Omeros Corporation — Q2 2018 Form 10-Q
Business context and reporting period. Commercial-stage biopharmaceutical company; its only U.S.-approved commercial product is OMIDRIA, used during cataract and intraocular-lens procedures. This filing covers the quarter and six months ended June 30, 2018; filed August 9, 2018. Amounts below are in U.S. dollars unless stated otherwise.
Key financial metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net product sales | $1.7 million | $17.2 million | $3.2 million | $29.4 million |
| Gross profit on product sales | $1.5 million; ~93% margin | $17.0 million; ~99% margin | $2.9 million; ~90% margin | $29.0 million; ~99% margin |
| Research and development | $19.4 million | $13.1 million | $37.6 million | $25.4 million |
| Selling, general and administrative | $12.7 million | $15.8 million | $23.7 million | $28.3 million |
| Operating loss | $30.6 million | $11.9 million | $58.3 million | $24.7 million |
| Net loss | $33.7 million | $14.4 million | $63.8 million | $29.4 million |
| Basic and diluted loss per share | $0.70 | $0.33 | $1.32 | $0.67 |
| Cash used in operating activities | — | $42.2 million | $20.9 million |
- At June 30, cash, cash equivalents and short-term investments totaled $88.4 million, versus $83.7 million at December 31, 2017; an additional $5.8 million was restricted. Current assets were $96.5 million and current liabilities $24.4 million.
- Notes payable were $130.7 million at June 30, up from $83.8 million at year-end; total liabilities included $129.8 million of non-current notes payable and lease obligations, net. The increase primarily reflects a $45 million CRG loan draw in May and deferred interest.
- Cash and cash equivalents alone were $2.9 million. Six-month investing cash outflow was $5.6 million and financing cash inflow was $47.2 million.
- Accumulated deficit was $587.1 million and shareholders’ deficit was $56.3 million.
Material changes versus prior comparable periods
- Q2 sales fell about 90% year over year; six-month sales fell about 89%. The primary cause was the expiration of Medicare Part B separate pass-through reimbursement on January 1, 2018, which reduced OMIDRIA use by ASCs and hospitals.
- Net loss more than doubled in both comparison periods. R&D increased, primarily from OMS721 manufacturing scale-up and Phase 3 IgA nephropathy trial costs. SG&A declined, mainly because of lower legal costs after the Par patent settlement.
- Operating cash use rose $21.3 million year over year in the first half. The company collected prior-year receivables, but lower current-period sales and larger losses weighed on operating cash flow.
- Interest expense increased to $6.5 million for the first half from $5.4 million, largely due to additional CRG borrowing and deferred interest.
Outlook, commentary and key risks
- Legislation restored OMIDRIA pass-through reimbursement for two years, October 1, 2018 through September 30, 2020. Management expected sales to rise in Q3 as wholesalers rebuilt inventory and increase significantly in Q4 as facilities resumed use, but could not predict the pace or extent of recovery. Permanent reimbursement after September 2020 remained uncertain.
- Management and the filing concluded that substantial doubt existed about the company’s ability to continue as a going concern through August 9, 2019. The assessment assumed limited OMIDRIA receipts and did not count uncommitted financing, partnerships or equity transactions. Management said additional capital may be needed and that it could delay trials or reduce R&D and other expenses if necessary.
- CRG debt bears 12.25% annual interest, with 4% potentially deferrable through 2020; interest-only payments run through December 2020, subject to possible extension. The facility is secured by substantially all assets, including intellectual property. A 2019 revenue covenant requires $75 million, with an alternative market-capitalization test or specified equity/subordinated-debt paydown mechanism. Default could permit acceleration and enforcement against pledged assets.
- Management expected R&D spending to continue rising in the remainder of 2018, primarily for OMS721, and SG&A to increase with OMIDRIA sales and marketing expansion and OMS721 pre-commercialization work.
- OMS721 Phase 3 programs were underway for HSCT-TMA, IgA nephropathy and aHUS. Management reported Phase 2 HSCT-TMA data showing 100-day survival of 53% for treated patients versus 10% in a historical control (p=0.0002); this was not a controlled comparison. OMS527 Phase 1 began in July 2018, with completion expected in the first half of 2019 if successful; OMS906 trials were targeted for late 2019 or early 2020.
- OMIDRIA ANDA patent litigation was concluded: Lupin settled, Sandoz changed to a Paragraph III certification and its case was dismissed, and Par had previously settled. The company stated the earliest generic entry date was April 2032, subject to settlement terms and later authorization.
- Other material risks include uncertain OMIDRIA demand and reimbursement, clinical and regulatory failure or delay, dependence on third-party manufacturers, financing and covenant risk, and potential dilution from future capital raising.
Important facts for investors to verify
- Whether OMIDRIA demand and wholesaler orders recovered after pass-through reimbursement resumed on October 1, 2018, and the extent of sales growth and collections.
- Whether the company secured financing or partnerships sufficient to address the disclosed going-concern uncertainty and fund operations and debt service.
- Progress against the CRG revenue covenant and the terms, cost and potential consequences of any covenant shortfall.
- OMS721 trial enrollment, regulatory interactions, clinical outcomes and manufacturing readiness, including whether reported historical-control results are confirmed in further studies.
- The generic-entry dates and enforceability of OMIDRIA settlements, and the status of permanent reimbursement beyond September 2020.