granted narsoplimab a designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation.
IgA nephropathy: In the U.S., narsoplimab has received from the FDA (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.

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

In the EU, the EMA has confirmed narsoplimab’s eligibility for EMA’s centralized review of a single marketing authorization application (“MAA”) that, if approved, would authorize the product to be marketed in all EU member states and EEA countries. We are targeting to complete our MAA submission in 2021.

In our IgA nephropathy program, patient enrollment continues in the narsoplimab Phase 3 clinical trial, ARTEMIS-IGAN. 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 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 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., 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 or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.

The 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 approval in the EU and accelerated approval in the U.S. and, as required by FDA, approximately 80 total patients for full approval in the U.S. The trial includes multiple sites in the U.S., Asia and Europe, though 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 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

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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 10 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 platform trial sponsored by Quantum Leap Healthcare Collaborative, which is evaluating investigational therapies for the treatment of critically ill COVID-19 patients. The trial utilizes Quantum Leap Healthcare Collaborative's adaptive platform trial design, which is intended to increase trial efficiency by minimizing the number of participants and time required to evaluate potential treatments.

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-3 - OMS906 - Alternative Pathway Disorders. As part of our MASP program, we have identified mannan-binding lectin-associated serine protease-3 (“MASP-3”), which has been shown to be the key activator of the complement system’s alternative pathway (“APC”), and we believe that we are the first to make this and related discoveries associated with the APC. 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 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: 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.

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In September 2020 we began enrollment and dosing in 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 completed dosing all of the intravenous dosing cohorts and three subcutaneous dosing cohort in the single-ascending dose study and reported preliminary data from the Phase 1 trial in June 2021.

PDE7 - OMS527. In our PDE7 program, we are developing proprietary compounds to treat addiction and compulsive disorders as well as 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 of our lead 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 subject to allocation of financial and other resources, which are currently prioritized for other programs.

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