Omeros Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Omeros is a clinical-stage biopharmaceutical company. OMIDRIA was sold in 2021; its remaining royalty-related results are reported as discontinued operations.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Research and development expense | $31.7 million | $38.6 million | $86.0 million | $86.2 million |
| Selling, general and administrative expense | $16.4 million | $12.2 million | $38.8 million | $37.1 million |
| Continuing-operations loss | $51.7 million | $54.8 million | $135.6 million | $136.0 million |
| Discontinued-operations income, net of tax | $13.9 million | $37.3 million | $26.9 million | $54.7 million |
| Net loss | $37.8 million | $17.5 million | $108.7 million | $81.3 million |
| Net loss per share | $0.60 | $0.28 | $1.73 | $1.30 |
- No continuing product revenue is shown in the statements of operations; accordingly, operating margins are not meaningful from the figures presented.
- At September 30, cash and cash equivalents were $30.6 million and short-term investments were $279.7 million, totaling $310.3 million. Current assets were $351.3 million and current liabilities $147.2 million.
- Nine-month operating cash flow was positive $109.6 million, versus cash used of $61.1 million in 2022. The 2023 figure included collection of Rayner’s $200 million OMIDRIA milestone payment; it should not be read as evidence of positive recurring operating cash generation. Investing cash flow was negative $88.8 million and financing cash flow negative $1.1 million.
- Debt principal totaled $320.0 million: $95.0 million of 6.25% convertible notes due November 15, 2023, and $225.0 million of 5.25% notes due February 2026. The company said it expected to repay the 2023 notes from cash and investments on hand. Net carrying value was $316.7 million.
- The OMIDRIA royalty obligation to DRI had a $118.8 million balance-sheet carrying value; DRI’s maximum remaining receipts through 2030 were $177.0 million, including interest.
Material changes and operating performance
- Q3 net loss increased year over year, mainly as discontinued-operations income fell by $23.4 million; the continuing-operations loss narrowed by $3.1 million. For the first nine months, the continuing-operations loss was nearly unchanged, while lower discontinued-operations income contributed to a higher net loss.
- Q3 R&D expense declined $6.8 million, primarily from lower narsoplimab clinical manufacturing costs, partly offset by a $5.0 million OMS906 development milestone and higher OMS906 manufacturing costs. Nine-month R&D was broadly flat year over year.
- Q3 SG&A increased $4.2 million, primarily due to a non-recurring employee compensation expense. Management expected Q4 SG&A to return to historical levels.
- Interest expense rose to $7.9 million in Q3 and $23.8 million for the nine-month period, principally reflecting interest on the DRI royalty obligation. Management expected Q4 interest expense to be lower after repayment of the 2023 notes.
- OMIDRIA discontinued-operations income was lower than prior-year periods, in part because prior-year royalty-asset remeasurement gains were larger. The OMIDRIA contract royalty asset was $148.7 million at September 30, 2023.
Outlook, risks and contingencies
- Management said existing cash, investments and Rayner royalties were expected to fund operations for at least the next 12 months. It also stated that the company lacks recurring revenue sufficient to cover operating costs and may need additional capital to execute its plan and repay 2026 notes.
- Potential funding sources include an unused at-the-market equity facility of up to $150 million, debt or equity financing, strategic transactions and licensing. Management also cited delaying trials, reducing R&D or restructuring as possible expense-management actions.
- In October 2023, the Phase 3 ARTEMIS-IGAN interim analysis found narsoplimab did not achieve statistically significant improvement over placebo on proteinuria. Omeros discontinued the trial and said it would not seek approval for this indication.
- For narsoplimab in HSCT-TMA, the company was awaiting FDA feedback on its proposed analysis plan for a BLA resubmission. Subject to favorable feedback and analyses, management estimated an FDA decision could occur in mid-2024; resubmission and approval are not assured.
- OMS906 development continues in PNH and C3G. Phase 3 programs were targeted for Q3 2024. OMS1029 Phase 2 was expected to begin in mid-2024. These are plans, not assurances.
- For OMS527, a $6.69 million, three-year NIH grant is intended to support cocaine-use-disorder studies; preclinical work was expected to begin in early 2024. Management expected Q4 2023 R&D expense to be similar to Q3, including costs related to terminating ARTEMIS-IGAN.
- Other exposures include $27.4 million of potential termination fees under certain service contracts, development-partner milestones and royalties if products are developed or approved, and $28.6 million of remaining rent under the current office and laboratory lease term.
- On November 9, 2023, the board authorized an indefinite-term share repurchase program of up to $50 million. The company also disclosed no material legal proceedings and no material change to internal control over financial reporting.
Most important facts for investors to verify
- Whether the $95 million 2023 notes were repaid at maturity and the resulting cash and investment balance.
- Cash runway assumptions, recurring cash burn excluding the one-time milestone collection, and plans for the 2026 notes.
- FDA feedback, required analyses, timing and prospects for narsoplimab’s HSCT-TMA BLA resubmission.
- Updated clinical data and execution timelines for OMS906 and OMS1029, including the targeted OMS906 Phase 3 start.
- Rayner royalty collections, any changes in OMIDRIA payment eligibility or royalty rates, and payments due under the DRI agreement.
- Whether the authorized share repurchase or ATM financing is used, and how capital allocation affects liquidity.