Omeros Corporation — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Omeros is a biopharmaceutical company whose only U.S.-approved commercial product was OMIDRIA, launched in April 2015 for cataract and intraocular-lens procedures.
Financial performance and position
| Metric | Q2 2016 | Six months 2016 |
|---|---|---|
| Total revenue | $10.0 million | $17.4 million |
| OMIDRIA net sales | $10.0 million | $17.3 million |
| Operating loss | $10.9 million | $30.4 million |
| Net loss | $12.6 million | $33.2 million |
| Net loss per share, diluted | $0.32 | $0.86 |
Q2 2015 revenue was $3.2 million and net loss was $16.7 million; six-month 2015 revenue was $3.6 million and net loss was $35.3 million. Product sales growth reflected increased OMIDRIA demand. Q2 product-sales gross profit was approximately $9.7 million, or 96.7% of sales, compared with approximately $2.8 million, or 88.3%, in Q2 2015.
For the first six months, R&D expense was $25.7 million (up from $20.2 million) and SG&A was $21.5 million (up from $16.9 million). Interest expense rose to $3.2 million from $1.9 million, primarily due to higher borrowings. Operating cash use was $29.4 million, versus $34.0 million in the first half of 2015.
At June 30, unrestricted cash, cash equivalents and short-term investments totaled $21.2 million; restricted cash and investments were $10.7 million. Notes payable had $70.0 million outstanding principal, carried at $69.8 million net on the balance sheet. Total shareholders’ deficit was $49.0 million and accumulated deficit was $436.3 million.
Material changes and business developments
- OMIDRIA Q2 sales increased to $10.0 million from $3.1 million a year earlier; sales rose 38% from Q1 2016, according to management.
- In May, Omeros drew an additional $20.0 million under its loan facility, receiving $19.9 million net. The loan bears 9.25% annual interest; interest-only payments of about $539,600 monthly continue through July 2017, followed by monthly principal and interest payments of about $2.6 million through January 2020.
- Omeros sold 64,565 shares through its ATM facility during the first half for $724,000 net. It may sell up to $100 million in aggregate under the facility.
- Enrollment was completed in the FDA-required pediatric OMIDRIA study. Management said successful completion could qualify the product for six additional months of marketing exclusivity.
- OMS721 development continued, including a Phase 2 renal-disease trial begun in April; enrollment in a planned Phase 3 aHUS trial was expected to begin later in 2016. OMS824 Huntington’s trials remained subject to dosing limitations, and its schizophrenia program remained suspended at FDA request.
Outlook, risks and contingencies
Management expected OMIDRIA sales to expand with further market acceptance, while R&D and SG&A costs were expected to increase during the remainder of 2016. The company anticipated using cash on hand, product revenue and additional financing or partnership, licensing, collaboration or asset-sale proceeds to meet projected funding needs through June 30, 2017. It stated that these conditions raised substantial doubt about its ability to continue as a going concern; additional capital and future product revenue were uncertain.
The loan agreement requires at least $70 million of OMIDRIA net revenue in calendar 2016 and quarterly minimums of $25 million in 2017 and $30 million in 2018, or alternatively restricted cash and eligible investments equal to 50% of then-outstanding principal and other obligations. Failure to meet the covenants, secure a waiver or renegotiate could allow lenders to accelerate repayment. Omeros reported no loan default at June 30, 2016. The company had achieved $17.3 million in OMIDRIA net sales in the first half of 2016.
OMIDRIA had Medicare transitional pass-through reimbursement expected to run until January 1, 2018; loss of separate reimbursement could pressure pricing. Commercial supply also depends on third-party manufacturing: validation of the new Hospira site was incomplete, and production was expected to begin in 2017. Omeros reported accumulating inventory to bridge the supply transition.
Omeros was litigating against Par over a proposed generic OMIDRIA. Par stipulated to infringement of the first four asserted patents, but continued to challenge patent validity and enforceability; the FDA approval stay was expected to last until late January 2018. The company also reported that Fagron had not met OMS103 diligence obligations, including initiating sales, and Omeros was evaluating its options. Contract cancellation fees could total $1.3 million.
Important facts for investors to verify
- OMIDRIA sales trajectory, gross-to-net deductions, reimbursement trends and progress toward the loan’s revenue covenants.
- Available liquidity, cash burn, access to additional financing and any changes to the company’s going-concern assessment.
- Hospira validation, manufacturing restart timing and adequacy of OMIDRIA inventory to maintain supply.
- Developments in the Par patent litigation and the reimbursement outlook after pass-through status ends.
- OMS721 trial progress, OMS824 dosing restrictions and the status of Omeros’s OMS103 agreement with Fagron.