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FORM 10-K
201(cid:37)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-K
________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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)
201 Elliott Avenue West
Seattle, Washington
(Address of principal executive offices)
91-1663741
(I.R.S. Employer
Identification Number)
98119
(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
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
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, as amended, during the preceding 12 months (or for such shorter period that the registrant
No
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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
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.
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)
Accelerated filer
Smaller reporting
company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
No
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 $386,370,281.
As of March 7, 2017, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was
43,822,133.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement with respect to the 2017 Annual Meeting of Shareholders to be held
June 16, 2017, which is to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended
December 31, 2016, are incorporated by reference into Part III of this Form 10-K.
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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act,
which are subject to the “safe harbor” created by those sections for such statements. Forward-looking statements are based on
our management’s beliefs and assumptions and on information currently available to our management. All statements other
than statements of historical fact are “forward-looking statements.” Terms such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar expressions
and variations thereof are intended to identify forward-looking statements, but these terms are not the exclusive means of
identifying such statements. Examples of these statements include, but are not limited to, statements regarding:
•
•
•
•
•
•
•
•
•
•
•
•
our plans for sales, marketing and distribution of OMIDRIA® (phenylephrine and ketorolac injection) 1%/0.3%;
our expectations regarding our product sales and our estimate regarding how long our existing cash, cash equivalents,
short-term investments and revenues will be sufficient to fund our anticipated operating expenses, capital expenditures
and interest and principal payments on our outstanding notes under our Term Loan Agreement, or the CRG Loan
Agreement, with CRG Servicing LLC, or CRG, and the lenders identified therein;
our ability to raise additional capital through the capital markets, including under our at-the-market equity facility with
JonesTrading Institutional Services LLC, or JonesTrading, or through one or more corporate partnerships, equity
offerings, debt financings, collaborations, licensing arrangements or asset sales;
our ability to forecast accurately wholesaler demand as well as our estimates of chargebacks and rebates, distribution
fees and estimated product returns;
our expectations regarding the clinical, therapeutic and competitive benefits of OMIDRIA and our product candidates;
our ability to design and successfully complete clinical trials and other studies for our products and product candidates
and our plans and expectations regarding our clinical trials, including our clinical trials for OMS721 and for OMS824;
our anticipation that we will rely on contract manufacturers to manufacture OMIDRIA for commercial sale and to
manufacture our product candidates and our expectations regarding product supply and manufacturing of OMIDRIA;
our ability to enter into acceptable arrangements with potential corporate partners, including with respect to
OMIDRIA, and our ability to effect any such arrangement with respect to OMIDRIA in the European Union, or EU,
prior to July 28, 2018;
our expectations about the commercial competition that OMIDRIA and our product candidates, if commercialized,
face or may face;
our expectation that the OMIDRIAssure® Reimbursement Services Program will increase patient access to OMIDRIA;
our ability to obtain separate or similar reimbursement for OMIDRIA beyond January 1, 2018, our expectations that
OMIDRIA would be part of the packaged payment in the event that we do not obtain separate or similar
reimbursement for OMIDRIA, and our expectations regarding the per unit price we will receive for OMIDRIA in the
future;
the extent of protection that our patents provide and that our pending patent applications will provide, if patents issue
from such applications, for our technologies, programs, products and product candidates;
• when or to what extent the dosing limitations in our OMS824 program may be removed, if at all;
•
•
•
•
•
in our OMS721 program, whether enrollment in a Phase 3 clinical trial in patients with atypical hemolytic uremic
syndrome, or aHUS, will proceed as expected or whether accelerated approval, fast track designation, breakthrough
therapy designation and/or orphan drug designation may be granted by the U.S. Food and Drug Administration, or
FDA, for indications for which we are pursuing such approval or designation;
the expected course and costs of existing claims, legal proceedings and administrative actions, our involvement in
potential claims, legal proceedings and administrative actions, and the potential outcomes and effects of both existing
and potential claims, legal proceedings and administrative actions, as well as regulatory determinations, on our
business, prospects, financial condition and results of operations, including but not limited to our patent infringement
lawsuit against Par Pharmaceutical, Inc. and its subsidiary, Par Sterile Products, LLC;
our expectations regarding our OMS103 exclusive license agreement including, without limitation, manufacturing and
commercialization of OMS103 and the commencement and subsequent continuation of product sales on which we
could receive royalty revenue;
our expectations regarding the effect of changes in accounting guidance or standards on our operating results; and
our expected financial position, performance, revenues, growth, costs and expenses, magnitude of net losses and the
availability of resources.
Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons,
including the risks, uncertainties and other factors described in Item IA of Part I of this Annual Report on Form 10-K under the
headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in
our other filings with the Securities and Exchange Commission, or SEC. Given these risks, uncertainties and other factors,
actual results or anticipated developments may not be realized or, even if substantially realized, they may not have the expected
consequences to or effects on our company, business or operations. Accordingly, you should not place undue reliance on these
forward-looking statements, which represent our estimates and assumptions only as of the date of the filing of this Annual
Report on Form 10-K. You should read this Annual Report on Form 10-K completely and with the understanding that our
actual results in subsequent periods may materially differ from current expectations. Except as required by applicable law,
including the securities laws of the United States and the rules and regulations of the SEC, we assume no obligation to update
or revise any forward-looking statements contained herein, whether as a result of any new information, future events or
otherwise.
OMEROS CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016
INDEX
Part I — Financial Information
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transaction, and Directors' Independence
Item 14. Principal Accounting Fees and Services
Part IV -- Financial Information
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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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 beginning of this Annual Report on Form 10-K for further
information.
ITEM 1.
BUSINESS
Overview
We are a biopharmaceutical company committed to discovering, developing and commercializing both small-
molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, coagulopathies
and disorders of the central nervous system.
Our marketed drug product OMIDRIA® was launched in the U.S. in the second quarter of 2015 for use during
cataract surgery or intraocular lens, or IOL, replacement. OMIDRIA is part of our proprietary PharmacoSurgery® platform,
which is designed to improve clinical outcomes of patients undergoing ophthalmological, arthroscopic, urological and
other surgical procedures. Our PharmacoSurgery platform is based on low-dose combinations of FDA-approved
therapeutic agents delivered directly to the surgical site throughout the duration of the procedure to inhibit preemptively
inflammation and other problems caused by surgical trauma and to provide clinical benefits both during and after surgery.
In our pipeline we have clinical-stage development programs focused on: complement-associated thrombotic
microangiopathies; complement-mediated glomerulonephropathies; Huntington’s disease and cognitive impairment; and
addictive and compulsive disorders. In addition, we have a diverse group of preclinical programs and two additional
platforms: one capable of unlocking new G protein-coupled receptor, or GPCR, drug targets and the other used to generate
antibodies. For OMIDRIA and each of our product candidates and our programs, other than OMS103, we have retained
control of all commercial rights.
Commercial Product -- OMIDRIA® (phenylephrine and ketorolac injection) 1%/0.3%
Overview. OMIDRIA is approved by the FDA for use during cataract surgery or IOL replacement to maintain pupil
size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain, and is approved in all
EU member states plus Iceland, Lichtenstein and Norway (together, the European Economic Area, or EEA) for use during
cataract surgery and other IOL replacement procedures to maintain mydriasis (pupil dilation), to prevent miosis (pupil
constriction), and to reduce postoperative eye pain. OMIDRIA is a proprietary drug product containing two active
pharmaceutical ingredients, or APIs: ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic, or pupil
dilating, agent. Cataract and other lens replacement surgery involve 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. OMIDRIA is added to standard irrigation solution used during cataract and lens replacement surgery and is
delivered intracamerally, or within the anterior chamber of the eye, to the site of the surgical trauma throughout the
procedure. Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging
structures within the eye and other complications increases as does the operating time required to perform the procedure.
United States. We launched OMIDRIA in the U.S. in the second quarter of 2015 primarily through wholesalers
which, in turn, sell to ambulatory surgery centers, or ASCs, and hospitals. The Centers for Medicare and Medicaid
Services, or CMS, has granted transitional pass-through reimbursement status for OMIDRIA, which we expect to run until
January 1, 2018. Pass-through status allows for separate payment (i.e., outside the bundled payment) under Medicare Part
B for new drugs and other medical technologies that meet well-established criteria specified by federal regulations
governing Medicare spending. We are working through legislative and/or administrative means to continue to obtain
separate or similar reimbursement for OMIDRIA on and after January 1, 2018; however, in the event that does not occur,
we expect that OMIDRIA will be included as part of the packaged procedural payment and, as a result, the per unit price
we receive for OMIDRIA would likely be reduced.
We have implemented various purchase volume discount programs for OMIDRIA. In addition, we have entered into
agreements to enable discounts for OMIDRIA on qualifying purchases of OMIDRIA by certain U.S. government
purchasers and other eligible entities (e.g., 340B-eligible hospitals and clinics). In addition, in 2015 we launched the
OMIDRIAssure® Reimbursement Services Program, or OMIDRIAssure. The OMIDRIAssure program services include
the:
6
• OMIDRIAssure Information Hotline for physicians and facilities seeking personalized help and information on
OMIDRIA coverage and reimbursement for patients;
•
•
“Equal Access” Patient Assistance Program providing assistance to financially eligible uninsured or
government-insured patients; and
“We Pay the Difference” Commercially Insured Patient Reimbursement Program providing assistance to
patients with insufficient commercial insurance.
The OMIDRIAssure coverage and reimbursement support services for surgeons and facilities help remove uncertainties
about coding, billing and coverage of OMIDRIA. The “Equal Access” Patient Assistance and the “We Pay the Difference”
Commercially Insured Patient Reimbursement Programs help address financial barriers restricting patient access to the
drug. Under the “Equal Access” program, financially eligible uninsured and government-insured patients receive
OMIDRIA free of charge for use during surgery. For commercially insured patients, through our “We Pay the Difference”
program we pay the facility, on behalf of the patient, the difference between the facility’s acquisition cost for OMIDRIA,
after accounting for any applicable volume discounts, and the amount covered by the patient's insurance.
European Union and other International Territories. In 2015, we received approval from the European Commission,
or EC, to market OMIDRIA in the EEA for use during cataract surgery and other IOL replacement procedures to maintain
mydriasis (pupil dilation), to prevent miosis (pupil constriction), and to reduce postoperative eye pain. For the EU
OMIDRIA marketing authorization to remain valid, product must be placed on the market (i.e., released into the
distribution chain) in at least one EEA country by July 28, 2018. Decisions about price and reimbursement for OMIDRIA
are made on a country-by-country basis and may be required before marketing may occur in a particular country. We do not
expect to see sales of OMIDRIA in the EU and other international territories if we do not obtain such pricing and/or
reimbursement decisions or if we are unable to enter into partnerships for the marketing and distribution of OMIDRIA.
Timing of any such partnerships depends on numerous factors, including completion of mutual diligence exercises and
domestic sales of OMIDRIA.
We have an exclusive supply and distribution agreement, or the ITROM Agreement, with ITROM Trading Drug
Store, or ITROM, for the sale of OMIDRIA in the Kingdom of Saudi Arabia, the United Arab Emirates and certain other
countries in the Middle East. Within the licensed territory, ITROM is responsible for obtaining marketing authorizations for
OMIDRIA on our behalf and for promoting, marketing, selling and distributing product supplied by us. ITROM began
selling OMIDRIA in December 2016 on a limited basis in the Kingdom of Saudi Arabia. We expect that our revenue from
ITROM’s sales will increase in 2017, pending approval of local regulatory applications.
Pediatric Studies. We have completed an FDA-required post-marketing OMIDRIA pediatric clinical trial. The
clinical trial was conducted to fulfill both the post-marketing requirement as well as a Written Request from the FDA to
conduct a pediatric study. Patients in this trial received either OMIDRIA or phenylephrine added to the irrigation solution
used during the surgical procedure. In the trial, OMIDRIA was well tolerated with adverse event rates consistent with those
seen in pediatric cataract surgery and similar in the OMIDRIA and phenylephrine groups. Successful completion of the
trial, including submission of a supplemental New Drug Application, or sNDA, that includes the full clinical study report
and proposed labeling, plus confirmation by the FDA that the submission fulfills the FDA’s Written Request, results in
eligibility for an additional six months of regulatory exclusivity for OMIDRIA and label expansion to include information
on dosing for pediatric patients. We expect to submit an sNDA this year, with results of the pediatric study included in
proposed label language. Although conducted in patients newborn to three years old, the FDA agreed that results from this
trial can be extrapolated to patients through 18 years of age, and a label expansion, if any, would be expected to be
applicable to that full age range.
Abbreviated New Drug Application. In July 2015, we received a Notice Letter from Par Pharmaceutical, Inc. and its
subsidiary, Par Sterile Products, LLC, or collectively, Par, that Par had filed with the FDA an Abbreviated New Drug
Application, or ANDA, containing a Paragraph IV Certification under the Hatch-Waxman Act seeking approval to market a
generic version of OMIDRIA prior to the expiration of three patents listed in the Orange Book for OMIDRIA, or the
Orange Book Patents. These patents were granted following review by the U.S. Patent and Trademark Office, or USPTO,
are presumed to be valid under governing law, and can only be invalidated in federal court with clear and convincing
evidence. We have reviewed the assertions in Par’s Paragraph IV Notice Letter and believe that they do not have merit. We
intend to enforce vigorously our intellectual property rights relating to OMIDRIA, including the three patents referenced in
Par’s Paragraph IV Notice Letter, as well as three additional patents that issued after Par’s Notice Letter. Following receipt
of the Paragraph IV Notice Letter, in September 2015 we filed a patent infringement lawsuit in the U.S. District Court for
the District of Delaware against Par. For more information regarding this ANDA, see “Governmental Regulation-
Abbreviated New Drug Application,” and for more information regarding our patent infringement lawsuit against Par, see
Part I, Item 3, “Legal Proceedings.”
7
Our Product Candidates and Development Programs
Our product candidates consist of the following:
Targeted
Procedure/Disease
Development
Status
Next Expected
Milestone
Worldwide
Rights
Product Candidate/
Program (1)
Clinical Programs
MASP-2 (OMS721) -
Lectin Pathway Disorders
MASP-2 (OMS721) -
Lectin Pathway Disorders
Atypical Hemolytic Uremic
Syndrome (aHUS)
Hematopoietic Stem-Cell
Transplant-Associated
Thrombotic Microangiopathies
(HSCT-TMA)
Phase 3
Continue Phase 3 Enrollment
Phase 2
Initiate Registration Program
MASP-2 (OMS721) -
Lectin Pathway Disorders
IgA Nephropathy (IgAN) and
Other Renal Diseases
Phase 2
Initiate Registration Program
for IgAN
PDE10 (OMS824) - CNS
Disorders
PDE10 (OMS824) - CNS
Disorders
Addiction
Huntington’s Disease
Phase 2 (2)
Schizophrenia
Phase 2 (2)
Opioid and Nicotine Addiction
Phase 2
OMS201 - Urology
Ureteroscopy
Phase 1/2
Meet with FDA to Discuss
Plans for Continued
Development
Meet with FDA to Discuss
Plans for Continued
Development
Determine
Commercialization Path
Determine
Commercialization Path
Omeros
(In-licensed)
Omeros
(In-licensed)
Omeros
(In-licensed)
Omeros
Omeros
Omeros
Omeros
(1) OMS103, part of our PharmacoSurgery platform, was developed for use during all arthroscopic procedures, including knee and
shoulder arthroscopy. See “PharmacoSurgery Platform-OMS103-Arthroscopy.”
(2) Clinical trials evaluating OMS824 in schizophrenia were previously suspended at the request of the FDA and, given that we have
not yet submitted a Phase 2 clinical trial protocol to FDA for review, remain suspended. For additional information, see “Other
Clinical Programs-PDE10 Programs-OMS824 for Huntington’s Disease and Schizophrenia.”
8
Our pipeline of preclinical programs, as well as our platforms, consist of the following:
Targeted
Procedure/Disease
Development
Status
Next Expected
Milestone
Worldwide
Rights
Addictions and Compulsive
Disorders; Movement Disorde
rs
Paroxysmal nocturnal
hemoglobinuria (PNH) and
Other Alternative Pathway
Disorders
aHUS, IgAN, HSCT-TMA
and Age-Related Macular
Degeneration (AMD)
CNS, Metabolic, CV,
Oncologic, Musculoskeletal &
Other Disorders
Preclinical
Submit IND or CTA
Preclinical
Complete Manufacturing
Scale-up of a Clinical
Candidate for IND-
Enabling Toxicology
Studies
Omeros
(Compounds
In-licensed)
Omeros
Preclinical
Conduct Medicinal
Chemistry
Omeros
(In-licensed)
Preclinical
Product Candidate/Program
Preclinical Programs
PDE7 (OMS527)
MASP-3 (OMS906) -
Alternative Pathway
Disorders
MASP-2 (OMS721) -
Small Molecule
Inhibitors
GPCR Platform,
including GPR174 and
other Class A Orphan
GPCRS
Plasmin (OMS616)
Surgical and Traumatic
Bleeding
Preclinical
Antibody Platform
Metabolic, CV, Oncologic,
Musculoskeletal & Other
Disorders
Preclinical
Omeros
Omeros
(In-licensed)
Omeros
(In-licensed)
Continue Drug Discovery
and Selected Medicinal
Chemistry for Class A
Orphan and Class B
GPCRs
Complete Process-
Development and IND-
Enabling Toxicology
Studies and GMP
Manufacturing
Continue Developing
Antibodies Targeting
Lectin, Alternative and
Classical Pathways of
Complement System and
Expanding Antibody
Library
MASP Clinical and Preclinical Programs
MASP-2 Program - OMS721 - Lectin Pathway Disorders
Overview. Mannan-binding lectin-associated serine protease-2, or MASP-2, 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. Inappropriate or uncontrolled activation of the complement system can cause diseases
characterized by serious tissue injury. MASP-2 is recognized as the effector enzyme, and is required for the function, of the
lectin pathway, one of the principal complement activation pathways. Importantly, inhibition of MASP-2 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. We are developing MASP-2 antibodies and small molecules and we expect that the
intended therapeutic effect can be achieved through multiple routes of administration, including subcutaneous and
intravenous administration of our antibodies and oral and intravenous administration of our small molecules. OMS721 is
our lead human monoclonal antibody targeting MASP-2.
OMS721 is being developed for diseases in which the lectin pathway is believed to contribute to significant tissue
injury and pathology. One group of such diseases is thrombotic microangiopathies, or TMAs, including aHUS and HSCT-
TMA. These diseases are typically characterized by significant kidney or central nervous system injury when not treated.
We have a Phase 3 clinical program in patients with aHUS and enrollment has opened in the Phase 3 clinical trial. The
Phase 3 clinical program in patients with aHUS consists of one clinical trial - a single-arm (i.e., no control arm), open-label
trial in patients with newly diagnosed or ongoing aHUS. We expect that the clinical package for the Biologics License
Application, or BLA, will be similar to that which formed the basis of approval for Soliris® (eculizumab). We also received
agreement from the FDA on our ongoing and planned manufacturing for both the Phase 3 program and commercialization
of OMS721 as well as on our nonclinical safety and toxicology plan, most of which has already been successfully
completed with no significant adverse findings. We also have an ongoing Phase 2 clinical trial in patients with TMAs,
including aHUS, HSCT-TMA and thrombotic thrombocytopenia, or TTP. Given the Phase 3 clinical trial in aHUS and
9
positive data in the HSCT-TMA population, the Phase 2 clinical trial protocol in TMAs is being amended to evaluate the
effect of OMS721 for the treatment only of HSCT-TMA. We plan to meet with the FDA and other global regulatory
agencies in 2017 to advance the HSCT-TMA program into Phase 3.
In addition to our Phase 2 clinical program in patients with TMAs, we are conducting a Phase 2 clinical trial in
patients with IgAN and other complement-associated renal diseases, specifically membranous nephropathy, lupus nephritis,
and complement component (C3) glomerulopathy. The ongoing Phase 2 clinical trial is evaluating OMS721 in an open-
label cohort covering these four different types of complement-associated kidney diseases as well as in a blinded, placebo-
controlled cohort covering patients with IgAN. All patients in the open-label cohort of the trial must have high levels of
urinary protein (a marker used by nephrologists to assess disease activity) despite ongoing treatment with a stable
corticosteroid dose. These inclusion criteria are intended to ensure that study patients are unlikely to improve
spontaneously. In the blinded, controlled cohort evaluating patients with IgAN, patients must have high levels of urinary
protein but are not treated with corticosteroids. Patients in the open-label cohort are treated with OMS721 for a total of 12
weeks: four weeks maintaining their entry corticosteroid dose; four weeks of corticosteroid tapering, if tolerated; and four
weeks of resultant corticosteroid dose maintenance. Patients are then followed post-treatment for six weeks. Patients in the
blinded, controlled cohort are treated with OMS721 or placebo for a total of 12 weeks, then followed post-treatment for six
weeks. Based on data to date and discussions with the FDA, we are preparing to initiate a registration program in IgAN.
In addition to TMAs and renal disease, many other disorders have evidence of lectin pathway injury, and we plan to
evaluate OMS721 in one or more of them. See “Other Studies” below.
In our OMS721 program, the FDA has granted our drug candidate orphan drug designation for the prevention
(inhibition) of complement-mediated TMAs and fast track designation for the treatment of patients with aHUS. We have
requested that the FDA grant orphan drug designation for OMS721 in IgAN and have been pursuing fast track designation
for OMS721 in this indication. Following discussion with the FDA, we plan to pursue breakthrough therapy designation
for OMS721 in IgAN and in HSCT-TMA. We also intend to pursue accelerated approval for OMS721 in both of these
indications as well as in aHUS. In addition, we plan to submit for the EMA’s Priority Medicines, or PRIME, program in
IgAN and in HSCT-TMA.
Clinical Trial Results Announced in 2016. In October 2016, we announced positive data from the Phase 2 clinical
trial of OMS721 for the treatment of complement-associated renal disorders. At the time these data were announced, two
patients with IgAN, two patients with membranous nephropathy and two patients with lupus nephritis had completed the
trial; no patients with C3 glomerulopathy, an extremely rare disorder, had yet been enrolled. The key efficacy measures in
this trial are urine albumin-to-creatinine ratios, or uACRs, throughout the trial and change in 24-hour urine protein levels
from baseline to the end of treatment. Data reported from the two IgAN patients then enrolled in the trial demonstrated a
clinically meaningful and statistically significant decrease in uACRs and in 24-hour urine protein from baseline to
endpoint. Subsequent data in IgAN patients have been shared with the FDA and, following discussions with the FDA, we
plan to pursue breakthrough designation and accelerated approval for this indication. Consistent with earlier clinical trials
with OMS721, no significant drug-related safety concerns were observed.
In October 2016, we announced positive results in patients with HSCT-TMA from our Phase 2 open-label clinical
trial of OMS721 in TMAs. The HSCT-TMA patients for whom data were reported are adults who had received stem-cell
transplantation for hematological malignancies. At the time these data were announced, three HSCT-TMA patients, all of
whom had failed immunosuppressive modification, had completed a full course of treatment with OMS721 for up to eight
weeks, and two other patients had discontinued OMS721 early in their treatment courses, one of whom later relapsed and
treatment for the other was changed to palliative care only. Across all three patients who had completed treatment, mean
TMA markers improved over time. Creatinine remained normal or improved, nearly normalizing, in two patients; one did
not show improvement in creatinine but was receiving concomitant nephrotoxic drugs. On extended follow up, as reported
in October 2016, two patients remained stable and one had experienced graft failure, which the investigator considered
unrelated to OMS721 treatment. No significant drug-related safety concerns were observed. Updated data from this patient
population, showing consistent benefits to those previously reported, was reported at the combined annual meetings of the
Center for International Blood & Marrow Transplant Research and the American Society for Blood and Marrow
Transplantation in February 2017.
We have received requests from investigators and other physicians for expanded access to OMS721. Expanded
access, sometimes called “compassionate use,” is the use outside of a clinical trial of an investigational medical product
and is permitted by the FDA and other regulatory agencies under certain circumstances. OMS721 has been provided to
several patients through this program.
10
Other Studies. We have generated positive preclinical data in in vivo models of AMD, myocardial infarction, diabetic
neuropathy, stroke, ischemia-reperfusion injury, and other diseases and disorders.
Licensing Arrangements. We hold worldwide exclusive licenses to rights related to MASP-2, the antibodies targeting
MASP-2 and the therapeutic applications for those antibodies from the University of Leicester, from its collaborator,
Medical Research Council at Oxford University, or MRC, and from Helion Biotech ApS, or Helion. For a more detailed
description of these licenses, see “License and Development Agreements.”
MASP-3 Program - OMS906 - Alternative Pathway Disorders
Overview. As part of our MASP program, we have identified mannan-binding lectin-associated serine protease-3, or
MASP-3, which has been shown to be the key activator of the complement system’s alternative pathway, or APC, and we
believe that we are the first to make this and related discoveries associated with the APC. The complement system is part of
the immune system’s innate response, and the APC is considered the amplification loop within the complement system.
MASP-3 is responsible for the conversion of pro-factor D to factor D, and converted factor D is necessary for the
activation of the APC. Based on our alternative pathway-related discoveries, we have expanded our intellectual property
position to protect our inventions stemming from these discoveries beyond MASP-2-associated inhibition of the lectin
pathway to include inhibition of the alternative pathway. In addition to our MASP-2 inhibitors of the lectin pathway, we are
developing inhibitors of the alternative pathway as well as bispecific inhibitors of both the alternative and lectin pathways.
For each of these targets, our efforts are directed to both antibody and small-molecule development.
We are currently developing MASP-3 inhibitors for the treatment of disorders related to the APC. We believe that
MASP-3 inhibitors may have the potential to treat patients suffering from a wide range of diseases and conditions,
including paroxysmal nocturnal hemoglobinuria, or PNH, asthma, traumatic brain injury, AMD, disseminated intravascular
coagulation, arthritis, dense deposit disease, aspiration pneumonia, neuromyelitis optica, pauci-immune necrotizing
crescentic glomerulonephritis, endophthalmitis and Behcet’s disease. Currently, we are finalizing selection of our lead and
back-up molecules and preparing to initiate scale-up for clinical trials, and are evaluating PNH as the first clinical
indication for OMS906.
Preclinical results. In August 2016, we reported positive data from OMS906 in a well-established animal model
associated with PNH in which OMS906 significantly improved the survival of red blood cells when compared to control-
treated animals and to animals treated with a complement component 5 (C5) inhibitor. Also in August 2016 we reported
positive data from OMS906 in a well-established animal model associated with arthritis mediated by the APC.
In November 2016, we announced pharmacokinetic and pharmacodynamic data from the evaluation of OMS906 in
non-human primates. Single-dose administration of OMS906 to cynomolgus monkeys resulted in sustained ablation of
systemic APC activity for approximately 16 days. The extent of APC ablation was comparable to that achieved by
complete inhibition of factor D in vitro, indicating that OMS906 fully blocked the conversion of pro-factor D to factor D.
No safety concerns were identified.
Licensing Arrangements. We jointly own and hold worldwide exclusive license rights related to therapeutic
applications for inhibiting MASP-3 from the University of Leicester. For a more detailed description of these licenses, see
“License and Development Agreements.”
Other Clinical Programs
PDE10 Programs - OMS824 for Huntington’s Disease and Schizophrenia
Overview. Phosphodiesterase 10, or PDE10, is an enzyme that is expressed in areas of the brain strongly linked to
diseases that affect cognition, including Huntington’s disease and schizophrenia. Cognitive dysfunction occurs early in
these diseases and is responsible for substantial disability. PDE10 inhibitors have been shown to be effective in multiple
animal models of behavior and cognition, and there remain substantial unmet clinical needs with current treatments. Our
proprietary compound OMS824 inhibits PDE10 and is being developed in clinical programs for the treatment of cognitive
disorders, including Huntington’s disease and schizophrenia. OMS824 has received orphan drug designation for the
treatment of Huntington’s disease and fast track designation for the treatment of cognitive impairment in patients with
Huntington’s disease.
Clinical Trials. OMS824 is in a Phase 2 clinical program for the treatment of Huntington’s disease and a Phase 2
clinical program evaluating OMS824 for the treatment of schizophrenia. We are also evaluating other neurological
indications for OMS824. Clinical trials in our Huntington’s program are currently subject to dosing limitations. Plans for
11
continuation of the OMS824 program will be based on internal work ongoing and on discussions with FDA. Clinical trials
evaluating OMS824 in schizophrenia are suspended currently at the request of the FDA. Given that there was no active
schizophrenia trial at the time of program suspension, the FDA will address the OMS824 schizophrenia program when we
have a related trial protocol ready for initiation.
Funding Agreement with The Stanley Medical Research Institute. Our preclinical development of OMS824 was
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. For a more detailed description of our agreement with
SMRI, see “License and Development Agreements.”
PP
Program - OMS405
Overview. In our peroxisome proliferator-activated receptor gamma, or PP
program, we are developing
proprietary compositions that include PP
which may include opioids, nicotine and alcohol. We believe that Omeros is the first to demonstrate a link between PP
and addiction disorders. Data from clinical studies and from animal models of addiction suggest that PP
be efficacious in the treatment of a wide range of addictions.
agonists for the treatment and prevention of addiction to substances of abuse,
agonists could
Clinical trials. Our collaborators at The New York State Psychiatric Institute have completed two Phase 2 clinical
program. These studies evaluated a PP
trials related to our PP
for treatment of addiction to opioids and to nicotine. The National Institute on Drug Abuse provided substantially all of the
funding for these clinical trials and solely oversaw the conduct of these trials. We have the right or expect to be able 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 PP
program. In November 2016, we announced positive data from one of these trials evaluating
agonist in heroin users. In October 2016, we also reported positive results (i.e., decreased craving and protection
a PP
of brain white matter) from a Phase 2 clinical trial conducted by an independent investigator evaluating the effects of a
PP
agonist, alone or in combination with other agents,
agonist in patients with cocaine use disorder.
Patent Assignment Agreement with Roberto Ciccocioppo, Ph.D. We acquired the patent applications and related
intellectual property rights for our PP
Camerino, Italy, pursuant to a patent assignment agreement. For a more detailed description of our agreement with
Dr. Ciccocioppo, see “License and Development Agreements.”
program in February 2009 from Roberto Ciccocioppo, Ph.D., of the Università di
Preclinical Programs
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 for movement disorders. Data generated in preclinical studies support the use of PDE7
inhibitors in both of these therapeutic areas. We have selected a clinical candidate and are preparing to initiate toxicology
studies under good laboratory practices, or GLP, intended to support the submission of an Investigational New Drug
application, or IND, or Clinical Trial Application, or CTA, and subsequent clinical trials.
Exclusive License Agreement with Daiichi Sankyo Co., Ltd. We hold an exclusive license to certain PDE7 inhibitors
claimed in patents and pending patent applications owned by Daiichi Sankyo Co., Ltd. (successor-in-interest to Asubio
Pharma Co., Ltd.), or 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 “License and
Development Agreements.”
GPCR Platform
Overview. GPCRs comprise one of the largest families of proteins in the genomes of multicellular organisms. It is
estimated that there are over 1,000 GPCRs 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 functionally active molecules, or ligands, that bind to a given
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receptor. 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. It is estimated that nearly 40% of all drugs sold worldwide
target GPCRs, yet only 46 GPCRs are responsible for this wealth of drugs. Based on available data, we believe that there
are 363 human non-sensory GPCRs, of which approximately 120 have no known ligands, and we refer to those receptors
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 are very difficult to develop against
orphan GPCRs. “Unlocking” these orphan GPCRs by identifying one or more of their respective ligands could lead to the
development of drugs that act at these new targets. To our knowledge, despite efforts by others in the biopharmaceutical
industry and academic community, Omeros’ technology is the first commercially viable technology capable of identifying
ligands of orphan GPCRs in high throughput.
We have developed a proprietary cellular redistribution assay, or CRA, which we use in a high-throughput manner to
identify synthetic ligands, including antagonists, agonists and inverse agonists, that bind to and affect the function of
orphan GPCRs. We 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
screened Class A orphan GPCRs against our small-molecule chemical libraries using the CRA. As of February 28, 2017,
we had identified and confirmed compounds that interact with 54 of the 81 Class A orphan GPCRs linked to a wide range
of indications including cancer as well as metabolic, cardiovascular, immunologic, inflammatory and central nervous
system disorders. We are conducting in vivo preclinical efficacy studies and optimizing compounds for a number of targets
including: GPR17, linked to myelin formation; GPR101, linked to appetite and eating disorders; GPR151, linked to
schizophrenia and cognition; GPR161, which is associated with triple negative breast cancer; GPR183, linked to
osteoporosis and to Epstein-Barr virus infections and related diseases; and GPR174, which appears to be involved in the
modulation of the immune system and, in particular, of cytokine production and regulatory T cells, or “T-regs,” which are
known to be important in autoimmune disease, such as multiple sclerosis, in cancer and in organ transplantation.
In December 2016, we announced that our small-molecule inhibitors against GPR174 substantially and statistically
significantly boost levels of cytokines and reduce the population of T-regs. In assays with human peripheral blood
mononuclear cells, or PBMCs, evaluating T-cell proliferation and survival following T-cell stimulation, we have discovered
that small-molecule GPR174 inhibitors increase, with statistical significance, levels of the cytokines interleukin 2 and
interferon gamma multiple-fold and nearly doubled interleukin 10. Moreover, GPR174 inhibition statistically significantly
reduced by approximately 40 percent the population of T-regs, a subset of T cells elevated in a large number of cancers.
Importantly, the compound effects were not observed in PBMCs derived from mice genetically lacking GPR174,
suggesting that the robust compound effects are the result of “on-target” interaction with the orphan receptor. We believe
these results demonstrate that GPR174 inhibition potentiates the activity of effector T cells, which produce cytokines and
are known to be integral to combatting cancer. Also, reducing the level of T-regs is a key objective in cancer
immunotherapy, and high levels of T-regs in solid tumors frequently correlate with poor patient outcomes. In addition,
signaling and mechanistic studies support that GPR174 suppresses anti-tumor activity, and inhibitors of GPR174 are
expected to counteract that detrimental suppression.
In addition to Class A orphan GPCRs, we have also begun screening orphan and non-orphan Class B receptors. Class
B GPCRs have large extracellular domains and their natural ligands are generally large peptides, making the development
of orally active, small-molecule drugs against these receptors, such as glucagon and parathyroid hormone, a persistent
challenge. Despite the fact that oral agents are not available, the current sales for the commercialized Class B GPCR-
targeting peptide drugs are large. Our CRA technology finds functionally active small molecules for GPCRs, which we
believe could lead to the development of oral medications for many of the Class B GPCRs. While our focus to date has
remained on Class A orphan GPCRs, as of February 28, 2017, we had identified and confirmed sets of compounds that
interact selectively with, and modulate signaling of, a small subset of Class B GPCRs, namely glucagon-like peptide-1
receptor, or GLP-1R, and parathyroid hormone 1 receptor, or PTH-1R.
GPCR Platform Funding Agreements with Vulcan Inc. and the Life Sciences Discovery Fund. In October 2010, we
entered into funding agreements for our GPCR program with Vulcan Inc. and its affiliate, which we refer to collectively as
Vulcan, and with the Life Sciences Discovery Fund Authority, a granting agency of the State of Washington, or LSDF. For
a more detailed description of these agreements, see “License and Development Agreements.”
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Plasmin Program - OMS616
Overview. Our plasmin program is focused on novel antifibrinolytic agents for the control of blood loss during
surgery or resulting from trauma as well as for other hyperfibrinolytic states (e.g., liver disease). Excessive bleeding during
cardiac or trauma 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. We are currently in the process of
evaluating potential indications.
Exclusive License Agreement with The Regents of the University of California. We hold a worldwide exclusive
license to patent rights related to certain antifibrinolytics from The Regents of the University of California. For a more
detailed description of this agreement, see “License and Development Agreements.”
Antibody Platform
Overview. Our proprietary ex vivo platform for the discovery of novel, high-affinity monoclonal antibodies, which
was in-licensed from the University of Washington and then further developed by our scientists, utilizes a chicken B-cell
lymphoma cell line. It has successfully generated diverse antibodies that can be readily engineered. This platform offers
several advantages over other antibody platforms. The ex vivo immunizations of our proprietary cell line are significantly
more rapid than whole animal immunizations and conventional hybridoma technology. By avoiding immunization of mice
or other animals, we believe the antibodies we generate from this platform are not limited by immunological tolerance. In
addition, our platform is capable of producing novel antibodies against difficult targets, such as highly homologous
proteins, enzymes, and receptors with short extracellular domains. Chicken antibodies also have unique features that enable
binding capabilities distinct from mammalian antibodies.
We have generated antibodies to several clinically significant targets, including highly potent antibodies against
MASP-3 and MASP-1, and our platform continues to add to our pipeline antibodies against additional important targets.
Asset Purchase Agreement with Xori Corporation. In February 2012 we entered into an Asset Purchase Agreement,
or the Xori APA, with Xori Corporation, or Xori, pursuant to which we acquired all of Xori’s rights and obligations in
certain license and material transfer agreements, intellectual property, antibodies and other assets related to our antibody
platform. We are obligated to make development and research-related milestone payments to Xori.
Exclusive License Agreement with the University of Washington. We hold a worldwide exclusive license to patent
rights related to our antibody platform from the University of Washington. For a more detailed description of this
agreement, see “License and Development Agreements.”
PharmacoSurgery® Platform
We believe that 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, pupil constriction, muscle 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. We generate from
our PharmacoSurgery platform proprietary products, such as OMIDRIA and product candidates discussed below, that are
combinations of therapeutic agents designed to act simultaneously at multiple discrete targets to block preemptively the
molecular-signaling and biochemical cascade caused by surgical trauma and to provide clinical benefits both during and
after surgery. These products and product candidates are supplied in pre-dosed, pre-formulated, single-use containers and
added to standard surgical irrigation solutions, delivered intraoperatively to the site of tissue trauma throughout the surgical
procedure. This is expected to result 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 routine.
OMS103-Arthroscopy. OMS103, part of our PharmacoSurgery platform, was developed for use during all
arthroscopic procedures, including knee and shoulder arthroscopy, and completed Phase 3 trials in patients undergoing
arthroscopic anterior cruciate ligament reconstruction and arthroscopic partial meniscectomy. OMS103 is a proprietary
combination of anti-inflammatory/analgesic APIs, specifically amitriptyline, ketoprofen and oxymetazoline, each with
well-known safety and pharmacologic profiles, and was designed to provide a multimodal approach to block preemptively
the inflammatory cascade induced by arthroscopy. All of the APIs are components of generic, FDA-approved drugs that
have been marketed in the U.S. as over-the-counter or prescription drug products for over 20 years and have established
and well-characterized safety profiles. In June 2015, we entered into an exclusive licensing agreement, or the OMS103
Agreement, with Fagron Compounding Services, LLC, d/b/a Fagron Sterile Services, and JCB Laboratories, LLC, or
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collectively Fagron, an FDA-registered human drug outsourcing facility, under which Fagron is obligated to produce under
Good Manufacturing Practice, or GMP, and to commercialize OMS103 in the U.S. Fagron has not met its performance
diligence obligations under the OMS103 Agreement, including initiating sales, and we do not expect them to do so in the
near term. We are currently evaluating our options regarding the OMS103 Agreement and our OMS103 program. For a
more detailed description of this agreement, see “License and Development Agreements.”
OMS201-Urology. OMS201 is our PharmacoSurgery product candidate designed for use during urological
procedures, including ureterscopy for removal of ureteral or renal stones. OMS201 is a proprietary combination of
ketoprofen, an anti-inflammatory API, and nifedipine, a smooth muscle relaxant API. Each API is contained in generic,
FDA-approved drugs that have been marketed in the U.S. for more than 20 years and have well-known safety and
pharmacologic profiles. Both of these APIs have been individually prescribed to manage the symptoms of ureteral and
renal stones. In 2010, we completed a Phase 1/Phase 2 clinical trial 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. OMS201 was well tolerated in this
study. The next step in our OMS201 program is to design a Phase 2 clinical program; however, the program is suspended
given current availability of clinical development resources. We are evaluating alternative approaches to make OMS201
commercially available, such as through a registered outsourcing facility without the need to conduct any additional
clinical trials.
Sales and Marketing
Overview. We have retained all worldwide marketing and distribution rights to OMIDRIA, our product candidates
and our development programs, other than OMS103. This allows us the opportunity to market and sell independently
OMIDRIA or, if approved, any of our product candidates, to make arrangements with third parties to perform these
services for us, or both.
OMIDRIA. With respect to OMIDRIA, we have developed our own internal marketing and sales capabilities and, as
of February 28, 2017, employ 45 sales and reimbursement team members who are focused on the U.S. market. We also use
the services of Precision Lens under a commission-only arrangement to cover territories in the Midwest that are not
covered by our in-house sales force. Because surgeons specializing in cataract surgery are a sub-specialty within
ophthalmology, we believe that we can effectively access high-volume surgeons with our existing sales organization and
the services of third-party sales agents such as Precision Lens in certain territories in the U.S.
In the EU, we plan to out-license OMIDRIA marketing and distribution rights to one or more third parties that have
capabilities to promote to ophthalmologic surgeons, to facilitate distribution and reimbursement, and to manage
pharmacovigilance and clinical support. For the EU OMIDRIA marketing authorization to remain valid, product must be
placed on the market (i.e., released into the distribution chain) in at least one EEA country by July 28, 2018. Outside of the
U.S. and EU, we have the ITROM Agreement for certain countries in the Middle East and we are exploring additional
potential regional partnerships to make OMIDRIA available to ophthalmologists. Other than the ITROM Agreement, we
have not yet entered into any agreements with third parties to market OMIDRIA outside of the U.S. If we are unable to
enter into one or more such agreements on terms acceptable to us, we would not expect to see sales of OMIDRIA in those
territories.
OMS103. Our OMS103 Agreement with Fagron requires Fagron to meet performance diligence requirements
including to bear all sales and marketing costs for U.S. sales. We have retained marketing and distribution rights for
OMS103 outside of the U.S. Fagron has not performed its performance diligence obligations under the OMS103
Agreement, including initiating sales, and we do not expect it to do so in the near term. For a more detailed description of
our agreement with Fagron and Fagron’s non-performance, see “License and Development Agreements.”
Manufacturing, Supply and Commercial Operations
OMIDRIA. We use third parties to produce, store and distribute OMIDRIA and currently do not own or operate
manufacturing facilities. Our agreements with these third parties include confidentiality and intellectual property provisions
to protect our proprietary rights related to OMIDRIA. We require manufacturers that produce APIs and finished drug
products to operate in accordance with current Good Manufacturing Practices, or cGMPs, and all other applicable laws and
regulations.
We have agreements with Hospira Worldwide, Inc., a wholly owned subsidiary of Pfizer, Inc., or Hospira, and with
Patheon Manufacturing Services, LLC (successor-in-interest to DSM Pharmaceuticals, Inc.), or Patheon, to provide
commercial supply of OMIDRIA. We are currently completing the process to have Hospira approved by the FDA as a
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manufacturing site for OMIDRIA. Until this process is complete, Hospira may not manufacture and supply OMIDRIA. We
expect that OMIDRIA manufacturing will be approved for production at Hospira in mid-2017. Commercial manufacturing
of OMIDRIA under our agreement with Patheon, or the Patheon Agreement, ceased on December 31, 2015 in accordance
with the terms of the Patheon Agreement with the exception of the final delivery of product as further described in Part II,
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations
and Commitments.” We anticipated this interruption in manufacturing and increased production of OMIDRIA prior to the
break in manufacturing. We believe that we will have sufficient supply to meet product needs until OMIDRIA product
production is recommenced.
Under the agreement with Hospira, or the Hospira OMIDRIA Agreement, Hospira has agreed to manufacture and
supply, and we have agreed to purchase, a minimum percentage of our requirements of OMIDRIA for commercial sales
and clinical supplies for the development of additional therapeutic indications in the U.S. In addition, Hospira has agreed to
manufacture and supply a portion of our requirements of OMIDRIA in the EU in an amount to be mutually agreed by the
parties (not to exceed a maximum percentage of our EU requirements), with there being no minimum purchase and supply
requirement in the EU if the parties do not reach agreement during such time period and the agreement is not amended
thereafter. The Hospira OMIDRIA Agreement has an initial term of five years from the date of first commercial sale of
OMIDRIA in the U.S. or in any country in the EU, and thereafter is renewed automatically for up to two additional one-
year periods. The Hospira OMIDRIA Agreement may be terminated prior to the end of its term upon the occurrence of
certain specified events, including without limitation an uncured breach of the agreement or bankruptcy or dissolution of a
party. Upon termination of the Hospira OMIDRIA Agreement, except in the case of termination for an uncured breach by
Hospira, we will be required to purchase all of Hospira’s inventory of OMIDRIA and, if applicable, all work-in-progress
inventory and to reimburse Hospira for all supplies purchased or ordered based on firm purchase orders or our estimates of
its requirements of OMIDRIA.
We have used multiple suppliers for the APIs for OMIDRIA in the past and we intend to leverage Hospira’s sourcing
of APIs in the future under the Hospira OMIDRIA Agreement. Given the large amount of these APIs manufactured
annually by these and other suppliers, and the quantities of these APIs we have on hand, we anticipate that we will be
capable of addressing our commercial API supply needs for OMIDRIA. We have not yet signed commercial agreements
with suppliers for the supply of all of our anticipated commercial quantities of these APIs for OMIDRIA, although we may
elect to do so in the future.
In the U.S., we sell OMIDRIA through a limited number of wholesalers that distribute the product to ASCs and
hospitals. Title transfers upon delivery of OMIDRIA to the wholesaler. We use a single third-party logistics provider to
handle warehousing of our commercial supply of OMIDRIA in the U.S. and to ship OMIDRIA to our wholesalers. Our
third-party logistics provider also performs certain support services on our behalf. Nearly all of our revenues for the fiscal
year ended December 31, 2016 were generated from OMIDRIA product sales in the U.S. Three of our major distributors -
AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation - together with entities under their
common control each accounted for 10% or more of our total revenue in 2016.
Product Candidates and OMS103. We have laboratories in-house for analytical method development, bioanalytical
testing, formulation, stability testing and small-scale compounding of laboratory supplies of product candidates. We utilize
contract manufacturers to produce sufficient quantities of product candidates for use in preclinical and clinical studies and
to store and distribute our product candidates, and we currently do not own or operate manufacturing facilities for our
product candidates. 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 product candidates 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 not yet entered into a commercial supply agreement for any of
our product candidates, although we intend to do so prior to the applicable product candidate’s commercial launch. Given
the nature of the manufacturing processes of our product candidates, we anticipate that we will be capable of identifying
contract manufacturers to produce these product candidates and of entering into agreements for the commercial supply of
these drugs.
In connection with the OMS103 Agreement, we terminated our agreement with Hospira pursuant to which Hospira
had agreed to manufacture and supply our commercial requirements of liquid OMS103. The OMS103 Agreement obligates
Fagron to meet performance diligence requirements, including to bear all sales and marketing costs for U.S. sales of
OMS103; however, Fagron has not performed its performance diligence obligations under the OMS103 Agreement. For a
description of the OMS103 Agreement and Fagron’s non-performance, see “License and Development Agreements.”
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License and Development Agreements
OMS103. In June 2015, we entered into the OMS103 Agreement under which Fagron is obligated to manufacture and
commercialize OMS103. Pursuant to the OMS103 Agreement, we granted Fagron an exclusive, royalty-free license to the
OMS103 intellectual property, manufacturing information and clinical data to produce, on a large-scale registered basis,
and commercialize OMS103 in the United States. If OMS103 is commercialized under the terms of the OMS103
Agreement, we would be eligible to receive payments representing a substantial majority share of gross revenue from
future OMS103 product sales within the United States, which revenue share will not be less than a minimum per unit
amount. Additionally, we would be eligible to receive up to an aggregate total of $10 million in potential payments upon
the achievement of specific commercial milestones and as revenue-share enhancement on early sales. The OMS103
Agreement obligates Fagron to produce under GMP and to commercialize OMS103 in the U.S. Unless terminated earlier,
the OMS103 Agreement will continue in effect until expiration of the last-to-expire of the patents in the licensed
intellectual property or as otherwise provided under the terms of the OMS103 Agreement. Either party may terminate the
OMS103 Agreement earlier if the other party materially breaches the OMS103 Agreement and does not cure the breach
within a specified notice period or upon the other party’s insolvency. Additionally, we may terminate the OMS103
Agreement earlier if Fagron does not meet its performance diligence requirements, in response to a negative action by a
regulatory authority, or if Fagron opposes or challenges any of the licensed patents for OMS103.
Fagron has not met its performance diligence obligations under the OMS103 Agreement, including initiating sales,
and we do not expect them to do so in the near term. We are evaluating our options regarding the OMS103 Agreement and
our OMS103 program.
MASP Program. Under our exclusive license agreements with the University of Leicester and 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 MASP-2 technology during the terms of the agreements. Our exclusive license agreement with the University of
Leicester, but not our agreement with the MRC, also applies to other MASPs. The continued maintenance of these
agreements requires us to undertake development activities. 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 MASP-2 at these institutions at pre-determined rates for maximum terms of approximately three years.
We have agreed to expand the scope of research at the University of Leicester to MASP-3 and have continued the
sponsorship of research at the University of Leicester on a year-by-year basis. If mutually agreed, we may sponsor
additional research related to MASP-2 at MRC, and to MASP-2 and MASP-3 at the University of Leicester. 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 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.
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 to all of Helion’s intellectual property rights related to MASP-2
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. We are obligated to make
remaining development and sales milestone payments to Helion of up to $6.1 million upon the achievement of certain
events, such as the filing of an IND with the FDA, initiation of Phase 2 and 3 clinical trials, receipt of marketing approval,
and reaching specified sales milestones. We are obligated to pay Helion a low single-digit percentage royalty on net sales
of a MASP-2 inhibitor product 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.
OMS824. 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
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we received from SMRI, the maximum amount of royalties payable to SMRI is $12.8 million and payment is required only
from any net income, after all related expenses, that we receive from sales of a PDE10 product. The funding agreement and
our obligation to pay a royalty to SMRI terminate when we have repaid such amount in the form of royalties.
PP
We acquired the patent applications and related intellectual property rights for our PP
program in
activity. Under the amended agreement, we have agreed to pay
February 2009 from Roberto Ciccocioppo, Ph.D. of the Università di Camerino, Italy, pursuant to a patent assignment
agreement. In February 2011, we amended the agreement to include all intellectual property rights, including patent
applications, related to nutraceuticals that increase PP
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 the 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 candidate 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 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.
PDE7. Under an agreement with Daiichi Sankyo, we hold an exclusive worldwide license to PDE7 inhibitors
claimed in certain patents and pending patent applications owned by Daiichi Sankyo for use in the treatment of
(1) movement disorders and other specified indications, (2) addiction and compulsive disorders and (3) all other diseases
except those related to dermatologic conditions. Under the agreement, we agreed to make milestone payments to Daiichi
Sankyo of up to an aggregate total of $33.5 million upon the achievement of certain events in each of these three fields;
however, if only one of the three 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 candidate; 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.
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.
GPCR Platform Funding Agreements with Vulcan Inc. and the Life Sciences Discovery Fund. In October 2010, we
entered into funding agreements for our GPCR program with Vulcan and LSDF. We received $20.0 million and $5.0
million, respectively, under the agreements with Vulcan and LSDF. Under these agreements, we have agreed to pay Vulcan
and LSDF tiered percentages of the net proceeds, if any, that we derive 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. If we receive cumulative
net proceeds in excess of approximately $1.5 billion, the percentage rate payable to Vulcan and LSDF in the aggregate
decreases to one percent. An acquirer of the assets in our GPCR program may be required, and an acquirer of our company
would be required, to assume all of our payment and other obligations under our agreements with Vulcan and LSDF.
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
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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 without
Vulcan’s consent, subject to specified exceptions. These restrictions could limit our ability to pursue business opportunities
involving the GPCR program or reduce the price for which a potential buyer would pay for the GPCR assets. 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. 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.
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. 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.
OMS616. On December 14, 2010, we entered into a license agreement with The Regents of the University of
California, pursuant to which we received an exclusive license to a series of antifibrinolytic agents claimed in certain
patents owned by The Regents of the University of California in exchange for our agreement to make royalty and
development milestone payments.
Antibody Platform. We hold a worldwide exclusive license to patent rights related to our antibody platform from the
University of Washington, or UW. Pursuant to the Xori APA, we acquired all of Xori’s exclusive rights under a license
agreement with the UW to certain patents and patent applications related to our antibody platform owned by the UW in
exchange for our agreement to make royalty and development milestone payments to UW.
Competition
Overview. The pharmaceutical industry is highly competitive and characterized by a number of established, large
pharmaceutical companies as well as smaller companies like ours. We expect to compete with other pharmaceutical and
biotechnology companies, and our competitors may:
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develop and market products that are less expensive, more effective or safer than our future products;
commercialize competing products before we can launch our products;
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
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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.
OMIDRIA. We are not aware of any FDA-approved products comprised of two or more APIs that directly compete
with OMIDRIA that are approved for intraoperative delivery in irrigation solutions during surgical procedures; however,
OMIDRIA could compete with single API products that are delivered intraoperatively as well as preoperative and
postoperative treatments for mydriasis, pain or inflammation. Our primary competition for OMIDRIA comes from
surgeons’ current practices, which may include use of products obtained from distributors or compounding pharmacies at a
relatively low cost. In addition, we anticipate that there are some surgeons who do not use intraoperative mydriatics and
may not agree with the value proposition of maintaining pupil dilation and inhibiting miosis during the procedure or with
the use of a nonsteroidal anti-inflammatory drug intraoperatively to reduce inflammation and postoperative pain. Although
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we are not aware of any companies developing similar combination approaches for maintenance of intraoperative pupil
size and postoperative pain reduction, such strategies may develop.
As described above, Par filed an ANDA containing a Paragraph IV Certification seeking approval to market a generic
version of OMIDRIA prior to the expiration of the Orange Book Patents. An adverse outcome in our patent infringement
lawsuit filed against Par following receipt of Par’s Notice Letter regarding the Paragraph IV Certification could, among
other things, result in a generic version of OMIDRIA being launched after the expiration of the mandatory three-year
clinical data exclusivity for OMIDRIA, which could have a material negative impact on our financial condition and results
of operations. In the future, other manufacturers may potentially file ANDAs seeking approval for the sale of generic
versions of OMIDRIA before our relevant patents expire, or generic manufacturers may challenge one or more of the
patents using U.S. Patent and Trademark Office procedures. For more information regarding the ANDA filed by Par and
our patent infringement lawsuit against Par, see Part I, Item 3, “Legal Proceedings.”
Product Candidates. Our clinical and preclinical product candidates may face competing products. With respect to
our complement program, Soliris® is a monoclonal complement inhibitor administered intravenously and approved for
commercial use that will compete with our lead MASP-2 inhibitor OMS721, and/or our MASP-3 inhibitor OMS906, if
either is approved for any indication(s) for which Soliris® is also approved. We are also aware of two Soliris® biosimilar
antibodies that are in development. Alexion, the manufacturer of Soliris®, has announced follow-on antibodies that are
directed to the Soliris® target, but which will require less frequent dosing than Soliris® or that can be administered
subcutaneously. With respect to our PDE10 inhibitor program, we are developing PDE10 inhibitors for use in the treatment
of Huntington’s disease, schizophrenia and other diseases that affect cognition. Other pharmaceutical companies, many
with significantly greater resources than we have, are also developing, or may develop, PDE10 inhibitors for the treatment
of Huntington’s disease, schizophrenia and other diseases that affect cognition, and these companies may be further along
in development. Recently, Pfizer announced negative results in a clinical trial of a PDE10 inhibitor for the treatment of
Huntington’s disease. Also, Pfizer has announced negative results from schizophrenia trials with a PDE10 inhibitor and
Takeda Pharmaceuticals has announced that the primary endpoint was not met in a clinical trial of a different PDE10
inhibitor in a schizophrenia trial. In addition, we are aware of other companies 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 are not aware of any FDA-
approved products comprised of two or more APIs that directly compete with any of our PharmacoSurgery product
candidates that are approved for intraoperative delivery in irrigation solutions during surgical procedures; however, a
product candidate could compete with single API products that are delivered intraoperatively as well as preoperative and
postoperative treatments for inflammation and/or other conditions.
Intellectual Property
As of February 28, 2017, we owned or held worldwide exclusive licenses to a total of 63 issued patents and 73
pending patent applications in the U.S. and 492 issued patents and 313 pending patent applications in foreign markets
directed to therapeutic compositions and methods related to our 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.
• OMIDRIA-Ophthalmology. OMIDRIA is encompassed by our PharmacoSurgery patent portfolio. The relevant
patents and patent applications in this portfolio are directed to combinations of agents, generic and/or
proprietary to us or to others, drawn from therapeutic classes such as pain and inflammation inhibitory agents,
mydriatic agents and agents that reduce intraocular pressure, delivered locally and intraoperatively to the site of
ophthalmological procedures, including cataract and lens replacement surgery. As of February 28, 2017, we
owned six issued U.S. patents and four pending U.S. patent applications and 36 issued patents and 46 pending
patent applications in foreign markets that are directed to OMIDRIA. Our OMIDRIA patents have terms that
will expire as late as October 23, 2033 and, if currently pending patent applications are issued, as late as
November 30, 2035.
• MASP-2 Program - OMS721. We hold worldwide exclusive licenses to rights in connection with MASP-2, the
antibodies targeting MASP-2 and the therapeutic applications for those antibodies from the University of
Leicester, MRC and Helion. As of February 28, 2017, we exclusively controlled 15 issued patents and 23
pending patent applications in the U.S., and 163 issued patents and 86 pending patent applications in foreign
markets, related to our MASP-2 program.
• MASP-3 Program - OMS906. We own and exclusively control under a license from the University of Leicester
all rights to methods of treating various disorders and diseases by inhibiting MASP-3. As of February 28, 2017,
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we exclusively controlled four pending patent applications in the U.S. and 37 pending patent applications in
foreign markets that are directed to these therapeutic methods.
PDE10 Program - OMS824. As of February 28, 2017, we owned eight issued patents and six pending patent
applications in the U.S., and 22 issued patents and 41 pending patent applications in foreign markets, that are
directed to proprietary PDE10 inhibitors.
Program - OMS405. As of February 28, 2017, we owned one issued patent and three pending patent
PP
applications in the U.S., and 25 issued patents and 19 pending patent applications in foreign markets, directed
to our discoveries linking PP
and addictive disorders.
PDE7 Program - OMS527. As of February 28, 2017, we owned two issued patents and one pending patent
application in the U.S., and 21 issued patents and 12 pending patent applications in foreign markets directed to
our discoveries linking PDE7 to movement disorders, as well as one issued patent and two pending patent
applications in the U.S., and seven issued patents and 23 pending patent applications in foreign markets
directed to the link between PDE7 and addiction and compulsive disorders. Additionally, under a license from
Daiichi Sankyo, we exclusively control rights to three issued U.S. patents and 57 issued and five pending
patent applications in foreign markets that are directed to proprietary PDE7 inhibitors. For a more detailed
description of our agreement with Daiichi Sankyo, see “License and Development Agreements.”
• GPCR Platform. As of February 28, 2017, we owned seven issued patents and 13 pending patent applications
in the U.S., and 52 issued patents and four pending patent applications in foreign markets, which are directed to
previously unknown links between specific molecular targets in the brain and a series of CNS disorders, to our
cellular redistribution assay and to other research tools that are used in our GPCR program, and to orphan
GPCRs and other GPCRs for which we have identified functionally interacting compounds using our cellular
redistribution assay.
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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 28, 2017, we exclusively controlled three issued
patents and two pending patent applications in the U.S. and 29 issued and 11 pending patent applications in
foreign markets that are directed to these proprietary agents.
Antibody Platform. As of February 28, 2017, we owned and/or held worldwide exclusive license rights from
the UW to five issued patents and four pending patent applications in the U.S., and seven issued patents and 10
pending patent applications in foreign markets, directed to our antibody platform and antibodies generated
using our platform.
• OMS103-Arthroscopy. OMS103 is encompassed by our PharmacoSurgery patent portfolio. The relevant patents
and patent applications in this portfolio are directed to combinations of agents, generic and/or proprietary to us
or to others, drawn from therapeutic classes such as pain and inflammation inhibitory agents and
vasoconstrictive agents, delivered locally and intraoperatively to the site of medical or surgical procedures,
including arthroscopy. As of February 28, 2017, we owned three issued U.S. patents and four pending
U.S. patent applications, together with 32 issued patents and 13 pending patent applications in foreign markets,
that are directed to OMS103. Our OMS103 patents have terms that will expire as late as September 24, 2022
and, if currently pending patent applications are issued, as late as August 3, 2032.
• OMS201-Urology. OMS201 is encompassed by our PharmacoSurgery patent portfolio. The relevant patents
and patent applications in this portfolio are directed to combinations of agents, generic and/or proprietary to us
or to others, drawn from therapeutic classes such as pain and inflammation inhibitory agents and spasm
inhibitory agents, delivered locally and intraoperatively to the site of medical or surgical procedures, including
uroendoscopy. As of February 28, 2017, we owned one issued U.S. patent, two pending U.S. patent
applications, and an additional 12 issued patents and one pending patent application in foreign markets, that are
directed to OMS201. Our OMS201 patents have terms that will expire as late as July 16, 2029 and, if currently
pending patent applications are issued, as late as March 17, 2026.
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 that 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 products and product candidates and the methods used to
manufacture them, as well as on our ability to defend successfully these patents against third-party challenges. Our ability
to protect our products and 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
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activities. In addition, we have granted a lien on substantially all of our assets, including intellectual property, to the
administrative agent under the CRG Loan Agreement.
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 U.S., 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 U.S. is even more uncertain. Changes in either the patent laws or in interpretations
of patent laws in the U.S. 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 control of all worldwide manufacturing, marketing and distribution rights for OMIDRIA and each
of our product candidates and programs (other than OMS103). Some of our products and product candidates and programs
are based on inventions and other intellectual property rights that we acquired through assignments, exclusive licenses or
acquisitions.
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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
scientific 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 scientific co-founders have the
right to repurchase the initial PharmacoSurgery intellectual property at its 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.
• MASP Program. We hold worldwide exclusive licenses to rights related to MASP-2, the antibodies targeting
MASP-2 and the therapeutic applications for the antibodies from the University of Leicester, MRC and Helion.
We jointly own and hold worldwide exclusive license rights related to therapeutic applications for inhibiting
MASP-3 from the University of Leicester. For more detailed descriptions of these licenses, see “License and
Development Agreements.”
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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. 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 “License and Development Agreements.”
PP
Program. We acquired the patent applications and related intellectual property rights for our PP
program in 2009 from Roberto Ciccocioppo, Ph.D., of the Università di Camerino, Italy, pursuant to a patent
assignment agreement. For a more detailed description of this agreement, see “License and Development
Agreements.”
• GPCR Platform. 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 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.
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Plasmin Program. We hold a worldwide exclusive license to patent rights related to certain antifibrinolytics
from The Regents of the University of California. For a more detailed description of this agreement, see
“License and Development Agreements.”
Antibody Platform. We hold a worldwide exclusive license to patent rights related to our antibody platform
from the UW. For a more detailed description of this agreement, see “License and Development Agreements.
Government Regulation
Government authorities in the U.S., the EU and other countries extensively regulate, among other things, the
research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing, and export and
import of drug and biologic 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 warning letters, product recalls, product seizures, a delay in approving or refusal to approve
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pending applications, civil and other monetary penalties, total or partial suspension of production or distribution,
injunctions, and/or criminal prosecutions.
In the U.S., our products and product candidates are regulated by the FDA as drugs or biologics under the Federal
Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations and, in the case of biologics, also under the Public
Health Service Act. In Europe, our products and product candidates are regulated by the EMA and national medicines
regulators under the rules governing medicinal products in the EU as well as national regulations in individual countries.
OMIDRIA has received marketing approval from the FDA and from the applicable regulatory authorities in the EU. Our
product candidates are in various stages of testing and none of our product candidates, nor OMS103, has received
marketing approval from the FDA or the applicable regulatory authorities in the EU.
The steps required before a product may be approved for marketing by the FDA or the applicable regulatory
authorities typically include the following:
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formulation development and manufacturing process development;
preclinical laboratory and animal testing;
submission to the FDA of an IND for human clinical testing, which must become effective before human
clinical trials may begin; and in Europe, a CTA is filed according to the country’s local regulations;
adequate and well-controlled human clinical trials to establish the efficacy and safety of the product for each
indication for which approval is sought;
adequate assessment of drug product stability to determine shelf life/expiry dating;
in Europe, submission to the EMA or national regulatory authority of a marketing authorization application, or
MAA, and in the U.S., submission to the FDA of a New Drug Application, or NDA, in the case of a drug
product, or a BLA in the case of a biologic product;
satisfactory completion of inspections of clinical sites at which clinical trials with the product were carried out
and of the manufacturing facility or facilities at which the product is produced to assess compliance with
current Good Clinical Practices, or cGCP, and cGMP; and
FDA review and approval of an NDA or BLA, or review and approval of an MAA by the applicable regulatory
authorities in the EU.
Manufacturing. Manufacturing of drug products for use in clinical trials must be conducted according to relevant
national guidelines, for example, cGMP. Process and formulation development are undertaken to design suitable routes to
manufacture the drug substance and the drug product for administration to animals or humans. Analytical development is
undertaken to obtain methods to quantify the potency, purity and stability of the drug substance and drug product as well as
to measure the amount of the drug substance and its metabolites in biological fluids, such as the blood.
Preclinical Tests. Preclinical tests include laboratory evaluations and animal studies to assess efficacy, toxicity and
pharmacokinetics. The results of the preclinical tests, together with manufacturing information, analytical data, clinical
development plan, and other available information are submitted as part of an IND or CTA.
The IND/CTA Process. An IND or CTA 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 concerns or
questions and imposes a clinical hold. In that event, the IND sponsor and the FDA must resolve any outstanding FDA
concerns or questions before the clinical hold is lifted and clinical trials can proceed. Similarly, a CTA must be cleared by
the local independent ethics committee and competent authority prior to conducting a clinical trial in the European country
in which it was submitted. This process can take from two weeks to several months. There can be no assurance that
submission of an IND or CTA will result in authorization to commence clinical trials. Once an IND or CTA is in effect,
there are certain reporting requirements.
Clinical Trials. Clinical trials involve the administration of the investigational product to human subjects under the
supervision of qualified personnel and must be conducted in accordance with local regulations and cGCP. Clinical trials are
conducted under protocols detailing, for example, the parameters to be used in monitoring patient safety and the efficacy
criteria, or endpoints, to be evaluated. Each trial must be reviewed and approved by an independent institutional review
board or ethics committee for each clinical site at which the trial will be conducted before it can begin. Clinical trials are
typically conducted in three defined phases, but the phases may overlap or be combined:
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Phase 1 usually involves the initial administration of the investigational product to human subjects, who may or
may not have the disease or condition for which the product is being developed, to evaluate the safety, dosage
tolerance, pharmacodynamics and, if possible, to gain an early indication of the effectiveness of the product.
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Phase 2 usually involves trials in a limited patient population with the disease or condition for which the
product is being developed to evaluate appropriate dosage, to identify possible adverse side effects and safety
risks, and to evaluate preliminarily the effectiveness of the product for specific indications.
Phase 3 clinical trials usually further evaluate and confirm effectiveness and test further for safety by
administering the product in its final form in an expanded patient population.
We, our product development partners, institutional review boards or ethics committees, the FDA or other regulatory
authorities 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 Application 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 or a BLA, as applicable, and to the EMA or national
regulators in the form of an MAA, requesting approval to market the product for a specified indication. In the EU, an MAA
may be submitted to the EMA for review and, if the EMA gives a positive opinion, the EC may grant a marketing
authorization that is valid across the EU (centralized procedure). Alternatively, an MAA may be submitted to one or more
national regulators in the EU according to one of several national or decentralized procedures. The type of submission in
Europe depends on various factors and must be cleared by the appropriate authority prior to submission. For most of our
product candidates, the centralized procedure will be either mandatory or available as an option.
If the regulatory authority determines that the application is not acceptable, it may refuse to accept the application for
filing and review, outlining the deficiencies in the application and specifying additional information needed to file the
application. Notwithstanding the submission of any requested additional testing or information, the regulatory authority
ultimately may decide that the application does not satisfy the criteria for approval. Before approving an NDA or BLA, or
an MAA, the FDA or the EMA, respectively, may inspect the clinical sites at which the Phase 3 study(ies) were conducted
to assure that GCPs were followed and may inspect facility(ies) at which the product is manufactured to assure satisfactory
compliance with cGMP. After approval, changes to the approved product such as adding new indications, manufacturing
changes, or additional labeling claims will require submission of a supplemental application or, in some instances, a new
application, for further review and approval. The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be sure that any future approval will be granted on a timely basis, if at all.
Some of our drug products may be eligible for submission to the FDA of NDAs 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 in addition to 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.
The FDA regulates certain of our products and product candidates, such as OMIDRIA and OMS103, as fixed-dose
combination drugs under its Combination Drug Policy (21 CFR Section 300.50) because they are comprised of two or
more active ingredients. In addition to demonstrating that the drug product is safe and effective, the FDA’s Combination
Drug Policy requires that we demonstrate that each active ingredient in a drug product contributes to the product’s
effectiveness. The EMA has a similar Guideline for fixed-dose combination products. Satisfaction of the U.S. or EU
requirements for fixed-dose combination products may involve substantial time, effort, and financial resources, and we
cannot be sure that work conducted to satisfy these requirements will be deemed acceptable by the applicable regulatory
authority.
Some of our product candidates, such as those from our MASP-2, MASP-3 and Plasmin programs, are considered
biologics because they are derived from natural sources as opposed to being chemically synthesized. The added complexity
associated with manufacturing biologics may result in additional monitoring of the manufacturing process and product
changes.
In addition, we, our suppliers, and our contract manufacturers are required to comply with extensive FDA and EMA
requirements both before and after approval. For example, we must establish a pharmacovigilance system and are required
to report adverse reactions and production problems, if any, to the regulatory authorities. We must also comply with certain
requirements concerning advertising and promotion for our products. The regulatory authorities may impose specific
obligations as a condition of the marketing authorization, such as additional safety monitoring, or the conduct of additional
clinical trials or post-marketing safety studies. Also, quality control and manufacturing procedures must continue to
conform to cGMPs after approval. Accordingly, manufacturers must continue to expend time, money, and effort in all areas
of regulatory compliance, including production and quality control to comply with cGMPs. In addition, discovery of
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problems such as safety issues may result in changes in labeling or restrictions on a product manufacturer or marketing
authorization holder, including removal of the product from the market.
Fast Track and Priority Review Designations. Section 506(b) of the FDCA provides for the designation of a drug as a
fast track product if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a
serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a
disease or condition. A program with fast track status is afforded greater access to the FDA for the purpose of expediting
the product’s development, review and potential approval. Many products that receive fast track designation are also
considered appropriate to receive priority review, and their respective applications may be accepted by the FDA as a rolling
submission in which portions of an NDA are reviewed before the complete application is submitted. Together, these may
reduce time of development and FDA review time. In Europe, products that are considered to be of major public health
interest are eligible for accelerated assessment, which shortens the review period substantially. The grant of fast track
status, priority review or accelerated assessment does not alter the standard regulatory requirements for obtaining
marketing approval, however.
Breakthrough Therapy Designation. In 2012, Congress enacted the Food and Drug Administration Safety and
Innovation Act. This law established a new regulatory scheme allowing for expedited review of products designated as
“breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in
combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary
clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or
more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA
may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout
the development process; providing timely advice to the product sponsor regarding development and approval; involving
more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other
steps to design the clinical trials in an efficient manner. The EU has a similar program, referred to as PRIME, to that of the
U.S., and it is administered through the EMA. This offers early and proactive support to medicine developers to optimize
the generation of robust data on a medicine’s benefits and risks and enable accelerated assessment of medicines
applications.
Accelerated Approval. The FDA may grant accelerated approval to a product for a serious or life-threatening
condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination
that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also
grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can
be measured earlier than an effect on irreversible morbidity or mortality and that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the
condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same
statutory standards for safety and effectiveness as those granted traditional approval.
As a condition of accelerated approval, the FDA may require certain adequate and well-controlled post-marketing
clinical studies to verify and describe clinical benefit of the product, and may impose restrictions on distribution to assure
safe use. Post-marketing studies would usually be required to be studies already underway at the time of the accelerated
approval. If the required post-marketing studies fail to verify the clinical benefit of the drug, or if the applicant fails to
perform the required post-marketing studies with due diligence, the FDA may withdraw approval of the drug under
streamlined procedures in accordance with the agency’s regulations. The agency may also withdraw approval of a drug if,
among other things, other evidence demonstrates that the drug product is not shown to be safe or effective under its
conditions of use.
The EU also has accelerated approval programs. In the EU, a marketing authorization may be granted on the basis of
less complete data than are normally required in certain “exceptional circumstances,” such as when the product’s indication
is encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive data. Alternatively, a
conditional marketing authorization may be granted prior to obtaining the comprehensive clinical data required for a full
MAA if a product fulfills an unmet medical need and the benefit to public health of the product’s immediate availability
outweighs the risk inherent in the incomplete data.
Orphan Drug Designation. Under the Orphan Drug Act, or ODA, the FDA may grant orphan drug designation to
drugs or biologics intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the U.S. or
more than 200,000 individuals in the U.S. for which the cost of developing and making the product available in the U.S. for
this type of disease or condition is not likely to be recovered from U.S. sales for that product. The granting of orphan
designation does not alter the standard regulatory requirements and process for obtaining marketing approval. If a product
that has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such
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designation, the sponsor of the product qualifies for various development incentives specified in the ODA, including tax
credits for qualified clinical testing. Furthermore, the product is entitled to an orphan drug exclusivity period, which means
the FDA may not grant approval to any other application to market the same drug for the same indication for a period of
seven years except in limited circumstances. The EU has a similar Orphan Drug program to that of the U.S., and it is
administered through the EMA’s Committee for Orphan Medicinal Products, or COMP.
Pediatric Testing and Exclusivity. In the United States, NDAs and BLAs are subject to both mandatory pediatric
testing requirements and voluntary pediatric testing incentives in the form of exclusivity. An additional six months of
exclusivity in the U.S. may be granted to a sponsor of an NDA or BLA if the sponsor conducts certain pediatric studies.
This process is initiated by the FDA as a written request for pediatric studies to determine if the drug or biologic could have
meaningful pediatric health benefits. If the FDA determines that the sponsor has conducted the requested pediatric studies
in accordance with the written request, then an additional six months of exclusivity may attach in the case of a drug to any
other regulatory exclusivity or patent protection applicable to the drug, and in the case of a biologic to any other regulatory
exclusivity applicable to the biologic. The EU has a similar requirement and incentive for the conduct of pediatric studies
according to the pediatric investigation plan, which must be adopted by the EMA before an MAA may be submitted.
Labeling, Marketing, and Promotion. The FDA closely regulates the labeling, marketing and promotion of drugs.
Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising,
injunctions and potential civil and criminal penalties.
In addition, in the U.S. the research, manufacturing, distribution, sale and promotion of drug products are potentially
subject to regulation by various federal, state and local authorities in addition to the FDA, including CMS, other divisions
of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of
Justice, state Attorneys General, and other state and local government agencies. All of these activities are also potentially
subject to federal and state consumer protection and unfair competition laws. Violations of these laws are punishable by
prison sentences, criminal fines, administrative civil money penalties, and exclusion from participation in federal
healthcare programs.
There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and
marketing information or impose other special requirements for the sale and marketing of drug products. Many of these
laws contain ambiguities as to what is required to comply with the laws. In addition, federal and state “transparency laws”
require manufacturers to track and report certain payments made to healthcare providers and, under some state laws, other
information concerning our products. These laws may affect our sales, marketing and other promotional activities by
imposing administrative and compliance burdens on us. In addition, our reporting actions could be subject to the penalty
provisions of the pertinent state and federal authorities.
Compounding Pharmacies and Registered Outsourcing Facilities. Title I (the Compounding Quality Act) of the Drug
Quality Security Act, or DQSA, which was enacted in November 2013, amends the FDCA to establish a distinct category
of drug compounders known as “outsourcing facilities.” A compounding pharmacy that elects to register with the FDA as
an outsourcing facility is exempt from certain FDCA requirements, including the obligation to obtain FDA approval of an
NDA, if the facility satisfies conditions set out in the statute. The DQSA also imposes restrictions on the materials that may
be compounded at registered outsourcing facilities. Like “traditional” pharmacy compounders, such as those found in
hospitals, outsourcing facilities may not compound drugs that are “essentially a copy of one or more approved drugs” or
that present “demonstrable difficulties for compounding.” The statute also imposes conditions on the compounding of bulk
substances. The FDA has identified compounding as an enforcement priority in 2017, but it remains to be seen how the
agency will interpret key provisions of the DQSA, such as the prohibition on compounding drugs that are “essentially a
copy of one or more approved drugs,” and to what extent the DQSA gives the agency sufficient authority to regulate
compounding activities in violation of the FDCA.
Drug Supply Chain Security Act. Title II (the Drug Supply Chain Security Act, or DSCSA), of the DQSA imposes on
manufacturers of certain pharmaceutical products new obligations related to product tracking and tracing, among others,
which began a several-year phase-in process in 2015. Among the requirements of this legislation, manufacturers subject to
the DSCSA will be required to provide certain information regarding the drug product to individuals and entities to which
product ownership is transferred, label drug product with a product identifier and keep certain records regarding the drug
product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done
electronically. Covered manufacturers will also be required to verify that purchasers of the manufacturers’ products are
appropriately licensed. Further, under the DSCSA, covered manufacturers will have drug product investigation, quarantine,
disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products,
as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they
would be reasonably likely to result in serious health consequences or death.
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Foreign Regulatory Requirements. Outside of the U.S., our ability to conduct clinical trials or market our products
will also depend on receiving the requisite authorizations from the appropriate regulatory authorities. The foreign
regulatory approval processes include similar requirements and many of the risks associated with the FDA and/or the EMA
approval process described above, although the precise requirements may vary from country to country. In the EU, once an
MAA is granted, the product must be “on the market” within three years of the date of authorization. “On the market” is
defined as when the medicinal product is “released into the distribution chain,” i.e., out the of the direct control of the
marketing-authorization holder, or MAH. Distribution is required in at least one of the EEA member countries within those
three years. With respect to OMIDRIA, this requires releasing the product into the distribution chain in at least one EEA
country by July 28, 2018. In addition, a marketing authorization will cease to be valid if a product previously placed on the
market is no longer actually present on the market for three consecutive years.
Hatch-Waxman Act. In seeking approval for a drug through an NDA, applicants are required to list with the FDA
each patent with claims that cover the applicant’s drug or an approved method of use of the drug. Upon approval of a drug,
each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn,
be cited by potential competitors in support of approval of an ANDA or a 505(b)(2) application. An ANDA provides for
marketing of a drug that has the same active ingredients and, in some cases (e.g., ophthalmology), also the same inactive
ingredients, in the same strengths and dosage form as the listed drug and has been shown through testing to be
bioequivalent to the listed drug or receives a waiver from bioequivalence testing. ANDA applicants are generally not
required to conduct or submit results of pre-clinical or clinical tests to prove the safety or effectiveness of their drug, other
than the requirement for bioequivalence testing. Drugs approved in this way based on a showing of sameness and
bioequivalence to the listed drug are considered therapeutically equivalent, and are commonly referred to as “generic
equivalents” to the listed drug. These drugs then generally can be substituted by pharmacists under prescriptions written for
the original listed drug.
The ANDA or 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the referenced
approved drug in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information
has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date
and approval is sought after patent expiration; or (iv) the listed patent is invalid or unenforceable, or will not be infringed
by the new drug. A certification that the new drug will not infringe the already approved drug’s listed patents or that such
patents are invalid or unenforceable is called a Paragraph IV certification. If the ANDA or 505(b)(2) applicant does not
challenge the listed patents, the ANDA or 505(b)(2) application will not be approved until all of the listed patents claiming
the referenced drug have expired, except for any listed patents that only apply to uses of the drug not being sought by the
ANDA or 505(b)(2) applicant.
If the ANDA or 505(b)(2) applicant has made a Paragraph IV certification, the applicant must also send notice of a
Paragraph IV Notice Letter to the NDA and patent holders once the ANDA or 505(b)(2) application has been accepted for
filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of
the Paragraph IV Notice Letter. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a
Paragraph IV Notice Letter automatically prevents the FDA from approving the ANDA until the earlier of 30 months,
expiration of the patent, settlement of the lawsuit, modification by a court or a decision in the infringement case that is
favorable to the ANDA or 505(b)(2) applicant.
The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity, such as
exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced drug has expired.
The U.S. Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the “Hatch-
Waxman Act,” provides a period of five years following approval of a drug containing no previously approved active
moiety, during which ANDAs for generic versions of those drugs and 505(b)(2) applications referencing those drugs
cannot be submitted unless the submission contains a Paragraph IV challenge to a listed patent, in which case the
submission may be made four years following the original drug approval. Federal law provides for a period of three years
of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a
new dosage form, route of administration or combination, or for a new use, the approval of which was required to be
supported by new clinical trials, other than bioavailability studies, conducted by or for the sponsor, during which FDA
cannot grant effective approval of an ANDA or 505(b)(2) application based on that listed drug.
As described above, Par has sent a Paragraph IV Notice Letter stating that it has filed an ANDA containing a
Paragraph IV Certification under the Hatch-Waxman Act seeking approval from the FDA to market a generic version of
OMIDRIA prior to the expiration of the Orange Book Patents. Following receipt of Par’s Notice Letter regarding the
Paragraph IV Certification, in September 2015, we filed a patent infringement lawsuit against Par. For more information
regarding the ANDA filed by Par and our patent infringement lawsuit against Par, see Part I, Item 3, “Legal Proceedings.”
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Healthcare compliance laws. In the U.S., commercialization of OMIDRIA and our product candidates, if approved,
is subject to regulation and enforcement under a number of federal and state healthcare compliance laws administered and
enforced by agencies other than the FDA. These include the following:
•
•
•
•
the federal Anti-Kickback Law, which prohibits offering or paying anything of value to a person or entity to
induce the use of a good or service covered by a federal health care program such as Medicare or Medicaid;
the federal False Claims Act, which prohibits presenting or causing to be presented a false claim for payment
by a federal health care program, and which has been interpreted to include claims caused by improper drug-
manufacturer product promotion or the payment of kickbacks;
a variety of governmental pricing, price reporting, and rebate requirements, including those under Medicaid
and the Veterans Health Care Act; and
the so-called Sunshine Act and related provisions of the Affordable Care Act, which require that we report to
the federal government information on financial payments that we make to physicians and certain healthcare
institutions and also on drug samples that we distribute.
In addition to these federal law requirements, there are related state law requirements. Also, if we receive protected
patient health information, we may be subject to federal or state privacy laws.
Similar requirements apply to our ex-U.S. operations. U.S. laws such as the Foreign Corrupt Practices Act prohibit
the offering or payment of bribes or inducements to foreign public officials, including potentially physicians or other
medical professionals who are employees of public health care entities. In addition, many countries have their own laws
similar to the healthcare compliance laws that exist in the U.S.
Pharmaceutical Pricing and Reimbursement
Overview. In both U.S. and foreign markets, our ability to commercialize our products and product candidates
successfully, and to attract commercialization partners for our products and product candidates, depends in significant part
on the availability of adequate financial coverage and reimbursement from third-party or private payers including, in the
U.S., managed care organizations and private health insurers as well as governmental payers such as the Medicare and
Medicaid programs. Reimbursement by a third-party payer may depend on a number of factors, including the payer’s
determination that use of a product is
•
•
•
•
•
a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Reimbursement by government payers may depend on the same or similar factors as reimbursement by private third-party
payers and also depends on complex regulations that may change with annual or more frequent rulemaking and other
legislative activities.
Third-party private and governmental payers are increasingly challenging the prices charged for medicines and
examining their cost effectiveness in addition to their safety and efficacy. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the cost effectiveness of our products or product candidates. Even with
the availability of such studies, third-party private and/or governmental payers may not provide coverage and
reimbursement for our products or product candidates, in whole or in part.
United States. Political, economic and regulatory influences are subjecting the healthcare industry in the U.S. to
fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to
change the healthcare system in ways that could significantly affect our business. For example, in March 2010 President
Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Affordability Reconciliation Act, or collectively the ACA, which is intended to broaden access to health insurance, reduce
or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements
for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional
health policy reforms. Other changes included aggregate reductions to Medicare payments to providers of up to 2% per
fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2025
unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer
Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the period
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for the government to recover overpayments to providers from three to five years. More recently, President Trump and
various members of Congress have expressed a desire repeal of all or portions of the ACA. In addition, other legislative
changes have been proposed and adopted since the ACA was enacted. We anticipate that the U.S. Congress, state
legislatures and the private sector will continue to consider and may adopt healthcare policies intended to curb rising
healthcare costs. We are unable to predict what additional legislation, regulations or policies, if any, relating to the
healthcare industry or coverage and reimbursement may be enacted in the future or what effect such legislation, regulations
or policies would have on our business. Any cost-containment measures, including those listed above, or other healthcare
system reforms that are adopted could have a material adverse effect on our business prospects and financial operations.
In October 2014 we were granted transitional pass-through reimbursement status by CMS for OMIDRIA, which
became effective January 1, 2015. Pass-through status allows for separate payment for OMIDRIA under Medicare Part B
as opposed to having OMIDRIA be included as part of the existing packaged payment for cataract surgery when performed
in hospital outpatient departments and ASCs. We expect pass-through status to remain in effect until January 1, 2018.
When the pass-through status was granted, CMS set the Medicare reimbursement rate for OMIDRIA under Medicare Part
B at the product’s wholesale acquisition cost, or WAC, of $465 plus six percent (6%) per single-use vial for the second and
third quarters of 2015 after which the rate is based on ASP plus six percent (6%). We are working through legislative and/
or administrative means to continue to obtain separate or similar reimbursement for OMIDRIA on and after January 1,
2018; however, if, following the termination of pass-through status for OMIDRIA on December 31, 2017, the drug is
packaged into the surgical facility payment, we may need to adjust our pricing accordingly and our revenue could be lower
than if separate payment had continued. In addition, reimbursement from private payers may, or may not, reference our
CMS reimbursement status in their coverage and payment decisions. Other payers often follow, but are not required to
follow, the reimbursement methodology adopted by CMS.
Europe. Governments in the various member states of the EU influence or control the price of medicinal products in
their countries through their pricing and reimbursement rules and control of national healthcare systems that fund a large
part of the cost of those products to consumers. To obtain reimbursement or pricing approval, some of these countries may
require the completion of clinical trials or pharmacoeconomic studies that assess the cost-effectiveness of a product
candidate relative to currently available therapies or relative to a specified standard. The downward pressure on healthcare
costs in general, particularly prescription medicines, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products.
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 programmatic 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 on 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 $50.7 million, $48.4 million and $47.9
million in 2016, 2015 and 2014, respectively.
Employees
As of February 28, 2017, we had 154 full-time employees, 73 of whom are in research and development, 53 of whom
are in sales and marketing and 28 of whom are in finance, legal, business development and administration. Our full-time
employees include three with M.D.s and 22 with Ph.D.s., of whom two and 22, respectively, are in research and
development. None of our employees is represented by a labor union, and we consider our employee relations to be good.
Executive Officers and Significant Employees
The following table provides information regarding our executive officers and significant employees as of March 16,
2017:
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Name
Executive Officers:
Gregory A. Demopulos, M.D.
Michael A. Jacobsen
Marcia S. Kelbon, J.D., M.S.
Significant Employees:
Leonard Blum
Christopher S. Bral, Ph.D.
Timothy M. Duffy
Kenneth M. Ferguson, Ph.D.
George A. Gaitanaris, M.D., Ph.D.
William J. Lambert, Ph.D.
Catherine A. Melfi, Ph.D.
Patricia Sandler
J. Steven Whitaker, M.D., J.D.
Age
Position(s)
58
58
57
56
51
56
61
60
58
58
48
61
President, Chief Executive Officer and Chairman of
the Board of Directors
Vice President, Finance, Chief Accounting Officer
and Treasurer
Vice President, Patent, General Counsel and
Secretary
Chief Business and Commercial Officer
Vice President, Nonclinical Development
Vice President, Business Development
Vice President, Development and Chief
Development Officer
Vice President, Science and Chief Scientific Officer
Vice President, Chemistry, Manufacturing and
Controls
Vice President, Regulatory Affairs and Quality
Systems and Chief Regulatory Officer
Vice President, Sales and Marketing
Vice President, Clinical Development and Chief
Medical Officer
Gregory A. Demopulos, M.D. founded our company and has served as our president, chief executive officer and
chairman of the board of directors since June 1994. He also served as our chief financial officer and treasurer from January
2009 to October 2013 in an interim capacity, and 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 in hand and microvascular surgery at Duke University. Dr. Demopulos currently serves on the board of
trustees of the Smead Funds Trust, an open-end mutual fund company registered under the Investment Company Act of
1940. His non-profit service includes the Seattle Community Development Round Table and the Northwest
NeuroNeighborhood board of directors. 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.
Michael A. Jacobsen joined Omeros in September 2013 and has served as our vice president, finance, chief
accounting officer and treasurer since October 2013. Prior to joining Omeros, Mr. Jacobsen served as vice president of
finance of Sarepta Therapeutics, Inc. from September 2011 to May 2013 and as its chief accounting officer from September
2011 to December 2012. From April 2007 to August 2011, Mr. Jacobsen was vice president and chief accounting officer at
ZymoGenetics, Inc. Prior to his service with ZymoGenetics, Mr. Jacobsen held various roles at ICOS Corporation,
including senior director of finance and corporate controller. From April 1995 to October 2001, Mr. Jacobsen held vice
president of finance or chief financial officer roles at three companies in the software, computer hardware and internet
retailing industries, two of which were publicly traded. Mr. Jacobsen is a certified public accountant and received his
bachelor’s degree in accounting from Idaho State University.
Marcia S. Kelbon, J.D., M.S. has served as our vice president, patent and general counsel since October 2001 and as
our secretary since September 2007. Prior to joining Omeros, 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.
Leonard M. Blum joined Omeros as our chief business and commercial officer in April 2016. Mr. Blum previously
served as senior vice president, chief commercial officer from 2007 until March 2016 at Theravance, Inc., a publicly traded
biopharmaceutical company, and its spin-off Theravance BioPharma. Prior to that, Mr. Blum founded and led the
commercial functions at ICOS Corporation, a biotechnology company, ultimately as senior vice president, sales and
marketing, from 2000 until the company’s acquisition by Eli Lilly and Company in 2007. Mr. Blum began his career in the
pharma industry at Merck & Co. Inc. where he spent 13 years in positions of increasing responsibility in marketing and
30
business unit leadership in the U.S. and Europe. Mr. Blum earned his A.B. in Economics at Princeton University and his
M.B.A. at Stanford University’s Graduate School of Business. Before beginning his career in the pharmaceutical industry,
he served as an officer in the U.S. Army Special Forces.
Christopher S. Bral, Ph.D. joined Omeros as our vice president, nonclinical development in October 2015. From
April 2014 to October 2015, Dr. Bral was the executive director, toxicology at Arrowhead Research Corporation. From
June 2008 to April 2014, Dr. Bral served as director, drug safety evaluation at Vertex Pharmaceuticals. Prior to Vertex, Dr.
Bral held various pre-clinical drug safety positions of increasing responsibility at Schering-Plough Research Institute
including associate director, drug safety evaluation. Dr. Bral received his Ph.D. in biochemistry and biophysics from Texas
A&M University and his B.S. in chemistry from John Carroll University, and has been board-certified in toxicology
through the American Board of Toxicology since 2000.
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 and as our chief
development officer since October 2012. 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 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 vice president, science since August 2006 and as our chief
scientific officer since 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 and his M.D. from the Aristotelian University of Greece.
William J. Lambert, Ph.D. joined Omeros as our vice president, chemistry, manufacturing and controls in January
2015. From October 2011 to January 2015, Dr. Lambert headed the Innovative Drug Delivery Group of MedImmune, the
global biologics research and development arm of AstraZeneca. From January 2006 to September 2011, Dr. Lambert
served as senior vice president of pharmaceutical development at Pacira Pharmaceuticals. Prior to Pacira, Dr. Lambert
directed drug delivery, product development and cGMP clinical supply groups at Eisai Inc. He has also held various
pharmaceutical research positions at Pfizer Inc. and the Upjohn Company. Dr. Lambert received his Ph.D. in
Pharmaceutics from the University of Utah and his B.S. in Pharmacy from the University of Rhode Island.
Catherine A. Melfi, Ph.D. has served as our vice president, regulatory affairs and quality systems since October 2012
and has served as our chief regulatory officer since April 2016. Dr. Melfi previously served from January 1996 to October
2012 at Eli Lilly and Company, where she held technical and leadership roles of increasing scope and responsibility,
including as senior director and scientific director in Global Health Outcomes and Regulatory Affairs, respectively. Prior to
joining Eli Lilly, Dr. Melfi held various faculty and research positions at Indiana University, including appointments in its
Economics Department, in the School of Public and Environmental Affairs, and in the Indiana University School of
Medicine. Dr. Melfi received her Ph.D. in Economics from the University of North Carolina - Chapel Hill and B.S. in
Economics from John Carroll University.
Patricia Sandler joined Omeros in May 2014 as our national sales director and has served as our vice president, sales
and marketing since November 2014. From October 2007 through September 2013, Ms. Sandler served in sales and
marketing roles at Sunovion Pharmaceuticals, Inc., including leading a national allergy/asthma sales team from December
2010 to September 2013, managing the Lunesta brand as executive director for central nervous system product marketing
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from June 2009 to December 2010 and serving as director of respiratory marketing from October 2007 to June 2009. From
July 1998 to October 2007, Ms. Sandler served in marketing and sales roles at Johnson & Johnson including as product
director of gastroenterology marketing. Prior to Johnson & Johnson, she held various sales positions at large
pharmaceutical companies including SmithKline Beecham Pharmaceuticals and Pfizer Inc. Ms. Sandler received her B.S.
in business administration from Bloomsburg University of Pennsylvania.
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-
company investor and incubator. From May 1994 to May 2007, Dr. Whitaker served at ICOS Corporation, which was
acquired by Eli Lilly and 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 in 1994 as a Washington corporation. Our principal executive offices are located at 201 Elliott
Avenue West, Seattle, Washington, 98119, and our telephone number is (206) 676-5000. Our website address is
www.omeros.com. We make available, free of charge through our investor relations website at investor.omeros.com, 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 Exchange Act, including exhibits to those reports,
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our websites 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 website that contains reports,
proxy and information statements, and other information regarding reports that we file or furnish electronically with them
at www.sec.gov.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below may have a material adverse effect on our business, prospects, financial
condition or operating results. In addition, we may be adversely affected by risks that we currently deem immaterial or by other
risks that are not currently known to us. 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 Products, Programs and Operations
Our ability to achieve profitability is dependent on the commercial success of OMIDRIA. To the extent OMIDRIA is not
successful, our business, financial condition and results of operations may be materially adversely affected and the price
of our common stock may decline.
OMIDRIA is our only product that has been approved by the FDA for commercial sale in the U.S. For the three and 12
months ended December 31, 2016, we recorded net sales of OMIDRIA of $12.9 million and $41.4 million, respectively. We
have not generated revenue from sales of OMIDRIA to date that are sufficient to fund fully our operations and cannot provide
assurance that we will generate sufficient revenue from OMIDRIA in the future to fund fully our operations. We will need to
generate substantially more product revenue from OMIDRIA to achieve and sustain profitability. Our ability to generate
significant revenue from OMIDRIA product sales depends on our ability to achieve increased market acceptance of, and to
otherwise market and sell effectively, OMIDRIA, which may not occur for a number of reasons, including:
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a lack of acceptance by physicians, patients, government and private payers and other members of the healthcare
community;
our limited experience in marketing, selling and distributing OMIDRIA or any other product;
our limited experience managing third-party commercial manufacturing of OMIDRIA or any other product as well as
our limited experience managing and maintaining a commercial sales organization;
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pricing, reimbursement and coverage policies of government and private payers such as Medicare, Medicaid, the
Department of Veterans Affairs, or VA, group purchasing organizations, insurance companies, health maintenance
organizations and other plan administrators;
the availability, relative price and efficacy of the product as compared to alternative treatment options or branded,
compounded or generic competing products;
an unknown safety risk;
the failure to enter into and maintain acceptable partnering arrangements for marketing and distribution of OMIDRIA
outside of the U.S.;
changed or increased regulatory restrictions in the U.S., EU and other foreign territories; and
a lack of adequate financial or other resources.
Our operating results are unpredictable and may fluctuate.
Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year. We believe
that our quarterly and annual results of operations may be affected by a variety of factors, including:
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the level and timing of commercial sales of OMIDRIA as well as our product candidates, if and when approved or
commercialized;
the extent of coverage and reimbursement for OMIDRIA, including following the expiration of pass-through
reimbursement effective January 1, 2018, and the amount of OMIDRIA chargebacks, rebates and product returns;
the extent of any payments received from collaboration arrangements and development funding as well as the
achievement of development and clinical milestones under collaboration and license agreements that we may enter
into from time to time and that may vary significantly from quarter to quarter; and
the timing, cost and level of investment in our research and development activities as well as expenditures we will or
may incur to acquire or develop additional technologies, products and product candidates.
In addition, the number of procedures in which OMIDRIA or any of our product candidates, if commercialized, would be used
may be significantly less than the total number of such procedures performed or total possible market size. These and other
factors, including our limited history of product sales, may make it difficult for us to forecast and provide accurate guidance
(including updates to prior guidance) related to our expected financial performance. If our operating results are below the
expectations of securities analysts or investors, the trading price of our stock could decline.
We have incurred cumulative operating losses since inception. If we are unable to raise additional capital when needed,
our commercial operations may be limited and we may be unable to complete the development and commercialization
of our product candidates or to continue our other preclinical development programs.
Our operations have consumed substantial amounts of cash since our incorporation and, as of December 31, 2016, we had
an accumulated deficit of approximately $470 million. We expect to continue to spend substantial amounts to:
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continue OMIDRIA sales and marketing;
continue research and development in our programs;
• make principal and interest payments under the CRG Loan Agreement;
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initiate and conduct clinical trials for our programs and product candidates; and
commercialize and launch product candidates for which we may receive regulatory approval.
We expect to continue to incur additional losses until such time as we generate significant revenue from the sale of OMIDRIA,
other commercial products and/or significant partnering revenues. We are unable to predict the extent of any future losses and
cannot provide assurance that we will generate sufficient revenue from OMIDRIA in the future to fund fully our operations. To
date we have not generated revenue from sales of OMIDRIA that is sufficient to fund fully our operations. If we are unable to
generate sufficient revenue from the sale of OMIDRIA, other commercialized products and/or partnering arrangements, we
may never become and remain profitable and will be required to raise additional capital to continue to fund our operations. We
cannot be certain that additional capital will be available to us on acceptable terms, if at all, when required. Adverse
developments to our financial condition or business, as well as disruptions in the global equity and credit markets, may limit
our ability to access capital. If we do not raise additional capital when needed through one or more funding avenues, such as
corporate partnering or debt or equity financings, 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 preclinical programs or
other research and development initiatives. In addition, we may be required to seek collaborators for one or more of our current
or future products at an earlier stage than otherwise would be desirable or on terms that are less favorable than otherwise might
33
be available or to relinquish or license on unfavorable terms our rights to technologies or products 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 actions could limit the amount of revenue we
are able to generate and harm our business and prospects.
Using a newly adopted accounting standard, our management has concluded that a substantial doubt is deemed to exist
concerning our ability to continue as a going concern.
As of December 31, 2016, we adopted the provisions of Financial Accounting Standards Board, or FASB, Accounting
Standards Codification Topic 205-40, Presentation of Financial Statements - Going Concern, or ASC 205-40, which requires
management to assess our ability to continue as a going concern for one year after the date the financial statements are issued.
Under ASC 205-40, management has the responsibility to evaluate whether conditions and/or events raise substantial doubt
about our ability to meet our future financial obligations as they become due within one year after the date that the financial
statements are issued. This standard requires that management’s evaluation initially shall not take into consideration the
potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements
are issued. As further discussed in “Note 1-Organization and Basis of Presentation-Going Concern” to our Consolidated
Financial Statements in this Annual Report on Form 10-K, substantial doubt is deemed to exist about the company’s ability to
continue as a going concern through March 16, 2018. Our financial statements do not include any adjustment relating to the
recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern. Our ability to continue as a going concern will require us to
generate positive cash flow from operations, obtain additional financing, enter into strategic alliances and/or sell assets. The
reaction of investors to the inclusion of a going concern statement in this Annual Report on Form 10-K, our current lack of cash
resources and our potential inability to continue as a going concern may materially adversely affect our share price and our
ability to raise new capital, enter into strategic alliances and/or make our scheduled debt payments on a timely basis or at all. If
we become unable to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets
in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.
If OMIDRIA or any other product that we develop and commercialize does not receive adequate reimbursement from
governments or private payers, or if we do not establish and maintain market-acceptable pricing for OMIDRIA or those
potential other commercialized products, our prospects for revenue and profitability could suffer.
Our revenues and profitability will depend heavily on the pricing, availability and duration of adequate reimbursement
for the use of products that we or our third-party business partners commercialize, including OMIDRIA, from government,
private and other third-party payers, both in the U.S. and in other countries. OMIDRIA or any other product that we bring to
market may not be considered cost-effective and/or the amount reimbursed for any product may be insufficient to allow us to
sell the product profitably. Obtaining reimbursement for any product from each government or third-party payer can be a time-
consuming and costly process that may require the build-out of a sufficient staff or the engagement of third parties and could
require us to provide additional supporting scientific, clinical and cost-effectiveness data for the use of our approved products
to each payer. We can provide no assurances at this time regarding the cost-effectiveness of OMIDRIA, OMS103 or any of our
product candidates. Further, we can provide no assurance that the amounts, if any, reimbursed to surgical facilities for
utilization of any of our surgery-related products, including OMIDRIA, our OMS103 product candidate or any of our other
product candidates, or to surgeons for the administration and delivery of these products or product candidates will be
considered adequate to justify the use of these products or product candidates. In addition, obtaining acceptable coverage and
reimbursement from one payer does not guarantee that we will obtain similar acceptable coverage or reimbursement from
another payer.
There may be significant delays in obtaining reimbursement for newly approved products, and we may not be able to
provide data sufficient to be granted reimbursement. Even when a payer determines that a product is eligible for
reimbursement, coverage may be limited to the uses of a product that are either approved by the FDA (or, in other countries, the
relevant country’s regulatory agency) and/or appear in a recognized drug compendium, and other conditions may apply.
Moreover, eligibility for coverage does not mean that any product 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, sales and distribution. Increasingly,
government and private third-party payers that reimburse for healthcare services and products are requiring that companies
provide them with predetermined discounts from list prices and challenging the prices charged for medical products, which
could adversely impact the pricing of our products. Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payers. Pricing may also be adversely affected by changes
in the terms, scope and/or complexity of government pricing requirements. Even if we achieve reimbursement for a product,
the initial rate or method at which the product will be reimbursed could become unfavorable to us at the time reimbursement is
initiated or in the future or may be of a limited duration. After the expiration of pass-through reimbursement status for
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OMIDRIA effective January 1, 2018, we may not be able to maintain or obtain adequate reimbursement for OMIDRIA. In the
event that separate or similar reimbursement is not obtained for OMIDRIA after that date, we expect that OMIDRIA will be
included as part of the packaged payment. If that occurs, we expect that the per unit price we receive for OMIDRIA would be
reduced, possibly substantially, and our OMIDRIA revenue may be reduced. Further, OMIDRIA end user customers may defer
purchases of OMIDRIA during a period of reimbursement price uncertainty, which could adversely affect our revenues during
that period. An extension or separate reimbursement for OMIDRIA requires action from legislative and/or administrative
authorities and, as a consequence, we cannot guarantee that any such action will be taken before or after January 1, 2018.
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 EU, our products may be subject to government price
controls. Pricing negotiations with governmental authorities can take a considerable amount of time and expenditure of
resources after the receipt of marketing approval for a product. We provide no assurances that the price of any product in one or
more of these countries or regions will allow us to make a profit or cover our costs, including research, development,
manufacturing, sales and distribution, and as a result we may decide to delay, potentially indefinitely, initiating sales in the
particular country or region.
If the reimbursement or pricing that we are able to obtain and maintain for any product that we develop and
commercialize, including OMIDRIA, is inadequate, is significantly delayed or is subject to overly restrictive conditions, our
ability to generate revenue, attain profitability and/or commercialize our product candidates may be impaired and there could
be a material adverse effect on our business, financial condition, results of operations and growth prospects.
We are subject to extensive government regulation and the failure to comply with these regulations may have a material
adverse effect on our operations and business.
Both before and after approval of any product, we and our suppliers, contract manufacturers and clinical investigators are
subject to extensive regulation by governmental authorities in the U.S. and other countries, covering, among other things,
testing, manufacturing, quality control, clinical trials, post-marketing studies, labeling, advertising, promotion, distribution,
import and export, governmental pricing, price reporting and rebate requirements. Failure to comply with applicable
requirements could result in one or more of the following actions: warning letters; unanticipated expenditures; delays in
approval or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical trials;
operating or marketing restrictions; injunctions; criminal prosecution and civil or criminal penalties including fines and other
monetary penalties; adverse publicity; and disruptions to our business. Further, government investigations into potential
violations of these laws would require us to expend considerable resources and face adverse publicity and the potential
disruption of our business even if we are ultimately found not to have committed a violation.
Obtaining FDA approval of our product candidates 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 any of our
product candidates on a timely basis, if at all. Even if we discuss with, and obtain feedback from, the FDA regarding our
proposed clinical trials and nonclinical studies before initiating those trials or studies, the FDA may decide that the design of
our clinical trials as actually run or our resulting data are insufficient for approval of our product candidates and require
additional preclinical, clinical or other studies or additional work related to chemistry, manufacturing and controls. In addition,
we, the FDA or an independent institutional review board or ethics committee may suspend or terminate human clinical trials at
any time on various grounds, including a finding that the patients are or would be exposed to an unacceptable health risk or
because of the way in which the investigators on which we rely carry out the trials. If we are required to conduct additional
trials or to conduct other testing of our product candidates beyond that which we currently contemplate for regulatory approval,
if we are unable to complete successfully 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 face substantial additional expenses, be delayed in obtaining
marketing approval for our product candidates or may never obtain marketing approval.
We are also required to comply with extensive governmental regulatory requirements after a product has received
marketing authorization. Governing regulatory authorities may require post-marketing studies that may negatively impact the
commercial viability of a product. Once on the market, a product may become associated with previously undetected adverse
effects and/or may develop manufacturing difficulties. We are required to comply with other post-marketing requirements
including GMPs, advertising and promotion restrictions, reporting and recordkeeping obligations and other requirements. As a
result of any of these or other problems, a product’s regulatory approval could be withdrawn, which could harm our business
and operating results. In addition, we must establish and maintain an effective healthcare compliance program in order to
comply with U.S. and other laws applicable to marketed drug products and, in particular, laws (such as the Anti-Kickback
Statute, the False Claims Act and the Sunshine Act) applicable when drug products are purchased or reimbursed by a federal
healthcare program. U.S. laws such as the Foreign Corrupt Practices Act prohibit the offering or payment of bribes or
inducements to foreign public officials, including potentially physicians or other medical professionals who are employees of
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public health care entities. In addition, many countries have their own laws similar to the healthcare compliance laws that exist
in the U.S. Implementing and maintaining an effective compliance program requires the expenditure of significant time and
resources. If we are found to be in violation of any of these laws, we may be subject to significant penalties, including but not
limited to civil or criminal penalties, damages and fines as well as exclusion from government healthcare programs.
We may face difficulties from changes to current regulations as well as future legislation.
Existing regulatory policies may change and additional government regulations may be enacted that could prevent, limit
or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or
unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or
sustain profitability.
There is uncertainty with respect to the impact that health care reform legislation may have on coverage and
reimbursement for healthcare items and services covered by plans that are authorized by the ACA. In this regard, President
Trump and various members of Congress have expressed a desire to repeal all or portions of the ACA, and President Trump has
also made statements about controlling drug prices. We cannot predict the ultimate content, timing or effect of any healthcare
reform legislation or the impact that such legislation may have on us.
We expect that the ACA, if it remains in effect, as well as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any
approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar
reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may
prevent us from being able to generate sufficient revenue, attain and/or maintain profitability or commercialize our product
candidates. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or
interpretations will be changed, or what the impact of such changes on OMIDRIA or the marketing approvals of our product
candidates, if any, may be.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products
internationally.
We intend to have OMIDRIA and our product candidates, if approved, marketed outside the U.S. In order to market our
products in non-U.S. jurisdictions, we or our partners must obtain separate regulatory approvals and comply with numerous and
varying regulatory requirements. The regulatory approval procedure varies among countries and can involve additional testing
and data review. The requirements governing marketing authorization, the conduct of clinical trials, pricing and reimbursement
vary from country to country. Approval by the FDA or the EMA does not ensure approval by regulatory agencies in other
jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign
countries or by the FDA. The time required to obtain regulatory approval outside the U.S. and EU may differ from that required
to obtain FDA or EMA approval. The foreign regulatory approval process may include all of the risks associated with obtaining
FDA approval discussed in these “Risk Factors” and we may not obtain foreign regulatory approvals on a timely basis, or at all.
In addition, even if we were able to obtain regulatory approval for a product in one or more foreign jurisdictions, we may need
to complete additional requirements to maintain that approval and our ability to market the product in the applicable
jurisdiction. For example, OMIDRIA must be placed on the market (i.e., released into the distribution chain) in at least one
EEA country by July 28, 2018 in order for our EU marketing authorization for OMIDRIA to remain valid.
If OMIDRIA and/or our product candidates, if approved, are marketed outside of the United States, a variety of risks
associated with international operations could materially adversely affect our business.
We may be subject to additional risks if OMIDRIA and/or our product candidates, if approved, are marketed outside the
U.S., including:
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reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other
obligations incident to doing business in another country; and
business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including
earthquakes, typhoons, floods and fires.
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We have no internal capacity to manufacture clinical or commercial supplies of OMIDRIA or our product candidates
and intend to rely solely on third-party manufacturers. If the contract manufacturers that we rely on experience
difficulties manufacturing OMIDRIA or our product candidates or fail FDA or other regulatory inspections, our clinical
trials, regulatory submissions and ability to sell OMIDRIA or any other commercialized product and generate revenue
may be significantly limited or delayed.
We rely and intend to continue to rely on third party manufacturers to produce commercial quantities of OMIDRIA and
clinical drug supplies of our product candidates that are needed for clinical trials. We cannot provide any assurance that we will
be able to enter into or maintain these types of arrangements on commercially reasonable terms, or at all. If we or the
manufacturer were to terminate one of these arrangements early, or the manufacturer was unable to supply product quantities
sufficient to meet our requirements, we would be required to transfer the manufacturing to an approved alternative facility and/
or establish additional manufacturing and supply arrangements. We may also need to establish additional or replacement
manufacturers, potentially with little or no notice, in the event that one of our manufacturers fails to comply with FDA and/or
other pharmaceutical manufacturing regulatory requirements. 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 may create a shortage of the product. Such alternate supply arrangements may
not be available on commercially reasonable terms, or at all. Additionally, if we are unable to engage multiple suppliers to
manufacture our products, we may have inadequate supply to meet the demand of our product.
Our contract manufacturers may encounter difficulties with formulation and manufacturing processes that could result in
delays in clinical trials and/or regulatory submissions or that could impact adversely the commercialization of our products or
product candidates, as well as in the initiation of enforcement actions by the FDA and other regulatory authorities. These
difficulties also could result in the recall or withdrawal of a product from the market or a failure to have adequate supplies to
meet market demand. If the safety of OMIDRIA or any product candidate supplied by contract manufacturers is compromised
due to one or more of those contract manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be
able to maintain regulatory approval of OMIDRIA, to continue sales and marketing of OMIDRIA or to obtain and maintain
regulatory approval for one or more of our product candidates, which would harm our business and prospects significantly.
In addition, any product candidate from our MASP-2, MASP-3 or Plasmin programs could be a biologic drug product,
and we do not have the internal capability to produce biologics for use in clinical trials or on a commercial scale. There are only
a limited number of manufacturers of biologic drug products and we cannot be certain that we can enter into supply agreements
with a sufficient number of them on commercially reasonable terms, if at all. Any significant delays in the manufacture of
clinical or commercial supplies could materially harm our business, financial condition, results of operations and prospects.
Manufacturing under our existing OMIDRIA manufacturing agreement with Patheon ceased at the end of 2015. Approval
of Hospira as a manufacturing site has not been completed. We do not presently have an alternate manufacturing facility for
OMIDRIA in operation and we do not expect that any OMIDRIA manufacturing facility will be approved for production before
mid-2017 at the earliest. We anticipated this transition and increased production of OMIDRIA prior to the break in
manufacturing, and believe that we will have sufficient supply to meet product needs until OMIDRIA production is
recommenced. However, we can provide no assurances if or when the Hospira manufacturing facility or any alternate
manufacturing facility for OMIDRIA will be in production or whether we can meet market demand for OMIDRIA if demand is
greater than we anticipate. Additionally, damage to or destruction of OMIDRIA inventory, including inventory warehoused at
our third-party logistics provider, could also adversely affect our ability to meet market demand. We have obtained insurance
coverage for the replacement cost of damaged or destroyed OMIDRIA inventory but such coverage would not compensate us
for any resulting loss of sales revenue or a reduction in gross margin.
Ingredients, excipients and other materials necessary to manufacture OMIDRIA or our product candidates may not be
available on commercially reasonable terms, or at all, which may adversely affect the development and
commercialization of OMIDRIA or those product candidates.
We and our third-party manufacturers must obtain from third-party suppliers the active pharmaceutical ingredients,
excipients, and/or other raw materials plus primary and secondary packaging materials necessary for our contract
manufacturers to produce OMIDRIA and our product candidates for our clinical trials and, to the extent approved or
commercialized, for commercial distribution. Although we have entered or intend to enter into agreements with third-party
suppliers that will guarantee the availability and timely delivery of active pharmaceutical ingredients, excipients and materials
for OMIDRIA and our product candidates, we have not yet entered into agreements for the supply of all such ingredients,
excipients or materials, and we may be unable to secure all such supply agreements or guarantees on commercially reasonable
terms, if at all. Even if we were able to secure such agreements or guarantees, our suppliers may be unable or choose not to
provide us the ingredients, excipients or materials in a timely manner or in the quantities required. If we or our third-party
manufacturers are unable to obtain the quantities of these ingredients, excipients or materials that are necessary for the
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manufacture of commercial supplies of OMIDRIA, our ability to generate revenue from the sale of OMIDRIA would be
materially and adversely affected. Further, if we or our third-party manufacturers are unable to obtain active pharmaceutical
ingredients, excipients and materials as necessary for our clinical trials or for the manufacture of commercial supplies of our
product candidates, if approved, potential regulatory approval or commercialization would be delayed, which would materially
and adversely affect our ability to generate revenue from the sale of our product candidates.
If our clinical trials are delayed, suspended or terminated, we may be unable to develop our product candidates on a
timely basis, which would adversely affect our ability to obtain regulatory approvals, increase our development costs
and delay or prevent commercialization of approved products.
We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that
will cause regulatory agencies, institutional review boards or ethics committees, 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:
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discussions with the FDA, the EMA or other foreign authorities regarding the scope or design of our clinical trials;
delays or the inability to obtain required approvals from institutional review boards, ethics committees or other
responsible entities at clinical sites selected for participation in our clinical trials;
delays in enrolling patients into clinical trials for any reason including disease severity, trial protocol design, study
eligibility criteria, patient population size (e.g., for orphan diseases or for some pediatric indications), proximity and/or
availability of clinical trial sites for prospective patients, availability of competing therapies and clinical trials, regional
differences in diagnosis and treatment, perceived risks and benefits of the product or product candidate, physician
patient referral practices or the ability to monitor patients adequately before and after treatment;
lower than anticipated retention rates of patients in clinical trials;
the need to repeat or conduct additional clinical trials as a result of inconclusive or negative results, failure to replicate
positive early clinical data in subsequent clinical trials, failure to deliver an efficacious dose of a product candidate,
poorly executed testing, a failure of a clinical site to adhere to the clinical protocol, an unacceptable study design or
other problems;
adverse findings in clinical or nonclinical studies related to the safety of our product candidates in humans;
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 inspection or review by the FDA or other regulatory authority of a clinical trial site or records of any
clinical investigation;
the occurrence of unacceptable drug-related side effects or adverse events experienced by participants in our clinical
trials;
the suspension by a regulatory agency of a trial put on a clinical hold; and
the amendment of clinical trial protocols to reflect changes in regulatory requirements and guidance or other reasons
as well as subsequent re-examination of amendments of clinical trial protocols by institutional review boards or ethics
committees.
In addition, a clinical trial or development program may be suspended or terminated by us, the FDA or other regulatory
authorities, or institutional review boards or ethics committees due to a number of factors, including:
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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;
the failure to remove a clinical hold in a timely manner (which we cannot predict with certainty), if at all;
unforeseen safety issues or any determination that a trial presents unacceptable health risks;
inability to deliver an efficacious dose of a product candidate; or
lack of adequate funding to continue the clinical trial or development program, 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.
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. 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. Any delays in completing our clinical trials
could increase our development costs, could slow down our product development and regulatory submission process, could
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delay our receipt of product revenue and could make it difficult to raise additional capital. 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, potentially harming our business.
Because we have a number of product candidates and development programs, we may expend our limited resources to
pursue a particular product candidate or indication and fail to capitalize on product candidates or indications for which
there is a greater likelihood of obtaining regulatory approval and that may be more profitable, if approved.
We have limited resources and must focus on the product candidates and clinical and preclinical development programs
that we believe are the most promising. As a result, we may forego or delay the 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 as rapidly as otherwise possible. 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 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.
Our preclinical programs may not produce product candidates that are suitable for clinical trials, our product
candidates may not successfully complete clinical development and/or our product candidates may not be suitable for
successful commercialization or generation of revenue through partnerships.
We must complete successfully preclinical testing, which may include demonstrating efficacy and the lack of toxicity in
established animal models, before commencing clinical trials for any product candidate. Many pharmaceutical and biological
product candidates do not successfully complete preclinical testing. There can be no assurance that positive results from
preclinical studies will be predictive of results obtained from subsequent preclinical studies or clinical trials. Even if preclinical
testing is successfully completed, we 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.
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 products and 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 products and 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. Changes in either the
patent laws or in interpretations of patent laws in the U.S. 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. The ultimate determination by the USPTO or by a
court or other trier of fact in the U.S., 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 affect 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, in our licensed patents or patent applications or in third-party patents.
We cannot provide assurances that any of our patent applications will be found to be patentable, including over our own
prior art patents, or will issue as patents. Neither can we make assurances as to the scope of any claims that may issue from our
pending and future patent applications nor 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 U.S. or foreign jurisdictions. Any such
challenge, if successful, could limit patent protection for our products and product candidates and/or 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 may not be able to generate sufficient data to support full patent applications that protect the entire breadth of
developments in one or more of our programs, including our GPCR program;
39
•
•
•
it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the
patent(s) will be sufficient to protect our technology, 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; or
if issued, the patents under which we hold rights may not be valid or enforceable.
In addition, to the extent that we are unable to obtain and maintain patent protection for one of our products or product
candidates or in the event that such patent protection expires, it may no longer be cost-effective to extend our portfolio by
pursuing additional development of a product or 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 advisers 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 U.S. 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. In addition, our lawsuit against such an entity could result in a finding that some or all of the claims of one or more of
our relevant patents are invalid, unenforceable and/or not infringed, and could also result in a generic version of OMIDRIA
being launched after the expiration of the mandatory three-year clinical data exclusivity for OMIDRIA. 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 our patents. An adverse outcome in such legal action could have a material negative effect on
our financial condition, results of operations and/or stock price. See “Legal Proceedings” under Item 3 of Part I of this Annual
Report on Form 10-K for further discussion of our lawsuit against Par.
It may not be feasible to detect and undertake patent enforcement action to stop infringing activity by a number of
individual entities, each on a small scale, such as compounding pharmacies. Further, our industry has produced a large number
of patents and it is not always clear which patents cover various types of products or methods of use. 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 products and 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 contractors to stop the activities covered by the patents. In addition, if we or our contract
manufacturers are found to have violated a third party’s patent, we or our contract manufacturers could be ordered to pay
damages to the other party. We have agreed to or may agree to indemnify our contract manufacturers against certain patent
infringement claims and thus may be responsible for any of their costs associated with such claims and actions. If we were sued
for patent infringement, we would need to demonstrate that our products and product candidates or methods of use either do not
infringe the patent claims of the relevant patent or that the patent claims are invalid, and we might be unable 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, we have not obtained written
freedom to operate opinions for our programs and may not have identified all relevant third-party patents. Consequently, we
cannot be certain that third-party patents containing claims covering our products, product candidates, programs, technologies
or methods do not exist, have not been filed, or could not be filed or issued.
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.
40
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 have borrowed $80.0 million under the CRG Loan Agreement and pledged substantially all of our assets, including
intellectual property, as collateral. The CRG Loan Agreement restricts our ability to, among other things, incur indebtedness,
grant liens, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay cash
dividends or make distributions, repurchase stock, license certain of our intellectual property on an exclusive basis and engage
in significant business transactions such as a change of control. Any of these restrictions could significantly limit our operating
and financial flexibility and ability to respond to changes in our business or competitive activities. The CRG Loan Agreement
requires us to achieve either (a) certain minimum net revenue amounts from OMIDRIA through the end of 2021, which are
$55.0 million and $65.0 million for the 2017 and 2018 calendar years, respectively, or (b) a minimum market capitalization
threshold equal to the product of 6.4 multiplied by the aggregate principal amount of loans outstanding under the CRG Loan
Agreement determined as of the fifth business day following announcement of earnings results for the applicable year. In the
event we do not achieve either of the minimum revenue amount or the minimum market capitalization threshold for a year, we
can satisfy the requirement by raising additional funds through an equity or subordinated debt issuance and using the proceeds
to pay down the loan balance by an amount equal to the difference between the minimum revenue amount for such year and the
actual revenue amount for such year. We recorded net sales of OMIDRIA of $41.4 million for the year ended December 31,
2016, and we cannot provide assurance that we will generate sufficient revenue from OMIDRIA in the future to satisfy fully the
net revenue covenants in 2017 and subsequent years during the term of the CRG Loan Agreement. We are also required to
maintain $5.0 million in cash and cash equivalents during the term of the CRG Loan Agreement.
The failure to satisfy these or other obligations under the CRG Loan Agreement would constitute an event of default. An
event of default under the CRG Loan Agreement also includes the occurrence of any material adverse effect upon our business,
condition (financial or otherwise), operations, performance or property taken as a whole. If there is an event of default under
the CRG Loan Agreement, the lenders may have the right to accelerate all of our repayment obligations under the CRG Loan
Agreement and to take control of our pledged assets, which include substantially all of our assets including our intellectual
property. Upon the acceleration of the loan, we will be required to repay the loan immediately or to attempt to reverse the
declaration through negotiation or litigation. Further, if we are liquidated, the lenders’ right to repayment would be senior to the
rights of the holders of our common stock to receive any proceeds from the liquidation. Any declaration 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.
Under the CRG Loan Agreement, we may borrow up to an additional $45.0 million in two tranches of $25.0 million and
$20.0 million if we are able to satisfy certain milestones relating to OMIDRIA revenues ($18.0 million and $25.0 million,
respectively, in any three-month period) or an average market capitalization ($700.0 million or $1.0 billion, respectively) on or
before June 30, 2017 and December 31, 2017, respectively. If we are unable to satisfy these milestones, it may be necessary for
us to seek alternative sources of capital.
We currently depend on a third party for the commercialization of OMS103 and we cannot guarantee that such
commercialization will occur or be successful.
In June 2015 we entered into the OMS103 Agreement pursuant to which we granted Fagron an exclusive, royalty-free
license to the OMS103 intellectual property, manufacturing information and clinical data to manufacture and commercialize
OMS103 in the U.S. in exchange for potential future payments based on product revenue and achievement of commercial
milestones. As a result of entering into the OMS103 Agreement, we discontinued our OMS103 clinical development program
and are dependent on Fagron to commercialize OMS103 in the U.S. We cannot control whether Fagron will fulfill its
obligations under the OMS103 Agreement or whether the commercialization of OMS103 will be successful. Fagron has not
performed its diligence milestones in the OMS103 Agreement, including initiating sales of OMS103, and we believe that it is
unlikely they will do so. We are evaluating our options with respect to the OMS103 Agreement and the OMS103 program. If
we elect to pursue arbitration with Fagron, and/or the OMS103 Agreement is terminated, we can provide no assurances that we
will be able to enter into another licensing agreement or have sufficient resources to restart clinical development and conduct
any clinical trials if desired. Any of the above risks, if realized, could adversely affect our results of operations.
Under Section 503B of the Federal Food, Drug, and Cosmetic Act, registered outsourcing facilities are required to
manufacture under GMP and are subject to FDA inspections and audits. They also are not allowed to manufacture a product
that is essentially a copy of one or more FDA-approved drugs. If a licensed registered outsourcing facility such as Fagron is
prohibited from commercializing or from continuing commercial sales of OMS103 following initial commercialization because
of violations of any FDA regulations or any other reason, our ability to generate revenue from royalty payments from the
licensed registered outsourcing facility and achieve profitability will be adversely affected and the market price of our common
stock could decline.
41
Our competitors may develop products that are less expensive, safer or more effective, or which may otherwise diminish
or eliminate the success of any products that we may commercialize.
We may not achieve commercial success if our competitors, many of whom have significantly more resources and
experience than we, market products that are safer, more effective, less expensive or faster to reach the market than OMIDRIA
or any future products that we may develop and commercialize. Our competitors also may market a product that proves to be
unsafe or ineffective, which may affect the market for our competing product, or future product, regardless of the safety or
efficacy of our product. The failure of OMIDRIA or any other future product that we may market to compete effectively with
products marketed by our competitors would impair our ability to generate revenue, which would have a material adverse effect
on our future business, our financial condition and our results of operations.
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 A. Demopulos, M.D., our president, chief 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, without having a readily available and appropriate replacement could delay the 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.
We may encounter difficulties managing our growth, which could delay our business plans or adversely affect our
results of operations.
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 manage effectively 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.
Additionally, our inability to manage growth effectively could cause our operating costs to grow even faster than we currently
are anticipating.
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’s safety and efficacy and could limit our
ability to sell one or more products by preventing or interfering with commercialization of our products and 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 or maintain such insurance on acceptable terms or that we will be
able to secure and maintain increased coverage if the commercialization of OMIDRIA or our product candidates progresses, or
that future claims against us will be covered by our product liability insurance. Further, our product liability 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.
42
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, or if we fail to adequately supervise or monitor these parties,
we may not be able to obtain regulatory approval for or commercialize our product candidates.
We rely on third parties, such as CROs, medical and research institutions and clinical investigators, to conduct a portion
of our preclinical research and assist us in conducting our clinical trials. Nonetheless, we are responsible for confirming that
our preclinical research and clinical trials are conducted in accordance with applicable regulations, the relevant trial protocol
and within the context of approvals by an institutional review board or ethics committee, and we may not always be successful
in ensuring such compliance. Our reliance on these third parties does not relieve us of responsibility for ensuring compliance
with FDA and other 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
commercialize or obtain regulatory approval for our product candidates.
We may need to maintain licenses for active ingredients from third parties to develop and commercialize some of our
product candidates, which could increase our development costs and delay our ability to commercialize those product
candidates.
Should we decide to use active pharmaceutical ingredients in any of our product candidates that are proprietary to one or
more third parties, such as our PDE7 program (OMS527) or our plasmin program (OMS616), we would need to maintain
licenses to those active ingredients from those third parties. If we are unable to continue to access rights to these active
ingredients prior to conducting 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 maintain
continued 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 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 facility
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.
Cyber-attacks or other failures in telecommunications or information technology systems could result in information
theft, data corruption and significant disruption of our business operations.
We utilize information technology, or IT, systems and networks to process, transmit and store electronic information in
connection with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate
attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and
sophistication. These threats pose a risk to the security of our systems and networks, the confidentiality and the availability and
integrity of our data. There can be no assurance that we will be successful in preventing cyber-attacks or successfully
mitigating their effects. Similarly, there can be no assurance that our collaborators, CROs, third-party logistics providers,
distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on
their systems. Any cyber-attack or destruction or loss of data could have a material adverse effect on our business and
prospects. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-
attacks or other data security breaches and may incur significant additional expense to implement further data protection
measures.
43
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 12-month period ended December 31, 2016, our stock traded as high as $16.80 per share and as low as $7.20
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 numerous factors, many of which are beyond our control. 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.
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.
To the extent that we raise additional funds in the future by issuing equity securities, including pursuant to our At Market
Equity Issuance Sales Agreement, or the ATM Agreement, with JonesTrading, our shareholders would experience dilution,
which may be significant and could cause the market price of our common stock to decline significantly. In addition,
approximately 11.3 million shares of common stock as of February 28, 2017 subject to outstanding options and warrants may
become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements. Further,
as of February 28, 2017 we also had approximately 0.9 million shares of common stock reserved for future issuance under our
employee benefit plans that are not subject to outstanding options. If the holders of these outstanding options or warrants elect
to exercise some or all of them, or if the shares subject to our employee benefit plans are issued and become eligible for sale in
the public market, our shareholders would experience dilution and the market 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 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 10% 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 acquirers 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. We currently plan to invest all available funds and future earnings, if any, in
the development and growth of our business. Additionally, under the CRG Loan Agreement, we have agreed not to pay any
cash dividends. 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 the sole source
of potential gain for shareholders in the foreseeable future, and an investment in our common stock for dividend income should
not be relied upon.
44
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
We lease approximately 82,000 square feet for our principal office and laboratory space in the building located at 201
Elliott Avenue West, Seattle, Washington, or The Omeros Building, which includes approximately 8,358 square feet of
laboratory space that we are subleasing to a third party. The lease term for our space is through November 2027. We also have
two options to extend the lease term, each by five years. The annual base rent due under the lease for our principal office and
laboratory space is $4.5 million for 2017, $4.5 million for 2018 and $4.6 million for 2019 and will increase by approximately
2.3% each year thereafter. In addition, we are responsible for paying our proportionate share of the building’s utilities, taxes,
insurance and maintenance as well as a property management fee.
We have a right of first refusal for the premises that we do not currently lease as well as a right of first offer for specified
premises in The Omeros Building. If at any time during the term of the lease 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 portion of a $3.0 million lease incentive paid to us by
the landlord when we entered the lease. 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 nine or 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. We believe that these facilities we lease currently are sufficient for our anticipated near-term
needs.
ITEM 3. LEGAL PROCEEDINGS
In July 2015, we received a Notice Letter from Par that it had filed an ANDA containing a Paragraph IV Certification
under the Hatch-Waxman Act and seeking approval from the FDA to market a generic version of OMIDRIA prior to the
expiration of three Omeros patents, U.S. Patent Nos. 8,173,707, 8,586,633 and 9,066,856, which relate to OMIDRIA and that
are listed in the FDA’s Orange Book for OMIDRIA. These patents were granted following review by the U.S. Patent and
Trademark Office, or USPTO, are presumed to be valid under governing law, and can only be invalidated in federal court with
clear and convincing evidence. Following receipt of the Paragraph IV Notice Letter we filed a patent infringement lawsuit
against Par in the U.S. District Court for the District of New Jersey on September 2, 2015 and a patent infringement lawsuit
against Par in the U.S. District Court for the District of Delaware on September 3, 2015. The lawsuits were filed under the
Hatch-Waxman Act alleging Par’s infringement of U.S. Patent Nos. 8,173,707, 8,586,633 and 9,066,856. Based on our decision
to pursue the action in federal court in Delaware, we voluntarily dismissed the complaint filed in the U.S. District Court for the
District of New Jersey. The complaint that we filed in the U.S. District Court for the District of Delaware has been served on
Par and Par has filed an answer asserting defenses and counterclaims for declaratory judgment of patent invalidity and non-
infringement. In April 2016, August 2016 and November 2016, we amended the complaint to also assert infringement of U.S.
Patent Nos. 9,278,101, 9,399,040 and 9,486,406, respectively, which correspondingly issued in March 2016, July 2016 and
November 2016 and were listed in the Orange Book after Par’s Paragraph IV Notice Letter. Par has filed answers to our
amended complaints asserting defenses and counterclaims for declaratory judgment of patent invalidity and non-infringement.
Par has stipulated to infringement of each of the currently asserted patents and the court entered a partial judgment that the
filing of Par’s ANDA constitutes an act of infringement of each of the currently asserted patents, subject to Par’s continued
invalidity defenses and any challenge to enforceability. We have reviewed the invalidity assertions in Par’s Paragraph IV Notice
Letter and defenses and counterclaims and believe they do not have merit, and we intend to defend our patents vigorously in
the litigation against Par. Under the Hatch-Waxman Act, we were permitted to file suit within 45 days from receipt of Par’s
Notice Letter and thereby trigger a 30-month stay of the FDA’s final approval of Par’s ANDA while the lawsuit against Par is
pending. Our lawsuit against Par triggered such a stay, which is expected to remain in effect until late January 2018.
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 is traded on The Nasdaq Global Market under the symbol “OMER.”
The following table sets forth the range of high and low sales prices of our common stock as quoted on The Nasdaq
Global Market for the periods indicated.
Year Ended December 31, 2016
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Year Ended December 31, 2015
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Holders
High
$14.15
$13.71
$16.38
$16.80
High
$16.52
$30.23
$26.64
$27.64
Low
$7.20
$10.36
$9.46
$8.90
Low
$10.69
$10.48
$17.62
$18.51
As of February 28, 2017, there were approximately 123 holders of record of our common stock.
Dividends
We have never declared or paid any cash dividends on our capital stock, and under the CRG Loan Agreement we have
agreed not to pay any cash dividends. We expect to retain all available funds and future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Stock Performance Graph
The following graph compares the cumulative total shareholder return for our common stock (OMER), the Nasdaq
Biotechnology Index (NBI) and the Nasdaq U.S. Benchmark TR Index (NQUSBT) for the period beginning December 31,
2011 and ending December 31, 2016. This graph assumes that $100 was invested on December 31, 2011 in our common stock,
the Nasdaq Biotechnology Index and the Nasdaq U.S. Benchmark TR Index. It also assumes that any dividends were
reinvested. The data shown in the following graph are not necessarily indicative of future stock price performance.
46
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 and
Comprehensive Loss Data:
Revenue
Product Sales
Grant revenue
Total revenue
Costs and expenses:
Cost of product sales
Research and development
Selling, general and administrative
Total costs and expenses
Loss from operations
Litigation settlement
Interest expense
Loss on early extinguishment of debt
Other income (expense), net
Net Loss
Basic and diluted net loss per share
Denominator for basic and diluted net loss per
share
Year Ended December 31,
2016
2015
2014
2013
2012
(In thousands, except per share and share data)
$
41,444
$
13,264
$
— $
— $
173
41,617
1,412
50,699
43,782
95,893
(54,276)
—
(7,819)
(5,595)
945
$
$
(66,745)
(1.65)
$
$
245
13,509
1,041
48,379
35,327
84,747
(71,238)
—
(3,573)
(1,315)
1,030
(75,096)
(2.00)
$
$
539
539
—
47,946
22,601
70,547
(70,008)
—
(3,470)
—
(195)
(73,673)
(2.22)
$
$
1,600
1,600
—
36,297
15,819
52,116
(50,516)
12,500
(2,366)
—
586
(39,796)
(1.39)
$
$
—
6,022
6,022
—
31,922
10,985
42,907
(36,885)
—
(1,729)
—
170
(38,444)
(1.59)
40,446,410
37,560,257
33,234,294
28,560,360
24,155,690
2016
2015
2014
2013
2012
As of December 31,
(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments
Working capital
Restricted cash and investments
Total assets
Notes payable and lease financing obligations,
net
Accumulated deficit
Total shareholders’ deficit
$
45,331
44,191
5,835
67,278
$
$
28,263
20,893
10,679
48,995
6,886
(9,274)
679
10,834
$
14,101
$
2,944
679
16,535
22,350
16,341
679
26,575
79,710
(469,887)
(37,447)
49,842
(403,142)
(26,234)
32,453
(328,046)
(42,654)
20,498
(254,373)
(18,384)
20,103
(214,577)
(6,531)
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 the audited annual consolidated financial
statements and the related notes thereto included 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 beginning 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 our wholly owned subsidiaries.
Overview
We are a biopharmaceutical company committed to discovering, developing and commercializing both small-molecule
and protein therapeutics for large-market as well as orphan indications targeting inflammation, coagulopathies and disorders of
the central nervous system.
Our marketed drug product OMIDRIA launched in the U.S. in the second quarter of 2015 and is used during cataract
surgery or intraocular lens replacement. OMIDRIA is part of our proprietary PharmacoSurgery platform, which is designed to
improve clinical outcomes of patients undergoing ophthalmological, arthroscopic, urological and other surgical procedures. Our
PharmacoSurgery platform is based on low-dose combinations of FDA-approved therapeutic agents delivered directly to the
surgical site throughout the duration of the procedure to inhibit preemptively inflammation and other problems caused by
surgical trauma and to provide clinical benefits both during and after surgery.
Our pipeline includes clinical-stage development programs focused on: complement-associated thrombotic
microangiopathies; complement-mediated glomerulonephropathies; Huntington’s disease and cognitive impairment; and
addictive and compulsive disorders. In addition, we have a diverse group of preclinical programs and two additional platforms:
one capable of unlocking new GPCR drug targets and the other used to generate antibodies. For OMIDRIA and each of our
product candidates and our programs, other than OMS103, we have retained control of all commercial rights.
Financial Summary
We recognized net losses of $66.7 million, $75.1 million, and $73.7 million for the years ended December 31, 2016, 2015
and 2014, respectively. Historically, these losses have been principally from expenses incurred in connection with research and
development activities and beginning in 2014, selling activities associated with our commercial drug product, OMIDRIA.
During the years ended December 31, 2016 and 2015, OMIDRIA revenues of $41.4 million and $13.3 million, respectively,
helped offset a portion of our 2016 and 2015 operating expenses. Our net losses will continue until such time as we derive
sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing and other revenues from our product
candidates, that are sufficient to cover our expenses.
As of December 31, 2016, our accumulated deficit was $469.9 million and total shareholders’ deficit was $37.4 million.
We also had $45.3 million in cash and cash equivalents and short-term investments at December 31, 2016.
Results of Operations
Revenue
Our revenue primarily consists of U.S. product sales of OMIDRIA, as follows:
Product sales, net
Years Ended December 31,
2016
2015
2014
$ 41,444
(In thousands)
$ 13,264
$
—
OMIDRIA was launched commercially in the U.S. in the second quarter of 2015. Product sales, net increased 212% in
2016 compared to 2015. The increase in product sales, net was primarily due to the continued acceptance of OMIDRIA in the
ophthalmic surgery community, an increase in the number of customers and increased penetration into on-going customer
accounts.
49
CMS has granted transitional pass-through reimbursement status for OMIDRIA, which we expect to run until January 1,
2018. Pass-through status allows for separate payment (i.e., outside the bundled payment) under Medicare Part B for new drugs
and other medical technologies. We are seeking to extend pass-through reimbursement status or obtain separate reimbursement
for OMIDRIA through legislative and/or administrative means; however, in the event that we do not obtain an extension of
pass-through reimbursement status or separate reimbursement for OMIDRIA on or before January 1, 2018, we expect that
OMIDRIA will be included as part of the packaged payment and as a result the per unit price we receive for OMIDRIA would
be reduced.
We record OMIDRIA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These
deductions are generally referred to as gross-to-net deductions. As we have launched various programs (see below), our gross-
to-net deductions have increased as a percentage of gross product sales. We anticipate that our gross-to-net deductions will
continue to increase as a percentage of gross product sales in 2017 compared to 2016.
A summary of our gross-to-net provision and payments for the years ended December 31, 2016 and 2015 are as follows:
Balance as of December 31, 2014
Provision related to current period sales
Payments for current period sales
Balance as of December 31, 2015
Provision related to current period sales
Payments for current period sales
Balance as of December 31, 2016
Chargebacks and Rebates
Chargebacks
and Rebates
Distribution
Fees and
Product
Return
Allowances
(In thousands)
$
— $
— $
320
(140)
180
4,203
(2,754)
1,629
$
555
(278)
277
1,434
(1,230)
481
$
$
Total
—
875
(418)
457
5,637
(3,984)
2,110
We have a Pharmaceutical Pricing Agreement and a 340B prime vendor agreement that enables entities who qualify for
government pricing to receive discounts on their qualified purchases of OMIDRIA. These discounts are commonly referred to
as chargebacks and are a significant component of our gross to net deductions. The discount percentage these entities receive
per unit sold have been consistent since our product launch in 2015, but these discounts have grown as a percentage of product
sales because an increasing percentage of our sales are eligible for the discount. We expect future chargeback deductions as a
percentage of product sales to increase based on increased volume of purchases eligible for government-mandated discounts.
In October 2015 we launched the OMIDRIAssure program, which expands patient access to OMIDRIA through, among
other things, our “We Pay the Difference” service. The service discount as a percentage of product sales increased in 2016 as
compared to 2015 due primarily to the October introduction of the OMIDRIAssure program. We expect future deductions
resulting from the OMIDRIAssure program to increase slightly as a percentage of product sales from the 2015 post-
introduction rate.
In November 2016, we launched a purchase volume discount program for which ASCs qualify by meeting or exceeding
quarterly purchase volumes of OMIDRIA. We expect rebate payments provided to ASCs under the purchase volume discount
program to continue to increase as a percentage of product sales as additional ASCs register for the program.
Distribution Fees and Product Return Allowances
We pay our wholesalers a distribution fee for services that they perform for us based on the dollar value of their purchases
of OMIDRIA. We also allow for the return of product up to 12 months past its expiration date or for product that is damaged or
not used by our customers. Distribution fees were virtually unchanged as a percentage of our gross sales in 2016 compared to
2015 while our product returns were reduced in 2016 as a percentage of our gross sales. We expect future distribution fees and
product returns will fluctuate in parallel with product sales.
50
Grant Revenue
Revenues recognized from grants are as follows:
Year Ended December 31,
2016
2015
2014
Small Business Innovative Research Grants (SBIR)
$
173
(In thousands)
245
$
$
539
As of December 31, 2016, we do not have any outstanding grants from which we derive revenue.
Research and Development Expenses
Our research and development expenses can be divided into three categories: direct external expenses, which include
clinical research and development and preclinical research and development activities; internal, overhead and other expenses;
and stock-based compensation expense.
Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing
organizations, CROs, clinical trial sites, collaborators, licensors and consultants and lab supplies. Costs are reported in
preclinical research and development until the program enters the clinic. Internal, overhead and other expenses consist of
personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs. We do not generally
allocate our internal resources, employees and infrastructure to any individual research project because we deploy them across
multiple clinical and preclinical projects that we are advancing in parallel.
The following table illustrates our expenses associated with these activities:
Direct external expenses:
Clinical research and development:
MASP-2 Program - OMS721
OMIDRIA - Ophthalmology
PDE10 Program - OMS824
Other clinical programs
Total clinical research and development
Preclinical research and development
Total direct external expenses
Internal, overhead and other expenses
Stock-based compensation expense
Total research and development expenses
Years Ended December 31,
2016
2015
2014
(In thousands)
$
17,241
$
15,852
$
3,864
221
279
21,605
1,731
23,336
21,059
6,304
4,396
1,508
37
21,793
1,383
23,176
20,226
4,977
8,064
5,294
10,974
144
24,476
2,252
26,728
16,464
4,754
$
50,699
$
48,379
$
47,946
Direct external clinical research and development expense stayed consistent during the year ended December 31, 2016
compared to 2015. During the year ended December 31, 2016, we incurred increased clinical trial costs for our MASP-2
program as we advanced our Phase 2 trials and initiated technical transfer to a new manufacturing facility capable of providing
commercial product. This increase was partially offset by reduced costs for our PDE10 program and lower OMIDRIA clinical
trial costs due to completing in 2016 our FDA-required pediatric post-marketing trial and to reduced manufacturing costs.
The decrease in direct external clinical research and development expenses during the year ended December 31, 2015
compared to 2014 was due primarily to reduced costs for our PDE10 program in connection with its 2014 clinical suspension
and lower OMIDRIA clinical trial costs after our U.S. approval in May 2014. This decrease was partially offset by increased
clinical trial costs for our MASP-2 program as we advanced our Phase 2 trials in TMAs, including aHUS, and the cost of
MASP-2 clinical trial material.
Internal, overhead and other expenses increased slightly during the year ended December 31, 2016 compared to 2015
primarily due to increased headcount related costs. Internal, overhead and other expenses also increased during year ended
December 31, 2015 compared to 2014 due primarily to increased headcount related costs.
51
The increase in stock-based compensation during the year ended December 31, 2016 compared to 2015 was primarily
due to stock option grants in February 2016 and in December 2016 relating to annual reviews of 2014 and 2015 employee
performance, respectively. Two cycles of awards were granted during 2016 because no 2014annual option grants were made to
employees in 2015.
At this time, we are unable to estimate with any certainty the costs we will incur in the continued development of our
product candidates due to the inherently unpredictable nature of our preclinical and clinical development activities and to the
early stage of many of our preclinical development programs. Clinical development timelines, the probability of success and
development costs can differ materially as new data becomes available and as expectations change. While we are currently
focused on advancing our product development programs, our future research and development expenses will depend on the
preclinical or clinical success of each product candidate, the outcome of our ongoing assessments of each program’s
commercial potential, the commercial success of OMIDRIA, the results of future collaborations, if any, and our overall capital
resources. We also cannot forecast with any degree of certainty which product candidates, if any, may be subject to future
collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our
development plans and capital requirements.
We are required to expend substantial resources in the development of our product candidates due to the lengthy process
of completing clinical trials and seeking regulatory approval. Any failure or delay in completing clinical trials, or in obtaining
regulatory approvals, could cause a delay in our generation of revenue from new products, could increase our research and
development expenses and, in turn, could have a material adverse effect on our operations, financial condition and liquidity.
Because of the factors above, we are not able to estimate with any certainty when or if we would recognize any net cash
inflows from our research and development projects.
Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses are comprised primarily of salaries, benefits, stock-
compensation costs for sales, marketing, and other personnel not directly engaged in research and development, marketing and
selling expenses, professional and legal services, general corporate costs and an allocation of our occupancy costs. In 2015
SG&A also included service fees incurred for our dedicated contract sales force, the majority of which we brought in-house in
January 2016.
Selling, general and administrative expenses, excluding stock-based compensation
expense
Stock-based compensation expense
Total selling, general and administrative expenses
Years Ended December 31,
2016
2015
2014
(In thousands)
$
$
36,504
7,278
43,782
$
$
30,723
4,604
35,327
$
$
18,437
4,164
22,601
The increase in selling, general and administrative expenses during the year ended December 31, 2016 compared to 2015
was primarily due to increased legal costs associated with pursuing our patent infringement claims related to Par’s effort to
obtain FDA approval for a generic version of OMIDRIA, and increased stock compensation expense.
The increase in stock-based compensation during the year ended December 31, 2016 compared to the same period of
2015 was primarily due to stock option grants in February 2016 and in December 2016 relating to annual reviews of employee
performance in 2014 and 2015, respectively. Two cycles of awards were granted during 2016 because no 2014 performance-
related annual stock options grants were made to employees in 2015.
The increase in selling, general and administrative expenses during the year ended December 31, 2015 compared to the
same period of 2014 was primarily due to increased sales and marketing costs incurred in connection with our then third-party
contracted OMIDRIA sales force; marketing materials, events and conferences; and administrative and legal costs to support
the U.S. market launch of OMIDRIA in April 2015.
We expect our selling, general and administrative expenses for 2017 to increase slightly from 2016 primarily due to
increased legal costs in connection with pursuing our patent infringement claims related to Par’s efforts to obtain FDA approval
for a generic version of OMIDRIA and administration service fees related to the OMIDRIAssure program.
52
Interest Expense
Interest Expense
Years Ended December 31,
2016
2015
2014
$
7,819
(In thousands)
3,573
$
$
3,470
Interest expense was $7.8 million and $3.6 million for the years ended December 31, 2016 and 2015, respectively. The
increase in interest expense was due to incremental borrowings of $25.2 million in December 2015, $20.0 million in May 2016
and $10.0 million in November 2016. The effective interest rate on our notes payable remained relatively constant throughout
the period.
Interest expense was $3.6 million and $3.5 million for the years ended December 31, 2015 and 2014, respectively.
Interest expense remained steady in 2015 compared to 2014 due to similar average balances outstanding and the same effective
interest rate on our notes payable during 2015 and 2014.
Loss on Early Extinguishment of Debt
In November 2016, we entered into the CRG Loan Agreement with CRG Servicing LLC and repaid our previously
outstanding loan. We incurred a loss of $5.6 million associated with the unamortized loan maturity fee and the prepayment fee
related to our previously outstanding loan (see Note 7 to our Consolidated Financial Statements in this Annual Report on Form
10-K).
In December 2015, we entered into a Loan and Security Agreement with Oxford and East West Bank, or the Oxford/
EWB Loan Agreement (see Note 7 to our Consolidated Financial Statements in this Annual Report on Form 10-K). We incurred
a loss of $1.3 million associated with the unamortized loan maturity fee and the prepayment related to our previously
outstanding loan.
Other Income (Expense), Net
Other Income (Expense), Net
Years Ended December 31,
2016
2015
2014
$
945
(In thousands)
1,030
$
$
(195)
Other income (expense), net principally includes sublease rental income and has remained consistent during the year
ended December 31, 2016 compared to 2015. The increase in other income (expense), net during the year ended December 31,
2015 compared to 2014 is due to incremental sublease income earned in 2015 and an $863,000 warrant modification expense
incurred in 2014 (see Note 9 to our Consolidated Financial Statements in this Annual Report on Form 10-K).
Financial Condition - Liquidity and Capital Resources
We have historically generated net losses and incurred negative cash flows. For the years ended December 31, 2016,
2015, and 2014 we incurred net losses of $66.7 million, $75.1 million and $73.7 million, respectively, and also incurred
negative cash flows from operations of $51.5 million, $65.2 million and $58.0 million in 2016, 2015 and 2014, respectively.
Future Funding Requirements
We have a history of net losses and net cash outflows from operating activities. In addition, during 2017 we expect to
incur, at a minimum, $6.8 million in debt service costs related to our existing notes payable. As of December 31, 2016, we had
$45.3 million in cash, cash equivalents and short-term investments available to fund operations and debt service costs and our
working capital totaled $44.2 million. We expect to continue to incur negative cash flows until such time as OMIDRIA product
sales or other sources of revenue generate sufficient cash inflows to finance our operations and debt service. We are focused on
securing continued separate reimbursement (or equivalent reimbursement treatment) for OMIDRIA (beyond the January 1,
2018 pass-through expiration date), on establishing corporate partnerships and on establishing collaboration and licensing
revenue agreements. Until we are cash-flow positive, if at all, we will need to continue to raise funds through the issuance of
public or private equity securities, including selling common stock through our ATM Agreement with JonesTrading (see Note 9
to our Consolidated Financial Statements in this Annual Report on Form 10-K) or additional borrowings including the $45.0
million contingently available under the CRG Loan Agreement (see Note 7 to our Consolidated Financial Statements in this
Annual Report on Form 10-K). However, none of these sources of working capital are currently assured and, consequently, do
53
not mitigate sufficiently the risks and uncertainties disclosed above. We have therefore concluded there is substantial doubt
about our ability to continue as a going concern through March 16, 2018 (see Note 1 to our Consolidated Financial Statements
in this Annual Report on Form 10-K). If we are unable to raise additional capital when needed through one or more of the
avenues previously listed, or upon acceptable terms, such failure would have a significant negative impact on our financial
condition. Should it be necessary to manage our operating expenses, we would reduce our projected cash requirements through
reduction of our expenses by delaying clinical trials, reducing selected research and development efforts, or implementing other
restructuring activities.
Cash Flow Data
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Years ended December 31,
2016
2015
2014
(In thousands)
$
(51,504)
(16,335)
68,698
$
(65,209)
(20,606)
86,826
$
(58,044)
6,157
50,857
Operating Activities. Net cash used in operating activities decreased for the year ended December 31, 2016 by $13.7
million as compared to the same period in 2015. The reduction in cash used in operating activities in 2016 largely resulted from
the $8.4 million decline in our net loss from 2015, due primarily to an increase in OMIDRIA product sales, net of $28.2
million, which was partially offset by a $10.8 million increase in operating expenses. In addition, in 2016 we incurred $16.1
million of non-cash charges as compared to $11.0 million in 2015, which further reduced our cash used in operating activities.
The improvement in our net cash used in operations was partially offset by a decrease in cash provided from accounts payable
and accrued expenses of $4.5 million.
Net cash used in operating activities increased for the year ended December 31, 2015 by $7.2 million as compared to the
same period in 2014. Our 2015 net loss increased by $1.4 million from 2014 due primarily to the OMIDRIA product sales, net
of $13.3 million being offset by a $12.7 million increase in selling, general and administrative expenses associated with the
U.S. launch of OMIDRIA. In addition we incurred a $6.1 million increase in receivables related to OMIDRIA sales, which
generally have 30 to 90 day terms, increasing our cash used in operating activities.
Investing Activities. Cash flows from investing activities primarily reflect cash used to purchase short-term investments
and proceeds from the sale and maturity of short-term investments, thus causing a shift between our cash and cash equivalents
and short-term investment balances. Because we manage our cash usage with respect to our total cash, cash equivalents and
short-term investments, we do not consider the fluctuations between cash, cash equivalents and our short-term investment
balances to be important to the understanding of our liquidity and capital resources. The remaining component of cash flows
from investing activities is the purchase of property and equipment.
Net cash used in investing activities in the year ended December 31, 2016 was $16.3 million, a decrease of $4.3 million
from 2015, primarily due to the purchase of short-term investments for $74.0 million with the $38.0 million of net proceeds
received from the sale of common stock in our public offering in August 2016 and the sale of common stock under our ATM
Agreement, and $3.0 million in net proceeds from the CRG Loan Agreement. These purchases were partially offset by the sale
and maturity of $57.8 million of short-term investments to provide cash for operating activities.
Net cash used in investing activities in the year ended December 31, 2015 was $20.6 million, an increase of $26.8 million
from 2014, primarily due to the purchase of short-term investments with the $79.1 million of net proceeds received from the
sale of common stock and pre-funded warrants in our public offering in February 2015 and $22.3 million in net proceeds from
the Oxford/EWB loan. These purchases were partially offset by the sale of $71.4 million of short-term investments.
Financing Activities. Net cash provided by financing activities in the year ended December 31, 2016 was $68.7 million, a
decrease of $18.1 million over the same period in 2015 primarily due to our reduced use of equity financings. In 2016, we
received $38.0 million of net proceeds from the sale of 3.5 million shares of common stock in our public offering in August
together with shares sold under our ATM agreement compared to $79.1 million of net proceeds from an equity offering in 2015.
In addition, we received $22.8 million in net additional borrowings under the Oxford/EWB Loan Agreement and the CRG
Loan Agreement. During the 2016 period, we also received $3.2 million from the exercise of employee stock options and
warrants.
54
Net cash provided by financing activities in the year ended December 31, 2015 was $86.8 million, an increase of $36.0
million over the same period in 2014 primarily due to the $79.1 million of net proceeds received from the sale of 3.4 million
shares of common stock and pre-funded warrants to purchase 749,250 shares of common stock in our public offering in
February 2015 as compared to $37.8 million in 2014. In addition we also received net additional borrowings of $22.3 million
under the Oxford/EWB Loan Agreement in 2015. During the 2015 period, we also received $2.9 million upon the exercise of
employee stock options and warrants. These additions were offset by $7.4 million in principal payments under the Loan and
Security Agreement, or the Oxford/MidCap Loan Agreement, with Oxford and MidCap Financial SBIC, LP, or MidCap, prior
to entering into the Oxford/EWB Loan Agreement.
Loan and Security Agreement
In October, 2016, we entered into the CRG Loan Agreement, which is interest-only through December 31, 2020 and,
subject to the achievement of certain milestones, potentially through the maturity date of September 30, 2022. We initially
borrowed $80.0 million and may borrow up to an additional $45.0 million in two tranches of $25.0 million and $20.0 million,
respectively, contingent upon achievement of certain conditions. To borrow the $25.0 million under the first tranche, we must
achieve OMIDRIA net product sales of at least $18.0 million during any consecutive three month period or an average market
capitalization of at least $700.0 million for any consecutive three month period, in each case ending on or prior to June 30,
2017, and the borrowing must occur on or prior to September 19, 2017. To borrow the $20.0 million under the second tranche,
we must achieve OMIDRIA net product sales of at least $25.0 million during any consecutive three month period or an average
market capitalization of at least $1.0 billion for any consecutive three month period, in each case ending on or prior to
December 31, 2017, and the borrowing must occur on or prior to March 21, 2018.
The CRG Loan Agreement accrues interest at an annual rate of 12.25% (4.0% of which can be deferred at our option
during the interest-only period by adding such amount to the aggregate principal amount) and is interest only for a minimum of
four years and, subject to the achievement of certain milestones, potentially through the maturity date. If an OMIDRIA net
revenue milestone is satisfied during the 12-month period ending on December 31, 2019, the interest rate may be reduced to
11.50%, 3.5% of which may be deferred at our option and added to the principal amount outstanding. In addition, if either the
OMIDRIA net revenue milestone is satisfied during such period or a market capitalization milestone is achieved during the
fourth quarter of 2020, the loan would convert to interest-only until the September 30, 2022 maturity. The CRG Loan
Agreement requires us to maintain cash and cash equivalents of $5.0 million during the term of the agreement, which is
recorded as restricted cash and investments in our Consolidated Balance Sheet.
We are also required to pay the Lenders a facility fee equal to 5.0% of the aggregate principal amount borrowed
(including principal additions related to deferred interest) on repayment of the CRG Loan Agreement.
We may prepay all or a portion of the outstanding principal under the CRG Loan Agreement at any time upon prior notice
subject to a prepayment fee through September 30, 2019, with no prepayment fee thereafter. In certain circumstances, including
a change of control and certain asset sales or licensing transactions, we are required to prepay all or a portion of the loan,
including the applicable prepayment premium on the amount of the outstanding principal to be prepaid.
The CRG Loan Agreement also requires us to achieve either (a) certain minimum net revenue amounts through the end of
2021, which are $35.0 million, $55.0 million and $65.0 million for the 2016, 2017 and 2018 calendar years, respectively, or (b)
a minimum market capitalization threshold equal to the product of 6.4 multiplied by the aggregate principal amount of loans
outstanding under the CRG Loan Agreement determined as of the fifth business day following announcement of earnings
results for the applicable year. If we are unable to satisfy the minimum annual revenue requirement or the market capitalization
threshold for any given year, we may avoid a related default by repaying the shortfall between actual revenues and the
minimum revenue requirement for such year using proceeds generated by an equity or subordinated debt issuance. Our 2016
net revenues were $41.4 million and as a result we exceeded the minimum revenue requirement for 2016.
As of December 31, 2016, we were not in default under the CRG Loan Agreement.
At Market Issuance Sales Agreement
In January 2016, we entered into the ATM Agreement with JonesTrading. Pursuant to the ATM Agreement, we may direct
JonesTrading to sell shares of our common stock with an aggregate offering price of up to $50 million directly on The Nasdaq
Global Market, through or to a market maker other than on an exchange or in negotiated transactions. Any sales made under the
ATM Agreement are based solely on our instructions and JonesTrading will receive a 1.7% commission from the gross
proceeds. The ATM Agreement may be terminated by either party at any time upon 10 days’ notice to the other party, or by
JonesTrading at any time in certain circumstances including the occurrence of a material adverse effect to Omeros.
55
Contractual Obligations and Commitments
The following table presents a summary of our contractual obligations and commitments as of December 31, 2016.
1 Year
2-3 Years
4-5 Years
More than
5 Years
Total
Payments Due Within
Operating leases
$
4,474
$
9,176
Capital leases (principal and interest)
Notes payable (principal and interest) *
Goods & Services
Total
217
6,838
2,195
314
14,532
—
(In thousands)
9,241
$
38
71,032
—
$
28,714
$
51,605
—
43,058
—
569
135,460
2,195
$
13,724
$
24,022
$
80,311
$
71,772
$
189,829
*Assumes full deferral of interest at our option (Refer to “Liquidity-Loan and Security Agreement” above)
Operating Leases
We lease our office and laboratory space in The Omeros Building under a lease agreement with BMR - 201 Elliott
Avenue LLC. The initial term of the lease ends in November 2027 and we have two options to extend the lease term, each by
five years. As of December 31, 2016, the remaining aggregate non-cancelable rent payable under the initial term of the lease,
excluding common area maintenance and related operating expenses, is $50.5 million.
We rent office and laboratory equipment and vehicles used by our sales force under various operating lease agreements
with initial terms of five years or less. The vehicle leases can be terminated at our option, at any time, provided we compensate
the lessor for differences in the book value and the fair value of each vehicle at such time. As of December 31, 2016, assuming
vehicles are leased to term, the remaining aggregate rent payable under our leases is $1.1 million.
Notes Payable
Refer to “Liquidity-Loan and Security Agreement” above.
Goods & Services
We have a non-exclusive agreement with Hospira for the commercial supply of OMIDRIA and Hospira has produced
product validation batches of OMIDRIA, which are currently undergoing testing prior to seeking FDA approval of the Hospira
manufacturing facility. We anticipate that Hospira will be able to provide OMIDRIA commercial product to us beginning in
mid-2017 and that our existing commercial supply of OMIDRIA inventory will be adequate to supply our needs until Hospira
is able to supply our OMIDRIA commercial product needs. We may also be required, in connection with in-licensing or asset
acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the
related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur.
Therefore, such payments are not included in the table above. See Note 8 to our Consolidated Financial Statements in this
Annual Report on Form 10-K for a description of the agreements that include these royalty and milestone payment obligations.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our consolidated financial statements, in conformity with U.S. generally accepted accounting
principles, or GAAP, 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 manufacturing of drug product and
clinical drug supply; and
56
•
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 revenues are comprised primarily of product sales of OMIDRIA. Revenue is recognized when there is persuasive
evidence that an arrangement exists, product title and risk of loss is passed or the service has been provided, the price is fixed
or determinable and collection is reasonably assured. We record OMIDRIA product revenue upon delivery to our wholesalers.
Product sales to a wholesaler are not recorded if we determine that the wholesaler’s on-hand OMIDRIA inventory, based on
sell-through and inventory information we regularly receive from our wholesalers, exceeds approximately eight weeks of
projected demand.
Product sales are recorded net of estimated chargebacks, wholesaler distribution fees, estimated product returns and
rebates. Accruals, which require a substantial degree of judgment, are established for these deductions when revenue is
recognized and actual amounts incurred are offset against the applicable accruals. If actual results vary from our estimates, we
adjust our accruals which could have an effect on our results of operations in the period of the adjustment. We reflect each of
these accruals as either a reduction in the related account receivable or as an accrued liability, depending on how the accrual is
settled.
Chargebacks: Provisions for chargebacks are determined utilizing historical and projected payer mix and sale-through
and inventory on-hand information received directly from wholesalers. Chargebacks are generally settled within four weeks of
recording product sales revenue.
We provide reimbursement support services and financial assistance in the form of a rebate to patients whose commercial
insurance is inadequate to cover the full cost of OMIDRIA. We apply an experience ratio to product sales to determine the
rebate accrual. This experience ratio is reviewed and updated periodically to reflect actual results.
We provide rebate payments for which ASCs qualify by meeting or exceeding purchase volumes of OMIDRIA under our
purchase volume discount program. Rebate accruals and payments are determined based on contractual volume achievement.
Distribution Fees and Product Return Allowances: We pay our wholesalers a distribution fee for services that they
perform for us based on the WAC value of their purchases of OMIDRIA. We record a provision against product sales for these
charges at the time of sale to the wholesaler.
We allow for the return of product up to 12 months past its expiration date or for product that is damaged. In estimating
product returns, we take into consideration our return experience to date, the remaining shelf life of product we have previously
sold, inventory in the wholesale channel and our expectation that product is typically not held by the healthcare providers based
on the frequency of their reorders.
In late 2016, we launched a purchase volume discount program for which ASCs qualify by meeting or exceeding
purchase volumes of OMIDRIA. We calculate rebate payments amounts due under this program based on actual qualifying
purchase volumes and apply a contractual discount rate. For purchases of OMIDRIA not yet reported as sold-through to the
ASC by our wholesalers, we apply an experience ratio to product sales to determine the rebated accrual. This experience ratio
will be reviewed and updated periodically to reflect actual results.
Research and Development Expenses
Research and development costs are comprised primarily of costs for personnel, including salaries, benefits and stock
compensation; an allocation of our occupancy costs; clinical study costs; contracted research; manufacturing; consulting
arrangements; depreciation; materials and supplies; milestones; and other expenses incurred to sustain our overall research and
development programs. 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. Research and
development costs are expensed as incurred.
Advanced payments for goods or services that will be used or rendered for future research and development activities are
deferred and then recognized as an expense as the related goods are delivered or as the services are performed, or when the
goods or services are no longer expected to be provided.
Selling, General and Administrative
SG&A expenses are comprised primarily of salaries, service fees incurred for our sales force, benefits, and stock-
compensation costs for sales, marketing, and other personnel not directly engaged in research and development. Additionally,
57
SG&A includes marketing and selling expenses, professional and legal services; patent costs; depreciation, an allocation of our
occupancy costs; and other general corporate expenses.
Stock-Based Compensation
Stock-based compensation expense is recognized for all share-based payments made to employees, directors and non-
employees based on estimated fair values. The fair value of our stock options is calculated using the Black-Scholes option
valuation model, which requires assumptions, including volatility, forfeiture rates 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 from that recorded for existing awards and stock-based compensation for non-employees will vary as the
awards are re-measured over the vesting term.
As stock-based compensation expense is based on options ultimately expected to vest, the expense has been reduced for
estimated forfeitures. We estimate forfeitures for expense recognition based on our historical experience. Groups of employees
that have similar historical forfeiture behavior are considered separately. We use the straight-line method to allocate
compensation cost to reporting periods over each optionee’s respective requisite service period for employees and directors,
which is generally the vesting period.
Stock options granted to non-employees are accounted for using the fair-value approach 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
Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board, or FASB, issued ASU No. 2014-15 related to disclosure of an
entity’s ability to continue as a going concern. This standard requires management to evaluate whether substantial doubt exists
regarding the entity’s ability to continue as a going concern at each reporting period for a duration of one year after the date the
financial statements are issued or available to be issued. The standard establishes certain required disclosures if substantial
doubt exists. On December 31, 2016, we adopted ASU 2014-15 on a prospective basis. We concluded there is a substantial
doubt about the company’s ability to continue as a going concern (see “Going Concern” in Note 1 to our Consolidated
Financial Statements in this Annual Report on Form 10-K for further discussion).
For the year ended December 31, 2016, we early adopted and applied retrospectively FASB Accounting Standards
Update, or ASU, No. 2016-15, related to clarifying the classification of certain cash receipts and cash payments on the
statement of cash flows. The new guidance requires, among other things, cash payments for debt prepayment or debt
extinguishment costs to be classified as cash outflows for financing activities. The adoption of this standard resulted in the
reclassification of $2.7 million of cash payments for debt prepayment costs and debt extinguishment costs within the financing
activities section of our Consolidated Statements of Cash Flows for the year ended December 31, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued amended guidance related to revenue from contracts with customers. The amended
guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance, the FASB
has issued five ASUs amending the guidance and effective date, and the SEC has rescinded certain related SEC guidance; the
most recent of which was issued in December 2016. The effective date of the guidance requires us to adopt the standard at the
beginning of our first quarter of fiscal 2018 with earlier application permitted. The new guidance requires either a modified
retrospective method or a full retrospective method of transition. We currently anticipate adoption of the guidance at the
beginning of our first quarter of fiscal 2018 under the modified retrospective method. While we have not yet completed our
final review of the impact of this guidance, we currently do not anticipate a material impact on our revenue recognition
practices. We continue to review variable consideration, potential disclosures, and our method of adoption to complete our
evaluation of the impact on our consolidated financial statements. In addition, we continue to monitor additional changes,
modifications, clarifications or interpretations undertaken by the FASB, which may impact our current conclusions.
In February 2016, the FASB issued ASU 2016-02 related to lease accounting. This standard requires lessees to recognize
a right-of-use asset and a lease liability for most leases. This standard must be applied using a modified retrospective transition
method and is effective for all annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. We
are evaluating how this new standard will impact the presentation of our financial statements and related disclosures.
In March 2016, the FASB issued Accounting Standards Update ASU No. 2016-09 related to stock compensation, which
simplifies several aspects of the accounting for share-based payment transactions. The new guidance requires companies to
58
record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of operations when the awards
vest or are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from operating
activities to financing activities on the statement of cash flows. We will adopt the standard in the three months ended March 31,
2017. Upon adoption, we will recognize the previously unrecognized excess tax benefits through a cumulative-effect
adjustment to accumulated deficit. The previously unrecognized excess tax effects will be recorded as a deferred tax asset,
which will be fully offset by a valuation allowance.
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 our investment securities and notes payable. The primary objective
of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our
investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-
quality securities. As of December 31, 2016, we had cash, cash equivalents and short-term investments of $45.3 million. In
accordance with our investment policy, we invest funds in highly liquid, investment-grade securities. 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 market 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 officer and principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of December 31, 2016. 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, 2016, our principal executive and principal financial officers 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 officers, conducted an
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this
59
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013 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, 2016.
Ernst & Young LLP has independently assessed the effectiveness of our internal control over financial reporting as of
December 31, 2016 and its report is included below.
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 2016 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2016, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (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, 2016, 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 as of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive loss, shareholders’ deficit, and cash flows for each of the three years in the period
ended December 31, 2016 of Omeros Corporation and our report dated March 16, 2017 expressed an unqualified opinion
thereon that included an explanatory paragraph regarding Omeros Corporation’s ability to continue as a going concern.
/s/ Ernst & Young LLP
Seattle, Washington
March 16, 2017
60
ITEM 9B. OTHER INFORMATION
None.
61
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
2017 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
2017 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 2017 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,
2016:
Equity compensation plans approved by security holders:
2008 Equity Incentive Plan (1)
Amended and Restated 1998 Stock Option Plan
nura inc.
Total
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
9,628,517
$
180,788
69
9,809,374
$
9.79
2.40
10.63
9.66
524,145
—
—
524,145
(1) Our 2008 Equity Incentive Plan (the 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 (the 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. In addition, our 2008 Plan provides for annual increases in the
number of shares available for issuance thereunder on the first day of each year equal to the lower of: (i) five percent of the
outstanding shares of our common stock on the last day of the preceding year; (ii) 1,785,714 shares; and (iii) such other
amount as our board of directors may determine. On January 1, 2017, an additional 1,785,714 shares became available for
future issuance under our 2008 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
2017 Annual Meeting of Shareholders and is incorporated herein by reference.
62
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
2017 Annual Meeting of Shareholders and is incorporated herein by reference.
63
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
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.
64
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
OMEROS CORPORATION
/s/ GREGORY A. DEMOPULOS, M.D.
Gregory A. Demopulos, M.D.
President, Chief Executive Officer
and Chairman of the Board of Directors
Dated: March 16, 2017
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.
President, Chief Executive Officer and Chairman of the
Board of Directors (Principal Executive Officer)
March 16, 2017
/s/ MICHAEL A. JACOBSEN
Michael A. Jacobsen
/s/ RAY ASPIRI
Ray Aspiri
/s/ THOMAS J. CABLE
Thomas J. Cable
Vice President, Finance, Chief Accounting Officer and
Treasurer (Principal Financial Officer and Principal
Accounting Officer)
March 16, 2017
Director
Director
March 16, 2017
March 16, 2017
/s/ PETER A. DEMOPULOS, M.D.
Director
March 16, 2017
Peter A. Demopulos, M.D.
/s/ ARNOLD C. HANISH
Arnold C. Hanish
Director
March 16, 2017
/s/ LEROY E. HOOD, M.D., PH.D.
Director
March 16, 2017
Leroy E. Hood, M.D., Ph.D.
/s/ RAJIV SHAH, M.D.
Rajiv Shah, M.D.
Director
March 16, 2017
65
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OMEROS CORPORATION
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO 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
Omeros Corporation
We have audited the accompanying consolidated balance sheets of Omeros Corporation as of December 31, 2016 and
2015, and the related consolidated statements of operations and comprehensive loss, shareholders’ deficit and cash flows for
each of the three years in the period ended December 31, 2016. 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 also 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, 2016 and 2015, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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, 2016, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated March 16, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
March 16, 2017
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
Receivables
Inventory
Prepaid expense
Total current assets
Property and equipment, net
Restricted cash and investments
Other assets
Total assets
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable
Accrued expenses
Current portion of lease financing obligations
Total current liabilities
Notes payable and lease financing obligations, net
Deferred rent
Commitments and contingencies (Note 8)
Shareholders’ deficit:
Preferred stock, par value $0.01 per share, 20,000,000 authorized and none issued at
December 31, 2016 and 2015.
Common Stock, par value $0.01 per share, 150,000,000 shares authorized at December 31,
2016 and 2015; 43,819,133 and 38,040,891 issued and outstanding at December 31, 2016
and December 31, 2015, respectively.
Additional paid-in capital
Accumulated deficit
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
See notes to consolidated financial statements
F-3
December 31,
2016
2015
$
2,224
$
43,107
12,037
1,128
1,766
60,262
1,181
5,835
—
1,365
26,898
6,517
472
1,894
37,146
951
10,679
219
$
67,278
$
48,995
$
2,519
$
13,354
198
16,071
79,512
9,142
—
438
6,428
9,752
73
16,253
49,769
9,207
—
380
432,002
(469,887)
(37,447)
67,278
$
376,528
(403,142)
(26,234)
48,995
$
OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Revenues:
Product sales, net
Grant revenue
Total revenue
Costs and expenses:
Cost of product sales
Research and development
Selling, general and administrative
Total costs and expenses
Loss from operations
Interest expense
Loss on early extinguishment of debt
Other income (expense), net
Net loss
Comprehensive loss
Basic and diluted net loss per share
Year Ended December 31,
2015
2014
2016
$
41,444
$
13,264
$
173
41,617
245
13,509
—
539
539
1,412
50,699
43,782
95,893
1,041
48,379
35,327
84,747
(54,276)
(71,238)
(7,819)
(5,595)
945
(66,745)
(66,745)
(1.65)
$
$
$
(3,573)
(1,315)
1,030
(75,096)
(75,096)
(2.00)
$
$
$
$
$
$
—
47,946
22,601
70,547
(70,008)
(3,470)
—
(195)
(73,673)
(73,673)
(2.22)
Weighted-average shares used to compute basic and diluted net loss per share
40,446,410
37,560,257
33,234,294
See notes to consolidated financial statements
F-4
OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(In thousands, except share data)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Shareholders’
Deficit
Balance at December 31, 2013
30,359,508
$
304
$
235,685
$ (254,373)
$
(18,384)
Issuance of common stock, net of offering
costs
3,500,000
Issuance of common stock upon exercise
of warrants
Issuance of common stock upon exercise
of stock options
Stock-based compensation
Warrant modification
Net loss
28,653
297,303
—
—
—
35
—
3
—
—
—
37,719
68
1,797
8,918
863
—
—
—
—
—
—
(73,673)
37,754
68
1,800
8,918
863
(73,673)
Balance at December 31, 2014
34,185,464
342
285,050
(328,046)
(42,654)
Issuance of common stock and pre-funded
warrants, net of offering costs
Issuance of common stock upon exercise
of warrants
Issuance of common stock upon exercise
of stock options
Stock-based compensation
Net loss
3,444,831
133,240
277,356
—
—
34
1
3
—
—
79,042
1,435
1,420
9,581
—
—
—
—
—
(75,096)
79,076
1,436
1,423
9,581
(75,096)
Balance at December 31, 2015
38,040,891
380
376,528
(403,142)
(26,234)
Issuance of common stock in direct
offering, net of offering costs
Issuance of common stock upon exercise
of stock options
Issuance of common stock upon exercise
of warrants
Issuance of common stock under the ATM
Agreement, net of offering costs
Stock-based compensation
Warrants issued in connection with
amendment to notes payable
Net loss
3,478,260
1,486,167
749,250
64,565
—
—
—
35
15
7
1
—
—
—
37,279
3,131
—
724
13,582
758
—
—
—
—
—
—
37,314
3,146
7
725
13,582
—
(66,745)
758
(66,745)
Balance at December 31, 2016
43,819,133
$
438
$
432,002
$ (469,887)
$
(37,447)
See notes to consolidated financial statements
F-5
OMEROS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on early extinguishment of debt
Depreciation and amortization
Stock-based compensation expense
Non-cash interest expense
Conversion of accrued interest to notes payable
Warrant modification expense
Changes in operating assets and liabilities:
Receivables
Inventory
Prepaid expenses and assets
Accounts payable and accrued expenses
Deferred rent
Net cash used in operating activities
Investing activities:
Purchases and sales of property and equipment, net
Purchases of investments
Proceeds from the sale and maturities of investments
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from issuance of common stock and pre-funded warrants, net
Proceeds from borrowings under notes payable
Repayments on notes payable and lease financing obligations
Payments for debt prepayment and extinguishment costs
Payments for debt issuance costs
Decrease (increase) in restricted investments
Proceeds upon exercise of stock options and warrants
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information
Cash paid for interest
Issuance of warrants in connection with amendment to notes payable
Property acquired under capital lease
Year Ended December 31,
2016
2015
2014
$
(66,745)
$
(75,096)
$
(73,673)
5,595
300
13,582
1,461
516
—
(5,520)
(656)
347
(319)
(65)
(51,504)
(126)
(73,966)
57,757
(16,335)
38,039
100,000
(70,137)
(5,700)
(1,501)
4,844
3,153
68,698
859
1,365
2,224
5,293
758
404
$
$
$
$
1,315
209
9,581
1,045
—
—
(6,125)
96
(586)
4,195
157
(65,209)
(240)
(91,766)
71,400
(20,606)
79,076
50,000
(32,000)
(2,673)
(436)
(10,000)
2,859
86,826
1,011
354
1,365
4,236
$
$
— $
137
$
—
317
8,918
738
—
863
(13)
(568)
(987)
5,459
902
(58,044)
(28)
(58,849)
65,034
6,157
37,754
32,000
(20,000)
(521)
(244)
—
1,868
50,857
(1,030)
1,384
354
2,674
—
200
$
$
$
$
See notes to consolidated financial statements
F-6
OMEROS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Organization and Basis of Presentation
Organization
We are a biopharmaceutical company committed to discovering, developing and commercializing both small-molecule
and protein therapeutics for large-market as well as orphan indications targeting inflammation, coagulopathies and disorders of
the central nervous system. Our first drug product OMIDRIA has been approved by the United States (U.S.) Food and Drug
Administration (FDA) for use during cataract surgery or intraocular lens (IOL) replacement. We launched OMIDRIA in the
U.S. in the second quarter of 2015.
Basis of Presentation
Our consolidated financial statements include the financial position and results of operations of Omeros Corporation
(Omeros) and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(GAAP).
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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to
such estimates include revenue recognition, stock-based compensation expense and accruals for clinical trials, manufacturing
of drug product and clinical drug supply and contingencies. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to prior periods in the consolidated balance sheets, the statements of cash flows
and the accompanying notes to conform with the current presentation. None of these reclassifications impacted our net loss or
working capital as they pertained to the presentation of debt matters including issuance costs, extinguishment losses, early
payments and proceeds.
Going Concern
As of December 31, 2016, we adopted the provisions of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern (ASC 205-40), which
requires management to assess our ability to continue as a going concern for one year after the date the financial statements are
issued. Under ASC 205-40, management has the responsibility to evaluate whether conditions and/or events raise substantial
doubt about our ability to meet our future financial obligations as they become due within one year after the date that the
financial statements are issued. As required by this standard, management’s evaluation shall initially not take into
consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the
financial statements are issued.
In performing the first step of this assessment, we concluded that the following conditions raise substantial doubt about
our ability to meet our financial obligations as they become due. We have a history of net losses ($66.7 million in 2016) and
cash used in operating activities ($51.5 million in 2016). As of December 31, 2016, we had $45.3 million in cash, cash
equivalents and short-term investments available to fund operations and debt service costs. We expect to continue to incur
negative cash flows until such time as OMIDRIA or other sources of revenue generate sufficient cash inflows to finance our
operations and debt service (which will be at least $6.8 million in 2017). In addition, we also considered that pass-through
reimbursement for our commercial product, OMIDRIA, is currently due to expire on January 1, 2018.
In performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions
above alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date
that the financial statements are issued. Our future plans include securing continued separate reimbursement (or equivalent
reimbursement treatment) for OMIDRIA, establishing corporate partnerships, establishing collaboration and licensing revenue
agreements, and issuing public or private equity securities, including selling common stock through our at-the-market facility
F-7
(ATM) with JonesTrading Institutional Services LLC (JonesTrading) (see Note 9 for further detail) or securing additional
borrowings including potentially accessing the $45.0 million that is contingently available under the CRG Loan Agreement (see
Note 7 for further detail). These sources of working capital are not currently assured, and consequently do not sufficiently
mitigate the risks and uncertainties disclosed above. We have therefore concluded there is substantial doubt about our ability to
continue as a going concern through March 16, 2018.
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a
going concern.
Note 2—Significant Accounting Policies
Cash and Cash Equivalents, Short-Term Investments and Restricted Cash and Investments
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, if any, 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 other income (expense), net.
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 based 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 and
investments are held in certificates of deposit and money-market funds.
Inventory
Inventory is stated at the lower of cost or market determined on a specific identification basis in a manner which
approximates the first-in, first-out (FIFO) method. Costs include amounts related to third party manufacturing, transportation
and internal labor and overhead. Capitalization of costs as inventory begins when the product candidate receives regulatory
approval in the U.S. or the European Union (EU), which for OMIDRIA began upon U.S. regulatory approval in May 2014. We
expense inventory costs related to product candidates as research and development expenses prior to receiving regulatory
approval in the respective territory. Inventory is reduced to net realizable value for excess and obsolete inventories based on
forecasted demand.
Receivables
Receivables relate primarily to sales of OMIDRIA to wholesalers and include reductions for estimated chargebacks and
product returns which are expected to be settled through reductions in receivables. Remaining receivables consist of amounts
from subleases for space in The Omeros Building and, as of December 31, 2015, amounts related to grants from the National
Institutes of Health (NIH). Considering the nature and historic collectability of our receivables, we concluded an allowance for
doubtful accounts is not necessary as of December 31, 2016 and 2015.
Property and Equipment, net
Property and equipment are stated at cost and depreciation is calculated using the straight-line method over the estimated
useful life of the assets, which is generally three to 10 years. Equipment financed under capital leases is recorded as property
and equipment and is amortized over the shorter of the useful lives of the related assets or the lease term. Expenditures for
equipment purchased with grant funds are recorded as a reduction to the cost of the applicable equipment. Expenditures for
repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets
The carrying amount of long-lived assets is reviewed whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparing the carrying value
to future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any
impairment will be reflected in the results of operations in the period of impairment. We have not recognized any impairment
losses for the years ending December 31, 2016, 2015 and 2014.
F-8
Deferred Rent
We recognize rent expense on a straight-line basis over the noncancelable term of The Omeros Building operating lease
and, accordingly, record the difference between cash rent payments and the recognition of rent expense as an increase or
decrease in deferred rent liability. We also record landlord-funded lease incentives, such as reimbursable leasehold
improvements, as an increase in deferred rent liability which is amortized as a reduction of rent expense over the noncancelable
terms of The Omeros Building operating lease.
Revenue Recognition
Our revenues are comprised of product sales of OMIDRIA and amounts earned for services under grants from third
parties. Revenue is recognized when there is persuasive evidence that an arrangement exists, product title and risk of loss is
passed to the customer or the service has been provided, the price is fixed or determinable and collection is reasonably assured.
Product Sales, Net
We record revenue from product sales when the product is delivered to our wholesalers. Product sales to a wholesaler are
not recorded if we determine that the wholesaler’s on-hand OMIDRIA inventory, based on sell-through and inventory
information we regularly receive from our wholesalers, exceeds approximately eight weeks of projected demand.
Product sales are recorded net of chargebacks, wholesaler distribution fees, estimated product returns and rebates.
Accruals or allowances are established for these deductions in the same period when revenue is recognized, and actual amounts
incurred are offset against the applicable accruals or allowances. We reflect each of these accruals or allowances as either a
reduction in the related account receivable or as an accrued liability, depending on how the amount is expected to be settled.
Provisions for chargebacks are determined utilizing historical and projected payer mix and sale-through and inventory on-
hand information received directly from wholesalers. Chargebacks are generally settled within four weeks of recording product
sales revenue.
We provide reimbursement support services and financial assistance in the form of reimbursement to certain patients
whose commercial insurance is inadequate to cover the full cost of OMIDRIA. We apply our historical rebate ratio to product
sales to determine the rebate accrual. This ratio is reviewed and updated periodically to reflect actual results.
We provide rebate payments for which ambulatory surgery centers (ASCs) qualify by meeting or exceeding purchase
volumes of OMIDRIA under a purchase volume discount program. Rebate accruals and payments under this program are
determined based on contractual volume achievement.
We allow for the return of product up to 12 months past its expiration date or for product that is damaged. In estimating
product returns, we take into consideration our return experience to date, the remaining shelf life of product we have previously
sold, inventory in the wholesale channel and our expectation that product is typically not held by the healthcare providers based
on the frequency of their reorders.
We pay our wholesalers a distribution fee for services they perform on our behalf based on a contractual rate.
Research and Development
Research and development costs are comprised primarily of costs for personnel, including salaries, benefits and stock
compensation; an allocation of our occupancy costs; clinical study costs; contracted research; manufacturing; consulting
arrangements; depreciation; materials and supplies; milestones; and other expenses incurred to sustain our overall research and
development programs. Research and development costs are expensed as incurred.
Advance payments for goods or services that will be used or rendered for future research and development activities are
deferred and 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.
Patents
We generally apply for patent protection on processes and product candidates we or our licensors conceive or develop.
Patent costs are comprised primarily of external legal fees, filing fees incurred to file patent applications, and periodic renewal
fees to keep the patent in force and are expensed as incurred as a component of general and administrative expense.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses are comprised primarily of salaries, service fees incurred for our
sales force, benefits, and stock-compensation costs for sales, marketing, and other personnel not directly engaged in research
and development. Additionally, SG&A includes marketing and selling expenses, professional and legal services; patent costs;
depreciation, an allocation of our occupancy costs; and other general corporate expenses.
F-9
Advertising
Advertising costs, which we consider to be media and marketing materials, are expensed as incurred. We incurred
$672,000 and $885,000 in advertising expense during the years ended December 31, 2016 and December 31, 2015,
respectively. We had no similar expenses during the year ended December 31, 2014.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be
recovered or settled. We recognize the effect of income tax positions only if those positions are more likely than not of being
sustained upon an examination. A valuation allowance is established when it is more likely than not that the deferred tax assets
will not be realized.
Stock-Based Compensation
Stock-based compensation expense is recognized for all share-based payments made to employees, directors and non-
employees based on estimated fair values. The fair value of our stock options is calculated using the Black-Scholes option-
pricing model which requires judgmental assumptions including volatility, forfeiture rates and expected option life. For
employees and directors, we use the straight-line method to allocate compensation cost to reporting periods over each
optionee’s 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 as earned.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of net loss and certain changes in equity that are excluded from net
loss. There was no difference between comprehensive loss and net loss for the years ended December 31, 2016, 2015 or 2014.
Financial Instruments and Concentrations of Credit Risk
Cash and cash equivalents, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount
or 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, short-term investments and receivables. 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 in high quality securities such as money market
mutual funds, certificates of deposit and commercial paper.
Our notes payable includes features that meet the requirements under existing accounting guidance to be bifurcated from
the respective notes payable agreement and to be recorded at fair value as a derivative asset or liability on the Consolidated
Balance Sheet with the corresponding change in fair value recognized in Other income (expense), net on the Consolidated
Statement of Operations. As of December 31, 2016, the fair value of the embedded derivatives was not material.
Major Customers
We sell OMIDRIA through a limited number of wholesalers. Each of these wholesalers, together with entities under their
common control, accounted for greater than 10% of total revenues for the years ended December 31, 2016 and 2015 and greater
than 10% of accounts receivable as of December 31, 2016 and 2015 as noted below.
Distributor A
Distributor B
Distributor C
Distributor D
2016
2015
Percentage of
Total Revenue
31%
32%
28%
*
Percentage of
Accounts
Receivable
27%
29%
24%
19%
Percentage of
Total Revenue
37%
31%
28%
*
Percentage of
Accounts
Receivable
45%
23%
27%
*
* Distributor did not account for greater than 10% of total revenues for the years ended December 31, 2016 and 2015 or greater than 10% of accounts
receivable at December 31, 2015
F-10
Major Suppliers
We use a single contract manufacturer to supply OMIDRIA and generally a single contract manufacturer to produce
clinical trial material which creates a concentration of risk for us.
We have a non-exclusive agreement with Hospira Worldwide, Inc. (Hospira), a wholly owned subsidiary of Pfizer, Inc.,
for the commercial supply of OMIDRIA, and Hospira has produced product validation batches of OMIDRIA which are
currently undergoing testing prior to seeking FDA approval of the Hospira manufacturing facility. We are not permitted to sell
any OMIDRIA produced by Hospira, however, until the Hospira manufacturing facility is approved by the FDA.
While one source of supply is utilized for OMIDRIA and generally one source for each of our product candidates, other
sources are available should we need to change suppliers. We endeavor to maintain reasonable levels of drug supply for our
commercial and clinical trial use. A change in suppliers, however, could cause a delay in delivery of OMIDRIA or our clinical
trial material that would adversely affect our business.
Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-15 related to disclosure of an
entity’s ability to continue as a going concern. This standard requires management to evaluate whether substantial doubt exists
regarding the entity’s ability to continue as a going concern at each reporting period for a duration of one year after the date the
financial statements are issued or available to be issued. The standard establishes certain required disclosures if substantial
doubt exists. On December 31, 2016, we adopted ASU 2014-15 on a prospective basis. We concluded there is substantial doubt
about our ability to continue as a going concern (see “Going Concern” in Note 1 for further discussion).
For the year ended December 31, 2016, we early adopted and applied retrospectively FASB Accounting Standards Update
(ASU) No. 2016-15, related to clarifying the classification of certain cash receipts and cash payments on the statement of cash
flows. The new guidance requires, among other things, cash payments for debt prepayment or debt extinguishment costs to be
classified as cash outflows for financing activities. The adoption of this standard resulted in the reclassification of $2.7 million
of cash payments for debt prepayment costs and debt extinguishment costs within the financing activities section of our
Consolidated Statements of Cash Flows for the year ended December 31, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued amended guidance related to revenue from contracts with customers. The amended
guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance, the FASB has
issued five ASUs amending the guidance and effective date, and the SEC has rescinded certain related SEC guidance; the most
recent of which was issued in December 2016. The effective date of the guidance requires us to adopt the standard at the
beginning of our first quarter of fiscal 2018 with earlier application permitted. The new guidance requires either a modified
retrospective method or a full retrospective method of transition. We currently anticipate adopting the guidance at the beginning
of our first quarter of fiscal 2018 under the modified retrospective method. While we have not yet completed our final review of
the impact of this guidance, we currently do not anticipate a material impact on our revenue recognition practices. We continue
to review variable consideration, potential disclosures, and our method of adoption to complete our evaluation of the impact on
our consolidated financial statements. In addition, we continue to monitor additional changes, modifications, clarifications or
interpretations undertaken by the FASB, which may impact our current conclusions.
In February 2016, the FASB issued ASU 2016-02 related to lease accounting. This standard requires lessees to recognize
a right-of-use asset and a lease liability for most leases. This standard must be applied using a modified retrospective transition
method and is effective for all annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. We
are evaluating how this new standard will impact the presentation of our financial statements and related disclosures.
In March 2016, the FASB issued Accounting Standards Update ASU No. 2016-09 related to stock compensation, which
simplifies several aspects of the accounting for share-based payment transactions. The new guidance requires companies to
record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of operations when the awards
vest or are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from operating
activities to financing activities on the statement of cash flows. We will adopt the standard in the three months ended March 31,
2017. Upon adoption, we will recognize the previously unrecognized excess tax benefits through a cumulative-effect
adjustment to accumulated deficit. The previously unrecognized excess tax effects will be recorded as a deferred tax asset,
which will be fully offset by a valuation allowance.
F-11
Note 3—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. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of
common shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock method.
Common share equivalents are excluded from the diluted net loss per share computation if their effect is anti-dilutive.
The basic and diluted net loss per share amounts for the years ended December 31, 2016, 2015 and 2014 were computed
based on the shares of common stock outstanding during the respective periods. Potentially dilutive securities excluded from
the diluted loss per share calculation are as follows:
Outstanding options to purchase common stock
Warrants and pre-funded warrants to purchase common stock
Total potentially dilutive securities
Note 4—Cash, Cash Equivalents and Investments
Year Ended December 31,
2016
9,809,374
100,602
9,909,976
2015
8,310,235
749,250
9,059,485
2014
8,364,469
551,435
8,915,904
As of December 31, 2016 and 2015, all investments are classified as short-term and available-for-sale on the
accompanying Consolidated Balance Sheets. Investment income, which is included as a component of other income (expense),
consists primarily of interest earned.
Note 5—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 they are developed using estimates
and assumptions developed by us, which reflect those that a market participant would use.
Our fair-value hierarchy for our financial assets measured at fair value on a recurring basis are as follows:
Assets:
Money-market funds classified as non-current
restricted cash and investments
Money-market funds classified as short-term
investments
Total
Level 1
Level 2
Level 3
Total
December 31, 2016
(In thousands)
$
$
5,835
$
43,107
48,942
$
— $
—
— $
— $
5,835
—
— $
43,107
48,942
F-12
Assets:
Money-market funds classified as non-current
restricted cash and investments
Money-market funds classified as short-term
investments
Total
Level 1
Level 2
Level 3
Total
December 31, 2015
(In thousands)
$
$
10,679
$
26,898
37,577
$
— $
—
— $
— $
10,679
—
— $
26,898
37,577
Cash held in demand deposit accounts of $2.2 million and $1.4 million is excluded from our fair-value hierarchy
disclosure as of December 31, 2016 and 2015, respectively. There were no unrealized gains or losses associated with our short-
term investments as of December 31, 2016 or 2015. The carrying amounts reported in the accompanying Consolidated Balance
Sheets for receivables, accounts payable, other current monetary assets and liabilities and notes payable and lease financing
obligations approximate fair value.
Note 6—Certain Balance Sheet Accounts
Receivables
Trade receivables
Grant receivables
Other receivables
Total receivables
December 31,
2016
2015
(In thousands)
$
$
11,937
—
100
12,037
$
$
6,208
136
173
6,517
Trade accounts receivable are shown net of $297,000 and $191,000 of chargebacks and product return allowances as of
December 31, 2016 and 2015, respectively.
Inventory
Raw materials
Work-in-process
Finished goods
Total inventory cost
December 31,
2016
2015
(In thousands)
101
$
854
173
1,128
$
$
$
93
158
221
472
F-13
Property and Equipment
Laboratory equipment
Capital lease equipment
Office equipment and furniture
Computer equipment
Computer software
Total cost
Less accumulated depreciation and amortization
Total property and equipment, net
December 31,
2016
2015
(In thousands)
$
1,830
$
1,735
774
625
476
208
3,913
(2,732)
1,181
$
$
367
625
482
174
3,383
(2,432)
951
For the years ended December 31, 2016, 2015 and 2014, depreciation and amortization expense was $300,000, $209,000
and $317,000, respectively.
Accrued Expenses
Employee compensation
Contract research and development
Consulting and professional fees
Clinical trials
Other accruals
Total accrued liabilities
Note 7—Notes Payable and Lease Financing Obligations
Notes payable and lease financing obligations consist of the following:
Notes payable
Lender facility fee payable upon maturity
Lease financing obligations
Notes payable, facility fee and lease financing obligations
Unamortized debt discount
Unamortized debt issuance costs
Current portion of lease financing obligations
December 31,
2016
2015
(In thousands)
$
$
4,551
3,030
2,223
1,167
2,383
$
13,354
$
2,590
2,973
2,400
1,108
681
9,752
December 31,
2016
2015
(In thousands)
$
80,516
$
4,025
522
85,063
(3,958)
(1,395)
(198)
79,512
$
50,000
3,750
279
54,029
(3,750)
(437)
(73)
49,769
Notes payable and lease financing obligations, net
$
2014 Oxford/MidCap Loan Agreement
In March 2014, we entered into a Loan and Security Agreement (the Oxford/MidCap Loan Agreement) with Oxford and
MidCap Financial SBIC, LP (MidCap) pursuant to which we borrowed $32.0 million. We used $19.1 million of the loan
proceeds to repay all of the amounts owed by us under our previously outstanding loan agreement and, after deducting loan
initiation costs, we received $12.7 million in net proceeds. The Oxford/MidCap Loan Agreement provided for interest-only
payments at an annual rate of 9.25% through March 1, 2015 with principal and interest payments of $1.0 million commencing
F-14
April 1, 2015 through its maturity date of March 1, 2018. In addition, the Oxford/MidCap Loan Agreement required a $2.2
million loan maturity fee payment upon full repayment of the loan and a prepayment fee equal to 1.0% of the then-outstanding
principal balance if we paid the loan prior to the maturity date. These costs were being amortized to interest expense using the
effective interest method over the term of the Oxford/MidCap Loan Agreement.
2015 Oxford/EWB Loan Agreement
In December 2015, we entered into a Loan and Security Agreement (the Oxford/EWB Loan Agreement) with Oxford
and East West Bank (EWB) pursuant to which we borrowed $50.0 million. In addition, we could borrow an additional $20.0
million contingent upon the satisfaction of certain conditions including minimum net revenues from OMIDRIA. We used
$27.3 million of the loan proceeds to repay all of the amounts owed by us under the Oxford/Midcap Loan Agreement
including the outstanding principal of $24.8 million, the loan maturity fee of $2.2 million and the prepayment fee of $248,000.
After deducting all loan initiation costs and outstanding interest on the Oxford/MidCap Loan Agreement, we received $22.3
million in net proceeds. We accounted for the termination of the Oxford/Midcap Loan Agreement as a debt extinguishment
and, accordingly, incurred a loss of $1.3 million associated with the unamortized loan maturity fee and the prepayment fee.
The Oxford/EWB Loan Agreement also required a $3.8 million loan maturity fee upon full repayment of the initial
$50.0 million borrowed and $525,000 for each additional $10.0 million borrowed. We had the option to prepay the outstanding
principal balance in its entirety at any time if we pay a prepayment equal to 1.0% of the then-outstanding principal balance.
The Oxford/EWB Loan Agreement contained covenants that required us to, among other provisions, maintain $10.0 million in
restricted cash and certain eligible term investments, and to establish an at-the-market (ATM) equity facility (see Note 9 for
further discussion of the ATM equity facility).
In May 2016, we entered into the First Amendment to the Oxford/EWB Loan Agreement (the Amendment) whereby we
accelerated the borrowing of the additional $20.0 million available to us under the Oxford/EWB Loan Agreement. After
deducting all loan initiation costs, we received $19.9 million in net proceeds. The Amendment did not modify the interest rate
or any terms or covenants of the Loan Agreement except to increase the final payment fee rate applicable to the additional
$20.0 million borrowed from 5.25% to 6.25% reflecting the accelerated draw-down of the additional loan. In connection with
the Amendment, we issued warrants to purchase an aggregate of 100,602 shares of Omeros common stock (the Warrants) to
Oxford and EWB at the then current market price of $9.94 per share. We accounted for the Warrants as a discount to our notes
payable (see Note 9 for further discussion of the Warrants).
We accounted for the Amendment as a debt modification and, accordingly, the unamortized discount and debt issuance
costs associated with the Loan Agreement were being amortized to interest expense using the effective interest method over
the remaining term of the Loan Agreement.
2016 CRG Loan Agreement
In October 2016, we entered into the CRG Loan Agreement with CRG Servicing LLC, which requires interest-only
payments through December 31, 2020 and, subject to the achievement of certain milestones, potentially through the maturity
date of September 30, 2022. We initially borrowed $80.0 million and may borrow up to an additional $45.0 million in two
tranches of $25.0 million and $20.0 million, respectively, contingent upon achievement of certain conditions on or before
June 30, 2017 and December 31, 2017, respectively. To borrow the $25.0 million under the first tranche, we must achieve
OMIDRIA net product sales of at least $18.0 million during any consecutive three month period or an average market
capitalization of at least $700.0 million for any consecutive three month period, in each case ending on or prior to June 30,
2017, and the borrowing must occur on or prior to September 19, 2017. To borrow the $20.0 million under the second tranche,
we must achieve OMIDRIA net product sales of at least $25.0 million during any consecutive three month period or an
average market capitalization of at least $1.0 billion for any consecutive three month period, in each case ending on or prior to
December 31, 2017, and the borrowing must occur on or prior to March 21, 2018.
We used $75.7 million of the initial loan proceeds to repay all amounts owed by us under our then-outstanding Oxford/
EWB Loan Agreement including the outstanding principal of $70.0 million, the loan maturity fee of $5.0 million and the
prepayment fee of $700,000. After deducting the loan initiation costs and related fees on the CRG Loan Agreement, we
received $3.0 million in net proceeds. We accounted for the termination of the Oxford/EWB Loan Agreement as a debt
extinguishment and, accordingly, incurred a loss of 5.6 million associated with the unamortized loan maturity fee, loan
initiation costs and the prepayment fee.
The CRG Loan Agreement accrues interest at an annual rate of 12.25% (4.00% of which can be deferred at our option
during the interest-only period by adding such amount to the aggregate principal amount) and is interest only for a minimum
of four years and, subject to the achievement of certain milestones, potentially through the maturity date. If an OMIDRIA net
revenue milestone is satisfied during the 12-month period ending on December 31, 2019, the interest rate may be reduced to
F-15
11.50%, 3.50% of which may be deferred at our option and added to the principal amount outstanding. In addition, if either the
OMIDRIA net revenue milestone is satisfied during such period or a market capitalization milestone is achieved during the
fourth quarter of 2020, the loan would convert to interest-only until the September 30, 2022 maturity. The CRG Loan
Agreement requires us to maintain cash and cash equivalents of $5.0 million during the term of the agreement which is
recorded as restricted cash and investments in our Consolidated Balance Sheet.
We are also required to pay the Lenders a facility fee equal to 5.00% of the aggregate principal amount borrowed
(including principal additions related to deferred interest) on repayment of the CRG Loan Agreement. The $4.0 million related
to the facility fee is being accreted to notes payable using the effective interest method over the term of the loan agreement.
We may prepay all or a portion of the outstanding principal under the CRG Loan Agreement at any time upon prior
notice to the Lenders subject to a prepayment fee through September 30, 2019, with no prepayment fee thereafter. In certain
circumstances, including a change of control and certain asset sales or licensing transactions, we are required to prepay all or a
portion of the loan, including the applicable prepayment premium of on the amount of the outstanding principal to be prepaid.
The CRG Loan Agreement also requires us to achieve either (a) certain minimum net revenue amounts through the end
of 2021, which are $35.0 million, $55.0 million and $65.0 million for the 2016, 2017 and 2018 calendar years, respectively, or
(b) a minimum market capitalization threshold equal to the product of 6.4 multiplied by the aggregate principal amount of
loans outstanding under the CRG Loan Agreement determined as of the fifth business day following announcement of
earnings results for the applicable year. If we are unable to satisfy the minimum annual revenue requirement or the market
capitalization threshold for any given year, we may avoid a related default by repaying the shortfall between actual revenues
and the minimum revenue requirement for such year using proceeds generated by an equity or subordinated debt issuance. We
exceeded the OMIDRIA minimum revenue requirement for 2016.
The CRG Loan Agreement also includes customary events of default that include, among other things, non-payment,
inaccuracy of representations and warranties, covenant breaches, cross default to material indebtedness or material
agreements, bankruptcy and insolvency, material judgments and a change of control. An event of default under the CRG Loan
Agreement also includes the occurrence of any material adverse effect upon our business, condition (financial or otherwise),
operations, performance or property taken as a whole. If there is an event of default under the CRG Loan Agreement, the
lenders may have the right to accelerate all of our repayment obligations under the CRG Loan Agreement and to take control
of our pledged assets, which include substantially all of our assets including our intellectual property. Under certain
circumstances, a default interest rate of an additional 4.00% per annum will apply on all outstanding obligations during the
existence of an event of default under the Loan Agreement.
On December 31, 2016, as allowed under the CRG Loan Agreement, we deferred $516,000 of interest due on
December 31, 2016 by increasing the principal amount outstanding. As of December 31, 2016, we were not in default under
the CRG Loan Agreement.
Lease Financing Obligations
We have capital leases for certain lab and office equipment which have lease terms expiring between October 2017 and
December 2021. Equipment costs related to these capital leases of $774,000 and $367,000 is included in our property and
equipment as of December 31, 2016 and December 31, 2015, respectively and the accumulated depreciation on this equipment
was $230,000 and $98,000, respectively. The remaining principal payments under these capital leases totaled $522,000 and
$281,000 as of December 31, 2016 and 2015, respectively.
F-16
Future Principal Payments
Future principal payments as of December 31, 2016 under the CRG Loan Agreement and our capital equipment
financing leases, based on stated contractual maturities, are as follows:
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total future principal payments
Notes
Payable
Lease
Financing
Obligations
Total
(In thousands)
198
— $
$
—
—
—
46,009
34,507
80,516
199
89
31
5
—
$
522
$
$
$
198
199
89
31
46,014
34,507
81,038
The principal payments reflected in the table above exclude the $4.0 million lender’s facility fee due on repayment of the
CRG Loan Agreement.
Note 8—Commitments and Contingencies
Real Estate and Equipment Lease Obligations
We lease office and laboratory spaces in The Omeros Building. The initial term of the real estate lease ends in November
2027 and we have two options to extend the lease term, each by five years. As of December 31, 2016, the remaining aggregate
non-cancelable rent under the initial terms of the real estate, excluding common area maintenance and related operating
expenses, was $50.5 million. The deferred rent balance of $9.2 million relates to rent deferrals and landlord funded lease
incentives since the inception of our lease and is being amortized to research and development and selling, general and
administrative expense on a straight-line basis through the initial term of the lease.
Rent expense, including the amortization of lease incentives and rent deferrals, totaled $4.4 million, $4.5 million and $4.5
million for the years ended December 31, 2016, 2015 and 2014, respectively.
We periodically sublease unused office and laboratory space in The Omeros Building to third-party tenants. Rental
income received under these subleases was $737,000, $889,000 and $568,000 for the years ended December 31, 2016, 2015
and 2014, respectively. Rental income is recorded as other income (expense), net in the accompanying Consolidated Statements
of Operations and Comprehensive Loss.
F-17
We rent equipment and fleet vehicles for our sales force under various operating lease agreements which have remaining
aggregate non-cancellable rent of $1.1 million at December 31, 2016.
Future minimum payments related to our leases at December 31, 2016, are as follows:
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Contracts
Lease
Payments
Sublease
Receipts
Net Lease
Payments
$
4,474
4,545
4,632
4,690
4,552
28,712
(In thousands)
663
$
$
663
597
335
—
—
$
51,605
$
2,258
$
3,811
3,882
4,035
4,355
4,552
28,712
49,347
We have various agreements with third parties that collectively require payment of termination fees totaling $2.2 million
as of December 31, 2016 if we cancel the work within specific time frames, either prior to commencing or during performance
of the contracted services. This is in addition to fees associated with the CRG Loan Agreement as described within Note 7 and
within the Contractual Obligations and Commitments and Financial Condition - Liquidity and Capital Resources sections of
Management’s Discussion and Analysis.
Development Milestones and Product Royalties
Phosphodiesterase 10 (PDE10) inhibitors - In connection with a funding agreement with The Stanley Medical Research
Institute entered into in December 2006, beginning the first calendar year after commercial sales of any therapeutic product that
inhibits or modulates PDE10 (including for schizophrenia or Huntington’s disease), we are obligated to pay royalties based on
net income of the product, as defined in the agreement. Based on the amount of grant funding received, the maximum amount
of royalties payable by us is $12.8 million. For the years ended December 31, 2016, 2015 and 2014, we did not owe any
royalties.
Peroxisome proliferators activated receptor gamma (PP
- In February 2009, we entered into a patent assignment
agreement whereby we acquired all intellectual property rights, including patent applications, related to PP
treatment and prevention of addictions to substances of abuse, as well as other compulsive behaviors. In February 2011, we
amended the patent assignment agreement to include all intellectual property rights, including patent applications, related to
dietary supplements that increase PP
activity. We will be required to make payments up to $3.8 million in total, for both
PP
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 the patent assignment agreement. For the years ended
December 31, 2016, 2015 and 2014, we did not owe any development milestones or royalties.
activity, upon achievement of certain development events, such
agonists and dietary supplements that increase PP
agonists for the
Phosphodiesterase 7 (PDE7) inhibitors - Under a license agreement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo) we
hold an exclusive license to phosphodiesterase 7 (PDE7) inhibitors owned by Daiichi Sankyo for use in (1) the treatment of
movement disorders and other specified indications; (2) addiction and compulsive disorders; and (3) all other indications
except those related to dermatologic conditions. We will be required to make milestone payments to Daiichi Sankyo of up to
$33.5 million upon the achievement of certain events, such as successful completion of certain 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. However, if only one of the three indications is advanced through each milestone, the total
milestone payments would be $23.5 million. In addition, we are obligated to pay Daiichi Sankyo a low single-digit percentage
royalty on any net sales of a PDE7 inhibitor licensed under the agreement provided that if the sales are made by a sublicensee,
the amount payable by us to Daiichi Sankyo is capped at a low double-digit percentage of all royalty and specified milestone
payments that we receive from the sublicensee. For the year ended December 31, 2013, we paid $50,000 upon execution of an
amendment which was recognized as research and development expense. For the years ended December 31, 2016, 2015 and
2014, we did not owe any development milestones or royalties.
F-18
Mannan-binding lectin-associated serine protease-2 (MASP-2) - In April 2010, we entered into an exclusive license
agreement with Helion Biotech ApS (Helion), pursuant to which we received a royalty bearing, worldwide exclusive license to
all of Helion’s intellectual property rights related to MASP-2 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. We will be required to make development and sales milestone payments to Helion of up to $6.1 million upon the
achievement of certain events, such as the filing of an Investigational New Drug Application (IND) with the FDA; initiation of
Phase 2 and 3 clinical trials; receipt of marketing approval; and reaching specified sales milestones. We are obligated to pay
Helion a low single-digit percentage royalty on net sales of a MASP-2 inhibitor product covered by the patents licensed under
the agreement. For the year ended December 31, 2016 and 2015, we did not owe any development milestones or royalties. For
the year ended December 31, 2014, we incurred development milestone costs of $300,000 under this agreement which was
recognized as research and development expense.
G protein-coupled receptor (GPCR) - In October 2010, we entered into funding agreements for our GPCR program with
Vulcan and LSDF. In connection with the funding agreements, we agreed to pay Vulcan and LSDF tiered percentages of the net
proceeds derived from the GPCR program. The percentage rates decrease as the cumulative net proceeds reach specified
thresholds, and the blended percentage rate in the aggregate is in the mid-teens with respect to approximately the first $1.5
billion of cumulative net proceeds. If we receive cumulative net proceeds in excess of approximately $1.5 billion, the
percentage rate decreases to one percent. Pursuant to the agreement with Vulcan, we may pay a portion of Vulcan’s share of the
one percent of net proceeds to a life sciences initiative (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.
Net proceeds are generally defined in the Vulcan and LSDF agreements as (1) all consideration received by us in any
form relating directly to the GPCR program less (2) all expenses and expenditures in excess of $25.0 million incurred by us in
connection with the GPCR program. 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.
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 automatically released 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, any remaining amounts that would be payable to
LSDF will 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. 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. The term of our payment obligations to LSDF is the same as that under our
agreement with Vulcan.
As of December 31, 2016, we have not derived any net proceeds as defined in the Vulcan and LSDF agreements from our
GPCR program.
Litigation
In July 2015, we received a Paragraph IV Notice Letter from Par Pharmaceutical, Inc. and its subsidiary, Par Sterile
Products, LLC, (collectively, Par) stating that Par filed an Abbreviated New Drug Application (ANDA) seeking approval from
the FDA to market a generic version of OMIDRIA prior to the expiration of three patents listed in the FDA’s Approved Drug
Products with Therapeutic Equivalence Evaluations (Orange Book) for OMIDRIA (the Orange Book Patents). Following
receipt of the Paragraph IV Notice Letter, in September 2015 we filed a patent infringement lawsuit under the Hatch-Waxman
Act against Par. In April 2016, August 2016 and November 2016, we amended the lawsuit to assert additional OMIDRIA
patents. Par has stipulated to infringement of each of the currently asserted patents, and the court entered a partial judgment that
Par’s filing of its ANDA constitutes an act of infringement of each of the currently asserted patents, subject to Par’s continued
invalidity defenses and any challenge to enforceability. The filing of our suit against Par triggered a 30-month stay of
the FDA’s approval of Par’s ANDA, which is expected to remain in effect until late January 2018. We have reviewed the
invalidity assertions in Par’s Paragraph IV Notice Letter and defenses and counterclaims and believe they do not have merit,
and we intend to defend our patents vigorously in the litigation against Par.
F-19
Note 9—Shareholders’ Equity
Common Stock
As of December 31, 2016, we had reserved shares of common stock for the following purposes:
Options granted and outstanding
Options available for future grant
Common stock warrants
Total shares reserved
9,809,374
524,145
100,602
10,434,121
Options Available for Future Grant - On January 1, 2017, an additional 1,785,714 shares became available for future
issuance under the 2008 Equity Incentive Plan (the 2008 Plan) in accordance with the annual increase provisions of the 2008
Plan. These additional shares are not included in the table above.
At Market Issuance Sales Agreement - In January 2016, we entered into an At Market Issuance Sales Agreement (the
ATM Agreement) with JonesTrading Institutional Services LLC (JonesTrading) pursuant to which we may direct JonesTrading
to sell shares of our common stock directly on The Nasdaq Global Market, through a market maker other than on an exchange
or in negotiated transactions. Any sales made under the ATM Agreement are based solely on our instructions and JonesTrading
will receive a 1.7% commission from the gross proceeds. The ATM Agreement may be terminated by either party at any time
upon 10 days' notice to the other party or by JonesTrading at any time in certain circumstances including the occurrence of a
material adverse effect to Omeros. During the year ended December 31, 2016, we sold 64,565 shares of our common stock at
an average price of $11.41 per share under the ATM Agreement and received net proceeds of $724,000. We currently may sell
shares of our common stock having an aggregate offering price of up to $50.0 million under the ATM Agreement.
Securities Offerings - In August 2016, we sold 3.5 million shares of our common stock at a public offering price of
$11.50 per share. After deducting underwriter discounts and offering expenses, we received net proceeds from the offering of
$37.3 million.
In February 2015, we sold 3.4 million shares of our common stock at a public offering price of $20.03 and sold pre-
funded warrants to purchase up to 749,250 shares of our common stock at a public offering price of $20.02 per pre-funded
warrant share. The public offering price for the pre-funded warrants was equal to the public offering price of the common stock,
less the $0.01 per share exercise price of each pre-funded warrant. After deducting underwriter discounts and offering expenses
of $4.9 million, we received net proceeds from the transaction of $79.1 million.
In March 2014, we sold 3.5 million shares of our common stock at a public offering price of $11.50 per share. After
deducting underwriter discounts and offering expenses of $2.5 million, we received net proceeds from the transaction of $37.8
million.
Warrants
The following table summarizes our outstanding warrants at December 31, 2016:
Outstanding At
December 31, 2016
100,602
Expiration Date
May 18, 2023
Exercise Price
$9.94
In connection with an amendment to the Oxford/EWB Loan Agreement in May 2016, we issued warrants to purchase an
aggregate of 100,602 shares of our common stock to Oxford and EWB (the Warrants). We evaluated the terms of the Warrants
and determined that the Warrants should be recorded as permanent equity. The aggregate fair value of the Warrants on the issue
date was $758,000, which we recorded as a discount to our notes payable. We were amortizing the Warrants over the remaining
term of the Oxford/EWB Loan Agreement using the effective interest method. On October 26, 2016, in connection with our
repayment of the Oxford/EWB Loan Agreement (see Note 7), the unamortized discount to our notes payable was expensed as a
loss on early extinguishment of debt in our Consolidated Statement of Operations and Comprehensive Loss. The Warrants
remain outstanding and exercisable through May 18, 2023 at an exercise price per share of $9.94 per share.
In March 2016, we received cash proceeds of approximately $7,500 upon the cash exercise of our then-outstanding pre-
funded warrants referenced above. The warrants had a weighted average exercise price of $0.01 per share, and the exercise
resulted in the issuance of 749,250 shares of our common stock.
F-20
In March 2009, we issued warrants with an exercise price of $12.25 per share to brokers who assisted us in our Series E
financing (the Series E Warrants). In both March and September 2014, we extended the expiration dates of the Series E
Warrants by six months. We evaluated the fair value of the Series E Warrants before and after each modification, and we
recorded $863,000 change in fair value as other income (expense), net in our Consolidated Statement of Operations and
Comprehensive Loss for the year ended December 31, 2014.
For the year ending December 31, 2014, Series E Warrants were exercised, through cash and cashless net exercise,
resulting in cash proceeds of $68,000 and the issuance of 28,653 shares of our common stock. Additionally, for the year ended
December 31, 2015, we received cash proceeds of $1.4 million upon the cash and cashless exercise of Series E Warrants which
resulted in the issuance of 133,240 shares of our common stock.
Note 10—Stock-Based Compensation
The 2008 Plan provides for the grant of incentive and non-statutory stock options, restricted stock, stock appreciation
rights, performance units and performance shares to employees, directors and consultants and subsidiary corporations’
employees and consultants. 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 10 years and options generally vest over a four-year period.
The 2008 Plan also allows any shares returned under our Amended and Restated 1998 Stock Option Plan (the 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.
In addition, the 2008 Plan provides for annual increases in the number of shares available for issuance thereunder on the first
day of each year, equal to the lower of:
•
•
•
five percent of the outstanding shares of our common stock on the last day of the preceding year;
1,785,714 shares; or
such other amount as our board of directors may determine.
As of December 31, 2016, a total of 10,333,519 shares were reserved for issuance under our stock plans, of which
524,145 were available for future grants. On January 1, 2017, an additional 1,785,714 shares became available for future
issuance under our 2008 Plan in accordance with the annual increase. In February 2017, options exercisable for up to 1,434,250
shares were granted to employees related to 2016 annual performance grants.
Compensation cost for stock options granted to employees and directors is based on the grant-date fair value and is
recognized over the vesting period of the applicable option on a straight-line basis. Stock-based compensation expense is based
on options ultimately expected to vest, and therefore 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.
The fair value of each option grant to employees and directors is estimated on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were applied to employee and director stock option grants during the periods
ended:
Estimated weighted-average fair value
Weighted-average assumptions:
Expected volatility
Expected term, in years
Risk-free interest rate
Expected dividend yield
2016
Year Ended December 31,
2015
2014
$
6.89
$
11.31
$
7.39
74%
5.7
1.63%
—%
71%
6.0
1.68%
—%
73%
5.8
1.87%
—%
The risk-free interest rates are based on the implied yield currently available in U.S. Treasury securities at maturity with
an equivalent term. For purposes of determining the expected term of the awards in the absence of sufficient historical data
relating to stock-option exercises, we apply a simplified approach in which the expected term of an award is presumed to be the
mid-point between the vesting date and the expiration date of the award. We have not declared or paid any dividends and do not
currently expect to do so in the foreseeable future. Since October 2014, we have has based our expected volatility on our own
trading history which is roughly equivalent to the average expected term of our options and we do not anticipate future
volatility will differ significantly from the past.
F-21
Stock options granted to non-employees are accounted for using the fair-value approach. The fair value of non-employee
option grants is 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, 2016,
2015 and 2014, we granted to non-employees options to purchase 38,000 shares, 4,200 shares and 86,000 shares of common
stock, respectively.
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 and Comprehensive Loss as follows:
Year Ended December 31,
2016
2015
2014
Research and development
Selling, general and administrative
Total stock-based compensation expense
$
$
6,304
7,278
13,582
$
(In thousands)
4,977
$
4,604
9,581
$
$
4,754
4,164
8,918
In connection with the non-employee options, we recognized expense of $313,000, $492,000 and $289,000 during the
years ended December 31, 2016, 2015 and 2014, respectively.
Stock option activity for all stock plans is as follows:
Balance at December 31, 2015
Granted
Exercised
Forfeited and expired
Balance at December 31, 2016
Vested and expected to vest at December 31, 2016
Exercisable at December 31, 2016
Weighted-
Average
Exercise
Price per
Share
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value
(In thousands)
7.97
10.72
2.12
12.92
9.66
9.60
8.87
7.12
7.05
6.17
$
$
$
11,162
11,155
11,087
Options
Outstanding
8,310,235
3,128,567
(1,486,167)
(143,261)
9,809,374
9,483,392
6,568,859
$
$
$
$
The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $13.6
million, $3.9 million and $2.9 million, respectively.
At December 31, 2016, there were 3,240,515 unvested options outstanding that will vest over a weighted-average period
of 2.4 years. Excluding non-employee stock options, the remaining estimated compensation expense to be recognized in
connection with these options is $19.0 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 income taxes are as follows:
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Stock-based compensation
Deferred rent
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
December 31,
2016
2015
(In thousands)
$
126,410
$
110,092
18,741
11,102
3,318
4,401
163,972
(163,972)
$
— $
14,758
8,136
3,324
2,744
139,054
(139,054)
—
As of December 31, 2016 and 2015, we had federal net operating loss carryforwards of approximately $378.9 million and
$325.9 million, respectively, state net operating losses of approximately $50.0 million and $30.6 million, respectively, and tax
credit carryforwards of approximately $18.7 million and $14.8 million, respectively. Approximately $13.3 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.
In certain circumstances, due to ownership changes, our net operating loss and tax credit carryforwards may be subject to
limitations under Section 382 of the Internal Revenue Code. To date, we have not completed a Section 382 study. Unless
previously utilized, our net operating loss and research and development tax credit carryforwards expire between 2018 and
2036.
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 $24.9 million, $30.4 million and $25.8 million in
2016, 2015 and 2014, respectively, primarily due to net operating losses incurred during these periods.
Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes is as follows:
Federal statutory tax rate
State tax rates
Other permanent differences
Change in valuation allowance
Tax credits
Other
Effective tax rate
Year ended December 31,
2016
2015
2014
(34)%
(34)%
(34)%
(2)%
3 %
37 %
(4)%
— %
— %
(2)%
1 %
41 %
(5)%
(1)%
— %
— %
2 %
35 %
(4)%
1 %
— %
We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments.
However, because of net operating loss carryforwards, substantially all of our tax years remain open to federal and state 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 of December 31, 2016, 2015 and 2014, we maintained an uncertain tax position of $212,000 related to a
reduction of our research and development credit deferred tax asset. Further, there were no unrecognized tax benefits that, if
recognized, would impact our effective tax rate.
We 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.
F-23
Note 12—401(k) Retirement Plan
We have adopted a 401(k) plan. To date, we have not matched employee contributions or made discretionary
contributions to the plan. Starting in 2017, the plan will provide for an annual company match on employee contributions,
initially set at a maximum of 4.0% of each participating employee’s contributions, with a maximum company match of $4,000
per employee per year. 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 and comprehensive loss for each quarter of 2016
and 2015 (in thousands, except per share amounts):
2016
For the Quarter Ended
Revenue
Total operating expenses
Loss from operations
Net loss
Basic and diluted net loss per share
2015
Revenue
Total operating expenses
Loss from operations
Net loss
Basic and diluted net loss per share
March 31,
June 30,
7,419
$
10,004
September 30,
11,289
$
December 31,
12,905
$
26,871
(19,452)
(20,539)
20,933
(10,929)
(12,612)
23,327
(12,038)
(13,962)
24,762
(11,857)
(19,632)
(0.54) $
(0.32) $
(0.34) $
(0.45)
For the Quarter Ended
March 31,
June 30,
388
$
3,187
September 30,
3,259
$
December 31,
6,675
$
18,318
(17,930)
(18,669)
19,154
(15,967)
(16,680)
22,560
(19,301)
(19,921)
24,715
(18,040)
(19,826)
(0.51) $
(0.44) $
(0.53) $
(0.52)
$
$
$
$
F-24
ITEM 16. FORM 10-K SUMMARY
Not included.
EXHIBIT INDEX
Exhibit
No.
3.1
3.2
4.1
4.2
Exhibit Description
Form
File No.
Exhibit
No.
Filing Date
Filed
Herewith
Incorporated by Reference
Amended and Restated Articles of Incorporation of Omeros
10-K 001-34475
3.1
03/31/2010
Corporation
Amended and Restated Bylaws of Omeros Corporation
10-K 001-34475
Form of Omeros Corporation common stock certificate
S-1/A 333-148572
3.2
4.1
03/31/2010
10/02/2009
Form of Omeros Corporation Warrant to Purchase Common
8-K 001-34475
10.3
05/19/2016
Stock
10.1*
Form of Indemnification Agreement entered into between
Omeros Corporation and its directors and officers
S-1
333-148572
10.1
01/09/2008
10.2*
Second Amended and Restated 1998 Stock Option Plan (as
S-1
333-148572
10.2
01/09/2008
amended)
10.3*
Form of Stock Option Agreement under the Second
S-1
333-148572
10.3
01/09/2008
Amended and Restated 1998 Stock Option Plan (that does
not permit early exercise)
10.4*
10.5*
10.6*
10.7*
nura, inc. 2003 Stock Plan
S-1
333-148572
10.6
01/09/2008
Form of Stock Option Agreement under the nura, inc. 2003
S-1
333-148572
10.7
01/09/2008
Stock Plan
2008 Equity Incentive Plan (as amended)
X
Form of Stock Option Award Agreement under the 2008
10-Q 001-34475
10.2
11/07/2013
Equity Incentive Plan
10.8*
Second Amended and Restated Employment Agreement
8-K 001-34475
10.1
04/12/2010
between Omeros Corporation and Gregory A.
Demopulos, M.D. dated April 7, 2010
10.9*
Offer Letter between Omeros Corporation and Marcia S.
S-1
333-148572
10.12
01/09/2008
Kelbon, Esq. dated August 16, 2001
10.10*
Technology Transfer Agreement between Omeros
S-1
333-148572
10.14
01/09/2008
Corporation and Gregory A. Demopulos, M.D. dated June
16, 1994
10.11
Technology Transfer Agreement between Omeros
S-1
333-148572
10.15
01/09/2008
10.12*
10.13
Corporation and Pamela Pierce, M.D., Ph.D. dated June
16, 1994
Second Technology Transfer Agreement between Omeros
Corporation and Gregory A. Demopulos, M.D. dated
December 11, 2001
Second Technology Transfer Agreement between Omeros
Corporation and Pamela Pierce, M.D., Ph.D. dated March
22, 2002
S-1
333-148572
10.16
01/09/2008
S-1
333-148572
10.17
01/09/2008
10.14
Lease dated January 27, 2012 between Omeros Corporation
8-K 001-34475
10.1
02/01/2012
and BMR-201 Elliott Avenue LLC
10.15
10.16
10.17
10.18
First Amendment to Lease dated November 5, 2012
between Omeros Corporation and BMR-201 Elliott
Avenue LLC
Second Amendment to Lease dated November 16, 2012
between Omeros Corporation and BMR-201 Elliott
Avenue LLC
10-Q 001-34475
10.2
11/09/2012
10-K 001-34475
10.18
03/18/2013
Third Amendment to Lease dated October 16, 2013 between
Omeros Corporation and BMR-201 Elliott Avenue LLC
10-K 001-34475
10.18
03/13/2014
Fourth Amendment to Lease dated September 8, 2015
between Omeros Corporation and BMR-201 Elliott
Avenue LLC
10-Q 001-34475
10.3
11/09/2015
10.19†
Commercial Supply Agreement between Omeros
S-1/A 333-148572
10.28
09/16/2009
10.20†
10.21†
10.22†
10.23†
Corporation and Hospira Worldwide, Inc. dated October
9, 2007
Exclusive License and Sponsored Research Agreement
between Omeros Corporation and the University of
Leicester dated June 10, 2004
Research and Development Agreement First Amendment
between Omeros Corporation and the University of
Leicester dated October 1, 2005
Research and Development Agreement Eighth and Ninth
Amendments between Omeros Corporation and the
University of Leicester dated March 21, 2012 and
September 1, 2013
Exclusive License and Sponsored Research Agreement
between Omeros Corporation and the Medical Research
Council dated October 31, 2005
S-1/A 333-148572
10.29
09/16/2009
S-1
333-148572
10.30
01/09/2008
10-K 001-34475
10.24
03/16/2015
S-1/A 333-148572
10.31
09/16/2009
10.24†
Amendment dated May 8, 2007 to Exclusive License and
S-1
333-148572
10.32
01/09/2008
Sponsored Research Agreement between Omeros
Corporation and the Medical Research Council dated
October 31, 2005
Funding Agreement between Omeros Corporation and The
Stanley Medical Research Institute dated December 18,
2006
S-1/A 333-148572
10.33
05/15/2009
Patent Assignment Agreement between Omeros Corporation
and Roberto Ciccocioppo, Ph.D. dated February 23, 2009
S-1/A 333-148572
10.47
09/16/2009
First Amendment to Patent Assignment Agreement between
Omeros Corporation and Roberto Ciccocioppo, Ph.D.
effective December 31, 2010
10-K 001-34475
10.28
03/18/2013
10.25†
10.26†
10.27†
10.28*
Omeros Corporation Non-Employee Director
Compensation Policy
X
10.29†
License Agreement between Omeros Corporation and
10-Q 001-34475
10.1
05/12/2010
Daiichi Sankyo Co., Ltd. (successor-in-interest to Asubio
Pharma Co., Ltd.) dated March 3, 2010
10.30†
10.31†
Amendment No. 1 to License Agreement with an effective
date of January 5, 2011 between Omeros Corporation and
Daiichi Sankyo Co., Ltd.
Amendment No. 2 to License Agreement with an effective
date of January 25, 2013 between Omeros Corporation
and Daiichi Sankyo Co., Ltd.
10-Q 001-34475
10.1
05/10/2011
10-Q 001-34475
10.1
05/09/2013
10.32†
Exclusive License Agreement between Omeros Corporation
10-Q 001-34475
10.2
08/10/2010
and Helion Biotech ApS dated April 20, 2010
10.33†
Platform Development Funding Agreement between
Omeros Corporation and Vulcan Inc. and its affiliate
dated October 21, 2010
10-K 001-34475
10.44
03/15/2011
10.34†
Grant Award Agreement between Omeros Corporation and
10-K 001-34475
10.45
03/15/2011
the Life Sciences Discovery Fund Authority dated
October 21, 2010
10.35†
10.36†
10.37†
Pharmaceutical Manufacturing and Supply Agreement dated
March 5, 2014 by and between Patheon Manufacturing
Services, LLC (successor-in-interest to DSM
Pharmaceuticals, Inc.) and Omeros Corporation
First Amendment to Pharmaceutical Manufacturing and
Supply Agreement between Patheon Manufacturing
Services (successor-in-interest to DSM Pharmaceuticals,
Inc.) and Omeros Corporation dated July 7, 2015
Second Amendment to Pharmaceutical Manufacturing and
Supply Agreement between Patheon Manufacturing
Services (successor-in-interest to DSM Pharmaceuticals,
Inc.) and Omeros Corporation dated August 24, 2016
10.38†† Third Amendment to Pharmaceutical Manufacturing and
Supply Agreement between Patheon Manufacturing
Services (successor-in-interest to DSM Pharmaceuticals,
Inc.) and Omeros Corporation dated December 5, 2016
10.39† Master Services Agreement between Omeros Corporation
and Ventiv Commercial Services, LLC, made as of May
12, 2014
10.40†
10.41
10.42†
10.43
Project Agreement (Detailing and Sales Operation Services)
between Omeros Corporation and Ventiv Commercial
Services, LLC, made as of May 12, 2014
First Amendment to Project Agreement (Detailing and Sales
Operation Services) between Omeros Corporation and
Ventiv Commercial Services, LLC, dated June 13, 2014
Second Amendment to Project Agreement (Detailing and
Sales Operation Services) between Omeros Corporation
and Ventiv Commercial Services, LLC, made as of
October 17, 2014
Project Agreement (Sales Operation Services for Client
Sales Teams) between Omeros Corporation and Ventiv
Commercial Services, LLC, made as of January 1, 2016
10-Q 001-34475
10.5
05/12/2014
10-Q 001-34475
10.2
11/09/2015
10-Q 001-34475
10.1
11/09/2016
X
10-Q 001-34475
10.1
08/11/2014
10-Q 001-34475
10.2
08/11/2014
10-Q 001-34475
10.3
08/11/2014
10-K 001-34475
10.45
03/16/2015
10-K 001-34475
10.42
3/15/2016
10.44†
Commercial Supply Agreement among Omeros
10-K 001-34475
10.46
03/16/2015
Corporation, Hospira S.p.A. and Hospira Worldwide, Inc.
dated October 3, 2014
10.45†
10.46†
First Amendment to Commercial Supply Agreement dated
August 1, 2015 by and between Omeros Corporation and
Hospira Worldwide, Inc.
License Agreement effective as of June 9, 2015 by and
between Omeros Corporation, JCB Laboratories, LLC,
and Fagron Compounding Services, LLC, d/b/a Fagron
Sterile Services
10-Q 001-34475
10.1
11/09/2015
10-Q 001-34475
10.1
08/10/2015
10.47
At Market Issuance Sales Agreement dated January 6, 2016
8-K 001-34475
1.1
01/06/2016
between Omeros Corporation and JonesTrading
Institutional Services LLC
10.48
10.49
10.50
10.51
10.52
Loan and Security Agreement between Omeros and Oxford
Finance LLC, as collateral agent and as a lender, and East
West Bank, as a lender, dated December 30, 2015
First Amendment to Loan and Security Agreement between
Omeros and Oxford Finance LLC, as collateral agent and
as a lender, and East West Bank, as a lender, dated May
16, 2016
Form of Secured Promissory Note issued by Omeros to
Oxford Finance LLC and to East West Bank, each dated
December 30, 2015
8-K 001-34475
10.1
01/06/2016
8-K 001-34475
10.1
05/19/2016
8-K 001-34475
10.2
01/06/2016
Form of Secured Promissory Note issued by Omeros to
Oxford Finance LLC and to East West Bank
8-K 001-34475
10.2
05/19/2016
Term Loan Agreement among Omeros Corporation, nura,
inc., CRG Servicing LLC, as administrative agent, and
certain lenders, dated October 26, 2016
8-K 001-34475
10.1
10/27/2016
10.53
Form of Security Agreement among Omeros Corporation,
8-K 001-34475
10.2
10/27/2016
12.1
23.1
31.1
31.2
32.1
32.2
nura, inc. and CRG Servicing LLC
Ratio of Earnings to Fixed Charges
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
99.1
Description of Capital Stock
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Document
*
†
††
Indicates management contract or compensatory plan or arrangement.
Portions of this exhibit are redacted in accordance with a grant of confidential treatment.
Portions of this exhibit are redacted in accordance with a request for confidential treatment.
X
X
X
X
X
X
X
X
X
X
X
X
X
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