Omeros Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 9, 2023. Omeros is a clinical-stage biopharmaceutical company. OMIDRIA was sold in 2021, so its royalties and related results are reported as discontinued operations; the filing reports no ongoing product revenue from continuing operations.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Research and development expense | $29.6 million | $23.5 million | $54.2 million | $47.6 million |
| Selling, general and administrative expense | $11.3 million | $13.9 million | $22.4 million | $24.9 million |
| Loss from continuing operations | $44.3 million | $41.7 million | $84.0 million | $81.2 million |
| Income from discontinued operations | $7.0 million | $10.8 million | $13.0 million | $17.3 million |
| Net loss | $37.3 million | $30.8 million | $71.0 million | $63.9 million |
| Net loss per share | $0.59 | $0.49 | $1.13 | $1.02 |
- Research and development spending increased, principally reflecting higher clinical and manufacturing costs for narsoplimab, increased OMS906 trial activity, and OMS1029 clinical development. Lower legal, patent, marketing, and employee-related costs reduced SG&A.
- Interest expense rose to $7.9 million for the quarter and $15.9 million for the half-year, primarily due to the DRI OMIDRIA royalty financing. Interest and other income increased to $4.5 million and $8.5 million, respectively, largely from higher investment balances and rates.
- Cash, cash equivalents, and short-term investments totaled $341.3 million at June 30, 2023, versus $194.9 million at year-end 2022. Receivables were $11.2 million. The company reported $20.5 million of shareholders’ equity and total assets of $527.4 million.
- Operating cash flow was positive $142.2 million for the first half, versus negative $34.7 million a year earlier. The 2023 figure includes collection of the $200 million OMIDRIA milestone payment; investing cash outflow was $146.0 million, largely reflecting purchases of short-term investments. Cash and cash equivalents alone were $6.6 million at period-end.
- Convertible notes had $320.0 million aggregate principal outstanding: $95.0 million of 6.25% notes due November 2023 and approximately $225.0 million of 5.25% notes due February 2026. The balance-sheet carrying value was $316.2 million. The separate DRI royalty obligation had a carrying value of approximately $125.7 million, with up to $180.3 million of remaining scheduled payments through 2030.
- Margins are not meaningful as the filing reports operating expenses and losses but no continuing-operations product revenue.
Material changes and notable items
- Net loss increased year over year in both the quarter and half-year. Continuing-operations losses also widened, while discontinued-operations income declined.
- The $200 million Rayner milestone was received in February 2023 after a 2022 event secured separate Medicare payment for OMIDRIA for the required period. U.S. OMIDRIA royalties fell from 50% to 30%; the company expects separate payment to continue at least through January 1, 2028. The future U.S. royalty rate could fall to 10% in specified circumstances.
- Omeros sold DRI an interest in a portion of future OMIDRIA royalties for $125 million in 2022. DRI receives its capped share before Omeros receives any royalty proceeds, and Omeros retains amounts above the annual cap.
- In July 2023, Omeros achieved an OMS906 development milestone that triggered a $5 million payment expected in Q3; this was subsequent to the reporting period and excluded from the stated commitments.
Outlook, management commentary, and risks
- Management said existing cash and investments, OMIDRIA royalties, and receivables are expected to fund operations for at least the next 12 months. It also cautioned that Omeros has no established ongoing revenue source sufficient to cover operating costs and may need additional capital to execute its plans and retire 2026 notes.
- The $95 million 2023 Notes mature in November 2023. Management expects to repay them from existing funds or refinance them. An at-the-market equity facility of up to $150 million is available but had not been used as of June 30, 2023; other financing, licensing, or strategic transactions remain possible.
- For narsoplimab in HSCT-TMA, the FDA had previously issued a complete response letter. After a May 2023 Type B meeting, Omeros planned to submit an analysis plan for external survival data and estimated a possible FDA decision on a resubmitted application in mid-2024. Approval, timing, and acceptability of the proposed data are uncertain.
- The company expected Q3 2023 R&D expense to increase from Q2, principally due to the $5 million OMS906 milestone; SG&A to be similar to Q2; interest expense to be similar to Q2; and interest and other income to be slightly lower.
- Omeros expected Q3 readout of 36-week proteinuria data from its Phase 3 narsoplimab IgA nephropathy trial. OMS1029 Phase 1 multiple-dose testing was underway, with a Phase 2 program expected to begin in mid-2024. Interim OMS906 PNH results showed statistically significant, clinically meaningful improvements in measured hemolysis markers; further clinical results and trial outcomes remain uncertain.
- Management identified clinical, regulatory, financing, commercialization, and development-cost uncertainty. It said it could delay trials, reduce selected R&D efforts, or restructure to manage cash needs. Contracted goods and services could entail $21.2 million in termination fees if canceled under specified conditions. The filing reported no material legal proceedings and effective disclosure controls.
Key facts for investors to verify
- Progress and FDA feedback on the narsoplimab HSCT-TMA resubmission plan, and the actual timing and outcome of any resubmission.
- Results and timing of the narsoplimab IgA nephropathy readout and ongoing OMS906 and OMS1029 trials.
- How the November 2023 $95 million note maturity was addressed, and future refinancing or dilution risk, including potential use of the ATM facility.
- Cash burn excluding the one-time $200 million milestone receipt, the durability of OMIDRIA royalties, and management’s stated liquidity runway assumptions.
- Impact of DRI’s royalty priority and the $5 million OMS906 milestone payment on future cash resources.