Note 8 - OMIDRIA Royalty Obligation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Royalty Obligation [Text Block]

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, 2022 and December 31, 2030, subject to annual caps. DRI receives their prorated monthly cap amount before we receive any royalty proceeds. DRI is not entitled to carry-forward nor recoup any shortfall if the royalties paid by Rayner for an annual period are less than the cap amount applicable to each discrete calendar year. Additionally, DRI has no recourse to or security interest in our assets other than our OMIDRIA royalty receipts. 

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

Balance at December 31, 2022	$	126,278
Principal payments		(1,152	)
Balance at December 31, 2023	$	125,126

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

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

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

					Total
	Principal		Interest		Annual Cap
	(In thousands)
2024	$	8,576	$	11,424	$	20,000
2025		14,641		10,359		25,000
2026		16,081		8,919		25,000
2027		17,664		7,336		25,000
2028		19,402		5,598		25,000
Thereafter		48,762		4,988		53,750
Total scheduled payments	$	125,126	$	48,624	$	173,750

Subsequent Event

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