Omeros Corporation — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2012; filed November 9, 2012. Financial statements are unaudited. Omeros is a clinical-stage biopharmaceutical company with no products approved for sale; reported revenue came from grants and research-program funding, not product sales.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $1.417 | $0.987 | $4.439 | $3.381 |
| Research and development expense | $7.764 | $5.321 | $22.568 | $14.823 |
| General and administrative expense | $2.736 | $1.830 | $7.270 | $6.121 |
| Litigation settlement expense | $3.953 | — | $3.953 | — |
| Operating loss | $(13.036) | $(6.164) | $(29.352) | $(17.563) |
| Net loss | $(13.276) | $(6.512) | $(30.710) | $(18.345) |
| Basic and diluted loss per share | $(0.51) | $(0.29) | $(1.30) | $(0.83) |
- Revenue increased year over year, primarily from Vulcan-funded GPCR research and NIH grants. The filing reports no product-sales revenue and provides no meaningful product gross margin.
- Higher R&D spending reflected clinical-trial activity, particularly OMS302 and OMS103HP, as well as increased costs in certain preclinical programs and personnel. The $3.953 million settlement charge materially increased the 2012 loss.
- At September 30, cash and cash equivalents were $1.060 million and short-term investments were $29.569 million, totaling $30.629 million. Current assets were $31.437 million and current liabilities $21.811 million.
- Cash used in operating activities was $21.767 million for the first nine months, versus $18.307 million a year earlier. Financing provided $28.061 million, including $32.306 million net proceeds from a July public offering, partly offset by debt payments.
- Notes payable totaled approximately $15.052 million at quarter-end ($6.373 million current and $8.679 million long-term); the Oxford facility bears fixed interest rates of 8.55% and 8.56%, with maturity on October 21, 2014. Restricted cash was $0.563 million.
- Shareholders’ deficit was $0.820 million; accumulated deficit was $206.843 million. Common shares outstanding rose to 25.885 million at September 30 from 22.430 million at year-end 2011, principally reflecting the public offering.
Material changes and business developments
- Q3 net loss widened to $13.276 million from $6.512 million; nine-month net loss widened to $30.710 million from $18.345 million. R&D expense rose about 52% for the nine-month period.
- In July, Omeros sold 3,365,854 shares at $10.25 per share, receiving $32.3 million net. The company had not drawn on its separate Azimuth equity-line facility as of the filing.
- OMS302 was in Phase 3 development for intraocular lens replacement surgery. Both trials showed statistically significant superiority to placebo on intraoperative pupil dilation and postoperative pain; final safety review of the second trial was expected after the last assessment in January 2013.
- OMS103HP was in a Phase 3 program for arthroscopic partial meniscectomy, with first-trial data expected in Q4 2012. Omeros had no plans for additional ACL-reconstruction trials after a prior Phase 3 program failed to meet its prespecified endpoints.
- After quarter-end, Omeros reported completion of the second OMS302 Phase 3 trial and expanded its planned Seattle facility lease by approximately 13,400 square feet. The additional premises carry approximately $10.6 million of aggregate rent over the initial lease term; the original 64,500-square-foot lease has approximately $51.1 million of aggregate rent.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents, short-term investments and available Azimuth equity-line capacity to fund anticipated operating costs, capital expenditures and debt payments for at least 12 months. This forecast assumes access to the equity line; future financing availability is uncertain.
- Management expected continued operating losses, increasing cash use over the next several years, and no product revenue before 2014 at the earliest, if products are approved and commercialized. It identified OMS302 NDA submission to the FDA in Q1 2013 and EMA application in mid-2013 as objectives, not guaranteed outcomes.
- Omeros settled claims with former CFO Richard Klein for a one-time $3.94 million payment; $3.953 million was accrued at September 30. The insurer agreed after quarter-end to advance approximately $3.95 million, subject to reservation of rights. No reimbursement was recognized at quarter-end, and the insurer’s coverage dispute remained unresolved.
- The settlement did not bar the U.S. government from pursuing False Claims Act claims. The government had declined to intervene in 2011, but the claims were dismissed without prejudice to the government. Omeros said it believed the claims lacked merit; potential exposure and outcome were uncertain.
- Other material risks include clinical-trial and regulatory failure or delay, dependence on third-party manufacturers and research providers, need for additional capital, potential dilution, Oxford debt covenants and collateral, and obligations to Vulcan and LSDF tied to GPCR-program proceeds. The company also flagged possible operational disruption from moving laboratories and vivarium to its new facility.
- The filing states disclosure controls were effective at a reasonable-assurance level and that no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether OMS302’s final safety review supported the planned FDA and EMA filings, and whether regulators accepted or approved those applications.
- OMS103HP Phase 3 results, the timing and feasibility of its second trial, and the resolution of FDA questions about demonstrating each active ingredient’s contribution.
- Actual cash burn and financing runway, including whether Omeros used the Azimuth facility or needed additional financing beyond management’s 12-month estimate.
- Whether the insurer’s advance was received and retained, and the eventual outcome of the CCIC coverage litigation and any potential U.S. government action.
- Debt repayment obligations and the long-term cost and operational impact of the original and amended leases.