Omeros Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
Omeros is a commercial-stage biopharmaceutical company. Its marketed product, OMIDRIA, is used during cataract and other intraocular lens procedures. The company is also developing clinical and preclinical drug candidates, including narsoplimab (OMS721), with programs in Phase 3 for HSCT-TMA, IgA nephropathy and aHUS.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net product sales | $29.9 million | $4.6 million | $78.4 million | $7.9 million |
| Cost of product sales | $0.3 million | $0.04 million | $0.5 million | $0.4 million |
| Research and development | $23.7 million | $26.9 million | $69.1 million | $64.4 million |
| Selling, general and administrative | $16.9 million | $13.2 million | $48.5 million | $36.8 million |
| Operating loss | $(11.1) million | $(35.4) million | $(39.7) million | $(93.7) million |
| Interest expense | $5.7 million | $4.6 million | $16.8 million | $11.1 million |
| Net loss | $(16.5) million | $(39.5) million | $(55.3) million | $(103.2) million |
| Basic and diluted loss per share | $(0.33) | $(0.81) | $(1.12) | $(2.13) |
- Product-sales gross margin was approximately 99% in both periods, based on reported product sales less cost of product sales.
- Operating cash use was $37.1 million for the first nine months of 2019, compared with $79.1 million in 2018. Investing activities provided $35.8 million and financing activities provided $4.2 million. Cash and cash equivalents increased by $3.0 million to $8.9 million.
- At September 30, 2019, cash, cash equivalents and short-term investments totaled $27.3 million; net receivables were $29.9 million. Current assets were $63.8 million and current liabilities were $46.8 million.
- Convertible notes had $210 million principal outstanding, with a net carrying value of $155.8 million. The notes bear 6.25% interest and mature in 2023. A $50 million SVB revolving facility was undrawn; borrowing is limited by eligible receivables and other terms. Total lease liabilities were $31.7 million.
Material changes versus the comparable period
- OMIDRIA sales increased sharply following reinstatement of Medicare Part B pass-through reimbursement on October 1, 2018. Q3 2019 sales were up 11.6% from Q2 2019, to $29.9 million.
- Nine-month net loss narrowed by $48.0 million, and operating cash use declined by $42.0 million, principally reflecting stronger OMIDRIA sales. Higher receivables and inventory partly offset the operating cash-flow improvement.
- R&D declined in Q3 but increased for the nine-month period. Management attributed period-to-period changes mainly to timing of narsoplimab manufacturing scale-up and clinical costs, increased OMS906 manufacturing work, and higher internal staffing costs. SG&A increased, including pre-commercialization spending for narsoplimab and OMIDRIA sales and marketing.
- Interest expense increased, primarily following the 2018 issuance of the convertible notes. Omeros adopted the new lease accounting standard in 2019 and recognized right-of-use assets and lease liabilities.
Outlook, management commentary and risks
- Going concern: Management concluded that substantial doubt existed about the company’s ability to meet obligations through November 12, 2020. The assessment did not rely on potential OMIDRIA sales growth, availability under the SVB facility, additional financing, or partnerships. Management said it may pursue financing or strategic transactions; if funding is unavailable, it could delay trials, reduce R&D or restructure operations.
- OMIDRIA reimbursement: Pass-through reimbursement was scheduled to expire September 30, 2020. CMS’s November 1, 2019 final rule declined separate payment after that date, while noting it would continue to review evidence and utilization. Omeros intended to pursue administrative and legislative options but gave no assurance of success. Management expected Q4 2019 sales to increase, but could not estimate the amount; it also expected gross-to-net deductions to rise slightly.
- Spending outlook: Management expected R&D costs to increase in Q4 2019 due to narsoplimab manufacturing scale-up and anticipated application and commercialization preparation. SG&A was expected to increase slightly. No numerical full-year financial guidance was provided.
- Development updates: In October 2019, Omeros began a rolling FDA BLA submission for narsoplimab in HSCT-TMA and reported a positive EMA opinion on its pediatric investigation plan. Enrollment continued in Phase 3 programs for IgA nephropathy and aHUS. OMS527 Phase 1 results were described as positive, with a Phase 2a nicotine-addiction study planned. OMS906 clinical trials were targeted to begin in the first half of 2020.
- Other exposures: Third-party contracts could require $22.6 million of termination payments if cancelled within specified periods. The company reported no material legal proceedings and no material change to the risk factors in its 2018 Form 10-K.
Important facts for investors to verify
- Whether OMIDRIA can retain separate reimbursement after September 30, 2020, and the impact of the CMS decision and permanent J-code on sales, coverage and collections.
- Cash runway and financing requirements, including the basis for the going-concern conclusion and the actual availability of the SVB borrowing facility.
- Progress, data and regulatory timing for the narsoplimab HSCT-TMA BLA and the Phase 3 IgA nephropathy and aHUS trials.
- Convertible-note interest and repayment obligations, lease commitments, and the company’s ability to fund operating losses and clinical programs.
- Share count and potential dilution: 49.5 million common shares were outstanding at September 30, 2019; 49.75 million were reported outstanding as of November 8, 2019. Potentially dilutive options and warrants were excluded from loss per share as anti-dilutive.