Omeros Corporation — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Omeros is a clinical-stage biopharmaceutical company whose only U.S.-approved commercial product was OMIDRIA, used during cataract surgery. Figures below are unaudited; dollar amounts are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $11.3 | $3.3 | $28.7 | $6.8 |
| OMIDRIA net sales | $11.3 | $3.2 | $28.5 | $6.6 |
| Operating loss | $(12.0) | $(19.3) | $(42.4) | $(53.2) |
| Net loss | $(14.0) | $(19.9) | $(47.1) | $(55.3) |
| Basic and diluted loss per share | $(0.34) | $(0.53) | $(1.19) | $(1.48) |
- OMIDRIA sales increased substantially year over year as demand and market acceptance grew; Q3 reported sales were 13% above the prior quarter. Product cost was $0.4 million in Q3 and $1.0 million for the nine-month period.
- Research and development expense was $12.5 million in Q3 and $38.2 million for nine months; selling, general and administrative expense was $10.5 million and $31.9 million, respectively. Nine-month R&D and SG&A rose year over year, while Q3 R&D declined and SG&A increased.
- At September 30, cash and cash equivalents were $10.3 million and short-term investments were $37.1 million, totaling $47.4 million available for general corporate use. Restricted cash and investments were $10.8 million. Shareholders’ deficit was $22.8 million; accumulated deficit was $450.3 million.
- For the nine months, operating cash use was $40.6 million, investing cash use was $10.3 million, and financing provided $59.9 million. Financing included $38.0 million net proceeds from an August equity offering and $19.9 million net borrowings.
- At quarter-end, the company had $70.0 million principal outstanding under its Oxford/East West Bank facility, plus a $5.0 million maturity fee. The balance sheet reported notes payable net of discounts and costs.
Material changes and subsequent financing
- OMIDRIA sales rose from $6.6 million to $28.5 million for the first nine months year over year. The net loss narrowed from $55.3 million to $47.1 million, although the company remained loss-making and used substantial operating cash.
- On October 26, 2016, after quarter-end, Omeros entered a six-year CRG term loan and initially borrowed $80.0 million. It used $75.7 million to repay the Oxford/EWB facility. The company reported approximately $8.0 million of additional cash access after considering fees and reduced restricted-cash requirements; a separate note states $3.0 million in net proceeds after fees.
- The CRG loan bears 12.25% annual interest, with up to 4.0% deferrable as payment-in-kind, and is interest-only through at least December 2020. It requires a $5.0 million minimum cash balance, pledges substantially all assets including intellectual property, and includes revenue or market-capitalization tests. Up to $45.0 million of additional borrowing is conditional on milestones.
Outlook, risks, and unusual items
- Management expected OMIDRIA revenue to continue expanding with adoption, but stated that sales had not yet funded operations. It expected R&D and SG&A to increase in the remainder of 2016, including OMS721 development, OMIDRIA manufacturing transition, patent litigation, and commercial activities.
- Management said continued losses mean additional financing may be needed through equity, debt, partnerships, licensing, or asset sales. The filing states that these conditions raise substantial doubt about Omeros’s ability to continue as a going concern.
- OMIDRIA’s Medicare pass-through reimbursement was expected to end January 1, 2018. If separate reimbursement is not extended or obtained, the company warned that the product’s per-unit price could be adversely affected.
- Supply transition is a key risk: manufacturing at the prior supplier ceased at the end of 2015; validation and approval of Hospira as a new manufacturing site were not complete, with commercial supply expected beginning in 2017. Omeros reported building inventory to cover the transition.
- Par stipulated that its generic application infringed the patents asserted in Omeros’s lawsuit, but continues to challenge their validity. The FDA approval stay was expected to remain in effect until late January 2018; the outcome of the litigation remains uncertain.
- OMS721 was advancing in Phase 2 programs, with a Phase 3 aHUS program planned to open enrollment later in 2016. OMS824 trials faced dosing limitations, and the schizophrenia program remained suspended at FDA request. Fagron had not met diligence obligations to commercialize licensed OMS103.
- Omeros estimated a roughly $5.6 million loss on extinguishment of the Oxford/EWB debt in Q4 2016 and expected Q4 interest expense of approximately $2.5 million.
Investor verification priorities
- Track OMIDRIA sales, gross-to-net deductions, customer adoption, and reimbursement arrangements ahead of the January 2018 pass-through expiration.
- Confirm cash runway and financing needs using post-quarter cash, the CRG loan’s actual net proceeds, interest accruals, and required minimum cash balance.
- Monitor compliance with CRG revenue or market-capitalization covenants and the conditions for accessing the additional $45.0 million.
- Check progress and timing for Hospira validation, manufacturing restart, and adequacy of OMIDRIA inventory.
- Follow the Par patent litigation, including validity defenses and the anticipated end of the FDA stay, and review clinical and regulatory developments for OMS721 and OMS824.