Omeros Corporation — FY2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017, with unaudited quarterly figures also reported. Omeros is a commercial-stage biopharmaceutical company; OMIDRIA, used during cataract and lens-replacement surgery, was its only FDA-approved U.S. product. Its principal development program was OMS721, with Phase 3 programs in IgA nephropathy and atypical hemolytic uremic syndrome (aHUS), and a Phase 3 program initiated for transplant-associated thrombotic microangiopathy (HCT-TMA).
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue, almost entirely OMIDRIA sales | $64.8 million | $41.6 million |
| Operating loss | $43.9 million | $54.3 million |
| Net loss | $53.5 million | $66.7 million |
| Net loss per share | $1.17 | $1.65 |
| Cash, cash equivalents and short-term investments | $83.7 million | $45.3 million |
| Net cash used in operating activities | $36.2 million | $51.5 million |
| Notes payable and lease financing obligations, net | $84.1 million | $79.5 million |
FY2017 cost of product sales was $1.1 million, implying gross profit of approximately $63.7 million and a gross margin of about 98% (calculated from reported figures). Operating expenses were $108.7 million, including $55.6 million of R&D and $52.0 million of SG&A. At year-end, current assets were $108.4 million and current liabilities $26.3 million; reported working capital was $82.1 million. Cash and cash equivalents alone were $3.4 million; most available liquidity was held in short-term investments. Restricted cash and investments were $5.8 million.
For Q4 2017, revenue was $13.8 million, operating loss $14.1 million and net loss $16.6 million. Q4 revenue was lower than Q3 2017’s $21.7 million; Q4 2016 revenue was $12.9 million.
Material changes versus prior period
- FY2017 revenue increased 56% from 2016, attributed mainly to broader OMIDRIA adoption and increased purchases by existing customers. Net loss narrowed by $13.3 million.
- R&D expense rose $4.9 million, mainly from OMS721 manufacturing scale-up and advancing clinical trials. SG&A rose $8.3 million, primarily due to patent-litigation costs and employee expenses.
- Operating cash use improved by $15.3 million year over year. Financing provided $75.0 million, including $63.7 million net proceeds from an August 2017 equity offering.
- Gross-to-net deductions increased to 27.8% of gross OMIDRIA sales from 12.0% in 2016, reflecting greater chargebacks, rebates and volume discounts.
Outlook, risks and unusual items
- OMIDRIA’s Medicare Part B pass-through reimbursement expired January 1, 2018. Management reported a substantial reduction in demand beginning in late 2017 and said facilities were largely suspending or selectively using the product while awaiting reimbursement clarity or an alternative sales strategy. The timing and outcome of efforts to restore separate or similar reimbursement were uncertain; management could not forecast 2018 sales.
- Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern through March 1, 2019. The company reported recurring losses and operating cash outflows, and said it would need sufficient product cash flow, additional financing, strategic alliances and/or asset sales. Management’s assessment excluded uncommitted future financing and assumed no OMIDRIA revenue for that evaluation.
- The CRG loan carried a 12.25% annual interest rate; $83.3 million was outstanding under the facility at year-end, with $3.8 million of interest deferred into principal. It is secured by substantially all assets, including intellectual property. The loan requires at least $65 million of revenue in 2018 or satisfaction of an alternative market-capitalization test; failure could trigger default. An additional $45 million borrowing option was extended through May 20, 2018, subject to customary conditions.
- Research spending was expected to remain focused on OMS721 and increase in 2018 with Phase 3 trials and manufacturing work. Management identified no specific numerical revenue or earnings guidance.
- OMS721 received FDA breakthrough therapy designation for IgA nephropathy. The company reported positive Phase 2 findings but its Phase 3 programs remained investigational; approval, trial outcomes and timelines were not assured. OMS824 schizophrenia trials remained suspended at FDA request, and its Huntington’s program had dosing limitations.
- Par agreed not to launch a generic OMIDRIA before the earlier of April 1, 2032 or specified circumstances permitting earlier entry; Par would pay a 15% royalty on generic sales during the licensed period. Patent litigation with Sandoz and Lupin remained ongoing, with FDA approval stays expected through November 2019 while the cases were pending.
- OMIDRIA’s European marketing authorization required product placement in at least one EEA country by July 28, 2018. The company also relied on third parties for manufacturing and distribution, and four wholesalers together accounted for nearly all 2017 revenue.
Most important facts for investors to verify
- CMS or legislative action on OMIDRIA reimbursement, and actual demand, wholesaler inventory and returns after the pass-through expiration.
- Cash runway and financing needs, including whether the additional CRG borrowing was available and whether revenue or market-capitalization covenants were met.
- OMS721 enrollment, regulatory feedback and clinical results, particularly whether interim or surrogate endpoints support an approval pathway.
- Outcomes and timing of Sandoz and Lupin patent litigation, and the practical scope of OMIDRIA’s patent protection.
- Whether OMIDRIA was placed on the market in the EEA by the required deadline, and whether manufacturing supply and customer concentration remain manageable.