Omeros Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Omeros is a commercial-stage biopharmaceutical company; OMIDRIA, used in cataract and lens-replacement procedures, was its only FDA-approved U.S. commercial product. Financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net product sales | $13.5 million | $26.8 million | $37.1 million | $48.5 million |
| Research and development expense | $24.1 million | $19.1 million | $53.0 million | $45.4 million |
| Selling, general and administrative expense | $16.9 million | $16.9 million | $35.0 million | $31.6 million |
| Operating loss | $27.7 million | $9.3 million | $51.4 million | $28.6 million |
| Net loss | $33.3 million | $14.5 million | $62.3 million | $38.8 million |
| Basic and diluted loss per share | $0.61 | $0.29 | $1.14 | $0.79 |
| Cash used in operating activities | — | $46.7 million | $29.5 million |
At June 30, cash, cash equivalents and short-term investments totaled $16.1 million, down from $60.8 million at December 31, 2019; net receivables were $15.8 million. The company reported $210 million principal amount of 6.25% unsecured convertible notes due 2023, carried net at $163.4 million. No borrowings were outstanding on its $50 million receivables-based credit facility at quarter-end; approximately $6.6 million was available to borrow as of August 7, subject to eligible receivables and reserves. Current liabilities were $38.0 million, versus current assets of $38.9 million.
Gross margin is not separately presented in the filing; cost of product sales was $0.1 million in Q2 and $0.4 million for the first half. Interest expense was $6.0 million in Q2 and $11.9 million for the first half. Omeros stated that it expects continued operating losses until revenues cover operating costs and debt service.
Material changes and business developments
- Q2 product sales fell about 49% year over year; first-half sales declined about 24%. The filing attributes the decrease to COVID-19-related postponements of elective cataract surgeries. Omeros recorded no wholesaler sales from March 25 through May 19; weekly sales had approached pre-pandemic levels by the end of June.
- Q2 net loss more than doubled year over year, principally amid lower sales and higher R&D expense. First-half R&D expense rose to $53.0 million, including increased narsoplimab trial, manufacturing and BLA preparation costs, as well as OMS906 scale-up work.
- Cash and short-term investments declined by $44.7 million from year-end. Operating cash use increased by $17.2 million year over year for the first half, reflecting higher losses and payments of accounts payable and accrued expenses, partly offset by collections of receivables.
- Accrued expenses declined to $25.8 million from $46.6 million at year-end, including a reduction in accrued contract R&D and sales rebates, fees and discounts.
Outlook, risks and contingencies
- Going concern: Management concluded that conditions raise substantial doubt about Omeros’s ability to meet obligations through August 10, 2021. Its assessment excludes potential credit-line draws, new financings and partnerships. Management may seek financing, licensing or other strategic transactions, or reduce spending, including by delaying trials, if needed.
- OMIDRIA reimbursement: Medicare pass-through reimbursement was scheduled to expire September 30, 2020. CMS’s proposed 2021 rule confirmed the expiration and proposed packaging payment with the surgical procedure. Omeros was pursuing administrative and legislative avenues for separate or similar reimbursement, including a potential separate-payment pathway in ASCs; success and timing were uncertain. The company warned that unsuccessful efforts could significantly reduce sales, at least until an alternative market approach is implemented.
- COVID-19: Further restrictions, reduced patient demand, safety protocols, limits on sales-representative access, or disruptions to manufacturing and clinical programs could adversely affect results. The company said the ultimate impact could be material and could not be estimated precisely.
- Clinical programs: Omeros reported positive results from its completed pivotal narsoplimab HSCT-TMA trial and was preparing the remaining clinical sections of its rolling BLA; remaining CMC information was submitted in early August 2020. The EMA filing was targeted for the first half of 2021. Enrollment continued in Phase 3 trials for IgA nephropathy and aHUS, with COVID-19 slowing IgA nephropathy enrollment. The company expected to begin an OMS906 Phase 1 trial in September, subject to regulatory review.
- Narsoplimab for COVID-19: In a compassionate-use program, all six treated patients with COVID-19-associated ARDS recovered and survived, with no reported adverse drug reactions. This was a small, non-randomized program; the filing cautions that results may not recur and that further trials, manufacturing capacity and funding may not be available.
- Spending and obligations: Management expected R&D and SG&A expenses to increase during the remainder of 2020, including for narsoplimab development and pre-commercialization. Contractual obligations totaled $326.4 million, including $49.8 million of remaining initial-term building rent and $255.9 million of scheduled convertible-note payments. Third-party contracts carried $18.1 million of termination fees if canceled as of June 30. No material legal proceedings were reported.
Important facts for investors to verify
- Whether OMIDRIA obtained separate or comparable reimbursement after September 30, 2020, and the effect on sales, returns and borrowing capacity.
- Subsequent OMIDRIA demand and cash collections as COVID-19 restrictions and surgical volumes changed.
- Availability and terms of additional financing, actual credit-line availability, and progress toward addressing the stated going-concern doubt.
- Completion and FDA review of the narsoplimab HSCT-TMA BLA, and clinical-trial enrollment, timing and outcomes for narsoplimab and OMS906.
- Whether R&D and pre-commercialization spending, debt service and operating cash use remain consistent with management’s liquidity plans.