Omeros Corporation — Q1 2018 Form 10-Q
Business context and reporting period. Commercial-stage biopharmaceutical company developing therapies for inflammatory, complement-mediated and central nervous system disorders. Its only FDA-approved U.S. product is OMIDRIA, used in cataract and intraocular lens procedures. This summary covers the three months ended March 31, 2018; financial statements are unaudited.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / prior year-end |
|---|---|---|
| Net product sales | $1.6 million | $12.3 million |
| Operating expenses | $29.3 million | $25.0 million |
| Operating loss | $27.7 million | $12.7 million |
| Interest expense | $2.8 million | $2.7 million |
| Net loss | $30.1 million | $15.1 million |
| Basic and diluted loss per share | $0.62 | $0.34 |
| Cash used in operating activities | $11.3 million | $12.7 million |
| Cash, cash equivalents and short-term investments | $72.8 million | $83.7 million at Dec. 31, 2017 |
| Current liabilities | $24.6 million | $26.3 million at Dec. 31, 2017 |
| Notes payable and lease financing obligations, net | $85.0 million | $84.1 million at Dec. 31, 2017 |
Product cost of sales was $0.2 million in Q1 2018. The filing does not provide a separately stated gross margin. Cash and cash equivalents alone were $1.2 million at quarter-end; $5.8 million of investments were restricted.
Material changes versus the prior comparable period
- Revenue fell about 87% year over year as OMIDRIA lost separate Medicare Part B pass-through reimbursement on January 1, 2018. The loss also sharply reduced facility demand.
- Net loss approximately doubled, primarily reflecting the revenue decline and higher research and development spending. R&D rose to $18.1 million from $12.2 million, mainly due to OMS721 manufacturing scale-up and clinical development, including the IgA nephropathy Phase 3 program.
- Selling, general and administrative expense decreased to $10.9 million from $12.5 million, mainly due to lower legal costs after the Par patent litigation concluded in 2017.
- Operating cash use improved by $1.4 million, partly because the company collected prior-period receivables; the filing says this was largely offset by the higher net loss.
Outlook, risks and unusual items
- OMIDRIA reimbursement: Legislation reinstated pass-through reimbursement for two years, from October 1, 2018 through September 30, 2020. Management expects sales to remain substantially reduced until reinstatement and anticipates sales will increase afterward, but cannot predict the pace of facility adoption. Efforts to obtain permanent or similar reimbursement beyond September 2020 are uncertain.
- Liquidity and going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern through May 10, 2019. The assessment excluded uncommitted financing and anticipated OMIDRIA receipts under specified accounting rules. The company reported $72.8 million in cash, equivalents and short-term investments available for general corporate use and negative operating cash flow. It said it had requested an additional $45 million under its CRG facility and expected the funds on May 18, 2018, subject to customary closing conditions; that borrowing was not included in the going-concern assessment. If additional funding is unavailable, management may delay trials, reduce R&D or take other restructuring steps.
- Debt: The CRG facility bears 12.25% annual interest, with interest-only payments through December 2020 and maturity on September 30, 2022. Substantially all assets, including intellectual property, are pledged. The company reported no default at March 31, 2018. An April amendment removed 2018 revenue and market-capitalization covenants; for 2019, the company must meet either $75 million in annual net revenue or an alternative market-capitalization threshold tied to debt outstanding.
- Pipeline: OMS721 Phase 3 programs were underway in HSCT-TMA, IgA nephropathy and aHUS. Management reported favorable Phase 2 HSCT-TMA survival and biomarker results versus historical controls and planned to pursue a rolling BLA submission later in 2018, subject to FDA requirements. These are company-reported findings and expectations, not approved indications or assured outcomes.
- Other risks and contingencies: Generic-drug patent litigation against Sandoz and Lupin was ongoing; FDA approval of their ANDAs was subject to expected 30-month stays through November 2019. Contract termination fees could total $15.3 million. OMIDRIA must be placed on the market in at least one EEA country by July 28, 2018 to preserve its European marketing authorization; the company expected to meet this requirement. OMS103 partner Fagron had not met commercialization diligence obligations.
- No quantified earnings or revenue guidance is provided. Management expects continued losses and negative cash flows until product sales or other revenue sources are sufficient to fund operations and debt service.
Most important facts to verify
- Whether the requested $45 million CRG draw closed, and the resulting cash balance, debt, interest burden and covenant requirements.
- Whether OMIDRIA demand and collections recovered after pass-through reimbursement resumed on October 1, 2018, and the durability of reimbursement after September 2020.
- Progress and regulatory outcomes for OMS721 trials and any FDA filing; compare reported study results with later evidence and clinical endpoints.
- Developments in the Sandoz and Lupin patent cases and any effect on OMIDRIA exclusivity or generic entry.
- Whether the company’s financing, operating cash needs and debt obligations resolved the disclosed going-concern uncertainty.