Omeros Corporation — Form 10-Q Summary
Reporting period: Three months ended March 31, 2012. Omeros is a clinical-stage biopharmaceutical company; it reported no product sales, and revenue came from grants and program-funding arrangements. Amounts below are in U.S. dollars.
Financial results and liquidity
- Revenue: $1.496 million, up from $1.239 million in Q1 2011, primarily due to higher revenue recognized under the Vulcan and Washington Life Sciences Discovery Fund agreements.
- Research and development: $7.246 million, versus $5.425 million. General and administrative: $2.322 million, versus $2.264 million. Total operating expenses rose to $9.568 million from $7.689 million.
- Loss: Operating loss was $8.072 million, compared with $6.450 million. Net loss was $8.895 million, or $0.40 per share, versus $6.542 million, or $0.30 per share.
- Cash flow: Net cash used in operating activities was $5.505 million, compared with $7.875 million. Investing activities provided $19.678 million, largely from investment sales; financing activities used $1.376 million, mainly for debt principal payments. Cash and cash equivalents increased to $16.802 million from $4.005 million.
- Cash and liquidity: Cash, cash equivalents and short-term investments totaled approximately $17.6 million at quarter-end. Current assets were $19.698 million and current liabilities were $18.742 million. Management said existing funds and available capital under its equity line were expected to cover anticipated expenses, capital expenditures and debt payments for at least 12 months; that assessment assumes the company can raise capital under the facility.
- Debt: Balance-sheet notes payable totaled $18.019 million, including $6.050 million current and $11.969 million long-term. The filing separately cites $16.6 million of outstanding principal and interest. Oxford debt bears fixed rates of 8.55% and 8.56%, with maturity in October 2014.
- Equity and deficit: Accumulated deficit was $185.028 million and shareholders’ deficit was $12.683 million. Quarter-end common shares outstanding were 22,451,837.
Changes versus Q1 2011
- Revenue increased $257,000, while R&D expense increased $1.821 million, principally from OMS302 Phase 3 trial activity, preclinical programs and higher stock-based compensation.
- Net loss widened by $2.353 million. Interest expense rose to $494,000 from $293,000, reflecting a higher average debt balance.
- Other expense was $341,000 versus other income of $184,000. Q1 2012 included a $511,000 expense associated with extending certain warrant expiration dates.
- Operating cash use declined, in part because of a $3.0 million cash lease incentive received during the quarter. Investment-sale proceeds materially increased investing cash flow; those movements largely reflect transfers between cash and short-term investments.
Business, outlook and material matters
- Clinical programs: Omeros reported that its first Phase 3 OMS302 trial was completed in March 2012 and showed statistically significant superiority over placebo for maintaining intraoperative pupil dilation and reducing postoperative pain. It expected data from the second Phase 3 trial in the second half of 2012. The first Phase 3 OMS103HP partial-meniscectomy trial was also expected to report data in the second half of 2012; a second trial was subject to regulatory discussions and sufficient resources. OMS103HP had previously failed to meet prespecified endpoints in an ACL-reconstruction Phase 3 program; no further ACL trials were planned at the time.
- Commercial outlook: Management said no current product candidate was expected to be commercially available before 2014, if at all. It expected operating losses and cash use to increase as development, staffing and potential commercialization preparations continued. The company had no approved products and no product-sales revenue.
- Funding: Omeros had not drawn on its $40 million, 24-month Azimuth equity line. It said further capital might be needed; if financing were unavailable or inadequate, it could delay or reduce programs, seek collaborations, or relinquish rights. Equity financing could dilute shareholders.
- New lease: The company entered a 15-year lease for approximately 64,500 square feet of office and laboratory space, with expected commencement October 1, 2012 and aggregate initial-term rent of approximately $51.1 million. It received a $3.0 million lease incentive and recorded $563,000 of restricted cash as a security deposit.
- Legal contingencies: Litigation by former CFO Richard Klein continued. The court dismissed most qui tam claims, leaving specified claims relating to grant funds and previously reported timekeeping allegations. The company denied the allegations and said the financial impact was not determinable; no loss provision was recorded. Insurer CCIC separately sought a ruling that it had no duty to defend or indemnify the company and its CEO; the company expected defense-cost payments to continue while that case was pending.
- Other risks: Key uncertainties include clinical-trial results and timing, regulatory approval, manufacturing and supply, ability to raise capital, competition, intellectual-property protection, and the long-term commitments and program obligations under Vulcan and LSDF agreements. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Results and timing of the second OMS302 Phase 3 trial and the OMS103HP partial-meniscectomy trial, including any regulatory requirements for further studies.
- Actual cash runway and access to financing: the 12-month liquidity assessment depends in part on the undrawn Azimuth equity line.
- Debt repayment terms and the difference between balance-sheet notes payable and the separately cited $16.6 million of principal and interest.
- Progress, costs and obligations associated with the new facility lease, including the scheduled move and whether the laboratory space is ready as planned.
- Developments in the Klein and CCIC litigation, including any change in insurance coverage, defense-cost payments or potential financial exposure.