Omeros Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Comparisons are with Q1 2019 unless stated otherwise. Omeros is a commercial-stage biopharmaceutical company; OMIDRIA, used in cataract and lens-replacement surgery, was its only FDA-approved product.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net product sales | $23.5 million | $21.8 million; up 8.1% |
| Research and development expense | $28.9 million | $26.3 million |
| Selling, general and administrative expense | $18.0 million | $14.6 million |
| Operating loss | $23.7 million | $19.2 million |
| Interest expense | $5.9 million | $5.6 million |
| Net loss and loss per share | $29.0 million; $0.53 | $24.3 million; $0.50 |
| Cash used in operating activities | $9.1 million | $12.9 million |
- Cost of product sales was $0.3 million. The filing does not present a separate gross-margin measure.
- At March 31, cash, cash equivalents and short-term investments totaled $54.0 million, down from $60.8 million at December 31, 2019. Net receivables were $24.1 million.
- Operating cash use improved year over year, principally reflecting increased collections of receivables; the company still reported a quarterly net loss of $29.0 million.
- Convertible notes had $210.0 million principal outstanding, with a net carrying amount of $160.7 million. They bear 6.25% interest and mature in November 2023. No amounts were drawn on the $50 million receivables-based credit facility at quarter-end; borrowing is limited by eligible receivables.
- Total liabilities included $35.0 million of lease liabilities. The company reported a shareholders’ deficit of $131.9 million.
Material changes and operating developments
- OMIDRIA sales rose from Q1 2019, reflecting renewed separate Medicare pass-through reimbursement from October 2018, but Q1 2020 sales were disrupted by COVID-19. Cataract procedures were largely postponed from mid-March, and wholesaler sales were minimal thereafter, including during April.
- Omeros recorded a $2.5 million provision for potential product returns. Gross-to-net deductions were 32.3% of gross sales, versus 27.0% a year earlier, primarily due to return allowances. Trade receivables were net of $4.1 million in chargeback and return allowances at quarter-end.
- Operating expenses increased: R&D rose to $28.9 million, including higher IgA-nephropathy trial and preclinical/OMS906 manufacturing-scale-up costs; SG&A increased to $18.0 million, largely from narsoplimab pre-commercialization activity.
- On March 2, Omeros reported pivotal HSCT-TMA trial results for narsoplimab: complete response rates were 54% among all 28 treated patients and 65% among patients treated for at least four weeks, against the FDA-agreed 15% efficacy threshold. These were company-reported results from a single-arm, open-label trial.
Outlook, risks and contingencies
- Going concern: Management stated that COVID-19 disruption, uncertainty over OMIDRIA sales and the scheduled end of pass-through reimbursement raise substantial doubt about Omeros’s ability to meet obligations through May 11, 2021. The company expects continuing losses and said working-capital needs may increase. It may seek credit-facility borrowings, debt or equity financing, strategic transactions, or reduce spending, including delaying trials.
- Reimbursement: OMIDRIA’s Medicare pass-through status was scheduled to expire September 30, 2020. CMS had not confirmed separate payment beyond that date. Omeros was pursuing administrative and legislative options but gave no assurance of success; loss of separate reimbursement could materially reduce revenue.
- COVID-19: In early May, facilities in at least 36 states had begun reordering OMIDRIA as surgery resumed. The company could not predict sales recovery or the pandemic’s duration or financial impact. It also cited risks of further procedure restrictions, returns, supply disruption, and clinical or regulatory delays; IgA-nephropathy trial enrollment had slowed.
- Development outlook: Omeros was preparing the remaining clinical and CMC portions of the rolling narsoplimab BLA for HSCT-TMA; filing completion, FDA acceptance and approval were uncertain. Enrollment continued in Phase 3 trials for IgA nephropathy and aHUS. The company planned to submit a clinical-trial application for OMS906 in PNH in the first half of 2020.
- Management expected R&D expense to increase in 2020, including narsoplimab manufacturing in preparation for a potential launch, and SG&A to rise with pre-commercialization activity. No revenue or earnings guidance was provided.
- Contract commitments included $17.6 million of firm goods-and-services commitments and $51.4 million of remaining non-cancelable rent under the office and laboratory lease’s initial term. Potential license milestones and royalties were not quantified. No material legal proceedings were reported.
Important facts for investors to verify
- Whether OMIDRIA demand recovered after surgery restrictions eased, and the level of returns and net sales.
- Whether separate Medicare reimbursement continued beyond September 30, 2020, and the resulting impact on utilization, revenue and eligible borrowing capacity.
- Available liquidity, credit-facility borrowing base, and access to additional capital in light of the going-concern warning and debt obligations.
- Completion and regulatory progress of the narsoplimab HSCT-TMA BLA, and further clinical-trial enrollment, results and timing.
- The extent to which COVID-19 affected supply, clinical programs, costs and regulatory timelines.