Omeros Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. Omeros is a clinical-stage biopharmaceutical company with no approved products or product-sales revenue. Financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $0.14 million | $1.526 million | $1.235 million | $3.022 million |
| Research and development expense | $9.564 million | $7.558 million | $16.691 million | $14.804 million |
| Selling, general and administrative expense | $3.736 million | $2.212 million | $7.724 million | $4.534 million |
| Operating loss | $13.160 million | $8.244 million | $23.180 million | $16.316 million |
| Net loss | $13.592 million | $8.539 million | $24.081 million | $17.434 million |
| Basic and diluted loss per share | $0.48 | $0.38 | $0.89 | $0.78 |
Revenue consisted of grant funding and recognition of prior Vulcan program funding, not product sales. The remaining Vulcan deferred revenue was recognized in Q1 2013; no further amount remained to recognize at June 30. The filing does not present product gross margins, as the company had no product-sales revenue.
- Cash flow: Six-month operating cash use was $18.361 million, versus $14.366 million in 2012. Investing activities provided $2.395 million, primarily reflecting net investment sales; financing provided $16.162 million, mainly from the May stock offering.
- Liquidity: Cash and cash equivalents were $1.716 million and short-term investments were $18.346 million at June 30, totaling approximately $20.1 million. Total current assets were $21.271 million and current liabilities $10.900 million.
- Debt: Oxford loan principal outstanding was $20.0 million, bearing fixed interest at 9.25%. Interest-only payments continue through December 31, 2013; principal and interest payments are scheduled to begin January 1, 2014. Maturity is December 1, 2016. The loan is secured by substantially all assets other than intellectual property.
- Equity and deficit: May’s registered direct offering issued 3,903,004 shares at $4.14 per share and yielded $16.1 million net. Accumulated deficit was $238.7 million; shareholders’ deficit was $12.3 million at June 30.
Material changes versus the prior-year period
- Q2 revenue fell to $0.14 million from $1.526 million; six-month revenue declined to $1.235 million from $3.022 million. The decreases reflected lower Vulcan/LSDF program-funding recognition and reduced NIH grant revenue as grant-funded preclinical work was completed.
- Q2 net loss increased to $13.592 million from $8.539 million; six-month net loss increased to $24.081 million from $17.434 million. Higher development and corporate spending drove the deterioration.
- Research and development spending rose, particularly for OMS721’s advancement into clinical development, OMS824’s Phase 1 program, and OMS302 NDA preparation. Lower costs from completed OMS302 and OMS103HP Phase 3 trials partly offset those increases.
- SG&A increased due to legal matters, patent filings, employee and rent costs, and preparation for a potential OMS302 launch. Six-month operating cash use also increased; the 2012 period included a $3.0 million cash lease-incentive receipt.
Outlook, programs, risks and contingencies
- OMS302: The company reported successful Phase 3 results and submitted an FDA NDA in July 2013, after quarter-end. It planned to submit an EU marketing application in Q3 2013 and expected potential U.S. and EU commercialization in 2014 if approved. A further Phase 3 study was planned for a subgroup with prior alpha-adrenergic antagonist use.
- Other programs: OMS103HP’s first Phase 3 trial met its secondary postoperative-pain endpoint but not its primary symptoms endpoint; the company was redesigning the program with pain reduction as the primary endpoint. OMS824 had positive Phase 1 target-occupancy results, and Phase 2 studies for Huntington’s disease and schizophrenia were planned. OMS721 clinical activity began in July 2013. PDE7 Phase 1 trials were anticipated in 2014.
- Funding outlook: Management believed existing cash, cash equivalents and short-term investments, together with potential partnership, equity or debt financing, would fund anticipated expenses and note payments for at least 12 months. This depends partly on access to financing; continued losses are expected, and additional capital may be required. The MLV at-the-market facility permitted up to $49.3 million in sales, but no shares had been sold under it as of the filing.
- Legal and grant matters: The NIH was reviewing two grants totaling approximately $1.1 million and could seek repayment of some or all proceeds. The company recorded an estimated refund expense and liability in Q1, but the amount is not clearly stated in the filing text. Separate litigation with former insurer CCIC remains unresolved; CCIC had reimbursed $3.95 million relating to the former CFO settlement and could seek recovery of payments. The company disputed CCIC’s position and recorded no loss for that action.
- Other obligations: The initial office and laboratory lease runs through November 2027, with approximately $61.7 million in remaining non-cancelable rent at June 30. Various development and commercialization milestones and royalties may become payable under licensing and funding agreements if specified events occur.
- Key risks include regulatory review or approval delays, clinical-trial outcomes, manufacturing and supply dependence on third parties, uncertain commercial acceptance and reimbursement, continuing losses and financing needs, and potential dilution from future equity issuance. Management reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- FDA acceptance and review milestones for the OMS302 NDA, and timing and status of the planned EU application.
- Whether OMS302 and other programs meet subsequent clinical and regulatory milestones, including the redesigned OMS103HP trial and OMS824 Phase 2 plans.
- Cash burn, financing availability, potential use of the MLV facility, and the transition to scheduled Oxford principal repayments in 2014.
- Outcome and potential financial exposure from the NIH grant review and CCIC insurance litigation.
- Commercial supply readiness, launch spending, and the long-term lease and contingent milestone or royalty obligations.