Omeros Corporation — FY2014 Form 10-K
Business context and reporting period. Omeros is a development-stage biopharmaceutical company focused on therapeutics for inflammation, coagulopathies and central nervous system disorders. This filing covers the fiscal year ended December 31, 2014; it also reports unaudited fourth-quarter results. Omidria, approved in the U.S. in May 2014 for use during cataract and intraocular lens replacement surgery, was the company’s only FDA-approved product. A controlled U.S. launch began in February 2015, ahead of the planned broad launch in early April 2015.
Financial performance and position
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $0.5 million | $1.6 million |
| Research and development expense | $47.9 million | $36.3 million |
| Selling, general and administrative expense | $22.6 million | $15.8 million |
| Operating loss | $70.0 million | $50.5 million |
| Net loss | $73.7 million | $39.8 million |
| Net loss per share, basic and diluted | $2.22 | $1.39 |
| Cash used in operating activities | $58.0 million | $29.7 million |
- Revenue consisted principally of research grants; the filing reports no significant product revenue in 2014. Product gross margin is not provided.
- Research and development and SG&A expenses rose 32% and 43%, respectively, as the company advanced clinical programs and prepared for Omidria commercialization. The company attributed most of the increased net loss to higher operating expenses and the absence of the prior-year insurer settlement.
- Fourth-quarter 2014 revenue was $180,000 and net loss was $20.7 million, or $0.61 per share. Fourth-quarter 2013 revenue was $169,000 and net loss was $1.8 million, or $0.05 per share; that quarter included a $12.5 million insurer settlement.
- At year-end, cash, cash equivalents and short-term investments totaled $6.9 million, versus $14.1 million a year earlier. Current assets were $9.2 million and current liabilities were $18.4 million, resulting in negative working capital of $9.3 million. Total assets were $11.1 million.
- Notes payable, net of discount, totaled $32.7 million at year-end; the loan’s original principal was $32.0 million. The Oxford/MidCap facility bears 9.25% interest, with monthly principal-and-interest payments of about $1.0 million beginning April 2015 and maturity in March 2018. It is secured by substantially all assets other than intellectual property and imposes operating covenants.
- In February 2015, Omeros raised approximately $79.1 million net from a common-stock and pre-funded-warrant offering. Management stated that year-end funds, offering proceeds, anticipated Omidria sales and expense management were expected to cover operating needs, capital expenditures and debt service for at least 12 months.
Material changes, outlook and risks
- Omidria commercialization and reimbursement: CMS pass-through reimbursement became effective January 1, 2015 and was expected to continue through December 31, 2017. The 2015 second- and third-quarter rate was set at wholesale acquisition cost of $465 per single-use vial plus 6%; thereafter the rate was to be based on average selling price plus 6%. Reimbursement after pass-through expires, private-payer coverage and commercial uptake remain uncertain.
- European regulatory path: The EU marketing application was under review; management expected a CHMP opinion in the first half of 2015 and anticipated EU sales in 2015 only if approval and a commercial partnership were secured. No such partnership had been signed.
- Pipeline: OMS721 was in Phase 2 for complement-mediated thrombotic microangiopathies. Early low-dose-cohort observations in three patients were described, but the company cautioned that the data were limited. OMS824 trials in Huntington’s disease and schizophrenia were suspended at FDA request after an observation in a rat study; further nonclinical evaluation was required before clinical enrollment could resume. OMS103 had completed one Phase 3 trial: its prespecified primary endpoint was not statistically significant, while postoperative pain, a secondary endpoint, was significantly reduced. Additional development or a revised trial could be needed. OMS201 was not in active clinical trials; its next Phase 2 step was on hold for resource reasons.
- Expected spending and funding: Management expected 2015 R&D and SG&A expenses to increase, driven by clinical development, Omidria studies and the broad U.S. launch. Continued losses and cash use were expected; operating cash flow could remain negative for several years. Further financing may be needed, and could be unavailable or dilutive or carry restrictive terms.
- Operational and financial exposures: Omidria manufacturing, supply and distribution depend on third parties. The company was still transferring, validating and obtaining approval for Hospira as a manufacturing site, while its Patheon supply agreement ran through 2015. Other key risks include regulatory delays, uncertain reimbursement and adoption, clinical-trial failure, competition, intellectual-property challenges, debt covenants and the company’s substantial lease commitments.
- The filing reports no legal proceedings. It describes a prior Klein lawsuit settlement and a $1.064 million reimbursement to NIH following an administrative review; these were not current-year litigation charges of comparable scale.
Most important facts for investors to verify
- Omidria launch progress, sales, repeat use and realized pricing, including the extent of Medicare and private-payer coverage.
- Whether Omidria’s EU application receives a favorable regulatory opinion and whether Omeros secures a suitable European partner.
- FDA feedback and the outcome of nonclinical review required to restart OMS824 trials; subsequent OMS721 trial data and safety findings.
- Cash burn, working-capital needs and debt-service capacity against the company’s stated 12-month liquidity expectation, including whether projected product sales materialize.
- Manufacturing-site qualification, commercial supply availability, and the cost and timing of any supply transfers or additional development studies.