Omeros Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter ended September 30, 2020; filed November 9, 2020. Omeros is a commercial-stage biopharmaceutical company whose only FDA-approved U.S. product was OMIDRIA, used in cataract and lens-replacement surgery. Its pipeline includes narsoplimab and other clinical-stage candidates.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net product sales | $26.1M | $29.9M | $63.2M | $78.4M |
| Research and development | $31.3M | $23.7M | $84.4M | $69.1M |
| Selling, general and administrative | $19.8M | $16.9M | $54.8M | $48.5M |
| Operating loss | $25.4M | $11.1M | $76.8M | $39.7M |
| Net loss | $38.5M | $16.5M | $100.8M | $55.3M |
| Basic and diluted loss per share | $0.66 | $0.33 | $1.81 | $1.12 |
Q3 gross-to-net deductions were 46.8% of gross OMIDRIA sales, versus 28.5% a year earlier, principally reflecting an $8.7M provision for potential product returns following expiration of Medicare pass-through reimbursement. Product cost was $0.4M for the quarter; the filing does not present a separately stated gross-margin percentage.
- Cash and cash equivalents were $21.1M and short-term investments were $132.4M at September 30, 2020: $153.5M combined, compared with $60.8M at December 31, 2019. Receivables were $37.4M.
- Operating cash use for the first nine months was $81.7M, versus $37.1M in 2019. Financing provided $174.7M, mainly from convertible-note issuance and a common-stock offering. Ending cash and cash equivalents were $21.1M.
- Convertible notes had $320.0M aggregate principal outstanding: $95.0M of 6.25% notes due 2023 and $225.0M of 5.25% notes due 2026. Their balance-sheet carrying amount, net of discounts and issuance costs, was $232.8M. The company reported $13.4M of loss on early extinguishment of debt and $18.8M of interest expense for the nine-month period.
- The company had no borrowings on its receivables-based line of credit. Availability was capped at the lesser of $50M or 85% of eligible receivables, subject to reserves. Shareholders’ deficit was $87.3M.
Material changes and unusual items
- Revenue declined 12.5% year over year in Q3 and 19.4% for the first nine months. The Q3 decline reflected the return provision; the nine-month decline also reflected COVID-19-related suspension of elective procedures and no wholesaler sales from March 25 to May 19. Management said weekly sales had recovered to approximately pre-pandemic levels by late June, before the return reserve.
- R&D expense rose, including a $5.0M access fee under a new MASP-3 technology license, higher IgA nephropathy trial costs, and HSCT-TMA BLA preparation. SG&A increased mainly with narsoplimab pre-commercialization activity.
- The August 2020 refinancing included issuance of $225.0M principal of 2026 notes and repurchase of $115.0M principal of 2023 notes. Omeros also issued 6.9M shares for $93.7M net proceeds. The refinancing generated a one-time $13.4M extinguishment loss and a $7.9M income-tax benefit; management expected an additional $4.1M tax benefit in Q4 and said the benefit would not recur in subsequent years.
Outlook, developments and risks
- OMIDRIA’s Medicare pass-through status expired October 1, 2020. CMS’s proposed 2021 payment rule contemplated packaging payment with the surgical procedure. Omeros was pursuing administrative and legislative routes to secure separate payment, but gave no assurance of success. If separate payment could not be obtained, it planned a lower per-vial-price strategy intended to increase volume; timing, uptake and revenue effects were uncertain.
- Management said it expected to fund operations for at least the next 12 months using cash and investments, OMIDRIA sales and, if approved, narsoplimab sales; it also cited possible credit-line use, financing or licensing. It warned that reduced OMIDRIA sales or delayed product revenue could require expense reductions, including delaying trials or reducing R&D.
- Management expected to complete the rolling narsoplimab BLA submission for HSCT-TMA in mid-November 2020 and anticipated possible FDA approval and launch in early to mid-2021. Approval and revenue timing were uncertain. In the pivotal single-arm trial, the reported complete response rate was 61% among all 28 treated patients and 74% among patients treated for at least four weeks. These are company-reported trial results, not regulatory approval.
- The narsoplimab IgA nephropathy and aHUS Phase 3 trials were ongoing. OMS906 began a Phase 1 trial in September 2020; initial data were expected the following year. Management said OMS527 Phase 2 initiation depended on available resources.
- In a compassionate-use series, all six narsoplimab-treated COVID-19 patients reportedly recovered and were discharged. The company cautioned that this small, uncontrolled experience does not establish efficacy or assure future study results, regulatory authorization or approval.
- COVID-19 remained a material uncertainty for surgery volumes, commercial activity, clinical-trial enrollment, manufacturing and regulatory timelines. The filing reported no material legal proceedings and no material change to internal control over financial reporting.
Investor verification priorities
- Check CMS’s final reimbursement treatment for OMIDRIA, any separate-payment decision, and the impact on returns, demand and net sales.
- Track OMIDRIA sales recovery and the feasibility, timing and economics of the alternative pricing strategy.
- Verify completion and FDA acceptance/review of the narsoplimab HSCT-TMA BLA, and whether the trial results support approval and the anticipated launch schedule.
- Monitor cash burn, operating runway, receivables-based borrowing capacity and the substantial principal and interest obligations on the convertible notes.
- Assess clinical-trial progress, COVID-19-related disruptions, and the dilution and financing implications of equity and convertible-note issuance.