OMEROS CORP quarterly report, Q3 FY2013

Omeros Corporation — Q3 2013 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2013. Omeros is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue; reported revenue is from grants and previously received program funding.

Key financial metrics

Cash and liquidity: At September 30, cash, cash equivalents and short-term investments totaled $9.0 million; cash and cash equivalents alone were $1.15 million. Operating activities used $29.4 million in the first nine months, versus $21.8 million in 2012. Cash increased by $12.8 million from investing activities, mainly reflecting net sales of short-term investments, and financing provided $16.2 million, primarily from a May stock offering. Management said available funds, the subsequent insurance settlement and potential additional financing were expected to fund operations, capital expenditures and note payments for at least 12 months.

Debt and other obligations: Oxford loan principal was $20.0 million, bearing fixed interest at 9.25%; interest-only payments run through December 2013, followed by principal and interest payments over 36 months beginning January 2014. Maturity is December 1, 2016. The loan is secured by substantially all assets except intellectual property. The company also reported approximately $61.7 million of remaining non-cancelable rent under its lease through November 2027.

Material changes versus prior periods

• Revenue fell substantially year over year as Vulcan/LSDF program funding revenue was largely exhausted; no further revenue remained to be recognized under those agreements at September 30.
• Nine-month net loss increased by $7.2 million. R&D and SG&A rose, reflecting clinical development, OMS302 regulatory filing and launch preparation, personnel and non-cash stock compensation, among other costs.
• Q3 R&D spending increased, particularly for OMS824 and OMS721 clinical work; lower OMS302 and OMS103 trial costs partially offset increases.
• Common shares outstanding increased during 2013, including 3.9 million shares issued in a May registered offering for $16.1 million net proceeds.

Outlook, commentary, risks and unusual items

• OMS302: The company submitted an NDA in the U.S. in July and an MAA in the EU in September. After quarter-end, the FDA confirmed filing and the EMA validated the application. If approved, Omeros expected to begin marketing in the second half of 2014; this timing was conditional, not assured.
• Pipeline: OMS824 entered a Phase 2 schizophrenia trial during Q3; the company planned a Phase 2 Huntington’s disease program. OMS721 was in Phase 1, with Phase 2 TMA enrollment expected in early 2014. Phase 1 trials for PDE7 and plasmin programs were expected to begin in 2014.
• OMS103: A Phase 3 trial did not meet its prespecified primary endpoint, although early postoperative pain, a secondary endpoint, was reduced statistically significantly. The company planned to redesign the Phase 3 program with pain reduction as the primary endpoint.
• Management expected losses and R&D and SG&A expenses to increase as clinical programs advanced and the company prepared for a possible OMS302 launch. The company warned that additional capital may be needed; financing may not be available on acceptable terms, and equity issuance would dilute shareholders.
• In October 2013, Omeros received $12.5 million from a settlement with its insurer, CCIC, and received $4.9 million net proceeds from an at-the-market stock sale. It also repaid NIH $1.064 million related to an administrative grant review; the review was not yet complete.
• Key risks include regulatory approval and clinical trial outcomes, commercialization and reimbursement, dependence on contract manufacturers, access to capital, and potential further NIH administrative action. The company reported no off-balance-sheet arrangements and stated disclosure controls were effective at a reasonable-assurance level.

Investor facts to verify

• Subsequent cash position after the CCIC receipt, October stock sale and NIH repayment, and whether further financing is required.
• FDA and EMA review progress, approval timing and any conditions or additional data requests for OMS302.
• OMS103 redesigned trial plan and outcomes, and progress and costs for OMS824 and OMS721 trials.
• Completion and consequences of the NIH administrative review, including any restrictions on current or future grants.
• Oxford repayment obligations beginning in January 2014 and the company’s ability to meet them while funding ongoing development.