OMEROS CORPORATION The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers.
Our drug product OMIDRIA® is marketed in
Impact of Global Pandemic
The COVID-19 outbreak and the response of governmental authorities to try to
limit its spread are having a significant impact on our business. On
Commercial Product - OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1%/0.3%
OMIDRIA is approved by the FDA for use during cataract surgery or intraocular
lens replacement to maintain pupil size by preventing intraoperative miosis
(pupil constriction) and to reduce postoperative ocular pain. Outside the
OMIDRIA is a proprietary drug product containing two active pharmaceutical ingredients: ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic, or pupil dilating, agent. Cataract and other lens replacement surgery involves replacement of the original lens of the eye with an artificial intraocular lens. OMIDRIA is added to standard irrigation solution used during cataract and lens replacement surgery and is delivered intracamerally, or within the
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anterior chamber of the eye, to the site of the surgical trauma throughout the procedure. Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging structures within the eye and other complications increases, as does the operating time required to perform the procedure.
We launched OMIDRIA in the
We continue to pursue permanent separate reimbursement for OMIDRIA beyond the
currently scheduled expiration of pass-through reimbursement. CMS is required
under the Substance Use-Disorder Prevention that Promotes Opioid Recovery and
Treatment for Patients and Communities Act to review payments under its CMS'
outpatient prospective payment system ("OPPS") for opioids and evidence-based
non-opioid alternatives for pain management with a goal to ensure that there are
not financial incentives to use opioids instead of non-opioid alternatives. In
its 2020 OPPS proposed rule, CMS noted that non-opioid drugs that are indicated
for reduction of post-operative pain may warrant separate payment if there is
evidence to show packaged payment presents a demonstrated barrier to access for
such drugs and that such drugs help to deter or avoid prescription opioid use
and addiction. Although Omeros provided CMS with evidence that it believes shows
that OMIDRIA meets these criteria, CMS declined in its 2020 OPPS final rule to
confirm separate payment to OMIDRIA beyond the expiration of its current
pass-through status on
In
Clinical Development Programs
Our clinical stage development programs include:
MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders. Narsoplimab, also
referred to as OMS721, is our lead human monoclonal antibody targeting
mannan-binding lectin-associated serine protease-2 (MASP-2), a novel
pro-inflammatory protein target involved in activation of the complement
system. The complement system plays a role in the body's inflammatory response
and becomes activated as a result of tissue damage or trauma or microbial
? pathogen invasion. Inappropriate or uncontrolled activation of the complement
system can cause diseases characterized by serious tissue injury. MASP-2 is the
effector enzyme of the lectin pathway of the complement system, and the current
development focus for narsoplimab is diseases in which the lectin pathway has
been shown to contribute to significant tissue injury and pathology. When not
treated, these diseases are typically characterized by significant end organ
injuries, such as kidney or central nervous system injury.
We have completed our pivotal clinical trial for narsoplimab in HSCT-TMA, and Phase 3 clinical programs are in process for narsoplimab in IgA nephropathy and aHUS.
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Narsoplimab has received multiple designations from the FDA and from the EMA across the three current indications. These include:
HSCT-TMA: In the
designation in patients who have persistent TMA despite modification of
immunosuppressive therapy, (2) orphan drug designation for the prevention
? (inhibition) of complement-mediated TMAs, and (3) orphan drug designation for
the treatment of HSCT-TMA.
orphan medicinal product for treatment in hematopoietic stem cell
transplantation.
IgA nephropathy: In the
(1) breakthrough therapy designation for the treatment of IgA nephropathy and
? (2) orphan drug designation in IgA nephropathy. In
received from the EC designation as an orphan medicinal product for the
treatment of primary IgA nephropathy.
aHUS: In the
? designation for the treatment of patients with aHUS and (2) orphan drug
designation for the prevention (inhibition) of complement-mediated thrombotic
microangiopathies.
In
On
The primary efficacy endpoint in the trial was the proportion of patients who achieved designated "responder" status based on improvement in HSCT-TMA laboratory markers and clinical status. This is referred to as the "complete response rate." The primary laboratory markers that were evaluated were platelet count and lactate dehydrogenase ("LDH"), levels, while improvement in clinical status was evaluated based on organ function and transfusions. Patients who did not fully meet these criteria were considered "non-responders."
The FDA-agreed efficacy threshold for the primary endpoint is a complete response rate of 15%. Among patients who received at least one dose of narsoplimab, the complete response rate was 54% (p<0.0001), while the complete response rate among patients who received the protocol-specified narsoplimab treatment of at least four weeks of dosing was 65% (p<0.0001).
Secondary endpoints in the trial were survival rates and change from baseline in HSCT-TMA laboratory markers. Among the responder population, 93% of patients survived for at least 100 days following HSCT-TMA diagnosis, while 83% of patients who received treatment for at least four weeks and 68% of the total treated population achieved this endpoint. Results also included statistically significant improvements in platelet count, LDH and haptoglobin. The treated population had multiple high-risk features that portend a poor outcome, including the persistence of HSCT-TMA despite modification of immunosuppression (which was a criterion for entry into the trial), graft-versus-host disease, significant infections, non-infectious pulmonary complications and neurological findings. Patients in the trial had a high expected mortality rate, with 93% of
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them having multiple risk factors. The most common adverse events observed in the trial were nausea, vomiting, diarrhea, hypokalemia, neutropenia and fever, which are all common in stem-cell transplant patients. Six deaths occurred during the trial. These were due to sepsis, progression of the underlying disease, and graft-versus-host disease. All of these are common causes of death in this patient population.
In
In our IgA nephropathy program, patient enrollment continues in the narsoplimab Phase 3 clinical trial, ARTEMIS-IGAN. The single Phase 3 trial design is a randomized, double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and with 24-hour urine protein excretion greater than one gram per day at baseline on optimized renin-angiotensin system blockade. This trial includes a run-in period. Initially, patients are expected to receive an IV dose of study drug each week for 12 weeks; additional weekly dosing can be administered to achieve optimal response. The primary endpoint, which we believe could suffice for full or accelerated approval depending on the effect size, is reduction in proteinuria at 36 weeks after the start of dosing. The trial is designed to allow intra-trial adjustment in sample size. For the purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups. This will include a subset of patients with high levels of proteinuria (i.e., equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval. We believe that the trial design will allow assessment for either full or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.
The Phase 3 clinical program in patients with aHUS, in which patient enrollment
is ongoing, consists of one Phase 3 clinical trial - a single-arm (i.e., no
control arm), open-label trial in patients with newly diagnosed or ongoing aHUS.
This trial is targeting approximately 40 patients for full approval in
PDE7 - OMS527. In our phosphodiesterase 7 (PDE7) program, we are developing
proprietary compounds to treat addiction and compulsive disorders as well as
? movement disorders. In
Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed
to assess safety, tolerability and pharmacokinetics of our lead compound in
healthy subjects.
In the double blind, randomized Phase 1 study, the study drug, referred to as OMS182399, met the primary endpoints of safety and tolerability and showed a favorable and dose-proportional pharmacokinetic profile supporting once-daily dosing. There was no apparent food effect on plasma exposure to OMS182399. Our focus is nicotine addiction, and we are planning our Phase 2 development program.
Preclinical Development Programs and Platforms
Our preclinical programs and platforms include:
MASP-3 - OMS906 - Alternative Pathway Disorders. As part of our MASP program,
we have identified mannan-binding lectin-associated serine protease-3
("MASP-3"), which has been shown to be the key activator of the complement
? system's alternative pathway ("APC"), and we believe that we are the first to
make this and related discoveries associated with the APC. The complement
system is part of the immune system's innate response, and the APC is
considered the amplification loop within the complement system. MASP-3 is
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responsible for the conversion of pro-factor D to factor D; converted factor D
is necessary for the activation of the APC. Based on our alternative
pathway-related discoveries, we have expanded our intellectual property position
to protect our inventions stemming from these discoveries beyond
MASP-2-associated inhibition of the lectin pathway to include inhibition of the
alternative pathway. Our current primary focus in this program is developing
MASP-3 inhibitors for the treatment of disorders related to the APC. We believe
that MASP-3 inhibitors have the potential to treat patients suffering from a
wide range of diseases and conditions, including: paroxysmal nocturnal
hemoglobinuria ("PNH"); C3 glomerulopathy; multiple sclerosis; arthritis;
traumatic brain injury; neuromyelitis optica; pauci-immune necrotizing
crescentic glomerulonephritis; disseminated intravascular coagulation;
age-related macular degeneration; asthma; dense deposit disease; Bechet's
disease; aspiration pneumonia; TMA; ischemia-reperfusion injury; Guillain Barre
syndrome; Alzheimer's disease; amylotrophic lateral sclerosis; systemic lupus
erythematosus; diabetic retinopathy; uveitis; chronic obstructive pulmonary
disease; transplant rejection; acute respiratory distress syndrome;
antineutrophil cytoplasmic antibody-associated vasculitis; anti-phospholipid
syndrome; atherosclerosis; myasthenia gravis and others. Our OMS906 monoclonal
antibody program has generated positive data in a well-established animal model
associated with PNH, as well as strong pharmacodynamic activity in non-human
primates. The program has also generated positive data in a well-established
animal model of arthritis. In preparation for clinical trials, we have completed
the first-in-human-enabling toxicology studies, and the manufacturing scale-up
process is underway to support the remainder of the development program. We are
currently targeting PNH as the first clinical indication for OMS906 and plan to
submit a clinical trial application in the first half of 2020.
Other MASP Inhibitor Preclinical Programs. We have generated positive
preclinical data from MASP-2 inhibition in in vivo models of age-related
macular degeneration, myocardial infarction, diabetic neuropathy, stroke,
ischemia-reperfusion injury, and other diseases and disorders. We are also
? developing a longer-acting second generation antibody targeting MASP-2, which
we are targeting for initiation of clinical trials in 2022. This program is
designated as "OMS1029." Development efforts are also directed to a
small-molecule inhibitor of MASP-2 designed for oral administration, as well as
small-molecule inhibitors of MASP-3 and biospecific small- and large-molecule
inhibitors of MASP-2/-3.
GPR174 and GPCR Platform. We have developed a proprietary cellular
redistribution assay which we use in a high-throughput manner to identify
synthetic ligands, including antagonists, agonists and inverse agonists, that
bind to and affect the function of orphan GPCRs. We have screened Class A
orphan GPCRs against our small-molecule chemical libraries using the cellular
redistribution assay and have identified and confirmed compounds that interact
with 54 of the 81 Class A orphan GPCRs linked to a wide range of indications
including cancer as well as metabolic, cardiovascular, immunologic,
inflammatory and central nervous system disorders. One of our priorities in
this program is GPR174, which is involved in the modulation of the immune
system. In ex vivo human studies, our small-molecule inhibitors targeting
GPR174 upregulate the production of cytokines, block multiple checkpoints and
tumor promoters, and suppress regulatory T-cells. Based on our data, we believe
that GPR174 controls a major pathway in cancer and modulation of the receptor
? could provide a seminal advance in immuno-oncologic treatments for a wide range
of tumors. Our studies in mouse models of melanoma and colon carcinoma found
that GPR174-deficiency resulted in significantly reduced tumor growth and
improved survival of the animals versus normal mice. Our recent discoveries
suggest a new approach to cancer immunotherapy that targets inhibition of
GPR174 and can be combined with and significantly improve the tumor-killing
effects of adenosine pathway inhibitors. These discoveries include (1)
identification of cancer-immunity pathways controlled by GPR174, (2) the
identification of phosphatidylserine as a natural ligand for GPR174, (3) a
collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic
enhancement of "tumor-fighting" cytokine production by T cells following the
combined inhibition of both GPR174 and the adenosine pathway (e.g., A2A and/or
A2B), another key metabolic pathway that regulates tumor immunity. We continue
to focus on GPR174 and several other of our GPCR targets with the objective of
moving compounds targeting them into human trials.
Financial Summary
We recognized net losses of
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2020, we had
We expect our net losses will continue until such time as we derive sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing, product sales and other revenues from our product candidates, that are sufficient to cover our operating expenses and debt service obligations.
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*Fiscal quarters without pass-through reimbursement.
During the period from
Pass-through status for OMIDRIA is scheduled to expire on
Due to the ongoing impact of COVID-19 on OMIDRIA sales and the scheduled
expiration of pass-through status on
Results of Operations
Revenue
Our revenue consists of OMIDRIA product sales to ASCs and hospitals in theU.S. Our product sales, net during the three months endedMarch 31, 2020 and 2019 are as follows: Three Months Ended March 31, 2020 2019 (In thousands) Product sales, net$ 23,537 $ 21,779 -22- Table of Contents
During the three months ended
Gross-to-Net Deductions
We record OMIDRIA product sales net of estimated chargebacks, rebates,
distribution fees and product returns. These deductions are generally referred
to as gross-to-net deductions. Our total gross-to-net provision for the three
months ended
A summary of our gross-to-net related accruals for the three months ended
Distribution
Fees and
Product
Chargebacks Return
and Rebates Allowances Total
(In thousands)
Balance as of December 31, 2019 $ 10,240 $ 2,237 $ 12,477
Provisions 7,563 3,675 11,238
Payments (9,556) (1,266) (10,822)
Balance as of March 31, 2020 $ 8,247 $ 4,646 $ 12,893
Chargebacks and Rebates
We record a provision for estimated chargebacks and rebates at the time we recognize OMIDRIA product sales revenue and reduce the accrual when payments are made or credits are granted. Our chargebacks are related to a pharmaceutical pricing agreement, a federal supply schedule agreement, a 340B prime vendor agreement, a Medicaid drug rebate agreement and an off-invoice discount to our ASC and hospital customers. We also record a provision for our OMIDRIAssure® patient assistance and reimbursement services program and our rebates under our purchase volume-discount programs.
Distribution Fees and Product Return Allowances
We pay our wholesalers a distribution fee for services they perform for us based on the dollar value of their purchases of OMIDRIA. We record a provision for these charges as a reduction to revenue at the time of sale to the wholesaler and make payments to our wholesalers based on contractual terms.
We allow for the return of product up to 12 months past its expiration date, or
for product that is damaged or not used by our customers. We record a provision
for returns upon sale of OMIDRIA to our wholesaler. When a return or claim is
received, we issue a credit memo to the wholesaler against its outstanding
receivable to us or we reimburse the customer. For the three months ended
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that wholesalers, ASCs and hospitals may return a portion of their OMIDRIA on hand for a full refund of the purchase price. If a reserve is required, we would record the reserve during our third quarter of 2020.
Research and Development Expenses
Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development, preclinical research and development activities; internal, overhead and other expenses; and stock-based compensation expense. Direct external expenses consist primarily of expenses incurred pursuant to agreements with third-party manufacturing organizations prior to receiving regulatory approval for a product candidate, contract research organizations, clinical trial sites, collaborators, consultants, and licensors consultants. Costs are reported in preclinical research and development until the program enters the clinic. Internal, overhead and other expenses consist of personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs. We do not generally allocate our internal resources, employees and infrastructure to any individual research project because we deploy them across multiple clinical and preclinical projects that we are advancing in parallel.
The following table illustrates our expenses associated with these activities:
Three Months Ended
March 31,
2020 2019
(In thousands)
Direct external expenses:
Clinical research and development:
MASP-2 Program - OMS721 (narsoplimab) $ 13,215 $ 14,437
OMIDRIA - Ophthalmology 626 708
PDE7 - OMS527 1,337 576
Total clinical research and development 15,178 15,721 Preclinical research and development
3,515 1,516
Total direct external expenses 18,693 17,237
Internal, overhead and other expenses 8,771 7,524
Stock-based compensation expense 1,447 1,494
Total research and development expenses
Direct external expenses increased
The increases in internal, overhead and other expenses for the three months
ended
We expect the majority of our research and development expenses for the
remainder of 2020 will be related to our narsoplimab program. We expect research
and development costs to increase in 2020 as we incur incremental manufacturing
costs in preparation for the anticipated commercial launch of narsoplimab in
HSCT-TMA in the
At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our product candidates due to the inherently unpredictable nature of our preclinical and clinical development activities as well as the potential impacts of the COVID-19 pandemic. Clinical development timelines, the probability of success and development costs can differ materially as new data become available and as expectations change. Our future research and development expenses will depend, in part, on the preclinical or clinical success of each
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product candidate as well as ongoing assessments of each program's commercial potential. In addition, we cannot forecast with precision which product candidates, if any, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
We are required to expend substantial resources in the development of our product candidates due to the lengthy process of completing clinical trials and seeking regulatory approval. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses.
Selling, General and Administrative Expenses
Three Months Ended
March 31,
2020 2019
(In thousands)Selling, general and administrative expenses, excluding stock-based compensation expense
$ 16,007 $ 12,752 Stock-based compensation expense 2,029 1,880 Total selling, general and administrative expenses$ 18,036 $ 14,632
The increase in selling, general and administrative expenses during the
three months ended
We expect that our selling, general and administrative expenses will increase in the remaining quarters of 2020 compared to current levels, primarily due to increased pre-commercialization activities for narsoplimab.
Interest Expense
Three Months Ended
March 31,
2020 2019
(In thousands)
Interest expense $ 5,903 $ 5,600 Interest expense is comprised of interest related to our
Financial Condition - Liquidity and Capital Resources
As of
In the first quarter of 2020, our business operations and liquidity were negatively affected by the reduction in demand for OMIDRIA caused by restrictions on cataract surgeries implemented in response to the COVID-19 pandemic. The ongoing restrictions are expected to continue to negatively impact working capital in the second quarter and possibly in future periods, with the magnitude of the impact being dependent on the duration and extent of applicable limitations on the operations of our ASC and hospital customers.
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In early May, a large number of states began re-opening ASCs and hospitals to
cataract surgery, and we have had facilities in at least 36 states initiate
re-ordering of OMIDRIA from our wholesalers. However, we cannot yet predict with
certainty the levels of OMIDRIA product sales we will achieve. In addition,
pass-through reimbursement for OMIDRIA is currently scheduled to expire on
We plan to continue to fund our operations through proceeds from sales of OMIDRIA after the postponement of non-urgent ophthalmic surgical procedures, including cataract surgery, ends and, in addition, we may utilize funds available under our receivable-based line of credit to the extent it is available to us. Should it be necessary or determined to be strategically advantageous, we also could pursue debt financings, public and private offerings of our equity securities similar to those we have completed previously, and/or other strategic transactions, which may include licensing a portion of our existing technology. If these capital sources, for any reason, are needed but inaccessible, it would have a significantly negative effect on our financial condition. Should it be necessary to manage our operating expenses, we would reduce our projected cash requirements through reduction of our expenses by delaying clinical trials, reducing selected research and development efforts, and/or implementing other restructuring activities.
Cash Flow Data
Three Months Ended March 31,
2020 2019
(In thousands)
Selected cash flow data
Cash provided by (used in):
Operating activities $ (9,141) $ (12,948)
Investing activities $ 10,776 $ 11,287
Financing activities $ 2,399 $ (146)
Operating Activities. Net cash used in operating activities for the three months
ended
Investing Activities. Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the sale of short-term investments, thus causing a shift between our cash and cash equivalents and short-term investment balances. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not consider fluctuations in cash flows from investing activities to be important to the understanding of our liquidity and capital resources.
Net cash provided by investing activities during the three months ended
Financing Activities. Net cash provided by financing activities during the
three months ended
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Loan and Security Agreement. Our Loan and Security Agreement with
Contractual Obligations and Commitments
Our future minimum contractual commitments and obligations were reported in our
Annual Report on Form 10-K for the year ended
Goods and Services
We have certain non-cancelable obligations under various other agreements for
the acquisition of goods and services associated with the manufacturing of our
product candidates that contain firm commitments. As of
We may be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur. Therefore, such payments are not included in the amount above.
Lease Agreements
We lease our office and laboratory space in
Critical Accounting Policies and Significant Judgments and Estimates
There have not been any material changes in our critical accounting policies and
significant judgments and estimates as disclosed in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements.
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