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OFFON

OMEROS CORPORATION

(OMER)
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OMEROS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/09/2020 | 04:15pm EDT
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q.

Overview

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

Our drug product OMIDRIA® is marketed in the United States for use during
cataract surgery or intraocular lens replacement for adult and pediatric
patients. Our drug candidate narsoplimab is the subject of a rolling biologics
license application ("BLA") with the U.S. Food and Drug Administration ("FDA")
for narsoplimab for the treatment of hematopoietic stem cell
transplant-associated thrombotic microangiopathy ("HSCT-TMA"), which will be
submitted in mid-November. We also have multiple Phase 3 and Phase 2
clinical-stage development programs in our pipeline, which are focused on:
complement-mediated disorders, including Immunoglobulin A ("IgA") nephropathy
and atypical hemolytic uremic syndrome ("aHUS"), as well as addiction. We also
initiated a Phase 1 clinical program for our MASP-3 inhibitor OMS906 targeting
the alternative pathway of complement. In addition, we have a diverse group of
preclinical programs, including GPR174, a novel target in immuno-oncology that
modulates a new cancer immunity axis that we recently discovered. Small-molecule
inhibitors of GPR174 are part of our proprietary G protein-coupled receptor
("GPCR") platform through which we control 54 new GPCR drug targets and their
corresponding compounds. We also exclusively possess a novel antibody-generating
platform. We have retained control of all commercial rights for OMIDRIA and each
of our product candidates and programs.

OMIDRIA Separate Payment

As of October 1, 2020, OMIDRIA pass-through status expired. We are currently seeking separate payment for OMIDRIA through administrative and legislative means as more fully described under "Commercial Product-OMIDRIA" below.

Impact of Global Pandemic

The outbreak of the novel strain of coronavirus (SARS-CoV-2), which causes
COVID-19, and the responses to the global pandemic by various governmental
authorities, the medical community and others continue to have a significant
impact on our business. In March 2020, ambulatory surgery centers ("ASCs") and
hospitals using OMIDRIA postponed nearly all cataract surgery in response to
recommendations from government and medical organizations. As a result, we did
not record any sales of OMIDRIA to our wholesalers from March 25 to May 19,
2020. However, by the end of June 2020, the run rate of weekly OMIDRIA sales had
recovered to levels approximating those seen prior to the pandemic. COVID-19 and
the corresponding government response could have a continuing adverse impact on
our business, operations and financial results. If the number of cataract
procedures once again becomes limited, either by a need for time-consuming
safety protocols, reduction in patient demand, or prohibition on elective
surgical procedures in some localities, then we would expect a corresponding
reduction in demand for OMIDRIA. Additionally, new or continued restrictions on
visits to customer facilities by our field sales representatives could lead to a
further reduction in our OMIDRIA revenues. Due to the unknown magnitude,
duration and outcome of the COVID-19 pandemic, especially in light of the
variances both in the severity of and in the local governmental responses to the
COVID-19 pandemic across the U.S., it is not possible to estimate precisely its
impact on our business, operations or financial results; however, the impact has
been and could continue to be material.

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


OMIDRIA is approved by the FDA for use during cataract surgery or intraocular
lens replacement to maintain pupil size by preventing intraoperative miosis
(pupil constriction) and to reduce postoperative ocular pain. Outside the U.S.,
we have received approval from the European Commission ("EC") to market OMIDRIA
in the European Economic Area ("EEA") for use during cataract surgery and other
IOL replacement procedures for maintenance of intraoperative mydriasis (pupil
dilation), prevention of intraoperative miosis and reduction of acute
postoperative ocular pain.

OMIDRIA is a proprietary drug product containing two active pharmaceutical
ingredients: ketorolac, an anti-inflammatory agent, and phenylephrine, a
mydriatic, or pupil dilating, agent. Cataract and other lens replacement surgery
involves replacement of the original lens of the eye with an artificial
intraocular lens. OMIDRIA is added to standard irrigation solution used during
cataract and lens replacement surgery and is delivered intracamerally, or within
the anterior chamber of the eye, to the site of the surgical trauma throughout
the procedure. Preventing pupil constriction is essential for these procedures
and, if miosis occurs, the risk of damaging structures within the eye and other
complications increases, as does the operating time required to perform the
procedure.

We launched OMIDRIA in the U.S. in the second quarter of 2015 and sell OMIDRIA
primarily through wholesalers who, in turn, sell to ASCs and hospitals. The
Centers for Medicare & Medicaid Services ("CMS"), a part of the Department of
Health and Human Services ("HHS") and the federal agency responsible for
administering the Medicare program, granted transitional pass-through
reimbursement status for OMIDRIA in 2014, effective from January 1, 2015 through
December 31, 2017. Pass-through status allows for separate payment (i.e.,
outside the packaged payment rate for the surgical procedure) under Medicare
Part B. In March 2018, Congress extended pass-through reimbursement status for a
small number of drugs, including OMIDRIA, used during procedures performed on
Medicare Part B fee-for-service patients through September 30, 2020.

In its 2021 outpatient prospective payment system ("OPPS") proposed rule, CMS
confirmed the October 1, 2020 expiration of pass-through reimbursement for
OMIDRIA and indicated an intention to package payment for OMIDRIA with payment
for the associated surgical procedure in both the hospital outpatient department
and ASC settings. In September 2020, we submitted to CMS a comment letter on the
2021 OPPS proposed rule and a legal memorandum outlining our position that
OMIDRIA meets all of the regulatory criteria established by CMS for separate
payment in the ASC setting. CMS is required under the Substance Use-Disorder
Prevention that Promotes Opioid Recovery and Treatment for Patients and
Communities Act to review OPPS payments for opioids and evidence-based
non-opioid alternatives for pain management with a goal to ensure that there are
not financial incentives to use opioids instead of non-opioid alternatives, and
in 2019 it codified revisions to the ASC payment system pursuant to its policy
to "unpackage and pay separately at ASP+6 percent for the cost of non-opioid
pain management drugs that function as surgical supplies when they are furnished
in the ASC setting." CMS continued this policy, without change, in 2020 and has
proposed to extend it again in 2021. During the time that these revisions to the
ASC payment system have been in force, they have not applied to OMIDRIA because
OMIDRIA has had pass-through status and, accordingly, has not been separately
packaged. OMIDRIA does not contain an opioid, has an FDA-approved label
indication for postoperative pain reduction and CMS considers the drug to
function as a surgical supply. Because OMIDRIA is subject to packaged payment
following expiration of its pass-through status, we believe that OMIDRIA now
satisfies the criteria for separate payment when provided in the ASC setting and
that CMS is required to comply with regulatory law and pay separately for
OMIDRIA in the ASC setting. Although we can provide no assurance regarding
whether or when separate payment for OMIDRIA in the ASC setting will be
effective, if we are successful in securing separate payment for OMIDRIA for the
fourth quarter of 2020, we expect that OMIDRIA will receive similar separate
payment in the ASC setting throughout 2021. We also are continuing to pursue
other administrative and legislative avenues to secure separate payment for
OMIDRIA for the remainder of 2020 and beyond; however, we cannot provide
assurance that these efforts will be successful.

If continued separate payment is determined not to be reasonably achievable in
the near term, we have developed a commercial strategy that can be quickly
implemented to lower the per-vial sales price of OMIDRIA to achieve
substantially larger sales volumes. We believe that this approach would result
in substantial revenues from sales of OMIDRIA, in part because CMS Medicare Part
B beneficiaries only represent approximately 45% of cataract surgery

                                      -23-

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procedures annually. However, we are likely to have significantly reduced sales
of OMIDRIA until we are able to implement such strategy. For more information
regarding OMIDRIA reimbursement, see "Financial Summary" below.

In July 2018, we placed OMIDRIA on the market in the European Union ("EU") on a
limited basis and continue to maintain the ongoing validity of the Marketing
Authorization for OMIDRIA in Europe. At this time, we do not expect to see
significant sales of OMIDRIA in any countries within the EEA or other
international territories.

Clinical Development Programs

Our clinical stage development programs include:

MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders. Narsoplimab, also

referred to as OMS721, is our lead fully human monoclonal antibody targeting

monoclonal antibody targeting mannan-binding lectin-associated serine

protease-2 ("MASP-2"), a novel pro-inflammatory protein target involved in

activation of the lectin pathway of complement. The lectin pathway plays 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 lectin pathway can cause serious diseases and disorders.

MASP-2 is the effector enzyme of the lectin pathway of the complement system,

and the current development focus for narsoplimab is diseases that are strongly

associated with activation of the lectin pathway.



We have completed our pivotal clinical trial for narsoplimab in HSCT-TMA, and
Phase 3 clinical programs are underway for narsoplimab in IgA nephropathy and
aHUS.

Narsoplimab has received multiple designations from the FDA and from the EMA across the three current indications. These include:

HSCT-TMA: In the U.S., the FDA has granted narsoplimab (1) breakthrough therapy

designation in patients who have persistent TMA despite modification of

immunosuppressive therapy, (2) orphan drug designation for the prevention

? (inhibition) of complement-mediated TMAs, and (3) orphan drug designation for

the treatment of HSCT-TMA. The EC also granted narsoplimab a designation as an

   orphan medicinal product for treatment in hematopoietic stem cell
   transplantation.


   IgA nephropathy: In the U.S., narsoplimab has received from the FDA

(1) breakthrough therapy designation for the treatment of IgA nephropathy and

? (2) orphan drug designation in IgA nephropathy. In Europe, narsoplimab has

designation as an orphan medicinal product for the treatment of primary IgA

nephropathy.

aHUS: In the U.S., narsoplimab has received from the FDA (1) fast-track

? designation for the treatment of patients with aHUS and (2) orphan drug

designation for the prevention (inhibition) of complement-mediated thrombotic

microangiopathies.



We plan to complete in mid-November the submission to FDA of our rolling BLA for
narsoplimab for the treatment of HSCT-TMA, a frequently lethal complication of
HSCT. A rolling submission enables us to submit sections of the BLA as they are
completed, which can accelerate the time to approval by allowing FDA to review
completed sections of the application as they are submitted rather than waiting
for the entire BLA to be received before beginning its review. The nonclinical
sections, including pharmacology, pharmacokinetics and toxicology data, and the
chemistry, manufacturing and controls ("CMC") sections for narsoplimab have
already been submitted.

In October 2020, we reported the final clinical data from our pivotal trial of
narsoplimab in HSCT-TMA, which are included in our BLA. The single-arm,
open-label trial included safety and efficacy endpoints that were previously
agreed with FDA. The efficacy endpoints were assessed for (1) all 28 patients
who received at least one dose of narsoplimab and (2) patients who received the
protocol-specified dosing of at least four weeks of narsoplimab.

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The primary efficacy endpoint in the trial was the proportion of patients who
achieved designated "responder" status based on improvement in HSCT-TMA
laboratory markers and clinical status. This is referred to as the "complete
response rate." The primary laboratory markers that were evaluated were platelet
count and lactase dehydrogenase ("LDH"), levels, while improvement in clinical
status was evaluated based on organ function and transfusions. Patients were
required to show improvement in both laboratory markers and clinical status to
be considered a responder. All others were considered non-responders.

The FDA-agreed efficacy threshold for the primary endpoint is a complete
response rate of 15%, meaning that a lower bound of the 95% confidence interval
on the observed response rate greater than 15% is sufficient evidence of
efficacy of narsoplimab in the treatment of the targeted patient population.
Among patients who received at least one dose of narsoplimab, the complete
response rate was 61% (p<0.0001), while the complete response rate among
patients who received the protocol-specified narsoplimab treatment of at least
four weeks of dosing was 74% (p<0.0001). The lower limit of the 95% confidence
interval for both groups is a multiple of the 15% efficacy threshold.

Secondary endpoints in the trial were survival rates and change from baseline in
HSCT-TMA laboratory markers. Among all treated patients, 68% survived for at
least 100 days following HSCT-TMA diagnosis, while 83% of patients who received
treatment for at least four weeks and 94% of the responders achieved this
endpoint. Median overall survival was 274 days among all patients and 361 days
among patients who received the protocol-specified treatment of at least four
weeks. Median survival could not be estimated for responders because more than
half of the responders were alive at last follow-up. Results also included
statistically significant improvements in platelet count, LDH and haptoglobin.
The treated population had multiple high-risk features that portend a poor
outcome, including the persistence of HSCT-TMA despite modification of
immunosuppression (which was a criterion for entry into the trial),
graft-versus-host disease, significant infections, non-infectious pulmonary
complications and neurological findings. The most common adverse events observed
in the trial were nausea, vomiting, diarrhea, hypokalemia, neutropenia and
fever, which are all common in stem-cell transplant patients. Six deaths
occurred during the trial. These were due to sepsis, progression of the
underlying disease, and graft-versus-host disease. All of these are common
causes of death in this patient population.

In Europe, EMA has confirmed narsoplimab's eligibility for EMA's centralized
review of a single MAA that, if approved, authorizes the product to be marketed
in all EU member states and EEA countries. We are targeting to complete our MAA
submission in 2021.

In our IgA nephropathy program, patient enrollment continues in the narsoplimab
Phase 3 clinical trial, ARTEMIS-IGAN. The single Phase 3 trial design is a
randomized, double-blind, placebo-controlled multicenter trial in patients at
least 18 years of age with biopsy-confirmed IgA nephropathy and with 24-hour
urine protein excretion greater than one gram per day at baseline on optimized
renin-angiotensin system blockade. This trial includes a run-in period.
Initially, patients are expected to receive an IV dose of study drug each week
for 12 weeks; additional weekly dosing can be administered to achieve optimal
response. The primary endpoint, which we believe could suffice for full or
accelerated approval depending on the effect size, is reduction in proteinuria
at 36 weeks after the start of dosing. The trial is designed to allow
intra-trial adjustment in sample size. For the purposes of safety and efficacy
assessments, the initial sample size for the proteinuria endpoint is estimated
at 140 patients in each of the treatment and placebo groups. This will include a
subset of patients with high levels of proteinuria (i.e., equal to or greater
than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this
subset of patients alone could potentially form the basis for approval. We
believe that the trial design will allow assessment for either full or
accelerated approval at 36 weeks based on proteinuria results either (1) across
the general population of study patients or (2) in the high-proteinuria subset
of patients.

The Phase 3 clinical program in patients with aHUS, in which patient enrollment
is ongoing, consists of one Phase 3 clinical trial - a single-arm (i.e., no
control arm), open-label trial in patients with newly diagnosed or ongoing aHUS.
This trial is targeting approximately 40 patients for full approval in Europe
and accelerated approval in the U.S. with approximately 80 total patients
required by FDA for full approval in the U.S.

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   Compassionate Use of Narsoplimab in COVID-19 Patients. In March 2020, in

response to a request from physicians at the Papa Giovanni XXIII Hospital in

? Bergamo, Italy, we initiated a compassionate use program for narsoplimab to

treat COVID-19 patients with ARDS, a severe and life-threatening component of

COVID-19.



The study included a total of six COVID-19 patients treated with narsoplimab
under compassionate use, all with ARDS and requiring continuous positive airway
pressure (CPAP) or intubation. At baseline, circulating endothelial cell (CEC)
counts and serum levels of interleukin-6 (IL-6), interleukin-8 (IL-8),
C-reactive protein (CRP), lactate dehydrogenase (LDH), D-dimer and aspartate
aminotransferase (AST) were markedly elevated. During the course of the study,
institutional guidelines at the treating hospital were updated to require that
all COVID-19 patients in the hospital receive steroids. One patient treated with
narsoplimab did not receive steroids. Of the five narsoplimab-treated patients
who received steroids, two initiated them after already improving such that CPAP
was no longer required or was discontinued the following day. The study
evaluated CEC counts in a separate group of four patients receiving only
steroids for a short duration, and the counts were found to be unaffected by
steroid administration. This suggests that any beneficial effect of steroids on
COVID-19-associated endothelial damage may be delayed and had little effect on
the recovery course of the narsoplimab-treated patients who initiated steroid
treatment after improving.

Narsoplimab treatment was associated with rapid and sustained reduction across
all of these markers of endothelial damage and inflammation. In addition,
massive bilateral pulmonary thromboses, seen in two of the patients, resolved
while on narsoplimab. All six narsoplimab-treated patients recovered, survived
and were discharged. Narsoplimab was well tolerated in the study and no adverse
drug reactions were reported. Two control groups with similar baseline
characteristics were used for retrospective comparison, both showing substantial
mortality rates of 32% and 53%. A manuscript detailing the results of the study
evaluating narsoplimab in patients with severe COVID-19 was published in the
peer-reviewed journal Immunobiology.

Endothelial damage and resultant thromboses are significant to the
pathophysiology of COVID-19, and we believe these data illustrate the importance
of inhibiting the lectin pathway to treat critically ill COVID-19 patients.
Endothelial damage activates the lectin pathway of complement. We believe the
results observed following narsoplimab treatment in severe COVID-19 patients
with ARDS at Papa Giovanni were consistent with those seen in HSCT-TMA and
underscore the pathophysiologic similarities between these two disorders.
Narsoplimab has been shown to inhibit lectin pathway activation and to block the
MASP-2-mediated conversion of prothrombin to thrombin, microvascular
injury-associated thrombus formation and the activation of factor XII as well as
the MASP-2-mediated activation of kallikrein. We believe that the anticoagulant
effects of narsoplimab may provide therapeutic benefits in both HSCT-TMA and
COVID-19.

Following treatment of the initial six patients under the compassionate use study in Italy, we have continued compassionate-use treatment in the U.S. and Italy. Our discussions regarding the use of narsoplimab in COVID-19 have progressed with leaders across various government agencies. We have also received requests and are in discussions to include narsoplimab in platform trials for COVID-19.

MASP-3 - OMS906 - Alternative Pathway Disorders. As part of our MASP program,

we have identified mannan-binding lectin-associated serine protease-3

("MASP-3"), which has been shown to be the key activator of the complement

system's alternative pathway ("APC"), and we believe that we are the first to

make this and related discoveries associated with the APC. The complement

system is part of the immune system's innate response, and the APC is

considered the amplification loop within the complement system. MASP-3 is

responsible for the conversion of pro-factor D to factor D; converted factor D

is necessary for the activation of the APC. Based on our alternative

? pathway-related discoveries, we have expanded our intellectual property

position to protect our inventions stemming from these discoveries beyond

MASP-2-associated inhibition of the lectin pathway to include inhibition of the

alternative pathway. Our current primary focus in this program is developing

MASP-3 inhibitors for the treatment of disorders related to the APC. We believe

that MASP-3 inhibitors have the potential to treat patients suffering from a

wide range of diseases and conditions, including: paroxysmal nocturnal

hemoglobinuria ("PNH"); C3 glomerulopathy; multiple sclerosis; arthritis;

   traumatic brain injury; neuromyelitis optica; pauci-immune necrotizing
   crescentic glomerulonephritis; disseminated


                                      -26-

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intravascular coagulation; age-related macular degeneration; asthma; dense

deposit disease; Bechet's disease; aspiration pneumonia; TMA;

ischemia-reperfusion injury; Guillain Barre syndrome; Alzheimer's disease;

amylotrophic lateral sclerosis; systemic lupus erythematosus; diabetic

retinopathy; uveitis; chronic obstructive pulmonary disease; transplant

rejection; acute respiratory distress syndrome; antineutrophil cytoplasmic

antibody-associated vasculitis; anti-phospholipid syndrome; atherosclerosis;

myasthenia gravis and others. Our OMS906 monoclonal antibody program has

generated positive data in a well-established animal model associated with PNH,

as well as strong pharmacodynamic activity in non-human primates. The program

has also generated positive data in a well-established animal model of

arthritis.

In August 2020, we submitted to FDA an Investigational New Drug Application
("IND") to initiate clinical trials evaluating OMS906, our lead human monoclonal
antibody from our MASP-3 program, in the U.S. In September 2020 we began
enrollment and dosing in a placebo-controlled, double-blind,
single-ascending-dose and multiple-ascending-dose Phase 1 clinical trial to
evaluate the safety, tolerability, pharmacodynamics and pharmacokinetics of
OMS906. Dosing is complete in the first cohort and has started in the second
cohort of this Phase 1 trial. The third and fourth cohorts are currently
enrolling. Initial data from the Phase 1 trial are expected next year.

PDE7 - OMS527. In our phosphodiesterase 7 ("PDE7") program, we are developing

proprietary compounds to treat addiction and compulsive disorders as well as

? movement disorders. In September 2019 we reported positive results from our

Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed

to assess safety, tolerability and pharmacokinetics of our lead compound in

healthy subjects.

In the double blind, randomized Phase 1 study, the study drug, referred to as
OMS182399, met the primary endpoints of safety and tolerability and showed a
favorable and dose-proportional pharmacokinetic profile supporting once-daily
dosing. There was no apparent food effect on plasma exposure to OMS182399. Our
focus is nicotine addiction, and we are planning our Phase 2 development
program. Initiation of a Phase 2 study in our PDE7 program is dependent on
availability of financial and other resources, which are currently prioritized
for other programs.

Preclinical Development Programs and Platforms

Our preclinical programs and platforms include:

Other MASP Inhibitor Preclinical Programs. We have generated positive

preclinical data from MASP-2 inhibition in in vivo models of age-related

macular degeneration, myocardial infarction, diabetic neuropathy, stroke,

traumatic brain injury, ischemia-reperfusion injury, and other diseases and

? disorders. We are also developing a longer-acting second generation antibody

targeting MASP-2, which we are targeting for initiation of clinical trials in

early 2022. This program is designated as "OMS1029." Development efforts are

also directed to a small-molecule inhibitor of MASP-2 designed for oral

administration, as well as small-molecule inhibitors of MASP-3 and bispecific

   small- and large-molecule inhibitors of MASP-2/-3.


   GPR174 and GPCR Platform. We have developed a proprietary cellular

redistribution assay which we use in a high-throughput manner to identify

synthetic ligands, including antagonists, agonists and inverse agonists, that

bind to and affect the function of orphan GPCRs. We have screened Class A

orphan GPCRs against our small-molecule chemical libraries using the cellular

redistribution assay and have identified and confirmed compounds that interact

with 54 of the 81 Class A orphan GPCRs linked to a wide range of indications

including cancer as well as metabolic, cardiovascular, immunologic,

inflammatory and central nervous system disorders. One of our priorities in

? this program is GPR174, which is involved in the modulation of the immune

system. In ex vivo human studies, our small-molecule inhibitors targeting

GPR174 upregulate the production of cytokines, block multiple checkpoints and

tumor promoters, and suppress regulatory T-cells. Based on our data, we believe

that GPR174 controls a major pathway in cancer and modulation of the receptor

could provide a seminal advance in immuno-oncologic treatments for a wide range

of tumors. Our studies in mouse models of melanoma and colon carcinoma found

that GPR174-deficiency resulted in significantly reduced tumor growth and

   improved survival of the animals versus normal mice. Our recent discoveries
   suggest a new approach to


                                      -27-

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cancer immunotherapy that targets inhibition of GPR174 and can be combined with

and significantly improve the tumor-killing effects of adenosine pathway

inhibitors and/or checkpoint inhibitors. These discoveries include (1)

identification of cancer-immunity pathways controlled by GPR174, (2) the

identification of phosphatidylserine as a natural ligand for GPR174, (3) a

collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic

enhancement of "tumor-fighting" cytokine production by T cells following the

combined inhibition of both GPR174 and the adenosine pathway (e.g., A2A and/or

A2B), another key metabolic pathway that regulates tumor immunity. We continue

to focus on GPR174 and several other of our GPCR targets with the objective of

moving compounds targeting them into human trials.

Financial Summary


We recognized net losses of $38.5 million and $16.5 million for the three months
ended September 30, 2020 and 2019, respectively, and our OMIDRIA revenues were
$26.1 million and $29.9 million for the same periods. During the three months
ended September 30, 2020, we recorded a $13.4 million loss on early
extinguishment of debt and a related tax benefit of $7.9 million associated with
the repurchase of $115.0 million principal amount of our 6.25% Convertible
Senior Notes (the "2023 Notes"). As of September 30, 2020, we had $153.5 million
in cash and cash equivalents and short-term investments available for general
corporate use and $37.4 million in accounts receivable, net.

We expect our net losses will continue until such time as we derive sufficient
revenues from sales of OMIDRIA, narsoplimab and/or other sources, such as
licensing, product sales and other revenues from our product candidates
including narsoplimab for HSCT-TMA, that are sufficient to cover our operating
expenses and debt service obligations.

                           [[Image Removed: Graphic]]



* Fiscal quarters without pass-through reimbursement

** Fiscal quarters with reduced cataract procedures due to COVID-19 *** Pass-through reimbursement expired on October 1, 2020



During the period from January 1, 2018 to September 30, 2018, OMIDRIA was not
reimbursed separately when used for procedures involving patients covered by
Medicare Part B, and our revenues decreased significantly. After reinstatement
of separate reimbursement for OMIDRIA in the fourth quarter of 2018, our
revenues quickly returned to levels during which separate reimbursement was
available and subsequent quarter-over-quarter revenue growth approximated
historical rates. Due to the postponement of elective surgical procedures,
including cataract surgery, we did not make any sales of OMIDRIA to our
wholesalers from March 25 to May 19, 2020. However, by the end of June 2020, the
run rate of weekly OMIDRIA sales approximated those seen prior to the pandemic.

In its 2021 OPPS proposed rule, CMS confirmed the October 1, 2020 expiration of
pass-through reimbursement for OMIDRIA and consequently, pass-through
reimbursement for OMIDRIA under Medicare Part B ended on October 1, 2020 and our
net revenues for September were significantly reduced. CMS is expected to
publish the final 2021 OPPS

                                      -28-

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rule later in 2020. However, we can provide no guarantee that CMS' final 2021 OPPS rule will provide separate reimbursement for OMIDRIA.


In 2019 CMS codified revisions to the ASC payment system pursuant to its policy
to "unpackage and pay separately at ASP+6 percent for the cost of non-opioid
pain management drugs that function as surgical supplies when they are furnished
in the ASC setting." CMS continued this policy, without change, in 2020 and has
proposed to extend it again in 2021. During the time that these revisions to the
ASC payment system have been in force, they have not applied to OMIDRIA because
OMIDRIA had pass-through status and, accordingly, has not been packaged. OMIDRIA
does not contain an opioid, has an FDA-approved label indication for pain
reduction and CMS considers it to function as a surgical supply. Because OMIDRIA
is subject to packaged payment following expiration of its pass-through status,
we believe that OMIDRIA now satisfies these criteria for separate payment when
provided in the ASC setting. In September 2020, we submitted to CMS a comment
letter on the 2021 OPPS proposed rule and a legal memorandum outlining our
position that OMIDRIA meets all of the regulatory criteria established by CMS
for separate payment in the ASC setting and by law should be separately paid
when used in the ASC in the fourth quarter of 2020 and throughout calendar year
2021. We are also continuing to pursue other administrative and legislative
avenues to secure separate payment for OMIDRIA for the remainder of 2020 and
beyond. If these efforts are not successful, we expect to implement an
alternative market approach, however we are likely to have significantly reduced
sales of OMIDRIA until we are able to implement such strategy. We may face
difficulties or delays in implementing such a strategy and, even if successfully
implemented, we cannot predict whether, or to what extent, our customers would
maintain or increase their utilization of OMIDRIA. See "Commercial Product -
OMIDRIA" earlier in this section for additional details regarding the separate
payment status for OMIDRIA.

The uncertainty around pass-through reimbursement or other separate payment
status for OMIDRIA and COVID-19 will likely have a continuing adverse impact on
our business, operations and financial results, limiting the number of cataract
procedures which may be performed and significantly reducing demand for our
commercial drug product, OMIDRIA. COVID-19 and the corresponding governmental
response has and may continue to lead to disruptions in commercial sales
activities, delays in our clinical trials or in the submission or review of
regulatory applications. Due to the ongoing impact of the global pandemic on
OMIDRIA sales, as well as the uncertain reimbursement status for OMIDRIA for the
remainder of 2020 and beyond, we are unable to predict future OMIDRIA product
sales, net.

Results of Operations

Revenue

Our revenue consists of OMIDRIA product sales to ASCs and hospitals in the U.S. Our product sales, net are as follows:


                        Three Months Ended        Nine Months Ended
                          September 30,            September 30,
                         2020         2019        2020         2019

                                      (In thousands)

Product sales, net $ 26,114 $ 29,856 $ 63,181 $ 78,389

During the three and nine months ended September 30, 2020, OMIDRIA revenue was
$26.1 million and $63.2 million as compared to $29.9 million and $78.4 million
for the three and nine months ended September 30, 2019. The decrease in revenue
during the three months ended September 30, 2020 compared to the same period in
the prior year was due to recording an $8.7 million deduction for product
returns from wholesalers, ASCs and hospitals related to the expiration of
pass-through reimbursement for OMIDRIA on October 1, 2020. The additional
decrease in revenue during the nine months ended September 30, 2020 compared to
the same period in the prior year was due to COVID-19 related closings of ASCs
and hospitals to elective cataract procedures from mid-March 2020 through to
late June 2020. By the end of June 2020, the weekly run rate of OMIDRIA sales
had returned to levels approaching those seen prior to the pandemic and
continued to increase during the third quarter prior to recording the OMIDRIA
return reserve. Given the uncertainty and local variances in the severity and
response to the COVID-19 pandemic across the U.S., and whether OMIDRIA will
receive separate payment, we are not able to predict future OMIDRIA revenue.

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Gross-to-Net Deductions

We record OMIDRIA product sales net of estimated chargebacks, rebates,
distribution fees and product returns. These deductions are generally referred
to as gross-to-net deductions. Our total gross-to-net provision for the three
and nine months ended September 30, 2020 was 46.8% and 36.6% of gross OMIDRIA
product sales, respectively. This compares to 28.5% and 28.0% for the three and
nine months ended September 30, 2019, respectively. The increase in gross-to-net
deductions as a percentage of sales in 2020 compared to 2019 is due to the
OMIDRIA return provision recorded in the third quarter of 2020.

A summary of our gross-to-net related accruals for the nine months ended September 30, 2020 is as follows:


                                                      Distribution
                                                        Fees and
                                                        Product
                                     Chargebacks         Return
                                     and Rebates       Allowances        Total

                                                   (In thousands)
Balance as of December 31, 2019     $      10,240    $        2,237    $   12,477
Provisions                                 20,345            16,179        36,524
Payments                                 (25,793)           (4,205)      (29,998)

Balance as of September 30, 2020 $ 4,792 $ 14,211 $ 19,003





Chargebacks and Rebates

We record a provision for estimated chargebacks and rebates at the time we
recognize OMIDRIA product sales revenue and reduce the accrual when payments are
made or credits are granted. Our chargebacks are related to a pharmaceutical
pricing agreement, a federal supply schedule agreement, a 340B prime vendor
agreement, a Medicaid drug rebate agreement and an off-invoice discount to our
ASC and hospital customers. We also record a provision for our
OMIDRIAssure® patient assistance and reimbursement services program and our
rebates under our purchase volume-discount programs.

Distribution Fees and Product Return Allowances

We pay our wholesalers a distribution fee for services they perform for us based
on the dollar value of their purchases of OMIDRIA. We record a provision for
these charges as a reduction to revenue at the time of sale to the wholesaler
and make payments to our wholesalers based on contractual terms.

We allow for the return of product up to 12 months past its expiration date, or
for product that is damaged or not used by our customers. We record a provision
for returns upon sale of OMIDRIA to our wholesaler. When a return or claim is
received, we issue a credit memo to the wholesaler against its outstanding
receivable to us or we reimburse the customer. During the three months ended
September 30, 2020 we estimated and recorded an $8.7 million provision for
potential returns from our wholesalers, ASCs and hospital customers due to the
October 1, 2020 expiration of pass-through reimbursement for OMIDRIA.

Research and Development Expenses

Our research and development expenses can be divided into three categories:
direct external expenses, which include clinical research and development,
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 product
candidate, contract research organizations, clinical trial sites, collaborators,
consultants, and licensors consultants. Costs are reported in preclinical
research and development until the program enters the clinic. Internal, overhead
and other expenses consist of personnel costs, overhead costs such as rent,
utilities and depreciation and other miscellaneous costs. We do not generally
allocate our internal resources, employees and infrastructure to any individual
research project because we deploy them across multiple clinical and preclinical
projects that we are advancing in parallel.

                                      -30-

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The following table illustrates our expenses associated with these activities:


                                             Three Months Ended        Nine Months Ended
                                               September 30,            September 30,
                                              2020         2019        2020         2019

                                                           (In thousands)
Direct external expenses:
Clinical research and development:
MASP-2 program - OMS721 (narsoplimab)      $   10,624    $  9,120    $  33,559    $ 28,615
MASP-3 program - OMS906                         6,172           -        6,172           -
OMIDRIA - Ophthalmology                           206         657        1,090       1,744
PDE7 - OMS527                                     134       1,425        1,730       3,019
Total clinical research and development        17,136      11,202       42,551      33,378
Preclinical research and development            2,012       3,625        8,846       6,827
Total direct external expenses                 19,148      14,827       51,397      40,205
Internal, overhead and other expenses          10,532       7,361       28,248      24,205
Stock-based compensation expense                1,636       1,558        

4,714 4,698 Total research and development expenses $ 31,316 $ 23,746 $ 84,359 $ 69,108





Total direct research and development expenses increased $4.3 million and $11.2
million, respectively, for the three and nine months ended September 30, 2020
compared to the same periods in 2019. The $4.3 million increase for the three
months ended September 30, 2020 is due to a $5.0 million access fee payable upon
entry into a newly signed technology license agreement with a third party
related to the MASP-3 program, which began clinical trials in the third quarter
of 2020. The $11.2 million increase for the nine months ended September 30, 2020
is primarily due to the $5.0 million access fee payable under the technology
license agreement related to the MASP-3 program entered into during the third
quarter of 2020, increased IgA nephropathy clinical trial costs, and additional
HSCT-TMA costs related to the preparation of our rolling BLA and disease
awareness activities.

We expect the majority of our research and development expenses for the
remainder of 2020 to be related to our narsoplimab and MASP-3 programs. We
expect overall research and development costs in the fourth quarter 2020 to
increase slightly from current levels as we manufacture additional drug
substance and expand our disease awareness activities in preparation for the
anticipated U.S. commercial launch of narsoplimab in HSCT-TMA. These increases
will be partially offset by the absence of technology license agreement costs in
the fourth quarter of 2020.

At this time, we are unable to estimate with certainty the longer-term costs we
will incur in the continued development of our product candidates due to the
inherently unpredictable nature of our preclinical and clinical development
activities, as well as the potential impacts of the COVID-19 pandemic. 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 product candidate as well as ongoing
assessments of each program's commercial potential. In addition, we cannot
forecast with precision which product candidates, if any, may be subject to
future collaborations, when such arrangements will be secured, if at all, and to
what degree such arrangements would affect our development plans and capital
requirements.

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

                                      -31-

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Selling, General and Administrative Expenses


                                               Three Months Ended        Nine Months Ended
                                                 September 30,            September 30,
                                                2020         2019        2020         2019

                                                             (In thousands)
Selling, general and administrative
expenses, excluding stock-based
compensation expense                         $   17,637    $ 14,995    $  48,384    $ 42,723
Stock-based compensation expense                  2,188       1,938        6,408       5,770
Total selling, general and administrative
expenses                                     $   19,825    $ 16,933    $  54,792    $ 48,493




Total selling, general and administrative expenses increased $2.9 million and
$6.3 million, respectively, for the three and nine months ended September 30,
2020. The increase in selling, general and administrative expenses during the
three and nine months ended September 30, 2020 compared to the same periods in
2019 was primarily due to increased pre-commercialization activities for
narsoplimab, including costs related to product training.

We expect that our selling, general and administrative expenses will increase
during the fourth quarter of 2020 compared to current levels, primarily due to
increased pre-commercialization activities for narsoplimab.

Interest Expense


                      Three Months Ended        Nine Months Ended
                        September 30,            September 30,
                       2020         2019        2020         2019

                                    (In thousands)
Interest expense    $    6,882     $ 5,715    $  18,763    $ 16,846




Interest expense is comprised of contractual interest and amortization of debt
issuance and debt discount related to our 2023 and 2026 Notes, as well as
interest on our finance leases. We expect that our fourth quarter 2020 interest
expense will be approximately $8.0 million. For more information, see "Note
6-Unsecured Convertible Senior Notes."

Loss on Early Extinguishment of Debt


                                                      Three Months Ended              Nine Months Ended
                                                        September 30,                  September 30,
                                                      2020             2019          2020             2019

                                                                        (In

thousands)

Loss on early extinguishment of debt              $      13,374      $     
-    $      13,374      $      -



In August 2020, we issued the 2026 Notes and repurchased $115.0 million of the
previously outstanding 2023 Notes. We recorded a $13.4 million loss on early
extinguishment of debt related to the unamortized discount and issuance costs
related to the repurchased 2023 Notes in the three and nine months ended
September 30, 2020.

Income Tax Benefit


                        Three Months Ended          Nine Months Ended
                          September 30,              September 30,
                          2020          2019         2020          2019

                                        (In thousands)
Income tax benefit    $      7,854      $   -    $      7,854      $   -



During the third quarter of 2020, we issued the 2026 Notes which created an income tax benefit of $7.9 million. We anticipate that we will recognize an additional income tax benefit of $4.1 million during the fourth quarter of 2020. See "Note 6-Unsecured Convertible Senior Notes."


                                      -32-

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Financial Condition - Liquidity and Capital Resources


As of September 30, 2020, we had $153.5 million in cash, cash equivalents and
short-term investments available for general corporate use held primarily in
money-market accounts. In addition, as of September 30, 2020, we had $37.4
million in accounts receivable, net. We have historically generated net losses
and incurred negative cash flows from operations and debt service. For the nine
months ended September 30, 2020, we incurred net losses of $100.8 million and
incurred negative cash flows from operations of $81.7 million. We expect to
continue to incur losses from operations until our revenues exceed operating
costs and debt service obligations.

OMIDRIA pass-through reimbursement from CMS expired on October 1, 2020. If
continued separate payment is determined not to be reasonably achievable in the
near term, we have developed a commercial strategy that can be quickly
implemented to lower the per-vial sales price of OMIDRIA to achieve
substantially larger sales volumes. We believe that this approach would result
in substantial revenues from OMIDRIA, in part because CMS Medicare Part B
beneficiaries only represent approximately 45% of cataract surgery procedures
annually.

We anticipate narsoplimab for HSCT-TMA will receive FDA approval and will launch
in early to mid-2021. Currently we cannot fully predict the timing or the
magnitude of narsoplimab revenues, but we believe they will be significant.
Execution of our sales and marketing strategies for the launch of narsoplimab
for HSCT-TMA is underway. These plans include various milestones at which we
commit to incremental activities, providing for flexibility in the timing of
costs incurred should the approval of narsoplimab be accelerated or delayed. If
warranted, we will adjust the timing and associated costs of our HSCT-TMA launch
activities as we advance through the BLA review and approval process.

We plan to continue to fund our operations for at least the next twelve months
with our cash and investments on hand, from sales of OMIDRIA and, if FDA
approval is granted, from sales of narsoplimab for HSCT-TMA. There is also that
possibility that narsoplimab will generate revenues in the treatment of
COVID-19. In addition, we may utilize funds available under our accounts
receivable-based line of credit, which allows us to borrow up to 85% of our
available accounts receivable borrowing base, less certain reserves, or $50.0
million, whichever is less. Should it be necessary or determined to be
strategically advantageous, we also could pursue debt financings, public and
private offerings of our equity securities similar to those we have completed
previously, or other strategic transactions, which may include licensing a
portion of our existing technology. Should it be necessary to manage our
operating expenses, we would reduce our projected cash requirements through
reduction of our expenses by delaying clinical trials, reducing selected
research and development efforts, or implementing other restructuring
activities.

Cash Flow Data


                                  Nine Months Ended September 30,
                                     2020                  2019

                                           (In thousands)
Selected cash flow data
Cash provided by (used in):
Operating activities           $       (81,679)      $       (37,059)
Investing activities           $       (75,027)      $         35,838
Financing activities           $        174,697      $          4,221




Operating Activities. Net cash used in operating activities for the nine months
ended September 30, 2020 increased by $44.6 million as compared to the same
period in 2019. The net increase is primarily due to an increase in our net loss
of $45.5 million, which was partially offset by an increase in non-cash charges
of $8.3 million. In addition, cash used in accounts payable and accrued expense
increased by $15.6 million. These increases were partially offset by a $4.9
million increase in cash provided from collections of accounts receivable.

Investing Activities. Cash flows from investing activities primarily reflect
cash used to purchase short-term investments and proceeds from the sale of
short-term investments, thus causing a shift between our cash and cash
equivalents and short-term investment balances. Because we manage our cash usage
with respect to our total cash, cash

                                      -33-

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equivalents and short-term investments, we do not consider fluctuations in cash flows from investing activities to be important to the understanding of our liquidity and capital resources.


Net cash used in investing activities during the nine months ended September 30,
2020 was $75.0 million, a decrease of $110.9 million for the same period in 2019
driven by an increase in purchases of investments of $132.6 million offset by
proceeds from sale and maturities of investments of $21.7 million.

Financing Activities. Net cash provided by financing activities during the
nine months ended September 30, 2020 was $174.7 million, an increase of $170.5
million compared to the same period in 2019. The increase for the nine months
ended September 30, 2020 compared to the prior year was due to receiving cash
proceeds of $218.2 million from the issuance of our 2026 Notes and $7.5 million
from the termination of the 2023 Capped Call contract offset by $125.6 million
to repurchase our 2023 Notes and $23.2 million to purchase the 2026 Capped Call.
In addition, we received net proceeds of $93.7 million from our August 2020
public offering of our common stock.

Line of Credit Agreement. Our Line of Credit Agreement with Silicon Valley Bank
provides for a $50.0 million revolving line of credit facility. Under the Line
of Credit Agreement we may draw, on a revolving basis, up to the lesser of $50.0
million or 85.0% of our eligible accounts receivable, less certain reserves. The
Line of Credit Agreement is secured by all our assets excluding intellectual
property and development program inventories and matures on August 2, 2022. As
of September 30, 2020, we had no outstanding borrowings under the Line of Credit
Agreement, and we were in compliance with all covenants in all material
respects. See earlier discussion under "Liquidity and Capital Resources" for
further detail regarding the availability of the line of credit.

Contractual Obligations and Commitments

The following table presents a summary of our contractual obligations and commitments as of September 30, 2020.


                                                                 Payments Due Within
                                                                                    More than
                                            1 Year      2-3 Years     4-5 Years      5 Years        Total

                                                                    (In thousands)
Operating leases                           $  1,616    $    13,214    $   13,795    $   19,590    $  48,215
Finance leases (principal and interest)         364          1,809           198             -        2,371
Unsecured convertible senior notes            4,438         35,503       123,823       238,321      402,085
Goods & services                             14,835         10,179        10,854             -       35,868
Total                                      $ 21,253    $    60,706    $  148,670    $  257,911    $ 488,539




Lease Agreements

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 September 30, 2020, the remaining aggregate non-cancelable
rent payable under the initial term of the lease, excluding common area
maintenance and related operating expenses, is $48.2 million.

Unsecured Convertible Senior Notes

For more information, see "Note 6-Unsecured Convertible Senior Notes."

Goods and Services

We have certain other non-cancelable obligations under various agreements that relate to goods and services. As of September 30, 2020, our aggregate firm commitments were $35.9 million.


                                      -34-

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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 amount above.

Critical Accounting Policies and Significant Judgments and Estimates

There have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

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

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