Omeros Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; filed August 8, 2019. Omeros is a commercial-stage biopharmaceutical company. Its marketed product, OMIDRIA, is used during cataract and other intraocular lens replacement procedures; its pipeline includes three Phase 3 narsoplimab programs.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net product sales | $26.8 million | $1.7 million | $48.5 million | $3.2 million |
| Research and development | $19.1 million | $19.4 million | $45.4 million | $37.6 million |
| Selling, general and administrative | $16.9 million | $12.7 million | $31.6 million | $23.7 million |
| Operating loss | $9.3 million | $30.6 million | $28.6 million | $58.3 million |
| Net loss | $14.5 million | $33.7 million | $38.8 million | $63.8 million |
| Net loss per share | $0.29 | $0.70 | $0.79 | $1.32 |
OMIDRIA sales rose sharply after Medicare pass-through reimbursement was reinstated effective October 1, 2018. Q2 2019 sales increased 22.8% from Q1 2019. Product costs were $55,000 in Q2 and $186,000 for the first half; reported figures imply very high product gross margins, but the company continues to report operating and net losses. Q2 interest expense was $5.5 million, versus $3.7 million a year earlier; first-half expense was $11.1 million, including $4.4 million of non-cash interest.
Liquidity, cash flow and debt
- At June 30, 2019, cash and cash equivalents were $4.0 million and short-term investments were $27.9 million, or $31.8 million combined for general corporate use. Accounts receivable were $28.5 million; current liabilities were $40.7 million.
- First-half operating cash use was $29.5 million, compared with $42.2 million in 2018. Investing activities provided $26.5 million, largely reflecting net investment maturities and sales; financing activities provided $1.2 million. Cash and cash equivalents declined $1.9 million to $4.0 million.
- Omeros had $210 million principal amount of unsecured 6.25% convertible senior notes due 2023, carried at $153.4 million net of unamortized discounts and issuance costs. Total lease liabilities were $28.6 million.
- In August 2019, after quarter-end, Omeros entered a $50 million revolving credit facility with Silicon Valley Bank. Draws are limited to the lesser of $50 million or 85% of eligible receivables, less reserves; the facility is secured by remaining assets, not intellectual property or development-program inventories.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, stating that, under the accounting assessment, it might not meet obligations through August 8, 2020. The assessment did not rely on anticipated OMIDRIA sales growth, the SVB facility, other potential financings, or partnerships. Management said it could reduce costs, including by delaying trials or reducing R&D, if needed.
Changes, outlook and notable matters
- OMIDRIA net sales benefited from restored Medicare Part B pass-through status, scheduled to expire September 30, 2020. Management expected sales to continue increasing during 2019 but could not quantify the extent; it also expected gross-to-net deductions to rise slightly. Deductions were 28.2% of gross sales in Q2 2019 versus 20.4% in Q2 2018, primarily reflecting higher volume-discount chargebacks and rebates.
- Omeros was pursuing permanent separate reimbursement beyond September 2020, but could not assure success. CMS had assigned OMIDRIA a permanent J-code effective October 1, 2019; the impact on sales and reimbursement remained uncertain. The company did not expect significant near-term international OMIDRIA sales.
- Management expected R&D expense to increase through 2019, driven largely by narsoplimab Phase 3 programs, manufacturing scale-up and preparations for potential HSCT-TMA regulatory submissions. SG&A was expected to increase slightly in the remaining 2019 quarters.
- For narsoplimab, Phase 3 trials were ongoing in HSCT-TMA, IgA nephropathy and aHUS. Management described prior HSCT-TMA results as showing substantial survival improvement versus a literature-based control and said it was gathering patient data for anticipated U.S. and European applications; timing and regulatory outcomes were not assured. IgA nephropathy and aHUS enrollment was ongoing.
- OMS527 completed Phase 1 dosing; Omeros planned a Phase 2a study targeting nicotine addiction. OMS906 was in preclinical development, with clinical trials targeted to begin in the first half of 2020.
- Contract termination fees under certain agreements totaled $20.4 million at June 30, 2019. No material legal proceedings were reported, and the filing stated there had been no material change to the risk factors in the 2018 Form 10-K.
Investor verification checklist
- Track OMIDRIA demand, gross-to-net deductions, and the commercial impact of its permanent J-code and Medicare reimbursement after September 30, 2020.
- Assess cash runway and whether the SVB facility is drawable, how much is available against eligible receivables, and whether additional financing or cost reductions will be needed.
- Review narsoplimab trial progress, data completeness, manufacturing readiness and the timing and requirements for any HSCT-TMA filings.
- Monitor the convertible notes’ interest and maturity obligations, lease commitments, and the $20.4 million of potential contract termination fees.
- Confirm progress and timing for planned OMS527 and OMS906 development milestones; clinical and regulatory outcomes remain uncertain.