Omeros Corporation — Form 10-Q, quarter ended June 30, 2011
Business context and reporting period
Omeros was a clinical-stage biopharmaceutical company developing candidates for surgical procedures, inflammation, coagulopathies and central nervous system disorders. It had no approved products and no product-sale revenue. This filing reports the three and six months ended June 30, 2011, compared with the corresponding 2010 periods.
Financial performance and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $1.155 million | $0.497 million | $2.394 million | $0.875 million |
| Research and development | $4.077 million | $6.120 million | $9.502 million | $11.202 million |
| General and administrative | $2.027 million | $2.011 million | $4.291 million | $3.732 million |
| Net loss | $5.291 million | $7.804 million | $11.833 million | $14.465 million |
| Net loss per share | $0.24 | $0.36 | $0.54 | $0.68 |
| Cash used in operating activities | — | $14.200 million | $15.226 million |
Revenue primarily reflected grants and funding tied to the GPCR program, not product sales. Q2 included $940,000 from the Vulcan and LSDF agreements; the six-month amount was $2.0 million. No meaningful commercial-product margin was reported. Operating losses continued, although net loss and R&D expense declined year over year.
At June 30, cash and cash equivalents were $4.159 million and short-term investments were $32.715 million, totaling $36.874 million in cash, equivalents and short-term investments. Current assets were $39.667 million and current liabilities $14.339 million. Notes payable totaled approximately $20.313 million, including $3.719 million current and $16.594 million long-term. Shareholders’ equity was $10.015 million; accumulated development-stage deficit was $159.420 million. The company reported $881,000 net increase in cash during the first half.
Changes versus the prior comparable period
- Revenue rose as GPCR-related Vulcan and LSDF funding was recognized, partly offset by the completion of NIH-funded preclinical work.
- R&D expense decreased, principally due to lower clinical-trial spending and one-time licensing and contract costs in 2010. Six-month G&A increased, mainly from patent, legal and public-company expenses.
- Operating cash use improved by about $1.0 million in the first half, while financing provided $10.274 million, primarily from the second $10 million Oxford loan tranche.
- Compared with December 31, 2010, total cash, equivalents and short-term investments decreased by approximately $5.1 million; notes payable increased following the March 2011 borrowing.
Outlook, risks and contingencies
Management said existing cash, equivalents and short-term investments were expected to fund anticipated operating expenses, capital expenditures and debt payments for at least the next 12 months, while cautioning that assumptions could prove wrong. The company expected ongoing losses and no product-sale revenue before 2013 at the earliest, if at all. It had no committed future external funding other than an undrawn equity line with Azimuth of up to $40 million over 24 months, subject to share and pricing limits; use could dilute shareholders.
Management expected data from the North American Phase 3 trials of OMS103HP for partial meniscectomy and OMS302 for lens-replacement surgery in the first half of 2012. A second Phase 3 trial for each program depended on regulatory discussions and available resources. OMS103HP had failed prespecified efficacy endpoints in an earlier Phase 3 ACL-reconstruction program; the company said confounding factors prevented conclusions and it had no plans for further ACL trials. OMS201 had completed a Phase 1/2 safety and tolerability trial, not an efficacy trial.
The Oxford loan carried fixed interest rates of 8.55% and 8.56%; interest-only payments ran through October 2011, with principal-and-interest installments beginning November 2011 and maturity in October 2014. It was secured by substantially all assets other than intellectual property and included restrictive covenants and default provisions. The GPCR funding arrangements impose research commitments and future net-proceeds payments to Vulcan and LSDF; potential combined payments were described as mid-teens on roughly the first $1.5 billion of cumulative GPCR net proceeds, then 1% thereafter. LSDF funding was reimbursement-based, not guaranteed in full.
Material risks included clinical-trial failure or delay, regulatory approval and commercialization uncertainty, capital needs and potential dilution, manufacturing and supply dependence, intellectual-property challenges, and obligations under the loan and GPCR agreements. A former CFO’s lawsuit included a qui tam False Claims Act claim relating to NIH grants totaling $1.3 million; Omeros denied the allegations and said the outcome and potential exposure could not be assessed with certainty. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the period.
Key facts for investors to verify
- Current cash runway against the stated 12-month funding estimate, upcoming loan amortization and actual operating cash burn.
- Progress, trial design, regulatory requirements and results for OMS103HP and OMS302, including the planned timing of Phase 3 data.
- Whether the Azimuth equity line is used, the resulting share issuance and dilution, and the terms and availability of any additional financing.
- Recognition and remaining balances under Vulcan and LSDF agreements, including reimbursable grant amounts, program covenants and future proceeds-sharing obligations.
- Developments in the former CFO litigation and any change in the company’s assessment of potential financial exposure.