Omeros Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Omeros was a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue. Its lead candidate, Omidria (OMS302), was under U.S. and EU regulatory review.
Key financial results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0.1 million | $1.095 million |
| Research and development expense | $12.017 million | $7.127 million |
| Selling, general and administrative expense | $3.767 million | $3.988 million |
| Operating loss | $15.684 million | $10.020 million |
| Net loss | $16.642 million | $10.489 million |
| Basic and diluted loss per share | $0.54 | $0.40 |
| Net cash used in operating activities | $11.139 million | $8.968 million |
Revenue consisted of $0.1 million in SBIR grant revenue; Q1 2013 included $0.97 million of revenue recognized from the Vulcan GPCR funding agreement, which was fully recognized by that period. With no product sales and minimal grant revenue, a conventional operating margin is not meaningful.
At March 31, 2014, cash and cash equivalents were $0.567 million and short-term investments were $51.622 million, totaling approximately $52.2 million in cash, cash equivalents and investments. Total assets were $56.1 million; shareholders’ equity was $5.2 million, versus a deficit of $18.4 million at year-end 2013. Notes payable, net of discount, totaled $32.2 million, including current and long-term portions.
Changes and financing
- Net loss increased by $6.2 million year over year, principally as R&D expense rose by $4.9 million. Higher clinical and manufacturing costs for OMS824 and OMS721, employee costs and stock compensation contributed.
- SG&A declined by $0.2 million overall, but Q1 2013 included a $0.9 million NIH-grant-related expense; excluding that item, SG&A increased in 2014, partly reflecting launch preparation.
- Operating cash use increased by $2.2 million. Investing cash flow was a $38.9 million outflow, largely reflecting purchases of short-term investments; financing provided $49.2 million.
- A March public offering of 3.5 million shares at $11.50 per share generated $37.7 million net proceeds. Common shares outstanding increased to 33.9 million at March 31 from 30.4 million at December 31, 2013.
Outlook, risks and unusual items
- Management expected FDA action on Omidria in Q2 2014 and, if approved, U.S. marketing in the second half of 2014. EU launch was anticipated in late 2014 or the first half of 2015, subject to EMA approval and securing a commercial partner. These were expectations, not assured outcomes.
- Management expected net losses to increase as it prepared for a potential Omidria launch, advanced clinical programs and added personnel. R&D expense was expected to remain constant or increase slightly in the near term; SG&A was expected to increase.
- Management stated that available cash, cash equivalents and short-term investments, together with potential product sales and financing, were expected to fund anticipated expenses and debt payments for at least 12 months. The 2013 audit report had included a going-concern explanatory paragraph; the company remained dependent on future capital and/or commercial progress.
- The March 2014 Oxford/MidCap loan provided $32.0 million gross, refinanced prior Oxford debt and yielded $12.7 million net incremental proceeds. It carries a 9.25% annual interest rate, interest-only payments through March 2015, then monthly principal and interest through a March 2018 maturity, plus a $2.2 million final payment fee. Substantially all assets other than intellectual property secure the debt; covenants and default provisions may constrain operations.
- Other notable obligations include approximately $61.0 million of remaining non-cancelable rent under the lease’s initial term through November 2027 and a $0.2 million OMS721-related milestone payment to Helion in Q1.
- Principal risks include regulatory delay or rejection, clinical-trial failure or delay, uncertain market acceptance and reimbursement, competition and compounded products, reliance on contract manufacturers and partners, ongoing losses and financing needs, debt restrictions, and potential intellectual-property disputes.
Important facts for investors to verify
- Whether and when the FDA and EMA acted on Omidria applications, and whether approval conditions or additional studies were required.
- Actual timing, costs, partnerships, reimbursement and commercial uptake for any Omidria launch.
- Cash use, available liquidity and additional financing needs relative to management’s 12-month funding assessment.
- Debt repayment capacity and compliance with Oxford/MidCap covenants, including the final payment fee and collateral terms.
- Clinical progress and results for OMS824, OMS721 and OMS103, including OMS103’s redesigned Phase 3 program and OMS721 enrollment timing.