Omeros Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Omeros is a commercial-stage biopharmaceutical company. OMIDRIA is its marketed product; narsoplimab is its lead drug candidate.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net product sales | $28.8 | $13.5 | $49.9 | $37.1 |
| Operating loss | $(24.0) | $(27.7) | $(54.6) | $(51.4) |
| Net loss | $(28.6) | $(33.3) | $(63.7) | $(62.3) |
| Net loss per share | $(0.46) | $(0.61) | $(1.02) | $(1.14) |
| Operating cash flow | Not separately stated | Not separately stated | $(67.8) | $(46.7) |
- Q2 sales increased about 113% year over year; six-month sales increased about 35%. The filing attributes the comparison mainly to the 2020 COVID-related suspension and subsequent resumption of elective surgeries.
- Q2 net loss narrowed by $4.7 million year over year, while the six-month net loss increased by $1.4 million. Operating expenses rose: R&D was $30.9 million in Q2 and SG&A was $21.6 million. Product sales less cost of sales imply an approximately 98.8% product gross margin in Q2; this is not an operating margin.
- At June 30, cash and cash equivalents were $12.7 million and short-term investments were $61.0 million, or $73.7 million combined for general corporate use. Net receivables were $31.8 million. Combined cash and short-term investments had declined from $135.0 million at year-end 2020.
- Cash used in operations was $67.8 million in the first half, including a $28.0 million increase in receivables. Investing activities provided $63.4 million, largely reflecting investment maturities and sales; financing activities provided $6.7 million, mainly from stock-option exercises.
- Convertible notes had $320.0 million principal outstanding ($312.6 million net carrying value): $95.0 million due in 2023 and $225.0 million due in 2026. No line-of-credit borrowings were outstanding. The revolving facility allows up to $50.0 million, subject to an accounts-receivable borrowing base, and matures August 2022.
- Shareholders’ deficit was $246.3 million. The company had not sold shares under its $150 million at-the-market offering as of June 30.
Material changes and significant items
- OMIDRIA gross-to-net deductions were 28.8% of gross sales in Q2 versus 14.6% a year earlier; the prior-year quarter included a reversal of a product-return reserve. For the first half, deductions were 29.9% versus 26.8%, primarily due to higher chargebacks.
- R&D increased to $64.3 million for the first half from $53.0 million, reflecting narsoplimab manufacturing ahead of a potential launch, OMS906 clinical costs, and other program spending. SG&A rose to $39.6 million from $35.0 million, mainly due to narsoplimab pre-commercialization and employee costs.
- On January 1, 2021, Omeros adopted ASU 2020-06 and began accounting for convertible notes wholly as debt. The transition reclassified approximately $75.5 million from equity-related balances; it also reduced noncash interest expense by eliminating debt-discount amortization.
- CMS had determined that OMIDRIA qualifies for separate payment for Medicare Part B patients in ambulatory surgery centers under its non-opioid surgical-drug policy. The 2022 proposed rule reaffirmed the policy; a final rule was expected later in 2021.
Outlook, commentary, and risks
- The FDA’s priority-review action date for narsoplimab in HSCT-TMA was October 17, 2021. Management anticipated, but could not guarantee, approval and a U.S. commercial launch in 2021; launch spending was staged to allow flexibility if approval were delayed.
- Omeros planned to fund operations for the next 12 months using available cash and investments, OMIDRIA sales and, if approved, narsoplimab sales. It also identified the unused credit facility, the ATM program, additional financing or strategic transactions as potential funding sources. Management stated it could delay trials, reduce R&D or restructure to manage expenses.
- Management expected R&D and SG&A to increase in the second half of 2021 in connection with potential narsoplimab launch activity and other development work. It said the company would continue to incur losses until revenues or other sources cover operating expenses and debt service.
- Narsoplimab Phase 3 trials were ongoing in IgA nephropathy and aHUS; enrollment in aHUS was described as slow. The company targeted an EU marketing-application submission in 2021. OMS906 was in Phase 1; PDE7 program development depended on resource allocation.
- COVID-19 had disrupted clinical and preclinical work and affected surgical volumes. The filing states the pandemic’s future effects are uncertain. Regulatory approval, clinical-trial execution, product demand and reimbursement, manufacturing, financing needs, and the ability to generate narsoplimab revenue are material uncertainties.
- Lease commitments included $53.3 million of remaining rent under the initial office and laboratory lease term; other firm goods-and-services commitments were $33.9 million. The filing reported no material legal proceedings and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether and when FDA acted on the narsoplimab HSCT-TMA application, and the commercial launch timing, if approved.
- OMIDRIA sales trends, gross-to-net deductions, and whether CMS’s separate-payment policy remained in effect in the final 2022 rule.
- Cash consumption, receivable collections, financing needs, and the company’s ability to meet debt service given first-half operating cash use and $320.0 million of note principal.
- Progress, enrollment, and results in narsoplimab’s IgA nephropathy and aHUS trials, plus clinical progress for OMS906 and other programs.
- Potential dilution from outstanding options, convertible notes, or future use of the $150 million ATM program.