Omeros Corporation — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless otherwise stated.
Business context
Omeros is a biopharmaceutical company developing treatments for inflammation, coagulopathies and central nervous system disorders. The FDA approved its first product, Omidria, on May 30, 2014, for use during cataract surgery or intraocular lens replacement. The company had begun U.S. marketing but had not yet generated product sales; it expected U.S. commercial sales in Q4 2014. Its pipeline includes six clinical-stage programs, with current focus on OMS824, OMS721 and OMS103.
Financial results and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0.045m | $0.140m | $0.145m | $1.235m |
| Research and development expense | $12.407m | $9.564m | $24.424m | $16.691m |
| Selling, general and administrative expense | $4.855m | $3.736m | $8.622m | $7.724m |
| Operating loss | $17.217m | $13.160m | $32.901m | $23.180m |
| Net loss | $17.991m | $13.592m | $34.633m | $24.081m |
| Basic and diluted loss per share | $0.53 | $0.48 | $1.07 | $0.89 |
Revenue consisted of research grants and prior funding, not product sales. The six-month revenue decline primarily reflected recognition of the remaining Vulcan GPCR funding revenue in Q1 2013 and lower NIH grant activity. Gross margin was not reported as there were no product sales.
At June 30, 2014, cash and cash equivalents were $1.533m and short-term investments were $35.927m, totaling approximately $37.5m in cash, cash equivalents and investments. Current assets were $38.968m; current liabilities were $12.170m. Notes payable, net of discount, totaled $32.370m. Shareholders’ deficit was $10.611m and accumulated deficit was $289.006m.
For the first six months, operating cash use was $26.411m, investing cash use was $23.212m, and financing provided $49.772m. Financing included $37.754m net proceeds from a March stock offering and $12.699m net additional borrowing. Cash and cash equivalents increased by $0.149m during the period. The filing reports no meaningful product-sales margin information.
Changes versus prior comparable periods
- Q2 net loss increased by $4.399m year over year; six-month net loss increased by $10.552m.
- Six-month R&D expense rose by $7.733m, mainly due to OMS824 and OMS721 clinical trials and manufacturing, higher personnel costs and stock compensation. Lower preclinical PDE7 activity partly offset the increase.
- Six-month SG&A expense rose by $0.898m, primarily from U.S. Omidria launch preparation and hiring.
- Interest expense increased to $1.611m for the first half from $1.176m, reflecting higher average borrowings. Six-month other expense included a $0.452m warrant-modification charge.
- Share count increased: 33.994m common shares were outstanding at June 30, compared with 30.360m at December 31, 2013, following the March offering and other share issuances.
Outlook, risks and unusual items
- Management said existing cash, cash equivalents and short-term investments, together with potential Omidria sales and possible future financing or partnerships, were expected to fund anticipated expenses and debt payments for at least 12 months. This is a management estimate; the company had a history of losses and reported that an earlier audit report contained a going-concern explanatory paragraph.
- Management expected 2014 net losses and near-term R&D and SG&A expenses to increase. It cautioned that operating losses and cash use could continue until Omidria becomes cash-flow positive, which may take several years, if ever.
- The EMA was expected to decide on the Omidria application in late 2014. EU sales were anticipated in the first half of 2015 only if approval is obtained and a European partner is secured. Revenue forecasts for Omidria were not provided because the company had no sales history.
- Omidria U.S. sales-force deployment was expected in August 2014. The inVentiv agreement would incur a non-cancellable monthly fee of approximately $0.3m for the first 12 months of services after deployment. The company also relies on contract manufacturers, including Patheon for Omidria supply through December 2015.
- The March 2014 Oxford/MidCap loan bears 9.25% annual interest, with interest-only payments through March 1, 2015, followed by monthly principal and interest payments; maturity is March 1, 2018. It includes a $2.2m final payment fee, collateral over substantially all assets other than intellectual property, restrictive covenants and default provisions.
- Remaining non-cancelable operating lease payments were approximately $60.2m through the initial lease term ending November 2027. Total contractual obligations disclosed were $100.2m, including leases, notes and goods and services.
- Key risks include successful Omidria commercialization and reimbursement, regulatory approval and clinical-trial outcomes, access to capital, manufacturing and supplier dependence, competition, and debt covenant or repayment risks. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Omidria U.S. launch, sales uptake, reimbursement and manufacturing plans proceeded as expected, and whether actual product revenue supported the company’s runway assumptions.
- The outcome and timing of the EMA review and any European commercial partnership.
- Actual cash burn, available liquidity and any additional financing needs relative to management’s at-least-12-month runway estimate.
- Progress, enrollment and results for OMS824 and OMS721, and the redesign and regulatory requirements for the OMS103 Phase 3 program.
- Debt-service capacity, compliance with Oxford/MidCap covenants, and the effect of the 9.25% rate and scheduled principal payments on liquidity.
- Commercial launch costs, including inVentiv fees, and the size and timing of lease, supply and other contractual commitments.