Omeros Corporation — FY 2011 Form 10-K
Reporting period: Year ended December 31, 2011. Omeros is a clinical-stage biopharmaceutical company with no approved products or product-sales revenue; reported revenue came from grants and program funding. The filing was signed March 15, 2012.
Business and pipeline
The company’s lead PharmacoSurgery candidates are OMS302 for intraocular lens replacement surgery and OMS103HP for arthroscopic partial meniscectomy. OMS302’s first Phase 3 trial met its primary endpoint; its second Phase 3 trial was expected to report in the second half of 2012. OMS103HP’s North American meniscectomy Phase 3 results were also expected in the second half of 2012. A separate Phase 3 program in ACL reconstruction failed to meet pre-specified efficacy endpoints in 2011; Omeros said confounding factors prevented conclusions and it did not plan further ACL trials at that time.
OMS201 (urology) completed a Phase 1/2 safety and absorption study, not powered to establish efficacy. Other programs included Phase 2 PPAR-gamma addiction studies, funded substantially by NIDA collaborators, and preclinical PDE10, PDE7, MASP2, plasmin and GPCR programs. Omeros retained manufacturing, marketing and distribution rights to its programs.
Financial results and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $4.524 million | $2.105 million |
| Research and development | $23.718 million | $23.465 million |
| General and administrative | $8.216 million | $8.746 million |
| Operating loss | $27.410 million | $30.106 million |
| Net loss | $28.546 million | $29.251 million |
| Basic and diluted loss per share | $1.29 | $1.37 |
| Cash, cash equivalents and short-term investments at year-end | $24.570 million | $41.993 million |
| Net cash used in operating activities | $25.668 million | $14.502 million |
Revenue increased mainly from recognition of Vulcan and Life Sciences Discovery Fund (LSDF) GPCR funding. It was not product revenue. R&D spending was broadly flat year over year; lower G&A and a smaller operating loss partly offset reduced other income and higher interest expense. Net losses have persisted; accumulated deficit was $176.133 million.
Working capital was $6.963 million at year-end. Notes payable totaled $19.446 million on the balance sheet; the Oxford loan carries fixed rates of 8.55% and 8.56%, with maturity in October 2014 and security over substantially all assets other than intellectual property. Contractual notes payments, including interest, were listed at $21.483 million. No operating cash-flow margin or product gross margin is meaningful for this pre-commercial company; the filing does not provide a product-sales basis for those measures.
Material changes and unusual items
- Cash and short-term investments declined by $17.423 million during 2011, while operating cash use rose by $11.166 million. The company borrowed the second $10 million Oxford tranche in March 2011 and began principal-and-interest payments in November.
- In May 2011, Omeros established a $40 million, 24-month equity line with Azimuth, subject to pricing discounts and a share limit. It had not drawn on the facility by year-end.
- GPCR funding included $20 million from Vulcan and a $5 million LSDF grant award. Funding terms include future shares of GPCR net proceeds, program covenants and, for Vulcan, a lien on certain GPCR personal property. LSDF funding is reimbursement-based; $3.8 million had been received by year-end.
- On January 27, 2012, Omeros entered a 15-year lease for a new Seattle office and laboratory facility, expected to commence October 1, 2012. Base rent is $0 in year one, $2.5 million in year two and $3.2 million in year three, then increases 2.5% annually. The company expected a $3 million lease incentive in Q1 2012.
- The company reported effective disclosure controls and internal control over financial reporting; Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Outlook, risks and contingencies
Management expected continuing operating losses and increasing cash use, and did not expect any current candidate to be commercially available before 2014, if at all. It stated that existing cash, investments and available equity-line capital should fund operations, capital expenditures and debt payments for at least 12 months, but this assessment assumes access to the Azimuth facility. Access to future financing is uncertain and equity issuance could dilute shareholders.
Key risks include clinical-trial outcomes and timing, FDA requirements (including evidence that each active ingredient contributes to combination-drug efficacy), manufacturing and supply dependence, reimbursement and adoption, competition, patent protection, and dependence on external funding. The filing also describes a former CFO’s lawsuit alleging, among other things, False Claims Act violations and wrongful termination. On March 13, 2012, a court dismissed most qui tam claims but left certain claims pending; Omeros disputed the allegations and said the outcome and potential exposure could not be assessed with certainty. Its insurer separately sought a declaration that it had no duty to defend or indemnify the company and CEO; Omeros expected defense-cost payments to continue while that action was pending.
Important facts for investors to verify
- Results, endpoint details and regulatory implications of the second OMS302 Phase 3 trial and the North American OMS103HP meniscectomy Phase 3 trial.
- Cash runway assumptions, actual availability and pricing under the Azimuth equity line, and financing needs against operating cash burn and Oxford repayments.
- Remaining Oxford debt, collateral and covenants, and the cost and obligations of the new long-term facility lease.
- Funding received and remaining under LSDF, compliance with GPCR program covenants, and the future economic burden of Vulcan/LSDF proceeds-sharing terms.
- Developments in the Klein litigation and insurer coverage dispute, including any change in potential financial exposure.
- Share dilution from outstanding options and warrants and any future use of the equity line.