Omeros Corporation — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Omeros is a development-stage biopharmaceutical company. Its first FDA-approved product, Omidria, was approved in May 2014 for use during cataract surgery; U.S. commercial sales had not begun by quarter-end.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0.214 million | $0.196 million | $0.359 million | $1.431 million |
| Research and development expense | $11.772 million | $9.420 million | $36.196 million | $26.111 million |
| Selling, general and administrative expense | $5.574 million | $4.210 million | $14.196 million | $11.934 million |
| Operating loss | $17.132 million | $13.434 million | $50.033 million | $36.614 million |
| Net loss | $18.327 million | $13.870 million | $52.960 million | $37.951 million |
| Basic and diluted loss per share | $0.54 | $0.46 | $1.61 | $1.36 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $42.353 million | $29.399 million |
Revenue consisted of NIH grant funding in 2014; there were no product sales. The filing does not provide a meaningful product gross margin. Q3 interest expense was $0.944 million, compared with $0.592 million; nine-month interest expense was $2.555 million, compared with $1.768 million.
At September 30, cash and cash equivalents were $0.750 million and short-term investments were $21.030 million, totaling $21.780 million. Current assets were $23.361 million and current liabilities were $14.397 million. Notes payable, net of discounts, totaled $32.542 million, including $3.991 million current and $28.551 million long-term. The company reported a shareholders’ deficit of $26.589 million and an accumulated deficit of $307.333 million.
Changes versus prior comparable periods
- Q3 revenue increased modestly year over year, while nine-month revenue fell substantially because all remaining deferred revenue under the Vulcan GPCR funding agreement had been recognized in Q1 2013; NIH grant revenue was also lower in the 2014 nine-month period.
- Q3 and nine-month net losses widened. Higher research and development spending reflected increased clinical and manufacturing activity, especially for OMS721 and OMS824. Selling and marketing costs rose as the company prepared to launch Omidria.
- Nine-month operating cash use increased by $12.954 million year over year. Financing provided $50.044 million, including $37.754 million net proceeds from a March stock offering and $12.699 million net proceeds from new borrowing.
- Common shares outstanding increased to 34.022 million at September 30 from 30.360 million at December 31, 2013, primarily reflecting the March offering and other share issuances.
Outlook, commentary and risks
- Management expected U.S. Omidria sales to begin in early 2015. CMS transitional pass-through reimbursement was granted in October 2014, effective January 1, 2015, and was expected to last two to three years. The submitted wholesale acquisition cost was $465 per single-use vial.
- Omeros expected existing cash, cash equivalents and short-term investments, together with anticipated Omidria sales and potential financing or partnerships, to fund operations and debt payments for at least 12 months. This outlook depends partly on future sales and financing that may not materialize. Management expected continued operating losses and cash use until Omidria becomes cash-flow positive, which could take several years or may not occur.
- The EU Omidria application remained under review; commercialization there depended on approval and likely a commercial partner. The filing gives differing timing descriptions: an expected CHMP opinion in Q4 2014 in some passages and an opinion “before the end of the first quarter” in another. The latter’s intended year is not clear from the supplied text.
- The OMS824 Huntington’s disease Phase 2 trial was suspended following an observation in a nonclinical rat study. FDA requested further evaluation before enrollment could resume or further OMS824 trials could begin. The schizophrenia program was also not active.
- OMS721 was in a Phase 2 clinical program for complement-mediated thrombotic microangiopathies. OMS103’s future Phase 3 plan could be redesigned; the company was also assessing whether it could be made available through a registered outsourcing facility.
- Debt terms include a 9.25% annual interest rate, interest-only payments through March 2015, monthly principal and interest payments beginning April 2015, a $2.2 million final payment fee, and security over substantially all assets other than intellectual property. The facility includes restrictive covenants and events of default.
- Key risks include commercial adoption and reimbursement of Omidria, execution of the launch, dependence on contract manufacturers and suppliers, regulatory and clinical uncertainty, need for additional capital, and significant fixed commitments. Remaining non-cancelable rent under the building lease was approximately $59.4 million; total disclosed contractual obligations were $103.481 million.
- Unusual non-cash expense included $0.863 million for warrant modifications during the nine-month period. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Actual Omidria launch timing, sales, pricing, uptake, and reimbursement after pass-through status takes effect.
- EMA review milestones and whether a European marketing partner is secured; clarify the filing’s inconsistent timing references.
- FDA’s review of the OMS824 nonclinical findings and the conditions, if any, for resuming clinical trials.
- Cash burn and financing needs relative to management’s stated 12-month liquidity expectation, including debt payments beginning April 2015.
- Manufacturing readiness and supply capacity at Patheon and Hospira, and the costs and commitments associated with the expanded sales force.