Omeros Corporation

201 1

 ANNUAL REPORT

F O C U S . 
D E P T H . 
PEOPLE .

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 COMBINING THE STRENGTH AND DIVERSITY of our pipeline 
with world-class science and drug development, Omeros is 
creating multiple opportunities for commercial success.

DEAR SHAREHOLDERS, 2011 marked the beginning of Omeros’ transformation into a commercial-stage 
biopharmaceutical company. Early in the year, we announced that OMS302, our PharmacoSurgery™ drug 
product for intraocular lens replacement (ILR) surgery, successfully completed a Phase 2b clinical trial. 
OMS302 provided clinically meaningful and statistically significant results – maintenance of intraoperative 
mydriasis (pupil dilation) and reduction of early postoperative pain. 

Following that success, in October we began enrolling patients in the first of two planned Phase 3 
clinical trials evaluating OMS302 in ILR surgery. In a span of only five months, we completed enrollment 
of over 400 patients and again announced positive results. The second Phase 3 trial is now underway. 
Like the initial Phase 3 clinical trial, the current trial will enroll approximately 400 patients undergoing 
cataract surgery or refractive lens exchange. Randomized, double-blind, placebo-controlled and 
multicenter, it will evaluate the same efficacy and safety measures as the earlier successful Phase 2b 
and Phase 3 clinical trials. Data are expected in the second half of this year. Assuming positive results, 
we plan to submit marketing applications to U.S. and European regulators during the first part of 2013, 
setting the stage for the commercial launch of OMS302 in 2014. 

Our Phase 3 clinical program evaluating OMS103HP in patients undergoing arthroscopic partial 
meniscectomy surgery also began in 2011. Data from the first of two planned clinical trials in this program 
are expected in the second half of 2012. With both co-lead PharmacoSurgery™ drug products in Phase 3 
clinical programs, Omeros continues to build on these near-term opportunities for commercial success.  

Our PDE10, PDE7, MASP-2 and Plasmin programs made substantial progress, and we currently plan to 
advance each into the clinic over the next 15 months. The Phase 1 program evaluating our PDE10 inhibitor 
for the treatment of schizophrenia and cognitive disorders is slated to initiate enrollment and report data 
later this year. Having discovered the link between PDE7 and any movement disorder as well as any form 
of addiction, we now expect our PDE7 inhibitor to enter the clinic shortly behind our PDE10 program 
and will initially target cocaine addiction. Omeros controls the worldwide rights to MASP-2, an important 
protein in the immune-related complement system, and our MASP-2 antibody, planned for clinic entry 
in the first part of 2013, will focus first on the orphan disease atypical hemolytic uremic syndrome. Our 
plasmin inhibitor, targeting high-risk surgical bleeding, could also generate clinical data in mid-2013. 
With favorable drug-product profiles and lucrative markets, each of these four programs provides 
Omeros with significant opportunities for further commercial success.

2011 also brought unprecedented achievements in our GPCR program.  With the $25.0 million funding 
commitment that we received in late 2010 from Vulcan Capital and the Life Sciences Discovery Fund, 
to date we have identified functionally active compounds for over 40% of the 81 Class A orphan GPCRs, 
unlocking them for drug development either by us or our partners. These receptors are linked to a wide 
range of indications, including metabolic, cardiovascular, inflammatory and central nervous system 
disorders as well as multiple types of cancer. In parallel, we are advancing our intellectual property 
strategy to establish exclusive positions around each of these unlocked GPCRs. We believe that our 
discoveries in this program, together with our intellectual property strategy, provide us with a series 
of opportunities to build significant additional value.

Omeros’ achievements in 2011 have set us squarely on the path to become a commercial-stage 
biopharmaceutical company with a pipeline poised to drive both near- and long-term value growth. 
These achievements are due, in good part, to the hard work and determination of our devoted employees, 
the efforts of the investigators and patients who participated in our clinical trials and, of course, the 
commitment of our shareholders – their respective contributions are recognized and appreciated. 
On behalf of our board of directors, I would like to thank each of you for your continued support 
as, together, we advance to realize our shared vision for Omeros. 

Sincerely,

Gregory A. Demopulos, M.D.
Chairman & Chief Executive Officer

 
 
FORM 10-K
2012

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
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
(State or other jurisdiction
of incorporation or organization)
1420 Fifth Avenue, Suite 2600
Seattle, Washington
(Address of principal executive offices)

91-1663741
(I.R.S. Employer
Identification Number)

98101
(Zip Code)

(206) 676-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value per share
(Title of each class)

The NASDAQ Stock Market LLC
(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ‘ No È

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ‘ No È

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 È No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company)

È
Accelerated filer
Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last
business day of the registrant’s most recently completed second fiscal quarter was $80,385,917. Shares of voting stock held by each
officer and director and by each person who, to the registrant’s knowledge, owns 5% or more of the outstanding voting stock (as
publicly reported by such persons pursuant to Section 13 and Section 16 of the Securities Exchange Act of 1934) have been
excluded in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.

As of March 7, 2012, 22,433,697 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement with respect to the 2012 Annual Meeting of Shareholders to be held
June 1, 2012, which is to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended
December 31, 2011, are incorporated by reference into Part III of this Form 10-K.

OMEROS CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011
INDEX

PART I
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . .
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
ITEM 9.
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12.
AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

ITEM 14.

INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Page

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PART I

This Annual Report on Form 10-K contains forward-looking statements reflecting our current expectations
that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-
looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and
elsewhere in this Annual Report. Please refer to the special note regarding forward-looking statements at the end
of Item 1 of this Annual Report on Form 10-K for further information.

ITEM 1.
Overview

BUSINESS

We are a clinical-stage biopharmaceutical company committed to discovering, developing and

commercializing products targeting inflammation, coagulopathies and disorders of the central nervous system.
Our most clinically advanced product candidates are derived from our proprietary PharmacoSurgeryTM platform
designed to improve clinical outcomes of patients undergoing ophthalmological, arthroscopic, urological and
other surgical and medical procedures. Our PharmacoSurgery platform is based on low-dose combinations of
therapeutic agents delivered directly to the surgical site throughout the duration of the procedure to preemptively
inhibit inflammation and other problems caused by surgical trauma and to provide clinical benefits both during
and after surgery. We currently have four ongoing clinical development programs, including three from our
PharmacoSurgery platform and one from our addiction franchise. In addition, we have a deep and diverse
pipeline of preclinical programs as well as a platform capable of unlocking new drug targets. For each of our
product candidates and programs, we have retained all manufacturing, marketing and distribution rights.

Our Product Candidates and Development Programs

Our clinical product candidates and pipeline of development programs consist of the following:

Program

Clinical Programs

Targeted
Procedure/Disease

Development Status

Next Expected
Milestone

Worldwide
Rights

OMS302 –

Ophthalmology

Intraocular Lens Replacement
Surgery

Phase 3

Arthroscopic Meniscectomy

Phase 3

Announce Results from
Second Phase 3 Trial

Announce Results from
First Phase 3 Trial

Omeros

Omeros

Ureteroscopy

Phase 1/2

Design Phase 2 Trial

Omeros

Opioid, Nicotine and Alcohol
Addiction

Phase 2

Complete Phase 2
Trials

Omeros

Schizophrenia/Cognitive
Disorders

Preclinical

Initiate Phase 1 Trial

Omeros

OMS103HP –
Arthroscopy

OMS201 –
Urology

PPARγ (OMS403)

Preclinical

Programs

PDE10 (OMS824)

PDE7 (OMS527)

Addictions and Compulsive
Disorders; Movement Disorders

Preclinical

Initiate Phase 1 Trial

MASP2

(OMS721)

Plasmin

(OMS616)

aHUS, PNH, AMD, Transplant,
Ischemia Reperfusion Injury

Surgical and Traumatic
Bleeding

Preclinical

Initiate Phase 1 Trial

Preclinical

Initiate Phase 1 Trial

GPCR Program

Multiple Disorders

Platform

Continue Drug
Discovery For Orphan
GPCRs

Omeros
(Compounds
In-licensed)

Omeros
(In-licensed)

Omeros
(In-licensed)

Omeros

1

Clinical Programs

PharmacoSurgery™ Platform

Current standards of care for the management and treatment of surgical trauma are limited in effectiveness.

Surgical trauma causes a complex cascade of molecular signaling and biochemical changes, resulting in
inflammation, pain, spasm, loss of function and other problems. As a consequence, multiple pharmacologic
actions are required to manage the complexity and inherent redundancy of the cascade. Accordingly, we believe
that single-agent treatments acting on single targets do not result in optimal therapeutic benefit. Further, current
pre-operative treatments are not optimally effective because the administration of standard irrigation solution
during the surgical procedure washes out pre-operatively delivered drugs. In addition, current postoperative
therapies are not optimally effective because the cascade and resultant inflammation, pain, spasm, loss of
function and other problems have already begun and are difficult to reverse and manage after surgical trauma has
occurred. Also, drugs that currently are delivered systemically to target these problems, such as by oral or
intravenous administration, are frequently associated with adverse side effects.

In contrast, we generate from our PharmacoSurgery platform proprietary product candidates that are
combinations of therapeutic agents designed to act simultaneously at multiple discrete targets to preemptively
block the molecular-signaling and biochemical cascade caused by surgical trauma and to provide clinical benefits
both during and after surgery. Supplied in pre-dosed, pre-formulated, single-use containers, our
PharmacoSurgery product candidates are added to standard surgical irrigation solutions and delivered intra-
operatively to the site of tissue trauma throughout the surgical procedure. This results in the delivery of low
concentrations of agents with minimal systemic uptake and reduced risk of adverse side effects, and does not
require a surgeon to change his or her operating procedure. In addition to ease of use, we believe that the clinical
benefits of our product candidates could provide surgeons a competitive marketing advantage and may facilitate
third-party payor acceptance, all of which we expect will drive adoption and market penetration. Our current
PharmacoSurgery product candidates are specifically comprised of active pharmaceutical ingredients, or APIs,
contained in generic drugs already approved by the U.S. Food and Drug Administration, or FDA, with
established profiles of safety and pharmacologic activities, and are eligible for submission under the potentially
less-costly and time-consuming Section 505(b)(2) New Drug Application, or NDA, process.

OMS302—Ophthalmology

Background. OMS302 is our product candidate being developed for use during intraocular lens replacement,

or ILR, surgery, including cataract and other lens replacement surgery. OMS302 is a proprietary combination of
ketorolac, an anti-inflammatory API, and phenylephrine, a mydriatic API. FDA-approved drugs containing each
of these APIs have been used in ophthalmological clinical practice for more than 15 years, and both APIs are
contained in generic, FDA-approved drugs.

Cataract and other lens replacement surgery involves replacement of the original lens of the eye with an
artificial intraocular lens. These procedures are typically performed to replace a lens opacified by a cataract or to
correct a refractive error of the lens. OMS302 is added to standard irrigation solution used in ILR and delivered
intracamerally to maintain intraoperative mydriasis, to prevent surgically induced miosis, and to reduce
postoperative pain and irritation. Mydriasis is essential for these procedures and, if not maintained throughout the
surgical procedure or if miosis occurs, risk of damaging structures within the eye increases as does the operating
time required to perform the procedure.

Clinical Trial Results. OMS302 has been evaluated in Phase 1/Phase 2, Phase 2b and Phase 3 clinical trials,

in subjects undergoing cataract extraction and lens replacement procedures and refractive lens exchange. In the
double-blind Phase 1/Phase 2 trial, 61 subjects were randomized to receive one of three treatments: (1) OMS302,
(2) phenylephrine alone, or (3) vehicle control. Subjects were monitored for intraoperative pupil diameter and
postoperative pain and inflammation for 14 days. Although this was an exploratory trial, subjects treated with
either OMS302 or phenylephrine demonstrated statistically significant improvement in maintenance of mydriasis
compared to patients treated with vehicle control. OMS302-treated subjects reported less postoperative pain than

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patients treated with either phenylephrine or vehicle control. OMS302 was well tolerated with no serious adverse
events and no discontinuations due to adverse events. The type and number of adverse events were similar across
all treatment groups.

The Phase 2b trial was a multicenter, randomized, double-blind, vehicle-controlled clinical trial that
included 221 patients. To achieve the trial’s full-factorial design, patients were randomized into one of four
parallel treatment groups. The first arm (n=55) received OMS302, the second arm (n=55) received only
phenylephrine, the third arm (n=54) received only ketorolac and the fourth arm (n=57) received standard
irrigation solution without drug. The co-primary endpoints of the trial included maintenance of mydriasis (pupil
dilation) and reduction of postoperative ocular pain. The OMS302 group demonstrated statistically significant
maintenance of mydriasis over both ketorolac- (p<0.0001) and vehicle-treated (p<0.0001) groups. OMS302 was
also statistically significantly superior in preventing clinically meaningful miosis when compared to each of the
other three treatment arms (p=0.0005 vs. ketorolac, p=0.0404 vs. phenylephrine and p<0.0001 vs. vehicle).
Similarly, the OMS302-treated group demonstrated a statistically significant reduction in pain compared with
both phenylephrine- (p=0.0089) and vehicle-treated (p=0.0418) groups. All of these analyses are intent-to-treat.
These results demonstrate that each component of OMS302 contributed to the efficacy of the product candidate,
with both phenylephrine and ketorolac additively providing intraoperative mydriasis and ketorolac alone
responsible for postoperative pain reduction. OMS302 was well tolerated in this trial.

The Phase 3 trial was the first of two planned Phase 3 trials. It was a multicenter, double-blind, placebo-
controlled clinical trial that included 405 patients randomized 1:1 to receive either OMS302 or placebo. The
primary endpoint of the trial was maintenance of intraoperative mydriasis, and the principal secondary endpoint
was reduction of postoperative ocular pain. OMS302 met the primary endpoint by demonstrating statistically
significant (p<0.00001) maintenance of intraoperative mydriasis. The product candidate also demonstrated
statistical superiority (p<0.00001) over placebo in reduction of ocular pain in the early postoperative period. In
addition to statistical superiority over placebo in maintenance of mydriasis and the principal secondary endpoint
of reduced postoperative pain, OMS302 achieved p values of less than 0.05 in a series of other clinically relevant
measures. In this study, OMS302 was well-tolerated. The most common adverse events were those related to
surgery, specifically eye pain, eye inflammation, headache and increased intraocular pressure. The incidence of
these adverse events was similar between OMS302- and placebo-treated patients.

Although the positive results from these clinical trials are encouraging, there can be no assurance that they

will be predictive of the results obtained from later trials, including those in our second Phase 3 clinical trial
evaluating OMS302 in ILR procedures, or that OMS302 will receive marketing approval.

Development Plan. In April of 2012 we expect to begin enrolling patients in our second planned Phase 3
clinical trial for OMS302. This second study will be a randomized, double-blind, placebo-controlled clinical trial
evaluating OMS302 in subjects undergoing ILR procedures including cataract surgery and refractive lens
exchange. The co-primary endpoints of this trial are maintenance of intraocular mydriasis and reduction of
postoperative ocular pain. We expect to receive data from this clinical trial in the second half of 2012.

OMS103HP—Arthroscopy

Background. OMS103HP is our PharmacoSurgery product candidate being developed for use during
arthroscopic procedures, including partial meniscectomy surgery, and was designed to provide a multimodal
approach to preemptively block the inflammatory cascade induced by arthroscopy. OMS103HP is a proprietary
combination of anti-inflammatory/analgesic APIs, each with well-known safety and pharmacologic profiles.
Each of the APIs are components of generic, FDA-approved drugs that have been marketed in the United States
as over-the-counter, or OTC, or prescription drug products for over 15 years and have established and well-
characterized safety profiles.

Arthroscopy is a surgical procedure in which a miniature camera lens is inserted into an anatomic joint, such

as the knee, through a small incision in the skin. Through similar incisions, surgical instruments are also
introduced and manipulated within the joint. During any arthroscopic procedure, an irrigation solution, such as

3

lactated Ringer’s solution or saline solution, is flushed through the joint to distend the joint capsule, allowing
better visualization with the arthroscope, and to remove debris resulting from the operation. One of the major
challenges facing orthopedic surgeons in performing arthroscopic procedures is adequately controlling the local
inflammatory response to surgical trauma, particularly the pain and swelling that lead to restricted joint motion
and loss of function. Added to standard irrigation solutions, OMS103HP is delivered directly to the joint
throughout arthroscopy, and is designed to act simultaneously at multiple distinct targets to block preemptively
the inflammatory cascade induced by arthroscopic surgery.

Clinical Trial Results. In 2010, we completed a multicenter, randomized, double-blind, vehicle-controlled
Phase 2 clinical trial of OMS103HP in patients undergoing arthroscopic partial meniscectomy surgery. Of the
161 patients who were enrolled and treated, 143 patients met the predetermined surgical criteria and were
included in the data analysis (71 OMS103HP and 72 vehicle). There were no important differences in
demographic characteristics between the two treatment groups. The protocol was amended to collect patient self-
reports using the Knee Injury and Osteoarthritis Outcome Score, or KOOS, which consists of five subscale
scores: symptoms, pain, activities of daily living, sport and recreation function, and knee-based quality of life.
The KOOS subset consisted of 67 subjects (33 OMS103HP and 34 vehicle).

In this study, OMS103HP provided greater efficacy than vehicle as measured by patient-reported functional

scores using the KOOS, passive knee flexion and VAS pain scores. The patient-reported outcomes showed a
sustained benefit through postoperative Day 90. OMS103HP was well tolerated, and adverse events were more
frequent in the vehicle dose group. An article describing the results of this Phase 2 clinical study, titled “Novel
Drug, OMS103HP, Reduces Pain and Improves Joint Motion and Function over 90 Days following Arthroscopic
Meniscectomy,” was published in the August 2011 edition of Arthroscopy: The Journal of Arthroscopic and
Related Surgery.

Although these positive results from our Phase 2 trial evaluating OMS103HP are encouraging, there can be
no assurance that they will be predictive of the results obtained from later trials, including those in our ongoing
Phase 3 clinical program evaluating OMS103HP in arthroscopic meniscectomy.

In the first quarter of 2011, we announced that OMS103HP failed to meet pre-specified efficacy endpoints

in a Phase 3 clinical program in patients undergoing arthroscopic anterior cruciate ligament, or ACL,
reconstruction surgery. We were unable to draw any conclusions about OMS103HP’s effect in the Phase 3 ACL
program due to confounding factors, and we have no plans to conduct additional ACL reconstruction trials at this
time.

Development Plan. OMS103HP is in a Phase 3 program evaluating the product candidate’s safety and
ability to improve postoperative joint function and reduce pain following arthroscopic partial meniscectomy
surgery. This clinical program is planned to consist of separate trials conducted in North America and Europe.
We expect data from the North American trial in the second half of 2012. We are in discussions with European
regulatory authorities regarding the second Phase 3 clinical trial and, assuming sufficient resources, plan to begin
that trial following completion of those discussions. We believe that OMS103HP will, if approved, be the first
commercially available drug delivered directly to the surgical site to improve function following arthroscopic
surgery.

OMS201—Urology

Background. OMS201 is our PharmacoSurgery product candidate being developed for use during urological

procedures, including ureterscopy for removal of ureteral or renal stones. OMS201 is a proprietary combination
of an anti-inflammatory API and a smooth muscle relaxant API, and is intended for local delivery to the bladder,
ureter, urethra, and other urinary tract structures during urological procedures. Both of the APIs in OMS201 are
contained in generic, FDA-approved drugs that have been marketed in the United States for more than 15 years
and have well-known profiles of safety and pharmacologic activities. Each of the APIs in OMS201 has been
individually prescribed to manage the symptoms of ureteral and renal stones.

4

Uroendoscopic procedures are performed within the urinary tract using a flexible camera device, or
endoscope, and cause tissue injury that activates local mediators of pain and inflammation, which results in
inflamed tissue, pain, smooth muscle spasm and lower urinary tract symptoms including frequency, urgency and
painful urination, and can prolong recovery. Added to standard irrigation solutions in urological surgery,
OMS201 is being developed for delivery directly to the surgical site during uroendoscopic procedures, such as
bladder endoscopy, or cystoscopy, minimally invasive prostate surgery and ureteroscopy, to inhibit surgically
induced inflammation, pain and smooth muscle spasm, or excess contractility.

Clinical Trial Results. In 2010, we completed a Phase 1/Phase 2 study in 24 patients designed to evaluate

the safety and systemic absorption of two sequentially higher concentrations of OMS201 added to standard
irrigation solution and delivered to patients undergoing ureteroscopy for removal of ureteral or renal stones. This
multicenter, double-blind, vehicle-controlled study also explored potential efficacy endpoints but was not
powered to assess efficacy. OMS201 was well tolerated in this study. The incidence of adverse events was
similar in the two OMS201-concentration arms and the group receiving vehicle. No adverse events were
considered treatment-related by investigators. There were no deaths or discontinuations for adverse events. Only
one serious adverse event was reported, which occurred in a vehicle-treated patient.

Development Plan. Based on the data from our recently completed Phase 1/Phase 2 clinical study, we are

designing subsequent trials to evaluate the efficacy and safety of OMS201 in patients undergoing urologic
procedures.

PPARγ Program – OMS403

Overview. In our peroxisome proliferator-activated receptor gamma, or PPARγ, program, we are developing
proprietary compositions that include PPARγ agonists for the treatment and prevention of addiction to substances
of abuse, which may include opioids, nicotine and alcohol. We believe that Omeros is the first to demonstrate a
link between PPARγ and addiction disorders. Data from European pilot clinical studies and animal models of
addiction suggest that PPARγ agonists could be efficacious in the treatment of a wide range of addictions. Our
collaborators at The New York State Psychiatric Institute are conducting two Phase 2 clinical trials for our
PPARγ program. These studies are evaluating a PPARγ agonist, alone or in combination with other agents, for
treatment of addiction to opioids and to nicotine. The National Institute on Drug Abuse is providing substantially
all of the funding for these clinical trials. We will have the right to reference the data obtained from these studies
for subsequent submissions to the FDA and continue to retain all other rights in connection with the PPARγ
program.

Patent Assignment Agreement with Roberto Ciccocioppo, Ph.D. We acquired the patent applications and
related intellectual property rights for our PPARγ program in February 2009 from Roberto Ciccocioppo, Ph.D. of
the Università di Camerino, Italy, pursuant to a Patent Assignment Agreement. In February 2010, we amended
the agreement to include all intellectual property rights, including patent applications, related to nutraceuticals
that increase PPARγ activity. Under the amended agreement, we have agreed to pay Dr. Ciccocioppo a
low-single digit percentage royalty on net sales of any products that are covered by any patents that issue from
the patent applications that we acquired from him. In addition, if we grant any third parties rights to manufacture,
sell or distribute any such products, we must pay to Dr. Ciccocioppo a percentage of any associated fees we
receive from such third parties in the range of low single-digits to low double-digits depending on stage of
development at which such rights are granted. We have also agreed to make total milestone payments of up to
$3.8 million to Dr. Ciccocioppo upon the occurrence of certain development events, such as patient enrollment in
a Phase 1 clinical trial and receipt of marketing approval of a product covered by any patents that issue from the
patent applications that we acquired from him. If we notify Dr. Ciccocioppo that we have abandoned all research
and development and commercialization efforts related to the patent applications and intellectual property rights
we acquired from him, Dr. Ciccocioppo has the right to repurchase those assets from us at a price equal to a
double-digit percentage of our direct and indirect financial investments and expenditures in such assets. If he
does not exercise his right to repurchase those assets within a limited period of time by paying the purchase price,
we will have no further obligations to sell those assets to Dr. Ciccocioppo. The term of our agreement with

5

Dr. Ciccocioppo ends when there are no longer any valid and enforceable patents related to the intellectual
property rights we acquired from him, provided that either party may terminate the agreement earlier in case of
an uncured breach by the other party. Under the terms of the agreement, we have agreed to pay a portion of the
payments due to Dr. Ciccocioppo to the Università di Camerino without any increase to our payment obligations.

Preclinical Programs

PDE10 Program – OMS824

Overview. Phosphodiesterase 10, or PDE10, is an enzyme that is expressed in areas of the brain strongly
linked to schizophrenia and other diseases that affect cognition and has recently been identified as a target for the
development of anti-psychotic therapeutics. We are developing proprietary compounds that inhibit PDE10 for the
treatment of schizophrenia and other diseases that affect cognition. In multiple animal models of psychotic
behavior, PDE10 inhibitors have been shown to be as effective as current anti-psychotic drugs. In addition,
results from preclinical studies suggest that PDE10 inhibitors may address the limitations of currently used anti-
psychotic drugs by avoiding the associated weight gain, improving cognition and, potentially, reducing the risk
of associated sudden cardiac death.

Funding Agreement with The Stanley Medical Research Institute. Our preclinical development is supported
by funds from The Stanley Medical Research Institute, or SMRI, a non-profit corporation that supports research
on the causes and treatment of schizophrenia and bipolar disorder. Under our funding agreement with SMRI, we
may receive grant and equity funding upon achievement of product development milestones through Phase 1
clinical trials totaling $9.0 million, subject to our mutual agreement with SMRI. Through December 31, 2011, we
have received $5.7 million from SMRI, $3.2 million of which was recorded as equity funding and $2.5 million
was recorded as revenue. We have agreed to pay royalties to SMRI based on any net income we receive from
sales of a PDE10 product until we have paid a maximum aggregate amount that is a low single-digit multiple of
the amount of grant funding that we have received from SMRI. This multiple increases as time elapses from the
date we received the grant funding. There are no minimum payment obligations under our agreement with SMRI.
Based on the amount of grant funding that we have received as of December 31, 2011, the maximum amount of
royalties payable to SMRI is $12.8 million. The funding agreement and our obligation to pay a royalty to SMRI
terminate when we have repaid such amount in the form of royalties.

PDE7 Program – OMS527

Overview. Our phosphodiesterase 7, or PDE7, program is based on our discoveries of previously unknown
links between PDE7 and any addiction or compulsive disorder and between PDE7 and any movement disorders,
such as Parkinson’s disease. PDE7 appears to modulate the dopaminergic system, which plays a significant role
in regulating both addiction and movement. We believe that PDE7 inhibitors could be effective therapeutics for
the treatment of addiction and compulsive disorders as well as movement disorders. Data generated in preclinical
studies support both of these potential indications. We have selected a clinical candidate that is undergoing
toxicology studies intended to support clinical trials.

Exclusive License Agreement with Daiichi Sankyo Co., Ltd. Under an agreement with Daiichi Sankyo Co.,

Ltd. (successor-in-interest to Asubio Pharma Co., Ltd.), or Daiichi Sankyo, we hold an exclusive license to PDE7
inhibitors claimed in certain patents and pending patent applications owned by Daiichi Sankyo for use in the
treatment of movement disorders and other specified indications, or Indication 1, as well as for use in the
treatment of addiction and compulsive disorders, or Indication 2. Under the agreement, we agreed to make
milestone payments to Daiichi Sankyo of up to an aggregate total of $30.2 million upon the achievement of
certain events related to Indication 1 and Indication 2; however, if only one of the two indications is advanced
through the milestones, the total milestone payments would be $23.5 million. The milestone payment events
include successful completion of preclinical toxicology studies; dosing of human subjects in Phase 1, 2 and 3
clinical trials; receipt of marketing approval of a PDE7 inhibitor product; and reaching specified sales milestones.
In addition, Daiichi Sankyo is entitled to receive from us a low single-digit percentage royalty of any net sales of
a PDE7 inhibitor licensed under the agreement by us and/or our sublicensee(s), provided that if the sales are

6

made by a sublicensee, then the amount payable by us to Daiichi Sankyo is capped at an amount equal to a low
double-digit percentage of all royalty and specified milestone payments received by us from the sublicensee.

The term of the agreement with Daiichi Sankyo continues so long as there is a valid, subsisting and

enforceable claim in any patents covered by the agreement. The agreement may be terminated sooner by us, with
or without cause, upon 90 days advance written notice or by either party following a material breach of the
agreement by the other party that has not been cured within 90 days or immediately if the other party is insolvent
or bankrupt. Daiichi Sankyo also has the right to terminate the agreement if we and our sublicensee(s) cease to
conduct all research, development and/or commercialization activities for a PDE7 inhibitor covered by the
agreement for a period of six consecutive months, in which case all rights held by us under Daiichi Sankyo’s
patents will revert to Daiichi Sankyo.

MASP2 Program – OMS721

Overview. Mannan-binding lectin-associated serine protease-2, or MASP2, is a novel pro-inflammatory
protein target involved in activation of the complement system, which is an important component of the immune
system. The complement system plays a role in the inflammatory response and becomes activated as a result of
tissue damage or trauma or microbial pathogen invasion. MASP2 appears to be unique to, and required for the
function of, one of the principal complement activation pathways, known as the lectin pathway. Importantly,
inhibition of MASP2 does not appear to interfere with the antibody-dependent classical complement activation
pathway, which is a critical component of the acquired immune response to infection, and its abnormal function
is associated with a wide range of autoimmune disorders. MASP2 is generated by the liver and is then released
into the circulation. Published studies demonstrate that adult humans who are genetically deficient in one of the
proteins that activate MASP2 do not appear to be detrimentally affected by the deficiency. Therefore, we believe
that it may be possible to deliver MASP2 antibodies systemically and, given our expected dosing requirements,
we plan to deliver them subcutaneously.

We have completed a series of in vivo studies using proprietary MASP2 knock-out mice or MASP2

antibodies in established models of disease previously linked to activation of the complement system. Our
findings suggest that antibody-blockade of MASP2 may have a preventive or therapeutic effect in the treatment
of hemolytic uremic syndrome, or HUS, atypical HUS, paroxysmal nocturnal hemoglobinuria (PNH), wet
age-related macular degeneration, ischemia-reperfusion injury and transplant-related complications. We are
continuing to evaluate the role of MASP2 in other complement-mediated disorders. We hold worldwide
exclusive licenses to rights related to MASP2, the antibodies targeting MASP2 and the therapeutic applications
for those antibodies from the University of Leicester, from its collaborator, Medical Research Council at Oxford
University, and from Helion Biotech ApS, or Helion.

Exclusive License Agreements with the University of Leicester and the Medical Research Council at Oxford

University. Under our exclusive license agreements with the University of Leicester and the Medical Research
Council at Oxford University, or MRC, we have agreed to pay royalties to each of the University of Leicester and
MRC that are a percentage of any proceeds we receive from the licensed technology during the terms of the
agreements. We must pay low single-digit percentage royalties with respect to proceeds that we receive from
products incorporating the licensed technology that are used, manufactured, directly sold or directly distributed
by us, and we must pay royalties, in the range of a low single-digit percentage to a low double-digit percentage,
with respect to proceeds we receive from sublicense royalties or fees that we receive from third parties to which
we grant sublicenses to the licensed technology. We did not make any upfront payments for these exclusive
licenses nor are there any milestone payments or reversion rights associated with these license agreements. We
also agreed to sponsor research of MASP2 at these institutions at pre-determined rates for maximum terms of
approximately three years. If mutually agreed, we may sponsor additional research of MASP2 at these
institutions. We retain worldwide exclusive licenses from these institutions to develop and commercialize any
intellectual property rights developed in the sponsored research. The term of each license agreement ends when
there are no longer any pending patent applications, applications in preparation or unexpired issued patents
related to any of the intellectual property rights we are licensing under the agreement. Both of these license

7

agreements may be terminated prior to the end of their terms by us for convenience or by one party if the other
party (1) breaches any material obligation under the agreement and does not cure such breach after notice and an
opportunity to cure or (2) is declared or adjudged to be insolvent, bankrupt or in receivership and materially
limited from performing its obligations under the agreement.

Exclusive License Agreement with Helion Biotech ApS. Pursuant to our exclusive license agreement with
Helion, we received a royalty-bearing, worldwide exclusive license in and to all of Helion’s intellectual property
rights related to MASP2 antibodies, polypeptides and methods in the field of inhibition of mannan-binding
lectin-mediated activation of the complement system for the prevention, treatment or diagnosis of any disease or
condition. Upon execution of the agreement on April 23, 2010, we made a one-time payment to Helion of
$500,000 and agreed to make development and sales milestone payments to Helion of up to an additional $6.9
million upon the achievement of certain events, such as the filing of an Investigational New Drug, or IND,
application with the FDA; initiation of Phase 2 and 3 clinical trials; receipt of marketing approval; and reaching
specified sales milestones. In addition, Helion is entitled to receive a low single-digit percentage royalty of any
net sales of a MASP2 inhibitor product that is covered by the patents licensed under the agreement. The term of
the agreement continues so long as there is a valid, subsisting and enforceable claim in any patents or patent
applications covered by the agreement. The agreement may be terminated sooner by either party following a
material breach of the agreement by the other party that has not been cured within 90 days.

Plasmin Program – OMS616

Overview. We are developing antifibrinolytic agents for the control of blood loss during surgery or resulting

from trauma or other hyperfibrinolytic conditions. Excessive bleeding during cardiac surgery is known to
increase overall morbidity and mortality. In an attempt to control this bleeding, patients undergoing cardiac and
other extensive surgery often receive antifibrinolytic compounds. These drugs inhibit plasmin, an enzyme present
in blood that degrades fibrin clots. Because plasmin degrades fibrin clots, an agent that inhibits plasmin may
have potential utility for reducing blood loss due to trauma or surgery.

Prior to withdrawal from the U.S. and European markets in 2008 for safety concerns, the antifibrinolytic
Trasylol® (aprotinin) had been shown in a number of studies to be more effective at reducing blood loss than the
other two most commonly used antifibrinolytics on the market today, tranexamic acid and epsilon aminocaproic
acid. While Trasylol® is a potent inhibitor of plasmin, it is non-selective. In addition to plasmin, it significantly
inhibits kallikrein and Factor XIa, two enzymes important in promoting clotting, and their inhibition can increase
bleeding. Trasylol® was found to be associated with a number of safety issues, including increased mortality.
Further, it is a bovine protein associated with anaphylactic reactions. While the specific cause of increased death
remains unknown, an often-cited explanation is the lack of specificity of Trasylol®.

Our proprietary agents also inhibit plasmin but, unlike Trasylol®, they do not significantly inhibit kallikrein
or Factor XIa. Additionally, our agents are derived from human protein, which may reduce immunological side
effects. The properties of our proprietary agents are described in a peer-reviewed article titled “Engineering
Kunitz Domain 1 (KD1) of Human Tissue Factor Pathway Inhibitor-2 to Selectively Inhibit Fibrinolysis:
Properties of KD1-L17R Variant” that was published in the February 11, 2011 issue of the Journal of Biological
Chemistry. We believe that the efficacy, human-protein derivation and improved selectivity of our proprietary
agents provide a novel approach to the control of bleeding from surgery and trauma.

Exclusive License Agreement with The Regents of the University of California. On December 14, 2010, we

entered into a license agreement with The Regents of the University of California, or The Regents, pursuant to
which we received an exclusive license to a series of antifibrinolytic agents claimed in certain patents owned by
The Regents in exchange for our agreement to make royalty and development milestone payments.

GPCR Program

Overview. G protein-coupled receptors, or GPCRs, comprise one of the largest families of proteins in the

genomes of multicellular organisms. According to Insight Pharma Reports, or IPR, there are over 1,000 GPCRs

8

in the human genome, comprising three percent of all human proteins. GPCRs are cell surface membrane
proteins involved in mediating both sensory and nonsensory functions. Sensory GPCRs are involved in the
perception of light, odors, taste and sexual attractants. Non-sensory GPCRs are involved in metabolism,
behavior, reproduction, development, hormonal homeostasis and regulation of the central nervous system. The
vast majority of GPCR drug targets are non-sensory. Although GPCRs form a super-family of receptors,
individual GPCRs display a high degree of specificity and affinity for the molecules that bind to them, or their
respective ligands. Ligands can either activate the receptor (agonists) or inhibit it (antagonists and inverse
agonists). When activated by its ligand, the GPCR interacts with intracellular G proteins, resulting in a cascade of
signaling events inside the cell that ultimately leads to the particular function linked to the receptor.

The high degree of specificity and affinity associated with GPCRs has contributed to their becoming the
largest family of drug targets for therapeutics against human diseases. According to IPR, 30% to 40% of all drugs
sold worldwide target GPCRs. Based on available data, we believe that there are 363 human non-sensory
GPCRs, of which approximately 120 have no known ligands, which we refer to as orphan GPCRs. Without a
known ligand, there is no template from which medicinal chemistry efforts can be readily initiated nor a means to
identify the GPCR’s signaling pathway and, therefore, drugs cannot easily be developed against orphan GPCRs.
“Unlocking” these orphan GPCRs could lead to the development of drugs that act at these new targets. To our
knowledge, despite efforts by others in the biopharmaceutical industry, Omeros’ technology is the first
commercially viable technology capable of identifying ligands of orphan GPCRs in high throughput.

We have scientific expertise in the field of GPCRs and members of our scientific team were the first to identify

and characterize all GPCRs common to mice and humans, with the exception of sensory GPCRs. Our work was
published in a peer-reviewed article titled “The G protein-coupled receptor repertoires of human and mouse” that
appeared in the April 2003 issue of Proceedings of the National Academy of Sciences (Vol. 100, No. 8: pp. 4903-
4908). In addition, our proprietary cellular redistribution assay, or CRA, can be used in a high-throughput manner to
identify synthetic ligands, including antagonists, agonists and inverse agonists, that bind to and affect the function of
orphan GPCRs. We also have developed a proprietary rapid mouse gene knock-out platform technology, which is
described in a peer-reviewed article titled “Large-scale, saturating insertional mutagenesis of the mouse genome”
that appeared in the September 2007 issue of Proceedings of the National Academy of Sciences (Vol. 104, No. 36:
pp. 14406-14411). We have used this platform to create 61 different GPCR-specific strains of knock-out mice, and
we have established a battery of behavioral tests that allows us to characterize these knock-out mice and identify
candidate drug targets. The genes disrupted in these strains of knock-out mice include those linked to orphan
GPCRs. In addition, we have developed a platform technology to efficiently produce reversible and inducible
mouse gene knockout and rescue, which allows the mouse to fully develop before knocking out the gene rather than
creating the knockout in the mouse embryo. As a result, we can evaluate the function of a gene even when its
mutation would cause compensation by other genes or death during embryonic or neonatal development. This
platform technology is described in a peer-reviewed article titled “An Inducible and Reversible Mouse Genetic
Rescue System” that appeared in the May 2008 issue of PLoS Genetics (Vol. 4, Issue. 5).

Using our expertise and these assets, we believe that we are the first to possess the capability to conduct

high-throughput drug discovery for orphan GPCRs, and that there is no other existing high-throughput
technology able to “unlock” orphan GPCRs. We have begun screening orphan GPCRs against our small-
molecule chemical libraries using the CRA. As of February 29, 2012, we had announced that we have identified
and confirmed sets of compounds that interact selectively with, and modulate signaling of, 33 orphan GPCRs
linked to a wide range of indications including cancer, metabolic and central nervous system disorders and
cardiovascular and inflammatory diseases.

GPCR Platform Funding Agreements with Vulcan Inc. and the Life Sciences Discovery Fund. On

October 21, 2010, we entered into a platform development funding agreement with Vulcan Inc. and its affiliate,
which we refer to collectively as Vulcan, pursuant to which we received $20.0 million for our GPCR program
from Vulcan. Also on October 21, 2010, we entered into an agreement with the Life Sciences Discovery Fund
Authority, a granting agency of the State of Washington, or LSDF, under which we received a $5.0 million grant
award from LSDF that will be used to reimburse us for expenses that we incur and equipment we purchase for
our GPCR program. Pursuant to the Vulcan and LSDF agreements, we have agreed to pay Vulcan and LSDF

9

tiered percentages of the net proceeds derived from the GPCR program. The percentage rates of net proceeds
payable to Vulcan and LSDF decrease as the cumulative net proceeds reach specified thresholds, and the blended
percentage rate payable to Vulcan and LSDF in the aggregate is in the mid-teens with respect to the first
approximately $1.5 billion of cumulative net proceeds that we receive from our GPCR program. After we have
received approximately $1.5 billion of cumulative net proceeds, the percentage rate payable to Vulcan and LSDF
in the aggregate decreases to one percent. Pursuant to the agreement with Vulcan, at our option, we may pay a
portion of Vulcan’s share of the one percent of net proceeds to a life sciences initiative, or LSI, to be established
pursuant to LSDF agreement. The LSI will be a non-profit, tax-exempt organization with a mission to advance
life sciences in the State of Washington.

Net proceeds are defined in the Vulcan and LSDF agreements as (1) all consideration received by us in any

form relating directly to the GPCR program, such as from license fees, milestone fees, royalties, product sales,
partnerships and a transfer of the GPCR program to a third party, subject to exceptions specified in such
agreements, less (2) all expenses and expenditures in excess of $25.0 million incurred by us in connection with
the GPCR program such as for research and development, related overhead, milestone and royalty payments,
legal expenses, cost of goods sold and product sales deductions. Any consideration that we receive (a) from
government entities (subject to specified exceptions), (b) from third parties that have designated such
consideration for the purpose of funding research and development expenses and related overhead or (c) in the
form of grants, as well as any expenses or expenditures that we incur that are paid for with such consideration,
are excluded for purposes of determining net proceeds.

Pursuant to our agreement with Vulcan, we issued to Vulcan three warrants to purchase our common stock,

each exercisable for 133,333 shares, with exercise prices of $20, $30 and $40 per share, respectively. The
exercise price of the warrants may be paid in cash or on a “cashless” basis in which the number of shares issuable
upon exercise of the warrant would be reduced by the number of shares having a fair market value equal to the
applicable exercise price. In addition, we agreed to purchase from Patobios Limited, or Patobios, intellectual
property assets related to the CRA for consideration consisting of approximately $10.8 million. We completed
the acquisition of these assets on November 22, 2010 by paying to Patobios $7.6 million in cash and the
remaining $3.2 million in the form of 379,039 shares of our common stock.

Under our agreement with Vulcan, we granted Vulcan a security interest in our personal property related to

the GPCR program, other than intellectual property, which security interest is junior to any existing or future
security interests granted in connection with a financing transaction and which will be released automatically
after Vulcan receives $25.0 million under the agreement. We also agreed not to grant any liens on intellectual
property related to the GPCR program. The term of our agreement with Vulcan is 35 years, provided that the
term will automatically extend until the cumulative net proceeds that we receive from the GPCR program are
approximately $1.5 billion.

Under our agreement with LSDF, after LSDF receives $25.0 million from us, any remaining amounts that
would be payable by us to LSDF pursuant to the agreement will instead be paid to LSI. If for any reason LSDF
does not provide the full $5.0 million grant to us, LSDF’s percentage share of net proceeds will be reduced in
proportion to the amount it actually pays to us. Our obligations with respect to LSI are limited to creating LSI’s
charter documents, incorporating LSI, selecting directors and applying for tax exempt status, all in consultation
with LSDF. We have no other obligations, funding or otherwise, to LSI. The term of our agreement with LSDF
expires on the six-month anniversary following the last date that we deliver a report related to our incurrence of
grant-funded expenses described in the agreement, provided that certain obligations will survive the expiration of
the term. The term of our payment obligations to LSDF is the same as that under our agreement with Vulcan.

In addition, pursuant to our agreements with Vulcan and LSDF, we have agreed (1) to use commercially
reasonable efforts to screen at least 75% of the currently known human Class A orphan GPCRs within 19 months
of October 21, 2010, subject to possible extensions and (2) to commence a medicinal chemistry effort focused on
developing a product candidate with respect to one orphan GPCR for which compounds were identified using the
GPCR assay technology.

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Sales and Marketing

We have retained all marketing and distribution rights to our product candidates and programs, which
provides us the opportunity to market and sell any of our product candidates independently, make arrangements
with third parties to perform these services for us, or both. For the potential commercial launch of OMS302, if
approved, we intend to use an ophthalmologic specialty sales team and our own internal marketing organization
to sell OMS302 in North America and, for markets outside of North America, we intend to work with third
parties to perform these services. Because OMS302, if approved, will be used principally by ophthalmologic
surgeons in hospital-based and freestanding ambulatory surgery centers, we believe that commercializing
OMS302 will only require a limited sales and marketing force. For our other co-lead product candidate
OMS103HP, we intend to use a combination of orthopedic specialty distributors and our own internal sales and
marketing organization to market OMS103HP in North America and, for markets outside of North America, we
intend to utilize similar distribution networks or work with third parties to perform these services. Because
OMS103HP, if approved, will be used principally by orthopedic surgeons in hospital-based and freestanding
ambulatory surgery centers, we believe that commercializing OMS103HP also will only require a limited sales
and marketing force.

For the sales and marketing of other product candidates, we generally expect to retain marketing and

distribution rights in those for which we believe that it will be possible to access cost-effectively market
segments through an internal sales and marketing team. If we do not believe that we can cost-effectively access
markets for any approved product candidate through an internal sales and marketing force, we expect that we will
make arrangements with third parties to perform those services with us.

Manufacturing

We have laboratories in-house for analytical method development, bioanalytical testing, formulation,
stability testing and small-scale compounding of laboratory supplies of product candidates, which need not be
manufactured in compliance with current Good Manufacturing Practices, or cGMPs. We utilize contract
manufacturers to produce sufficient quantities of product candidates for use in preclinical and clinical studies.

We rely on third-party manufacturers to produce, store and distribute our product candidates and currently
do not own or operate manufacturing facilities. We require manufacturers that produce APIs and finished drug
products for clinical use to operate in accordance with cGMPs and all other applicable laws and regulations. We
anticipate that we will rely on contract manufacturers to develop and manufacture our products for commercial
sale. We maintain agreements with potential and existing manufacturers that include confidentiality and
intellectual property provisions to protect our proprietary rights related to our product candidates.

We have entered into agreements with Hospira Worldwide, Inc., pursuant to which Hospira has

manufactured three registration batches of liquid OMS103HP at its facility in McPherson, Kansas, and agreed to
manufacture and supply commercial supplies of liquid OMS103HP, if approved for marketing. Pursuant to our
commercial supply agreement with Hospira, Hospira has agreed to supply, and we have agreed to purchase, a
minimum quantity of our commercial supply needs of OMS103HP at a price based on the volume of our
purchases. If Hospira is unable to supply a minimum quantity of our commercial supply needs, we have the right
to reduce our minimum purchase and, in some cases, require Hospira to provide reasonable technology assistance
to qualify an alternate supplier or terminate the agreement. We are obligated to provide Hospira with the APIs
necessary to manufacture OMS103HP as a liquid solution. Except for our obligation to purchase a minimum
quantity of our commercial supply needs of OMS103HP from Hospira, our agreement with Hospira does not
limit our ability to use another manufacturer to supply OMS103HP.

The term of the commercial supply agreement continues past the commercial launch of OMS103HP for a
five-year period that automatically extends for up to two additional one-year periods unless a party gives notice
that it intends to terminate the agreement at least two years prior to the beginning of an extension period. The
commercial supply agreement may be terminated at any time prior to the end of its term by a party if the other
party (1) materially breaches the agreement and does not cure such breach after notice and an opportunity to cure
or (2) goes into liquidation, seeks the benefit of any bankruptcy or insolvency act, or a receiver or trustee is

11

appointed for its property or estate, or it makes an assignment for the benefit of creditors, and such procedures
are not terminated within ninety days. We also have the unilateral right to terminate the agreement in whole or in
part at any time prior to the end of its term upon the occurrence of specified events such as a regulatory or
development set back to OMS103HP that may prevent us from marketing OMS103HP or if we reasonably
determine that OMS103HP will not be commercially viable or profitable. In addition, we have the right to
terminate the agreement if we are acquired by an independent third party or if we enter into a marketing,
promotion or distribution agreement with an independent third party, provided that we may be obligated to
continue to purchase liquid OMS103HP from Hospira for a limited amount of time and pay an associated
break-up fee. The manufacturing facilities of Hospira have been inspected and approved by the FDA for the
commercial manufacture of several third-party drug products.

We utilized multiple suppliers for the APIs used in our clinical supplies of OMS302 and OMS103HP. We
have not yet signed commercial agreements with any suppliers for the supply of commercial quantities of these
APIs, although we intend to do so prior to the commercial launch of the applicable product candidate. Given the
large amount of these APIs manufactured annually by these and other suppliers, we anticipate that we will be
capable of attaining our commercial API supply needs for OMS302 and OMS103HP.

We have not yet entered into a commercial supply agreement for any of our product candidates other than
OMS103HP, although we intend to do so prior to the applicable product candidate’s commercial launch. Given
that there are generally no complicated chemistries or unusual equipment required in the manufacturing
processes of our product candidates, we anticipate that we will be capable of identifying contract manufacturers
capable of producing these product candidates and entering into agreements for the commercial supply of these
drugs.

Competition

The pharmaceutical industry is highly competitive and characterized by a number of established, large
pharmaceutical companies, as well as smaller companies like ours. If our competitors’ market products that are
less expensive, safer or more effective than any future products developed from our product candidates, or that
reach the market before our approved product candidates, we may not achieve commercial success. We are not
aware of any products that directly compete with our PharmacoSurgery product candidates that are approved for
intra-operative delivery in irrigation solutions during surgical procedures; however, our PharmacoSurgery
product candidates could compete with preoperative and postoperative treatments for mydriasis, pain and
inflammation. If approved, we expect that the primary constraint to market acceptance of our PharmacoSurgery
product candidates will be surgeons who continue with their respective current treatment practices and do not
adopt the use of these product candidates as well as the level of reimbursement surgeons receive for the
administration of our product candidates.

Our other clinical and preclinical product candidates may face competing products. For example, we are
developing PDE10 inhibitors for use in the treatment of schizophrenia and other diseases that affect cognition.
Other pharmaceutical companies, many with significantly greater resources than we, are also developing PDE10
inhibitors for the treatment of schizophrenia and other diseases that affect cognition and these companies may be
further along in development. Additionally, Bayer HealthCare Pharmaceuticals is currently authorized to market
Trasylol® in Canada for patients undergoing coronary artery bypass graft surgery, and any product we develop in
our Plasmin program for such indication would directly compete with Trasylol® in Canada as well any other
countries in which Trasylol® is authorized to be marketed. Also, we believe that other companies are attempting
to de-orphanize orphan GPCRs. If any of these companies is able to de-orphanize an orphan GPCR before we do,
we may be unable to establish an exclusive or commercially valuable intellectual property position around that
orphan GPCR. We expect to compete with other pharmaceutical and biotechnology companies, and our
competitors may:

•

•

develop and market products that are less expensive, more effective or safer than our future products;

commercialize competing products before we can launch any products developed from our product
candidates;

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•

•

•

operate larger research and development programs, possess greater manufacturing capabilities or have
substantially greater financial resources than we do;

initiate or withstand substantial price competition more successfully than we can;

have greater success in recruiting skilled technical and scientific workers from the limited pool of
available talent;

• more effectively negotiate third-party licenses and strategic relationships; and

•

take advantage of acquisition or other opportunities more readily than we can.

We expect to compete for market share against large pharmaceutical and biotechnology companies, smaller

companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions,
government agencies and other public and private research organizations. In addition, the pharmaceutical and
biotechnology industry is characterized by rapid technological change. Because our research approach integrates
many technologies, it may be difficult for us to remain current with the rapid changes in each technology.
Further, our competitors may render our technologies obsolete by advancing their existing technological
approaches or developing new or different approaches. If we fail to stay at the forefront of technological change,
we may be unable to compete effectively.

Intellectual Property

As of February 15, 2012, we owned or held worldwide exclusive licenses to a total of 35 issued or allowed

patents and 41 pending patent applications in the United States and 134 issued or allowed patents and 144
pending patent applications in foreign markets directed to therapeutic compositions and methods related to our
PharmacoSurgery platform, GPCR program and preclinical development programs. For each program, our
decision to seek patent protection in specific foreign markets, in addition to the U.S., is based on many factors,
including one or more of the following: our available resources, the size of the commercial market, the presence
of a potential competitor or a contract manufacturer in the market and whether the legal authorities in the market
effectively enforce patent rights.

Our patent portfolio for our PharmacoSurgery technology is directed to locally delivered compositions and

treatment methods using agents selected from broad therapeutic classes. These patents cover combinations of
agents, generic and/or proprietary to us or others, delivered locally and intra-operatively to the site of any
medical or surgical procedure. As of February 15, 2012, our patent portfolio included 15 U.S. and 35 foreign
issued or allowed patents, and 7 U.S. and 20 foreign pending patent applications, directed to our
PharmacoSurgery product candidates and development programs. Our issued PharmacoSurgery patents have
terms that will expire as late as September 24, 2022 for OMS103HP and, assuming issuance of currently pending
patent applications, August 4, 2032 for OMS103HP, July 30, 2023 for OMS302 and March 17, 2026 for
OMS201. We intend to file additional patent applications directed to OMS302 which, if issued, are expected to
provide patent terms ending 2033 or later.

Our initial issued patents in our PharmacoSurgery portfolio are directed to combinations of agents, drawn

from therapeutic classes such as pain and inflammation inhibitory agents, spasm inhibitory agents, restenosis
inhibitory agents and tumor cell adhesion inhibitory agents. We expanded our initial patent position with a series
of patent applications directed to what we believe are the key physiological and technical elements of selected
surgical procedures, and to the therapeutic classes that provide opportunities to improve clinical benefit during
and after these procedures. Accordingly, our pending PharmacoSurgery patent applications are directed to
combinations of agents, drawn from therapeutic classes such as pain and inflammation inhibitory agents, spasm
inhibitory agents, vasoconstrictive agents, mydriatic agents and agents that reduce intraocular pressure, that are
preferred for use in ophthalmologic procedures including intraocular procedures, arthroscopic procedures, and
urologic procedures including ureteroscopy, for OMS302, OMS103HP and OMS201, respectively, as well as
covering the specific combinations of agents included in each of these product candidates.

• OMS302—Ophthalmology. OMS302 is encompassed by our PharmacoSurgery patent portfolio. The
relevant patents and patent applications in this portfolio cover combinations of agents, generic and/or
proprietary to us or others, drawn from therapeutic classes such as pain and inflammation inhibitory

13

agents, mydriatic agents and agents that reduce intraocular pressure, delivered locally and intra-
operatively to the site of ophthalmological procedures, including cataract and lens replacement surgery.
As of February 15, 2012, we owned 1 pending U.S. Patent Application and 11 issued patents and 9
pending patent applications in foreign markets (Australia, Canada, China, Europe, Hong Kong and
Japan) that cover OMS302.

• OMS103HP—Arthroscopy. OMS103HP is encompassed by our PharmacoSurgery patent portfolio. The
relevant patents and patent applications in this portfolio cover combinations of agents, generic and/or
proprietary to us or others, drawn from therapeutic classes such as pain and inflammation inhibitory
agents and vasoconstrictive agents, delivered locally and intra-operatively to the site of medical or
surgical procedures, including arthroscopy. As of February 15, 2012, we owned 5 issued U.S. Patents,
3 pending U.S. Patent Applications, and 32 issued patents and three pending patent applications in
foreign markets (Australia, Brazil, Canada, China, Europe, Hong Kong, Japan, Mexico, Norway,
Russia, Singapore and South Korea) that cover OMS103HP.

• OMS201—Urology. OMS201 is encompassed by our PharmacoSurgery patent portfolio. The relevant

patents and patent applications in this portfolio cover combinations of agents, generic and/or
proprietary to us or others, drawn from therapeutic classes such as pain and inflammation inhibitory
agents and spasm inhibitory agents, delivered locally and intra-operatively to the site of medical or
surgical procedures, including uroendoscopy. As of February 15, 2012, we owned 3 issued
U.S. Patents, 2 pending U.S. Patent Applications, and an additional 22 issued patents and 12 pending
patent applications in foreign markets (Australia, Brazil, Canada, China, Europe, Hong Kong, India,
Japan, Mexico, Norway, Russia, Singapore and South Korea) that cover OMS201.

• PPARγ Program – OMS403. As of February 15, 2012, we owned 2 pending U.S. Patent Applications

and 22 pending patent applications in foreign markets (Australia, Brazil, Canada, China, Europe, India,
Japan, Mexico, New Zealand, Russia, South Korea and International Patent Cooperation Treaty)
directed to the recently discovered link between PPARγ and addictive disorders.

• PDE10 Program – OMS824. As of February 15, 2012, we own one issued patent and four pending
patent applications in the United States, and nine pending patent applications in foreign markets
(Australia, Canada, China, Europe, India, Japan and New Zealand) that claim proprietary PDE10
inhibitors.

• PDE7 Program – OMS527. As of February 15, 2012, we owned 2 pending U.S. Patent Applications,
and 1 issued patent and 21 pending patent applications in foreign markets (Australia, Brazil, Canada,
China, Europe, India, Japan, Mexico, New Zealand and Russia) directed to the link between PDE7 and
movement disorders as well as 2 pending U.S. Patent Applications and 1 international Patent
Cooperation Treaty Patent Application directed to the link between PDE7 and addiction and
compulsive disorders. Additionally, under a license from Daiichi Sankyo we exclusively control rights
to 2 issued U.S. Patents and 1 pending U.S. Patent Application, and 13 issued and 11 pending patent
applications in foreign markets (Australia, Brazil, Canada, China, Europe, Hong Kong, Hungary, India,
Japan, Korea, Mexico, New Zealand and Russia) that claim proprietary PDE7 inhibitors. For a more
detailed description of our agreement with Daiichi Sankyo, see “Business—Preclinical Programs—
PDE7 Program.”

• MASP2 Program – OMS721. We hold worldwide exclusive licenses to rights in connection with

MASP2, the antibodies targeting MASP2 and the therapeutic applications for those antibodies from the
University of Leicester, Medical Research Council at Oxford University and Helion Biotech ApS. As
of February 15, 2012, we exclusively controlled 4 issued patents and 9 pending patent applications in
the United States, and 9 issued patents and 40 pending patent applications in foreign markets
(Australia, Brazil, Canada, China, Hong Kong, Europe, India, Indonesia, Japan, Mexico, New Zealand,
Russia and South Korea) related to our MASP2 program.

• Plasmin Program – OMS616. We hold worldwide exclusive licenses to a series of antifibrinolytic
agents from The Regents of the University of California. As of February 15, 2012, we exclusively

14

controlled one issued patent and one pending patent application in the United States and four pending
patent applications in foreign markets (Australia, Canada, Europe and Japan) that are directed to these
proprietary agents.

• GPCR Program. As of February 15, 2012, we owned 3 issued patents and 4 pending patent

applications in the United Stated, and 42 issued patents and 7 pending patent applications in foreign
markets (Australia, Canada, China, Europe, Hong Kong, India, Japan, Macao, Mexico, New Zealand
and Russia), which are directed to previously unknown links between specific molecular targets in the
brain and a series of CNS disorders, our cellular redistribution assay and to research tools that are used
in our GPCR program.

All of our employees enter into our standard Employee Proprietary Information and Inventions Agreement,

which includes confidentiality provisions and provides us ownership of all inventions and other intellectual
property made by our employees that pertain to our business or that relate to our employees’ work for us or result
from the use of our resources. Our commercial success will depend in part on obtaining and maintaining patent
protection and trade secret protection of the use, formulation and structure of our product candidates, and the
methods used to manufacture them, as well as successfully defending these patents against third-party challenges.
Our ability to protect our product candidates from unauthorized making, using, selling, offering to sell or
importing by third parties is dependent on the extent to which we have rights under valid and enforceable patents
that cover these activities.

The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly

uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged
to date in the United States, and tests used for determining the patentability of patent claims in all technologies
are in flux. The pharmaceutical, biotechnology and other life sciences patent situation outside the United States is
even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States
and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the
breadth of claims that may be allowed or enforced in the patents that we own or have licensed or in third-party
patents.

We have retained all manufacturing, marketing and distribution rights for each of our product candidates

and programs. Some of our product candidates and programs are based on inventions and other intellectual
property rights that we acquired through assignments, exclusive licenses or our acquisition of nura, inc. in
August 2006 for an aggregate purchase price of $14.4 million.

• PharmacoSurgery Platform. Our scientific co-founders, Gregory A. Demopulos, M.D. and Pamela

Pierce Palmer, M.D., Ph.D., conceived the initial invention underlying our PharmacoSurgery platform
and transferred all of their related intellectual property rights to us in 1994. Other than their rights as
shareholders, our co-founders have not retained any rights to our PharmacoSurgery platform, except
that if we file for liquidation under Chapter 7 of the U.S. Bankruptcy Act or voluntarily liquidate or
dissolve, other than in connection with a merger, reorganization, consolidation or sale of assets, our
co-founders have the right to repurchase the initial PharmacoSurgery intellectual property at the then-
current fair market value. Subsequent developments of the PharmacoSurgery intellectual property were
assigned to us by Dr. Demopulos, Dr. Palmer and other of our employees and consultants, without
restriction.

• PPARγ Program. We acquired the patent applications and related intellectual property rights for our
PPARγ program in 2009 from Roberto Ciccocioppo, Ph.D. of the Università di Camerino, Italy,
pursuant to a Patent Assignment Agreement. We have agreed to pay Dr. Ciccocioppo royalties and
milestone payments related to any products that are covered by the patents we acquired from him. For a
more detailed description of this agreement, see “Business—Clinical Programs— PPARγ Program.”

• PDE10 and PDE7 Programs. We acquired our PDE10 and PDE7 programs and some of our related

patents and other intellectual property rights as a result of our acquisition of nura, inc. in August 2006.

15

We hold an exclusive license to certain PDE7 inhibitors claimed in patents and pending patent
applications owned by Daiichi Sankyo for use in the treatment of movement, addiction and compulsive
disorders as well as other specified indications. For a more detailed description of our agreement with
Daiichi Sankyo, see “Business—Preclinical Programs—PDE7 Program.”

• MASP2 Program. We hold worldwide exclusive licenses to rights related to MASP2, the antibodies

targeting MASP2 and the therapeutic applications for the antibodies from MRC and Helion. For more
detailed descriptions of these licenses, see “Business—Preclinical Programs—MASP2 Program.”

• Plasmin Program. We hold a worldwide exclusive license to patent rights related to certain

antifibrinolytics from The Regents. We have agreed to pay The Regents royalty and development
milestone payments under this license.

• GPCR Program. We acquired our GPCR program and some of our related patents and other

intellectual property rights as a result of our acquisition of nura, inc. in August 2006. In November of
2010 we acquired intellectual property rights related to an assay technology for our GPCR program
from Patobios Limited for approximately $10.8 million CAD.

Government Regulation

Government authorities in the United States and other countries extensively regulate, among other things,
the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing, and
export and import of drug products such as those we are developing. Failure to comply with applicable
requirements, both before and after approval, may subject us, our third-party manufacturers, and other partners to
administrative and judicial sanctions, such as a delay in approving or refusal to approve pending applications,
warning letters, product recalls, product seizures, civil and other monetary penalties, total or partial suspension of
production or distribution, injunctions, and/or criminal prosecutions.

In the United States, our products are regulated by the FDA as drugs under the Federal Food, Drug, and
Cosmetic Act and implementing regulations. Before our drug products may be marketed in the United States,
each must be approved by the FDA. Our product candidates are in various stages of testing and none have been
approved.

The steps required before a drug product may be approved by the FDA generally include the following:

•

•

•

•

•

•

preclinical laboratory and animal tests, and formulation studies;

submission to the FDA of an IND for human clinical testing, which must become effective before
human clinical trials may begin in the United States;

adequate and well-controlled human clinical trials to establish the efficacy and safety of the product
candidate for each indication for which approval is sought;

submission to the FDA of a New Drug Application, or NDA;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the
drug is produced to assess compliance with cGMP; and

FDA review and approval of an NDA.

Preclinical Tests. Preclinical tests include laboratory evaluations of product chemistry, toxicity,
formulation, and stability, as well as animal studies to assess the potential efficacy and safety of the product
candidate. The results of the preclinical tests, together with manufacturing information, analytical data, and other
available information are submitted to the FDA as part of an IND.

The IND Process. An IND must become effective before human clinical trials may begin. An IND will

automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises

16

concerns or questions and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns or questions before clinical trials can proceed. There can be no assurance that
submission of an IND will result in FDA authorization to commence clinical trials. Once an IND is in effect, the
protocol for each clinical trial to be conducted under the IND must be submitted to the FDA, which may or may
not allow the trial to proceed.

Clinical Trials. Clinical trials involve the administration of the investigational drug to human subjects under

the supervision of qualified personnel. Clinical trials are conducted under protocols detailing, for example, the
parameters to be used in monitoring patient safety, and the efficacy criteria, or end points, to be evaluated. Each
trial must be reviewed and approved by an independent Institutional Review Board or Ethics Committee before it
can begin. Clinical trials are typically conducted in three defined phases, but the phases may overlap or be
combined:

•

•

•

Phase 1 usually involves the initial administration of the investigational drug product to human subjects
to evaluate its safety, dosage tolerance, pharmacodynamics and, if possible, to gain an early indication
of its effectiveness.

Phase 2 usually involves trials in a limited patient population, with the disease or condition for which
the product candidate is being developed, to evaluate dosage tolerance and appropriate dosage, identify
possible adverse side effects and safety risks, and preliminarily evaluate the effectiveness of the drug
for specific indications.

Phase 3 trials usually further evaluate effectiveness and test further for safety by administering the drug
in its final form in an expanded patient population.

We, our product development partners, or the FDA may suspend clinical trials at any time on various

grounds, including a belief that the subjects are being exposed to an unacceptable health risk.

The NDA Process. If the necessary clinical trials are successfully completed, the results of the preclinical
trials and the clinical trials, together with other detailed information, including information on the manufacture
and composition of the product, are submitted to the FDA in the form of an NDA requesting approval to market
the product for one or more indications. Before approving an NDA, the FDA usually will inspect the facility(ies)
at which the product is manufactured and will not approve the product unless it finds that cGMP compliance is
satisfactory. If the FDA determines the NDA is not acceptable, the FDA may outline the deficiencies in the NDA
and often will request additional information. Notwithstanding the submission of any requested additional testing
or information, the FDA ultimately may decide that the application does not satisfy the criteria for approval.
After approval, certain changes to the approved product, such as adding new indications, manufacturing changes,
or additional labeling claims will require submittal of a new NDA or, in some instances, an NDA supplement, for
further FDA review and approval. Post-approval marketing of products in larger patient populations than were
studied during development can lead to new findings about the safety or efficacy of the products. This
information can lead to a product sponsor’s requesting approval for and/or the FDA requiring changes in the
labeling of the product or even the withdrawal of the product from the market. The testing and approval process
requires substantial time, effort, and financial resources, and we cannot be sure that any approval will be granted
on a timely basis, if at all.

Some of our drug products may be eligible for submission of applications for approval under the

Section 505(b)(2) process. Section 505(b)(2) applications may be submitted for drug products that represent a
modification, such as a new indication or new dosage form, of a previously approved drug. Section 505(b)(2)
applications may rely on the FDA’s previous findings for the safety and effectiveness of the previously approved
drug as well as information obtained by the 505(b)(2) applicant to support the modification of the previously
approved drug. Preparing Section 505(b)(2) applications may be less-costly and time-consuming than preparing
an NDA based entirely on new data and information.

17

The FDA regulates certain of our candidate products as combination drugs under its Combination Drug
Policy because they are comprised of two or more active ingredients. The FDA’s Combination Drug Policy
requires that we demonstrate that each active ingredient in a drug product contributes to the product’s
effectiveness.

In addition, we, our suppliers, and our contract manufacturers are required to comply with extensive FDA
requirements both before and after approval. For example, we are required to report certain adverse reactions and
production problems, if any, to the FDA, and to comply with certain requirements concerning advertising and
promotion for our products. Also, quality control and manufacturing procedures must continue to conform to
cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with
cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in all areas of regulatory
compliance, including production and quality control to comply with cGMP. In addition, discovery of problems
such as safety problems may result in changes in labeling or restrictions on a product manufacturer or NDA
holder, including removal of the product from the market.

Outside of the United States, our ability to market our products will also depend on receiving marketing
authorizations from the appropriate regulatory authorities. The foreign regulatory approval process includes
similar requirements and many of the risks associated with the FDA approval process described above. The
requirements governing marketing authorization and the conduct of clinical trials vary widely from country to
country.

Research and Development

We have built a research and development organization that includes expertise in discovery research,
preclinical development, product formulation, analytical and medicinal chemistry, manufacturing, clinical
development and regulatory and quality assurance. We operate cross-functionally and are led by an experienced
research and development management team. We use rigorous project management techniques to assist us in
making disciplined strategic research and development program decisions and to limit the risk profile of our
product pipeline. We also access relevant market information and key opinion leaders in creating target product
profiles and, when appropriate, as we advance our programs to commercialization. We engage third parties on a
limited basis to conduct portions of our preclinical research; however, we are not substantially dependent upon
any third parties for our preclinical research nor do any of these third parties conduct a major portion of our
preclinical research. In addition, we engage multiple clinical sites to conduct our clinical trials; however we are
not substantially dependent upon any one of these sites for our clinical trials nor do any of them conduct a major
portion of our clinical trials. Research and development expenses were $23.7 million, $23.5 million and
$16.9 million and in 2011, 2010 and 2009, respectively.

Employees

As of February 29, 2012, we had 70 full-time employees, 54 of whom are in research and development and

16 of whom are in finance, legal, business development and administration, including three with M.D.s and 16
with Ph.D.s. None of our employees is represented by a labor union, and we consider our employee relations to
be good.

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Executive Officers and Key Employees

The following table provides information regarding our executive officers and key employees as of

February 29, 2012:

Name

Executive Officers:
Gregory A. Demopulos, M.D. . . . . . . . . . . . . . . . . . . .

Age

Position(s)

53

President, Chief Executive Officer and Chairman
of the Board of Directors

Marcia S. Kelbon, J.D.

. . . . . . . . . . . . . . . . . . . . . . . .

52 Vice President, Patent and General Counsel and

Key Employees:
Timothy M. Duffy . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth M. Ferguson, Ph.D. . . . . . . . . . . . . . . . . . . . .
George A. Gaitanaris, M.D., Ph.D. . . . . . . . . . . . . . . .
Susan C. Sullivan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David R. Toll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
J. Steven Whitaker, M.D., J.D.

Secretary

51 Vice President, Business Development
56 Vice President, Development
55 Chief Scientific Officer
53
44
56 Vice President, Clinical Development and Chief

Senior Directory, Regulatory Affairs
Senior Director of Finance

Medical Officer

Gregory A. Demopulos, M.D. is one of our founders and has served as our president, chief executive officer
and chairman of the board of directors since June 1994 and, in an interim capacity, as our chief financial officer
and treasurer since January 2009. He also served as our chief medical officer from June 1994 to March 2010.
Prior to founding Omeros, Dr. Demopulos completed his residency in orthopedic surgery at Stanford University
and his fellowship training at Duke University. Dr. Demopulos currently serves on the board of directors of
Onconome, Inc., a privately held company developing biomarkers for early cancer detection. Dr. Demopulos
received his M.D. from the Stanford University School of Medicine and his B.S. from Stanford University.
Dr. Demopulos is the brother of Peter A. Demopulos, M.D., a member of our board of directors.

Marcia S. Kelbon, J.D. has served as our vice president, patent and general counsel since October 2001 and
as our secretary since September 2007. Prior to joining us, Ms. Kelbon was a partner with the firm of Christensen
O’Connor Johnson & Kindness, PLLC, where she specialized in U.S. and international intellectual property
procurement, management, licensing and enforcement issues. Ms. Kelbon received her J.D. and her M.S. in
chemical engineering from the University of Washington and her B.S. from The Pennsylvania State University.

Timothy M. Duffy has served as our vice president, business development since March 2010. From
November 2008 to March 2010, Mr. Duffy served as the managing director of Pacific Crest Ventures, a life
science consulting firm that he founded. From June 2004 through September 2008, Mr. Duffy served at
MDRNA, Inc. (formerly Nastech Pharmaceutical Company, Inc.), a biotechnology company. At MDRNA, he
held roles of increasing responsibility in marketing and business development, most recently as the chief business
officer. Prior to MDRNA, Mr. Duffy served as vice president, business development at Prometheus Laboratories,
Inc., a specialty pharmaceutical company, and as a customer marketing manager at The Procter & Gamble
Company. Mr. Duffy received his B.S. from Loras College.

Kenneth M. Ferguson, Ph.D. has served as our vice president, development since November 2010. From

August 2008 to November 2010, Dr. Ferguson served in various positions, including president, chief executive
officer and executive director as well as a consultant, for VacTX International Inc., a biotechnology company.
From 1990 to 2007, Dr. Ferguson served at ICOS Corporation. Prior to its acquisition in 2007 by Eli Lilly and
Company, Dr. Ferguson served at ICOS as vice president, therapeutic development. He also served as chief
operating officer, chief scientific officer and a member of the board of managers of Lilly ICOS LLC, the joint
venture of Eli Lilly and ICOS that developed and marketed Cialis®. Following the acquisition of ICOS by Eli
Lilly, he served as president of ICOS from January 2007 to December 2007, managing its integration into Eli

19

Lilly. Before joining ICOS, Dr. Ferguson worked for Cold Spring Harbor Laboratory. He holds a Ph.D. in
pharmacology from the University of Texas Health Science Center and a B.S. in biological sciences from Cornell
University.

George A. Gaitanaris, M.D., Ph.D. has served as our chief scientific officer since January 2012. He

previously served as our vice president, science from August 2006 until January 2012. From August 2003 to our
acquisition of nura, inc. in August 2006, Dr. Gaitanaris served as the chief scientific officer of nura, a company
that he co-founded and that developed treatments for central nervous system disorders. From 2000 to 2003,
Dr. Gaitanaris served as president and chief scientific officer of Primal, Inc., a biotechnology company that was
acquired by nura in 2003. Prior to co-founding Primal, Dr. Gaitanaris served as staff scientist at the National
Cancer Institute. Dr. Gaitanaris received his Ph.D. in cellular, molecular and biophysical studies and his M.Ph.
and M.A. from Columbia University in New York and his M.D. from the Aristotelian University of Greece.

Susan C. Sullivan has served as our senior director of regulatory affairs since October 2010. She previously

served as our director of regulatory operations from August 2007 until April 2010. Between May 2010 and
October 2010, Ms. Sullivan served as senior director, head of regulatory affairs at ZymoGenetics, Inc., a
biopharmaceutical company that was acquired by Bristol-Myers Squibb Company. From 1998 to 2007,
Ms. Sullivan served at ICOS Corporation, which was acquired by Eli Lilly & Company in 2007. At ICOS, she
held roles in the regulatory department, most recently as a principal regulatory scientist, and she helped to design
and implement the regulatory strategy for the global development of Cialis®. Prior to ICOS, Ms. Sullivan served
as a manager in the regulatory departments of SONUS Pharmaceuticals and Immunex Corporation. Ms. Sullivan
received her B.S. in biological sciences at Michigan Technological University.

David R. Toll has served as our senior director of finance since March 2009. He previously served as our
director of finance and controller from January 2006 to March 2009. Mr. Toll also served as our controller and
operations manager from November 2000 to January 2006. From 1998 to 2000, he served as the accounting
manager at aQuantive, Inc., a publicly traded digital marketing company that was acquired by Microsoft
Corporation. From 1992 to 1998, Mr. Toll served in various positions at Ostex International, Inc., a publicly
traded biotechnology company and manufacturer of diagnostic kits for osteoporosis that was acquired by
Inverness Medical Innovations, Inc. From 1990 to 1992, Mr. Toll served as a staff accountant with Deloitte &
Touche LLP. Mr. Toll received his B.A. in business administration from Seattle University.

J. Steven Whitaker, M.D., J.D. has served as our vice president, clinical development and chief medical
officer since March 2010. From May 2008 to March 2010, Dr. Whitaker served as the chief medical officer, vice
president of clinical development at Allon Therapeutics, Inc., a biotechnology company focused on developing
drugs for neurodegenerative diseases. From August 2007 to May 2008, he served as a medical consultant to
Accelerator Corporation, a biotechnology investment and development company. From May 1994 to May 2007,
Dr. Whitaker served at ICOS Corporation, which was acquired by Eli Lilly & Company in 2007. At ICOS, he
held roles of increasing responsibility in clinical research and medical affairs, most recently as divisional vice
president, clinical research as well as medical director of the Cialis® global product team. Dr. Whitaker received
his M.D. from the Indiana University School of Medicine, his J.D. from the University of Washington and his
B.S. from Butler University.

Corporate Information

We were incorporated as a Washington corporation. Our principal executive offices are located at

1420 Fifth Avenue, Suite 2600, Seattle, Washington, 98101, and our telephone number is (206) 676-5000. Our
web site address is www.omeros.com. We make available, free of charge through our web site, our annual report
on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or Exchange
Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.

20

Securities and Exchange Commission, or SEC. Our web site and the information contained therein or
incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the
public may read and copy any materials we file or furnish with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549 or may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. Moreover, the SEC maintains a web site that contains reports,
proxy and information statements, and other information regarding reports that we file or furnish electronically
with them at www.sec.gov.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Exchange Act, which are subject to the “safe harbor” created
by those sections. 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 facts are
“forward-looking statements” for purposes of these provisions. In some cases you can identify forward-looking
statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “project,” “predict,” and “potential,” and similar expressions intended to identify forward-looking
statements. Examples of these statements include, but are not limited to, statements regarding:

•

•

•

•

•

•

our ability to complete the second Phase 3 trial for OMS302 during the second half of 2012;

our ability to complete the first Phase 3 trial for OMS103HP during the second half of 2012;

our ability to begin the second Phase 3 trial for OMS103HP following discussions with European
regulatory authorities;

our ability to raise capital under our equity line financing facility with Azimuth or otherwise access the
capital markets;

our expectations regarding the clinical benefits of our product candidates, including whether
OMS103HP will be the first commercially available drug delivered directly to the surgical site to
improve function following arthroscopic surgery;

our expectation that the clinical benefits of our product candidates could provide surgeons a
competitive marketing advantage and facilitate third-party payor acceptance;

• whether the variant KD1 proteins we are developing in our Plasmin program could provide more

effective bleeding control with fewer side effects Trasylol®;

•

•

•

•

•

•

•

•

our ability to obtain commercial supplies of our PharmacoSurgery product candidates, our competition
and, if approved, our ability to successfully commercialize our PharmacoSurgery product candidates
with a limited, hospital-based marketing and sales force;

our expectation that 2014 is the earliest year in which any of our product candidates will be
commercially available or generate revenue;

our anticipation that we will rely on contract manufacturers to develop and manufacture our products
for commercial sale;

the extent of protection that our patents provide and our pending patent applications may provide, if
patents issue from such applications, to our technologies and programs;

our sales and marketing plans for our product candidates and programs, including OMS302 and
OMS103HP;

our expectations about the commercial competition that our product candidates may face;

our estimate regarding how long our existing cash, cash equivalents and short-term investments will be
sufficient to fund our anticipated operating expenses, capital expenditures and note payments;

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

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•

•

our involvement in potential claims and legal proceedings, the expected course and costs of existing
claims and legal proceedings, and the potential outcomes and effects of both existing and potential
claims and legal proceedings on our business, prospects, financial condition and results of operations;

our plans to file additional patent applications to enhance and protect our existing intellectual property
portfolio; and

our estimates regarding our future net losses, revenues, research and development expenses and general
and administrative expenses.

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 Item 1A of this Annual Report on
Form 10-K under the heading “Risk Factors” and in our other filings with the SEC. Given these risks,
uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also,
these forward-looking statements represent our management’s estimates and assumptions only as of the date of
the filing of this Annual Report on Form 10-K. You should read this Annual Report on Form 10-K completely
and with the understanding that our actual future results may be materially different from what we expect. Except
as required by law, we assume no obligation to update these forward-looking statements publicly, or to update
the reasons actual results could differ materially from those anticipated in these forward-looking statements, even
if new information becomes available in the future.

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ITEM 1A. RISK FACTORS

Our business, prospects, financial condition or operating results could be materially adversely affected by

any of the risks described below, as well as other risks not currently known to us or that we currently deem
immaterial. You should carefully consider these risks before making an investment decision. 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. In
assessing the risks described below, you should also refer to the other information contained in this Annual
Report on Form 10-K.

Risks Related to Our Product Candidates, Programs and Operations

Our success may largely depend on the success of our co-lead PharmacoSurgery™ product candidates,
OMS302 and OMS103HP, and we cannot be certain that either of them will receive regulatory approval or
be successfully commercialized. If we are unable to commercialize OMS302 or OMS103HP, or experience
significant delays in doing so, our business may be materially harmed.

We are a biopharmaceutical company with no products approved for commercial sale and we have not
generated any revenue from product sales. We have incurred, and expect to continue to incur, significant costs
relating to the development and commercialization of our co-lead product candidates – OMS302 for use during
ILR procedures and OMS103HP for use during arthroscopic partial meniscectomy surgery. We have not yet
obtained regulatory approval to market either of these product candidates for any indication in any jurisdiction
and we may never be able to obtain approval or, if approvals are obtained, to commercialize either of these
product candidates successfully.

We are conducting a Phase 3 clinical program that is evaluating OMS302 in patients undergoing ILR

procedures. This clinical program is planned to consist of two trials that will enroll both cataract surgery and
refractive lens exchange patients. In the first Phase 3 clinical trial, OMS302 achieved the primary endpoint of
maintenance of intraoperative mydriasis. We expect data from the second Phase 3 clinical trial during the second
half of 2012. We can provide no assurance that the data from the second clinical trial will demonstrate a drug
effect or that the trial will meet its co-primary endpoints – maintenance of intraoperative mydriasis and reduction
of ocular pain in the early postoperative period or that additional trials will not be required by regulatory
authorities. If the data from the second Phase 3 trial do not demonstrate a drug effect or if the trial fails to meet
both of its co-primary endpoints, our stock price may decline significantly and we may terminate any further
development activities in the OMS302 program. Further, if the second clinical trial of OMS302 is delayed, we
may be significantly delayed in seeking, or be unable to seek, marketing approval of the product candidate.

In addition, we are conducting a Phase 3 clinical program evaluating OMS103HP in patients undergoing

partial meniscectomy surgery. This clinical program is planned to consist of two trials conducted in North
America and Europe. We expect data from the North American trial in the second half of 2012. We are in
discussions with European regulatory authorities regarding the second Phase 3 clinical trial and, assuming
sufficient resources, plan to begin that trial following completion of those discussions. OMS103HP demonstrated
a drug effect in an earlier Phase 2 clinical trial in patients undergoing partial meniscectomy; however, we can
provide no assurance that data from the ongoing Phase 3 meniscectomy program will demonstrate a drug effect
or that the trials will meet their pre-specified efficacy endpoints. Also, we can provide no assurances that we will
have sufficient resources to conduct the second clinical trial on schedule or at all. If we are delayed or unable to
commence and complete the second clinical trial, we may be significantly delayed in seeking, or be unable to
seek, marketing approval of OMS103HP.

In the first quarter of 2011, we announced that OMS103HP failed to meet pre-specified efficacy endpoints

in a Phase 3 clinical program in patients undergoing arthroscopic ACL reconstruction surgery. Although we
believe that data from a prior Phase 1/Phase 2 clinical trial of OMS103HP in ACL reconstruction show a drug
effect in that indication, due to confounding factors in the Phase 3 clinical program, we are unable to draw any
conclusions about its effect in the Phase 3 program and we have no plans to conduct additional ACL
reconstruction trials at this time.

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We expect to incur significant clinical development and commercialization costs related to OMS302 and
OMS103HP, and if the resulting data for one or both of these product candidates are not positive or if we are
delayed or are unable to begin or complete the clinical trials, our business and prospects could be harmed
materially and the trading price of our stock could decline significantly. Even if the data are positive for either of
our lead product candidates, the FDA and other regulatory authorities may decide that our clinical trials or data
are insufficient for approval of the product candidate and require additional preclinical, clinical or other studies.
If these product candidates do not subsequently receive regulatory approval or if approval is delayed beyond our
expectations, or if we are unable to commercialize either product successfully, we may not be able to generate
revenue, become profitable, fund the development of our other product candidates or preclinical development
programs or continue our operations.

We are subject to extensive government regulation, including the requirement of approval before our
products may be marketed.

Both before and after approval of our product candidates, we, our product candidates, and our suppliers and

contract manufacturers are subject to extensive regulation by governmental authorities in the United States and
other countries, covering, among other things, testing, manufacturing, quality control, labeling, advertising,
promotion, distribution, and import and export. Failure to comply with applicable requirements could result in,
among other things, one or more of the following actions: warning letters; fines and other monetary penalties;
unanticipated expenditures; delays in approval or refusal to approve a product candidate; product recall or
seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions; and criminal
prosecution. We or the FDA or an IRB may suspend or terminate human clinical trials at any time on various
grounds, including a finding that the patients are being exposed to an unacceptable health risk.

Our product candidates cannot be marketed in the United States without FDA approval, and can only be
marketed for the indications, if any, for which they may be approved. The FDA has not approved any of our
product candidates for sale in the United States. All of our product candidates are in development, and will have
to be approved by the FDA before they can be marketed in the United States. Obtaining FDA approval requires
substantial time, effort, and financial resources, and may be subject to both expected and unforeseen delays, and
there can be no assurance that any approval will be granted on a timely basis, if at all.

The FDA may decide that our data are insufficient for approval of our product candidates and require
additional preclinical, clinical or other studies. As we develop our product candidates, we periodically discuss
with the FDA clinical, regulatory and manufacturing matters, and our views may, at times, differ from those of
the FDA. For example, the FDA regulates those of our product candidates consisting of two or more active
ingredients as combination drugs under its Combination Drug Policy. The Combination Drug Policy requires that
we demonstrate that each active ingredient in a drug product contributes to the product’s effectiveness. The FDA
has questioned the means by which we intend to demonstrate such contribution and whether available data and
information demonstrate contribution for each active ingredient in OMS103HP. If we are unable to resolve these
questions, we may be required to provide additional information, which may include the results of additional
preclinical studies or clinical trials.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond

those that we currently contemplate for regulatory approval, if we are unable to successfully complete our
clinical trials or other testing, or if the results of these and other trials or tests fail to demonstrate efficacy or raise
safety concerns, we may be delayed in obtaining marketing approval for our product candidates, or may never be
able to obtain marketing approval.

Even if regulatory approval of a product candidate is obtained, such approval may be subject to significant

limitations on the indicated uses for which that product may be marketed, conditions of use, and/or significant
post approval obligations, including additional clinical trials. These regulatory requirements may, among other

24

things, limit the size of the market for the product. Even after approval, discovery of previously unknown
problems with a product, manufacturer, or facility, such as previously undiscovered side effects, may result in
restrictions on any product, manufacturer, or facility, including, among other things, a possible withdrawal of
approval of the product.

We have not yet conducted a clinical trial designed to demonstrate the efficacy of OMS201 and, if we elect
to conduct additional clinical trials evaluating the product candidate, can provide no assurances that it will
demonstrate efficacy.

Our success could also depend on the successful commercialization of our third PharmacoSurgery product
candidate, OMS201 for use during urological procedures. We have not obtained regulatory approval to market
OMS201 for any indication in any jurisdiction and we may never be able to obtain approval or, if approvals are
obtained, to commercialize OMS201 successfully.

In the fourth quarter of 2010 we completed a successful Phase 1/Phase 2 clinical trial evaluating OMS201 in

patients undergoing ureteroscopy for removal of ureteral or renal stones. This trial was designed to evaluate the
safety and systemic absorption of two sequentially higher doses of OMS201 but the trial was not powered to
assess efficacy. We have not yet conducted a clinical trial designed to demonstrate the efficacy of OMS201 and
can provide no assurances that OMS201 will demonstrate efficacy. If we elect to conduct one or more additional
clinical trials of OMS201, we will incur significant development costs and there can be no assurance that data
from any subsequent clinical trials will be positive and, even if the data are positive, the FDA may decide that
our clinical trials or data are insufficient for marketing approval and require additional preclinical, clinical or
other studies. If OMS201 does not receive regulatory approval, or if it is not successfully commercialized, we
may not be able to generate revenue, become profitable, fund the development of our other product candidates or
our preclinical programs or continue our operations.

If our clinical trials are delayed, we may be unable to develop our product candidates on a timely basis,
which will increase our development costs and delay the potential commercialization of our products and
the subsequent receipt of revenue from sales, if any.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned

clinical trials that will cause regulatory agencies, IRBs or us to delay our clinical trials or suspend or delay the
analysis of the data from those trials. Clinical trials can be delayed for a variety of reasons, including:

•

•

•

•

•

•

•

•

discussions with the FDA or comparable foreign authorities regarding the scope or design of our
clinical trials;

delays or the inability to obtain required approvals from IRBs or other governing entities at clinical
sites selected for participation in our clinical trials;

delays in enrolling patients into clinical trials;

lower than anticipated retention rates of patients in clinical trials;

the need to repeat or conduct additional clinical trials as a result of problems such as inconclusive or
negative results, poorly executed testing, a failure of a clinical site to adhere to the clinical protocol or
unacceptable design;

an insufficient supply of product candidate materials or other materials necessary to conduct our
clinical trials;

the need to qualify new suppliers of product candidate materials for FDA and foreign regulatory
approval;

an unfavorable FDA inspection or review of a clinical trial site or records of any clinical investigation;

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•

the occurrence of drug-related side effects or adverse events experienced by participants in our clinical
trials; or

the placement of a clinical hold on a trial.

In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities

due to a number of factors, including:

•

•

•

•

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold;

unforeseen safety issues or any determination that a trial presents unacceptable health risks; or

lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due
to enrollment delays, requirements to conduct additional trials and studies and increased expenses
associated with the services of our contract research organizations, or CROs, and other third parties.

Changes in regulatory requirements and guidance may occur and we may need to amend clinical trial

protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for
re-examination, which may impact the costs, timing or successful completion of a clinical trial. If the results of
our clinical trials are not available when we expect or if we encounter any delay in the analysis of data from our
clinical trials, we may be unable to file for regulatory approval or conduct additional clinical trials on the
schedule we currently anticipate. Any delays in completing our clinical trials may increase our development
costs, would slow down our product development and approval process, would delay our receipt of product
revenue and could make it difficult to raise additional capital. Many of the factors that cause, or lead to, a delay
in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of a product candidate. In addition, significant clinical trial delays also could allow our competitors to
bring products to market before we do and impair our ability to commercialize our future products and may harm
our business.

Our existing and future product candidates, including our co-lead product candidates OMS302 and
OMS103HP, may never achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of one or more of our existing or future
product candidates, including OMS302 and OMS103HP, the commercial success of these product candidates will
depend on, among other things, their acceptance by physicians, patients, third-party payors and other members of
the medical community. If our product candidates fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our business. Market acceptance of, and demand for, any product candidate that we
may develop and commercialize will depend on many factors, including:

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•

•

•

our ability to provide acceptable evidence of safety and efficacy;

availability, relative cost and relative efficacy of alternative and competing treatments;

the effectiveness of our marketing and distribution strategy to, among others, hospitals, surgery centers,
physicians and/or pharmacists;

prevalence of the surgical procedure or condition for which the product is approved;

acceptance by physicians of each product as a safe and effective treatment;

perceived advantages over alternative treatments;

relative convenience and ease of administration;

the availability of adequate reimbursement by third parties;

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•

•

•

the prevalence and severity of adverse side effects;

publicity concerning our products or competing products and treatments; and

our ability to obtain sufficient third-party reimbursement for our products.

Further, the number of operations in which our PharmacoSurgery products, if approved, would be used may

be significantly less than the total number of operations performed according to the market data obtained from
industry sources. If our product candidates do not become widely accepted by physicians, patients, third-party
payors and other members of the medical community, it is unlikely that we will ever become profitable, and if
we are unable to increase market penetration of our product candidates, our growth will be significantly harmed.

We have a history of operating losses and we may not achieve or maintain profitability.

We have not been profitable and have generated substantial operating losses since we were incorporated in
June 1994. We had net losses of approximately $28.5 million, $29.3 million and $21.1 million for the 12 months
ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, we had an accumulated
deficit of approximately $176.1 million. We expect to incur additional losses for at least the next several years
and cannot be certain that we will ever achieve profitability, and we do not anticipate generating revenue from
the sale of our product candidates until 2014 at the earliest. As a result, our business is subject to all of the risks
inherent in the development of a new business enterprise, such as the risks that we may be unable to obtain
additional capital needed to support the preclinical and clinical expenses of development and commercialization
of our product candidates, to develop a market for our potential products, to successfully transition from a
company with a research and development focus to a company capable of commercializing our product
candidates and to attract and retain qualified management as well as technical and scientific staff.

If we are unable to raise additional capital when needed or on acceptable terms, we may be unable to
complete the development and commercialization of OMS302, OMS103HP or our other product
candidates, or continue our other preclinical development programs.

Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial

amounts to:

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•

•

•

•

complete the Phase 3 clinical program of OMS302 for use in ILR procedures;

complete the Phase 3 clinical program of OMS103HP for use in arthroscopic partial meniscectomy
surgery;

purchase the equipment and research tools and pay all of the related research and development costs
necessary to screen orphan GPCRs and commence related medicinal chemistry efforts as required
pursuant to our GPCR program funding agreements with Vulcan and LSDF;

scale-up and produce clinical supplies of product candidates, including for our PDE10, PDE7, MASP2
and Plasmin programs;

initiate, conduct and complete the next clinical trials of OMS201 for use in urological procedures;

continue research and development in all of our programs;

• make milestone payments to our collaborators;

• make principal and interest payments when due under our debt facility with Oxford;

•

•

initiate and conduct clinical trials for other product candidates; and

launch and commercialize any product candidates for which we receive regulatory approval.

If we do not raise additional capital, we may be unable to complete all of the clinical trials in our Phase 3
clinical programs for OMS302 and OMS103HP, which would prevent us from seeking marketing approval and

27

generating sales revenue for one or both of those product candidates. Also, our clinical trials may be delayed or
we may need to conduct additional trials for many of the reasons discussed in these “Risk Factors,” which would
increase our development expenses and may require us to raise additional capital to complete their clinical
development and commercialization and to decrease spending on our other development programs. Furthermore,
we may need to raise additional capital to advance one or more of our preclinical programs into clinical
development. If we are unable to raise sufficient capital to complete the clinical development of OMS302 or
OMS103HP or advance one or more of our preclinical development programs into the clinic, our business and
prospects could be harmed and our stock price could decline significantly.

The terms of our debt facility place restrictions on our operating and financial flexibility and, if we raise
additional capital through debt financing, the terms of any new debt could further restrict our ability to
operate our business.

We borrowed $20.0 million pursuant to the terms of a loan and security agreement with Oxford. As
collateral for this loan, we pledged substantially all of our assets other than intellectual property. Our agreement
with Oxford restricts our ability to incur additional indebtedness, pay dividends and engage in significant
business transactions such as a change of control of Omeros, so long as we owe any amounts to Oxford under the
agreement. Any of these restrictions could significantly limit our operating and financial flexibility and ability to
respond to changes in our business or competitive activities. In addition, if we default under our agreement,
Oxford may have the right to accelerate all of our repayment obligations under the agreement and to take control
of our pledged assets, which include our cash, cash equivalents and short-term investments, potentially requiring
us to renegotiate our agreement on terms less favorable to us. Further, if we are liquidated, Oxford’s right to
repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the
liquidation. An event of default under the loan and security agreement includes the occurrence of any material
adverse effect upon our business operations, properties, assets, results of operations or financial condition, taken
as whole with respect to our viability, that would reasonably be expected to result in our inability to repay the
loan. If Oxford declares a default upon the occurrence of any event that it interprets as having a material adverse
effect upon us as defined under our agreement, we will be required to repay the loan immediately or to attempt to
reverse Oxford’s declaration through negotiation or litigation. Any declaration by Oxford of an event of default
could significantly harm our business and prospects and could cause our stock price to decline. If we raise any
additional debt financing, the terms of such debt could further restrict our operating and financial flexibility.

Our agreements with Vulcan and LSDF contain covenants that may limit our ability to redirect research
and development efforts away from our GPCR program to other programs that may be more profitable or
for which there is a greater likelihood of success.

In October 2010, we received $20.0 million from Vulcan for our GPCR program, as well as an additional

$5.0 million grant award from LSDF that will be paid against expenses that we incur for our GPCR program. In
exchange for these payments, we agreed to pay Vulcan and LSDF a portion of net proceeds that we receive from
the GPCR program. Pursuant to our agreements with Vulcan and the LSDF, we are required to comply with
certain covenants, including ones that require us (1) to use commercially reasonable efforts to screen at least 75%
of the currently known human Class A orphan GPCRs within 19 months from the date of the agreements, subject
to possible extensions, and (2) to commence a medicinal chemistry effort focused on developing a product
candidate with respect to one orphan GPCRs and cause at least six employees and consultants to dedicate a
substantial portion of their time to such activities. These covenants require us to commit substantial resources to
activities that we may, absent such covenants, otherwise elect to abandon or delay in favor of other opportunities
or to preserve our cash. Further, we cannot guarantee that we will be able to comply with these covenants and, if
we do not, Vulcan or LSDF could declare that we are in default, which could significantly harm our business and
prospects and could cause our stock price to decline.

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Our agreements with Vulcan and LSDF include terms that may reduce the purchase price that a third
party would be willing to pay for the GPCR program or for us in a change of control, should we elect to
proceed with either of such transactions.

Under our agreement with Vulcan, if we decide to sell or assign all or substantially all of the assets in our
GPCR program prior to the time that Vulcan has received $60.0 million from our agreement, Vulcan may require
that the purchaser assume all of our rights and obligations pursuant to the agreement, including our obligation to
pay tiered percentages of net proceeds that we receive from the GPCR program. The term of the Vulcan
agreement is at least 35 years. If, at our option, we elect to assign the LSDF agreement in connection with the
sale of the GPCR program, a potential purchaser would also have to assume similar payment obligations to
LSDF. Potential purchasers of our GPCR program may be less inclined to purchase the program because of these
obligations. Further, even if they are willing to assume our rights and obligations, they may be unwilling to pay
as much for our GPCR program as they would be without such requirement. In addition, if we are acquired in a
change of control, the acquiring party will be required to assume our rights and obligations under the Vulcan and
LSDF agreements. A party that wants to acquire us through a change of control may also be less inclined to do so
or not be willing to pay as much to acquire us because of the Vulcan and LSDF agreements.

We have granted Vulcan a lien on all of our GPCR assets, excluding intellectual property, that provides
Vulcan a right, senior to our shareholders, to receive proceeds generated from a liquidation of our GPCR
assets as well as potentially limiting our operating and financial flexibility.

We have granted Vulcan a lien on all of our GPCR assets, excluding intellectual property, to secure our
obligations under our agreement with Vulcan. This lien is, and will be, junior to security interests we grant to
third parties, such as Oxford, in connection with indebtedness for borrowed money. The lien will automatically
be released once we have paid Vulcan or its affiliate $25.0 million out of net proceeds received from the GPCR
program. If we default under our agreement with Vulcan, in certain circumstances Vulcan may, subject to the
rights of any holders of senior security interests, take control of such pledged assets. We have also agreed with
Vulcan not to grant any liens on our GPCR-related intellectual property related to our cellular redistribution
assay, subject to specified exceptions. If we are liquidated, Vulcan’s right to receive any payments then due
under our agreement would be senior to the rights of the holders of our common stock to receive any proceeds
from the liquidation of our GPCR program assets. Further, the junior lien and negative pledge on our intellectual
property restricts our operating and financial flexibility, potentially limiting our ability to pursue business
opportunities and making it more difficult for us to respond to changes in our business.

LSDF may not fund the entire $5.0 million grant award.

LSDF’s $5.0 million grant award is only paid against certain costs we incur in the GPCR program. As of
December 31, 2011, we had received $3.8 million of funding against reimbursable expenses pursuant to the grant
award. If LSDF believes that we have breached our agreement before we have received the entire $5.0 million
available under the grant award, LSDF may refuse to provide us any further funding, in which case we will have
fewer resources to advance our GPCR program and to meet the covenants related to our GPCR program set forth
in our agreements with Vulcan and LSDF.

We rely on third parties to conduct portions of our preclinical research and clinical trials. If these third
parties do not perform as contractually required or otherwise expected, we may not be able to obtain
regulatory approval for or commercialize our product candidates.

We rely on third parties, such as CROs and research institutions, to conduct a portion of our preclinical
research. We also rely on third parties, such as medical institutions, clinical investigators and CROs, to assist us
in conducting our clinical trials. Nonetheless, we are responsible for confirming that our preclinical research is
conducted in accordance with applicable regulations, and that our clinical trials are conducted in accordance with
applicable regulations, the relevant protocol and within the context of approvals by an IRB. Our reliance on these

29

third parties does not relieve us of responsibility for ensuring compliance with FDA regulations and standards for
conducting, monitoring, recording and reporting the results of preclinical research and clinical trials to assure that
data and reported results are credible and accurate and that the trial participants are adequately protected. If these
third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is
compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other
reasons, our preclinical and clinical development processes may be extended, delayed, suspended or terminated,
and we may not be able to obtain regulatory approval for our product candidates.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to
market and sell our product candidates, we may be unable to generate product revenue.

We do not have a sales and marketing organization and Omeros has never sold, marketed or distributed any
biopharmaceutical product. Developing an internal sales force is expensive and time-consuming and commonly
is commenced 18 months in advance of product launch. Any delay in developing an internal sales force could
impact the timing of any product launch. If we enter into arrangements with third parties to perform sales,
marketing and distribution services, our product revenues are likely to be lower than if we market and sell any
approved product candidates that we develop ourselves. Factors that may inhibit our efforts to commercialize our
approved product candidates without collaboration partners include:

•

•

•

•

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

the inability of sales personnel to obtain access to or persuade adequate numbers of hospitals, surgery
centers, physicians and/or pharmacists to purchase, use or prescribe our approved product candidates;

the lack of complementary products to be offered by sales personnel, which may put us at a
competitive disadvantage relative to companies with more extensive product lines; and

unforeseen costs and expenses associated with creating an independent sales and marketing
organization.

If we are unsuccessful in building a sales and marketing infrastructure or unable to partner with one or more

third parties to perform sales and marketing services for our product candidates, we will have difficulty
commercializing our product candidates, which would adversely affect our business and financial condition.

We have no capacity to manufacture clinical or commercial supplies of our product candidates and intend
to rely solely on third parties to manufacture clinical and commercial supplies of all of our product
candidates.

We do not intend to manufacture our product candidates for our clinical trials or on a commercial scale and
intend to rely on third parties to do so. With the exception of our agreement with Hospira Worldwide, Inc. for the
commercial supply of liquid OMS103HP, we have not yet entered into any agreement for the commercial supply
of any of our product candidates, including OMS302, and can provide no assurance that we will be able to do so
on commercially reasonable terms, if at all. Any significant delays in the manufacture of clinical or commercial
supplies of our product candidates could materially harm our business and prospects.

If the contract manufacturers that we rely on experience difficulties with manufacturing our product
candidates or fail FDA inspections, our clinical trials, regulatory submissions and ability to commercialize
our product candidates and generate revenue may be significantly delayed.

Contract manufacturers that we select to manufacture our product candidates for clinical testing or for
commercial use may encounter difficulties with the small- and large-scale formulation and manufacturing
processes required for such manufacture. These difficulties could result in delays in clinical trials, regulatory
submissions, or commercialization of our product candidates. Once a product candidate is approved and being

30

marketed, these difficulties could also result in the later recall or withdrawal of the product from the market or
failure to have adequate supplies to meet market demand. Even if we are able to establish additional or
replacement manufacturers, identifying these sources and entering into definitive supply agreements and
obtaining regulatory approvals may require a substantial amount of time and cost and such supply arrangements
may not be available on commercially reasonable terms, if at all.

In addition, we and our contract manufacturers must comply with current good manufacturing practice, or
cGMP, requirements strictly enforced by the FDA through its facilities inspection program. These requirements
include quality control, quality assurance and the maintenance of records and documentation. We or our contract
manufacturers may be unable to comply with cGMP requirements or with other FDA, state, local and foreign
regulatory requirements. We have little control over our contract manufacturers’ compliance with these
regulations and standards or with their quality control and quality assurance procedures but we are responsible
for their compliance. For the liquid formulation of OMS103HP and our other product candidates, large-scale
manufacturing processes that have been developed will require validation studies, which the FDA must review
and approve. Failure to comply with these requirements by our contract manufacturers could result in the
issuance of untitled letters and/or warning letters from authorities, as well as sanctions being imposed on us,
including fines and civil penalties, suspension of production, suspension or delay in product approval, product
seizure or recall or withdrawal of product approval. If the safety of any product candidate supplied by contract
manufacturers is compromised due to their failure to adhere to applicable laws or for other reasons, we may not
be able to obtain or maintain regulatory approval for or successfully commercialize one or more of our product
candidates, which would harm our business and prospects significantly.

If one or more of our contract manufacturers were to encounter any of these difficulties or otherwise fail to
comply with its contractual obligations, our ability to provide product candidates to patients in our clinical trials
or on a commercial scale would be jeopardized. Any delay or interruption in the supply of clinical trial supplies
could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial
programs and, depending on the period of delay, require us to commence new trials at significant additional
expense or terminate the trials completely. If we need to change to other commercial manufacturers, the FDA
and comparable foreign regulators must first approve these manufacturers’ facilities and processes, which would
require new testing and compliance inspections, and the new manufacturers would have to be educated in or
independently develop the processes necessary for the production of our product candidates.

Ingredients necessary to manufacture our PharmacoSurgery product candidates may not be available on
commercially reasonable terms, if at all, which may delay the development and commercialization of our
product candidates.

We must purchase from third-party suppliers the ingredients necessary for our contract manufacturers to

produce our PharmacoSurgery product candidates for our clinical trials and, if approved, for commercial
distribution. Suppliers may not sell these ingredients to us at the time we need them or on commercially
reasonable terms, if at all. Although we intend to enter into agreements with third-party suppliers that will
guarantee the availability and timely delivery of ingredients for our PharmacoSurgery product candidates, we
have not yet entered into and we may be unable to secure any such supply agreements or guarantees. Even if we
were able to secure such agreements or guarantees, our suppliers may be unable or choose not to provide us the
ingredients in a timely manner or in the minimum guaranteed quantities. If we are unable to obtain and then
supply these ingredients to our contract manufacturer for our clinical trials, potential regulatory approval of our
product candidates would be delayed, significantly impacting our ability to develop our product candidates,
which would materially affect our ability to generate revenue from the sale of our product candidates.

31

We may need licenses for active ingredients from third parties so that we can develop and commercialize
some products from some of our current preclinical programs, which could increase our development
costs and delay our ability to commercialize products.

Should we decide to use active ingredients in any of our product candidates that are proprietary to one or

more third parties, we would need to obtain licenses to those active ingredients from those third parties. For
example, we intend to use proprietary active ingredients that we have exclusively licensed from Daiichi Sankyo
for our PDE7 program. If we are unable to access rights to these active ingredients prior to preclinical toxicology
studies intended to support clinical trials, we may need to develop alternate product candidates from these
programs by either accessing or developing alternate active ingredients, resulting in increased development costs
and delays in commercialization of these product candidates. If we are unable to access rights to the desired
active ingredients on commercially reasonable terms or develop suitable alternate active ingredients, we may not
be able to commercialize product candidates from these programs.

We may not be successful in partnering new drug targets made accessible by our GPCR program.

To fully exploit the developments arising from our GPCR program, we intend to partner or out-license our

proprietary rights associated with some of the new drug targets made accessible by our GPCR program. There
can be no assurance that we will enter into any such agreements and, even if we do, that the terms of any such
agreements will be favorable to us. For example, potential partners may require that we first advance the
development and optimization of functionally active compounds identified from our high-throughput screening
of orphan GPCRs prior to entering into a licensing or other partnering arrangement, requiring us to invest
substantial resources without any certainty that we will successfully optimize one or more of the compounds or
recover our investment. Potential partners may also require that we obtain the issuance of patents protecting the
new drug targets and compounds that interact with those targets. We may not be successful in obtaining the
issuance of such patents for the targets and compounds we intend to partner or for the targets and compounds we
intend to develop ourselves and, even if we do, the breadth of our patent rights may be inadequate or may be
viewed as inadequate by potential partners. Further, if we are unable to secure the issuance of patents or patents
of adequate breadth, we may be unable to exclude competitors from developing and commercializing compounds
that interact with GPCR targets, limiting our ability to successfully commercialize these targets either
independently or with a partner.

Our ability to pursue the development and commercialization of product candidates from our MASP2
program depends on the continuation of licenses from third parties.

Our MASP2 program is based in part on intellectual property rights that we licensed on a worldwide

exclusive basis from the University of Leicester, MRC and Helion. The continued maintenance of these
agreements requires us to undertake development activities and, if regulatory approval for marketing is obtained,
to pay royalties to each of these organizations upon commercialization of a MASP2 product candidate. In
addition, we are obligated to pay Helion up to $6.9 million upon the achievement of certain events related to a
MASP2 product candidate, such as the filing of an IND application with the FDA, initiation of clinical trials,
receipt of marketing approval and reaching specified sales milestones. Our ability to continue development and
commercialization of product candidates from our MASP2 program depends on our maintaining these exclusive
licenses, which cannot be assured.

Our ability to pursue the development and commercialization of product candidates from our MASP2 and
Plasmin programs depends on third-party developers and manufacturers of biologic drug products.

Any product candidate from our MASP2 or Plasmin programs would be a biologic drug product and we do

not have the internal capability to sequence, hybridize or clone biologics or to produce them for use in clinical
trials or on a commercial scale. We do not currently have agreements in place with manufacturers of biologics to
manufacture clinical or commercial quantities of drug product for our MASP2 or Plasmin programs and cannot

32

be certain that such agreements could be entered into on commercially reasonable terms, if at all. There are only
a limited number of manufacturers of biologic drug products. If we are unable to obtain clinical supplies of
product candidates for one of these programs, clinical trials or the development of any such product candidate for
that program could be substantially delayed until we can find and qualify a manufacturer, which may increase
our development costs, slow down our product development and approval process, delay receipt of product
revenue and make it difficult to raise additional capital.

Our preclinical programs may not produce product candidates that are suitable for clinical trials or that
can be successfully commercialized or generate revenue through partnerships.

Any product candidates from our preclinical programs, including our PDE10, PDE7, MASP2, Plasmin and
GPCR programs, must successfully complete preclinical testing, which may include demonstrating efficacy and
the lack of toxicity in established animal models, before entering clinical trials. Many pharmaceutical and
biological product candidates do not successfully complete preclinical testing and, even if preclinical testing is
successfully completed, may fail in clinical trials. In addition, there can be no assurance that positive results from
preclinical studies will be predictive of results obtained from subsequent preclinical studies or clinical trials. For
example, our studies of PDE7 inhibitors in different animal models of Parkinson’s disease, which may or may
not be relevant to the mechanism of action of PDE7 inhibitors in humans, have produced varying results. Further,
we cannot be certain that any of our preclinical product development programs will generate product candidates
that are suitable for clinical testing. For example, we have not yet generated any product candidates from our
GPCR program. We may discover that there are fewer drugable targets among the orphan GPCRs than we
currently estimate and that, for those orphan GPCRs for which we identify functionally active compounds that
we elect to develop independently, we are unable to develop related product candidates that successfully
complete preclinical or clinical testing. If we are unable to develop product candidates, potential corporate
partners may be unwilling to enter into partnership agreements with us. We also cannot be certain that any
product candidates that do advance into clinical trials will successfully demonstrate safety and efficacy in clinical
trials. Even if we achieve positive results in early clinical trials, they may not be predictive of the results in later
trials.

Because we have a number of development programs and are considering a variety of product candidates,
we may expend our limited resources to pursue a particular candidate or candidates and fail to capitalize
on candidates or indications that may be more profitable or for which there is a greater likelihood of
success.

Because we have limited resources, we must focus on clinical and preclinical development programs and

product candidates that we believe are the most promising. As a result, we may forego or delay pursuit of
opportunities with other product candidates or other indications that later prove to have greater commercial
potential and may not be able to progress development programs, including our GPCR program, as rapidly as
otherwise possible. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Further, if we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish valuable rights to that product candidate
through collaboration, license or other royalty arrangements in cases in which it would have been advantageous
for us to retain sole development and commercialization rights.

It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may
not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret

protection for the use, formulation and structure of our product candidates, the methods used to manufacture
them, the related therapeutic targets and associated methods of treatment, as well as on successfully defending
these patents against potential third-party challenges. Our ability to protect our product candidates from

33

unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent to
which we have rights under valid and enforceable patents that cover these activities.

The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly

uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged
to date in the United States, and tests used for determining the patentability of patent claims in all technologies
are in flux. The pharmaceutical, biotechnology and other life sciences patent situation outside the United States is
even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States
and other countries may diminish the value of our intellectual property. Further, the determination that a patent
application or patent claim meets all of the requirements for patentability is a subjective determination based on
the application of law and jurisprudence. For example, in the United States, a determination of patentability by
the U.S. Patent and Trademark Office, or USPTO, or validity by a court or other trier of fact requires a
determination that the claimed invention has utility and is both novel and non-obvious to those of ordinary skill
in the art in view of prior known publications and public information, and that the patent specification supporting
the claim adequately describes the claimed invention, discloses the best mode known to the inventors for
practicing the invention, and discloses the invention in a manner that enables one of ordinary skill in the art to
make and use the invention, such as for our target-based technologies. The ultimate determination by the USPTO
or by a court of other trier of fact in the United States, or corresponding foreign national patent offices or courts,
on whether a claim meets all requirements of patentability cannot be assured. Although we have conducted
searches for third-party publications, patents and other information that may impact the patentability of claims in
our various patent applications and patents, we cannot be certain that all relevant information has been identified.
Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or patent
applications, our licensed patents or patent applications or in third-party patents.

Our issued PharmacoSurgery patents have terms that will expire as late as September 24, 2022 for

OMS103HP. If our pending PharmacoSurgery applications issue as patents, the expiration dates of those patents
will be August 4, 2032 for OMS103HP, July 30, 2023 for OMS302 and March 17, 2026 for OMS201, not taking
into account any extensions due to potential adjustment of patent terms resulting from USPTO delays. We intend
to file additional patent applications directed to OMS302 which, if issued, are expected to provide patent terms
ending 2033 or later. We cannot assure you that any of these patent applications will be found to be patentable,
including over our own prior art patents, or will issue as patents, nor can we make assurances as to the scope of
any claims that may issue from these pending and future patent applications or to the outcome of any proceedings
by any potential third parties that could challenge the patentability, validity or enforceability of our patents and
patent applications in the United States or foreign jurisdictions, which could limit patent protection for our
product candidates and materially harm our business.

The degree of future protection for our proprietary rights is uncertain, because legal means afford only

limited protection and may not adequately protect our rights or permit us to gain or keep our competitive
advantage. For example:

• we might not have been the first to make the inventions covered by any of our patents, if issued, or our

pending patent applications;

• we might not have been the first to file patent applications for these inventions;

•

others may independently develop similar or alternative technologies or products or duplicate any of
our technologies or products;

• we may not be able to generate sufficient data to fully support patent applications that protect the entire
breadth of developments expected to result from our development programs, including the GPCR
program;

34

•

•

•

it is possible that none of our pending patent applications will result in issued patents or, if issued, that
these patents will be sufficient to protect our technology or provide us with a basis for commercially
viable products or provide us with any competitive advantages;

if our pending applications issue as patents, they may be challenged by third parties as not infringed,
invalid or unenforceable under U.S. or foreign laws;

if issued, the patents under which we hold rights may not be valid or enforceable; or

• we may develop additional proprietary technologies or products that are not patentable and which are

unlikely to be adequately protected through trade secrets if, for example, a competitor were to
independently develop duplicative, similar or alternative technologies or products.

In addition, to the extent we are unable to obtain and maintain patent protection for one of our product

candidates or in the event such patent protection expires, it may no longer be cost-effective to extend our
portfolio by pursuing additional development of a product candidate for follow-on indications.

We also may rely on trade secrets to protect our technologies or products, especially where we do not
believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we
use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose our information to competitors.
Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and
time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent
knowledge, methods and know-how.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other
intellectual property rights.

If we choose to go to court to stop someone else from using our inventions, that individual or company has the
right to ask the court to rule that the underlying patents are invalid or should not be enforced against that third party.
These lawsuits are expensive and would consume time and other resources even if we were successful in stopping
the infringement of these patents. There is also the risk that, even if the validity of these patents is upheld, the court
will refuse to stop the other party on the ground that such other party’s activities do not infringe the patents.

Further, a third party may claim that we or our contract manufacturers are using inventions covered by the

third party’s patent rights and may go to court to stop us from engaging in the alleged infringing activity,
including making, using or selling our product candidates. These lawsuits are costly and could affect our results
of operations and divert the attention of managerial and technical personnel. There is a risk that a court would
decide that we or our contract manufacturers are infringing the third party’s patents and would order us or our
partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our
contract manufacturers to pay the other party’s damages for having violated the other party’s patents. We have
indemnified our contract manufacturers against certain patent infringement claims and thus may be responsible
for any of their costs associated with such claims and actions. The pharmaceutical, biotechnology and other life
sciences industry has produced a proliferation of patents, and it is not always clear to industry participants,
including us, which patents cover various types of products or methods of use. The coverage of patents is subject
to interpretation by the courts and the interpretation is not always uniform. If we were sued for patent
infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent
claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving
invalidity, in particular, is difficult since it requires clear and convincing evidence to overcome the presumption
of validity enjoyed by issued patents.

Although we have conducted searches of third-party patents with respect to our programs, these searches

may not have identified all relevant third-party patents. Consequently, we cannot assure you that third-party
patents containing claims covering our product candidates, programs, technologies or methods do not exist, have
not been filed, or could not be filed or issued.

35

Because some patent applications in the United States may be maintained in secrecy until the patents are
issued, because patent applications in the United States and many foreign jurisdictions are typically not published
until eighteen months after filing, and because publications in the scientific literature often lag behind actual
discoveries, we cannot be certain that others have not filed patent applications for technology covered by our
patents, our licensors’ patents, our pending applications or our licensors’ pending applications, or that we or our
licensors were the first to invent or the first to file patent applications for inventions embodied in our
technologies. Our competitors may have filed, and may in the future file, patent applications covering
technologies similar to ours. Any such patent application may have priority over our or our licensors’ patent
applications and could further require us to obtain rights to issued patents covering such technologies. If our or
our licensors’ pending patent applications issue as patents, we can provide you no assurances that the patents will
not be challenged in post-grant review or inter-parties review proceedings. If another party has filed a U.S. patent
application on inventions similar to ours, we may have to participate in interference derivation proceeding
declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings
could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our
U.S. patent position with respect to such inventions. Similar patent opposition proceedings in other countries and
regions may also be costly and could result in the loss of patent rights in those countries and regions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than

we can because they have substantially greater resources. In addition, any uncertainties resulting from the
initiation and continuation of any litigation could have a material adverse effect on our ability to raise the capital
necessary to continue our operations.

We may experience disruptions to our business in connection with moving our offices and laboratory into
a new facility during 2012.

In late 2012, we intend to move all of operations, including our laboratory and vivarium, to a new building.

Under our lease, the landlord is responsible for building a laboratory and vivarium in this new facility to our
specifications. We can provide no assurances that the landlord will be able to construct a laboratory and vivarium
to our specifications by the time that we are required to vacate our current laboratory and vivarium space, or at
all. Further, even if the new facility meets our specifications, after moving our laboratory and vivarium into this
building we may discover problems that disrupt our research efforts. Any of these problems could substantially
damage, disrupt or delay our research and development efforts, require us to find a new facility for our laboratory
and vivarium that may not be available on commercially reasonable terms or at all, and materially harm one or
more of our development programs and our business and prospects.

We use hazardous materials in our business and must comply with environmental laws and regulations,
which can be expensive.

Our research operations produce hazardous waste products, which include chemicals and radioactive and

biological materials. We are subject to a variety of federal, state and local regulations relating to the use,
handling, storage and disposal of these materials. Although we believe that our safety procedures for handling
and disposing of these materials comply with applicable legal regulations, the risk of accidental contamination or
injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such
substances and store our low-level radioactive waste at our facilities until the materials are no longer considered
radioactive. We may be required to incur further costs to comply with current or future environmental and safety
regulations. In addition, although we carry insurance, in the event of accidental contamination or injury from
these materials, we could be held liable for any damages that result and any such liability could exceed our
insurance coverage and other resources.

The loss of members of our management team could substantially disrupt our business operations.

Our success depends to a significant degree on the continued individual and collective contributions of our

management team. The members of our management team are at-will employees, and we do not maintain any
key-person life insurance policies other than on the life of Gregory Demopulos, M.D., our president, chief

36

executive officer and chairman of the board of directors. Losing the services of any key member of our
management team, whether from death or disability, retirement, competing offers or other causes, could delay
execution of our business strategy, cause us to lose a strategic partner, or otherwise materially affect our
operations.

We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire
qualified personnel, we may not be able to maintain our operations or grow effectively.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future
success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel
for all areas of our organization. If we are unable to hire and train a sufficient number of qualified employees for
any reason, we may not be able to implement our current initiatives or grow effectively. We have in the past
maintained a rigorous, highly selective and time-consuming hiring process. We believe that our approach to
hiring has significantly contributed to our success to date. If we do not succeed in attracting qualified personnel
and retaining and motivating existing personnel, our existing operations may suffer and we may be unable to
grow effectively.

To manage our anticipated future growth, we must continue to implement and improve our managerial,
operational and financial systems and continue to recruit and train additional qualified personnel. Due to our
limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit
and train additional qualified personnel. The physical expansion of our operations may lead to significant costs
and may divert our management and business development resources. Any inability to manage growth could
delay the execution of our business plans or disrupt our operations.

Our former chief financial officer has filed a lawsuit against us and our current and former directors, the
defense of which has and will continue to consume our time and resources and could harm our reputation
and the reputations of our current and former directors, materially negatively affect our financial position
and cause our stock price to decline.

In December 2008, our former chief financial officer, Richard J. Klein, used our Whistleblower Policy
procedures to report to the chairman of our audit committee that we had submitted grant reimbursement claims to
the National Institutes of Health, or NIH, for work that we had not performed. In accordance with the
Whistleblower Policy and its charter, our audit committee, with special outside counsel, commenced an
independent investigation of our NIH grant and claims procedures. The investigation concluded that we had not
submitted claims to the NIH for work we had not performed. In January 2009, we terminated Mr. Klein’s
employment for reasons other than this incident. Mr. Klein alleged that he was wrongfully terminated and
claimed it was retaliatory. We subsequently voluntarily reported to the NIH Mr. Klein’s whistleblower report and
the audit committee findings; in June 2009 the NIH confirmed to us in writing that it was satisfied with our
handling of the grant matters that were the subject of Mr. Klein’s whistleblower report.

On September 21, 2009, Mr. Klein filed a lawsuit against us and some of our current and former directors in

the United States District Court for the Western District of Washington, or WDWA, alleging, among other
things, that we violated the Federal False Claims Act, wrongfully discharged his employment in violation of
public policy and defamed him. Mr. Klein seeks, among other things, damages in an amount to be proven at trial,
actual litigation expenses, damages for loss of future earnings and his reasonable attorneys’ fees. On January 8,
2010, the court dismissed all of our non-executive directors from the case with prejudice, and on July 27, 2010
Mr. Klein withdrew his defamation claim. On December 8, 2010, Mr. Klein was granted leave to amend his
complaint to add qui tam claims asserted on behalf of the U.S. government under the Federal False Claims Act.
The qui tam claims are based on the same NIH grant that was the subject of Mr. Klein’s whistleblower report and
related NIH grants totaling $1.3 million. Mr. Klein seeks on behalf of the U.S. government and himself an award
of civil penalties, treble damages and fees and costs. On October 17, 2011, the U.S. government filed a notice of
its election to decline intervention in the qui tam claims, but this election does not prevent Mr. Klein from
continuing these claims or his other claims and does not affect our claims against Mr. Klein. On March 13, 2012,
the WDWA issued an order granting our motion to dismiss the majority of the qui tam claims for failing to meet

37

statutory requirements, leaving pending only the qui tam claims related (1) to our alleged obligations stemming
from $164,000 of grant funds drawn down by nura, inc. prior to our acquisition of nura, inc. in 2006 and (2) to
the timekeeping allegations that we previously reported to the NIH and for which the NIH confirmed to us in
writing that it was satisfied with our handling of the matter. Although we have been advised by outside counsel
that we have meritorious defenses to Mr. Klein’s allegations, and we are defending against the remaining claims
vigorously, neither the outcome of the litigation nor the amount and range of potential damages or exposure
associated with the litigation can be assessed with certainty. Further, defending this lawsuit has already
consumed and will continue to consume our time and resources and could, depending on the outcome, harm our
reputation and the reputations of our current and former directors, and materially negatively affect our financial
position and cause our stock price to decline.

Costs associated with defense of the lawsuit filed by Mr. Klein have to date been paid in part, subject to a
reservation of rights, by Carolina Casualty Insurance Company, or CCIC, which is the carrier for our Directors,
Officers and Corporate Liability Insurance Coverage, or D&O Insurance Policy, that was in place at the time
Mr. Klein’s employment with Omeros was terminated. On February 21, 2012, CCIC filed a complaint for a
declaratory judgment against us, our CEO and Mr. Klein in the WDWA, seeking a declaration that CCIC owes
no duty to indemnify or defend us or our CEO against the allegations raised by Mr. Klein. We expect that CCIC
will continue to pay defense costs related to the lawsuit while the declaratory judgment action is pending. We
intend to defend vigorously the declaratory judgment action filed by CCIC, and while we can provide no
assurances regarding the outcome of the litigation with CCIC, we believe CCIC is required under the D&O
Insurance Policy to pay our defense costs related to the lawsuit filed by Mr. Klein.

As a public company we incur increased costs and demands on management as a result of complying with
the laws and regulations affecting public companies, which could affect our operating results.

As a public company we incur significant legal, accounting and other expenses that we did not incur as a private

company, including costs associated with public company reporting requirements. We also have incurred, and will
continue to incur, costs associated with corporate governance requirements, including the Sarbanes-Oxley Act and
the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, as well as rules
implemented by the SEC and the NASDAQ Stock Market. There are significant corporate governance and executive
compensation-related provisions in the Dodd-Frank Act and the requirements of the related SEC rules and
regulations may increase our legal and financial compliance costs, make some activities more difficult, time-
consuming or costly and may also place undue strain on our personnel, systems and resources. We also expect that
these rules and regulations may make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage than was previously available. As a result, it may be more difficult for us
to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

We are required to make an assessment of the effectiveness of our internal control over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Further, our independent registered public
accounting firm has been engaged to express an opinion on the effectiveness of our internal control over financial
reporting. Section 404 requires us to perform system and process evaluation and testing of our internal control
over financial reporting to allow management and our independent registered public accounting firm to report on
the effectiveness of our internal control over financial reporting for each fiscal year. Our testing, or the
subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal
control over financial reporting that are deemed to be material weaknesses.

If we are unable to comply with the requirements of Section 404, management may not be able to assess
whether our internal control over financial reporting is effective, which may subject us to adverse regulatory
consequences and could result in a negative reaction in the financial markets due to a loss of confidence in the
reliability of our financial statements. In addition, if we fail to maintain effective controls and procedures, we may be
unable to provide the required financial information in a timely and reliable manner or otherwise comply with the
standards applicable to us as a public company. Any failure by us to provide the required financial information in a
timely manner could materially and adversely impact our financial condition and the market value of our securities.

38

Risks Related to Our Industry

Our competitors may develop products that are less expensive, safer or more effective, or which may
otherwise diminish or eliminate the commercial success of any potential products that we may
commercialize.

If our competitors market products that are less expensive, safer or more effective than our future products

developed from our product candidates, that reach the market before our product candidates, or that otherwise
negatively affect the market, we may not achieve commercial success. For example, we are developing PDE10
inhibitors to identify a product candidate for use in the treatment of schizophrenia and other diseases that affect
cognition. Other pharmaceutical companies, many with significantly greater resources than we have, are also
developing PDE10 inhibitors for the treatment of schizophrenia and other diseases that affect cognition and these
companies may be further along in development. The failure of a PDE10 inhibitor product candidate from any of
our competitors to demonstrate safety or efficacy in clinical trials may negatively reflect on the ability of our
PDE10 inhibitor product candidates under development to demonstrate safety and efficacy. In addition, we
believe that other companies are attempting to find compounds that functionally interact with orphan GPCRs. If
any of these companies are able to achieve this for a given orphan GPCR before we do, we may be unable to
establish a commercially valuable intellectual property position around that orphan GPCR. Further, the failure of
any future products developed from our product candidates to effectively compete with products marketed by our
competitors would impair our ability to generate revenue, which would have a material adverse effect on our
future business, financial condition and results of operations.

We expect to compete with other biopharmaceutical and biotechnology companies, and our competitors

may:

•

•

•

•

•

develop and market products that are less expensive or more effective than any future products
developed from our product candidates;

commercialize competing products before we can launch any products developed from our product
candidates;

operate larger research and development programs, possess commercial-scale manufacturing
operations or have substantially greater financial resources than we do;

initiate or withstand substantial price competition more successfully than we can;

have greater success in recruiting skilled technical and scientific workers from the limited pool of
available talent;

• more effectively negotiate third-party licenses and strategic relationships; and

•

take advantage of acquisition or other opportunities more readily than we can.

We expect to compete for market share against large pharmaceutical and biotechnology companies, smaller

companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions,
government agencies and other public and private research organizations. In addition, the pharmaceutical and
biotechnology industry is characterized by rapid technological change. Because our research approach integrates
many technologies, it may be difficult for us to remain current with rapid changes in each technology. If we fail
to stay at the forefront of technological change, we may be unable to compete effectively. Our competitors may
render our technologies obsolete by advances in existing technological approaches or the development of new or
different approaches, potentially eliminating the advantages in our product discovery process that we believe we
derive from our research approach and proprietary technologies and programs. In addition, physicians may
continue with their respective current treatment practices, including the use of current preoperative and
postoperative treatments, rather than adopt our PharmacoSurgery product candidates.

39

Our product candidates could be subject to restrictions or withdrawal from the market and we may be
subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated
problems with our product candidates if and when any of them are approved.

Any product candidate for which we obtain marketing approval, together with the manufacturing processes,
post-approval clinical data, and advertising and promotional activities for such product candidate, will be subject
to continued regulation by the FDA and other regulatory agencies. Even if regulatory approval of a product
candidate is granted, the approval may be subject to limitations on the indicated uses for which the product
candidate may be marketed or to the conditions of approval, or the approval may contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the product candidate. Later
discovery of previously unknown problems with our product candidates or their manufacture, or failure to
comply with regulatory requirements, may result in:

•

restrictions on such product candidates or manufacturing processes;

• withdrawal of the product candidates from the market;

•

•

•

•

•

voluntary or mandatory recalls;

fines;

suspension of regulatory approvals;

product seizures; or

injunctions or the imposition of civil or criminal penalties.

If we are slow or unable to adapt to changes in existing regulatory requirements or adoption of new

regulatory requirements or policies, we may lose marketing approval for our product candidates when and if any
of them are approved.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products internationally.

We intend to have our product candidates marketed outside the United States. In order to market our

products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory
approvals and comply with numerous and varying regulatory requirements. We may be unable to file for
regulatory approvals and may not receive necessary approvals to commercialize our products in any market. The
approval procedure varies among countries and can involve additional testing and data review. The time required
to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with obtaining FDA approval discussed in
these “Risk Factors.” We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the
FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory
authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. The failure to
obtain these approvals could harm our business.

If we are unable to obtain adequate reimbursement from governments or third-party payors for any
products that we may develop or if we are unable to obtain acceptable prices for those products, they may
not be purchased or used and, as a result, our revenue and prospects for profitability could suffer.

Our future revenue and profit will depend heavily on the availability of adequate reimbursement for the use

of our approved product candidates from governmental and other third-party payors, both in the United States
and in other countries. Even if we are successful in bringing one or more product candidates to market, these
products may not be considered cost-effective, and the amount reimbursed for any product candidates may be
insufficient to allow us to sell our product candidates profitably. Reimbursement by a third-party payor may
depend on a number of factors, including the third-party payor’s determination that use of a product is:

•

•

a covered benefit under its health plan;

safe, effective and medically necessary;

40

•

•

•

appropriate for the specific patient;

cost-effective; and

neither experimental nor investigational.

Obtaining reimbursement approval for a product from each government or third-party payor is a time-
consuming and costly process that will require the build-out of a sufficient staff and could require us to provide
supporting scientific, clinical and cost- effectiveness data for the use of our products to each payor. Because none
of our product candidates have been approved for marketing, we can provide no assurances at this time regarding
their cost-effectiveness and the amount, if any, or method of reimbursement. Further, we can provide no
assurance that the amounts, if any, reimbursed to surgical facilities for utilization of our surgery-related product
candidates or to surgeons for the administration and delivery of these product candidates will be considered
adequate to justify the use of these product candidates. There may be significant delays in obtaining
reimbursement coverage for newly approved product candidates and we may not be able to provide data
sufficient to gain acceptance with respect to reimbursement. Even when a payor determines that a product is
eligible for reimbursement, coverage may be more limited than the purposes for which the product candidate is
approved by the FDA or foreign regulatory agencies. Increasingly, third-party payors who reimburse healthcare
costs, such as government and private payors, are requiring that companies provide them with predetermined
discounts from list prices and challenging the prices charged for medical products. Moreover, eligibility for
coverage does not mean that any product candidate will be reimbursed at a rate that allows us to make a profit in
all cases, or at a rate that covers our costs, including research, development, manufacturing, sale and distribution.
In non-U.S. jurisdictions, we must obtain separate reimbursement approvals and comply with related foreign
legal and regulatory requirements. In some countries, including those in the European Union, our product
candidates may be subject to government price controls. Pricing negotiations with governmental authorities can
take a considerable amount of time after the receipt of marketing approval for a product candidate. If the
reimbursement we are able to obtain for any product candidate we develop is inadequate in light of our
development and other costs or is significantly delayed, our business could be materially harmed.

Product liability claims may damage our reputation and, if insurance proves inadequate, these claims may
harm our business.

We may be exposed to the risk of product liability claims that is inherent in the biopharmaceutical industry.

A product liability claim may damage our reputation by raising questions about our product candidate’s safety
and efficacy and could limit our ability to sell one or more product candidates, if approved, by preventing or
interfering with commercialization of our product candidates. In addition, product liability insurance for the
biopharmaceutical industry is generally expensive to the extent it is available at all. There can be no assurance
that we will be able to obtain and maintain such insurance on acceptable terms or that we will be able to secure
increased coverage if the commercialization of our product candidates progresses, or that future claims against us
will be covered by our product liability insurance. Although we currently have product liability insurance
coverage for our clinical trials, our insurance coverage may not reimburse us or may be insufficient to reimburse
us for any or all expenses or losses we may suffer. A successful claim against us with respect to uninsured
liabilities or in excess of insurance coverage could have a material adverse effect on our business, financial
condition and results of operations.

41

Risks Related to Our Common Stock

Our stock price has been and may continue to be volatile, and the value of an investment in our common
stock may decline.

During the year ended December 31, 2011, our stock traded as high as $8.54 per share and as low as $3.16
per share. The trading price of our common stock is likely to continue to be highly volatile and could be subject
to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

results from our clinical development programs, including the data from our ongoing Phase 3 clinical
trials evaluating OMS302 and OMS103HP that we expect to announce during the second half of 2012;

FDA or international regulatory actions, including failure to receive regulatory approval for any of our
product candidates;

announcements regarding the progress of our GPCR program;

failure of any of our product candidates, if approved, to achieve commercial success;

quarterly variations in our results of operations or those of our competitors;

our ability to develop and market new and enhanced product candidates on a timely basis;

announcements by us or our competitors of acquisitions, regulatory approvals, clinical milestones, new
products, significant contracts, commercial relationships or capital commitments;

third-party coverage and reimbursement policies;

additions or departures of key personnel;

commencement of, or our involvement in, litigation;

our ability to meet our repayment and other obligations under our $20.0 million debt facility with
Oxford, pursuant to which we had obligations of $19.9 million as of December 31, 2011;

changes in governmental regulations or in the status of our regulatory approvals;

changes in earnings estimates or recommendations by securities analysts;

any major change in our board or management;

general economic conditions and slow or negative growth of our markets; and

political instability, natural disasters, war and/or events of terrorism.

From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory

and other product development goals or milestones. These milestones may include the commencement or
completion of scientific studies and clinical trials and the submission of regulatory filings. Also, from time to
time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these
milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically
compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as
publicly announced, our stock price may decline and the commercialization of our product and product
candidates may be delayed.

In addition, the stock market has experienced extreme price and volume fluctuations that have often been

unrelated or disproportionate to the operating performance of publicly traded companies. Broad market and
industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual
operating performance. These fluctuations may be even more pronounced in the trading market for our stock. In
addition, in the past, following periods of volatility in the overall market and the market price of a particular
company’s securities, securities class action litigation has often been instituted against these companies. This
litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention
and resources.

42

We expect that we will seek additional capital in the future; however, such capital may not be available to
us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of
our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our
common stock, our existing shareholders would experience further dilution.

Although we expect to seek additional capital, except for our committed equity line financing facility
described below, we have no commitments for additional capital and cannot be certain that it will be available on
acceptable terms, if at all. Continued disruptions in the global equity and credit markets may further limit our
ability to access capital. To the extent that we raise additional funds by issuing equity securities, including
pursuant to our committed equity line financing facility, our shareholders may experience significant dilution.
Any debt financing, if available, may restrict our operations similar to our debt facility with Oxford. If we are
unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale
back or discontinue the development or commercialization of one or more of our product candidates or one or
more of our other research and development initiatives. We also could be required to seek collaborators for one
or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on
terms that are less favorable than otherwise might be available or to relinquish or license on unfavorable terms
our rights to technologies or product candidates that we otherwise would seek to develop or commercialize
ourselves. We also may have insufficient funds or otherwise be unable to advance our preclinical programs, such
as potential new drug targets developed from our GPCR program, to a point where they can generate revenue
through partnerships, collaborations or other arrangements. Any of these events could significantly harm our
business and prospects and could cause our stock price to decline.

If we sell shares of our common stock under our committed equity line financing facility, our existing
shareholders will experience immediate dilution and, as a result, our stock price may go down.

In May 2011, we entered into a committed equity line financing facility, or financing arrangement, under
which we may sell up to $40.0 million of our common stock to Azimuth Opportunity, Ltd., or Azimuth, over a
24-month period subject to a maximum of 4,427,562 shares of our common stock. If we elect to use the financing
arrangement, the sale of shares of our common stock to Azimuth will have a dilutive impact on our existing
shareholders. Azimuth may resell some or all of the shares we issue to it pursuant to the financing arrangement
and such sales could cause the market price of our common stock to decline significantly with advances under
the financing arrangement. To the extent of any such decline, any subsequent advances would require us to issue
a greater number of shares of common stock to Azimuth in exchange for each dollar of the advance. Under these
circumstances, our existing shareholders would experience greater dilution and the total amount of financing that
we will be able to raise pursuant to the financing arrangement could be significantly lower than $40.0 million.
Although Azimuth is precluded from short sales of shares acquired pursuant to advances under the financing
arrangement, the sale of our common stock under the financing arrangement could encourage short sales by third
parties, which could contribute to the further decline of our stock price.

Future sales of shares by holders of outstanding warrants and options could cause our stock price to decline.

Approximately 7.0 million shares of common stock that are either subject to outstanding warrants or subject
to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for
sale in the public market to the extent permitted by the provisions of various vesting agreements. If these
additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our
common stock could decline.

Anti-takeover provisions in our charter documents and under Washington law could make an acquisition
of us, which may be beneficial to our shareholders, difficult and prevent attempts by our shareholders to
replace or remove our current management.

Provisions in our articles of incorporation and bylaws and under Washington law may delay or prevent an

acquisition of us or a change in our management. These provisions include a classified board of directors, a
prohibition on shareholder actions by less than unanimous written consent, restrictions on the ability of

43

shareholders to fill board vacancies and the ability of our board of directors to issue preferred stock without
shareholder approval. In addition, because we are incorporated in Washington, we are governed by the provisions
of Chapter 23B.19 of the Washington Business Corporation Act, which, among other things, restricts the ability
of shareholders owning ten percent or more of our outstanding voting stock from merging or combining with us.
Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring
potential acquirors to negotiate with our board of directors, they would apply even if an offer may be considered
beneficial by some shareholders. In addition, these provisions may frustrate or prevent any attempts by our
shareholders to replace or remove our current management by making it difficult for shareholders to replace
members of our board of directors, which is responsible for appointing the members of our management.

We have never declared or paid dividends on our capital stock, and we do not anticipate paying dividends
in the foreseeable future.

Our business requires significant funding, and we have not generated any material revenue. We currently

plan to invest all available funds and future earnings, if any, in the development and growth of our business.
Therefore, we currently do not anticipate paying any cash dividends on our common stock in the foreseeable
future. As a result, a rise in the market price of our common stock, which is uncertain and unpredictable, will be
your sole source of potential gain in the foreseeable future, and you should not rely on an investment in our
common stock for dividend income.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

We lease approximately 13,000 square feet for our principal administrative facility under a lease that expires
January 30, 2013, and approximately 4,000 square feet of adjacent administrative facility space under a lease that
expires February 28, 2013. We also lease approximately 24,600 square feet for our research and development facility,
which includes a modern vivarium, under a lease that expires September 30, 2012, and approximately 2,500 of
adjacent research and development facility space on a month-to-month basis. Our administrative and research and
development facilities are located in separate buildings in Seattle, Washington. The annual lease payments for these
facilities, including common area maintenance and related operating expenses, are approximately $2.2 million.

On January 27, 2012, we entered into a lease for approximately 64,500 square feet of office and laboratory

space in the building located at 201 Elliott Avenue West, Seattle, Washington, or the Omeros Building. These
premises will replace the separate office and laboratory spaces that we currently occupy. The lease term is 15
years with an expected commencement date of October 1, 2012. We also have two options to extend the lease
term, each by five years. The annual base rent due under the lease is $0 for the first year of the term, $2.5 million
for the second year and $3.2 million for the third year and will increase by 2.5% each year thereafter. In addition,
we will be responsible for paying our proportionate share of the building’s utilities, taxes, insurance and
maintenance as well as a property management fee.

During the first three years of the lease term, we have the option to lease specified additional space in the
Omeros Building. We have a right of first refusal for the remaining premises as well as a right of first offer for
specified premises in the Omeros Building. If at any time during the term our space requirements exceed the
available space in the Omeros Building, the landlord will relocate us to a new building under a build-to-suit lease
with no termination penalty payable under our existing lease, subject to the negotiation of a mutually acceptable
build-to-suit lease. In addition, beginning with the sixth year of the lease term, if we request from the landlord
additional space in the Omeros Building with a minimum square footage specified in the lease and the landlord is
unable to provide such additional space to us, we may terminate the lease without payment of any termination
fees other than the unamortized lease incentive. We have the right to terminate the lease beginning with year nine
of the lease term, subject to the payment of a lease termination fee. If we terminate the lease during years 9
through 10, the termination fee is equal to 30% of the unamortized tenant improvements and 100% of the
unamortized lease incentive. If we terminate the lease any time after year 10 of the term, the termination fee is
equal to 20% of the unamortized tenant improvements and 100% of the unamortized lease incentive.

44

We believe that these facilities we lease currently are sufficient for our anticipated near-term needs.

ITEM 3.

LEGAL PROCEEDINGS

In December 2008, our former chief financial officer, Richard J. Klein, used our Whistleblower Policy
procedures to report to the chairman of our audit committee that we had submitted grant reimbursement claims to
the NIH for work that we had not performed. In accordance with the Whistleblower Policy and its charter, our
audit committee, assisted by special outside counsel, commenced an independent investigation of our NIH grant
and claims procedures. The investigation concluded that we had not submitted claims to the NIH for work we
had not performed. In January 2009, we terminated Mr. Klein’s employment for reasons other than this incident.
We subsequently voluntarily reported to the NIH Mr. Klein’s whistleblower report and the audit committee
findings; in June 2009 the NIH confirmed to us in writing that it was satisfied with our handling of the grant
matters that were the subject of Mr. Klein’s whistleblower report.

On September 21, 2009, Mr. Klein filed a lawsuit against us and some of our current and former directors in

the United States District Court for the Western District of Washington, or WDWA. Mr. Klein alleges in his
complaint that we, among other things, violated the Federal False Claims Act, wrongfully discharged his
employment in violation of public policy and defamed him. Mr. Klein seeks, among other things, damages in an
amount to be proven at trial, actual litigation expenses, damages for loss of future earnings and his reasonable
attorneys’ fees. On October 4, 2009, we filed with the court our amended answer to Mr. Klein’s allegations,
generally denying his claims and bringing counterclaims against Mr. Klein for breach of contract,
misappropriation of trade secrets and breach of fiduciary duty. Mr. Klein filed an answer with the court generally
denying our counterclaims. On January 8, 2010, the court dismissed all of our non-executive directors from the
case with prejudice, and on July 27, 2010, Mr. Klein withdrew his defamation claim. On December 8, 2010,
Mr. Klein was granted leave to amend his complaint to add qui tam claims asserted on behalf of the U.S.
government under the Federal False Claims Act. The qui tam claims are based on the same NIH grant that was the
subject of Mr. Klein’s whistleblower report and related NIH grants totaling $1.3 million. Mr. Klein seeks on
behalf of the U.S. government and himself an award of civil penalties, treble damages and fees and costs. On
October 17, 2011, the U.S. government filed a notice of its election to decline intervention in the qui tam claims.
This election does not prevent Mr. Klein from continuing these claims, nor does it affect his other claims against
Omeros or our claims against Mr. Klein. On March 13, 2012, the WDWA issued an order granting our motion to
dismiss the majority of the qui tam claims for failing to meet statutory requirements, leaving pending only the qui
tam claims related (1) to our alleged obligations stemming from $164,000 of grant funds drawn down by nura, inc.
prior to our acquisition of nura, inc. in 2006 and (2) to the timekeeping allegations that we previously reported to
the NIH and for which the NIH confirmed to us in writing that it was satisfied with our handling of the matter. We
are vigorously defending ourselves against Mr. Klein’s claims and seek, among other things, our attorneys’ fees
and costs incurred in defending this action. Although we deny Mr. Klein’s allegations and believe that we have
substantial and meritorious defenses to his remaining claims, neither the outcome of the litigation nor the amount
and range of potential damages or exposure associated with the litigation can be assessed with certainty.

Costs associated with defense of the lawsuit filed by Mr. Klein have to date been paid in part, subject to a
reservation of rights, by Carolina Casualty Insurance Company, or CCIC, which is the carrier for our Directors,
Officers and Corporate Liability Insurance Coverage, or D&O Insurance Policy, that was in place at the time
Mr. Klein’s employment with Omeros was terminated. On February 21, 2012, CCIC filed a complaint for a
declaratory judgment against us, our CEO and Mr. Klein in the WDWA, seeking a declaration that CCIC owes
no duty to indemnify or defend us or our CEO against the allegations raised by Mr. Klein. We expect that CCIC
will continue to pay defense costs related to the lawsuit while the declaratory judgment action is pending. We
intend to defend the declaratory judgment action filed by CCIC, and while we can provide no assurances
regarding the outcome of the litigation with CCIC, we believe that CCIC is required under the D&O Insurance
Policy to pay our defense costs related to the lawsuit filed by Mr. Klein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

45

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been traded on The NASDAQ Global Market under the symbol “OMER” since our
initial public offering on October 8, 2009. Prior to that time, there was no public market for our common stock.

The following table sets forth, for the periods indicated, the range of high and low sales prices of our

common stock as quoted on The NASDAQ Global Market:

Year Ended December 31, 2011

High

Low

1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8.54
$5.50
$4.37
$4.15

$5.87
$3.93
$3.16
$3.21

Year Ended December 31, 2010

1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

$7.70
$7.80
$8.99
$8.50

$5.45
$5.02
$5.78
$6.71

Holders

As of February 29, 2012, there were approximately 258 holders of record of our common stock.

Dividends

We have never declared or paid any cash dividends on our capital stock, and under our loan and security
agreement with Oxford Finance Corporation we have agreed not to pay any dividends so long as we have any
outstanding obligations under the agreement. We expect to retain all available funds and future earnings, if any,
to fund the development and growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.

46

Stock Performance Graph

The following graph compares the cumulative total shareholder return for our common stock, the NASDAQ

Biotechnology Index and the NASDAQ Composite Index for the period beginning October 8, 2009 (the date of
our initial public offering) and ending December 31, 2011. This graph assumes that $100 was invested on
October 8, 2009 in our common stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
It also assumes that any dividends were reinvested. The data shown in the following graph is not necessarily
indicative of future stock price performance.

Omeros Corporation

NASDAQ Biotechnology Index

NASDAQ Composite Index

$150.00

$125.00

$100.00

$75.00

$50.00

$25.00

9
8/0
0/0
1

9
1/0
2/3
1

0
0/1
6/3
0

0
1/1
2/3
1

1
0/1
6/3
0

1
1/1
2/3
1

The foregoing information shall not be deemed to be “soliciting material” or to be “filed” for purposes of

Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section. In addition, the
foregoing information shall not be deemed to be incorporated by reference into any of our filings under the
Exchange Act or the Securities Act of 1933, except to the extent that we specifically incorporate this information
by reference.

47

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. Our historical
results are not necessarily indicative of the results to be expected in any future period.

Consolidated Statements of Operations

Data:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Research and development
. . . . . . . .
General and administrative . . . . . . . .

Total operating expenses . . . . . .

Loss from operations . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . .
Other income (expense)

Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted net loss per common

share . . . . . . . . . . . . . . . . . . . . . . . . . . .

Denominator for basic and diluted net loss
per common share . . . . . . . . . . . . . . . . .

Year Ended December 31,

2011

2010

2009

2008

2007

(in thousands, except share data)

$

4,524

$

2,105

$

1,444

$

1,170

$

1,923

23,718
8,216

31,934

(27,410)
51
(1,884)
—
697

23,465
8,746

32,211

(30,106)
167
(1,535)
(296)
2,519

16,929
5,273

22,202

(20,758)
214
(2,202)
—
1,657

17,850
7,845

25,695

(24,525)
661
(335)
—
372

15,922
10,398

26,320

(24,397)
1,582
(151)
—
(125)

(28,546) $

(29,251) $ (21,089) $ (23,827) $ (23,091)

(1.29) $

(1.37) $

(2.92) $

(8.26) $

(10.65)

$

$

22,212,351

21,420,883

7,218,915

2,883,522

2,167,500

As of December 31,

2011

2010

2009

2008

2007

(in thousands, except share data)

Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital (deficit) . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total notes payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ (deficit) equity . . . . . . . . . . . . . .

$ 24,570
6,963
26,982
19,446
(176,133)
(5,554)

$ 41,993
27,880
45,704
10,255
(147,587)
20,470

$ 60,305
49,574
62,062
12,758
(118,336)
43,145

$ 19,982
(3,083)
21,681
16,674
(97,247)
(91,166)

$ 24,082
16,526
27,162
1,010
(73,420)
(69,941)

48

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our audited annual consolidated

financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K. This
discussion contains forward-looking statements reflecting our current expectations that involve risks and
uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due
to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this
Annual Report on Form 10-K. For further information regarding forward-looking statements, please refer to the
special note regarding forward-looking statements at the end of Item 1 of this Annual Report on Form 10-K.
Throughout this discussion, unless the context specifies or implies otherwise, the terms “Company,” “we,” “us”
and “our” refer to Omeros Corporation and nura, inc., its wholly owned subsidiary.

Overview

Background

We are a clinical-stage biopharmaceutical company committed to discovering, developing and

commercializing products targeting inflammation, coagulopathies and disorders of the central nervous system.
Our most clinically advanced product candidates are derived from our proprietary PharmacoSurgery™ platform
designed to improve clinical outcomes of patients undergoing arthroscopic, ophthalmological, urological and
other surgical and medical procedures. Our PharmacoSurgery platform is based on low-dose combinations of
therapeutic agents delivered directly to the surgical site throughout the duration of the procedure to preemptively
inhibit inflammation and other problems caused by surgical trauma and to provide clinical benefits both during
and after surgery. We currently have four ongoing clinical development programs. In addition, we have a deep
and diverse pipeline of preclinical programs as well as a platform capable of unlocking new drug targets. For
each of our product candidates and programs, we have retained all manufacturing, marketing and distribution
rights.

OMS302, one of our co-lead PharmacoSurgery product candidates, is currently being evaluated in a Phase 3

clinical program for its safety and ability to maintain intraoperative pupil dilation (mydriasis) in patients
undergoing intraocular lens replacement surgery. This clinical program is planned to consist of two trials that
will enroll both cataract surgery and refractive lens exchange patients. In the first Phase 3 clinical trial, OMS302
achieved the primary endpoint of maintenance of intraoperative mydriasis. We expect data from the second
Phase 3 clinical trial during the second half of 2012.

OMS103HP, our other co-lead PharmacoSurgery product candidate, is being evaluated in a Phase 3 clinical
program for its safety and ability to improve postoperative joint function and reduce pain following arthroscopic
partial meniscectomy surgery. This clinical program is planned to consist of separate trials conducted in North
America and Europe. We expect data from the North American trial in the second half of 2012. We are in
discussions with European regulatory authorities regarding the second Phase 3 clinical trial and, assuming
sufficient resources, plan to begin that trial following completion of those discussions. In the first quarter of
2011, we announced that OMS103HP failed to meet pre-specified efficacy endpoints in a Phase 3 clinical
program in patients undergoing arthroscopic anterior cruciate ligament, or ACL, reconstruction surgery. We were
unable to draw any conclusions about OMS103HP’s effect in the Phase 3 ACL program due to confounding
factors, and we have no plans to conduct additional ACL reconstruction trials at this time.

Our third PharmacoSurgery product candidate, OMS201, is being developed for use during urological
surgery, including uroendoscopic procedures. During the fourth quarter of 2010, we completed a Phase 1/Phase 2
clinical trial in patients undergoing ureteroscopic removal of ureteral or renal stones. The data showed that
OMS201 was well tolerated by the patients in this trial.

49

In addition to our PharmacoSurgery platform, we have a pipeline of other product development programs
targeting inflammation, coagulopathies and disorders of the central nervous system. In our PPARγ program, we
are developing proprietary compositions that include PPARγ agonists for the treatment and prevention of
addiction to substances of abuse, which may include opioids, nicotine and alcohol. In our PDE10 program, we
are developing proprietary compounds to treat schizophrenia and other diseases that affect cognition. Our PDE7
program is based on our discoveries of previously unknown links between PDE7 and (1) any movement disorder,
such as Parkinson’s disease, and (2) addiction and compulsive disorders, and we are developing proprietary
compounds for the treatment of these and other related disorders. In our MASP2 program, we are developing
proprietary MASP2 antibody therapies to treat disorders caused by complement-activated inflammation, and we
are advancing novel antifibrinolytic agents for the control of blood loss during surgery or resulting from trauma
in our Plasmin program.

In our GPCR program, we are working to complete high-throughput surrogate de-orphanization of orphan
GPCRs, or the identification of synthetic molecules that bind and functionally interact with the receptors, and to
develop product candidates that act at these new potential drug targets. We have already announced that we have
identified and confirmed sets of compounds that interact selectively with, and modulate signaling of 33 orphan
GPCRs. During the fourth quarter of 2010, we entered into an agreement with Vulcan Inc. and its affiliate, which
we refer to collectively as Vulcan, pursuant to which we received $20.0 million for our GPCR program. Also
during the same quarter, we entered into an agreement with the State of Washington’s Life Sciences Discovery
Fund Authority, or LSDF, under which we received a $5.0 million grant award that will be paid against expenses
that we incur or to reimburse us for the cost of assets that we purchase for our GPCR program. In exchange for
these payments, we agreed to pay to Vulcan and LSDF a portion of net proceeds that we receive from the GPCR
program. We also issued to the Vulcan affiliate three five-year warrants to purchase our common stock, each for
133,333 shares, with exercise prices of $20, $30 and $40 per share, respectively. Following the receipt of the
$20.0 million from Vulcan, we purchased from Patobios intellectual property assets related to an assay
technology for use in the GPCR program. The purchase price for these assets was approximately $10.8 million,
of which approximately $7.6 million was paid in cash and $3.2 million was paid in shares of our common stock.
We have no royalty or milestone payment obligations to Patobios.

As of December 31, 2011, our accumulated deficit was $176.1 million and total shareholders’ deficit was

$5.6 million. We recognized net losses of $28.5 million, $29.3 million and $21.1 million for the years ended
December 31, 2011, 2010 and 2009, respectively. These losses have resulted principally from expenses incurred
in connection with research and development activities, consisting primarily of clinical trials, preclinical studies
and manufacturing services associated with our current product candidates. Compared to 2011, we expect our net
losses to increase as we continue to advance our clinical trials, expand our research and development efforts, add
personnel for our anticipated growth and prepare for commercial launch of OMS302, if it is approved.

Revenue

Through December 31, 2011, our revenue has consisted of grant funding from third parties and revenue
recognized in connection with funding from Vulcan and LSDF. Other than grant funding, we do not expect to
receive any revenue from our product candidates until we receive regulatory approval and commercialize the
product candidates or until we potentially enter into collaborative agreements with third parties for the
development and commercialization of our product candidates. As discussed below, we do not expect any of our
current product candidates to be commercially available before 2014, if at all. We continue to pursue government
and private grant funding as well as collaboration funding for our product candidates and research programs.

Research and Development Expenses

The majority of our operating expenses to date have been for research and development activities. Research
and development expenses consist of costs associated with research activities as well as costs associated with our

50

product development efforts, which include clinical trial and third-party manufacturing services. Internal research
and development costs are recognized as incurred. Third-party research and development costs are expensed at
the earlier of when the contracted work has been performed or when upfront and milestone payments are made.
Research and development expenses include:

•

•

•

•

employee and consultant-related expenses, which include salaries and benefits;

external research and development expenses incurred pursuant to agreements with third-party
manufacturing organizations, contract research organizations, clinical trial sites, and collaborators or
licensors;

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for
rent and maintenance of facilities and depreciation of leasehold improvements and equipment; and

third-party supplier expenses including laboratory and other supplies.

Our research and development expenses can be divided into clinical research and development and

preclinical research and development activities. The following table illustrates our expenses associated with these
activities:

Years Ended December 31,

2011

2010

2009

(in thousands)

Direct external expenses

Clinical research and development

OMS302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OMS103HP . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other clinical programs . . . . . . . . . . . . . . . . . . .

$ 4,663
3,558
631

$ 2,837
5,581
248

$

Total clinical research and development

. . . . . .

Preclinical research and development

. . . . . . . . . . . .

Total direct external expenses
Internal, overhead and other expenses . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . .

8,852

4,446

9,601
819

8,666

4,054

9,774
971

184
3,520
162

3,866

3,175

9,009
879

Total research and development expenses . . . . . . . . . . .

$23,718

$23,465

$16,929

Direct external clinical research and development expenses consist primarily of external research and

development and regulatory expenses incurred pursuant to agreements with third-party manufacturing
organizations, contract research organizations, or CROs, clinical trial sites, collaborators, licensors and
consultants. Direct external preclinical research and development expenses consist primarily of our preclinical
research activities, laboratory supplies and consulting. Internal, overhead and other expenses consist of personnel
costs and other overhead costs such as rent, utilities and depreciation. Our internal resources, employees and
infrastructure are not directly tied to any individual research project and are typically deployed across multiple
clinical and preclinical projects that we are advancing in parallel.

At this time, due to the inherently unpredictable nature of preclinical and clinical development processes

and given the early stage of our preclinical development programs, we are unable to estimate with any certainty
the costs we will incur in the continued development of our product candidates for potential commercialization.
Clinical development timelines, the probability of success and development costs can differ materially from
expectations. While we are currently focused on advancing each of our product development programs, our
future research and development expenses will depend on the clinical success of each product candidate, as well
as ongoing assessments of each product candidate’s commercial potential. In addition, we cannot forecast with
any degree of certainty which product candidates 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.

51

The lengthy process of completing clinical trials and seeking regulatory approval for our product candidates

requires expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining
regulatory approvals, could cause a delay in generating product revenue and cause our research and development
expenses to increase and, in turn, have a material adverse effect on our operations. We do not expect any of our
current product candidates to be commercially available before 2014, if at all. Because of the factors above, we
are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in
executive, legal, finance, accounting, business development, information technology and human resource
functions. Other general and administrative expenses include facility costs not otherwise included in research and
development expenses, patent costs and professional fees for legal, consulting and audit services.

Investment Income

Investment income consists of realized gains on sales of investments and interest earned on our cash, cash

equivalents, and short-term investments.

Interest Expense

Interest expense consists of interest on our notes payable and the amortization of both the related discount

and debt issuance costs.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of losses incurred as a result of the refinancing of our loan with

BlueCrest Venture Finance Master Fund Limited, or BlueCrest.

Other Income, net

Other income, net consists primarily of rental income received under subleases for use of a portion of our

vivarium and laboratory facility, income received from the U.S. Qualifying Therapeutic Discovery Project
Program, or QTDPP, and, in 2009, changes in the fair value of our preferred stock warrant liability.

Income Taxes

As of December 31, 2011, we had federal net operating loss carryforwards and research and development
tax credit carryforwards of approximately $143.8 million and $3.6 million, respectively. Our net operating loss
and research and development tax credit carryforwards expire between 2012 and 2031 unless utilized prior to
such dates. Our ability to utilize our net operating loss and tax credit carryforwards may be limited in the event
that a change in ownership, as defined in Section 382 of the Internal Revenue Code of 1986, as amended, or the
Code, has occurred or may occur in the future. In each period, we have recorded a 100% valuation allowance for
the full amount of our deferred tax asset, as the realization of the deferred tax asset is uncertain. As a result, we
have not recorded any federal tax benefit in our statement of operations.

Results of Operations

Comparison of Years Ended December 31, 2011 and December 31, 2010

Revenue. Revenue was $4.5 million in 2011 compared to $2.1 million in 2010. This increase was primarily

due to an increase in revenue recognized in connection with the Vulcan and LSDF agreements for our GPCR
program, partially offset by a decrease in revenue recognized in connection with the completion of preclinical
research funded by grants from the NIH.

52

Research and Development Expenses. Research and development expenses were $23.7 million in 2011
compared to $23.5 million in 2010. This increase in 2011 was primarily due to higher clinical trial expenses
associated with enrollment in our Phase 3 OMS302 clinical trial and higher GPCR expenses in connection with
our agreements with Vulcan and LSDF. These increases in 2011 were partially offset by lower clinical trial
expenses associated with the completion of our OMS103HP Phase 3 ACL program and lower one-time licensing
fees.

General and Administrative Expenses. General and administrative expenses were $8.2 million in 2011
compared to $8.7 million in 2010. The decrease was primarily due to lower costs associated with our financing
activities with Azimuth and lower employee expenses.

Investment Income. Investment income was $51,000 in 2011 compared to $167,000 in 2010. The decrease is

due primarily to lower average investment balances in 2011.

Interest Expense. Interest expense was $1.9 million in 2011 compared to $1.5 million in 2010. Interest

expense increased in 2011 due to a higher average notes payable balance.

Loss on Extinguishment of Debt. The loss on extinguishment of debt was $296,000 in 2010 and relates
entirely to losses incurred as a result of the refinancing of our debt with Oxford Finance Corporation, or Oxford.

Other Income, net. Other income was $697,000 in 2011 compared to $2.5 million in 2010. The higher level

of income in 2010 was primarily due to income received from the QTDPP.

Comparison of Years Ended December 31, 2010 and December 31, 2009

Revenue. Revenue was $2.1 million in 2010 compared to $1.4 million in 2009. The increase was primarily

due to revenue recognized in connection with funding from Vulcan and LSDF for our GPCR program and
additional revenue recognized in connection with our NIH grants. These increases were partially offset by a
decrease in grant revenue recognized from The Michael J. Fox Foundation for our PDE7 program.

Research and Development Expenses. Research and development expenses were $23.5 million in 2010
compared to $16.9 million in 2009. The increase was primarily due to higher consulting costs associated with our
OMS103HP program, higher clinical trial costs associated with our Phase 2b clinical trial evaluating OMS302,
higher contract service costs associated with several of our development programs and an increase in employee
expenses.

General and Administrative Expenses. General and administrative expenses were $8.7 million in 2010
compared to $5.3 million in 2009. The increase was primarily due to higher costs associated with being a public
company and an increase in employee expenses.

Investment Income. Investment income was $167,000 in 2010 compared to $214,000 in 2009. The decrease

is due to lower market interest rates in 2010 compared to 2009.

Interest Expense. Interest expense was $1.5 million in 2010 compared to $2.2 million in 2009. Interest
expense decreased in 2010 primarily due to lower interest expense on our borrowings from BlueCrest and lower
amortization of the related discount and debt issuance costs. This was partially offset by the recognition of
$208,000 of the remaining unamortized BlueCrest debt issuance costs and debt discount in connection with the
refinancing of our BlueCrest debt with Oxford.

Other Income, net. Other income was $2.5 million in 2010 compared to $1.7 million in 2009. The increase

in other income is primarily due to income received from the QTDPP partially offset by no warrant revaluation in
2010.

53

Liquidity and Capital Resources

We have financed our operations primarily through private and public placements of equity securities for

proceeds totaling $139.2 million; through two debt facilities with loan proceeds totaling $37.0 million, $9.0
million of which was used to pay off the remaining balance of the first facility; and our GPCR program funding
agreement with Vulcan pursuant to which we received $20.0 million. As of December 31, 2011, we had $24.6
million in cash, cash equivalents and short-term investments. Additionally, we will receive a $3.0 million cash
lease incentive payment in the first quarter of 2012 related to our new office and laboratory lease with BMR-201
Elliott Avenue LLC. Our cash, cash equivalents and short-term investment balances are held principally in
interest-bearing instruments, including money-market accounts. Cash in excess of immediate requirements is
invested in accordance with established guidelines to preserve principal and maintain liquidity.

Comparison of Years Ended December 31, 2011 and December 31, 2010

Operating Activities. Net cash used in operating activities was $25.7 million and $14.5 million for the years

ended December 31, 2011 and 2010, respectively. Expenditures related to operating activities in these periods
were primarily the result of costs associated with research and development expenses and general and
administrative expenses in support of our operations. Cash used to fund operating activities was lower for the
year ended December 31, 2010, primarily due to the cash received from our Vulcan funding agreement, which
was recorded as deferred revenue in 2010 and is being amortized to revenue as research is performed.

Investing Activities. Net cash provided by investing activities was $16.9 million and $19.9 million for the

years ended December 31, 2011 and 2010, respectively. Investing activities, other than purchases and maturities
of short-term and long-term investments, consist primarily of purchases of property and equipment. In 2010,
investing activities also included our acquisition of intellectual property assets from Patobios and our subsequent
reimbursement of the purchase price by Vulcan. Cash flows from investing activities primarily reflect large
amounts of cash used to purchase short-term investments and receipts from the sale and maturity of short-term
investments. These amounts primarily relate to shifts between cash and cash equivalents and short-term
investments. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term
investments, we do not consider these cash flows to be important to an understanding of our liquidity and capital
resources.

Financing Activities. Net cash provided by financing activities was $9.5 million for the year ended
December 31, 2011, primarily as a result of our borrowing of $10.0 million under tranche two of our loan from
Oxford in March 2011, partially offset by principal payments on the Oxford notes, which began in November
2011. Net cash used in financing activities was $3.0 million for the year ended December 31, 2010 and was
primarily due to the payoff of our BlueCrest loan, partially offset by proceeds received from the first tranche of
our Oxford loan.

Comparison of Years Ended December 31, 2010 and December 31, 2009

Operating Activities. Net cash used in operating activities was $14.5 million and $19.0 million for the years

ended December 31, 2010 and 2009, respectively. Expenditures related to operating activities in these periods
were primarily the result of costs associated with research and development expenses and general and
administrative expenses in support of our operations. Cash used to fund operating activities was lower for the
year ended December 31, 2010, primarily due to the cash received from our Vulcan funding agreement, which
was recorded as deferred revenue in 2010 and offset cash used to fund our operating activities. This decrease was
partially offset by higher operating expenses in 2010 and an increase in non-cash stock-based compensation.

Investing Activities. Net cash provided by investing activities was $19.9 million for the year ended

December 31, 2010 and net cash used in investing activities was $52.4 million for the year ended December 31,
2009. Investing activities, other than purchases and maturities of short-term and long-term investments, consist
primarily of purchases of property and equipment. In 2010, investing activities also included our acquisition of
intellectual property assets from Patobios and our subsequent reimbursement of the purchase price by Vulcan.

54

For the year ended December 31, 2009, proceeds from the sales of investments consisted primarily of
investments purchased with proceeds from our initial public offering. Cash flows from investing activities
primarily reflect large amounts of cash used to purchase short-term investments and receipts from the sale and
maturity of short-term investments. These amounts primarily relate to shifts between cash and cash equivalents
and short-term investments. Because we manage our cash usage with respect to our total cash, cash equivalents
and short-term investments, we do not consider these cash flows to be important to an understanding of our
liquidity and capital resources.

Financing Activities. Net cash used in financing activities was $3.0 million for the year ended December 31,
2010 and net cash provided by financing activities was $59.5 million for the year ended December 31, 2009. Net
cash used in 2010 was primarily due the payoff of our BlueCrest loan, partially offset by proceeds received from
the first tranche of our Oxford loan. Net cash provided by financing activities for the year ended December 31,
2009 resulted from the sale of common stock in our initial public offering in October 2009 for aggregate net
proceeds of $61.8 million.

Azimuth Equity Line Financing Facility

In May 2011, we entered into an equity line financing facility with Azimuth pursuant to which we may sell

up to $40.0 million of our shares of common stock over a 24-month term. This facility replaced a prior equity
line financing facility, which we had entered into with Azimuth on July 28, 2010 but had not accessed. Under the
2011 agreement with Azimuth, we may, from time to time over the 24-month term and in our sole discretion,
present Azimuth with draw down notices requiring Azimuth to purchase a specified dollar amount of shares of
our common stock, based on the volume-weighted average price per share on each of 10 consecutive trading
days, or the draw down period, with the total dollar amount of each draw down subject to certain agreed-upon
limitations based on the market price of our common stock at the time of the draw down. The purchase price for
these shares equals the daily volume-weighted average price of our common stock on each date during the draw
down period on which shares are purchased, less a discount ranging from 3.00% to 6.00%, based on a minimum
price that we specify. In addition, in our sole discretion, but subject to certain limitations, we may require
Azimuth to purchase a percentage of the daily trading volume of our common stock for each trading day during
the draw down period. We are allowed to present Azimuth with up to 24 draw down notices during the 24-month
term, with only one such draw down notice allowed per draw down period and a minimum of five trading days
required between each draw down period. We may not issue more than 4,427,562 shares in connection with the
committed equity line financing facility, although this limitation does not apply if the average purchase price of
all shares issued to Azimuth, taking into account all discounts, equals or exceeds $5.02 per share, which amount
is subject to adjustment in certain circumstances specified in the facility. We have not drawn down funds under
this facility. In connection with this facility, we entered into a new placement agent agreement with Reedland
Capital Partners, an Institutional Division of Financial West Group, member FINRA/SIPC, or FWG/Reedland.
We have agreed to pay FWG/Reedland, upon each sale of our common stock to Azimuth under the facility, a fee
equal to 0.5% of the aggregate dollar amount of common stock purchased by Azimuth upon settlement of each
such sale. Pursuant to the agreement, we reimbursed $10,000 of FWG/Reedland’s legal expenses in connection
with a filing that was made by FWG/Reedland pursuant to FINRA Rule 5110.

Stanley Medical Research Institute Funding Agreement

In December 2006, we entered into a funding agreement with The Stanley Medical Research Institute, or

SMRI, to develop a proprietary product candidate that inhibits PDE10 for the treatment of schizophrenia. Under
the agreement, we may receive grant and equity funding upon achievement of product development milestones
through Phase 1 clinical trials totaling $9.0 million, subject to our mutual agreement with SMRI. As of
December 31, 2011, we had received $5.7 million from SMRI, $2.5 million of which was recorded as revenue
and $3.2 million of which was recorded as equity funding. As of December 31, 2011, all grant amounts
pertaining to this agreement previously recorded as deferred revenue in the accompanying balance sheet have
been recognized as revenue.

55

Oxford Loan and Security Agreement

In October 2010, we entered into a loan and security agreement with Oxford pursuant to which we borrowed

$20.0 million in two tranches of $10.0 million each. Upon signing the agreement, we borrowed the first tranche
of $10 million, or Tranche 1, approximately $9.0 million of which we used to repay all outstanding amounts,
including a 1.0% prepayment fee, due under our loan and security agreement with BlueCrest. Upon payment of
the approximately $9.0 million to BlueCrest, all of our liabilities to BlueCrest were paid in full, and all
commitments of BlueCrest to us under the loan agreement were terminated. In March 2011, we borrowed the
second tranche of $10.0 million, or Tranche 2.

We are using the proceeds remaining from Tranche 1 and Tranche 2 for working capital and general
business purposes. Interest on Tranche 1 and Tranche 2 accrues at annual fixed rates of 8.55% and 8.56%,
respectively. Payments due under Tranche 1 and Tranche 2 were interest only, payable monthly, in arrears,
through October 31, 2011. Beginning November 1, 2011, 36 payments of principal and interest became payable
monthly, in arrears. All unpaid principal and accrued and unpaid interest are due and payable on the maturity
date, October 21, 2014.

The Oxford agreement contains customary affirmative and negative covenants, including covenants that limit

or restrict our ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets,
make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make
distributions, repurchase stock, in each case subject to customary exceptions for a credit facility of this size and
type. The Oxford agreement contains no cash covenant. The Oxford agreement includes customary events of default
that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant
defaults, material adverse change default, cross default to material indebtedness, bankruptcy and insolvency
defaults, material judgment defaults, and a change of control default. The occurrence of an event of default could
result in the acceleration of the obligations under the Oxford agreement. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default under the Oxford agreement at a
per annum rate equal to 5% above the otherwise applicable interest rate.

In connection with Tranche 1 and Tranche 2, we incurred debt issuance costs of $169,000 and $58,000,

respectively, that were capitalized and included in other assets in the balance sheets. Included in the debt
issuance costs of each tranche is a one-time facility fee payment to Oxford of $50,000. Upon the last payment
date of the amounts borrowed from Oxford, we will be required to pay Oxford a final payment fee equal to 5.0%
of Tranche 1 ($500,000) and 4.0% of Tranche 2 ($400,000). The final payment fees were recorded as a discount
to the loan and are being amortized to interest expense using the effective interest method over the repayment
term of the initial loan amount. We may prepay all, but not less than all, of the outstanding principal and accrued
and unpaid interest under either Tranche 1 or Tranche 2 of the Oxford loan agreement at any time upon prior
notice to Oxford and the payment of a fee equal to 1% of the then-outstanding principal amount. As security for
our obligations under the Oxford agreement, we granted Oxford a security interest in substantially all of our
assets, excluding intellectual property.

Funding Requirements

We believe that our existing cash, cash equivalents and short-term investments and available capital under
our committed equity line financing facility will be sufficient to fund our anticipated operating expenses, capital
expenditures and note payments for at least the next 12 months. Our assumptions include our ability to raise
capital under our $40.0 million equity line financing facility with Azimuth Opportunity, Ltd., or Azimuth. If we
do not raise additional capital, we may be required to delay, reduce the scope of or eliminate our research and
development programs, reduce our planned commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently, or enter into corporate collaborations at an earlier
stage of development than we might otherwise choose.

Because of the numerous risks and uncertainties associated with the development and commercialization of

our product candidates, and to the extent that we may or may not enter into collaborations with third parties to
participate in development and commercialization, we are unable to estimate the amounts of increased capital

56

requirements and operating expenditures required in the future. Our future operating and capital requirements
will depend on many factors, including:

•

•

the progress and results of our clinical trials for our PharmacoSurgery programs;

costs related to manufacturing services;

• whether the hiring of a number of new employees to support our continued growth during this period

will occur at salary levels consistent with our estimates;

•

•

•

the scope, rate of progress, results and costs of our preclinical testing, clinical trials and other research
and development activities for additional product candidates;

the terms and timing of payments of any collaborative or licensing agreements that we have or may
establish;

the cost, timing and outcomes of the regulatory processes for our product candidates;

• market acceptance of our approved products, should they gain approval;

•

•

•

•

•

the costs of commercialization activities, including product manufacturing, marketing, sales and
distribution;

the number and characteristics of product candidates that we pursue;

the cost of establishing clinical and commercial supplies of our product candidates;

the cost of preparing, filing, prosecuting, defending and enforcing patent claims and other intellectual
property rights;

the extent to which we acquire or invest in businesses, products or technologies, although we currently
have no commitments or agreements relating to these types of transactions;

• whether we receive grant funding for our programs;

•

•

•

our degree of success in commercializing OMS302, OMS103HP and other product candidates;

the extent to which we draw down funds under our committed equity line financing facility with
Azimuth or otherwise access the capital markets; and

the amount of revenue we generate from the sale of our product candidates, which revenue we do not
expect until at least 2014.

We expect our continuing operating losses to result in an increasing total amount of cash used in operations

over the next several years. To the extent our capital resources are insufficient to meet our future capital
requirements, we will need to finance our future cash needs through public or private equity offerings, debt
financings or corporate collaboration and licensing arrangements. Except for our committed equity line financing
facility with Azimuth, we currently do not have any commitments for future external equity or debt funding.
Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available
on acceptable terms, if at all. In addition, any future equity funding will dilute the ownership of our equity
investors.

Contractual Obligations and Commitments

The following table presents a summary of our contractual obligations and commitments as of

December 31, 2011.

Payments Due Within

1 Year

2-3 Years

4-5 Years

More than
5 Years

Total

Operating leases . . . . . . . . . . . . . . . . . . . . . .
Capital leases (principal and interest) . . . . . .
License maintenance fees . . . . . . . . . . . . . . .
Notes payable (principal and interest) . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,334
49
7
7,582

$8,972

57

$

671
101
14
13,901

$14,687

(in thousands)
$ —
31
22
—

$ 53

$ —
—
115
—

$115

$ 2,005
181
158
21,483

$23,827

On January 27, 2012, we entered into a lease with BMR-201 Elliott Avenue LLC for approximately 64,500
square feet of office and laboratory space. The term of the lease is 15 years with two options to extend the lease
term, each by five years. The expected lease term commencement date is October 1, 2012. The annual base rent
due under the lease is $0 for the first year, $2.5 million for the second year, $3.2 million for the third year and
will increase by 2.5% each year thereafter. These amounts are not included in the table above. We will also be
responsible for paying our proportionate share of utilities, taxes, insurance and maintenance as well as a property
management fee. Additionally, we will receive a $3.0 million cash lease incentive that will be amortized over the
initial lease term at the annual rate of 3.0%.

We may also be required to make royalty and milestone payments under the following agreements with
third parties that are not listed in the table above because we cannot, at this time, determine when or if the related
milestones will be achieved or the events triggering the commencement of payment obligations will occur:

•

•

Pursuant to our patent assignment agreement with Roberto Ciccocioppo, Ph.D. under which we
acquired assets for our PPARγ program, we may be required to pay a low single-digit percentage
royalty on any net sales of a product from our PPARγ program that is covered by any patents that issue
from the patent application we acquired from Dr. Ciccocioppo. In addition, if we grant any third parties
rights to manufacture, sell or distribute any such products, we must pay to Dr. Ciccocioppo a
percentage of any associated fees we receive from such third parties in the range of low single-digits to
low double-digits depending on stage of development at which such rights are granted. We also may be
required to make total milestone payments of up to $3.8 million upon the achievement of certain
development events, such as the initiation of clinical trials and receipt of marketing approval.

Pursuant to our agreement with SMRI, beginning the first calendar year after commencement of
commercial sales of a product candidate from our PDE10 program, we will be obligated to pay
royalties to SMRI based on net income, as defined in the agreement, not to exceed a set multiple of
total grant funding received. Based on the amount of grant funding that we have received as of
December 31, 2011, the maximum amount of royalties payable to SMRI is $12.8 million.

• Under our PDE7 inhibitor license agreement with Daiichi Sankyo, we have agreed to make milestone
payments to Daiichi Sankyo of up to an aggregate total of $30.2 million upon the achievement of
certain events, such as successful completion of preclinical toxicology studies; dosing of human
subjects in Phase 1, 2 and 3 clinical trials; receipt of marketing approval of a PDE7 inhibitor product;
and reaching specified sales milestones. In addition, Daiichi Sankyo is entitled to receive from us a low
single-digit percentage royalty of any net sales of a PDE7 inhibitor licensed under the agreement by us
and/or our sublicensee(s), provided that if the sales are made by a sublicensee, then the amount payable
by us to Daiichi Sankyo is capped at an amount equal to a low double-digit percentage of all royalty
and specified milestone payments received by us from the sublicensee.

•

•

Pursuant to our exclusive license agreement with Helion, we agreed to make development and sales
milestone payments to Helion of up to $6.9 million upon the achievement of certain events related to
our MASP2 program, such as the filing of an IND application with the FDA; initiation of Phase 2 and 3
clinical trials; receipt of marketing approval; and reaching specified sales milestones. In addition,
Helion is entitled to receive from us a low single-digit percentage royalty of any net sales of a MASP2
inhibitor product that is covered by the patents licensed by us under the agreement.

Pursuant to our agreements with Vulcan and LSDF, we agreed to pay Vulcan and LSDF tiered
percentages of the net proceeds, if any, derived from our GPCR program. The percentage rates of net
proceeds payable to Vulcan and LSDF decrease as the cumulative net proceeds reach specified
thresholds, and the blended percentage rate payable to Vulcan and LSDF in the aggregate is in the
mid-teens with respect to the first approximately $1.5 billion of cumulative net proceeds that we
receive from our GPCR program. After we have received approximately $1.5 billion of cumulative net
proceeds, the percentage rate payable to Vulcan and LSDF in the aggregate decreases to one percent.

58

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated

financial statements, which have been prepared in accordance with generally accepted accounting principles in
the United States. The preparation of our financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our
estimates on historical experience and on various other factors that we believe are reasonable under the
circumstances; however, actual results could differ from those estimates. An accounting policy is considered
critical if it is important to a company’s financial condition and results of operations, and if it requires the
exercise of significant judgment and the use of estimates on the part of management in its application. Although
we believe that our judgments and estimates are appropriate, actual results may differ materially from our
estimates.

We believe the following to be our critical accounting policies because they are both important to the
portrayal of our financial condition and results of operations and they require critical judgment by management
and estimates about matters that are uncertain:

•

•

•

revenue recognition;

research and development expenses, primarily clinical trial expenses; and

stock-based compensation.

If actual results or events differ materially from those contemplated by us in making these estimates, our

reported financial condition and results of operations for future periods could be materially affected.

Revenue Recognition

Our revenue is derived from grant funding from third parties and revenue recognized in connection with

funding from Vulcan and LSDF for our GPCR program. We recognize revenue when the related qualified
research and development expenses are incurred or services are provided up to the limit of the approved funding
amounts.

The accounting standards for revenue provide a framework for accounting for revenue arrangements. A

variety of factors are considered in determining the appropriate method of revenue recognition under these
arrangements, such as whether the various elements can be considered separate units of accounting, whether
there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings
process associated with a particular element of an agreement.

Research and Development Expenses

Research and development expenses are comprised primarily of employee and consultant-related expenses,
which include salaries and benefits; external research and development expenses incurred pursuant to agreements
with third-party manufacturing organizations, CROs and clinical trial sites; facilities, depreciation and other
allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and
depreciation of leasehold improvements and equipment; third-party supplier expenses, including laboratory and

59

other supplies; and payments to collaborators and licensors. Clinical trial expenses for investigational sites
require certain estimates. We estimate these costs based on a cost per patient that varies depending on the clinical
trial site. As actual costs become known to us, we adjust our estimates; these changes in estimates may result in
understated or overstated expenses at a given point in time. Internal and third-party research and development
expenses are expensed as incurred.

Stock-Based Compensation

Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is

recognized on the straight-line method as expense over the requisite service period, which is generally the
vesting period. Compensation cost for all stock-based awards is measured at fair value as of the grant date. The
fair value of our stock options is calculated using the Black-Scholes option valuation model. The Black-Scholes
model requires the input of various subjective assumptions, including stock price volatility and expected option
life. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation
expense for new awards may differ materially in the future from that recorded in the current period.

As stock-based compensation expense is based on options ultimately expected to vest, the expense has been
reduced for estimated forfeitures. We estimate forfeitures based on our historical experience; separate groups of
employees that have similar historical forfeiture behavior are considered separately for expense recognition.

Stock options granted to non-employees are accounted for using the fair-value approach. The fair value of

non-employee option grants are estimated using the Black-Scholes option-pricing model and are re-measured
over the vesting term as earned. The estimated fair value is charged to expense over the applicable service period.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB, issued guidance that requires
reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including
significant transfers into and out of Level 1 and Level 2 fair value measurements, and information on purchases,
sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The
guidance pertaining to Level 1 and Level 2 measurements was effective for the year ended December 31, 2010.
The adoption of this guidance did not have a material impact on our consolidated financial statements. The
guidance pertaining to Level 3 reconciliation disclosures was effective for the year ending December 31, 2011.
The adoption of this guidance did not have a material impact on our consolidated financial statements.

In June 2011, FASB issued an ASU related to the presentation of comprehensive income that will require
companies to present the components of net income and other comprehensive income either as one continuous
statement or as two consecutive statements. It eliminates the option to present components of other
comprehensive income as part of the statement of changes in shareholders’ equity. The standard does not change
the items that must be reported in other comprehensive income, how such items are measured or when they must
be reclassified to net income. This standard, which must be applied retroactively, is effective for interim and
annual periods beginning after December 15, 2011. We will adopt this standards on January 1, 2012. As this
update impacts presentation only, it will have no effect on our financial condition or results of operations.

Off-Balance Sheet Arrangements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is primarily confined to interest rate risk that may affect our investment
securities and notes payable. The primary objective of our investment activities is to preserve our capital to fund

60

operations. We also seek to maximize income from our investments without assuming significant risk. To
achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality. As
of December 31, 2011, we had cash, cash equivalents and short-term investments of $24.6 million. We have
invested these funds in highly liquid, investment-grade securities in accordance with our investment policy. The
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 interest rates would have a material 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.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our principal executive 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 December 31, 2011. 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 December 31, 2011, our
principal executive and principal financial officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk.

Our management, with the participation of our principal executive and principal financial officer, conducted

an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of

61

the Treadway Commission in Internal Control—Integrated Framework. Based on the results of this assessment
and on those criteria, our management concluded that our internal control over financial reporting was effective
as of December 31, 2011.

The effectiveness of the our internal control over financial reporting as of December 31, 2011 has been
audited and attested to by Ernst & Young LLP, an independent registered public accounting firm, which audited
the consolidated financial statements included herein, as stated in its report that appears herein.

There was no change in our internal control over financial reporting identified in connection with the
evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our fourth fiscal
quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Omeros Corporation

We have audited Omeros Corporation’s internal control over financial reporting as of December 31, 2011

based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Omeros Corporation’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Omeros Corporation maintained, in all material respects, effective internal control over

financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Omeros Corporation at December 31, 2011 and 2010, and the
related consolidated statements of operations, convertible preferred stock and shareholders’ equity (deficit), and
cash flows for each of the three years in the period ended December 31, 2011 and our report dated March 15,
2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Seattle, Washington
March 15, 2012

63

ITEM 9B. OTHER INFORMATION

None.

64

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be contained in our definitive proxy statement issued in
connection with the 2012 Annual Meeting of Shareholders and is incorporated herein by reference. Certain
information required by this item concerning executive officers is set forth in Part I of this Annual Report on
Form 10-K in “Business—Executive Officers and Key Employees.”

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be contained in our definitive proxy statement issued in

connection with the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED SHAREHOLDER MATTERS

Except for the information set forth below, the information required by this item will be contained in our

definitive proxy statement issued in connection with the 2012 Annual Meeting of Shareholders and is
incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information regarding our equity compensation plans in effect as of

December 31, 2011:

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights

Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans

Equity compensation plans approved by

security holders: . . . . . . . . . . . . . . . . . . .
. . . . .

2008 Equity Incentive Plan (1)
Second Amended and Restated 1998

Stock Option Plan . . . . . . . . . . . . . .
nura, inc. 2003 Stock Option Plan . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

1,168,902

1,835,115
2,550

3,006,567

$ 6.49

1.29
10.63

$ 3.32

2,248,509

0
0

2,248,509

(1) Upon adoption of the 2008 Equity Incentive Plan, we reserved a total of 892,857 shares of our common
stock for issuance thereunder plus any shares returned to the Second Amended and Restated 1998 Stock
Option Plan as a result of termination of options or repurchase of shares issued pursuant to such plan, with
the maximum number of shares returned equal to 3,084,848 shares. In addition, our 2008 Equity Incentive
Plan provides for annual increases in the number of shares available for issuance thereunder on the first day
of each fiscal year equal to the least of: (1) five percent of the outstanding shares of our common stock on
the last day of the immediately preceding fiscal year; (2) 1,785,714 shares; and (3) such other amount as our
board of directors may determine. On January 1, 2012, an additional 1,121,511 shares became available for
future issuance under out 2008 Equity Incentive Plan in accordance with the annual increase. These
additional shares from the annual increase are not included in the table above.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this item will be contained in our definitive proxy statement issued in

connection with the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.

65

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item will be contained in our definitive proxy statement issued in

connection with the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.

66

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

PART IV

1. Financial Statements

Reference is made to the Index to the Financial Statements set forth on page F-1 of this Annual Report
on Form 10-K.

2. Financial Statement Schedules

All schedules have been omitted as the required information is either not required, not applicable, or
otherwise included in the Financial Statements and notes thereto.

3. Exhibits

Reference is made to the Exhibit Index that is set forth after the Financial Statements in this Annual
Report on Form 10-K.

67

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

OMEROS CORPORATION

By: /s/ Gregory A. Demopulos, M.D.

Gregory A. Demopulos, M.D.
President, Chief Executive Officer
and Chairman of the Board of Directors

Date: March 15, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ GREGORY A. DEMOPULOS, M.D.

Gregory A. Demopulos, M.D.

March 15, 2012

President, Chief Executive Officer
and Chairman of the Board of
Directors (Principal Executive
Officer, Principal Accounting
Officer and Principal Financial
Officer)

/s/ RAY ASPIRI

Ray Aspiri

Director

March 15, 2012

/s/ THOMAS J. CABLE

Director

March 15, 2012

Thomas J. Cable

/s/ PETER A. DEMOPULOS, M.D.

Director

March 15, 2012

Peter A. Demopulos, M.D.

/s/ LEROY E. HOOD, M.D., PH.D.

Director

March 15, 2012

Leroy E. Hood, M.D., Ph.D.

/s/ DANIEL K. SPIEGELMAN

Director

March 15, 2012

Daniel K. Spiegelman

68

OMEROS CORPORATION

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

SHAREHOLDERS’ EQUITY (DEFICIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-2
F-3
F-4

F-5
F-6
F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Omeros Corporation

We have audited the accompanying consolidated balance sheets of Omeros Corporation as of December 31,

2011 and 2010, and the related consolidated statements of operations, convertible preferred stock and
shareholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2011.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Omeros Corporation at December 31, 2011 and 2010, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), Omeros Corporation’s internal control over financial reporting as of December 31, 2011, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 15, 2012 expressed an unqualified
opinion thereon.

/s/ Ernst & Young LLP

Seattle, Washington
March 15, 2012

F-2

OMEROS CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)

Assets
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2011

2010

4,005
20,565
876
502

25,948
739
193
102

$

3,278
38,715
1,479
282

43,754
1,622
193
135

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 26,982

$ 45,704

Liabilities and shareholders’ equity
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity:

Preferred stock, par value $0.01 per share:

2,002
5,340
5,748
5,895

18,985
13,551

$

2,398
4,567
8,014
395

15,374
9,860

Authorized shares—20,000,000 at December 31, 2011 and 2010;
Issued and outstanding shares—none . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

Common stock, par value $0.01 per share:

Authorized shares—150,000,000 at December 31, 2011 and 2010;
Issued and outstanding shares—22,430,234 and 21,920,836 at December 31,

2011 and 2010, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

224
170,355
(176,133)

219
167,838
(147,587)

Total shareholders’ (deficit) equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5,554)

20,470

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 26,982

$ 45,704

See notes to consolidated financial statements

F-3

OMEROS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Year Ended December 31,

2011

2010

2009

$

4,524

$

2,105

$

1,444

23,718
8,216

31,934

(27,410)
51
(1,884)
—
697

23,465
8,746

32,211

(30,106)
167
(1,535)
(296)
2,519

16,929
5,273

22,202

(20,758)
214
(2,202)
—
1,657

$

$

(28,546) $

(29,251) $ (21,089)

(1.29) $

(1.37) $

(2.92)

per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,212,351

21,420,883

7,218,915

See notes to consolidated financial statements

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B

OMEROS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31 ,
2010

2009

2011

$(28,546) $(29,251) $(21,089)

435
1,927

472
2,178

451
1,494

—
352
—
—

—
174
296
33

(848)
253
—
34

(41)
42
207
470

Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of preferred stock warrant values and success fee

liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Grant and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current and noncurrent assets . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,254
(201)
339
(2,228)

(1,231)
(87)
1,462
11,452

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(25,668)

(14,502)

(19,027)

Investing activities
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Patobios intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursement of Patobios intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the maturities of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,241)
—
—
(9,000)
27,150
—

(807)
(7,631)
7,631
(57,765)
78,173
323

(279)
—
—
(64,207)
11,045
1,039

Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,909

19,924

(52,402)

Financing activities
Proceeds from issuance of common stock upon initial public offering, net of offering
costs of $6,388 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceeds from borrowings under note payable, net of loan origination costs and

prepayment penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock upon exercise of stock options . . . . . . . . . .
Proceeds from issuance of convertible preferred stock, net of issuance costs . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

61,812

9,942
(1,051)
595
—
—

9,486

727
3,278

9,742
(13,005)
299
—
—

—
(4,120)
28
1,851
(48)

(2,964)

59,523

2,458
820

(11,906)
12,726

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,005

$ 3,278

$

820

Supplemental cash flow information
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,461

$ 1,362

$ 1,947

Issuance of common stock to Patobios in connection with purchase of intellectual

property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 3,146

$ —

Reduction of PP&E cost basis due to assets purchased with grant funding . . . . . . . . .

$ 1,689

$ — $ —

Issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $

994

$ —

Property acquired under capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $

201

$ —

See notes to consolidated financial statements

F-6

OMEROS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Significant Accounting Policies

Organization

We are a clinical-stage biopharmaceutical company committed to discovering, developing and

commercializing products targeting inflammation, coagulopathies and disorders of the central nervous system.
Our most clinically advanced product candidates are derived from our proprietary PharmacoSurgery™ platform
designed to improve clinical outcomes of patients undergoing arthroscopic, ophthalmological, urological and
other surgical and medical procedures. Our efforts are devoted to conducting research and development of our
products, to developing our patent portfolio and to raising equity capital. During 2011, we exited the
development stage due to revenues recognized from our agreement with Vulcan Inc. and its affiliate, or Vulcan.
As a result, inception to date information for our results of operations and cash flows is not presented in the
financial statements and accompanying notes.

Basis of Presentation

Our consolidated financial statements include the financial position and results of operations of Omeros and

nura, inc., or nura, our wholly owned subsidiary. Additionally, the December 31, 2010 balance sheet reflects a
$500,000 increase and decrease to long-term notes payable and accrued expenses, respectively, to conform to the
current presentation.

Initial Public Offering

On October 13, 2009, we completed our initial public offering, or IPO, of 6,820,000 shares of our common

stock at a price of $10.00 per share. We received gross proceeds of $68.2 million from this transaction, before
underwriting discounts and commissions. In connection with the closing of our IPO, all of our shares of preferred
stock outstanding at the time of the offering were automatically converted into 11,514,508 shares of common
stock, and warrants to purchase up to 197,478 shares of Series E preferred stock were converted into warrants to
purchase 197,478 shares of common stock.

Liquidity and Capital Resources

We believe that our existing cash, cash equivalents and short-term investments and available capital under
our committed equity line financing facility will be sufficient to fund our anticipated operating expenses, capital
expenditures and note payments for at least the next 12 months. Our assumptions include our ability to raise
capital under our $40.0 million equity line financing facility with Azimuth Opportunity, Ltd., or Azimuth. If we
do not raise additional capital, we may be required to delay, reduce the scope of or eliminate our research and
development programs, reduce our planned commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently, or enter into corporate collaborations at an earlier
stage of development than we might otherwise choose.

We expect our continuing operating losses to result in an increasing total amount of cash used in operations

over the next several years. To the extent our capital resources are insufficient to meet our future capital
requirements, we will need to finance our future cash needs through public or private equity offerings, debt
financings or corporate collaboration and licensing arrangements. Except for our committed equity line financing
facility with Azimuth, we currently do not have any commitments for future external equity or debt funding.
Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available
on acceptable terms, if at all. In addition, any future equity funding will dilute the ownership of our equity
investors.

F-7

Financial Instruments and Concentrations of Credit Risk

Cash and cash equivalents, grant and other receivables, accounts payable, and accrued liabilities, which are

recorded at cost, approximate fair value based on the short-term nature of these financial instruments. The fair
value of short-term investments is based on quoted market prices. Financial instruments that potentially subject
us to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments.
Cash and cash equivalents are held by financial institutions and are federally insured up to certain limits. At
times, our cash and cash equivalents balance exceeds the federally insured limits. To limit the credit risk, we
invest our excess cash primarily in high quality securities such as money market funds, certificates of deposit,
and commercial paper.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the
United States requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. We base our estimates on historical experience and on various
other factors that we believe are reasonable under the circumstances; however, actual results could differ from
those estimates.

Cash and Cash Equivalents, Short-Term Investments, and Restricted Cash

Cash and cash equivalents include highly liquid investments with a maturity of three months or less on the

date of purchase. Short-term investment securities are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses are reported as a separate component of shareholders’ deficit. Amortization,
accretion, interest and dividends, realized gains and losses, and declines in value judged to be other-than-
temporary are included in investment income. The cost of securities sold is based on the specific-identification
method. Investments in securities with maturities of less than one year, or those for which management intends to
use the investments to fund current operations, are included in current assets. We evaluate whether an investment
is other-than-temporarily impaired. This evaluation is dependent on the specific facts and circumstances. Factors
that are considered in determining whether an other-than-temporary decline in value has occurred include: the
market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and
ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the
investment. Restricted cash consists of cash equivalents, the use of which is restricted and serves as collateral
securing a letter of credit under a facility operating lease.

Deferred Public Offering Costs

Deferred public offering costs represented primarily legal, accounting and other direct costs related to our

IPO. Costs of $1.6 million, net of underwriting fees of $4.8 million, were incurred in 2009 related to our IPO
activities and were deferred until the completion of the IPO on October 13, 2009, at which time they were
reclassified to additional paid-in capital as a reduction of the IPO proceeds.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the

estimated useful life of the assets, which is generally three to five years. Leasehold improvements are stated at
cost and amortized using the straight-line method over the shorter of the lease term or five years. Equipment
financed under capital leases are amortized over the shorter of the useful lives of the related assets or the lease
term.

F-8

Impairment of Long-Lived Assets

The carrying amount of long-lived assets, including property and equipment, are reviewed whenever events
or changes in circumstances indicate that the carrying value of an asset many not be recoverable. Recoverability
of these assets is measured by comparing the carrying value to future undiscounted cash flows that the asset is
expected to generate. If the asset is considered to be impaired, the amount of any impairment will be reflected in
the result of operations in the period of impairment. We have not recognized any impairment losses.

Deferred Rent

We recognize rent expense on a straight-line basis over the noncancelable term of our operating leases and,
accordingly, record the difference between cash rent payments and the recognition of rent expense as a deferred
rent liability. We also record landlord-funded lease incentives, such as reimbursable leasehold improvements, as
a deferred rent liability which is amortized as a reduction of rent expense over the noncancelable terms of our
operating leases.

Preferred Stock Warrant Liability

Prior to the completion of the IPO, warrants to purchase our convertible preferred stock were classified as
liabilities and were recorded at fair value. At each reporting period, any change in fair value of the freestanding
warrants was recorded as other expense or income.

For the year ended December 31, 2009, we recorded income of $878,000 to reflect the change in the
estimated fair value of the freestanding preferred stock warrants. The preferred stock warrant liability of
$902,000 was reclassified to equity upon the completion of our IPO in October 2009 with the conversion of all of
the preferred stock warrants to common stock warrants.

Revenue Recognition

The accounting standard for revenue provides a framework for accounting for revenue arrangements. A
variety of factors are considered in determining the appropriate method of revenue recognition under revenue
arrangements, such as whether the various elements can be considered separate units of accounting, whether
there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings
process associated with a particular element of an agreement.

Our revenue relates to grant funding from third parties and revenue recognized in connection with funding
from Vulcan and the Life Sciences Discovery Fund Authority, a granting agency of the State of Washington, or
LSDF. We recognize such funds as revenue when the related qualifying research and development expenses are
incurred up to the limit of the approved funding amounts. Funds received in advance of services being provided
are recorded as deferred revenue and recognized as revenue as research is performed.

Research and Development

Research and development costs are comprised primarily of costs for personnel, including salaries and

benefits; occupancy; clinical studies performed by third parties; materials and supplies to support our clinical
programs; contracted research; manufacturing; related consulting arrangements; and other expenses incurred to
sustain our overall research and development programs. Internal and third-party research and development
expenses are expensed as incurred.

Nonrefundable advance payments for goods or services that will be used or rendered for future research and

development activities are deferred and capitalized. Such amounts are then recognized as an expense as the
related goods are delivered or the services are performed, or when the goods or services are no longer expected to
be provided.

F-9

Patents

We generally apply for patent protection on processes and products. Patent application costs are expensed as

incurred as a component of general and administrative expense, as recoverability of such expenditures is
uncertain.

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. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be realized.

Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payments made to employees and

directors based on estimated fair values. We use the straight-line method to allocate compensation cost to
reporting periods over the optionees’ requisite service period, which is generally the vesting period. Stock
options granted to non-employees are accounted for using the fair value approach and are subject to periodic
revaluation over their vesting terms.

For purposes of estimating the fair value of our common stock for stock options granted prior to the IPO, we
estimated fair value of our common stock by performing a valuation analysis for each quarterly period during the
six months ended June 30, 2009. For the quarter ended September 30, 2009, we used the $10.00 per share
offering price from our IPO, which was completed on October 13, 2009. As a result, certain stock options
granted during 2009 had an exercise price different than the re-assessed estimated fair value of the common stock
at the date of grant. We used these fair value estimates derived from our valuations to determine the stock
compensation expense, which is recorded in our consolidated financial statements. The valuations were prepared
using a methodology that first estimated our enterprise fair value as a whole, and then allocated a portion of the
enterprise value to common stock. Subsequent to the IPO, we use the closing market price of our common stock
on the grant date as the fair value of our common stock.

Segments

We operate in one segment. Management uses cash flow as the primary measure to manage our business

and does not segment our business for internal reporting or decision-making.

Adoption of Standards

In January 2010, FASB issued guidance that requires reporting entities to make new disclosures about

recurring or nonrecurring fair-value measurements, including significant transfers into and out of Level 1 and
Level 2 fair value measurements, and information on purchases, sales, issuances, and settlements on a gross basis
in the reconciliation of Level 3 fair value measurements. The guidance pertaining to Level 1 and Level 2
measurements was effective for the year ended December 31, 2010. The adoption of this guidance did not have a
material impact on our consolidated financial statements. The guidance pertaining to Level 3 reconciliation
disclosures was effective for the year ending December 31, 2011. The adoption of this guidance did not have a
material impact on our consolidated financial statements.

In June 2011, FASB issued an ASU related to the presentation of comprehensive income that will require
companies to present the components of net income and other comprehensive income either as one continuous
statement or as two consecutive statements. It eliminates the option to present components of other
comprehensive income as part of the statement of changes in shareholders’ equity. The standard does not change

F-10

the items that must be reported in other comprehensive income, how such items are measured or when they must
be reclassified to net income. This standard, which must be applied retroactively, is effective for interim and
annual periods beginning after December 15, 2011. We will adopt these standards on January 1, 2012. As this
update impacts presentation only, it will have no effect on our financial condition or results of operations.

Note 2—Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common

shares outstanding for the period, less weighted-average unvested common shares subject to repurchase. Diluted
net loss per share is computed by dividing the net loss by the weighted-average number of unrestricted common
shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock
method and the as if-converted method.

The basic and diluted net loss per share amounts for the years ended December 31, 2011, 2010 and 2009
were computed based on the shares of common stock outstanding during the respective periods. The net loss per
share for the years ended December 31, 2011 and 2010 includes the full effect of the 6,820,000 common shares
issued in our IPO in the fourth quarter of 2009 and the conversion of our convertible preferred stock into
11,514,508 shares of common stock upon completion of the offering. As a result of the issuance of these
common shares during the fourth quarter of 2009, there is a lack of comparability in the basic and diluted net loss
per share amounts for the period presented. The following table presents the computation of basic and diluted net
loss per share (in thousands, except share and per share data):

Historical

Numerator:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Denominator:
Weighted-average common shares outstanding . . . . . . . . . . . . . .
Less: Weighted-average unvested common shares subject to

Year Ended December 31,

2011

2010

2009

$

(28,546) $

(29,251) $ (21,089)

22,212,351

21,420,883

7,233,109

repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

(14,194)

Denominator for basic and diluted net loss per share . . . . . . . . . .

22,212,351

21,420,883

7,218,915

Basic and diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . .

$

(1.29) $

(1.37) $

(2.92)

Historical outstanding dilutive securities not included in diluted loss per share calculation:

Outstanding options to purchase common stock . . . . . . . . . . . . . . . . . . . . . . .
Warrants to purchase common stock and convertible preferred stock . . . . . .

3,006,567
609,016

3,589,292
609,016

2,847,549
209,017

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,615,583

4,198,308

3,056,566

Year Ended December 31,

2011

2010

2009

Note 3—Cash, Cash Equivalents and Investments

As of December 31, 2011 and 2010, all investments are classified as short-term and available-for-sale on the

accompanying balance sheets. We did not own any securities with unrealized loss positions as of December 31,
2011 or 2010. Investment income consists primarily of interest income.

F-11

Note 4—Fair Value Measurements

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 developed using
estimates and assumptions developed by us, which reflect those that a market participant would use.

In May 2010, we sold our remaining mortgage-backed securities and invested the proceeds in cash and cash-

equivalent funds and mutual funds invested in highly liquid securities. This resulted in a sale of the $3.0 million
in Level 2 investments as of December 31, 2009 and a subsequent purchase of Level 1 investments. Our fair
value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:

December 31, 2011

Level 1 Level 2 Level 3

Total

(in thousands)

Assets:

Money market funds classified as cash equivalents and restricted cash . . . $ 2,587 $— $— $ 2,587
— 20,565
Money market funds classified as short-term investments . . . . . . . . . . . . .

20,565 —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,152 $— $— $23,152

December 31, 2010

Level 1 Level 2 Level 3

Total

(in thousands)

Assets:

Money market funds classified as cash equivalents and restricted cash . . . $ 2,323 $— $— $ 2,323
— 38,715
Money-market funds classified as short-term investments . . . . . . . . . . . . .

38,715 —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,038 $— $— $41,038

Cash of $1.6 million and $1.1 million is excluded in our fair-value hierarchy disclosure as of December 31,

2011 and 2010, respectively. Additionally, the fair-value hierarchy disclosure includes restricted cash of
$193,000 as of December 31, 2011 and 2010. There were no unrealized gains and losses associated with our
short-term investments as of December 31, 2011 or 2010.

Prior to their conversion to common stock warrants, the change in fair value of our preferred stock warrant

liability and notes payable success fee liability was recorded as other income in the consolidated statements of
operations. For the year ended December 31, 2009 we recorded other income of $848,000 related to the
aggregate change in fair value of the preferred stock warrant liability and notes payable success fee liability. See
Note 10 for a discussion of the valuation methodology used to estimate the fair value of the preferred stock
warrant liability and the reclassification to additional paid-in-capital upon conversion of the preferred stock
warrants to common stock warrants in connection with the IPO.

F-12

Note 5—Certain Balance Sheet Accounts

Receivables

Grant and other receivables consisted of the following:

Grant and GPCR funding receivable . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 862
14

$1,144
335

Grant and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 876

$1,479

December 31,

2011

2010

(in thousands)

On October 29, 2010, we were awarded grants totaling $1.7 million from the U.S. government pursuant to

the U.S. Qualifying Therapeutic Discovery Project Program. We received $1.5 million in 2010, which was
recorded as other income. We received the remaining $236,000 in May 2011.

Property and Equipment

Property and equipment consisted of the following:

December 31,

2011

2010

Computer equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and furniture . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laboratory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

(in thousands)
490
419
284
304
201
1,520

518
414
284
310
201
1,978

Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . .

3,218
(2,479)

3,705
(2,083)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . .

$

739

$ 1,622

Our property and equipment have lives that range from three to five years with the exception of the
leasehold improvements that are limited to the lesser of the term of the lease or five years. For the years ended
December 31, 2011, 2010 and 2009, depreciation expense was $435,000, $472,000 and $392,000, respectively.

Accrued Expenses

Accrued expenses consisted of the following:

December 31,

2011

2010

(in thousands)

Clinical trials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,532
694
364
750

$2,548
351
974
694

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,340

$4,567

F-13

Accumulated Other Comprehensive Loss

Comprehensive loss is comprised of net loss and certain changes in equity that are excluded from net loss.

Our only component of other comprehensive loss is unrealized gains (losses) on available-for-sale securities.
There was no accumulated other comprehensive loss as of December 31, 2011 as we sold the underlying
available-for-sale securities in May 2010.

Note 6—Notes Payable

Loan and Security Agreement

In October 2010, we entered into a loan and security agreement with Oxford pursuant to which Oxford
agreed to lend us up to $20.0 million in two tranches of $10.0 million each. Upon signing the agreement, we
borrowed the first tranche of $10 million, or Tranche 1, approximately $9.0 million of which we used to repay all
outstanding amounts, including a 1.0% prepayment fee, due under our loan and security agreement with
BlueCrest Venture Finance Master Fund Limited, or BlueCrest. Upon payment of the approximately $9.0 million
to BlueCrest, all of our liabilities to BlueCrest were paid in full, and all commitments of BlueCrest to us under
the loan agreement were terminated. In connection with the repayment of the BlueCrest liability, we recognized
as interest expense $208,000 of unamortized debt issuance costs and debt discount. Prior to the refinancing, we
recognized non-cash interest expense associated with amortization of these deferred costs of $166,000 and
$253,000 for the years ended December 31, 2010 and 2009, respectively. In March 2011, we borrowed the
second tranche of $10.0 million, or Tranche 2.

We are using the proceeds remaining from Tranche 1 and Tranche 2 for working capital and general
business purposes. Interest on Tranche 1 and Tranche 2 accrues at annual fixed rates of 8.55% and 8.56%,
respectively. Payments due under Tranche 1 and Tranche 2 were interest only, payable monthly, in arrears,
through October 31, 2011. Beginning November 1, 2011, 36 payments of principal and interest are payable
monthly, in arrears. All unpaid principal and accrued and unpaid interest are due and payable on the maturity
date, October 21, 2014. We may prepay all, but not less than all, of the outstanding principal and accrued and
unpaid interest under either Tranche 1 or Tranche 2 at any time upon prior notice to Oxford and the payment of a
fee equal to 1% of the then-outstanding principal amount. As security for our obligations under the Oxford
agreement, we granted Oxford a security interest in substantially all of our assets, excluding intellectual property.

Upon the last payment date of the amounts borrowed from Oxford, we will be required to pay Oxford a final

payment fee equal to 5.0% of Tranche 1 ($500,000) and 4.0% of Tranche 2 ($400,000). The final payment fees
were recorded as a discount to the notes and are being amortized to interest expense using the effective interest
method over the repayment term of the initial loan amount. In connection with Tranche 1 and Tranche 2, we
incurred debt issuance costs of $169,000 and $58,000, respectively, that were capitalized and included in other
assets in the balance sheets. Included in the debt issuance costs of each tranche is a one-time facility fee payment
to Oxford of $50,000. The debt issuance costs are being amortized to interest expense using the effective interest
method over the term of the initial loan amount. For the years ended December 31, 2011 and 2010, total non-cash
interest expense associated with our borrowings under Tranche 1 and Tranche 2 includes amortization of the
discount of $280,000 and $31,000, respectively, and amortization of debt issuance costs of $72,000 and $10,000,
respectively. As of December 31, 2011 and 2010, the remaining unamortized balance of the debt discount is
$589,000 and $469,000, respectively, and the remaining unamortized balance of the debt issuance costs is
$145,000 and $159,000, respectively.

The Oxford agreement contains customary affirmative and negative covenants, including covenants that
limit or restrict our ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose
of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or
make distributions, repurchase stock, in each case subject to customary exceptions for a credit facility of this size
and type. The Oxford agreement contains no cash covenant. The Oxford agreement includes customary events of
default that include, among other things, non-payment defaults, inaccuracy of representations and warranties,
covenant defaults, material adverse change default, cross default to material indebtedness, bankruptcy and

F-14

insolvency defaults, material judgment defaults, and a change of control default. The occurrence of an event of
default could result in the acceleration of the obligations under the Oxford agreement. Under certain
circumstances, a default interest rate will apply on all obligations during the existence of an event of default
under the Oxford agreement at a per annum rate equal to 5% above the otherwise applicable interest rate.

Material adverse effect, or MAE, is defined in the loan agreement as a material adverse effect upon (i) the
business operations, properties, assets, results of operations or financial condition of Omeros, taken as a whole
with respect to our viability, that reasonably would be expected to result in our inability to repay any portion of
the loans in accordance with the terms of the loan agreement, (ii) the validity, perfection, value or priority of
Oxford’s security interest in the collateral, (iii) the enforceability of any material provision of the loan agreement
or related agreements or (iv) the ability of Oxford to enforce its rights and remedies under the loan agreement or
related agreements. We considered the MAE definition and believe that the MAE clause has not been triggered
as of December 31, 2011.

Software Financing Arrangement

In December 2008, we entered into agreements to finance certain software licenses. The amount financed
totaled $193,000 and is payable over a three-year period with an effective interest rate of 8.0%. Amounts due
under these arrangements were fully paid as of December 31, 2011.

Equipment Financing

During 2010, we entered into a lease for the copier equipment. The lease has been treated as a capital lease
with an original principal amount totaling $201,000 and a lease term of 60 months with an effective interest rate
of 8.51%. The equipment related to this capital lease is included in our property, plant and equipment. At
December 31, 2011 and 2010, this equipment had a net book value of $144,000 and $184,000, respectively,
which included $57,000 and $17,000 of accumulated depreciation, respectively.

Future Principal Payments

Future principal payments as of December 31, 2011 under the Oxford loan and security agreement and our

copier lease, based on stated contractual maturities, are as follows:

Year Ending December 31,

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

(in thousands)
$ 6,232
6,787
6,124
33
—

Total principal payments . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,176
(6,232)

Total notes payable, net of current portion . . . . . . . .

$12,944

The principal payments reflected in the table above exclude the remaining unamortized balance of the debt
discount and include the short-term portion of the principal payments on our copier lease, which are included in
accrued liabilities in the accompanying balance sheet.

Note 7—Revenue

We have received Small Business Innovative Research, or SBIR, grants from the National Institutes of

Health through December 31, 2011 totaling $4.3 million. The grants support research and development of our

F-15

product candidates. We recorded revenue related to these grants of $266,000, $876,000 and $432,000, for the
years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, $595,000 remained
available under these grants.

In December 2006, we entered into a funding agreement with The Stanley Medical Research Institute, or
SMRI, to develop a proprietary PDE10 inhibitor product candidate for the treatment of schizophrenia. Under the
agreement, we may receive grant and equity funding of up to $9.0 million upon achievement of product
development milestones through Phase 1 clinical trials, subject to our mutual agreement with SMRI. We hold the
exclusive rights to the technology. In consideration for SMRI’s grant funding, we will become obligated to pay
SMRI royalties based on net income, as defined under the agreement, from commercial sales of a PDE10
inhibitor product, not to exceed a set multiple of total grant funding received. If a PDE10 inhibitor product
candidate does not reach commercialization, we are not required to repay the grant funds. Through December 31,
2011, we have received a total of $5.7 million from SMRI in the form of grant and equity funding. As of
December 31, 2011, all amounts pertaining to this agreement previously recorded as deferred revenue in the
accompanying balance sheet have been recognized as revenue. In 2007 and 2009, as consideration for the equity
funding noted above, we sold an aggregate of 255,103 shares of Series E convertible preferred stock to SMRI,
which were subsequently converted to common stock in connection with our initial public offering. We
recognized revenue under the SMRI funding agreement of $227,000, $475,000 and $548,000, for the years
ending December 31, 2011, 2010, and 2009, respectively.

In October 2010, we entered into a platform development funding agreement with Vulcan pursuant to which

we received $20.0 million for our G protein-coupled receptor, or GPCR, program from Vulcan. Of the funds
received from Vulcan, we recorded $10.8 million as a reduction of the cost of the intellectual property assets we
purchased from Patobios Limited, or Patobios, $994,000 was recorded in equity for the fair value of warrants issued
to Vulcan, and the remaining $8.2 million was recorded as deferred revenue. The deferred revenue balance is being
recognized as revenue or as a reduction of the costs of assets purchased in direct proportion to the related GPCR
expenses as they are incurred. Also in October 2010, we entered into an agreement with LSDF under which we
received a $5.0 million grant award from LSDF that will be paid to us as reimbursement of expenses that we incur
and for equipment purchases we make for our GPCR program. For the years ended December 31, 2011 and 2010,
we have recorded reductions to the Vulcan deferred revenue balance of $2.0 million and $484,000, respectively,
which includes $2.0 and $468,000 recognized as revenue and $38,000 and $16,000 recorded as cost reductions to
assets, respectively. As of December 31, 2011, $5.7 million in deferred revenue pertaining to the Vulcan Agreement
was recorded in the accompanying balance sheet. Under the LSDF agreement, for the years ended December 31,
2011 and 2010, respectively, we recognized revenue of $2.0 million and $212,000 and have recorded cost
reductions to assets of $1.7 million and $494,000. As of December 31, 2011, we had incurred $4.4 million of
expenses reimbursable by LSDF under our grant award agreement. See additional discussion of the Vulcan and
LSDF agreements under Note 9.

Note 8—Commitments and Contingencies

We lease laboratory and corporate office space and rent equipment under operating lease agreements that
include certain rent escalation terms. The laboratory space lease term extends through September 30, 2012 and as of
December 31, 2011 the lease term for the corporate office space expired July 31, 2014. Rental of equipment extends
into 2013. We sublease a portion of our leased properties. Future minimum payments related to the leases, which
exclude common area maintenance and related operating expenses, at December 31, 2011, are as follows:

Year Ending December 31,

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net Lease
Payments

(in thousands)
$1,334
433
238

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,005

F-16

On January 27, 2012, we entered into a lease with BMR-201 Elliott Avenue LLC, or BMR, for

approximately 64,500 square feet of office and laboratory space. The premises leased by us will replace the
separate office and laboratory spaces that we currently occupy. Lease payments in connection with the BMR
lease are not included in the table above and are discussed further in Note 14. On January 30, 2012, in connection
with the new lease agreement, we gave notice to the landlord of our current corporate office space that we were
terminating the lease for that space on January 30, 2013.

Rent expense totaled $2.2 million, $2.1 million and $2.3 million for the years ended December 31, 2011,
2010 and 2009, respectively. Rental income received under noncancelable subleases was $693,000, $793,000 and
$799,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Rental income is recorded as
other income in the consolidated statements of operations.

In connection with the funding agreement with SMRI, beginning the first calendar year after commercial

sales of a schizophrenia product, if and when a product is commercialized, we may become obligated to pay
royalties based on net income, as defined in the agreement, not to exceed a set multiple of total grant funding
received. Based on the amount of grant funding received as of December 31, 2011, the maximum amount of
royalties payable by us is $12.8 million. We have not paid any such royalties through December 31, 2011.

In February 2009, we entered into a patent assignment agreement with an individual whereby we acquired

all intellectual property rights, including patent applications, related to peroxisome proliferators activated
receptor gamma, or PPARγ agonists for the treatment and prevention of addictions to substances of abuse, as
well as other compulsive behaviors. No payments were made related to the technology acquisition. In February
2011, we amended the patent assignment agreement to include all intellectual property rights, including patent
applications, related to dietary supplements that increase PPARγ activity. Under the agreement, we will be
required to make payments of up to $3.8 million in total, for both PPARγ agonists and dietary supplements that
increase PPARγ activity, to the individual upon achievement of certain development events, such as the initiation
of clinical trials and receipt of marketing approval. In addition, we are obligated to pay a low single-digit
percentage royalty on any net sales of drug products that are covered by any patents that issue from the acquired
patent application. We recorded no research and development expense under the patent assignment agreement
during the years ended December 31, 2011, 2010 and 2009.

In March 2010, we entered into a license agreement with Daiichi Sankyo Co., Ltd. (successor-in-interest to

Asubio Pharma Co., Ltd.), or Daiichi Sankyo, pursuant to which we received an exclusive license to PDE7
inhibitors claimed in certain patents and pending patent applications owned by Daiichi Sankyo for use in the
treatment of movement disorders and other specified indications. In February 2011, we amended the agreement
to include addiction and compulsive disorders in the field of use. Under the amended agreement, we agreed to
make milestone payments to Daiichi Sankyo of up to $30.2 million upon the achievement of certain events, such
as successful completion of preclinical toxicology studies; dosing of human subjects in Phase 1, 2 and 3 clinical
trials; receipt of marketing approval of a PDE7 inhibitor product; and reaching specified sales milestones. In
addition, Daiichi Sankyo is entitled to receive from us a low single-digit percentage royalty of any net sales of a
PDE7 inhibitor licensed under the agreement by us and/or our sublicensee(s), provided that if the sales are made
by a sublicensee, then the amount payable by us to Daiichi Sankyo is capped at an amount equal to a low double-
digit percentage of all royalty and specified milestone payments that we receive from the sublicensee. We
recorded research and development expense under the agreement totaling $13,000 and $25,000 for the years
ended December 31, 2011 and 2010, respectively.

In April 2010, we entered into an exclusive license agreement with Helion Biotech ApS, or Helion, pursuant
to which we received a royalty bearing, worldwide exclusive license in and to all of Helion’s intellectual property
rights related to MASP2 antibodies, polypeptides and methods in the field of inhibition of mannan-binding
lectin-mediated activation of the complement system for the prevention, treatment or diagnosis of any disease or
condition. Upon execution of the agreement, we made a one-time payment to Helion of $500,000 that was
recognized as research and development expense and agreed to make development and sales milestone payments

F-17

to Helion of up to an additional $6.9 million upon the achievement of certain events, such as the filing of an
Investigational New Drug application with the U.S. Food and Drug Administration; initiation of Phase 2 and 3
clinical trials; receipt of marketing approval; and reaching specified sales milestones. In addition, Helion is
entitled to receive from us a low single-digit percentage royalty of any net sales of a MASP2 inhibitor product
that is covered by the patents licensed by us under the agreement. We recorded research and development
expense under this agreement totaling $15,000 and $529,000 for years ended December 31, 2011 and 2010,
respectively.

In connection with our funding agreements with Vulcan and LSDF discussed in Note 7, we have agreed to
pay Vulcan and LSDF tiered percentages of the net proceeds derived from the GPCR program. The percentage
rates of net proceeds payable to Vulcan and LSDF decrease as the cumulative net proceeds reach specified
thresholds, and the blended percentage rate payable to Vulcan and LSDF in the aggregate is in the mid-teens with
respect to the first approximately $1.5 billion of cumulative net proceeds that we receive from our GPCR
program. After we have received approximately $1.5 billion of cumulative net proceeds, the percentage rate
payable to Vulcan and LSDF in the aggregate decreases to one percent. Pursuant to the agreement with Vulcan,
at our option, we may pay a portion of Vulcan’s share of the one percent of net proceeds to a life sciences
initiative, or LSI, to be established in accordance with the LSDF agreement. The LSI will be a non-profit,
tax-exempt organization with a mission to advance life sciences in the State of Washington.

In November 2010, pursuant to our agreement with Vulcan, we purchased from Patobios intellectual

property assets related to an assay technology for use in the GPCR program. We also issued to Vulcan three
warrants to purchase our common stock, each with a five-year term and exercisable for 133,333 shares, with
exercise prices of $20, $30 and $40 per share, respectively. The exercise price of the warrants may be paid in
cash or on a “cashless” basis in which the number of shares issuable upon exercise of the warrant would be
reduced by the number of shares having a fair market value equal to the applicable exercise price. Under our
agreement with Vulcan, we granted Vulcan a security interest in our personal property related to the GPCR
program, other than intellectual property, which security interest is junior to any existing or future security
interests granted in connection with a financing transaction and which will be released automatically after Vulcan
receives $25.0 million under the agreement. We also agreed not to grant any liens on intellectual property related
to the GPCR program. The term of our agreement with Vulcan is 35 years, provided that the term will
automatically extend until the cumulative net proceeds that we receive from the GPCR program are
approximately $1.5 billion.

Under our agreement with LSDF, after LSDF receives $25.0 million from us, any remaining amounts that

would be payable by us to LSDF pursuant to the agreement will instead be paid to LSI. Our obligations with
respect to LSI are limited to creating LSI’s charter documents, incorporating LSI, selecting directors and
applying for tax exempt status, all in consultation with LSDF. We have no other obligations, funding or
otherwise, to LSI. The term of our agreement with LSDF expires on the six-month anniversary following the last
date that we deliver a report related to our incurrence of grant-funded expenses described in the agreement,
provided that certain obligations will survive the expiration of the term. The term of our payment obligations to
LSDF is the same as that under our agreement with Vulcan. In addition, pursuant to our agreements with Vulcan
and LSDF, we have agreed (1) to use commercially reasonable efforts to screen at least 75% of the currently
known human Class A orphan GPCRs within 19 months from the date of the agreements, subject to possible
extensions and (2) to commence a medicinal chemistry effort focused on developing a product candidate with
respect to one orphan GPCR for which compounds were identified using the GPCR assay technology.

Note 9—Shareholders’ Equity

Preferred Stock

In connection with the closing of the IPO in 2009, all of our shares of preferred stock outstanding at the time

of the offering were automatically converted into 11,514,508 shares of common stock.

F-18

On February 18, 2009, we received $3.1 million in connection with the funding agreement with SMRI.

Under the terms of the agreement, we issued 122,449 shares of Series E convertible preferred stock. The
estimated fair value of these shares was $1.9 million, or $15.11 per share. We recorded $1.9 million of the
proceeds as equity and the remaining as deferred revenue.

Common Stock

In May 2011, we entered into an equity line financing facility with Azimuth pursuant to which we may sell

up to $40.0 million of our shares of common stock over a 24-month term. This facility replaced a prior equity
line financing facility, which we had entered into with Azimuth on July 28, 2010 but had not drawn upon. Under
the 2011 agreement with Azimuth, we may, from time to time over the 24-month term and in our sole discretion,
present Azimuth with draw down notices requiring Azimuth to purchase a specified dollar amount of shares of
our common stock, based on the volume-weighted average price per share on each of 10 consecutive trading
days, or the draw down period, with the total dollar amount of each draw down subject to certain agreed-upon
limitations based on the market price of our common stock at the time of the draw down. The purchase price for
these shares equals the daily volume-weighted average price of our common stock on each date during the draw
down period on which shares are purchased, less a discount ranging from 3.00% to 6.00%, based on a minimum
price that we specify. In addition, in our sole discretion, but subject to certain limitations, we may require
Azimuth to purchase a percentage of the daily trading volume of our common stock for each trading day during
the draw down period. We are allowed to present Azimuth with up to 24 draw down notices during the 24-month
term, with only one such draw down notice allowed per draw down period and a minimum of five trading days
required between each draw down period. We may not issue more than 4,427,562 shares in connection with the
committed equity line financing facility, although this limitation does not apply if the average purchase price of
all shares issued to Azimuth, taking into account all discounts, equals or exceed $5.02 per share, which amount is
subject to adjustment in certain circumstances specified in the facility. We have not drawn funds under this
facility.

In connection with this facility, we entered into a placement agent agreement with Reedland Capital
Partners, an Institutional Division of Financial West Group, member FINRA/SIPC, or FWG/Reedland. Pursuant
to the agreement we reimbursed $10,000 of FWG/Reedland’s legal expenses in connection with a filing that was
made by FWG/Reedland pursuant to FINRA Rule 5110, and have agreed to pay FWG/Reedland, upon each sale
of our common stock to Azimuth under the equity line financing facility, a fee equal to 0.5% of the aggregate
dollar amount of common stock purchased by Azimuth upon settlement of each such sale.

As of December 31, 2011, we had reserved shares of common stock for the following purposes:

Options granted and outstanding . . . . . . . . . . . . . . . . . . . . . .
Options available for future grant . . . . . . . . . . . . . . . . . . . . .
Common stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,006,567
2,248,509
609,016

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,864,092

Warrants

On October 21, 2010, in connection with the Vulcan agreement, we issued to Vulcan three warrants to
purchase our common stock, each exercisable for 133,333 shares, with exercise prices of $20, $30 and $40 per
share, respectively. The exercise price of the warrants may be paid in cash or on a “cashless” basis in which the
number of shares issuable upon exercise of the warrant would be reduced by the number of shares having a fair
market value equal to the applicable exercise price. The warrants will expire on October 21, 2015. The fair value
of the warrants included in equity was $994,000 determined using the Black-Scholes option-pricing model.

F-19

On August 24, 2009, in connection with the IPO, we waived a termination clause included in certain

outstanding warrants to purchase up to 197,478 shares of Series E convertible preferred stock at an exercise price
of $12.25 per share that would have caused these warrants to terminate upon completion of the IPO if not
previously exercised. The warrants were originally issued in 2007 as compensation for assistance with our
Series E convertible preferred stock financing. The holders of these warrants included members of the IPO
selling group and related persons, among other persons. As a result of this waiver, the warrants remain
outstanding following completion of the IPO and will terminate upon the earlier of (a) a change of control as
defined in the warrants and (b) March 29, 2012. We revalued the warrants based on the fair value as of the
closing of the IPO when the warrants converted to common stock warrants, which resulted in an adjustment to
the preferred stock warrant liability. The related income was included in other income, net. The balance of the
preferred stock warrant liability was reclassified to additional paid-in-capital upon the conversion of the preferred
stock warrants to common stock warrants. The common stock warrants are recorded in permanent equity and are
not adjusted to fair value on a recurring basis. As of December 31, 2011, 2010 and 2009 we had outstanding
warrants to purchase 609,016, 609,016 and 209,017 shares of common stock with weighted-average exercise
prices of $23.85, $23.85 and $12.08 per share, respectively.

Until the completion of our IPO, the fair value of the preferred stock warrants was classified as a liability on

the Consolidated Balance Sheet and was adjusted to fair value using the Black-Scholes option pricing model at
the end of each reporting period. The remaining preferred stock warrant liability was reclassified to additional
paid-in-capital upon conversion of the preferred stock warrants to common stock warrants in connection with the
IPO that was completed on October 13, 2009. The decrease in the fair value of the preferred stock warrants
totaled $878,000 for the year ended December 31, 2009 and is included in other income, net.

Note 10—Stock-Based Compensation

Stock Options

Our 2008 Equity Incentive Plan, or 2008 Plan, provides for the grant of incentive and nonstatutory stock

options, restricted stock, stock appreciation rights, performance units and performance shares to employees,
directors and consultants and subsidiary corporations’ employees and consultants. The 2008 Plan also allows any
shares returned under our Amended and Restated 1998 Stock Option Plan, or 1998 Plan, as a result of
cancellation of options or repurchase of shares issued pursuant to the 1998 Plan, to be issued under the 2008 Plan
subject to a maximum limit of 3,084,848 shares. As of December 31, 2011 and 2010, a total of 365,377 and
357,135 shares, respectively, have been reserved under the 2008 Plan as a result of the cancellation of options or
repurchase of shares under the 1998 Plan. In addition, the 2008 Plan provides for annual increases in the number
of shares available for issuance thereunder on the first day of each fiscal year, beginning with the 2010 fiscal
year, equal to the lesser of:

•

•

•

five percent of the outstanding shares of our common stock on the last day of the immediately
preceding fiscal year;

1,785,714 shares; or

such other amount as our board of directors may determine.

On January 1, 2012 and 2011, in accordance with the 2008 Plan annual increase provisions, the authorized
shares in the 2008 Plan increased by 1,121,511 and 1,096,041 shares, respectively. As of December 31, 2011, a
total of 3,418,873 shares were reserved for issuance under the 2008 Plan. Options are granted with exercise
prices equal to the closing fair market value of the common stock on the date of the grant. The terms of options
may not exceed ten years. Generally, options vest over a four-year period, but may be granted with different
vesting terms.

F-20

Compensation cost for stock options granted to employees is based on the grant-date fair value and is
recognized over the vesting period of the applicable option on a straight-line basis. As stock-based compensation
expense is based on options ultimately expected to vest, the expense has been reduced for estimated forfeitures.
The fair value of each employee option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions during the years ended:

Estimated weighted-average fair value . . . . . . . . . . . . . . . . . . . . .
Weighted-Average Assumptions
Expected volatility (A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term, in years (B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield (D)

December 31,

2011

2010

2009

$3.31

$4.34

$7.47

83%

77%

76%

5.73
6.08
1.97% 2.55% 2.63%
0%

6.08

0%

0%

(A) Expected Volatility. Because of our limited trading history, the expected volatility rate used to value stock
option grants is based on volatilities of a peer group of similar companies whose share prices are publicly
available. The peer group was developed based on companies in the pharmaceutical and biotechnology
industry in a similar stage of development.

(B) Expected Term. We elected to utilize the “simplified” method for “plain vanilla” options to value stock

option grants. Under this approach, the weighted-average expected life is presumed to be the average of the
vesting term and the contractual term of the option.

(C) Risk-free Interest Rate. The risk-free interest rate assumption was based on zero-coupon U.S. Treasury

instruments that had terms consistent with the expected term of our stock option grants.

(D) Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to

pay cash dividends in the foreseeable future.

Stock-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from estimates. We estimate forfeitures based on our
historical experience; separate groups of employees that have similar historical forfeiture behavior are considered
separately for expense recognition.

Stock options granted to non-employees are accounted for using the fair value approach. The fair value of

non-employee option grants are estimated using the Black-Scholes option-pricing model and are re-measured
over the vesting term as earned. The estimated fair value is charged to expense over the applicable service period.
During the years ended December 31, 2011, 2010 and 2009, we granted to non-employees options to purchase
15,000, 9,600 and 0 shares of common stock, respectively.

Stock-Based Compensation Summary. Stock-based compensation expense includes amortization of stock

options granted to employees and non-employees’ and has been reported in our consolidated statements of
operations as follows:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 819
1,108

(in thousands)
$ 971
1,207

$ 879
615

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,927

$2,178

$1,494

Year Ended December 31,

2011

2010

2009

In connection with the non-employee options, we recognized expense of $62,000, $139,000 and $31,000

during the years ended December 31, 2011, 2010 and 2009, respectively.

F-21

Stock option activity and related information is as follows:

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options
Outstanding

3,589,292
75,400
(509,398)
(148,727)

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . .

3,006,567

Vested and expected to vest at December 31, 2011 . . . . .

2,947,509

Exercisable at December 31, 2011 . . . . . . . . . . . . . . . . . .

2,379,046

Weighted-
Average
Exercise
Price per
Share

Remaining
Contractual Life
(in years)

Aggregate
Intrinsic
Value
(in thousands)

$3.09
5.34
1.17
6.11

$3.32

$3.26

$2.47

6.35

6.31

5.82

$4,960

$4,960

$4,960

The total intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009

was $2.1 million, $1.4 million and $177,000, respectively.

Information about stock options outstanding and exercisable is as follows:

December 31, 2011

Options Outstanding

Options Exercisable

Range of Exercise Price

$0.78-3.95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.53-$7.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.30-9.80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.63-13.49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Options

1,832,460
953,183
204,855
16,069

$0.78-13.49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,006,567

Weighted-
Average
Remaining
Contractual
Life (Years)

5.10
8.31
8.46
6.17

6.35

Weighted-
Average
Exercise
Price

$ 1.24
6.14
8.04
12.66

Number of
Options

1,822,041
473,245
70,856
12,904

Weighted-
Average
Exercise
Price

$ 1.23
6.18
7.82
12.61

$ 3.32

2,379,046

$ 2.47

At December 31, 2011 there were 627,521 unvested options outstanding that will vest over a weighted-
average period of 2.2 years. Excluding non-employee stock options, the total estimated compensation expense to
be recognized in connection with these shares is $2.3 million.

Note 11—Income Taxes

We have a history of losses and therefore have made no provision for income taxes. Deferred income taxes
reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes.

F-22

Significant components of deferred tax assets are as follows:

December 31,

2011

2010

(in thousands)

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . . . . .
Investment in Partnership . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 48,901
14
1,306
3,560
547
303

$ 39,820
91
991
3,192
604
388

Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

54,631
(54,631)

45,086
(45,086)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

$ —

As of December 31, 2011 and 2010, we had net operating loss carryforwards of approximately
$143.8 million and $117.1 million, respectively, and research and development tax credit carryforwards of
approximately $3.6 million and $3.2 million, respectively. Unless previously utilized, our net operating loss and
research and development tax credit carryforwards expire between 2012 and 2031

In certain circumstances, due to ownership changes, the net operating loss and tax credit carryforwards may
be subject to limitations under the Internal Revenue Code of 1986, as amended (the Code). Our ability to utilize
our net operating loss and tax credit carryforwards may be limited in the event that a change in ownership, as
defined in Section 382 of the Code, has occurred or may occur in the future. Approximately $2.7 million of our
net operating loss carryforwards relate to tax deductible stock-based compensation in excess of amounts
recognized for financial statement purposes. To the extent that net operating loss carryforwards, if realized, relate
to stock-based compensation, the resulting tax benefits will be recorded to shareholders’ equity, rather than to the
results of operations.

We have established a 100% valuation allowance due to the uncertainty of our ability to generate sufficient
taxable income to realize the deferred tax assets. Our valuation allowance increased $9.5 million, $11.1 million and
$6.8 million in 2011, 2010 and 2009, respectively, primarily due to net operating losses incurred during these periods.

A reconciliation of the Federal statutory tax rate of 34% to our effective income tax rate follows:

December 31,

2011

2010

2009

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Permanent difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
33
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

(34)% (34)% (34)%
(1)
27
8

4
20
10

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

—

—

We file income tax returns in the United States, which typically provides for a three-year statute of
limitations on assessments. However, because of net operating loss carryforwards, substantially all of our tax
years remain open to federal tax examination.

The guidance for accounting for uncertainties in income taxes requires that we recognize the financial
statement effects of a tax position when it is more likely than not, based on the technical merits, that the position
will be sustained upon examination. As a result of the implementation of this guidance, we identified certain

F-23

adjustments to our research and development tax credit, which was accounted for as a reduction to the deferred
tax assets. There have been no changes in unrecognized tax benefits for the years ended December 31, 2011,
2010 and 2009. Further, there were no unrecognized tax benefits that impacted our effective tax rate and
accordingly, there was no material effect to our financial position, results of operations or cash flows.

Our policy is to recognize interest and penalties related to the underpayment of income taxes as a

component of income tax expense. To date, there have been no interest or penalties charged to us in relation to
the underpayment of income taxes.

We do not anticipate that our unrecognized tax benefits will significantly increase in the next 12 months.

Note 12—401(k) Retirement Plan

We have adopted a 401(k) plan. To date, we have not matched employee contributions to the plan. All

employees are eligible to participate, provided they meet the requirements of the plan.

Note 13—Quarterly Information (Unaudited)

The following table summarizes the unaudited statements of operations for each quarter of 2011 and 2010

(in thousands, except per share amounts):

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share . . . . . . . . . .

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share . . . . . . . . . .

March 31,

June 30,

September 30,

December 31,

$ 1,239
7,689
(6,450)
(6,542)
$ (0.30)

$

378
6,803
(6,425)
(6,661)
$ (0.31)

$ 1,155
6,104
(4,949)
(5,291)
$ (0.24)

$

497
8,131
(7,634)
(7,804)
$ (0.36)

2011

$

987
7,151
(6,164)
(6,512)
$ (0.29)

2010

$

254
7,744
(7,490)
(7,555)
$ (0.35)

$ 1,143
10,990
(9,847)
(10,201)
(0.46)

$

$

$

976
9,533
(8,557)
(7,231)
(0.34)

Note 14—Subsequent Events

Lease Agreement

On January 27, 2012, we entered into a lease with BMR-201 Elliott Avenue LLC, or the Landlord, for

approximately 64,500 square feet of office and laboratory space in the building located at 201 Elliott Avenue
West, Seattle, Washington, or The Omeros Building. The premises leased by us within The Omeros Building will
replace the separate office and laboratory spaces that we currently occupy.

The term of the lease is 15 years with two options to extend the lease term, each by 5 years. The expected
term commencement date is October 1, 2012. The annual base rent due under the lease is $0 for the first year,
$2.5 million for the second year and $3.2 million for the third year and will increase by 2.5% each year
thereafter. In addition, we will be responsible for paying our proportionate share of utilities, taxes, insurance and
maintenance as well as a property management fee. The Landlord has agreed to provide tenant improvements to
the leased premises on a turn-key basis, a lease incentive (i.e., cash payment) to us of $3.0 million, and to
reimburse us for up to $650,000 in expenses incurred by us in connection with The Omeros Building. The lease
incentive is to be amortized over the initial Lease term at the annual rate of 3.0%.

F-24

During the first three years of the lease term, we have the option to lease specified additional space in The
Omeros Building. We have a right of first refusal for the remaining premises as well as a right of first offer for
specified premises in The Omeros Building. If at any time during the term our space requirements exceed the
available space in The Omeros Building, the Landlord will relocate us to a new building under a build-to-suit
lease with no termination penalty payable under the Lease, subject to the negotiation of a mutually acceptable
build-to-suit lease. In addition, beginning with the sixth year of the lease term, if we request from the Landlord
additional space in The Omeros Building with a minimum square footage specified in the lease and the Landlord
is unable to provide such additional space to us, we may terminate the lease without payment of any termination
fees other than the unamortized lease incentive. We have the right to terminate the lease beginning with year nine
of the Lease term, subject to the payment of a lease termination fee. If we terminate the lease during years 9
through 10, the termination fee is equal to 30% of the unamortized tenant improvements and 100% of the
unamortized lease incentive. If we terminate the lease any time after year 10 of the term, the termination fee is
equal to 20% of the unamortized tenant improvements and 100% of the unamortized lease incentive.

On January 30, 2012, in connection with the new lease agreement for The Omeros Building, we gave notice

to the landlord of our current corporate office space that we were terminating the lease for that space on
January 30, 2013.

F-25

[THIS PAGE INTENTIONALLY LEFT BLANK]

Exhibit
Number

Footnote
Reference

EXHIBIT INDEX

Description

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

(1)

(1)

(2)

(3)

(3)

(4)

(4)

(4)

(5)

(3)*

(3)*

(3)*

(3)*

(3)*

(6)*

(6)*

(6)*

(7)*

(3)*

(3)*

Amended and Restated Articles of Incorporation of Omeros Corporation

Amended and Restated Bylaws of Omeros Corporation

Form of Omeros Corporation common stock certificate

Stock Purchase Warrant issued by nura, inc. to Oxford Finance Corporation dated
April 26, 2005 (assumed by Omeros Corporation on August 11, 2006)

Amended and Restated Investors’ Rights Agreement among Omeros Corporation and
holders of capital stock dated October 15, 2004

Form of Omeros Corporation Stock Purchase Warrant (as of December 31, 2011,
warrants in this form permitted the purchase up to a total of 167,885 shares of common
stock)

Form of Omeros Corporation Stock Purchase Warrant (as of December 31, 2011,
warrants in this form permitted the purchase up to a total of 29,593 shares of common
stock)

Form of Notice of Waiver of Warrant Termination (applicable to Stock Purchase
Warrants filed as Exhibits 4.4 and 4.5)

Form of Common Stock Warrant issued by Omeros Corporation to Cougar Investment
Holdings LLC, which warrants were subsequently assigned to its affiliate Vulcan Capital
Venture Capital II LLC (as of December 31, 2011, warrants in this form permitted the
purchase of up to a total of 399,999 shares of common stock)

Form of Indemnification Agreement entered into between Omeros Corporation and its
directors and officers

Second Amended and Restated 1998 Stock Option Plan

Form of Stock Option Agreement under the Second Amended and Restated 1998 Stock
Option Plan (that does not permit early exercise)

nura, inc. 2003 Stock Plan

Form of Stock Option Agreement under the nura, inc. 2003 Stock Plan

2008 Equity Incentive Plan

Form of Stock Option Award Agreement under the 2008 Equity Incentive Plan (used for
option awards granted after October 7, 2009)

Form of Stock Option Award Agreement under the 2008 Equity Incentive Plan (used for
option awards granted on or before October 7, 2009)

Second Amended and Restated Employment Agreement between Omeros Corporation
and Gregory A. Demopulos, M.D. dated April 7, 2010

Offer Letter between Omeros Corporation and Marcia S. Kelbon, Esq. dated August 16,
2001

Technology Transfer Agreement between Omeros Corporation and Gregory A.
Demopulos, M.D. dated June 16, 1994

10.12

(3)

Technology Transfer Agreement between Omeros Corporation and Pamela Pierce, M.D.,
Ph.D. dated June 16, 1994

Exhibit
Number

Footnote
Reference

Description

10.13

(3)*

Second Technology Transfer Agreement between Omeros Corporation and Gregory A.
Demopulos, M.D. dated December 11, 2001

10.14

(3)

Second Technology Transfer Agreement between Omeros Corporation and Pamela
Pierce, M.D., Ph.D. dated March 22, 2002

10.15

(3)*

Technology Transfer Agreement between Omeros Corporation and Gregory A.
Demopulos, M.D. dated June 16, 1994 (related to tendon splice technology)

10.16

10.17

10.18

10.19

10.20

10.21

10.22

(3)

(3)

(3)

(3)

(3)

(3)

(3)

U.S. Bank Centre Office Lease Agreement between Bentall City Centre LLC and Scope
International, Inc. dated September 28, 1998

Assignment and Amendment of Lease among Omeros Corporation, City Centre
Associates and Navigant Consulting, Inc. dated August 1, 2002

Second Amendment to Office Lease Agreement between Omeros Corporation and City
Centre Associates dated January 4, 2006

Lease Agreement between Alexandria Real Estate Equities, Inc. and Primal, Inc. dated
April 6, 2000

Lease Agreement between Alexandria Real Estate Equities, Inc. and Primal, Inc. dated
September 28, 2001

Assignment and Assumption and Modification of Lease Documents among Alexandria
Real Estate Equities, Inc., Primal, Inc., and nura, inc. dated October 23, 2003

Assignment and Assumption and Modification of Lease Documents among Alexandria
Real Estate Equities, Inc., nura, inc., and Omeros Corporation dated September 26, 2007

10.23

(4)†

Commercial Supply Agreement between Omeros Corporation and Hospira Worldwide,
Inc. dated October 9, 2007

10.24

(4)†

Exclusive License and Sponsored Research Agreement between Omeros Corporation and
the University of Leicester dated June 10, 2004

10.25

(3)†

Research and Development Agreement First Amendment between Omeros Corporation
and the University of Leicester dated October 1, 2005

10.26

(4)†

Exclusive License and Sponsored Research Agreement between Omeros Corporation and
the Medical Research Council dated October 31, 2005

10.27

(3)†

Amendment dated May 8, 2007 to Exclusive License and Sponsored Research Agreement
between Omeros Corporation and the Medical Research Council dated October 31, 2005

10.28

(8)†

Funding Agreement between Omeros Corporation and The Stanley Medical Research
Institute dated December 18, 2006

10.29

(6)

Landlord Consent to Sublease among Christensen O’Connor Johnson Kindness PLLC,
City Centre Associates and Omeros Corporation dated January 29, 2008

10.30

(8)†

Exclusive Technology Option Agreement between Omeros Corporation, Patobios
Limited, Susan R. George, M.D., Brian F. O’Dowd, Ph.D. and U.S. Bank National
Association as escrow agent dated September 4, 2008

10.31

(9)

First Amendment of Exclusive Technology Option Agreement between Omeros
Corporation, Patobios Limited, Susan R. George, M.D., Brian F. O’Dowd, Ph.D. and U.S.
Bank National Association as escrow agent dated November 10, 2009

Exhibit
Number

Footnote
Reference

10.32

(4)†

Description

Patent Assignment Agreement between Omeros Corporation and Roberto Ciccocioppo,
Ph.D. dated February 23, 2009

10.33

10.34

(4)*

Omeros Corporation Non-Employee Director Compensation Policy

(10)†

License Agreement between Omeros Corporation and Daiichi Sankyo Co., Ltd.
(successor-in-interest to Asubio Pharma Co., Ltd.) dated March 3, 2010

10.35

(11)†

Amendment No. 1 to License Agreement with an effective date of January 5, 2011
between Omeros Corporation and Daiichi Sankyo Co., Ltd.

10.36

(12)†

Exclusive License Agreement between Omeros Corporation and Helion Biotech ApS
dated April 20, 2010

10.37

(13)

Common Stock Purchase Agreement dated May 10, 2011 between Omeros Corporation
and Azimuth Opportunity, Ltd., an Institutional Division of Financial West Group,
member FINRA/SIPC

10.38

(13)

Engagement Letter dated May 10, 2011 between Omeros Corporation and Reedland
Capital Partners

10.39

(5)

Loan and Security Agreement between Omeros Corporation and Oxford Finance
Corporation dated October 21, 2010

10.40

(14)

Second Amendment to Loan and Security Agreement dated as of March 25, 2011
between Omeros Corporation and Oxford Finance Corporation

10.41

(5)

Secured Promissory Note issued by Omeros Corporation to Oxford Finance Corporation
dated October 21, 2010

10.42

(14)

Secured Promissory Note issued by Omeros Corporation to Oxford Finance Corporation
dated March 25, 2011

10.43

(15)†

Platform Development Funding Agreement between Omeros Corporation and Vulcan
Inc. and its affiliate dated October 21, 2010

10.44

(15)†

Grant Award Agreement between Omeros Corporation and the Life Sciences Discovery
Fund Authority dated October 21, 2010

12.1

21.1

23.1

31.1

31.2

32.1

32.2

99.1

Ratio of Earnings to Fixed Charges

(3)

List of significant subsidiaries of Omeros Corporation

Consent of Independent Registered Public Accounting Firm

Certification of Principal Executive Officer Pursuant to Rule 13-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to Rule 13-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Description of Omeros Corporation Securities

Exhibit
Number

Footnote
Reference

Description

101.INS**

101.SCH**

101.CAL**

101.LAB**

101.PRE**

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Labels Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

Incorporated by reference from the Annual Report on Form 10-K filed by Omeros Corporation on
March 31, 2010 (File No. 001-34475).
Incorporated by reference from the Registration Statement on Form S-1/A filed by Omeros Corporation on
October 2, 2009 (File No. 333-148572).
Incorporated by reference from the Registration Statement on Form S-1 filed by Omeros Corporation on
January 9, 2008 (File No. 333-148572).
Incorporated by reference from the Registration Statement on Form S-1/A filed by Omeros Corporation on
September 16, 2009 (File No. 333-148572).
Incorporated by reference from the Current Report on Form 8-K filed by Omeros Corporation on
October 25, 2010 (File No. 001-34475).
Incorporated by reference from the Registration Statement on Form S-1/A filed by Omeros Corporation on
April 1, 2008 (File No. 333-148572).
Incorporated by reference from the Current Report on Form 8-K filed by Omeros Corporation on April 12,
2010 (File No. 001-34475).
Incorporated by reference from the Registration Statement on Form S-1/A filed by Omeros Corporation on
May 15, 2009 (File No. 333-148572).
Incorporated by reference from the Current Report on Form 8-K filed by Omeros Corporation on
November 12, 2009 (File No. 001-34475).

(10) Incorporated by reference from the Quarterly Report on Form 10-Q filed by Omeros Corporation on

May 12, 2010 (File No. 001-34475).

(11) Incorporated by reference from the Quarterly Report on Form 10-Q filed by Omeros Corporation on

May 10, 2011 (File No. 001-34475).

(12) Incorporated by reference from the Quarterly Report on Form 10-Q filed by Omeros Corporation on

August 10, 2010 (File No. 001-34475).

(13) Incorporated by reference from the Current Report on Form 8-K filed by Omeros Corporation on May 10,

2011 (File No. 001-34475).

(14) Incorporated by reference from the Current Report on Form 8-K filed by Omeros Corporation on March 31,

2011 (File No. 001-34475).

(15) Incorporated by reference from the Annual Report on Form 10-K filed by Omeros Corporation on

March 15, 2011 (File No. 001-34475).
Indicates management contract or compensatory plan or arrangement.
Portions of this exhibit are redacted in accordance with a grant of confidential treatment.

*
†
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise is not subject to liability under those sections.

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SEC Form 10-K

Corporate Headquarters

Copies of Omeros’ Annual Report on Form 
10-K for the fi scal year ended December 
31, 2011, including fi nancial statements, are 
available on the Company’s web site at 
www.omeros.com or by written request to:

Investor Relations
Omeros Corporation

1420 Fifth Avenue
Suite 2600
Seattle, WA 98101

Omeros Corporation
1420 Fifth Avenue
Suite 2600
Seattle, WA 98101

www.omeros.com

Stock Listing

Omeros’ stock trades on The NASDAQ Global Market 
under the symbol OMER. For more information, please 
visit www.omeros.com.

Transfer Agent and Registrar

2012 Annual Meeting

Computershare Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310-1900

Toll Free Number: 866.282.4938 (U.S.)
Outside the U.S.: 201.680.6578

TDD for Hearing Impaired: 800.231.5469 (U.S.)
Outside the U.S.: 201.680.6610

The 2012 Annual Meeting of Shareholders of Omeros 
Corporation will be held June 1, 2012, beginning 
10:00 A.M. (local time), at:

U.S. Bank Centre
1420 Fifth Avenue
Fourth Floor
Seattle, WA 98101

www.bnymellon.com/shareowner/isd

Forward-looking Statements

Investor Relations and Media Contact

Investor Relations
Omeros Corporation

1420 Fifth Avenue
Suite 2600
Seattle, WA 98101
ir@omeros.com

Independent Registered 
Public Accounting Firm

Ernst & Young LLP

This annual report contains forward-looking statements as 
defined within the Private Securities Litigation Reform Act of 1995, 
which are subject to the “safe harbor” created by those sections. 
Forward-looking statements are based on management’s beliefs 
and assumptions and on information available to management only 
as of the date of this annual report. Omeros’ actual results could 
differ materially from those anticipated in these forward-looking 
statements for many reasons, including, without limitation, the 
risks, uncertainties and other factors described under the heading 
“Risk Factors” in this annual report. Given these risks, uncertainties 
and other factors, you should not place undue reliance on these 
forward-looking statements, and Omeros assumes no obligation 
to update these forward-looking statements publicly, even if new 
information becomes available in the future.

Board of Directors

Ray Aspiri
Chairman of the Board
Tempress Technologies, Inc.

Thomas J. Cable
Chairman of the Board
Washington Research Foundation

Gregory A. Demopulos, M.D.
Chief Executive Offi cer, Chairman and President
Omeros Corporation

Peter A. Demopulos, M.D.
Cardiologist
Swedish Heart & Vascular Institute

Leroy E. Hood, M.D., Ph.D.
President
Institute for Systems Biology

Daniel K. Spiegelman
Former SVP and Chief Financial Offi cer
CV Therapeutics, Inc.

Executive Offi cers 

Gregory A. Demopulos, M.D.
Chief Executive Offi cer, Chairman and President

Marcia S. Kelbon, J.D.
Vice President, Patent, General Counsel and Secretary

Key Employees

Timothy M. Duffy
Vice President, Business Development

Kenneth M. Ferguson, Ph.D.
Vice President, Development

George A. Gaitanaris, M.D., Ph.D.
Chief Scientifi c Offi cer

Patrick W. Gray, Ph.D.
Scientifi c Fellow

Susan C. Sullivan
Senior Director, Regulatory Affairs

David R. Toll
Senior Director of Finance 

J. Steven Whitaker, M.D., J.D.
Vice President, Clinical Development 
& Chief Medical Offi cer

 
 
Omeros Corporation

1420 Fifth Avenue
Suite 2600
Seattle, WA 98101
206.676.5000

www.omeros.com