Omeros Corporation — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Omeros is a biopharmaceutical company; Omidria, approved in the U.S. for use during cataract and intraocular lens procedures, was its only marketed product. A controlled launch began in February 2015, followed by a broad U.S. launch in April.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $3.187 million | $45,000 | $3.575 million | $145,000 |
| Omidria net product sales | $3.125 million | None | $3.363 million | None |
| Operating loss | $15.967 million | $17.217 million | $33.897 million | $32.901 million |
| Net loss | $16.680 million | $17.991 million | $35.349 million | $34.633 million |
| Basic and diluted loss per share | $0.44 | $0.53 | $0.95 | $1.07 |
| Cash used in operating activities | — | $34.021 million | $26.411 million |
Omidria product gross margin was approximately 88% in both Q2 and the first half, based on reported net product sales less cost of product sales. Q2 R&D expense was $10.900 million, down from $12.407 million; SG&A was $7.889 million, up from $4.855 million, largely reflecting Omidria launch and marketing costs. For the first half, R&D was $20.218 million versus $24.424 million, while SG&A rose to $16.878 million from $8.622 million.
At June 30, cash and cash equivalents were $2.561 million and short-term investments were $48.885 million, totaling $51.446 million. Total assets were $58.637 million; shareholders’ equity was $7.932 million, compared with a $42.654 million deficit at year-end 2014. The company reported an accumulated deficit of $363.395 million. Debt, net of discount, was approximately $30.8 million on the balance sheet; the loan agreement states $29.7 million outstanding before unamortized discount and issuance costs. The loan bears 9.25% interest, requires monthly principal and interest payments beginning April 2015, matures in March 2018, and includes a $2.2 million maturity fee.
Cash from financing activities was $78.695 million in the first half, principally from February’s public offering of common shares and pre-funded warrants, which generated $79.1 million net. Investing activities used $42.467 million, mainly reflecting purchases of short-term investments. Cash and cash equivalents increased by $2.207 million from year-end.
Material changes and developments
- Revenue began with Omidria sales; Q2 product sales were $3.125 million. Wholesaler inventory was approximately one month, and revenue is subject to estimated rebates, charge-backs, distribution fees and returns.
- Omidria received European Commission marketing approval in July 2015 for EU member states plus Iceland, Liechtenstein and Norway. Country-level pricing and reimbursement decisions, and commercial partners, remained necessary before sales.
- In June, Omeros licensed U.S. OMS103 manufacturing and commercialization to Fagron. Omeros may receive a substantial majority of U.S. product sales and up to $10 million in potential milestone and early-sales enhancement payments; none had been recognized by June 30. Fagron’s performance and regulatory compliance determine whether payments occur.
- OMS824 clinical programs in Huntington’s disease and schizophrenia remained suspended pending FDA discussions about a nonclinical rat finding. R&D costs were lower mainly because of reduced OMS824 activity; management expected R&D costs to increase in the remainder of 2015.
- On July 27, 2015, after quarter-end, Omeros received notice that Par had filed an ANDA with a Paragraph IV certification seeking approval to market generic Omidria before certain listed patents expire. Omeros was reviewing the notice.
Liquidity, outlook and risks
Management stated that available cash, cash equivalents and short-term investments, revenues and potential future financing were expected to fund anticipated expenses, capital spending, and debt interest and principal for at least the next 12 months. This expectation depends partly on future revenue and access to capital; management warned that inability to raise capital on acceptable terms would significantly harm its financial condition. No specific revenue or earnings guidance was provided. If needed, management said it could reduce spending by delaying trials, reducing selected R&D, or taking other restructuring actions.
Key risks include uncertainty over Omidria adoption, reimbursement and pricing, including the expected expiration of Medicare pass-through status on December 31, 2017; potential generic competition and patent litigation; dependence on third-party manufacturers and suppliers; the OMS824 clinical suspension; clinical and regulatory uncertainty across the pipeline; reliance on Fagron for OMS103; continuing losses and capital needs; and debt covenants and repayment obligations. The company also disclosed $56.5 million of remaining non-cancelable rent under its building lease and commercial-launch and supply commitments. Disclosure controls were assessed as effective at the reasonable-assurance level.
Investor verification priorities
- Track Omidria sales growth, wholesaler inventory, gross-to-net deductions, payer coverage and reimbursement, especially after pass-through status expires.
- Review the Par ANDA notice, patent status, litigation developments and potential timing of generic entry.
- Confirm cash burn, financing needs, and ability to meet monthly debt payments and the 2018 maturity obligations.
- Monitor FDA discussions and any resumption or further restriction of OMS824 trials, and verify progress toward Fagron’s OMS103 launch obligations.
- Assess EU country pricing and reimbursement decisions, partnership progress, and whether any sales or royalties are realized.