OMEROS CORP Fair Value Disclosure

Note 5—Investments and Fair-Value Measurements 

 

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

 

Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;

 

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

 

Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There have been no transfers of assets or liabilities between fair value measurement classifications during the year ended December 31, 2025.

 

Our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:

 

		December 31, 2025
		Level 1				Level 3				Total
		(In thousands)
Assets:
Cash and cash equivalents:
Certificate of deposit classified as non-current restricted investments		$	1,054			$	—			$	1,054
Short-term investment:
Money-market funds			162,144				—				162,144
Total Assets		$	163,198			$	—			$	163,198
Liabilities:
2029 Notes:
2029 Note conversion option derivative		$	—			$	(157,171	)		$	(157,171	)
Total Liabilities		$	—			$	(157,171	)		$	(157,171	)

 

		December 31, 2024
		Level 1				Level 3				Total
		(In thousands)
Assets:
Cash and cash equivalents:
Certificate of deposit classified as non-current restricted investments		$	1,054			$	—			$	1,054
Short-term investment:
Money-market funds			86,732				—				86,732
Total Assets		$	87,786			$	—			$	87,786
Liabilities:
Term Loan
Call and put options derivative (1)		$	—			$	235			$	235
Total Liabilities		$	—			$	235			$	235

 

(1)

While the Term Loan is recorded as a liability, the embedded call and put options that have been identified as requiring bifurcation are recognized as a net embedded derivative asset reflected as a component of the Term Loan on the consolidated balance sheet.

 

 

 

Cash held in demand deposit accounts of $9.7 million and $3.4 million is excluded from our fair-value hierarchy disclosure as of December 31, 2025 and 2024, 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. 

 

All of our investments, which are classified as Level 1 assets, are short-term and held in our name. Money market funds are classified as available-for-sale on the accompanying consolidated balance sheets. Interest income is included as a component of interest and other income on our consolidated statement of operations and comprehensive loss. Interest and other income for the years ended December 31, 2025, December 31, 2024 and December 31, 2023 consists primarily of interest earned from investments of $2.3 million, $8.4 million and $14.7 million, respectively.

 

The fair value of both of our embedded derivatives were determined using the Lattice and Discounted Cash Flow models with the following key assumptions:

 

2029 Note conversion option derivative
		December 31,
		2025
Stock price (per share)		$	17.18
Unsecuritized discount rate			18.03	%
Risk-free rate			3.53	%
Stock price volatility			75	%
Dividend yield			—	%
Term (in years)			3.5

 

Changes in valuation assumptions could have a significant impact on the 2029 Note conversion option derivative. The Company can provide no assurance that changes in yield or in our price would not have a significant impact on the derivative in the future. An increase in our stock price volatility could increase the valuation of the 2029 Note conversion option derivative, whereas an increase in interest rates could decrease the valuation of the 2029 Note conversion option derivative. (For further details see “Note 7 — Debt”).

 

Term Loan derivative
		December 31,
		2024
Interest is comprised of:
SOFR benchmark rate			3.91 - 4.30	%
Securitized discount rate			13.16	%
Yield volatility			21	%
Probability weighted term (in years)			3.4

 

The repayment of our Term Loan on November 25, 2025 eliminated the related Term Loan embedded derivative as of December 31, 2025.

 

The following table sets forth a summary of changes in the fair value of Level 3 liabilities for the year ended December 31, 2025:

 

		Balance as of																Balance as of
		December 31,																December 31,
		2024				Additions				Change in Fair Value				Conversions & Extinguishment				2025
		(In thousands)
Liabilities:
2026 Note:
Share-settled liability		$	—			$	(9,838	)		$	295			$	9,543			$	—
Term Loan:
Call and put options derivative			235				—				(2,829	)			2,594				—
2029 Note:
Conversion option derivative			—				(22,988	)			(134,183	)			—				(157,171	)
Total Liabilities		$	235			$	(32,826	)		$	(136,717	)		$	12,137			$	(157,171	)

 

See “Note 7 - Debt” for the estimated fair market values of our 2029 Notes and 2026 Notes. See “Note 9 – OMIDRIA Royalty Obligation” for the estimated fair value of our OMIDRIA royalty obligation.