# Omeros Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Omeros Corp](/companies/omer.md) (CIK 1285819)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:06 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031250
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1285819/000143774923031250/omer20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1285819/000143774923031250/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $31.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $86.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $16.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $38.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$48.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$124.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $7.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $23.8m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$37.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$108.7m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.60 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.73 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $109.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $308.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $30.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $351.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $493.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $147.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $316.7m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | −$14.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,867 characters.

*The following discussion and analysis of our financial condition and results of operations 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 and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 13, 2023 and amended by Amendment No. 1 thereto, which was filed with the Securities and Exchange Commission (the "SEC") on May 1, 2023. In addition, you should read the section entitled “Risk Factors” and the disclaimers regarding forward-looking statements included herein and in our Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of important factors that could cause our results to differ materially from the results described in or implied by any forward-looking statements contained herein.*

### Overview

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

#### Complement Programs: Lectin Pathway / MASP-2

The lead drug candidate in our pipeline of complement-targeted therapeutics is narsoplimab (OMS721), a proprietary, patented human monoclonal antibody targeting mannan-binding lectin-associated serine protease 2 (“MASP-2”), the key activator of the lectin pathway of complement. Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“HSCT-TMA”).

We successfully completed a pivotal clinical trial for narsoplimab in HSCT-TMA and previously submitted to the U.S. Food and Drug Administration (“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 based on both response data and survival data from the completed pivotal trial versus a historical control group, or based on survival data alone. Consistent with subsequent interactions with FDA’s review division regarding resubmission of the BLA, we have submitted to FDA a formal analysis plan to assess already existing clinical trial data and certain existing external data, and we plan to include these analyses in a resubmitted BLA. We are currently awaiting FDA’s feedback on the formal analysis plan and, assuming the agency’s feedback is favorable, we intend to conduct the requisite analyses and, if results are positive, resubmit the BLA as expeditiously as possible. Assuming we reach agreement with FDA on our formal analysis plan in a single round of discussions then, allowing for FDA review time on a resubmitted BLA, we currently estimate that an approval decision on narsoplimab in HSCT-TMA could be rendered by FDA in mid-2024. There can be no guarantee that the specific requirements for resubmission, when determined through interaction with the FDA review division, will be satisfactory in terms of the time and/or expenditure required, that any new analyses conducted will result in favorable data, or that any resubmission of the BLA will result in approval of narsoplimab for HSCT-TMA.

In October 2023, we announced the result of the pre-specified interim analysis of our Phase 3 ARTEMIS-IGAN trial evaluating narsoplimab for the treatment of immunoglobulin A (“IgA”) nephropathy. The primary endpoint is reduction in proteinuria assessed by 24-hour urine protein excretion ("UPE") at 36 weeks compared to placebo in the intent-to-treat population of 180 IgA nephropathy patients with high baseline proteinuria (24-hour UPE \> 2 g/day). Topline results of the interim analysis showed that narsoplimab did not achieve statistically significant improvement over placebo on the proteinuria endpoint. The proteinuria reduction in the placebo group was markedly greater than that reported in Phase 3 clinical trials of other agents in IgA nephropathy. Based on the absence of statistical significance and as previously agreed with FDA, we determined not to submit an application for approval of narsoplimab in this indication and the ARTEMIS-IGAN clinical trial has been discontinued.

We are also developing OMS1029, a long-acting, next-generation antibody targeting MASP-2 and the lectin pathway. Dosing of all cohorts in a single-ascending dose Phase 1 clinical trial of OMS1029 was successfully completed in early 2023. OMS1029 was well tolerated with no safety concerns identified. Preliminary pharmacokinetic (“PK”) and pharmacodynamic (“PD”) data show dose-proportional exposure and sustained lectin pathway inhibition, consistent with potentially quarterly intravenous or subcutaneous dosing. Dosing has been completed in the first cohort of our ongoing Phase 1 multiple-ascending-dose study of OMS1029 in healthy subjects. A Phase 2 program is expected to begin in mid-2024.

#### Complement Programs: Alternative Pathway / MASP-3

Our pipeline of clinical-stage complement-targeted therapeutic candidates also includes OMS906, a proprietary, patented monoclonal antibody targeting mannan-binding lectin-associated serine protease 3 (“MASP-3”), the key activator of the alternative pathway of complement. We believe OMS906 has the potential to treat a wide range of alternative pathway-related diseases and that its attributes favorably differentiate OMS906 from other marketed and in-development alternative pathway inhibitors. Clinical development of OMS906 is currently ongoing in multiple alternative pathway-related disorders, including complement 3 glomerulopathy (“C3G”), a rare chronic kidney disease, and paroxysmal nocturnal hemoglobinuria (“PNH”), a rare and life-threatening hemolytic blood disorder.

In June 2023, results from a pre-specified interim analysis of our ongoing clinical trial of OMS906 in complement-inhibitor-naïve adults with PNH were presented at the 2023 congress of the European Hematology Association and updated interim analysis data from this study are scheduled for podium presentation at the 2023 annual meeting of the American Society of Hematology in December. Both presentations report statistically significant and clinically meaningful improvements in all measured markers of hemolysis, including hemoglobin and lactate dehydrogenase. No patients were reported to have had a clinical breakthrough of PNH or a thrombotic event, and none were reported to require a transfusion while receiving OMS906 treatment. Enrollment is now complete and dosing is ongoing in our Phase 2 clinical trial evaluating OMS906 in PNH patients who have had an unsatisfactory response to the C5 inhibitor ravulizumab. We are initiating an open-label extension study to assess the long-term efficacy and safety of OMS906 in patients with PNH. In the extension study, patients who have completed a previous PNH study evaluating OMS906 will roll directly into the extension study without a break in OMS906 treatment. Data from this study will contribute to a planned BLA for OMS906 in the treatment of PNH. Based on PK data from a successful Phase 1 single-ascending-dose study of OMS906 in healthy subjects and interim data from our ongoing clinical trials in PNH patients, we are expecting a dosing frequency of once quarterly for the Phase 3 studies and commercialization.

Enrollment in our Phase 2 clinical program evaluating OMS906 in patients with C3G is also ongoing. Initiation of Phase 3 clinical programs for OMS906 in PNH and C3G are targeted for the third quarter of 2024.

#### PDE7 Inhibitor Program

Our development pipeline also includes OMS527, our phosphodiesterase 7 (“PDE7”) inhibitor program focused on addiction and movement disorders. In April 2023, we were awarded a grant from the National Institute on Drug Abuse, part of the National Institutes of Health, to develop 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”). The grant amount, a total of $6.69 million over three years, 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. We expect the preclinical studies to begin in early 2024. Additionally, with investigators at Emory University, we are also evaluating OMS527 as a potential treatment for levodopa-induced dyskinesias, a common and debilitating side effect of long-term levodopa dosing in patients with Parkinson’s disease.

#### Pre-clinical Programs

We also have a diverse group of preclinical programs, including five immuno-oncology platforms directed to development of novel adoptive T cell/CAR-T therapies and novel immunotherapeutics and cancer vaccines.

#### OMIDRIA

We previously developed and commercialized OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1%/0.3%, which is approved by FDA for use during cataract surgery or intraocular lens (“IOL”) replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain. We marketed OMIDRIA in the United States (the “U.S.”) from the time of its commercial launch in 2015 until December 2021.

On December 23, 2021, we sold our commercial product OMIDRIA and certain related assets, including inventory and prepaid expenses to Rayner Surgical Inc. (“Rayner”). Rayner paid us $126.0 million in cash at the closing and we retained all outstanding accounts receivable, accounts payable, and accrued expenses as of the closing date.

Under the Asset Purchase Agreement with Rayner (the “Asset Purchase Agreement”), we were entitled to receive a milestone payment of $200.0 million (the “Milestone Payment”) within 30 days following an event (the “Milestone Event”) that establishes separate payment for OMIDRIA for a continuous period of at least four years when furnished in the ambulatory surgery center (“ASC”) setting. The Milestone Event occurred in December 2022 and we recorded a $200.0 million milestone receivable. We received the Milestone Payment together with accrued interest in February 2023.

Under the Asset Purchase Agreement, the occurrence of the Milestone Event in December 2022 triggered a reduction in the U.S. royalty rate from 50% to 30% on OMIDRIA net sales until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2033. Upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for separate payment (i.e., included in the packaged payment rate for the surgical procedure) under Medicare Part B, the U.S. base royalty rate would be reduced to 10%. Pursuant to legislation enacted in late 2022, we expect separate payment for OMIDRIA under Medicare Part B to extend until at least January 1, 2028.

On September 30, 2022, we sold to DRI Healthcare Acquisitions LP (“DRI”) an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration, which we recorded as a liability on our condensed consolidated balance sheet. The liability is being amortized over the term of the arrangement using the implied effective interest rate of 9.4%. Interest expense is recorded as a component of continuing operations. As of September 30, 2023, the maximum future payout that DRI is entitled to receive through the remaining term of the agreement is $177.0 million. The term of the agreement with DRI runs through December 31, 2030, and our payments to DRI will not total $125.0 million until August 2028 at the earliest.

### Financial Summary

Our loss for the three and nine months ended September 30, 2023 was $37.8 million and $108.7 million, respectively. As of September 30, 2023, we had cash, cash equivalents and short-term investments of $310.3 million available to fund operations and debt service. On November 15, 2023, we have a $95.0 million principal payment due at maturity on our 2023 unsecured convertible senior notes (the "2023 Notes") which we expect to pay at maturity from our existing cash and investments on hand. Our cash provided by operations for the nine months ended September 30, 2023 was $109.6 million which includes the collection of our $200.0 million Milestone Payment.

### Results of Operations

#### Research and Development Expenses

Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development and preclinical research and development activities; internal, overhead and other expenses; and stock-based compensation expense. Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing organizations prior to receiving regulatory approval for a drug candidate, contract research organizations (“CROs”), clinical trial sites, collaborators, and licensors and consultants. Pre-clinical research and development includes costs prior to beginning Phase 1 studies in human subjects. Internal, overhead and other expenses primarily consist of costs for personnel, overhead, rent, utilities and depreciation. The following table illustrates our expenses associated with these activities:

*(In thousands)*

| ​ ​ ​ ​ Research and development expenses: Direct external expenses: Clinical research and development: | Three Months Ended September 30, 2023 ​ ​ | 2022 ​ ​ | Nine Months Ended September 30, 2023 ​ ​ | 2022 ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| MASP-2 program - OMS721 (narsoplimab) | $8,643 | $23,097 | $27,566 | $40,839 |
| MASP-3 program - OMS906 | 9,246 | 2,015 | 17,037 | 3,997 |
| MASP-2 program - OMS1029 | 1,108 | 1,502 | 3,818 | 1,502 |
| Other | 46 | 171 | 122 | 389 |
| Total clinical research and development | 19,043 | 26,785 | 48,543 | 46,727 |
| Preclinical research and development | 1,046 | 1,125 | 3,488 | 6,374 |
| Total direct external expenses | 20,089 | 27,910 | 52,031 | 53,101 |
| Internal overhead and other expenses | 10,337 | 8,986 | 30,239 | 28,294 |
| Stock-based compensation expenses | 1,305 | 1,672 | 3,710 | 4,777 |
| Total research and development expenses | $31,731 | $38,568 | $85,980 | $86,172 |

For the three months ended September 30, 2023, clinical research and development expenses decreased $7.7 million compared to the prior year quarter due primarily to decreased narsoplimab clinical manufacturing in the current year quarter. This decrease was partially offset by a $5.0 million payment made to a third-party licensor in connection with achievement of a development milestone in our OMS906 program, as well as increasing drug manufacturing costs to support our OMS906 clinical trials.

Clinical research and development expenses for the nine months ended September 30, 2023 increased $1.8 million compared to the same period in the prior year primarily due to the $5.0 million OMS906 development milestone and the transition of OMS1029 from preclinical to clinical research and development upon the initiation of human trials. This was partially offset by decreased narsoplimab clinical manufacturing costs during the current year period.

Preclinical research and development expenses decreased $0.1 million and $2.9 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022, due primarily to the transitioning of OMS1029 from preclinical research and development to clinical research and development during the third quarter of 2022.

Internal overhead and other expenses increased $1.4 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022, due to additional employee-related costs. The increase over the nine-month periods was partially offset by the recognition of an employee retention tax credit from the Internal Revenue Service in the first quarter of 2023.

The $0.4 million and $1.1 million decreases in stock-based compensation expenses for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in the prior year were primarily due to the valuation and timing of the vesting of employee stock options.

During the fourth quarter, we will incur various costs associated with the termination of the ARTEMIS-IGAN trial. We expect research and development expenses in the fourth quarter of 2023 to be similar to the third quarter of this year.

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

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

#### Selling, General and Administrative Expenses

*(In thousands)*

| ​ ​ ​ ​ Selling, general and administrative expenses: | Three Months Ended September 30, 2023 ​ | 2022 ​ | Nine Months Ended September 30, 2023 ​ | 2022 ​ |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses, excluding stock-based compensation expense | $14,368 | $9,998 | $33,329 | $30,909 |
| Stock-based compensation expense | 2,054 | 2,200 | 5,456 | 6,170 |
| Total selling, general and administrative expenses | $16,422 | $12,198 | $38,785 | $37,079 |

For the three months ended September 30, 2023, selling, general and administrative costs excluding stock-based compensation expense increased $4.4 million compared to the prior year quarter primarily due to a non-recurring employee compensation expense.

For the nine months ended September 30, 2023, selling, general and administrative costs excluding stock-based compensation expense, increased $2.4 million compared to the prior year period due primarily to a non-recurring employee compensation expense, partially offset by both an employee retention tax credit taken in the first quarter related to the CARES Act and decreased patent and marketing costs associated with our HSCT-TMA program.

The $0.1 million and $0.7 million decreases in stock-based compensation expense for the three and nine months ended September 30, 2023 compared to the same periods in the prior year were primarily due to the valuation and timing of the vesting of employee stock options.

We expect selling, general and administrative expenses in the fourth quarter of 2023 to return to historical levels.

#### Interest Expense

*(In thousands)*

| ​ ​ ​ ​ | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $7,916 | $4,932 | $23,781 | $14,799 |

Interest expense is primarily comprised of interest and amortization of debt discount and issuance costs related to our unsecured convertible senior notes and interest on our DRI royalty obligation (see “Note 7 - Unsecured Convertible Senior Notes” and “Note 8 – OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q). The $3.0 million and $9.0 million increases in interest expense between the three and nine months ended September 30, 2023 and 2022 were primarily due to interest expense on our OMIDRIA royalty obligation, which we entered in September 2022.

We expect that interest expense for the fourth quarter of 2023 to be lower than the third quarter of this year due to the repayment at maturity of our $95.0 million of outstanding 2023 Notes on November 15, 2023.

#### Interest and Other Income

*(In thousands)*

| ​ ​ ​ ​ | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest and other income | $4,413 | $906 | $12,913 | $2,069 |

Interest and other income increased $3.5 million and $10.8 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022, due to holding higher average cash and investment balances than in the prior year as a result of receiving a $200.0 million Milestone Payment from Rayner in February 2023.

We expect interest and other income for the fourth quarter of 2023 to be less than the third quarter of this year due to a reduction in our overall cash and investments available to invest upon the repayment at maturity of the $95 million outstanding principal on our 2023 Notes.

#### Discontinued operations and OMIDRIA contract royalty asset

Net income from OMIDRIA discontinued operations, net of tax is shown below:

*(In thousands)*

| ​ ​ ​ ​ | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest earned on OMIDRIA contract royalty asset | $3,730 | $4,356 | $11,484 | $13,739 |
| Remeasurement adjustments | 10,100 | 32,917 | 14,924 | 40,631 |
| Other income, net | 76 | 63 | 480 | 295 |
| Net income from discontinued operations, net of tax | $13,906 | $37,336 | $26,888 | $54,665 |

Interest is earned on the OMIDRIA contract royalty asset at an implied effective interest rate of 11.0%. The $0.6 million and $2.3 million reductions in interest earned for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 were due to a decrease in the balance of the OMIDRIA contract royalty asset during the respective periods.

The remeasurement adjustments for the three and nine months ended September 30, 2023 decreased by $22.8 million and $25.7 million, respectively, as compared to the corresponding prior year periods. The primary reason for the decrease was due to adjusting the OMIDRIA contract royalty asset in the third quarter of 2022 to reflect an increase in expected future OMIDRIA royalties based on actual sales results.

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

|  |  |
| --- | ---: |
| OMIDRIA contract royalty asset at December 31, 2022 | $152,222 |
| Royalties earned | (29,900) |
| Interest earned on OMIDRIA contract royalty asset | 11,484 |
| Remeasurement adjustments | 14,924 |
| OMIDRIA contract royalty asset at September 30, 2023 | $148,730 |

The occurrence of the Milestone Event in December 2022 triggered a reduction in the royalty rate applicable to U.S. net sales of OMIDRIA from 50% to 30%.

### Financial Condition - Liquidity and Capital Resources

As of September 30, 2023, we had cash, cash equivalents and short-term investments of $310.3 million. Our loss for the three and nine months ended September 30, 2023 was $37.8 million and $108.7 million, respectively, and our cash provided by operations for the nine months ended September 30, 2023 was $109.6 million. Cash provided by operations includes collection of the $200.0 million Milestone Payment.

We have $95.0 million principal outstanding related to the 2023 Notes which mature and become due on November 15, 2023. We plan to repay the 2023 Notes from our existing cash and investments on hand. From time to time, we may repurchase our outstanding 2026 Notes in the open market or through privately negotiated transactions. In addition, on November 9, 2023, the Board of Directors approved an indefinite term share repurchase program under which we may repurchase from time to time up to $50.0 million of our common stock in the open market or through privately negotiated transactions.

Historically, we have incurred net losses from continuing operations and negative operating cash flows. We have not yet established an ongoing source of revenue sufficient to cover our operating costs; therefore, we would need to continue to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in 2026. We plan to continue to fund our operations for at least the next twelve months with our existing cash, investments and royalties from Rayner. We have a sales agreement in place for an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $150.0 million. Should it be determined to be strategically advantageous, we could also pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technologies. Should it be necessary to manage our operating expenses, we could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

#### Cash Flow Data

*(In thousands)*

| ​ ​ ​ ​ Selected cash flow data Cash provided by (used in): | Nine Months Ended September 30, 2023 ​ ​ | 2022 ​ ​ |
| --- | ---: | ---: |
| Operating activities | $109,551 | $(61,101) |
| Investing activities | $(88,789) | $(19,073) |
| Financing activities | $(1,131) | $124,899 |

-27-

*Operating Activities.* Net cash provided by operating activities for the nine months ended September 30, 2023 increased by $170.7 million as compared to the same period in 2022. The increase was primarily due to a $182.0 million decrease in receivables due to the collection of our $200.0 million Milestone Payment and a $15.3 million change in accounts payable, accrued expenses and other. This was offset by a $27.4 million increase in net loss, a $17.7 million change in OMIDRIA Rayner royalties receivables and $19.3 million of non-cash charges.

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

Net cash used in investing activities for the nine months ended September 30, 2023 increased $69.7 million compared to the prior year period, due to net purchases of short-term investments outweighing proceeds from sales and maturities. Investment activities during 2023 included receipt and investing of the $200.0 million Milestone Payment from Rayner and the $125.0 million we received from DRI related to the sale of a portion of our future OMIDRIA royalties. In the prior year period, net purchases of short-term investments included investing the proceeds from the sale of OMIDRIA to Rayner.

*Financing Activities.* Net cash used in financing activities during the nine months ended September 30, 2023 increased $126.0 million compared to the same period in 2022 This was primarily due to the $125.0 million we received from DRI related to the sale of a portion of our future OMIDRIA royalties in September 2022.

### Contractual Obligations and Commitments

Our future minimum contractual commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2022. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported. See “Note 10 – Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

#### Operating Leases

Our lease for our office and laboratory space ends in November 2027. We have two options to extend the lease term by five years each. In addition, we carry various finance lease obligations for laboratory equipment. As of September 30, 2023, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $28.6 million.

#### Convertible Notes

See “Note 7 – Unsecured Convertible Senior Notes” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

#### OMIDRIA Royalty Obligation

See “Note 8 – OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

#### Goods and Services Contracts, Development Milestones and Product Royalties

See “Note 10 – Commitment and Contingencies” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Significant Judgments and Estimates

There have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 13, 2023.

## Market risk

As filed, 1,187 characters.

Our exposure to market risk is primarily confined to our investment securities. The primary objective of our investment activities is to preserve our capital to fund operations, and we do not enter into financial instruments for trading or speculative purposes. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-quality securities. As of September 30, 2023, we had cash, cash equivalents and short-term investments of $310.3 million. In accordance with our investment policy, we invest funds in highly liquid, investment-grade securities. These securities in our investment portfolio are not leveraged and are classified as available-for-sale. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a materially negative impact on the realized value of our investment portfolio. We actively monitor changes in interest rates and, with our current portfolio of short-term investments, we are not exposed to potential loss due to changes in interest rates.

## Controls and procedures

As filed, 1,310 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2023. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

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

## Risk factors

As filed, 1,035 characters.

We operate in an environment that involves a number of risks and uncertainties. Before making an investment decision you should carefully consider the risks described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 13, 2023. In assessing the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, you should also refer to the other information included therein and in this Quarterly Report on Form 10-Q. In addition, we may be adversely affected by risks that we currently deem to be immaterial or by other risks that are not currently known to us. Due to these risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031250. Last ingested by Listed: Oct 30, 2026, 17:13 ET. No prices; not investment advice.