ITEM7.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 Form10-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 Form10-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 Form10-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.

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Overview

We are a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, cancers related to the dysfunction of the immune system, and addictive and compulsive disorders.

Complement Inhibitor Programs

The complement system plays a role in the body’s 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. Three main pathways can activate the complement system: classical, lectin, and alternative. Omeros is focused on development of therapeutics to treat diseases associated with the lectin and/or alternative pathways of complement. Omeros is developing antibodies as well as small-molecule inhibitors of key enzymes known to be centrally involved in the in activation of the targeted pathway of complement.

Lectin Pathway / MASP 2

MASP-2, is a novel pro-inflammatory protein target that is the effector enzyme of the lectin pathway and is required for the function of this pathway. Omeros is developing antibodies and small-molecule inhibitors of MASP-2 as potential therapeutics for diseases in which the lectin pathway has been shown to contribute to significant tissue injury and pathology. When not treated, these diseases are typically characterized by significant end-organ damage, such as kidney or central nervous system injury. Importantly, inhibition of MASP-2 has been demonstrated not to interfere with the antibody-dependent classical complement activation pathway, a critical component of the acquired immune response to infection.

The lead drug candidate in our MASP-2 inhibitor program is narsoplimab (OMS721), a proprietary, patented human monoclonal antibody targeting MASP-2, the effector enzyme of the lectin pathway of complement. Clinical development of narsoplimab is currently focused primarily on TA-TMA and development efforts are also directed to COVID-19, ARDS and PASC. We are also developing OMS1029, a long-acting, next-generation antibody targeting MASP-2 and the lectin pathway which we expect will be well-suited to indications requiring long-term, chronic administration. In addition, we are advancing our orally administered small-molecule MASP-2 inhibitor through IND-enabling studies. For more information, see Part I, Item 1 in this Annual Report on Form 10-K under the heading “Complement Inhibitor Programs: MASP-2 Program – Lectin Pathway Disorders”.

Alternative Pathway / MASP-3

Our pipeline of clinical-stage complement-targeted therapeutic candidates also includes OMS906, a proprietary, patented monoclonal antibody targeting MASP-3, the key activator of the alternative pathway of complement. We believe OMS906 has the potential to treat a wide range of alternative pathway-related diseases and that its attributes favorably differentiate OMS906 from other marketed and in-development alternative pathway inhibitors. Clinical development of OMS906 is currently focused on rapidly advancing to Phase 3 clinical trials in multiple alternative pathway-related disorders, including PNH and C3G. We have multiple ongoing Phase 2 clinical trials evaluating OMS906 in these indications. For more information, see Part I, Item 1 in this Annual Report on Form 10-K under the heading “Complement Inhibitor Programs: MASP-3 Program – Alternative Pathway Disorders”.

PDE7 Inhibitor Programs

Our PDE7 inhibitor program, which we refer to as OMS527, comprises multiple PDE7 inhibitor compounds and is based on our discoveries of previously unknown links between PDE7 and any addiction or compulsive disorder, and between PDE7 and any movement disorders. In April 2023, we were awarded a grant from the National Institute on Drug Abuse, part of the National Institutes of Health, to develop our lead orally administered PDE7 inhibitor compound, for which we have successfully completed a Phase 1 study, for the treatment of cocaine use disorder (“CUD”). The grant amount, a total of $6.69 million over three years, is intended to support preclinical cocaine interaction/toxicology studies to assess safety of the therapeutic candidate in the presence of concomitant cocaine administration, as well as an in-patient, placebo-controlled clinical study evaluating the safety and effectiveness of OMS527 in adults with CUD who receive concurrent intravenous cocaine. The preclinical study is intended to provide the toxicology data necessary to support the human study of OMS527 in CUD. The toxicology study is underway and is expected to be completed in late 2024. Additionally, with investigators at Emory University, we are also evaluating OMS527 as a potential treatment for levodopa-induced dyskinesia, a common and debilitating side effect of long-term levodopa dosing in patients with Parkinson’s disease. For more information, see Part I, Item 1 in this Annual Report on Form 10-K under the heading “Other Clinical Programs: PDE7 Inhibitor Programs – OMS527”.

Pre-clinical Programs

We are advancing preclinical research on potential molecular and cellular therapies for cancer. On the molecular front, we have developed novel biologic platforms to target cancer cells specifically and kill them directly or indirectly through the potentiation of the immune system. Our novel molecules combine tumor antigens with a potent adjuvant and show high levels of killing in cancer cells. We believe that some of these molecules could function as therapeutic vaccines against a broad range of tumors, potentially transforming treatment of both solid tumors and hematologic cancers. On the cellular front, we are evaluating novel approaches for both adoptive T cell and CAR T therapies. We have identified specific T cell signaling pathways, which, once inhibited, significantly and preferentially enhance the expansion of memory T cells that distinctively recognize and efficiently kill tumor cells. We continue to develop and validate our novel approach, which we believe could improve response rates for patients receiving either engineered or native T cell therapies for liquid or solid tumors.

OMIDRIA Sale and Royalty Monetization Transactions

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

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

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

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Under the Asset Purchase Agreement, the occurrence of the Milestone Event in December 2022 triggered a reduction in the U.S. royalty rate from 50% to 30% on OMIDRIA net sales until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2035. Upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for certain separate payment (i.e., becomes included in the packaged payment rate for the surgical procedure) under Medicare Part B, the U.S. base royalty rate would be reduced to 10%. Pursuant to legislation enacted in late 2022, we expect separate payment for OMIDRIA under Medicare Part B to extend until at least January 1, 2028.

As a result of the OMIDRIA divestiture, the results of OMIDRIA operations have been reclassified to net income from discontinued operations, net of tax in our consolidated statements of operations and comprehensive income (loss) and excluded from continuing operations for all periods presented.

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration which we recorded as an OMIDRIA royalty obligation on our consolidated balance sheet. Interest expense is recorded as a component of continuing operations. The aggregate amount of royalties to which DRI is entitled under this arrangement is capped at $188.4 million.

On February 1, 2024, we sold to DRI an expanded interest in the OMIDRIA royalties pursuant to the terms of an amended and restated royalty purchase agreement dated February 1, 2024 (the “Amendment”). We received $115.5 million in cash upon closing of the Amendment. The Amendment eliminated the caps on royalty payments effective beginning in the first quarter of 2024, and provides that DRI will now receive all royalties on U.S. net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031. DRI is entitled to payment only to the extent of royalty payments that are payable on U.S. net sales of OMIDRIA on or before December 31, 2031 and DRI has no recourse to our assets other than its interest in the OMIDRIA royalties. Omeros retains the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable from and after January 1, 2024, as well as all royalties on global net sales of OMIDRIA payable from and after December 31, 2031. In addition to the cash consideration received at closing, the Amendment also entitles us to receive a milestone payment ranging between $10.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $156.0 million and $160.0 million for any period of four consecutive quarters ending prior to January 1, 2026 as well as a separate milestone payment ranging between $8.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $181.0 million and $185.0 million for any period of four consecutive quarters ending prior to January 1, 2028. See Part II, Item 8, “Note 8 – OMIDRIA Royalty Obligation” to our Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

As of December 31, 2023, we had cash, cash equivalents and short-term investments of $171.8 million and, in February 2024, we received $115.5 million from DRI.

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Results of Operations

Research and Development Expenses

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

Year Ended

Year Ended December 31,

(In thousands)

Continuing research and development expenses:

Direct external expenses:

Clinical research and development:

Discontinued research and development expenses — — 3,839

Clinical research and development expenses increased $4.8 million between 2023 and 2022. The $16.5 million increase in OMS906 development costs was due to an increase in manufacturing and Phase 2 clinical trial costs and a $5.0 million development milestone paid in 2023 under a technology license agreement. The $3.6 million increase in OMS1029 expense wasprimarily due to costs associated with initiation of human trials and other clinical development costs, i.e. the transition from preclinical to clinical development status in the third quarter of 2022. These increases were offset by decreased narsoplimab manufacturing costs during 2023.

The $3.5 million increase in clinical research and development costs between 2022 and 2021 was primarily due to the advancement of OMS1029 from preclinical status to clinical research and development status on initiation of the Phase 1 clinical trial in the third quarter of 2022. Additionally, we incurred increased narsoplimab drug manufacturing costs in 2022 compared to the prior year. These costs were partially offset by reduced costs in our OMS906 program resulting from the completion of toxicology study work in the second quarter of 2022.

Preclinical research and development expenses decreased $2.1 million in 2023 compared to 2022, primarily due to the migration of OMS1029 from preclinical to clinical research and development status during the third quarter of 2022, offset by an increase in preclinical oncology research costs during 2023.The $7.8 million decrease in 2022 over 2021 in preclinical research and development expenses was primarily due to the migration of OMS1029 from preclinical to clinical research and development status during the third quarter of 2022.

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The changes in stock-based compensation expense between the three covered years were due to the valuations of employee stock options.

We expect our overall research and development costs in 2024 to be similar to 2023, driven by commercial narsoplimab manufacturing costs expected to be incurred prior to FDA approval of TA-TMA, increases inOMS906 clinical and manufacturing costs, and decreases in OMS721 clinical costs. Our accounting policy is to expense all manufacturing costs related to drug candidates until regulatory approval is reasonably assured in either the U.S. or Europe.

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

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

Selling, General and Administrative Expenses

Our selling, general and administrative expenses are comprised primarily of salaries, benefits and stock-based compensation costs for sales, marketing and administrative personnel who are not directly engaged in research and development. Costs also include marketing and selling expenses, professional and legal services, general corporate costs and an allocation of our occupancy costs.

Year Ended December 31,

(In thousands)

Continuing selling, general and administrative expenses:

Discontinued selling, general and administrative expenses — — 25,428

Total selling, general and administrative expenses $ 49,660 $ 50,668 $ 80,270

Continuing selling, general and administrative expenses, excluding stock-based compensation expense, decreased $4.1 million between 2022 and 2021 primarily related to reduced spending on pre-commercialization sales and marketing activities which were higher in 2021 as we prepared for the then anticipated approval and commercial launch of narsoplimab for the treatment of TA-TMA.

The changes in stock-based compensation expense between the three covered years were due to the valuations of employee stock options.

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Our selling, general and administrative expenses for 2024 will be highly dependent on whether narsoplimab receives U.S. marketing approval for treatment of TA-TMA. If TA-TMA is approved in 2024, we expect to hire a field sales force and initiate commercial launch activities which will increase our selling, general and administrative expenses. If narsoplimab is not approved in 2024, our selling, general and administrative expenses are expected to decrease in 2024.

Interest Expense

Year Ended December 31,

(In thousands)

Interest expense is primarily comprised of interest and amortization of debt discount and issuance costs related to our convertible senior notes and interest on our DRI royalty obligation (see Part II, Item 8, "Note 6 – Convertible Senior Notes" and "Note 8 – OMIDRIA Royalty Obligation” to our Consolidated Financial Statements in this Annual Report on Form 10-K for additional information).

Interest expense increased $8.1 million in 2023 compared to 2022 primarily due to incurring interest from our DRI royalty obligation for the full year. Interest expense increased $3.0 million in 2022 compared to 2021 primarily due to interest incurred from our DRI royalty obligation only in the fourth quarter of 2022.

Interest and Other Income

Year Ended December 31,

(In thousands)

The $12.3 million increase in interest and other income between 2023 and 2022 was primarily due to holding higher average cash and investment balances than in the prior year as a result of receiving a $200.0 million Milestone Payment from Rayner in February 2023. The $2.3 million increase in interest and other income between 2022 and 2021 was primarily attributable to obtaining significantly higher interest rates on our cash and investments in 2022.

We expect interest and other income in 2024 to be less than 2023 primarily due to lower average cash and investment balances during 2024.

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Gain on Early Extinguishment of Convertible Senior Notes

Year Ended December 31,

(In thousands)

Gain on early extinguishment of convertible senior notes $ 4,112 $ — $ —

In December 2023, we repurchased $9.1 million par value of our 2026 Notes at a discount, realizing a $4.1 million non-cash gain on extinguishment.

Net Income from Discontinued Operations, Net of Tax

On December 23, 2021, we sold our commercial drug, OMIDRIA, to Rayner. As a result of the OMIDRIA divestiture, the results of OMIDRIA operations have been reclassified to discontinued operations for all periods presented.

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

Year Ended December 31,

(In thousands)

Product sales, net $ — $ — $ 110,735

Costs and expenses — — 30,631

Gain on sale of OMIDRIA — — 305,648

Interest on OMIDRIA contract royalty asset 15,315 18,634 —

(1) For further discussion of income tax expense, please refer to Part II, Item 8, “Note 13 – Income Taxes” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

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Gain on the Sale of OMIDRIA

On December 23, 2021, we completed the sale of OMIDRIA to Rayner and received $126.0 million in cash at the closing. Additionally, we recorded an OMIDRIA contract royalty asset of $184.6 million for the rights to receive future royalties from Rayner on OMIDRIA net sales. The sale of OMIDRIA qualified as an asset sale under GAAP.

Rayner’s U.S. net sales of OMIDRIA for the years ended December 31, 2023 and 2022 were $135.3 million and $130.9 million, respectively. We earned royalties of $40.6 million and $65.4 million on OMIDRIA net sales for the years ended December 31, 2023 and 2022, respectively, which we recorded as a reduction from the OMIDRIA contract royalty asset. The decrease in royalty earnings between the years ended December 31, 2023 and 2022 was due to a reduction of our royalty rate on U.S. net sales of OMIDRIA from 50% to 30% upon achievement of the $200.0 million Milestone Event. (For further discussion of discontinued operations, please refer to Part II, Item 8, “Note 7 – Discontinued Operations – Sale of OMIDRIA” to our Consolidated Financial Statements in this Annual Report on Form 10-K).

Milestone Income

The Milestone Event occurred in December 2022, entitling us to receive a Milestone Payment of $200.0 million from Rayner. We received the Milestone Payment together with accrued interest in February 2023.

Interest Income

During the years ended December 31, 2023 and 2022, we recorded $15.3 million and $18.6 million, respectively, of income in discontinued operations, representing interest income on the outstanding OMIDRIA contract royalty asset at an implied interest rate of 11.0%.

Remeasurement Adjustments

During the years ended December 31, 2023 and 2022, we recorded $41.2 million and $14.5 million, respectively, of remeasurement adjustments. The $26.7 million increase in 2023 was primarily attributable to assigning a greater probability of achieving higher royalty earnings on net sales of OMIDRIA as supported by our most recent transaction with DRI, which closed on February 1, 2024.

Income Tax Expense

For the years ended December 31, 2023, 2022 and 2021, we recorded state income tax expense of $0.5 million, $4.0 million and $1.0 million, respectively, which could not be offset by prior period net operating losses and tax credit carryforwards.

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Financial Condition- Liquidity and Capital Resources

As of December 31, 2023, we had cash, cash equivalents and short-term investments of $171.8 million.For the year ended December 31, 2023, our cash provided by operations was $74.7 million and our net loss was $117.8 million. In February 2024, we received $115.5 million upon the sale to DRI of our U.S. OMIDRIA royalty receipts payable between January 1, 2024 and December 31, 2031.

Historically, we have incurred net losses from continuing operations and negative operating cash flows. We have not yet established an ongoing source of revenue sufficient to cover our operating costs; therefore, we potentially need to continue to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in 2026. We plan to continue to fund our operations for at least the next twelve months with our existing cash and investments and the $115.5 million we received in February 2024 from DRI. We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $150.0 million. Should it be determined to be strategically advantageous, we could pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may include licensing a portion of our existing technology. Should it be necessary to manage our operating expenses, we could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

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Cash Flow Data

Year Ended December 31,

(In thousands)

Selected cash flow data

Cash provided by (used in):

Operating Activities.Net cash provided by operating activities for the year ended December 31, 2023 increased by $161.2 million compared to the same period in 2022. This increase was primarily due to collecting the $200.00 million Milestone Payment from Rayner in the current year and a $15.3 increase in accounts payable and accrued expenses. These increases were offset by a $26.7 million change in the remeasurement of the OMIDRIA contract royalty asset, $8.7 million related to the accretion of interest on U.S. government treasury bills and a $4.1 million gain on the early extinguishment of a portion of our 2026 Notes.

Net cash used in operating activities for the year ended December 31, 2022 decreased by $23.2 million compared to the same period in 2021. This change was primarily due to a decrease in net income of $146.8 million as we recognized $310.6 million of non-cash gain from the sale of OMIDRIA in the prior year and a change in cash collections of $124.7 million through accounts receivables and royalty earnings. This was offset by a $200.0 million milestone receivable recognized in 2022 as well as $35.6 million in non-cash charges and $29.7 million of accounts payable, accrued expenses and other.

Investing Activities.Net cash provided by investing activities increased $155.0 million during 2023 compared to 2022 driven by net proceeds from the purchase and sale of investments.

Net cash provided by investing activities decreased $321.3 million during 2022 compared to 2021. This was driven by a $194.5 million decrease in net proceeds from the purchase and sale of investments and recognizing $126.0 million in proceeds from the sale of OMIDRIA in 2021.

Financing Activities.Net cash used in financing activities decreased $230.3 million during 2023 compared to the prior year. The decrease was primarily due to receiving $125.0 million in 2022 in connection with selling a portion of our OMIDRIA royalties to DRI and extinguishing $95.0 million of our 6.25% convertible senior notes (the "2023 Notes"). In addition, we paid $4.9 million to retire $9.1 million par value of our 2026 Notes and repurchased $4.7 million of our common stock through a stock repurchase program in 2023.

Net cash provided by financing activities increased $117.9 million during 2022 compared to the prior year. The increase was primarily due to receiving cash proceeds of $125.0 million in connection with the sale of a portion of our OMIDRIA royalties to DRI, which was partially offset by a reduction in stock option exercises of $8.0 million during 2022.

Contractual Obligations and Commitments

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, 2023, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, was $26.9 million.

We have finance leases for certain laboratory and office equipment that have lease terms expiring through November 2026.

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Convertible Notes

For more information regarding the convertible senior notes extinguished in mid-November 2023 and convertible senior notes due in February 2026, see Part II, Item 8, “Note 6 - Convertible Senior Notes”.

OMIDRIA Royalty Obligation

For more information regarding the OMIDRIA Royalty Obligation, see Part II, Item 8, “Note 8 - OMIDRIA Royalty Obligation”.

Goods& Services

We have certain non-cancelable obligations under other agreements for the acquisitions of goods and services associated with the manufacturing of our drug candidates, which contain firm commitments. As of December 31, 2023, our aggregate firm commitments were $25.8 million.

We may 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. For information regarding agreements that include these royalty and milestone payment obligations, see Part II, Item 8, “Note 10 - Commitments and Contingencies” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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. For a summary of our critical accounting policies, see Part II, Item 8, “Note 2 - Significant Accounting Policies” to our Consolidated Financial Statements in this Annual Report on Form 10-K.

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;

● OMIDRIA royalties and contract asset accounting;

● OMIDRIA royalty obligation accounting;

● research and development expenses related to clinical trials;

● accounting for convertible debt issuances, primarily related to fair valuing debt and issuance costs; and

● stock-based compensation, primarily related to our fair value assumptions.

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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.

Product Revenue Recognition

Prior to the December 23, 2021 sale of OMIDRIA to Rayner, we recorded revenue from product sales when the product was delivered to our wholesalers and title for the product was transferred. Product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances were established for these deductions in the same period when revenue was recognized, and actual amounts incurred were offset against the applicable accruals or allowances. We reflected each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount was expected to be settled.

OMIDRIA Royalties, Milestones and Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the discounted sum of probability-weighted royalty payments, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. Our calculations take the net present value of the sum to arrive at the OMIDRIA contract royalty asset stated on the balance sheet. We revalued the contract royalty asset to reduce the applicable royalty percentage from 50% to 30%, as required under the Asset Purchase Agreement following the occurrence of the December 2022 event triggering the $200.0 million Milestone Payment. Royalties earned will be recorded as a reduction to the OMIDRIA contract royalty asset. The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset and any amounts received different from the expected royalties recorded at closing. The OMIDRIA contract royalty asset is subject to changes in net sales of OMIDRIA. All else being equal, a 10% decrease or increase in net sales results in a $16.8 million change in value of the OMIDRIA contract royalty asset, resulting in a potential contract royalty asset valued within the range of $151.3 million to $184.9 million. Changes in net sales could occur due to various risks such as competitors entering the market, changes in the standard of care for cataract patients and loss of separate payment status for OMIDRIA. In determining the value of the OMIDRIA contract royalty asset, we have considered all of these factors. The OMIDRIA contract royalty asset will be re-measured periodically using the expected value approach based on actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset will be recorded in discontinued operations.

We receive monthly royalty payments based on Rayner’s OMIDRIA product sales in accordance with the Asset Purchase Agreement. Upon the closing of the Asset Purchase Agreement, we determined the expected minimum net present value of future OMIDRIA royalty receipts and recognized the amount as a gain on the sale of OMIDRIA in discontinued operations on our income statement and as an OMIDRIA contract royalty asset on our balance sheet. To determine the OMIDRIA contract royalty asset, we used the expected value approach which is based on the sum of probability-weighted payments we would receive using a range of potential outcomes at an effective interest rate of 11%. The contract royalty asset excludes any revenue which potentially may be reversed in the event of an over estimation.

OMIDRIA Royalty Obligations

The sale of any portion of our OMIDRIA royalty receipts is treated as a liability on our consolidated balance sheet to the extent that any of our royalties are capped, as this does not result in the transfer of a participating interest. We amortize royalty obligation liabilities over the term of the arrangement using the effective interest method and classify interest expense as a component of continuing operations.

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To the extent our estimates of future royalties are less than previous estimates, we will adjust the carrying amount of the royalty obligation to the present value of the revised estimated cash flows, discounted at the original effective interest rate utilizing the cumulative catch-up method. The adjustment would be recognized as a component of net income (loss) from continuing operations.

Research and Development Expenses

Research and development costs are comprised primarily of:

● contracted research and manufacturing costs;

● clinical study costs;

● costs of personnel, including salaries, benefits and stock compensation;

● consulting arrangements;

● depreciation and an allocation of our occupancy costs; and

● other expenses incurred to sustain our overall research and development programs.

Contracted research and manufacturing costs are primarily incurred in the development and production of our drug candidates. Prior to approval, our estimates are based on the timing of services provided. We record accrued expenses equal to our estimated expense in excess of amount invoiced by the suppliers.

Clinical trial expenses are estimated 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 any given point in time.

Convertible Debt Issuances

On January 1, 2021, we adopted Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion Options (Subtopic 470.20 and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis. ASU 2020-06 removes the separate liability and equity accounting for our convertible senior notes. As of January 1, 2021, we account for our convertible senior notes wholly as debt. Prior to January 1, 2021, we accounted for convertible debt that may be settled wholly or partially in cash upon conversion as having both a liability component (debt) and an equity component (conversion option). The cash conversion guidance applies as the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in the balance sheet. Principal cash proceeds from the instrument are allocated first to the liability component based on the fair value of non-convertible debt using the income and market-based approaches to determine an effective interest rate for present valuing the cash proceeds. For the income-based approach, we use a convertible bond pricing model that includes several assumptions such as volatility and a risk-free rate. For the market-based approach, we observe the price of derivative price instruments purchased in conjunction with our convertible senior note issuances or evaluate issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. Issuance costs from the instrument are then allocated to the liability and equity components in the same proportion as the proceeds. The equity component of the cash principal proceeds and the liability component of the issuance costs represent a debt discount.

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Transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation by the debtor are evaluated as a modification or an exchange transaction depending on whether the exchange is determined to have substantially different terms. We extinguished the 2023 Notes at maturity. The partial repurchase of the 2026 Notes was deemed to be a modification which we accounted for as a debt extinguishment.

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 valuation model, which requires assumptions regarding volatility, risk-free rates, forfeiture rates and expected option life. We estimate forfeitures for expense recognition based on our historical experience. Groups of employees that have similar historical forfeiture behavior are considered separately. 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.

Recent Accounting Pronouncements

Please refer to Part II, Item 8, “Note 2 - Significant Accounting Policies” to our Consolidated Financial Statements in this Annual Report on Form 10-K for information regarding recent accounting pronouncements.

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is primarily confined to our investment securities. The primary objective of our investment activities is to preserve our capital to fund operations, and we do not enter into financial instruments for trading or speculative purposes. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-quality securities. As of December 31, 2023, we had cash, cash equivalents and short-term investments of $171.8 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 held-to-maturity. 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 effect on the realized value of our investment portfolio. We actively monitor changes in interest rates and, with our current portfolio of short-term investments which we intend to hold to maturity, we are not exposed to significant loss due to changes in interest rates.

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ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 58

Consolidated Balance Sheets 60

Consolidated Statements of Operations and Comprehensive Income (Loss) 61

Consolidated Statement of Shareholders’ Equity (Deficit) 62

Consolidated Statements of Cash Flows 63

Notes to Consolidated Financial Statements 64

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors Omeros Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Omeros Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of an expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

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OMIDRIA Contract Royalty Asset

/s/Ernst & Young LLP

We have served as the Company’s auditor since 1998.

Seattle, Washington

April 1, 2024

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OMEROS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

December 31, December 31,

Assets

Current assets:

OMIDRIA contract royalty asset, short-term 29,373 28,797

Prepaid expense and other assets 8,581 6,300

Liabilities and shareholders’ equity (deficit)

Current liabilities:

Current portion of convertible senior notes, net — 94,381

Current portion of OMIDRIA royalty obligation 8,576 1,152

Current portion of lease liabilities 5,160 4,310

Other accrued liabilities - noncurrent 2,088 444

Commitments and contingencies (Note 10)

Shareholders’ equity (deficit):

Total shareholders’ equity (deficit) (24,983 ) 85,684

Total liabilities and shareholders’ equity (deficit) $ 378,269 $ 590,969

See accompanying Notes to Consolidated Financial Statements

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OMEROS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share data)

Year Ended December 31,

Costs and expenses:

Gain on early extinguishment of convertible senior notes 4,112 — —

Basic and diluted net income (loss) per share:

Net loss from continuing operations $ (2.79 ) $ (2.90 ) $ (3.07 )

Net income from discontinued operations 0.91 3.66 6.19

See accompanying Notes to Consolidated Financial Statements

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OMEROS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

Additional Total

Common Stock Paid-in Accumulated Shareholders’

Shares Amount Capital Deficit Equity/(Deficit)

Issuance of common stock upon grant of restricted stock awards 11,700 — 91 — 91

At the market offering fees — — (241 ) — (241 )

Issuance of common stock upon exercise of stock options 101,160 1 414 — 415

Issuance of common stock upon exercise of stock options 36,726 — 150 — 150

See accompanying Notes to Consolidated Financial Statements

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OMEROS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Operating activities:

Non-cash interest expense on convertible senior notes 1,853 1,830 1,696

Remeasurement on OMIDRIA contract royalty asset (41,167 ) (14,457 ) —

Interest on OMIDRIA contract royalty asset (15,315 ) (18,634 ) —

Accretion on U.S. government treasury bills, net (8,714 ) — —

Gain on early extinguishment of convertible senior notes (4,112 ) — —

Gain on sale of OMIDRIA, gross — — (310,563 )

Non-cash interest expense on future royalty obligation — 1,695 —

Changes in operating assets and liabilities:

Investing activities:

Purchases of property and equipment (426 ) (113 ) (277 )

Cash proceeds on sale of OMIDRIA — — 125,993

Financing activities:

Payments on convertible senior notes (99,873 ) — —

Repurchases on common stock (4,654 ) — —

Principal payments on OMIDRIA royalty obligation (1,152 ) (417 ) —

Payments on finance lease obligations (555 ) (750 ) (1,823 )

Proceeds upon exercise of stock options 150 415 8,383

Proceeds upon entering into OMIDRIA royalty obligation — 125,000 —

At the market offering costs — — (241 )

Net increase (decrease) in cash and cash equivalents (3,904 ) (89,799 ) 90,307

Supplemental cash flow information

Equipment acquired under finance lease $ 952 $ 40 $ 289

See accompanying Notes to Consolidated Financial Statements

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OMEROS CORPORATION

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

Note1—Organization and Basis of Presentation

General

Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, cancers, and addictive and compulsive disorders. We marketed our first drug product OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1% / 0.3% for use during cataract surgery or intraocular lens replacement in the United States (the “U.S.”) until we sold OMIDRIA and related business assets on December 23, 2021 (see “Sale of OMIDRIA Assets” below for additional information).

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

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy ("TA-TMA"). Our Biologics License Application ("BLA") for narsoplimab in TA-TMA is anticipated to be resubmitted with additional information to support potential approval of narsoplimab in this indication. In October 2023, we announced the results of a pre-specified interim analysis of our Phase 3 ARTEMIS-IGAN trial evaluating narsoplimab for the treatment of immunoglobulin A ("IgA") nephropathy. Topline results showed that narsoplimab did not reach statistically significant improvement over placebo on the primary endpoint of reduction in proteinuria. Based on this result, we have discontinued the ARTEMIS-IGAN clinical trial.

Phase 1 and Phase 2 clinical programs are underway in our other clinical-stage assets.

Sale of OMIDRIA Assets

On December 23, 2021, we closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc. (“Rayner”) for the sale of our commercial product OMIDRIA. Rayner paid us $126.0 million in cash at closing, and we retained all outstanding accounts receivable, accounts payable and accrued expenses as of the closing date. Additionally, we are entitled to future royalty payments on net sales of OMIDRIA.

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

As a result of the divestiture, the results of OMIDRIA operations (e.g., revenues and operating costs) have been reclassified to discontinued operations in our consolidated statements of operations and comprehensive income (loss) and excluded from continuing operations for all periods presented (See“Note 7 – Discontinued Operations – Sale of OMIDRIA ”).

Basis of Presentation

Our consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Liquidity and Capital Resources

As of December 31, 2023, we had cash, cash equivalents and short-term investments of $171.8 million. Our cash provided by operations for the year ended December 31, 2023 was $74.7 million and included our 2023 net loss for the year of $117.8 million and collection of the $200.0 million Milestone Payment in the first quarter of 2023. We extinguished $95.0 million outstanding of convertible senior notes at maturity in November 2023. In February 2024, we received $115.5 million upon the sale to DRI Healthcare Acquisition LP ("DRI") of substantially all of our expected remaining U.S.-only Rayner OMIDRIA royalty receipts payable through December 31, 2031 (see “Note 8 - OMIDRIA Royalty Obligation”).

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

Note2—Significant Accounting Policies

Discontinued Operations

We review the presentation of planned or completed business dispositions in the consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business and, if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results.

Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the consolidated statements of operations and comprehensive income (loss). Results of discontinued operations include all revenues and expenses directly derived from such businesses. General corporate overhead is not allocated to discontinued operations. The OMIDRIA asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented. The Company included information regarding cash flows from discontinued operations (see “Note 7 – Discontinued Operations – Sale of OMIDRIA”).

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OMIDRIA Royalties, Milestones and Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the sum of the discounted probability-weighted royalty payments, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. As contemplated by the Asset Purchase Agreement, the royalty rate applicable to U.S. net sales of OMIDRIA was reduced from 50% to 30% upon the occurrence, in December 2022, of the event triggering the $200.0 million Milestone Payment. The reduction in our royalty rate to 30% continues until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2035. Consequently, we revalued the OMIDRIA contract royalty asset using the 30% royalty rate on U.S. net sales and adjusted the probability weighted outcomes to reflect the occurrence of the Milestone Event. Royalties earned are recorded as a reduction to the OMIDRIA contract royalty asset. The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset at 11.0% and any amounts we receive that are different from the expected royalties. The OMIDRIA contract royalty asset is re-measured periodically using the expected value approach based on actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset is recorded in discontinued operations.

OMIDRIA Royalty Obligation

On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $125.0 million and recorded as an “OMIDRIA royalty obligation” on our consolidated balance sheet. The liability is amortized over the term of the arrangement using the implied effective interest rate of 9.4%. Interest expense is recorded as a component of continuing operations.

To the extent our estimates of future royalties are less than previous estimates, we will adjust the carrying amount of the OMIDRIA royalty obligation to the present value of the revised estimated cash flows, discounted at the effective interest rate utilizing the cumulative catch-up method. The adjustment would be recognized as a component of net income (loss) from continuing operations (see “Note 8 - OMIDRIA Royalty Obligation”).

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

Cash and cash equivalents include highly liquid investments with a maturity of three months or less on the date of purchase which can be easily converted into cash without a significant impact to their value. Short-term investment securities are classified as held-to-maturity. Investments classified as held-to-maturity are carried at cost. Amortization, accretion, interest, and dividends, realized gains and losses and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific-identification method. Investments 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 investments held in money-market funds include security deposits held by our landlord.

Investment income, which is included as a component of other income, consists primarily of interest earned.

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Inventory

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

Receivables

Receivables at December 31, 2023 primarily consist of royalties receivable from Rayner. Receivables at December 31, 2022 also included the $200.0 million Milestone Payment which we received in February 2023. Considering the nature of our receivables, we concluded an allowance for doubtful accounts was not necessary as of December 31, 2023 and 2022, respectively.

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 acquired through finance 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 repairs and maintenance are expensed as incurred.

Convertible Senior Notes

Transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation are evaluated as a modification or an extinguishment depending on whether the exchange is determined to have substantially different terms. We extinguished the 6.25% convertible senior notes (the “2023 Notes”) at par upon maturity on November 15, 2023. In December 2023, we repurchased $9.1 million par value of our 5.25% convertible senior notes (“2026 Notes”) at a discount, realizing a $4.1 million non-cash gain on extinguishment.

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Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, 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 that the asset is expected to generate. If the asset is 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 ended December 31, 2023, 2022 and 2021.

Revenue Recognition

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

Prior to the sale of OMIDRIA to Rayner, we recorded product sales as revenue when the product was delivered to our wholesalers and title for the product was transferred. Product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts.

Research and Development

Research and development expenses are comprised primarily of contracted research, clinical trial study and manufacturing costs prior to approval; consulting services; contract milestones; materials and supplies; costs for personnel, including salaries, benefits and stock compensation; depreciation; an allocation of our occupancy costs; and other expenses incurred to sustain our overall research and development programs. Advance payments for goods or services that will be used 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. All other research and development costs are expensed as incurred.

Selling, General and Administrative

Selling, general and administrative expenses are comprised primarily of marketing and selling expenses; professional and legal services; patent costs; and salaries, benefits, and stock-compensation costs for sales, marketing, and other personnel not directly engaged in research and development. Additionally, selling, general and administrative expenses include depreciation; an allocation of our occupancy costs; and other general corporate expenses. Advertising costs are expensed as incurred. We had no advertising costs during the years ended December 31, 2023 and 2022. For the year ended December 31, 2021, we incurred $0.8 million in advertising costs related to our sales of OMIDRIA.

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

Common Stock Repurchases

We may repurchase shares of our common stock from time to time under authorization made by our Board of Directors. Under applicable Washington State law, repurchased shares are retired and not presented separately as treasury stock on the consolidated financial statements.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is comprised of net income (loss) and certain changes in equity that are excluded from net income (loss). There was no difference between comprehensive income (loss) and net income (loss) for the years ended December 31, 2023, 2022 and 2021.

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 held at a financial institution may 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 U.S. treasury bills.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosure (Topic 740), to enhance the transparency of income tax disclosures. ASU 2023-09 provides enhancements to the income tax disclosures related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years after December 15, 2025 and applied prospectively. The Company is evaluating the impact of this pronouncement on its consolidated financial statements.

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Note3—Net Income (Loss) Per Share

Basic net income (loss) per share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Our potentially dilutive securities include common shares related to our stock options, RSUs and convertible senior notes calculated using the treasury stock method. In periods where we have a net loss from continuing operations but overall net income, we do not compute Diluted EPS. Potentially dilutive securities excluded from Diluted EPS are as follows:

Year Ended December 31,

Outstanding restricted stock units — 98,750 2,642

(1) The 2023 Notes were, and the 2026 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 6 - Convertible Senior Notes”. Any potential impact of the capped call arrangement is excluded from this table.

(2) The 2023 Notes were fully extinguished on November 15, 2023.

Note4—Fair-Value Measurements

All of our investments are held in our name and are classified as short-term and held-to-maturity. Interest income from investments for the years ended December 31, 2023 and December 31, 2022 were $14.7 million and $2.2 million, respectively.

The following tables summarize our investments:

Gross Unrealized

Amortized Cost Gains/(Losses) Estimated Fair Value

(In thousands)

Money-market funds classified as short-term investments 62,643 — 62,643

Gross Unrealized

Amortized Cost Gains/(Losses) Estimated Fair Value

(In thousands)

Money-market funds classified as short-term investments 84,882 — 84,882

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

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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 are as follows:

Level 1 Level 2 Level 3 Total

(In thousands)

Money-market funds classified as short-term investments 62,643 — — 62,643

Level 1 Level 2 Level 3 Total

(In thousands)

Money-market funds classified as short-term investments 84,882 — — 84,882

Unrealized gains and losses on our short-term investments were not material for either period presented. Cash held in demand deposit accounts of $7.1 million and $11.0 million is excluded from our fair-value hierarchy disclosure as of December 31, 2023 and 2022, respectively. The carrying amounts for receivables, accounts payable and accrued liabilities, and other current monetary assets and liabilities, including lease financing obligations, approximate fair value.

See “Note 6 - Convertible Senior Notes” and “Note 8 – OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our 2023 Notes, 2026 Notes and the OMIDRIA royalty obligation.

Note5—Certain Balance Sheet Accounts

Receivables

Receivables consists of the following:

December 31, December 31,

(In thousands)

OMIDRIA milestone receivable $ — $ 200,000

Property and Equipment, Net

Property and equipment, net consists of the following:

December 31, December 31,

(In thousands)

Equipment under finance leases $ 6,929 $ 6,204

Office equipment and furniture 624 625

Less accumulated depreciation and amortization (10,241 ) (9,548 )

Total property and equipment, net $ 1,950 $ 1,492

For the years ended December 31, 2023, 2022 and 2021, depreciation and amortization expenses were $0.9 million, $1.0 million and $1.4 million, respectively.

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Accrued Expenses

Accrued expenses consist of the following:

December 31, December 31,

(In thousands)

Contract research and development 6,223 3,209

Consulting and professional fees 3,539 4,425

Note6—Convertible Senior Notes

On January 1, 2021, we adopted ASU 2020-06,Debt—Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis. ASU 2020-06 removes the separate liability and equity accounting for our convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs increasing convertible senior notes and shareholders’ equity by $75.5 million.

In December 2023, we repurchased $9.1 million par value of our 2026 Notes realizing a non-cash gain on debt extinguishment of $4.1 million to our consolidated statement of operations and comprehensive loss in the current year. On November 15, 2023, we also extinguished at par the $95.0 million outstanding principal amount on our 2023 Notes.

Convertible senior notes outstanding at December 31, 2023 and 2022, respectively, are as follows:

Balance as of December 31, 2023

(In thousands)

Unamortized debt issuance costs — (2,769 ) (2,769 )

Fair value of outstanding convertible senior notes (1) $ — $ 131,444

Balance as of December 31, 2022

(In thousands)

Unamortized debt issuance costs (619 ) (4,124 ) (4,743 )

Fair value of outstanding convertible senior notes (1) $ 92,031 $ 118,141

(1) The fair value is classified as Level 3 due to the limited trading activity for the convertible senior notes.

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2023 Convertible Senior Notes

The 2023 Notes accrued interest at an annual rate of 6.25% per annum. The 2023 Notes matured on November 15, 2023, and the $95.0 million outstanding principal and related accrued interest were paid at that time.

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

Year Ended December 31,

(In thousands)

Amortization of debt issuance costs 619 663 618

2026 Convertible Senior Notes

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

The initial conversion rate is 54.0906 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $18.4875 per share of common stock), which equals approximately 12.2 million shares issuable upon conversion, subject to adjustment in certain circumstances.

The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026, the second scheduled trading day immediately before the stated maturity date of February 15, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:

(1) during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130% of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the five consecutive business days immediately after any five-consecutive-trading-day period (such five-consecutive-trading-day period, the “measurement period”) in which the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

(3) there is an occurrence of one or more certain corporate events or distributions of our common stock; or

(4) we call the 2026 Notes for redemption.

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

Subject to the satisfaction of certain conditions, we may redeem in whole or in part the 2026 Notes at our option beginning August 15, 2023 through the 50th scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. The 2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice and (ii) the trading day immediately before the date we send such notice.

In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions in connection with the issuances of the 2026 Notes (the "2026 Capped Call"). The 2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes, the number of shares of common stock underlying the 2026 Notes when our common stock is trading within the range of approximately $18.49 and $26.10. However, should the market price of our common stock exceed the $26.10 cap, then the conversion of the 2026 Notes would have an additional dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price. The 2026 Capped Call will expire on various dates over the 50-trading-day period ranging from December 2, 2025 to February 12, 2026, if not exercised earlier. The 2026 Capped Call is a separate transaction and not part of the terms of the 2026 Notes and was executed separately from the issuance of the 2026 Notes. The amount paid for the 2026 Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheet. As of December 31, 2023, approximately 12.2 million shares remained outstanding under the 2026 Capped Call.

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

The unamortized debt issuance costs of $2.8million as of December 31, 2023 will be amortized to interest expense at an effective interest rate of 5.9% over the remaining term.

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

Year Ended December 31,

(In thousands)

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Note7—Discontinued Operations - Sale of OMIDRIA

On December 23, 2021, we closed the sale of OMIDRIA and related assets, which is reported as discontinued operations in our consolidated statements of operations and comprehensive income. Upon closing, we received an up-front cash payment from Rayner of $126.0 million, and we retained the outstanding receivables and liabilities related to OMIDRIA as of the closing date.

The year ended December 31, 2021, included a gain on the sale of OMIDRIA comprised as follows (in thousands):

OMIDRIA contract royalty asset 184,570

Gain on sale of OMIDRIA, gross 310,563

Transaction and closing costs (1,972 )

RSUs granted to transferred employees (1,419 )

Prepaid assets and inventory at cost (1,524 )

Gain on sale of OMIDRIA $ 305,648

In December 2022, the achievement of the Milestone Event triggered a $200.0 million Milestone Payment from Rayner which we received in February 2023. The Milestone Event also resulted in a reduction in the U.S. royalty rate from 50% to 30% on OMIDRIA net sales.

The results of operations for OMIDRIA are recorded as income from discontinued operations for all periods presented in the consolidated statements of operations and comprehensive income (loss).

Year Ended December 31,

(In thousands)

Product sales, net $ — $ — $ 110,735

Costs and expenses — — 30,631

Gain on sale of OMIDRIA — — 305,648

Interest on OMIDRIA contract royalty asset 15,315 18,634 —

(1) For further discussion of income tax expense refer to “Note 13 – Income Taxes”.

The following schedule is a rollforward of the OMIDRIA contract royalty asset (in thousands):

Royalties earned (65,439 )

Interest on OMIDRIA contract royalty asset 18,634

Remeasurement adjustments 14,457

Royalties earned (40,595 )

Interest on OMIDRIA contract royalty asset 15,315

Remeasurement adjustments 41,167

Cash flow from discontinued operations is as follows:

Year Ended December 31,

(In thousands)

Note8—OMIDRIA Royalty Obligation

In September 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $125.0 million in cash consideration which was recorded as an OMIDRIA royalty obligation on our consolidated balance sheet. DRI is entitled to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, subject to annual caps. DRI receives their prorated monthly cap amount before we receive any royalty proceeds. DRI is not entitled to carry-forward nor recoup any shortfall if the royalties paid by Rayner for an annual period are less than the cap amount applicable to each discrete calendar year. Additionally, DRI has no recourse to or security interest in our assets other than our OMIDRIA royalty receipts.

The changes in the OMIDRIA royalty obligation during the year ended December 31, 2023 are as follows (in thousands):

Principal payments (1,152 )

The OMIDRIA royalty obligation is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. As of December 31, 2023, the approximate fair value of our obligation was $116.3 million.

For the years ended December 31, 2023 and December 31, 2022, we incurred interest expense of $11.8 million and $2.9 million, respectively, on the OMIDRIA royalty obligation.

As of December 31, 2023, the maximum scheduled principal and interest payments (based on an implied effective interest rate of 9.4%) are as follows:

Total

Principal Interest Annual Cap

(In thousands)

Subsequent Event

In February 2024, Omeros and DRI expanded their royalty purchase agreement, resulting in Omeros receiving $115.5 million in cash consideration from DRI upon closing. The Amended and Restated Royalty Purchase Agreement ("RPA") eliminated the caps on royalty payments effective in the first quarter of 2024 and provides that DRI will now receive all royalties on U.S. net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031. DRI is entitled to payment only to the extent of royalty payments that are payable in the respect of U.S. net sales of OMIDRIA on or before December 31, 2031 and DRI has no recourse to our assets other than its interest in OMIDRIA royalties. Omeros retains the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable from and after January 1, 2024, as well as royalties on global net sales of OMIDRIA payable from and after December 31, 2031. To date, international royalties have not been significant. We are also entitled to receive a milestone ranging between $10.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $156.0 million and $160.0 million for any period of four consecutive quarters prior to January 1, 2026. In addition, we are entitled to receive a separate milestone ranging between $8.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $181.0 million and $185.0 million for any period of four consecutive quarters prior to January 1, 2028.

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Note9—Lease Liabilities

We have operating leases related to our office and laboratory space. The initial term of the leases is through November 2027 and we have two options to extend the lease term, each by five years. We have finance leases for certain laboratory and office equipment that have lease terms expiring through November 2026.

Lease-related assets and liabilities recorded on our consolidated balance sheet are as follows:

December 31, December 31,

(In thousands)

Assets

Liabilities

Current:

Non-current:

Weighted-average remaining lease term

Operating leases (years) 3.8 4.8

Finance leases (years) 2.3 2.3

Weighted-average discount rate

The components of total lease costs are as follows:

Year Ended

December 31,

(In thousands)

Lease cost

Finance lease cost:

The supplemental cash flow information related to leases is as follows:

Year Ended

December 31,

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities

Cash payments for operating leases $ 7,144 $ 7,072

Cash payments for financing leases $ 655 $ 790

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The future maturities of our lease liabilities as of December 31, 2023 are as follows:

Operating Finance

Leases Leases Total

(In thousands)

Note10—Commitments and Contingencies

Contracts

We have various agreements with third parties that collectively require payment of termination fees totaling $25.8 million as of December 31, 2023 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.

Development Milestones and Product Royalties

We have entered a variety of development, collaboration, licensing or similar agreements with third parties under which we have accessed technology or services in connection with our development assets and programs. Some of these agreements require milestone payments based on achievements of development, regulatory or sales milestones, and/or low-single to low-double digit royalties on net income or net sales of the relevant product. For the years ended December 31, 2023, 2022 and 2021, we paid $5.0 million, $0.3 million and $0.5 million, respectively in development milestones.

Note11—Shareholders’ Equity (Deficit)

Common Stock

As of December 31, 2023, we had reserved shares of common stock under our equity plans as follows:

At the Market Sales Agreement – We have a sales agreement to sell shares of our common stock having an aggregate offering price of up to $150.0 million, from time to time, through an “at the market” equity offering program.

Amendment of 2017 Omnibus Incentive Compensation Plan - At our June 23, 2023 annual meeting, our shareholders approved a 5,000,000 share increase in the number of shares of common stock available for grant under the 2017 Omnibus Incentive Compensation Plan, as amended and restated.

Share Repurchase Program - On November 9, 2023, the Board of Directors approved an indefinite-term share repurchase program under which we may repurchase from time to time up to $50.0 million of our common stock in the open market or through privately negotiated transactions. For the year ended December 31, 2023, we repurchased and retired 1.8 million shares of common stock at an average share price of $2.54, for an aggregate repurchase price of $4.7 million.

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Note12—Stock-Based Compensation

Our equity plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, performance shares and other stock and cash awards to employees and consultants. Stock options are granted with an exercise price not less than the fair market value of Omeros’ common stock on the date of the grant. Any unexercised options expire 10 years from grant date, and any unvested stock options granted which are subsequently canceled become available for future reissuance.

Vesting schedules for our equity plans generally are as follows:

Grant Type Vesting Schedule

Employee recurring options grants 1/48 monthly

Non-employee consultant options grants 1/12 or 1/48 monthly

Employee RSUs 50% after one year, 50% after two years

Stock-based compensation expense is as follows:

Year Ended December 31,

(In thousands)

Continuing operations:

Total stock-based compensation in continuing operations 11,894 14,165 14,945

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

Year Ended December 31,

Estimated weighted-average fair value $ 2.44 $ 2.94 $ 10.54

Weighted-average assumptions:

Expected volatility 93 % 90 % 81 %

Expected life, in years 7.2 6.0 6.0

Expected dividend yield — % — % — %

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

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Stock option activity for all stock option plans is as follows:

Of the 15.3 million common stock options outstanding as of December 31, 2023, 12.3 million have an exercise price above the $3.27 closing price of our stock on the Nasdaq exchange on December 31, 2023. The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.1 million, $0.2 million and $7.8 million, respectively.

At December 31, 2023, there were 4.7 million unvested stock options outstanding that vest over a weighted-average period of 2.1 years. The remaining estimated compensation expense to be recognized in connection with these unvested stock options is $14.5 million.

RSU activity for all stock plans is as follows:

RSUs Outstanding Weighted- Average Grant Date Fair Value Per Share

Balance at December 31, 2023 — $ —

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Note13—Income Taxes

The components of income tax benefit from continuing and discontinued operations were as follows:

December 31,

(In thousands)

Continuing operations:

Current income tax expense:

Federal $ — $ — $ —

State — — —

Total current income tax expense — — —

Deferred income tax benefit:

Federal — — —

State — — —

Total deferred income tax benefit — — —

Income tax benefit in continuing operations $ — $ — $ —

For the years ended December 31, 2023, 2022 and 2021, for federal and state income tax purposes, we had net losses from continuing operations and net income from discontinued operations, which resulted in an overall tax loss. At December 31, 2023, 2022 and 2021, we had federal net operating loss ("NOL") carryforwards of approximately $398.6 million, $361.4 million and $630.6 million, respectively, for all periods. At December 31, 2023, 2022 and 2021, we had state NOL carryforwards of approximately $245.8 million, $226.3 million and $245.1 million, respectively. In 2023, we had a net loss for federal income tax purposes and in 2022 and 2021, we utilized existing net operating loss carryforwards of $268.6 million and $245.1 million, respectively to fully offset our federal tax liability for both periods. We recorded state income tax expense of $0.5 million, $4.0 million and $1.0 million in discontinued operations in 2023,2022 and 2021, respectively as we did not have adequate net operating losses and tax credits to fully offset our state tax liability.

Deferred income tax assets and liabilities reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Significant components of deferred income taxes were as follows:

December 31,

(In thousands)

Deferred tax assets:

Deferred tax liabilities:

Property and equipment (122 ) (288 )

Net deferred tax assets before valuation allowance 238,483 203,200

Net deferred tax liabilities $ — $ —

As of December 31, 2023, we had federal net operating loss carryforwards of approximately $398.6 million and state net operating loss carryforwards of approximately $245.8 million. Pre-2018 federal net operating losses of $109.8 million expire between 2035 and 2037. Post-2018 federal net operating losses of $288.8 million do not expire. Research and development tax credit carryforwards of $93.0 million expire between 2024 and 2043.

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and includes the requirement to capitalize and amortize research and experimental expenditures beginning in 2022. Prior to 2022, we expensed these costs as incurred for tax purposes.

Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes from continuing operations are as follows:

OMER US Equity

OMER · 10-K · period ended 2023-12-31

ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

OMER US Equity☆

OMER · 10-K · period ended 2023-12-31

ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

OMER US Equity