OMEROS CORP

Note 1—Organization and Basis of Presentation

General

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

Our pipeline of clinical-stage development programs includes: narsoplimab, our antibody targeting mannan-binding lectin-associated serine protease2 ("MASP-2"), the effector enzyme of the lectin pathway of complement;OMS1029, our long-acting antibody targeting MASP-2; OMS906, our antibody targeting mannan-binding lectin-associated serine protease-3 ("MASP-3"), the key activator of the alternative pathway of complement; andOMS527, our phosphodiesterase7 ("PDE7") inhibitor program.

Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy ("TA-TMA"). Our Biologics License Application ("BLA") for narsoplimab in TA-TMAis anticipated to be resubmitted with additional information to support potential approval of narsoplimab in this indication. In* October 2023,we announced the results of a pre-specified interim analysis of our Phase3* ARTEMIS-IGAN trial evaluating narsoplimab for the treatment of immunoglobulin A ("IgA") nephropathy. Topline results showed that narsoplimab didnot reach statistically significant improvement over placebo on the primary endpoint of reduction in proteinuria. Based on this result, we have discontinued the ARTEMIS-IGAN clinical trial.

Phase1 and Phase2 clinical programs are underway in our other clinical-stage assets.

Sale of OMIDRIA Assets

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

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

As a result of the divestiture, the results of OMIDRIA operations (e.g., revenues and operating costs) have been reclassified to discontinued operations in our consolidated statements of operations and comprehensive income (loss) and excluded from continuing operations for all periods presented (See“Note7 – Discontinued Operations – Sale of OMIDRIA ”).

Basis of Presentation

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

Liquidity and Capital Resources

As of* December 31, 2023*, we had cash, cash equivalents and short-term investments of $171.8 million. Our cash provided by operations for the year ended* December 31, 2023was $74.7 million and included our2023* net loss for the year of $117.8 million and collection of the $200.0 million Milestone Payment in thefirst quarter of2023. We extinguished $95.0 million outstanding of convertible senior notes at maturity in* November 2023.In February 2024,we received $115.5 million upon the sale to DRI Healthcare Acquisition LP ("DRI") of substantially all of our expected remaining U.S.-only Rayner OMIDRIA royalty receipts payable through December 31, 2031 (see “Note8* - OMIDRIA Royalty Obligation”).

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Historically, we have incurred net losses from continuing operations and negative operating cash flows. We havenot yet established an ongoing source of revenue sufficient to cover our operating costs; therefore, we potentially need to continue to raise additional capital to accomplish our business plan and to retire our outstanding convertible senior notes due in2026. We plan to continue to fund our operations for at least the nexttwelve months with our existing cash and investments and the $115.5 million we received in* February 2024from DRI. We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we mayoffer and sell shares of our common stock equaling an aggregate amount up to $150.0 million. Should it be determined to be strategically advantageous, we could pursue debt financings as well as public and private offerings of our equity securities, similar to those we have previously completed, or other strategic transactions, which may*include licensing a portion of our existing technology. Should it be necessary to manage our operating expenses, we could also reduce our projected cash requirements by delaying clinical trials, reducing selected research and development efforts, or implementing other restructuring activities.

Segments

We operate inone segment. Management uses cash flow as the primary measure to manage our business and doesnot segment our business for internal reporting or decision-making.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include OMIDRIA contract royalty asset valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.

Note 2—Significant Accounting Policies

Discontinued Operations

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

Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the consolidated statements of operations and comprehensive income (loss). Results of discontinued operations include all revenues and expenses directly derived from such businesses. General corporate overhead isnot allocated to discontinued operations. The OMIDRIA asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented. The Company included information regarding cash flows from discontinued operations(see “Note7 – Discontinued Operations – Sale of OMIDRIA”).

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OMIDRIA Royalties, Milestones and Contract Royalty Assets

We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we used the expected value approach which is the sum of the discounted probability-weighted royalty payments, we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized willnot occur. As contemplated by the Asset Purchase Agreement, the royalty rate applicable to U.S. net sales of OMIDRIA was reduced from 50% to 30% upon the occurrence, in* December 2022,of the event triggering the $200.0 million Milestone Payment. The reduction in our royalty rate to 30% continues until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occurno* earlier than2035. Consequently, we revalued the OMIDRIA contract royalty asset using the 30% royalty rate on U.S. net sales and adjusted the probability weighted outcomes to reflect the occurrence of the Milestone Event. Royalties earned are recorded as a reduction to the OMIDRIA contract royalty asset. The amount recorded in discontinued operations in future periods will reflect interest earned on the outstanding OMIDRIA contract royalty asset at 11.0% and any amounts we receive that are different from the expected royalties. The OMIDRIA contract royalty asset is re-measured periodically using the expected value approach based on actual results and future expectations. Any required adjustment to the OMIDRIA contract royalty asset is recorded in discontinued operations.

OMIDRIA Royalty Obligation

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

To the extent our estimates of future royalties are less than previous estimates, we will adjust the carrying amount of the OMIDRIA royalty obligation to the present value of the revised estimated cash flows, discounted at the effective interest rate utilizing the cumulative catch-up method. The adjustment would be recognized as a component of net income (loss) from continuing operations(see “Note8 - OMIDRIA Royalty Obligation”).

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

Cash and cash equivalents include highly liquid investments with a maturity ofthree months or less on the date of purchase which can be easily converted into cash without a significant impact to their value. Short-term investment securities are classified as held-to-maturity. Investments classified as held-to-maturity are carried at cost. Amortization, accretion, interest, and dividends, realized gains and losses and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific-identification method. Investments with maturities of less thanone year, or those for which management intends to use the investments to fund current operations, are included in current assets. We evaluate whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. Restricted investments held in money-market funds include security deposits held by our landlord.

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

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Inventory

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

Receivables

Receivables at* December 31, 2023* primarily consist of royalties receivable from Rayner. Receivables at* December 31, 2022* also included the $200.0 million Milestone Payment which we received in* February 2023.Considering the nature of our receivables, we concluded an allowance for doubtful accounts wasnot* necessary as of* December 31, 2023* and2022, respectively.

Property and Equipment, Net

Property and equipment are stated at cost, and depreciation is calculated using the straight-line method over the estimated useful life of the assets, which is generally three to 10 years. Equipment acquired through finance leases is recorded as property and equipment and is amortized over the shorter of the useful lives of the related assets or the lease term. Expenditures for repairs and maintenance are expensed as incurred.

Convertible Senior Notes

On* January 1, 2021,we adopted Accounting Standards Update (“ASU”)2020-06, Debt—Debt with Conversion Options (Subtopic470.20* and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic815-40) on a modified retrospective basis. ASU2020-06 removed the separate liability and equity accounting for our convertible senior notes that was required under previous guidance and allows us to account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs.

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

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Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, whenever events or changes in circumstances indicate that the carrying value of an asset* may**not* be recoverable. Recoverability of these assets is measured by comparing the carrying value to future undiscounted cash flows that the asset is expected to generate. If the asset is impaired, the amount of any impairment will be reflected in the results of operations in the period of impairment. We havenot recognized any impairment losses for the years ended* December 31, 2023*,2022 and2021.

Revenue Recognition

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

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

Research and Development

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

Selling, General and Administrative

Selling, general and administrative expenses are comprised primarily of marketing and selling expenses; professional and legal services; patent costs; and salaries, benefits, and stock-compensation costs for sales, marketing, and other personnelnot directly engaged in research and development. Additionally, selling, general and administrative expenses include depreciation; an allocation of our occupancy costs; and other general corporate expenses. Advertising costs are expensed as incurred. We hadno advertising costs during the years ended* December 31, 2023and2022.* For the year ended* December 31, 2021,*we incurred $0.8 million in advertising costs related to our sales of OMIDRIA.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of income tax positions only if those positions are more likely thannot of being sustained upon an examination. A valuation allowance is established when it is more likely thannot that the deferred tax assets willnot be realized.

Stock-Based Compensation

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

Common Stock Repurchases

We* mayrepurchase shares of our common stock from time to time under authorization made by our Board of Directors. Under applicable Washington State law, repurchased shares are retired andnot* presented separately as treasury stock on the consolidated financial statements.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is comprised of net income (loss) and certain changes in equity that are excluded from net income (loss). There wasno difference between comprehensive income (loss) and net income (loss) for the years ended* December 31, 2023*,2022 and2021.

Financial Instruments and Concentrations of Credit Risk

Cash and cash equivalents, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount or cost, approximate fair value based on the short-term nature of these financial instruments. The fair value of short-term investments is based on quoted market prices. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and receivables. Cash and cash equivalents are held by financial institutions and are federally insured up to certain limits. At times, our cash and cash equivalents balance held at a financial institution* may*exceeds the federally insured limits. To limit the credit risk, we invest our excess cash in high-quality securities such as money market mutual funds, certificates of deposit and U.S. treasury bills.

Recent Accounting Pronouncements

In* December 2023,the Financial Accounting Standards Board issued ASU2023*-09,* Income Taxes - Improvements to Income Tax Disclosure* (Topic740), to enhance the transparency of income tax disclosures. ASU2023-09 provides enhancements to the income tax disclosures related to the rate reconciliation and income taxes paid information. ASU2023-09 is effective for fiscal years after* December 15, 2025*and applied prospectively. The Company is evaluating the impact of this pronouncement on its consolidated financial statements.

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Note 3—Net Income (Loss) Per Share

Basic net income (loss) per share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Our potentially dilutive securities include common shares related to our stock options, RSUs and convertible senior notes calculated using the treasury stock method. In periods where we have a net loss from continuing operations but overall net income, we donot compute Diluted EPS. Potentially dilutive securities excluded from Diluted EPS are as follows:

(1) The2023 Notes were, and the2026 Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note6 - Convertible Senior Notes”. Any potential impact of the capped call arrangement is excluded from this table.

(2) The2023 Notes were fully extinguished on* November 15, 2023.*

Note 4—Fair-Value Measurements

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

The following tables summarize our investments:

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes thethree levels of inputs required:

Level1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;

Level2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

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Level3—Unobservable inputs in which little orno market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Our fair-value hierarchy for our financial assets are as follows:

Unrealized gains and losses on our short-term investments werenot material for either period presented. Cash held in demand deposit accounts of $7.1 million and $11.0 million is excluded from our fair-value hierarchy disclosure as of* December 31, 2023* and2022, respectively. The carrying amounts for receivables, accounts payable and accrued liabilities, and other current monetary assets and liabilities, including lease financing obligations, approximate fair value.

See “Note6 - Convertible Senior Notes” and “Note8 – OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our2023 Notes,2026 Notes and the OMIDRIA royalty obligation.

Note 5—Certain Balance Sheet Accounts

Receivables

Receivables consists of the following:

Property and Equipment, Net

Property and equipment, net consists of the following:

For the years ended* December 31, 2023*,2022 and2021, depreciation and amortization expenses were$0.9 million,$1.0 million and $1.4 million, respectively.

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Accrued Expenses

Accrued expenses consist of the following:

Note 6—Convertible Senior Notes

On* January 1, 2021,we adopted ASU2020*-06, Debt—Debt with Conversion Options (Subtopic470-20)and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic815-40) on a modified retrospective basis. ASU2020-06 removes the separate liability and equity accounting for our convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs increasing convertible senior notes and shareholders’ equity by $75.5 million.

In* December**2023,* we repurchased $9.1 million par value of our2026 Notes realizing a non-cash gain on debt extinguishment of $4.1 million to our consolidated statement of operations and comprehensive loss in the current year. On* November 15, 2023,we also extinguished at par the $95.0 million outstanding principal amount on our2023* Notes.

Convertible senior notes outstanding at* December 31, 2023* and2022, respectively, are as follows:

(1) The fair value is classified as Level3 due to the limited trading activity for the convertible senior notes.

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2023 Convertible Senior Notes

The2023 Notes accrued interest at an annual rate of 6.25% per annum. The2023 Notes matured on* November 15, 2023,*and the $95.0 million outstanding principal and related accrued interest were paid at that time.

The following table sets forth total interest expense recognized in connection with the2023 Notes:

2026 Convertible Senior Notes

The2026 Notes are unsecured and accrue interest at an annual rate of 5.25% per annum, payable semi-annually in arrears on* February 15and August 15of each year. The2026* Notes mature on* February 15, 2026,*unless earlier purchased, redeemed or converted in accordance with their terms.

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

The2026 Notes are convertible at the option of the holders on or after* November 15, 2025at any time prior to the close of business on February 12, 2026,thesecond* scheduled trading day immediately before the stated maturity date of* February 15, 2026.Additionally, holders mayconvert their2026* Notes at their option at specified times prior to the maturity date only if:

(1) during any calendar quarter, beginning after* September 30, 2020,that the last reported sale price per share of our common stock exceeds 130% of the conversion price of the2026* Notes for each of at least20 trading days in the period of30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during thefive consecutive business days immediately after anyfive-consecutive-trading-day period (suchfive-consecutive-trading-day period, the “measurement period”) in which the trading price per*$1,000* principal amount of2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

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

(4) we call the2026 Notes for redemption.

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

Subject to the satisfaction of certain conditions, we* mayredeem in whole or in part the2026* Notes at our option beginning* August 15, 2023through the50th* scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. The2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least20 trading days, whether ornot consecutive, during the30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice and (ii) the trading day immediately before the date we send such notice.

In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the2026 Notes, we entered into capped call transactions in connection with the issuances of the2026 Notes (the*"2026* Capped Call"). The2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the2026 Notes, the number of shares of common stock underlying the2026 Notes when our common stock is trading within the range of approximately $18.49 and$26.10. However, should the market price of our common stock exceed the $26.10 cap, then the conversion of the2026 Notes would have an additional dilutive impact or* mayrequire a cash expenditure to the extent the market price exceeds the cap price. The2026* Capped Call will expire on various dates over the50-trading-day period ranging from* December 2, 2025to February 12, 2026,ifnot* exercised earlier. The2026 Capped Call is a separate transaction andnot part of the terms of the2026 Notes and was executed separately from the issuance of the2026 Notes. The amount paid for the2026 Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheet. As of* December 31, 2023*, approximately 12.2 million shares remained outstanding under the2026 Capped Call.

Further, we concluded the2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet. Consequently, the fair value of the2026 Capped Call of $23.2 million is classified as equity,not accounted for as derivatives, and willnot be subsequently remeasured.

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

The following table sets forth interest expense recognized related to the2026 Notes:

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Note *7—*Discontinued Operations - Sale of OMIDRIA

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

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

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

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

(1) For further discussion of income tax expense refer to “Note13 – Income Taxes”.

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

Cash flow from discontinued operations is as follows:

Note *8—*OMIDRIA Royalty Obligation

In* September 2022,we sold to DRI an interest in our future OMIDRIA royalty receipts and received $125.0 million in cash consideration which was recorded as an OMIDRIA royalty obligation on our consolidated balance sheet. DRI is entitled to receive royalties on OMIDRIA net sales between September 1, 2022and December 31, 2030,subject to annual caps. DRI receives their prorated monthly cap amount before we receive any royalty proceeds. DRI isnot* entitled to carry-forward nor recoup any shortfall if the royalties paid by Rayner for an annual period are less than the cap amount applicable to each discrete calendar year. Additionally, DRI hasno recourse to or security interest in our assets other than our OMIDRIA royalty receipts.

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

The OMIDRIA royalty obligation is classified as a Level3 liability as its valuation requires substantial judgment and estimation of factors that arenot currently observable in the market. As of* December 31, 2023*, the approximate fair value of our obligation was $116.3 million.

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

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

Subsequent Event

In* February 2024,Omeros and DRI expanded their royalty purchase agreement, resulting in Omeros receiving $115.5 million in cash consideration from DRI upon closing. The Amended and Restated Royalty Purchase Agreement ("RPA") eliminated the caps on royalty payments effective in thefirst* quarter of2024 and provides that DRI will now receive all royalties on U.S. net sales of OMIDRIA payable between* January 1, 2024and December 31, 2031.DRI is entitled to payment only to the extent of royalty payments that are payable in the respect of U.S. net sales of OMIDRIA on or before December 31, 2031and DRI hasno* recourse to our assets other than its interest in OMIDRIA royalties. Omeros retains the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable from and after* January 1, 2024,as well as royalties on global net sales of OMIDRIA payable from and after December 31, 2031.To date, international royalties havenot* been significant. We are also entitled to receive a milestone ranging between $10.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $156.0 million and*$160.0 million for any period offour* consecutive quarters prior to* January 1, 2026.In addition, we are entitled to receive a separate milestone ranging between $8.0 million and $27.5 million if U.S. net sales of OMIDRIA reach applicable thresholds ranging between a total of $181.0 million and $185.0 million for any period offour* consecutive quarters prior to* January 1, 2028.*

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Note 9—Lease Liabilities

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

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

The components of total lease costs are as follows:

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

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

Note 10—Commitments and Contingencies

Contracts

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

Development Milestones and Product Royalties

We have entered a variety of development, collaboration, licensing or similar agreements withthird parties under which we have accessed technology or services in connection with our development assets and programs. Some of these agreements require milestone payments based on achievements of development, regulatory or sales milestones, and/or low-single to low-double digit royalties on net income or net sales of the relevant product. For the years ended* December 31, 2023*,2022 and2021, we paid$5.0 million,$0.3 million and $0.5 million, respectively in development milestones.

Note 11—Shareholders’** Equity (Deficit)**

Common Stock

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

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

Amendment of2017 Omnibus Incentive Compensation Plan - At our* June 23, 2023annual meeting, our shareholders approved a 5,000,000 share increase in the number of shares of common stock available for grant under the2017* Omnibus Incentive Compensation Plan, as amended and restated.

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

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Note 12—Stock-Based Compensation

Our equity plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, performance shares and other stock and cash awards to employees and consultants. Stock options are granted with an exercise pricenot less than the fair market value of Omeros’ common stock on the date of the grant. Any unexercised options expire 10 years from grant date, and any unvested stock options granted which are subsequently canceled become available for future reissuance.

Vesting schedules for our equity plans generally are as follows:

Stock-based compensation expense is as follows:

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

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

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

Of the 15.3 million common stock options outstanding as of* December 31, 2023,12.3 million have an exercise price above the $3.27 closing price of our stock on the Nasdaq exchange on December 31, 2023.The total intrinsic value of stock options exercised during the years ended December 31, 2023*,2022 and2021 was $0.1 million, $0.2 million and $7.8 million, respectively.

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

RSU activity for all stock plans is as follows:

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Note 13—Income Taxes

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

For the years ended* December 31, 2023,2022 and2021, for federal and state income tax purposes, we had net losses from continuing operations and net income from discontinued operations, which resulted in an overall tax loss. At December 31, 2023,2022 and2021, we had federal net operating loss ("NOL") carryforwards of approximately $398.6 million, $361.4 million and $630.6 million, respectively, for all periods. At December 31, 2023,2022 and2021, we had state NOL carryforwards of approximately $245.8 million, $226.3 million and $245.1 million, respectively. In2023, we had a net loss for federal income tax purposes and in2022 and2021, we utilized existing net operating loss carryforwards of $268.6 million and $245.1 million, respectively to fully offset our federal tax liability for both periods. We recorded state income tax expense of$0.5* million, $4.0 million and $1.0 million in discontinued operations in2023, 2022 and2021, respectively as we didnot have adequate net operating losses and tax credits to fully offset our state tax liability.

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

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Significant components of deferred income taxes were as follows:

As of* December 31, 2023*, we had federal net operating loss carryforwards of approximately $398.6 million and state net operating loss carryforwards of approximately $245.8 million. Pre-2018 federal net operating losses of $109.8 million expire between2035 and2037. Post-2018 federal net operating losses of $288.8 million donot expire. Research and development tax credit carryforwards of $93.0 million expire between2024 and2043.

The Tax Cuts and Jobs Act was enacted on* December 22, 2017and includes the requirement to capitalize and amortize research and experimental expenditures beginning in2022.* Prior to2022, we expensed these costs as incurred for tax purposes.

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

We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all our tax years remain open to federal and state tax examination.

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As of* December 31, 2023and2022,* the total amount of gross unrecognized tax benefits was $2.0 million and $0.2 million, respectively. We recognized $0.3 million of interest and penalties at* December 31, 2023as an unrecognized tax benefit. As of December 31, 2023,$1.8 million of the total unrecognized tax benefits, if recognized, would have an impact on our effective tax rate. We estimate that there will beno material changes in this uncertain tax position for the next12* months. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The following table summarizes the activities related to our gross unrecognized tax benefits (in thousands):

Note 14—401(k) Retirement Plan

Our401(k) retirement plan provides for an annual company discretionary match on employee contributions. For the years-ended* December 31, 2023,*2022 and2021, Omeros'401(k) match expense was $0.6 million, $0.6 million and $0.8 million, respectively. We match up to 4.0% of each participating employee’s eligible earnings, with a maximum company match of $4,000 per employee per year. All employees are eligible to participate.

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