Omeros Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2012. Omeros is a clinical-stage biopharmaceutical company with no products approved for commercial sale; reported revenue came from grants and program funding, not product sales.
Financial results and liquidity
Amounts in millions, except per-share data.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $1.526 | $1.155 | $3.022 | $2.394 |
| Research and development expense | $7.558 | $4.077 | $14.804 | $9.502 |
| General and administrative expense | $2.212 | $2.027 | $4.534 | $4.291 |
| Operating loss | $(8.244) | $(4.949) | $(16.316) | $(11.399) |
| Net loss | $(8.539) | $(5.291) | $(17.434) | $(11.833) |
| Net loss per share, basic and diluted | $(0.38) | $(0.24) | $(0.78) | $(0.54) |
| Net cash used in operating activities | — | — | $(14.366) | $(14.200) |
- Revenue rose about 32% in Q2 and 26% for the six-month period year over year, principally from NIH grant-funded research and Vulcan GPCR funding. Omeros recognized no product-sales revenue.
- R&D expense rose substantially, driven by enrollment and activity in Phase 3 trials for OMS302 and OMS103HP and higher costs in PDE10 and MASP programs. Losses widened as development spending increased.
- At June 30, cash and cash equivalents were $7.268 million; there were no short-term investments. Total current assets were $8.520 million and current liabilities $17.249 million. Accumulated deficit was $193.567 million and shareholders’ deficit $20.537 million.
- Notes payable on the balance sheet totaled $16.555 million: $6.210 million current and $10.345 million long term. The company reported $16.9 million of Oxford principal and interest outstanding as of June 30. The Oxford loans bear fixed interest rates of 8.55% and 8.56% and mature October 21, 2014.
- Cash increased by $3.263 million during the first half, mainly reflecting $20.565 million in proceeds from investment sales, which were largely movements between investments and cash. Investing activities provided $20.420 million; financing activities used $2.791 million, primarily for Oxford principal payments.
- After quarter-end, Omeros completed a July 2 public offering of 3,365,854 shares at $10.25 per share, receiving estimated net proceeds of $32.4 million. These proceeds are not included in June 30 cash.
Margins: The filing does not provide a meaningful product gross margin; revenue was primarily grant and program funding, while the company remained loss-making.
Material changes and notable items
- Six-month revenue increased $0.628 million year over year, while operating expenses increased $5.545 million, primarily from R&D. Six-month net loss increased $5.601 million.
- Q2 revenue included $1.2 million recognized under the Vulcan GPCR agreement and $329,000 from NIH grants. The remaining $3.7 million of Vulcan funding was reported as deferred revenue at June 30.
- A $511,000 warrant-modification expense followed a one-year extension of warrants covering up to 197,478 shares. This contributed to six-month other expense of $189,000, compared with other income of $355,000 in 2011.
- A new 15-year lease for approximately 64,500 square feet carries aggregate rent of approximately $51.1 million over the initial term. The landlord paid a $3.0 million lease incentive; $563,000 was held as restricted cash at June 30.
Outlook, risks, and contingencies
- Management expected the second OMS302 Phase 3 trial and the first OMS103HP Phase 3 meniscectomy trial to produce data in the second half of 2012. OMS302’s first Phase 3 trial had met its reported endpoints; Omeros had previously reported that OMS103HP failed to meet prespecified endpoints in an ACL reconstruction Phase 3 program and had no plans for further ACL trials.
- Management stated that 2014 was the earliest expected timing for commercial availability of any current potential product, if approved. It expected losses and cash use to increase as development, hiring, and potential launch preparation continued.
- Management believed available cash, cash equivalents and short-term investments, together with potential use of the $40 million Azimuth equity line, would fund anticipated expenses and debt payments for at least 12 months. The equity line had not been drawn down; the runway statement depended in part on access to capital markets and use of that facility.
- Key risks include clinical-trial failure or delay, regulatory requirements (including questions around demonstrating each active ingredient’s contribution for OMS103HP), financing needs and dilution, reliance on contract manufacturers, and the possibility that products will not be approved or commercially accepted.
- Omeros was defending litigation brought by former CFO Richard J. Klein, including remaining False Claims Act qui tam claims and employment-related claims. The government declined to intervene, and the court dismissed most qui tam claims; remaining allegations included claims related to $164,000 in pre-acquisition nura grant funds and NIH timekeeping. The company recorded no litigation loss provision because the outcome and financial impact were not estimable.
- Insurer Carolina Casualty separately sought a declaration that it had no duty to defend or indemnify; Omeros asserted counterclaims and expected the insurer to continue paying a portion of defense costs. The outcome and ultimate impact were uncertain.
Important facts for investors to verify
- Results and timing of the OMS302 and OMS103HP Phase 3 trials, including whether further studies or regulatory data are required.
- Post-offering cash position, actual cash burn, and whether the stated 12-month funding outlook remains achievable without relying on the unused equity line.
- Oxford debt balances, scheduled repayments and covenants, and the company’s ability to meet obligations through the 2014 maturity.
- Progress in recognizing remaining Vulcan deferred revenue and the economic terms payable to Vulcan and LSDF from GPCR program proceeds.
- Developments and potential financial exposure in the Klein and insurance-coverage litigation.
- Execution of the new laboratory and office move, and the long-term lease’s rent and related operating commitments.