Omeros Corporation — Q1 2013 Form 10-Q
Business context and period. Clinical-stage biopharmaceutical company developing products for inflammation, coagulopathies and central nervous system disorders. This unaudited report covers the three months ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. Omeros had no products approved for commercial sale.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $1.095 million | $1.496 million; down 27% |
| Research and development | $7.127 million | $7.246 million |
| Selling, general and administrative | $3.988 million | $2.322 million; up 72% |
| Operating loss | $10.020 million | $8.072 million |
| Net loss | $10.489 million | $8.895 million |
| Basic and diluted loss per share | $0.40 | $0.40 |
| Operating cash used | $8.968 million | $5.505 million |
Revenue consisted of grant and program-funding recognition, not product sales. The decrease primarily reflected lower Vulcan/LSDF GPCR-program revenue; all remaining Vulcan deferred revenue was recognized in Q1 2013, and no revenue remains under those agreements. NIH grant revenue was $125,000; $1.7 million remained available under the grants at quarter-end. Product gross margin is not applicable because there were no product sales.
SG&A rose mainly due to legal matters, patent costs and preparation for a potential OMS302 launch. R&D was broadly flat: lower expenses following completion of OMS302 and the first OMS103HP Phase 3 trials were offset by increased preclinical, personnel and overhead costs. The company expects operating losses and R&D spending to increase as programs advance and commercial preparations continue.
At March 31, cash and cash equivalents were $1.281 million and short-term investments were $12.035 million, or $13.316 million combined, down from $22.350 million at December 31, 2012. Total assets were $17.693 million; shareholders’ deficit was $15.864 million, including an accumulated deficit of $225.066 million. Cash used in operations increased year over year; investing cash inflow of $8.707 million largely reflected investment maturities and purchases, rather than operating cash generation.
Oxford debt had $20.0 million principal outstanding, at a fixed 9.25% rate. Interest-only payments run through December 31, 2013; principal and interest payments are scheduled over 36 months beginning January 1, 2014, with maturity on December 1, 2016. The debt is secured by substantially all assets other than intellectual property. The company reported that cash, cash equivalents, short-term investments and capital it may raise under its MLV facility should fund anticipated needs for at least 12 months; this outlook depends in part on access to financing. No amount had been drawn under the $60 million MLV at-the-market agreement, and the $40 million Azimuth facility was due to expire June 1, 2013, with proceeds potentially limited by its terms and share-price conditions.
Material developments, outlook and risks
- OMS302: The company reported that its Phase 3 program in intraocular lens replacement surgery met statistical superiority over placebo for maintaining pupil dilation and reducing early postoperative pain. It planned to submit an FDA NDA in Q2 2013 and an EMA MAA in mid-2013, targeting potential commercialization in 2014 if approved.
- OMS103HP: In the first Phase 3 trial, the prespecified primary KOOS Symptoms Subscale endpoint did not reach statistical significance; early postoperative pain, a prespecified secondary endpoint, was significantly reduced. A second Phase 3 trial, with early pain reduction as the primary endpoint, was planned for the second half of 2013.
- Pipeline: OMS824 was in Phase 1; collaborator-led PPARγ trials were in Phase 2; OMS201 was dormant. The company expected to initiate Phase 1 trials for MASP-2 and PDE7 in 2013. It reported selective compounds for 46 Class A orphan GPCRs identified and confirmed as of May 9, 2013.
- Contingencies: Omeros was cooperating with an NIH administrative review of two grants totaling approximately $1.1 million. NIH could seek repayment of some or all grant proceeds or other remedies; the filing says the company accrued its estimate of a potential refund but does not provide a clear amount. Separately, insurer CCIC had reimbursed $3.95 million for the former CFO settlement payment, while litigation over coverage and possible recovery remained unresolved. The company said the ultimate impact could not be determined and that a repayment could materially harm its financial position.
- Other obligations: Remaining non-cancelable rent under the initial office and laboratory lease term was approximately $61.7 million through November 2027. Various development and sales milestones and royalties may become payable under license and funding agreements, contingent on future events.
- Principal risks: Regulatory acceptance or approval and commercial success of OMS302; further OMS103HP trials and regulatory requirements for combination drugs; clinical, manufacturing and supply delays; continuing losses and need for additional capital; dilution or constrained financing access; debt obligations; and the NIH and CCIC matters. Management stated disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Verify the actual timing, acceptance and outcome of OMS302 NDA/MAA submissions and any subsequent regulatory requirements.
- Review the full results and design of the next OMS103HP trial, including the implications of the first trial’s missed primary endpoint.
- Assess cash burn, available financing, MLV usage and the post-quarter status or expiration of the Azimuth facility against the stated 12-month liquidity outlook.
- Confirm the amount accrued for the NIH review and monitor any NIH recovery demand or developments in the CCIC coverage litigation.
- Evaluate debt repayment obligations, potential dilution and the company’s ability to fund trials, manufacturing and launch preparations.