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05/10/2021 | 04:16pm 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.


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 biologics license application ("BLA") under priority review by the U.S. Food and Drug Administration ("FDA") for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy ("HSCT-TMA"). We also have multiple late-stage clinical development programs in our pipeline, which are focused on complement-mediated disorders, including immunoglobulin A ("IgA") nephropathy, atypical hemolytic uremic syndrome ("aHUS") and COVID-19. We have also initiated a Phase 1 clinical program for our MASP-3 inhibitor OMS906 targeting the alternative pathway of complement and have successfully completed a Phase 1 study in our phosphodiesterase 7 ("PDE7") program focused on addiction. 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 discovered. Small-molecule and antibody inhibitors of GPR174 are part of our proprietary G protein-coupled receptor ("GPCR") platform through which we control 54 GPCR drug targets and their corresponding compounds. We also have a proprietary-asset-enabled antibody-generating technology. We have retained control of all commercial rights for OMIDRIA and each of our product candidates and programs.

Impact of Global Pandemic

The COVID-19 pandemic and the responses to it 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. It is not possible to estimate precisely the future impact of COVID-19 on our business, operations or financial results due to the unknown magnitude, duration and outcome of the pandemic, especially in light of the severity and transmissibility of virus variants and possible local governmental responses across the U.S.

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

OMIDRIA is approved by 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.


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We sell OMIDRIA primarily through wholesalers which, in turn, sell to ASCs and hospitals. The Centers for Medicare & Medicaid Services ("CMS"), the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA 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 OMIDRIA through September 30, 2020 when used during procedures performed on Medicare Part B fee-for-service patients. Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020. In December 2020, in its annual rule on Outpatient Prospective Payments System ("OPPS") and ASC payments, CMS confirmed that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ASCs under CMS' policy for non-opioid pain management surgical drugs. We believe that CMS will not change its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019.

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

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 an important role in the body's

inflammatory response and becomes activated as a result of tissue damage 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, and the current development focus for narsoplimab

is diseases that are strongly associated with activation of the lectin pathway.

FDA is currently reviewing our BLA for narsoplimab in HSCT-TMA, and Phase 3 clinical programs are in process for narsoplimab in IgA nephropathy and aHUS. Narsoplimab is also being evaluated for treatment of COVID-19 in a late-stage adaptive platform trial and has been administered under compassionate use to treat COVID-19 patients in Italy and in the U.S.

Narsoplimab has received multiple designations from FDA and from the EMA across 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 and (2) 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 been

granted 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


In October 2020, we reported final clinical data from our pivotal trial of narsoplimab in HSCT-TMA, a frequently lethal complication of HSCT. The single-arm, open-label trial included safety and efficacy endpoints that 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.

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


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"complete response rate." The primary laboratory markers that were evaluated were platelet count and lactate dehydrogenase ("LDH") levels, while improvement in clinical status was evaluated based on organ function and transfusions. Each patient was required to show improvement in both laboratory markers and clinical status to be considered a responder. All others were considered non-responders.

Among patients who received at least one dose of narsoplimab, the complete response rate was 61% (95% confidence interval [CI] 40.6 to 78.5; 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% (95% CI 51.6 to 89.8; p<0.0001). The response rates and their respective lower levels of the 95% confidence intervals are a multiple of the pre-specified efficacy threshold of 15%.

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 with TMA. All of these are common causes of death in this patient population.

In November 2020, we completed the rolling submission to FDA of our BLA for narsoplimab for the treatment of HSCT-TMA. The BLA was accepted for filing by FDA and granted priority review, and we have responded to all information requests received to date. The FDA action date under the Prescription Drug User Fee Act ("PDUFA") is July 17, 2021.

In Europe, the EMA has confirmed narsoplimab's eligibility for EMA's centralized review of a single marketing authorization application ("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 (78 per arm) 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. The trial


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includes multiple sites in the U.S., Asia and Europe, though enrollment has been slow in part due to prioritizing the use of resources within our narsoplimab programs on HSCT-TMA, COVID-19 and IgA nephropathy.

MASP-2 - narsoplimab (OMS721) - COVID-19. 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 patients with

severe COVID-19 requiring mechanical ventilation.

The initial cohort treated under this compassionate use program included a total of six COVID-19 patients treated with narsoplimab, all with acute respiratory distress syndrome ("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), IL-8, C-reactive protein (CRP), LDH, D-dimer and aspartate aminotransferase (AST) were markedly elevated. During the course of the compassionate use program, 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 the above-named 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 and no adverse drug reactions were reported. Two control groups with similar baseline characteristics were used for retrospective comparison and showed substantial mortality rates of 32% and 53%. A manuscript detailing the results of the initial cohort of Bergamo patients treated with narsoplimab was published in the peer-reviewed journal Immunobiology.

All six patients were evaluated five to six months after cessation of narsoplimab treatment. None of them showed any clinical or laboratory evidence of long-term effects of COVID-19, such as cognitive impairment or cardiac, pulmonary or other organ disorder, commonly seen following resolution of initial COVID-19 symptoms.

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 critically ill COVID-19 patients 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 program in Italy, we continued compassionate-use treatment in the U.S. and Italy. Prior to receiving narsoplimab, all of the patients in this second cohort were severely ill, mechanically ventilated, had multiple comorbidities, and had failed other therapies, including anti-virals, targeted anti-inflammatory therapeutics, convalescent plasma and steroids. Following treatment with narsoplimab, the laboratory improvements and clinical outcomes of these patients are similar to those seen in the initial cohort of Bergamo patients.

Narsoplimab is also the only complement inhibitor included in the I-SPY COVID-19 platform trial sponsored by Quantum Leap Healthcare Collaborative, which is evaluating investigational therapies for the treatment of critically ill COVID-19 patients. The trial utilizes Quantum Leap Healthcare Collaborative's adaptive platform


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trial design, which is intended to increase trial efficiency by minimizing the number of participants and time required to evaluate potential treatments.

Discussions regarding the use of narsoplimab in COVID-19 with leaders across various government agencies, both in the U.S. and internationally, continue to progress.

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"); multiple sclerosis; neuromyelitis optica; age-related

macular degeneration; Alzheimer's disease; systemic lupus erythematosus;

diabetic retinopathy; chronic obstructive pulmonary disease; antineutrophil

cytoplasmic antibody-associated vasculitis; anti-phospholipid syndrome;

atherosclerosis; myasthenia gravis and others. Our OMS906 monoclonal antibody

program has generated positive data in well-established animal models of PNH

and rheumatoid arthritis as well as strong pharmacodynamic activity in

non-human primates.

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. We have completed dosing all of the intravenous dosing cohorts and the first subcutaneous dosing cohort in the single-ascending dose study. Initial data from the Phase 1 trial are expected in the second quarter of 2021.

PDE7 - OMS527. In our 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. Continued clinical development in our PDE7 program is subject to allocation of financial and other resources, which are currently prioritized for other programs. A manuscript detailing the mechanism of action of PDE7 inhibition in nicotine addiction has been accepted for publication in the peer-reviewed Journal of Neuroscience.

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 for which we expect to initiate clinical trials in 2022. This

program is designated "OMS1029." Development efforts are also directed to a

small-molecule inhibitor of MASP-2 designed for oral administration as well as

to small-molecule inhibitors of MASP-3 and bispecific small- and large-molecule

   inhibitors of MASP-2/-3.


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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, previously unrecognized 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 discoveries suggest a new approach to cancer immunotherapy that targets

inhibition of GPR174 and can be combined with and significantly improve the

tumor-killing effects of other oncologic agents, including radiation, adenosine

pathway inhibitors and 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, another key

metabolic pathway that regulates tumor immunity. We are developing both

small-molecule and antibody inhibitors of GPR174 with the objective of moving

compounds into human trials and exploring several of our other GPCR targets as


Financial Summary

We recognized net losses of $35.1 million and $29.0 million for the three months ended March 31, 2021 and 2020, respectively, and our OMIDRIA net revenues were $21.1 million and $23.5 million for the same periods. As of March 31, 2021, we had $100.5 million in cash and cash equivalents and short-term investments available for general corporate use and $24.8 million in accounts receivable, net.

                           [[Image Removed: Graphic]]

   * Fiscal quarters with significantly reduced cataract procedures due to
  ** Pass-through reimbursement expired on October 1, 2020. In December 2020,
     separate payment was confirmed for OMIDRIA, effective retroactively as of
     October 1, 2020.

Pass-through reimbursement for OMIDRIA under Medicare Part B expired on October 1, 2020, which negatively affected our net revenues for September, the fourth quarter of 2020 and the first quarter of 2021. In December 2020, CMS confirmed that OMIDRIA qualifies for separate payment when used on Medicare Part B patients in ASCs. CMS' current non-opioid separate payment policy can be changed by CMS through its OPPS/ASC annual rulemaking and


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comment process. We believe CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019, and that OMIDRIA will continue to be separately reimbursed when used in the ASC setting.

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

Results of Operations


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
                         2021         2020

                           (In thousands)
Product sales, net    $   21,061    $ 23,537

During the three months ended March 31, 2021, OMIDRIA net revenue was $21.1 million as compared to $23.5 million for the three months ended March 31, 2020. The decrease in revenue during the three months ended March 31, 2021 compared to the same period in the prior year was due to the timing of ASCs' ability to verify reimbursement status following the December confirmation by CMS of separate payment for OMIDRIA before resuming their OMIDRIA usage. The lack of Medicare Part B reimbursement in the hospital setting during the quarter ended March 31, 2021 also contributed to the decrease in revenues. The ongoing COVID-19 pandemic negatively affected the number of cataract procedures performed in the quarter ended March 31, 2020 and, to a lesser extent, the quarter ended March 31, 2021. With separate payment for OMIDRIA established, we expect OMIDRIA revenues to increase during the second quarter.

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 months ended March 31, 2021 was 31.5% of gross OMIDRIA product sales compared to 32.3% for the three months ended March 31, 2020. The decrease in gross-to-net deductions as a percentage of sales in 2021 compared to 2020 is due to a reduction in sales returns during the first quarter of 2021 partially offset by an increase in our OMIDRIAssure® patient assistance and reimbursement program.

A summary of our gross-to-net related accruals for the three months ended March 31, 2021 is as follows:

                                                      Fees and
                                    Chargebacks        Return
                                    and Rebates      Allowances        Total

                                                 (In thousands)
Balance as of December 31, 2020            3,740              948        4,688
Provisions                                 8,539            1,109        9,648
Payments                                 (5,399)            (582)      (5,981)
Balance as of March 31, 2021       $       6,880    $       1,475    $   8,355

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


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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 program and for 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.

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. The following table illustrates our expenses associated with these activities:

                                                March 31,
                                             2021        2020

                                              (In thousands)
Direct external expenses:
Clinical research and development:
MASP-2 program - OMS721 (narsoplimab)      $ 17,031    $ 13,215
MASP-3 program - OMS906                       1,771           -
OMIDRIA - Ophthalmology                         565         626
PDE7 - OMS527                                   142       1,337

Total clinical research and development 19,509 15,178 Preclinical research and development 2,711 3,515 Total direct external expenses

               22,220      18,693

Internal, overhead and other expenses 9,657 8,771 Stock-based compensation expense

              1,480       1,447

Total research and development expenses $ 33,357 $ 28,911

Total clinical research and development expenses increased $4.3 million for the three months ended March 31, 2021 compared to the same period in the prior year due to timing of narsoplimab drug manufacturing and medical affairs-related activities surrounding the commercial launch of narsoplimab. During the first quarter of 2021, OMS906 clinical research and development expenses were $1.8 million, which also contributed to the increase in total clinical research and development expenses. In the prior year quarter, OMS906 expenses of $2.3 million were included as preclinical research and development.

The decrease in preclinical research and development expenses for the three months ended March 31, 2021 compared to the same period in the prior year is primarily due to the migration of OMS906 from preclinical research and development to clinical research and development beginning in the third quarter of 2020 when OMS906 entered Phase 1 clinical trials.

The increases in internal, overhead and other expenses are primarily due to additional employee-related costs and additional leased laboratory facilities to support our research and development activities.


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We expect overall research and development costs in the second quarter of 2021 to be comparable to the quarter ended March 31, 2021.

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 to 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 on 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.

Selling, General and Administrative Expenses

                                                             Three Months Ended
                                                             2021           2020

                                                               (In thousands)
Selling, general and administrative expenses,
excluding stock-based compensation expense                $    16,261    $   16,007
Stock-based compensation expense                                1,791         2,029

Total selling, general and administrative expenses $ 18,052 $ 18,036

Total selling, general and administrative expenses did not increase significantly compared to the same period in the prior year.

We expect that our selling, general and administrative expenses will increase during the second quarter of 2021 due to increased pre-commercialization activities for narsoplimab.

Interest Expense

                      Three Months Ended
                          March 31,
                       2021         2020

                        (In thousands)
Interest expense    $    4,897     $ 5,903

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 to interest on our finance leases. Interest expense decreased $1.0 million for the three months ended March 31, 2021 compared to the same period in the prior year due to the early adoption of ASU 2020-06, which eliminated the amortization of the non-cash debt discount on the 2023 and 2026 Notes. This decrease was partially offset by the increase in interest related to our 2026 Notes, which were issued in August and September 2020 (for more information, see "Note 7-Unsecured Convertible Senior Notes").

Financial Condition - Liquidity and Capital Resources

As of March 31, 2021, we had $100.5 million in cash, cash equivalents and short-term investments available for general corporate use held primarily in money-market accounts as compared to $135.0 million at December 31, 2020. In addition, as of March 31, 2021, we had $24.8 million in accounts receivable, net. We have historically generated net losses and incurred negative cash flows from operations and debt service. For the three months ended March 31, 2021,


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we incurred a net loss of $35.1 million and incurred negative cash flows from operations of $40.3 million. The net loss and the negative cash flows from operations in the quarter ended March 31, 2021 were significantly affected by (1) reduced OMIDRIA revenues following expiration of the drug's pass-through status and the delayed posting by Medicare Administrative Contractors of CMS' December 2020 determination that OMIDRIA be paid separately under Medicare Part B in the ASC setting, and (2) the COVID-19-related decrease in the number of cataract procedures performed nationally.

FDA accepted our BLA for narsoplimab in HSCT-TMA for priority review with a PDUFA action date of July 17, 2021. We anticipate, but cannot guarantee, that narsoplimab will receive FDA approval and launch in the U.S. in 2021. If approved, we cannot fully predict the timing or the magnitude of narsoplimab revenues, but we believe they will be significant. Our sales and marketing strategies for the launch of narsoplimab for HSCT-TMA include various milestones at which we commit to incremental spending, such as for field sales hiring, providing for flexibility in the timing of costs incurred should the approval of narsoplimab be delayed.

We plan to fund our operations for 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. In addition, we may utilize funds available under our 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. We also entered into a sales agreement to sell shares of our common stock, from time to time, up to an aggregate offering amount of $150.0 million through an "at the market" equity offering program. Should it be necessary or 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 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

                                  Three Months Ended March 31,
                                     2021                 2020

                                          (In thousands)
Selected cash flow data
Cash provided by (used in):
Operating activities           $       (40,254)      $      (9,141)
Investing activities           $         32,985      $       10,776
Financing activities           $          5,796      $        2,399

Operating Activities. Net cash used in operating activities for the three months ended March 31, 2021 increased by $31.1 million as compared to the same period in 2020. The net increase is primarily due to a $32.1 million reduction in accounts receivable cash collections, a $6.1 million increase in our net loss and a $2.3 million decrease in non-cash charges offset by $4.4 million decrease in prepaids and a $4.7 million increase in accounts payable and accrued expenses.

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

Net cash provided by investing activities during the three months ended March 31, 2021 was $33.0 million, an increase of $22.2 million for the same period in 2020 due to net proceeds from investment maturities exceeding investment purchases.


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Financing Activities. Net cash provided by financing activities during the three months ended March 31, 2021 was $5.8 million, an increase of $3.4 million compared to the same period in 2020. The increase was due to incremental cash proceeds from the exercise of our common stock.

At the Market Sales Agreement. On March 1, 2021, we entered into a sales agreement to sell shares of our common stock, from time to time and having an aggregate offering price of up to $150.0 million, through an "at the market" equity offering program. As of March 31, 2021, we have not sold any shares under this agreement.

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 of our assets, excluding intellectual property and development program inventories, and matures on August 2, 2022. As of March 31, 2021, 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

Our future minimum contractual commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2020. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported.

Lease Agreements

Our lease for our office and laboratory space ends in November 2027. We have two five-year options to extend the lease term. As of March 31, 2021, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $53.8 million.

Goods and Services

We have certain other non-cancelable obligations under various agreements that relate to goods and services. As of March 31, 2021, our aggregate firm commitments were $30.9 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 amounts described above.

Critical Accounting Policies and Significant Judgments and Estimates

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 (for more information, see "Note 2-Significant Accounting Policies, Recently Adopted Pronouncements").

Other than the adoption of ASU 2020-06, 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, 2020.

Off-Balance Sheet Arrangements

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


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Financials (USD)
Sales 2021 112 M - -
Net income 2021 -121 M - -
Net Debt 2021 42,6 M - -
P/E ratio 2021 -7,65x
Yield 2021 -
Capitalization 908 M 908 M -
EV / Sales 2021 8,45x
EV / Sales 2022 5,36x
Nbr of Employees 277
Free-Float 95,9%
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Number of Analysts 8
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Average target price 25,29 $
Spread / Average Target 74,0%
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Managers and Directors
Gregory A. Demopulos Chairman, President & Chief Executive Officer
Michael A. Jacobsen Chief Financial Officer, Treasurer & VP
George A. Gaitanaris Chief Scientific Officer & Vice President-Science
J. Steven Whitaker Chief Medical Officer & Vice President
Ray Aspiri Independent Director
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