OMER

Business Context and Reporting Period

Company: Omeros Corporation (Omeros)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Omeros is a clinical-stage biopharmaceutical company focused on inflammation and central nervous system disorders. Its lead platform, PharmacoSurgery, aims to improve outcomes for patients undergoing surgical procedures. The company has no approved products and relies on grant funding and capital markets for operations.

Key Financial Metrics

Note: All figures are in thousands unless otherwise noted. The company reported a working capital deficit of approximately $7.0 million as of September 30, 2009.

Material Changes vs. Prior Period

• Revenue: Revenue decreased slightly for the three months ended September 30, 2009 ($442k vs. $501k in 2008) due to the completion of an NIH-funded project, partially offset by new grants from the Michael J. Fox Foundation. For the nine-month period, revenue increased to $1.01 million from $989k.
• Operating Expenses: Research and Development (R&D) expenses decreased by approximately $1.0 million for the quarter ($3.7M vs. $4.7M) and $0.5 million for the nine months ($12.3M vs. $12.8M), driven by lower clinical trial and contract service costs. General and Administrative (G&A) expenses dropped significantly ($1.3M vs. $3.4M for the quarter) primarily due to the absence of a $1.9 million write-off of deferred offering costs that occurred in the prior year.
• Interest Expense: Interest expense surged to $540k for the quarter (from $52k in 2008) and $1.7M for the nine months (from $90k in 2008) due to the drawdown of a $17.0 million loan facility with BlueCrest Capital Finance in late 2008.
• Liquidity: Cash and short-term investments declined from $20.0 million at December 31, 2008, to $4.5 million at September 30, 2009, reflecting significant operating cash burn.

Guidance, Outlook, and Risks

• Initial Public Offering (IPO): Subsequent to the reporting period, on October 13, 2009, Omeros completed its IPO, selling 6.82 million shares at $10.00 per share. Net proceeds were approximately $61.8 million, significantly improving liquidity.
• Outlook: Management believes the IPO proceeds combined with existing cash will fund operations for at least the next 24 months. The company expects to continue incurring net losses as it advances clinical trials.
• Clinical Pipeline: The lead candidate, OMS103HP, is in Phase 3 trials for ACL reconstruction surgery. An NDA submission is targeted for the second half of 2010 pending positive results. No product revenue is expected before 2011.
• Debt Obligations: The company has a $17.0 million loan with BlueCrest at 12.5% interest. A "success fee" of $340,000 was paid to BlueCrest upon the completion of the IPO. The loan contains a material adverse effect clause that could trigger immediate repayment, though management believes this risk is mitigated by the IPO.
• Legal Proceedings: The company is defending a lawsuit filed by its former CFO, Richard J. Klein, alleging wrongful termination and violations of the False Claims Act. The company has filed counterclaims.

Investor Verification Checklist

• Post-IPO Liquidity: Verify the actual cash balance and investment portfolio composition following the October 2009 IPO to confirm the 24-month runway estimate.
• Debt Covenants: Review the specific terms of the BlueCrest loan agreement regarding the "material adverse effect" clause and confirm no events of default have occurred post-IPO.
• Clinical Trial Status: Monitor the progress and data readouts of the Phase 3 OMS103HP trials for ACL reconstruction, as this is the primary driver for future revenue.
• Legal Exposure: Track the status of the litigation with the former CFO and the contract dispute with Scottish Biomedical to assess potential financial liabilities.
• Grant Funding: Confirm the status of ongoing grant agreements with the NIH, SMRI, and the Michael J. Fox Foundation, as these provide non-dilutive funding.