Omeros Corporation — Q3 2015 Form 10-Q
Business context and period. Biopharmaceutical company developing therapies for inflammation, coagulopathies and central nervous system disorders. This unaudited report covers the quarter and nine months ended September 30, 2015. Omidria, approved for use in cataract and intraocular lens replacement surgery, was the company’s only marketed product; its broad U.S. launch began in April 2015.
Financial highlights
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $3.3 million | $0.2 million | $6.8 million | $0.4 million |
| Omidria net sales | $3.2 million | None | $6.6 million | None |
| Research and development | $13.3 million | $11.8 million | $33.5 million | $36.2 million |
| Selling, general and administrative | $9.0 million | $5.6 million | $25.9 million | $14.2 million |
| Net loss | $19.9 million | $18.3 million | $55.3 million | $53.0 million |
| Net loss per share, basic and diluted | $0.53 | $0.54 | $1.48 | $1.61 |
| Cash used in operating activities | Not separately stated for the quarter | $48.6 million | $42.4 million |
Balance sheet and liquidity. At September 30, cash, cash equivalents and short-term investments totaled $35.0 million, versus $6.9 million at December 31, 2014. Total assets were $41.4 million and shareholders’ deficit was $9.0 million. Notes payable had a net carrying value of approximately $28.6 million; the loan bears 9.25% annual interest and requires monthly principal and interest payments of about $1.0 million through its March 2018 maturity, plus a $2.2 million maturity fee. The company reported $91.5 million of contractual obligations, including $55.6 million in operating leases.
Changes versus comparable periods
- Omidria sales drove the increase in revenue; product sales were zero in the 2014 comparison periods. Q3 reported Omidria revenue rose $0.12 million, or 4%, from Q2 2015, while wholesaler units shipped to providers increased 71%. Management attributed the difference to wholesaler purchasing patterns.
- Q3 net loss increased by $1.6 million year over year; nine-month net loss increased by $2.3 million. Q3 R&D rose, while nine-month R&D declined, principally reflecting lower OMS824 costs, partly offset by increased OMS721 spending.
- SG&A increased substantially in both comparison periods, primarily from Omidria launch sales, marketing and legal costs, as well as stock-based compensation.
- Operating cash use increased by $6.3 million year over year for the first nine months, partly reflecting a $2.1 million increase in receivables associated with Omidria sales. Financing provided $76.9 million, largely from a February 2015 equity and pre-funded warrant offering that generated $79.1 million net proceeds.
Outlook, management commentary and key risks
- Management stated that available cash, investments and revenues, together with potential access to additional financing or partnerships, were expected to fund anticipated needs for at least 12 months. The company cautioned that failure to raise capital on acceptable terms could significantly harm its financial condition; it could respond by delaying trials, reducing R&D or restructuring.
- Management anticipated higher R&D and SG&A costs in the remainder of 2015, reflecting planned clinical and manufacturing work and continued Omidria launch support. No specific revenue or earnings guidance was provided.
- OMS721: the company reported positive mid- and high-dose Phase 2 TMA data and said it was expanding studies to IgA nephropathy and other complement-related renal disorders. It expected the fixed-dose Phase 2 stage to continue in 2016 and planned FDA discussions on Phase 3 design.
- OMS824: the FDA permitted the Huntington’s disease program to resume subject to dosing limits; further information would be needed to seek removal of those limits. The schizophrenia program remained pending a trial protocol.
- Omidria received European Commission marketing approval in July, but country-level pricing and reimbursement decisions and commercial partnerships remained necessary before sales. The company announced OMIDRIAssure patient reimbursement and assistance services in October 2015, after quarter-end, and expected government discounts and rebates as a share of sales to rise.
- Supply continuity is a material risk: the Patheon supply agreement ended in 2015, while validation at Hospira was not expected to finish before the second half of 2016. The company expected pre-produced inventory to cover demand during the interruption, but acknowledged uncertainty if demand exceeded expectations.
- Par filed an ANDA challenging three Omidria patents. Omeros sued in September 2015, triggering an expected FDA approval stay through late January 2018. Par asserted invalidity and non-infringement counterclaims; litigation outcome and generic competition remain uncertain.
- OMS103 licensing partner Fagron had not begun sales, and Omeros did not expect sales to start in 2015. The companies were discussing timing, creating uncertainty around potential royalty and milestone revenue.
- Additional risks include continuing operating losses, dependence on Omidria adoption and reimbursement, clinical and regulatory uncertainty, manufacturing reliance, debt covenants and dilution from equity compensation and financing. Management reported disclosure controls were effective at the reasonable assurance level and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Omidria demand, provider adoption and end-customer sell-through translate into sustained net sales, rather than fluctuating wholesaler orders.
- Whether the $35.0 million liquidity position and any subsequent financing are sufficient relative to cash burn, debt service and the stated 12-month funding outlook.
- Whether Omidria supply remains adequate through the anticipated manufacturing interruption and when an alternative or Hospira facility becomes operational.
- Developments in the Par patent litigation, including the expected stay through January 2018 and any effect on generic-entry timing.
- Progress and safety results in OMS721 and the FDA’s dosing restrictions and next steps for OMS824.
- Whether Fagron begins OMS103 commercialization and whether European pricing, reimbursement and partnership arrangements are secured.