Omeros Corporation — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone fourth-quarter filing; it also presents unaudited quarterly results.
Business context
Omeros was a clinical-stage biopharmaceutical company with no approved products and no product-sale revenue. Its lead candidate, Omidria (OMS302), was submitted for U.S. and EU marketing authorization for use in lens replacement surgery. Other clinical programs included OMS103, OMS824, OMS721, OMS405 and OMS201; additional programs were preclinical.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $1.6 million | $6.0 million |
| Research and development expense | $36.3 million | $31.9 million |
| Selling, general and administrative expense | $15.8 million | $11.0 million |
| Operating loss | $50.5 million | $36.9 million |
| Net loss | $39.8 million | $38.4 million |
| Basic and diluted loss per share | $1.39 | $1.59 |
| Cash, cash equivalents and short-term investments at year-end | $14.1 million | $22.4 million |
| Working capital at year-end | $2.9 million | $16.3 million |
| Notes payable, net, at year-end | $20.5 million | $20.1 million |
Operating cash use was $29.7 million, versus $34.6 million in 2012. Financing provided $21.7 million, primarily from equity offerings. Product margins are not applicable because the company had no product sales. The reported Q4 2013 revenue was $169,000, operating loss was $13.9 million and net loss was $1.8 million; Q4 2012 net loss was $7.7 million.
Material changes and unusual items
- Revenue fell by $4.4 million, mainly because most funding-agreement revenue from Vulcan and LSDF had been recognized in earlier periods.
- R&D expense increased by $4.4 million, including higher OMS824 and OMS721 clinical costs; SG&A rose by $4.8 million, including launch preparation, legal and patent costs, and a $1.064 million NIH repayment.
- Net loss included a one-time $12.5 million insurer settlement received in October 2013. Excluding that settlement, the reported net loss would have been materially higher; Q4’s relatively low net loss reflects this receipt.
- Omeros issued shares in a May 2013 direct offering and through its ATM program, raising net proceeds of approximately $21.0 million in total.
Outlook, liquidity and risks
- Management expected the earliest potential U.S. Omidria launch in the second half of 2014, subject to FDA approval; EU marketing was anticipated in late 2014 or the first half of 2015, subject to EMA approval and securing a commercial partner. These were forward-looking expectations, not assured outcomes.
- Management expected 2014 losses and R&D and SG&A spending to increase, including for clinical development and Omidria launch preparation.
- The auditor included a going-concern explanatory paragraph, citing recurring losses and a net capital deficiency. Management said existing resources and potential financing were expected to fund at least the next 12 months, but acknowledged that operating plans called for spending beyond year-end resources and that additional financing might not be available on acceptable terms.
- In March 2014, after the reporting date, Omeros replaced its Oxford loan with a $32.0 million Oxford/MidCap facility, used approximately $19.1 million to repay the prior facility and received about $12.6 million in incremental funds. The loan bears 9.25% interest, is secured by substantially all assets other than intellectual property, and has principal payments beginning in April 2015.
- Key risks include regulatory rejection or delay of Omidria, uncertain reimbursement and adoption, the need for additional capital, clinical-trial outcomes, reliance on contract manufacturers, competition and patent protection. OMS103’s Phase 3 primary endpoint was not met; the company was redesigning the program and had unresolved FDA questions about the contribution of each active ingredient.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor also issued an unqualified opinion on the financial statements, with the separate going-concern explanatory paragraph.
Important facts for investors to verify
- Current regulatory status and actual launch timing for Omidria in the U.S. and EU, as well as the terms and status of any EU commercialization partnership.
- Cash runway, subsequent financing, debt-service requirements and compliance with the Oxford/MidCap loan covenants.
- Whether Omidria secures adequate reimbursement, including transitional separate payment, and achieves physician adoption and commercial sales.
- Progress and results for OMS103, OMS824 and OMS721, including further clinical requirements and timelines.
- Potential dilution from equity issuance and the impact of contingent royalties, milestones, lease commitments and other contractual obligations.