UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
|
|
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
|
|
|
|
|
|
(Address of principal executive offices) |
(Zip Code) |
|
( (Registrant’s telephone number, including area code) |
|
|
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: |
||
|
(Title of each class) |
(Trading symbol) |
(Name of each exchange on which registered) |
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
☒ |
|
Smaller reporting company |
|
|
|
Emerging growth company |
|
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 1, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are subject to the “safe harbor” created by those sections for such statements. Forward-looking statements are based on our management’s beliefs and assumptions and on currently available information. All statements other than statements of historical fact are “forward-looking statements.” Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and similar expressions and variations thereof are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying such statements. Examples of these statements include, but are not limited to, statements regarding:
● our estimates of future operating expenses and projections regarding how long our existing cash, cash equivalents and short-term investments will fund our anticipated operating expenses, capital expenditures and debt service obligations;
● our ability to raise additional capital through the capital markets or one or more future equity offerings, debt financings, industry collaborations, licensing arrangements, asset sales or other means;
● our ability to comply with the terms of our secured credit facility and our expectations regarding the effect on our operations of compliance with the restrictive covenants and other obligations applicable under our secured credit facility;
● our expectations regarding amounts potentially payable to us based on sales of our former commercial ophthalmology product OMIDRIA®;
● our expectations regarding clinical plans and anticipated or potential paths to regulatory approval of narsoplimab by the U.S. Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) in hematopoietic stem cell transplant-associated thrombotic microangiopathy (“TA-TMA”), COVID-19 or any other indication;
● whether and when our biologics license application (“BLA”) for narsoplimab in TA-TMA may be resubmitted to FDA, whether and when a marketing authorization application (“MAA”) may be submitted to the EMA for narsoplimab in any indication, and whether and when FDA, the EMA or any other regulatory authority will grant approval for narsoplimab in any indication;
● our plans for the commercial launch of narsoplimab following any regulatory approval and our estimates and expectations regarding coverage and reimbursement for any approved products;
● our expectation that our contract manufacturer will manufacture narsoplimab when needed to support any regulatory filing and, if approved, to support commercial sale;
● our expectations regarding the clinical, therapeutic and competitive benefits and importance of our drug candidates, including narsoplimab and zaltenibart;
● our ability to design, initiate and/or successfully complete clinical trials and other studies for our drug candidates and our plans and expectations regarding our ongoing or planned clinical trials;
● our expectations regarding: our ability to recruit and enroll patients in any ongoing or planned clinical trial; whether we can capitalize on the financial and regulatory incentives provided by orphan drug designations granted by FDA, the European Commission (“EC”), or the EMA; and whether we can utilize the opportunities for expedited development and review that may be provided by fast-track or breakthrough therapy designations granted by FDA;
● our expectations about the commercial competition that our drug candidates, if commercialized, face or may face;
● our involvement in existing or potential claims, legal proceedings and administrative actions, and the merits, potential outcomes and effects of both existing and potential claims, legal proceedings and administrative actions, as well as regulatory determinations, on our business, prospects, financial condition and results of operations;
● the extent of protection that our patents provide and that our pending patent applications will provide, if patents are issued from such applications, for our technologies, programs, and drug candidates;
● the factors on which we base our estimates for accounting purposes and our expectations regarding the effect of changes in accounting guidance or standards on our operating results; and
● our expected financial position, performance, revenues, growth, costs and expenses, magnitude of net losses and the availability of resources.
Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks, uncertainties and other factors described in this Quarterly Report on Form 10-Q under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”). Given these risks, uncertainties and other factors, actual results or anticipated developments may not be realized or, even if substantially realized, may not have the expected consequences to or effects on our company, business or operations. Accordingly, you should not place undue reliance on these forward-looking statements, which represent our estimates and assumptions only as of the date of the filing of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual results in subsequent periods may differ materially from current expectations. Except as required by applicable law, we assume no obligation to update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
OMEROS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED June 30, 2024
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(unaudited)
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
Assets |
|
|
||||||
|
Current assets: |
|
|
||||||
|
Cash and cash equivalents |
$ | $ | ||||||
|
Short-term investments |
||||||||
|
OMIDRIA contract royalty asset, current |
||||||||
|
Receivables |
||||||||
|
Prepaid expense and other assets |
||||||||
|
Total current assets |
||||||||
|
OMIDRIA contract royalty asset, non-current |
||||||||
|
Right of use assets |
||||||||
|
Property and equipment, net |
||||||||
|
Restricted investments |
||||||||
|
Total assets |
$ | $ | ||||||
|
|
|
|
||||||
|
Liabilities and shareholders’ equity (deficit) |
||||||||
|
Current liabilities: |
||||||||
|
Accounts payable |
$ | $ | ||||||
|
Accrued expenses |
||||||||
|
OMIDRIA royalty obligation, current |
||||||||
|
Lease liabilities, current |
||||||||
|
Total current liabilities |
||||||||
|
Convertible senior notes, net |
||||||||
|
Long-term debt, net |
||||||||
|
OMIDRIA royalty obligation, non-current |
||||||||
|
Lease liabilities, non-current |
||||||||
|
Other accrued liabilities, non-current |
||||||||
|
Commitments and contingencies (Note 10) |
|
|
||||||
|
Shareholders’ equity (deficit): |
||||||||
|
Preferred stock, par value $ |
||||||||
|
Common stock, par value $ |
||||||||
|
Additional paid-in capital |
||||||||
|
Accumulated deficit |
( |
) | ( |
) | ||||
|
Total shareholders’ deficit |
( |
) | ( |
) | ||||
|
Total liabilities and shareholders’ equity (deficit) |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(unaudited)
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
|
|
|
|
||||||||||||
|
Costs and expenses: |
|
|
||||||||||||||
|
Research and development |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Total costs and expenses |
||||||||||||||||
|
Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Interest and other income |
||||||||||||||||
|
Net loss from continuing operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Net income from discontinued operations, net of tax |
||||||||||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
||||||||||||
|
Basic and diluted net income (loss) per share: |
|
|
|
|
||||||||||||
|
Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
Net income from discontinued operations |
||||||||||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
||||||||||||
|
Weighted-average shares used to compute basic and diluted net income (loss) per share |
||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(unaudited)
|
Additional |
||||||||||||||||||||
|
Common Stock |
Paid-In |
Accumulated |
||||||||||||||||||
|
Shares |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||
|
Balance at January 1, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
|
Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
|
Repurchases of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
|
Stock-based compensation expense |
— | |||||||||||||||||||
|
Net loss |
— | ( |
) | ( |
) | |||||||||||||||
|
Balance at March 31, 2024 |
( |
) | ( |
) | ||||||||||||||||
|
Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
|
Stock-based compensation expense |
— | |||||||||||||||||||
|
Net loss |
— | ( |
) | ( |
) | |||||||||||||||
|
Balance at June 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
|
Balance at January 1, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
|
Stock-based compensation expense |
— | |||||||||||||||||||
|
Net loss |
— | ( |
) | ( |
) | |||||||||||||||
|
Balance at March 31, 2023 |
( |
) | ||||||||||||||||||
|
Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
|
Stock-based compensation expense |
— | |||||||||||||||||||
|
Net loss |
— | ( |
) | ( |
) | |||||||||||||||
|
Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
|
Six Months Ended June 30, |
|||||||
|
|
2024 |
2023 |
||||||
|
Operating activities: |
|
|
||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|||||||
|
Stock-based compensation expense |
||||||||
|
Non-cash interest earned on royalty obligation |
||||||||
|
Amortization of discount and issuance costs on convertible notes |
||||||||
|
Depreciation and amortization |
||||||||
|
Amortization of non-cash interest and issuance costs on long-term debt |
||||||||
|
Non-cash interest earned on OMIDRIA contract royalty asset |
( |
) | ( |
) | ||||
|
Remeasurement of OMIDRIA contract royalty asset |
( |
) | ( |
) | ||||
|
Accretion on U.S. government treasury bills, net |
( |
) | ( |
) | ||||
|
Changes in operating assets and liabilities: |
|
|||||||
|
OMIDRIA contract royalty asset |
||||||||
|
Prepaid expenses and other |
( |
) | ||||||
|
Receivables |
||||||||
|
Accounts payable and accrued expense |
( |
) | ||||||
|
Net cash provided by (used in) operating activities |
( |
) | ||||||
|
Investing activities: |
||||||||
|
Purchases of investments |
( |
) | ( |
) | ||||
|
Proceeds from the sale and maturities of investments |
||||||||
|
Purchases of property and equipment |
( |
) | ( |
) | ||||
|
Net cash provided by (used in) investing activities |
( |
) | ||||||
|
Financing activities: |
||||||||
|
Proceeds from sale of future royalties |
||||||||
|
Proceeds upon exercise of stock options |
||||||||
|
Cash paid to repurchase 2026 convertible senior notes |
( |
) | ||||||
|
Repurchases of common stock |
( |
) | ||||||
|
Principal payments on OMIDRIA royalty obligation |
( |
) | ( |
) | ||||
|
Principal payments on finance lease obligations |
( |
) | ( |
) | ||||
|
Net cash provided by (used in) financing activities |
( |
) | ||||||
|
Net increase in cash and cash equivalents |
( |
) | ( |
) | ||||
|
Cash and cash equivalents at beginning of period |
||||||||
|
Cash and cash equivalents at end of period |
$ | $ | ||||||
|
|
|
|
||||||
|
Supplemental cash flow information |
||||||||
|
Cash paid for interest |
$ | $ | ||||||
|
Cash paid (received) for income taxes, net |
$ | ( |
$ | |||||
|
Equipment acquired under finance lease |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Basis of Presentation
General
Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, as well as cancers and addictive and compulsive disorders.
Our clinical-stage development programs include: narsoplimab, our antibody targeting mannan-binding lectin-associated serine protease 2 (“MASP-2”), the effector enzyme of the lectin pathway of complement; OMS1029, our long-acting antibody targeting MASP-2; zaltenibart, also known as OMS906, our antibody targeting mannan-binding lectin-associated serine protease-3 (“MASP-3”), the key activator of the alternative pathway of complement; and OMS527, our phosphodiesterase 7 (“PDE7”) inhibitor program.
Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“TA-TMA”). We successfully completed a pivotal clinical trial for narsoplimab in TA-TMA and previously submitted to FDA a biologics license application (“BLA”) seeking marketing approval for narsoplimab in this indication. In late 2021, FDA issued a complete response letter (“CRL”) with respect to the BLA in which the agency indicated that additional information would be needed to support regulatory approval. We appealed FDA’s decision to issue the CRL through a formal dispute resolution process that concluded in late 2022. Although our appeal was denied, the decision identified potential paths for resubmission of the BLA based on data from our completed pivotal trial and submission of additional evidence and analyses. We are having ongoing discussions with the agency regarding the data and analyses required to be included in a potential resubmission of our BLA. As a result, we are currently unable to estimate when we will submit the BLA or, subsequently, FDA’s timing for a decision regarding approval. There can be no guarantee that FDA's specific recommendations for resubmission will be acceptable to us in terms of the time and/or expenditure required or that any resubmission of the BLA will result in approval of narsoplimab for TA-TMA.
Our lectin pathway program also includes OMS1029, our long-acting antibody targeting MASP-2. We have completed Phase 1 clinical trials evaluating both single-ascending and multiple ascending doses of OMS1029. Results of these studies support once-quarterly dosing administered either intravenously or subcutaneously. OMS1029 has been well tolerated to date with no safety concerns identified. We are evaluating several potential indications for Phase 2 clinical development of OMS1029.
Our pipeline of clinical-stage complement-targeted therapeutic candidates also includes zaltenibart (also known as OMS906), a proprietary, patented monoclonal antibody targeting MASP-3, the key activator of the alternative pathway of complement. We have three ongoing Phase 2 clinical trials evaluating zaltenibart for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”). The first is in PNH patients who have not previously been treated with a complement inhibitor, and the second is in PNH patients who have had an unsatisfactory response to the C5 inhibitor ravulizumab. The third Phase 2 clinical trial is an open-label extension study to assess the long-term efficacy and safety of zaltenibart in patients who have completed either of the other two PNH Phase 2 clinical trials. We also have an ongoing Phase 2 clinical program evaluating zaltenibart for the treatment of C3G, a rare and debilitating renal disease driven by complement dysregulation.
Our phosphodiesterase 7 (“PDE7”) inhibitor program, which we refer to as OMS527, comprises multiple PDE7 inhibitor compounds and is based on our discoveries of previously unknown links between PDE7 and any addiction or compulsive disorder, and between PDE7 and any movement disorders. In April 2023, we were awarded a grant from the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, to develop, at NIDA’s request, our lead orally administered PDE7 inhibitor compound, for which we have successfully completed a Phase 1 study, for the treatment of cocaine use disorder (“CUD”). NIDA awarded the grant to us for a total of $
We also have various programs in preclinical research and development.
OMIDRIA Sale and Royalty Monetization Transactions
On December 23, 2021, we closed an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc. (“Rayner”) for the sale of our commercial product OMIDRIA and certain related assets including inventory and prepaid expenses. As a result of the divestiture, the results of OMIDRIA activities are classified as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented (See “Note 7 — Discontinued Operations – Sale of OMIDRIA”).
On September 30, 2022, we sold an interest in a portion of our future OMIDRIA royalty receipts to DRI Healthcare Acquisition LP (“DRI”) and received $
On February 1, 2024, we sold an expanded interest in our OMIDRIA royalties to DRI and received $
Term Loan and Repurchase of 2026 Notes
On June 3, 2024, we, with certain subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with funds managed by Athyrium Capital Management LP (collectively, “Athyrium”) and funds managed by Highbridge Capital Management, LLC (collectively, “Highbridge”) as lenders (the “Lenders”). The Credit Agreement provides for a senior secured term loan facility of up to $
Also on June 3, 2024, we used the Initial Term Loan along with $
Basis of Presentation
Our condensed consolidated financial statements include the financial position and results of operations of Omeros and our wholly owned subsidiaries. All inter-company transactions have been eliminated. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and non-recurring adjustments, considered necessary for the fair presentation of such information. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, from which the December 31, 2023, condensed consolidated balance sheet has been derived.
Liquidity and Capital Resources
As of June 30, 2024, we had cash, cash equivalents and short-term investments of $
Historically, we have incurred net losses from continuing operations and negative operating cash flows. We have not yet established an ongoing source of revenue sufficient to cover our operating costs; therefore, we potentially need to continue to raise additional capital to accomplish our business plan. We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $
We may pursue additional debt financings to retire the 2026 Notes that remain outstanding and to fund operations. Should it be determined to be strategically advantageous, we could pursue public and private offerings of our equity securities, or other strategic transactions, which may include licensing or selling a portion or all of one or more of our existing technologies. However, pursuing debt financings, certain equity offerings or other strategic transactions may result in mandatory prepayments of the Initial Term Loan to the Credit Agreement. (See “Note 6 — Debt” for further details). We expect to continue to fund our operations and service our debt for at least the next twelve months with our existing cash and investments. We plan to manage our operating expenses and reduce our cash requirements by reducing or delaying selected research and development efforts and by managing operating expenses.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include the OMIDRIA contract royalty asset valuation, the OMIDRIA royalty obligation valuation, stock-based compensation expense, and accruals for clinical trials and manufacturing of drug product. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.
Note 2—Significant Accounting Policies
Segment Reporting
We operate in business segment and focus on the research, discovery, development and commercialization of small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic disorders including complement-mediated diseases, as well as cancers and addictive and compulsive disorders.
Discontinued Operations
We review the presentation of planned or completed business dispositions in the condensed consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business and, if so, whether it is anticipated that, after the disposal, the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results.
Planned or completed business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the condensed consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the condensed consolidated statements of operations and comprehensive income (loss). Results of discontinued operations include all revenues and expenses directly derived from such businesses. General corporate overhead is not allocated to discontinued operations. The OMIDRIA asset sale to Rayner qualifies as a discontinued operation and has been presented as such for all reporting periods presented.
OMIDRIA Royalties, Milestones and Contract Royalty Assets
We have rights to receive future royalties from Rayner on OMIDRIA net sales at royalty rates that vary based on geography and certain regulatory contingencies. Therefore, future OMIDRIA royalties are treated as variable consideration. The sale of OMIDRIA qualified as an asset sale under GAAP. To measure the OMIDRIA contract royalty asset, we use the expected value approach which is the sum of the discounted probability-weighted royalty payments we would receive using a range of potential outcomes, to the extent that it is probable that a significant reversal in the amount of cumulative income recognized will not occur. The royalty rate applicable to U.S. net sales of OMIDRIA is
OMIDRIA Royalty Obligation
On September 30, 2022, we sold to DRI an interest in a portion of our future OMIDRIA royalty receipts for a purchase price of $
To the extent our estimates of future royalties differ materially from previous estimates, we will adjust the carrying amount of the liability for future OMIDRIA royalties to the present value of the revised estimated cash flows, discounted at the implied effective interest rate of
Repurchase of 2026 Notes
We performed an assessment of the Credit Agreement and 2026 Note Repurchase Transaction we entered into on June 3, 2024 and determined that it met the criteria to be accounted for as a troubled debt restructuring. As a result, the $
Inventory
We expense inventory costs related to product candidates as research and development expenses until regulatory approval is reasonably assured in the U.S. or the European Union (“EU”). Once approval is reasonably assured, costs, including amounts related to third-party manufacturing, transportation and internal labor and overhead, will be capitalized.
Right-of-Use Assets and Related Lease Liabilities
We record operating leases as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available. We recognize variable lease payments when incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
We record finance lease obligations as a component of property and equipment and amortize these assets within operating expenses on a straight-line basis to their residual values over the shorter of the term of the underlying lease or the estimated useful life of the equipment. The interest component of finance lease obligations is included in interest expense and recognized using the effective interest method over the lease term.
We account for leases with initial terms of 12 months or less as an operating expense.
Stock-Based Compensation
Stock-based compensation expense is recognized for all share-based payments, including grants of stock option awards based on estimated fair values. The fair value of our stock is calculated using the Black-Scholes option-pricing model, which requires judgmental assumptions around volatility, risk-free rates, forfeiture rates and expected term. Compensation expense is recognized over the requisite service periods, which is generally the vesting period, using the straight-line method. Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.
Common Stock Repurchases
Historically, we have repurchased shares of our common stock from time to time under authorization made by our Board of Directors. Under Washington State law, repurchased shares are retired and not presented as treasury stock on the condensed consolidated financial statements. The terms of the Credit Agreement prohibit us from repurchasing our common stock, unless expressly agreed to by the Lenders. Consequently, the Board of Directors terminated the share repurchase program effective upon execution of the Credit Agreement.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized.
Financial Instruments and Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. Cash and cash equivalents are deposited in checking and sweep accounts at financial institutions. At times, our cash and cash equivalents balance held at a financial institution may exceed the federally insured limits. To limit the credit risk, we invest our excess cash in high-quality securities such as money market mutual funds, certificates of deposit and U.S. treasury bills. The Company has not experienced any losses on its deposits of cash and cash equivalents. Management believes that the Company is not currently exposed to significant credit risk as the Company’s short-term investments are held in custody at third-party financial institutions. The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments, and issuers of the investments to the extent recorded on the unaudited condensed consolidated balance sheets. As of June 30, 2024, the Company has no off-balance sheet concentrations of credit risk.
Note 3—Net Loss Per Share
Basic net income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share (“Diluted EPS”) is computed by dividing net income by the weighted average number of common shares and potentially dilutive common shares outstanding during the period using the treasury stock method. We do not compute Diluted EPS for periods in which we have overall net income and a net loss from continuing operations.
Potentially dilutive securities are as follows:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
2026 Notes convertible to common stock (1)(2) |
||||||||||||||||
|
2023 Notes convertible to common stock (3) |
||||||||||||||||
|
Outstanding options to purchase common stock |
||||||||||||||||
|
Outstanding restricted stock units(4) |
||||||||||||||||
|
Total potentially dilutive shares excluded from net loss per share |
||||||||||||||||
|
(1) |
|
|
|
(2) |
|
|
|
(3) |
|
|
|
(4) |
|
Note 4—Investments and Fair-Value Measurements
All of our investments are held in our name and are classified as short-term and held-to-maturity on the accompanying condensed consolidated balance sheets. Interest income is included as a component of other income on our condensed consolidated statement of operations and comprehensive loss. Interest and other income for the three months ended June 30, 2024 and June 30, 2023 consists primarily of interest earned of $
The following tables summarize our investments:
|
|
June 30, 2024 |
|||||||||||
|
|
Gross Unrealized |
|||||||||||
|
Amortized Cost |
Gains/(Losses) |
Estimated Fair Value |
||||||||||
|
|
(In thousands) |
|||||||||||
|
|
|
|
|
|||||||||
|
U.S. government securities classified as short-term investments |
$ | $ | ( |
) | $ | |||||||
|
Money-market funds classified as short-term investments |
||||||||||||
|
Total short-term investments |
( |
) | ||||||||||
|
Certificate of deposit classified as non-current restricted investments |
— | |||||||||||
|
Total investments |
$ | $ | ( |
) | $ | |||||||
|
|
December 31, 2023 |
|||||||||||
|
|
Gross Unrealized |
|||||||||||
|
Amortized Cost |
Gains/(Losses) |
Estimated Fair Value |
||||||||||
|
|
(In thousands) |
|||||||||||
|
|
|
|
|
|||||||||
|
U.S. government securities classified as short-term investments |
$ | $ | $ | |||||||||
|
Money-market funds classified as short-term investments |
||||||||||||
|
Total short-term investments |
||||||||||||
|
Certificate of deposit classified as non-current restricted investments |
— | |||||||||||
|
Total investments |
$ | $ | $ | |||||||||
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Our fair value hierarchy for our financial assets and liabilities are as follows:
|
|
June 30, 2024 |
|||||||||||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Assets: |
|
|
|
|
||||||||||||
|
U.S. government securities classified as short-term investments |
$ | $ | $ | $ | ||||||||||||
|
Money-market funds classified as short-term investments |
||||||||||||||||
|
Total short-term investments |
||||||||||||||||
|
Certificate of deposit classified as non-current restricted investments |
||||||||||||||||
|
Total investments |
$ | $ | $ | $ | ||||||||||||
|
|
December 31, 2023 |
|||||||||||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Assets: |
|
|
|
|
||||||||||||
|
U.S. government securities classified as short-term investments |
$ | $ | $ | $ | ||||||||||||
|
Money-market funds classified as short-term investments |
||||||||||||||||
|
Total short-term investments |
||||||||||||||||
|
Certificate of deposit classified as non-current restricted investments |
||||||||||||||||
|
Total investments |
$ | $ | $ | $ | ||||||||||||
Cash held in demand deposit accounts of $
See “Note 6 — Debt” and “Note 8 — OMIDRIA Royalty Obligation” for the carrying amount and estimated fair value of our outstanding term loan, convertible senior notes and the OMIDRIA royalty obligation.
Note 5 — Certain Balance Sheet Accounts
OMIDRIA Contract Royalty Asset
The OMIDRIA contract royalty asset consists of the following:
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Short-term contract royalty asset |
$ | $ | ||||||
|
Long-term contract royalty asset |
||||||||
|
Total OMIDRIA contract royalty asset |
$ | $ | ||||||
See “Note 7 — Discontinued Operations – Sale of OMIDRIA” for discussion regarding the estimated fair value of our OMIDRIA contract royalty asset.
Receivables
Receivables consist of the following:
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
OMIDRIA royalty receivables |
$ | $ | ||||||
|
Other receivables |
||||||||
|
Total receivables |
$ | $ | ||||||
Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Equipment under finance lease obligations |
$ | $ | ||||||
|
Laboratory equipment |
||||||||
|
Computer equipment |
||||||||
|
Office equipment and furniture |
||||||||
|
Total cost |
||||||||
|
Less accumulated depreciation and amortization |
( |
) | ( |
) | ||||
|
Total property and equipment, net |
$ | $ | ||||||
For the three months ended June 30, 2024 and 2023, depreciation and amortization expense was $
Accrued Expenses
Accrued expenses consists of the following:
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Clinical trials |
$ | $ | ||||||
|
Contract research and development |
$ | |||||||
|
Employee compensation |
||||||||
|
Consulting and professional fees |
||||||||
|
Interest payable |
||||||||
|
Other accrued expenses |
||||||||
|
Total accrued expenses |
$ | $ | ||||||
Note 6—Debt
2024 Secured Term Loan
On June 3, 2024, we entered into a Credit Agreement with the Lenders, which provides for a term loan credit facility of up to $
In connection with our entry into the Credit Agreement, we used the Initial Term Loan along with $
The amount outstanding on the Initial Term Loan is as follows:
|
|
June 30, |
|||
|
|
2024 |
|||
|
|
(In thousands) |
|||
|
Principal amount |
$ | |||
|
Unamortized debt premium, net of issuance costs |
||||
|
Total long-term debt |
$ | |||
The Loans have a stated maturity date of June 3, 2028 and bear interest at an adjusted (“adjusted SOFR”), subject to a
The following table sets forth interest expense recognized related to the Initial Term Loan:
|
|
Three Months Ended |
|||
|
|
June 30, |
|||
|
|
2024 |
|||
|
|
(In thousands) |
|||
|
Contractual interest expense |
$ | |||
|
Amortization of premium and debt issuance costs |
( |
) | ||
|
Total interest expense |
$ | |||
We may elect to prepay the Loans, in whole or in part, in cash, plus an applicable prepayment and/or make-whole premium. Under certain circumstances, we are required to prepay all or a portion of the outstanding Loans, plus an applicable prepayment and/or make-whole premium, as described below.
(1) If, on November 1, 2025, (i) the aggregate outstanding principal amount of the outstanding 2026 Notes that is not held by the Lenders equals or exceeds $
(2) Upon the occurrence of a change in control, we must prepay the entire outstanding amount of the Loans, plus the applicable make-whole or prepayment premium.
(3) We must prepay the Loans in an amount equal to: (i) 25.0% of any milestone payments received from DRI or its affiliates on the basis of net sales of OMIDRIA; (ii) 60.0% of the net cash proceeds (excluding transaction expenses and certain milestone payments) received by Omeros from the sale or license of our assets (or in the case of an asset sale or license involving narsoplimab that occurs while any Delayed Draw Term Loan is outstanding, an amount equal to 100% of the net cash proceeds from such transaction); (iii) 100.0% of net cash proceeds of indebtedness incurred by the Company other than as permitted by the Credit Agreement and (iv) 100% of the net cash proceeds of insurance recoveries on loss of property, except to the extent utilized to repair or replace the relevant assets within a specified time.
Voluntary and mandatory prepayments of the Loans are subject to payment of the following premiums: (i) during the first year of such Loans, a make-whole premium plus
The Credit Agreement contains certain customary default provisions, representation and warranties and affirmative and negative covenants. These include a covenant requiring us to maintain at all times unrestricted cash and cash equivalents of at least $
The fair value of the Loans is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. As of June 30, 2024, the approximate fair value of our Loan obligations was $
2023 Unsecured Convertible Senior Notes
We extinguished the $
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
(In thousands) |
||||||||||||||
|
Contractual interest expense |
$ | $ | $ | $ | ||||||||||||
|
Amortization of debt issuance costs |
||||||||||||||||
|
Total interest expense |
$ | $ | $ | $ | ||||||||||||
2026 Unsecured Convertible Senior Notes
We have outstanding unsecured convertible senior notes which accrue interest at an annual rate of
Amounts outstanding on our 2026 Notes are as follows:
|
|
June 30, |
December 31, |
||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Principal amount |
$ | $ | ||||||
|
Unamortized debt issuance costs |
( |
) | ( |
) | ||||
|
Total unsecured convertible senior notes, net |
$ | $ | ||||||
|
|
|
|||||||
|
Fair value of outstanding unsecured convertible senior notes (1) |
$ | $ | ||||||
|
(1) |
|
Unamortized debt issuance costs of $
The following table sets forth interest expense recognized related to the 2026 Notes:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
(In thousands) |
||||||||||||||
|
Contractual interest expense |
$ | $ | $ | $ | ||||||||||||
|
Amortization of debt issuance costs |
||||||||||||||||
|
Total interest expense |
$ | $ | $ | $ | ||||||||||||
The initial conversion rate is
The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026, the second scheduled trading day immediately before the stated maturity date of February 15, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:
(1) during any calendar quarter, the last reported sale price per share of our common stock exceeds
(2) during the five consecutive business days immediately after any five-consecutive-trading-day period (such five-consecutive-trading-day period, the “measurement period”) in which the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than
(3) there is an occurrence of one or more certain corporate events or distributions of our common stock; or
(4) we call the 2026 Notes for redemption.
We will settle any conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate(s).
Subject to the satisfaction of certain conditions, we may redeem in whole or in part the 2026 Notes at our option through the 50th scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. The 2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds
In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions in connection with the issuances of the 2026 Notes (the “2026 Capped Call”). The 2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes, the number of shares of common stock underlying the 2026 Notes when our common stock is trading within the range of approximately $
Further, we concluded the 2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet. Consequently, the fair value of the 2026 Capped Call of $
Minimum Commitments
As of June 30, 2024, the most probable principal payments on our 2026 Notes and Term Loan are as follows.
|
2026 Notes |
Term Loan |
Total |
||||||||||
|
(In thousands) |
||||||||||||
| 2025 | $ | $ | $ | |||||||||
|
2026 |
||||||||||||
|
2027 |
||||||||||||
|
2028 |
||||||||||||
|
2029 and thereafter |
||||||||||||
|
Total principal payments |
$ | $ | $ | |||||||||
|
Unamortized premiums, discounts and issuance costs |
( |
) | ||||||||||
|
Carrying value of debt |
$ | $ | $ | |||||||||
Note 7—Discontinued Operations - Sale of OMIDRIA
On December 23, 2021, we sold the rights to OMIDRIA and related assets to Rayner, which is reported as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented.
In December 2022, we earned a $
Net income from discontinued operations is as follows:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Interest earned on OMIDRIA contract royalty asset |
$ | $ | $ | $ | ||||||||||||
|
Remeasurement adjustments |
||||||||||||||||
|
Other income, net |
||||||||||||||||
|
Net income from discontinued operations, net of tax |
$ | $ | $ | $ | ||||||||||||
The following is a roll forward of the OMIDRIA contract royalty asset (in thousands):
|
OMIDRIA contract royalty asset at December 31, 2023 |
$ | |||
|
Royalties earned |
( |
) | ||
|
Interest earned on OMIDRIA contract royalty asset |
||||
|
Remeasurement adjustments |
||||
|
OMIDRIA contract royalty asset at June 30, 2024 |
$ |
We remeasure the OMIDRIA contract royalty asset on a quarterly basis using the expected value approach, which incorporates actual results and future expectations.
Cash flow from discontinued operations is as follows:
|
|
Six Months Ended |
|||||||
|
|
June 30, |
|||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Net cash provided by discontinued operations from operating activities |
$ | $ | ||||||
Net cash provided by discontinued operations primarily represents royalties received and the $
Note 8—OMIDRIA Royalty Obligation
In September 2022, we sold to DRI an interest in our future OMIDRIA royalty receipts and received $
In February 2024, Omeros and DRI expanded their royalty purchase agreement under the DRI Amendment, resulting in Omeros receiving an additional $
We retain the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable after January 1, 2024, as well as royalties on global net sales of OMIDRIA payable from and after December 31, 2031. To date, international royalties have not been significant. DRI has no recourse to our assets other than its interest in OMIDRIA royalties.
We are also entitled to receive a milestone ranging between $
The following schedule is a roll forward of the OMIDRIA royalty obligation (in thousands):
|
OMIDRIA royalty obligation at December 31, 2023 |
$ | |||
|
Additional proceeds |
||||
|
Non-cash interest |
||||
|
Principal payments |
( |
) | ||
|
OMIDRIA royalty obligation at June 30, 2024 |
$ |
We account for the OMIDRIA royalty obligation under the catch-up method. The catch-up method requires that we adjust the carrying amount to match the present value of revised estimated cash flows of Rayner’s U.S. net sales of OMIDRIA. We discounted the OMIDRIA royalty obligation at an implied effective interest rate of
The OMIDRIA royalty obligation is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. As of June 30, 2024, the approximate fair value of our obligation was $
For the three months ended June 30, 2024 and 2023, we incurred interest expense of $
As of June 30, 2024, future expected principal and interest payments are as follows:
|
|
|
|
||||||||||
|
|
Principal |
Interest |
Total |
|||||||||
|
|
(In thousands) |
|||||||||||
|
2024 |
$ | $ | $ | |||||||||
|
2025 |
||||||||||||
|
2026 |
||||||||||||
|
2027 |
||||||||||||
|
2028 |
||||||||||||
|
Thereafter |
||||||||||||
|
Total scheduled payments |
$ | $ | $ | |||||||||
Note 9—Leases
We have an operating lease for our office and laboratory facilities with an initial term that ends in November 2027 and options to extend the lease term by an additional years each. Restricted investments of $
Supplemental lease information is as follows:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Lease cost |
||||||||||||||||
|
Operating lease cost |
$ | $ | $ | $ | ||||||||||||
|
Finance lease cost: |
|
|
||||||||||||||
|
Amortization |
||||||||||||||||
|
Interest |
||||||||||||||||
|
Variable lease cost |
||||||||||||||||
|
Sublease income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Net lease cost |
$ | $ | $ | $ | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities is as follows:
|
|
Six Months Ended |
|||||||
|
|
June 30, |
|||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
||||||
|
Cash payments for operating leases |
$ | $ | ||||||
|
Cash payments for financing leases |
$ | $ | ||||||
Note 10—Commitments and Contingencies
Good and Service Contracts
We have various agreements with third parties that collectively require payment of termination fees totaling $
Development Milestones and Product Royalties
We have entered a variety of development, collaboration, licensing or similar agreements with third parties under which we have accessed technology or services in connection with our development assets and programs. Some of these agreements require milestone payments based on achievements of development, regulatory or sales milestones, and/or low-single to low-double digit royalties on net income or net sales of the relevant product. For the three and six months ended June 30, 2024 and 2023, development milestone expenses were not significant.
Note 11—Shareholders’ Equity (Deficit)
Common Stock
At the Market Sales Agreement - We have a sales agreement to sell shares of our common stock having an aggregate offering price of up to $
Share Repurchase Program - On November 9, 2023, the Board of Directors approved an indefinite term share repurchase program under which we were authorized to repurchase from time to time up to $
Note 12—Stock-Based Compensation
Our stock option plans provide for the grant of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and other stock awards to employees, non-employee directors and consultants.
Stock-based compensation is as follows:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
(In thousands) |
||||||||||||||
|
Continuing operations |
|
|
|
|
||||||||||||
|
Research and development |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Total stock-based compensation in continuing operations |
||||||||||||||||
|
Discontinued operations |
( |
) | ( |
) | ||||||||||||
|
Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were applied to all stock option grants:
|
|
Three Months Ended |
Six Months Ended |
||||||
|
|
June 30, 2024 |
June 30, 2024 |
||||||
|
Estimated weighted-average fair value |
$ | $ | ||||||
|
Weighted-average assumptions: |
|
|
||||||
|
Expected volatility |
% | % | ||||||
|
Expected life, in years |
||||||||
|
Risk-free interest rate |
% | % | ||||||
|
Expected dividend yield |
% | % | ||||||
Expected volatility is based on the historical volatility of our stock price weighted by grant issuances over the reporting period. We estimated the expected life of the stock options granted using the historical exercise behavior of option holders. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Forfeiture expense is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.
Stock option activity for all stock plans and related information is as follows:
|
|
|
Weighted- |
|
|
||||||||||||
|
|
|
Average |
|
Aggregate |
||||||||||||
|
|
|
Exercise |
Remaining |
Intrinsic |
||||||||||||
|
|
Options |
Price per |
Contractual Life |
Value |
||||||||||||
|
|
Outstanding |
Share |
(In years) |
(In thousands) |
||||||||||||
|
Balance at December 31, 2023 |
$ | |||||||||||||||
|
Granted |
||||||||||||||||
|
Exercised |
( |
) | ||||||||||||||
|
Forfeited |
( |
) | ||||||||||||||
|
Balance at June 30, 2024 |
$ | $ | ||||||||||||||
|
Vested and expected to vest at June 30, 2024 |
$ | $ | ||||||||||||||
|
Exercisable at June 30, 2024 |
$ | $ | ||||||||||||||
On April 25, 2024, annual stock option grants of approximately
Of the
As of June 30, 2024, there were
As of June 30, 2024, the total number of shares of common stock available for grant was
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations 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 and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 1, 2024. In addition, you should read the section entitled “Risk Factors” and the disclaimers regarding forward-looking statements included herein and in our Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of important factors that could cause our results to differ materially from the results described in or implied by any forward-looking statements contained herein.
Overview
Omeros Corporation (“Omeros,” the “Company” or “we”) is a clinical-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting immunologic diseases, including complement-mediated diseases and cancers related to dysfunction of the immune system, as well as addictive and compulsive disorders.
Complement Inhibitor Programs
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. Three main pathways can activate the complement system: classical, lectin, and alternative. We are focused on development of therapeutics to treat diseases associated with the lectin and/or alternative pathways of complement. We are developing antibodies as well as small-molecule inhibitors of key enzymes known to be centrally involved in the in activation of the targeted pathway of complement.
Lectin Pathway / MASP 2
Mannan-binding lectin-associated serine protease 2 (“MASP-2”) is a novel pro-inflammatory protein target that is the effector enzyme of the lectin pathway and is required for the function of this pathway. We are developing antibodies and small-molecule inhibitors of MASP-2 as potential therapeutics for 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 damage, such as kidney or central nervous system injury. Importantly, inhibition of MASP-2 has been demonstrated not to interfere with the antibody-dependent classical complement activation pathway, a critical component of the acquired immune response to infection.
The lead drug candidate in our pipeline of complement-targeted therapeutics is narsoplimab (OMS721), a proprietary, patented human monoclonal antibody targeting MASP-2, the key activator of the lectin pathway of complement. Clinical development of narsoplimab is currently focused primarily on hematopoietic stem cell transplant-associated thrombotic microangiopathy (“TA-TMA”).
We successfully completed a pivotal clinical trial for narsoplimab in TA-TMA and previously submitted to FDA a biologics license application (“BLA”) seeking marketing approval for narsoplimab in this indication. In late 2021, FDA issued a complete response letter (“CRL”) with respect to the BLA in which the agency indicated that additional information would be needed to support regulatory approval. We appealed FDA’s decision to issue the CRL through a formal dispute resolution process that concluded in late 2022. Although our appeal was denied, the decision identified potential paths for resubmission of the BLA based on both response data and survival data from the completed pivotal trial versus a historical control group, with or without an independent literature analysis or based on survival data alone. Consistent with subsequent interactions with FDA’s review division, we submitted to FDA an analysis plan to assess already existing clinical trial data, existing data from a historical control population available from an external source, data from the narsoplimab expanded access program, and data directed to the mechanism of action of narsoplimab. We are having ongoing discussions with the agency regarding the proposed analysis plan and FDA's requirements for resubmission of our BLA. As a result, we are currently unable to estimate when we will submit the BLA or, subsequently, FDA’s timing for a decision regarding approval. There can be no guarantee that FDA’s specific recommendations for resubmission will be acceptable to us in terms of the time and/or expenditure required or that any resubmission of the BLA will result in approval of narsoplimab for TA-TMA.
Additionally, there is strong and increasingly well-established evidence of the central role of the lectin pathway in COVID-19 and acute respiratory distress syndrome (“ARDS”), and we have developed mechanistic, in vivo animal data, and proof-of-concept clinical data indicating that narsoplimab may be an effective therapeutic for COVID-19, ARDS and/or related indications. We also continue to explore the mounting evidence that MASP-2 and the lectin pathway are important drivers of post-acute sequelae SARS-CoV-2 (“PASC”), commonly known as long COVID, and have developed an assay platform to identify hyperactivation of the lectin pathway for use in severe acute COVID and PASC as well as in ARDS. Lectin pathway hyperactivation is correlated with COVID-19-related-ARDS and may be involved in the pathogenesis of PASC and of ARDS, including H1N1 and H5N1 related ARDS. As such, the assay may be useful to identify patients who are at greatest risk of hospitalization and/or mortality as well as those who are particularly amenable to lectin pathway inhibition therapy for the treatment of one or more of these conditions. We continue to validate the clinical correlation of lectin pathway hyperactivation with COVID-19, ARDS and PASC and to engage in discussions with potential partners as well as with representatives of the U.S. government regarding potential opportunities to obtain funding and advance development of our potential diagnostic and/or therapeutic product candidates for COVID-19, PASC or other infectious diseases.
Our lectin pathway program also includes OMS1029, our long-acting antibody targeting MASP-2. This next-generation MASP-2 inhibitor is intended to be complementary to narsoplimab, enabling us to pursue chronic indications in which dosing convenience would be of significant benefit to patients. We have completed Phase 1 clinical trials evaluating both single-ascending and multiple-ascending doses of OMS1029. Results of these studies support once-quarterly dosing, administered either intravenously or subcutaneously. OMS1029 has been well tolerated to date with no safety concerns identified. We continue to evaluate several potential indications for Phase 2 clinical development for OMS1029.
Alternative Pathway / MASP-3
Our pipeline of clinical-stage complement-targeted therapeutic candidates also includes OMS906, now known as a “zaltenibart,” a proprietary, patented monoclonal antibody targeting MASP-3, the key activator of the alternative pathway of complement. We believe OMS906 has the potential to treat a wide range of alternative pathway-related diseases and that its attributes favorably differentiate OMS906 from other marketed and in-development alternative pathway inhibitors.
The United States Adopted Names (“USAN”) Council, in consultation with the World Health Organization’s International Nonproprietary Names (“INN”) Expert Committee, has recently adopted for OMS906 the nonproprietary name “zaltenibart.” The USAN Council, by working closely with the INN Programme of the World Health Organization and various national nomenclature groups, aims for global standardization and unification of drug nomenclature to ensure that drug information is communicated accurately and unambiguously. Going forward, we will use the name zaltenibart in publications, at conferences and in other forums to refer to our lead MASP-3 antibody.
Clinical development of zaltenibart is currently focused on rapidly advancing to Phase 3 clinical trials in multiple alternative pathway-related disorders, including paroxysmal nocturnal hemoglobinuria (“PNH”) and complement 3 glomerulopathy (“C3G”). We have multiple ongoing Phase 2 clinical trials evaluating zaltenibart in these indications.
We have one ongoing Phase 1 study in healthy subjects that is evaluating higher doses than were used in the completed Phase 1 study. We also have three ongoing Phase 2 clinical trials evaluating zaltenibart for PNH. The first is in PNH patients who have not previously been treated with a complement inhibitor and the second in PNH patients who have had an unsatisfactory response to ravulizumab, an inhibitor of complement component 5 (“C5”). The third Phase 2 clinical trial is an open-label extension study to assess the long-term efficacy and safety of zaltenibart in patients who have completed either of the other two PNH Phase 2 clinical trials.
The ongoing Phase 1 study has successfully dosed subjects at two different dose levels, and data from this study have provided important pharmacokinetic (“PK”) and pharmacodynamic (“PD”) information for determination of final dosing for our Phase 3 trials.
Results from a pre-specified interim analysis of our ongoing Phase 2 clinical trial of zaltenibart in complement-inhibitor-naïve adults with PNH were featured in a podium presentation at the annual meeting of the American Society of Hematology in December 2023. The interim analysis results showed statistically significant and clinically meaningful improvements in all measured markers of hemolysis, including hemoglobin and lactate dehydrogenase. This study was amended to gather additional data to inform the choice of zaltenibart dose for Phase 3 development. These data have been collected and are being analyzed.
Enrollment is complete and dosing is ongoing in our Phase 2 trial evaluating two doses of zaltenibart in PNH patients who have had an unsatisfactory response to the C5 inhibitor ravulizumab. Utilizing a “switch-over” design, this study enrolls PNH patients receiving ravulizumab, adds zaltenibart to provide combination therapy with ravulizumab for 24 weeks, and then, in those patients who demonstrate a hemoglobin response with the combination therapy, switches to zaltenibart monotherapy. In June 2024, efficacy data from a pre-specified interim analysis of the combination therapy portion of the trial were featured in a podium presentation at the annual congress of the European Hematology Association held in Madrid, Spain. The interim analysis showed that the addition of zaltenibart therapy to ravulizumab treatment resulted in statistically significant and clinical meaningful improvements in both mean hemoglobin levels and absolute reticulocyte counts by week 4 of combination therapy, with a sustained response demonstrated through week 24 (the latest assessment prior to the interim analysis cutoff). All 13 enrolled patients were included in the interim analysis. All patients in the high-dose group achieved clinical response, defined as an increase in hemoglobin of at least 2 grams, and six of seven patients in the low-dose group achieved this same clinical response. Interim analysis data from the monotherapy portion of the trial showed that clinically meaningful improvements in hemoglobin levels and absolute reticulocyte counts were sustained following transition to zaltenibart monotherapy and prevented both intra-vascular and extra-vascular hemolysis. As with all other clinical studies with zaltenibart, the drug was well tolerated without any safety signal of concern. Full details from the interim analysis in the monotherapy portion of the trial are expected to be presented at a relevant scientific congress in late 2024.
We have initiated an open-label extension study to assess the long-term efficacy and safety of zaltenibart in patients with PNH. In the extension study, PNH patients who have completed a previous study evaluating zaltenibart roll directly into the extension study without a break in zaltenibart treatment. Data from this study will contribute to a planned BLA for zaltenibart in the treatment of PNH. Selection of the dose level and frequency for the Phase 3 studies and commercialization, if approved, is being informed by PK data from the two Phase 1 single-ascending-dose studies of zaltenibart in healthy subjects and interim data from our ongoing clinical trials in PNH patients.
In February 2024, we met with FDA to discuss our development program for zaltenibart in PNH. We presented clinical and nonclinical data and requested input on expectations for Phase 3 studies and BLA submission. FDA confirmed that the scope of our nonclinical program is sufficient to support Phase 3 clinical studies and provided input on dosing and design of the proposed Phase 3 program to support a BLA in PNH. We expect to meet again with FDA as well as European regulators later this year to discuss further details of our planned Phase 3 studies. Phase 3 clinical trials evaluating zaltenibart in PNH are targeted to begin in late 2024.
We also have an ongoing Phase 2 clinical program evaluating zaltenibart for the treatment of C3G, a rare and debilitating renal disease driven by complement dysregulation. Notably, the relevance of the alternative pathway to C3G has been clinically validated in a Phase 3 trial with another inhibitor of the alternative pathway that reported positive results in the treatment of C3G. Sites are now open in multiple countries and enrollment has begun. We are targeting to initiate Phase 3 development for C3G in the first quarter of 2025.
PDE7 Inhibitor Programs
Our PDE7 inhibitor program, which we refer to as OMS527, comprises multiple PDE7 inhibitor compounds and is based on our discoveries of previously unknown links between PDE7 and any addiction or compulsive disorder, and between PDE7 and any movement disorders. In April 2023, we were awarded a grant from the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, and requested by NIDA to develop our lead orally administered PDE7 inhibitor compound, for which we have successfully completed a Phase 1 study, for the treatment of cocaine use disorder (“CUD”). NIDA awarded the grant to us for a total of $6.69 million over three years, of which we have claimed and received $0.9 million of funding to date and recognized $0.6 million into Other Income in our condensed consolidated statement of operations and comprehensive loss. The grant is intended to support preclinical cocaine interaction/toxicology studies to assess safety of the therapeutic candidate in the presence of concomitant cocaine administration, as well as an in-patient, placebo-controlled clinical study evaluating the safety and effectiveness of OMS527 in adults with CUD who receive concurrent intravenous cocaine. The preclinical study is intended to provide the toxicology data necessary to support the human study of OMS527 in CUD. The toxicology study is underway and is expected to be completed in late 2024.
Immuno-Oncology Platform
We have five immuno-oncology (“I-O”) platforms in preclinical development - adoptive T-cell therapy, CAR-T, signaling-driven immunomodulators that function both as therapeutics and vaccines, and oncotoxins. To date, in vitro, ex vivo and animal studies using human cellular components have been positive with high response rates. These data collectively reinforce the scientific basis for each platform, confirming our rationale for their design and development. The data from our studies to date have demonstrated a number of potential advantages of our immuno-oncology franchise over other I-O approaches.
We believe that all five platforms are entirely novel and proprietary. We continue to confirm our results and to generate new data, all of which contribute to our intellectual property position.
OMIDRIA Sale and Royalty Monetization Transactions
We previously developed and commercialized OMIDRIA® (phenylephrine and ketorolac intraocular solutions) 1%/0.3%, which is approved by 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. We marketed OMIDRIA in the U.S. from the time of its commercial launch in 2015 until December 2021.
On December 23, 2021, we closed an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Rayner Surgical Inc. (“Rayner”) for the sale of OMIDRIA and related business assets. Under the Asset Purchase Agreement, we were entitled to receive a $200.0 million milestone payment (the “Milestone Payment”) within 30 days following an event (the “Milestone Event”) that establishes separate payment for OMIDRIA for a continuous period of at least four years when furnished in the ambulatory surgery center setting. The Milestone Event occurred in December 2022 and we recorded a $200.0 milestone receivable. We received the Milestone Payment together with accrued interest in February 2023.
Under the Asset Purchase Agreement, the occurrence of the Milestone Event triggered a reduction in the U.S. royalty rate from 50% to 30% on OMIDRIA net sales until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2035. Upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for certain separate payment (i.e., becomes included in the packaged payment rate for the surgical procedure) under Medicare Part B, the U.S. base royalty rate would be further reduced to 10%. Pursuant to legislation enacted in late 2022, we expect separate payment for OMIDRIA under Medicare Part B to extend until at least January 1, 2028.
As a result of the OMIDRIA divestiture, the results of OMIDRIA activities are classified as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and excluded from continuing operations for all periods presented (See “Note 7 — Discontinued Operations – Sale of OMIDRIA” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q).
On September 30, 2022, we sold to DRI Healthcare Acquisition LP (“DRI”) an interest in a portion of our future OMIDRIA royalty receipts and received $125.0 million in cash consideration which we recorded as an OMIDRIA royalty obligation on our condensed consolidated balance sheet. DRI was entitled under that arrangement to receive royalties on OMIDRIA net sales between September 1, 2022 and December 31, 2030, subject to certain annual caps. The liability is being amortized over the term of the arrangement using the implied effective interest rate of 10.27%. Interest expense on the royalty obligation is recorded as a component of continuing operations.
On February 1, 2024, we entered into amended and restated royalty purchase agreement pursuant to which we sold to DRI an expanded interest in our OMIDRIA royalties (the “DRI Amendment”). We received $115.5 million in cash consideration, which we recorded as an addition to the OMIDRIA royalty obligation. The DRI Amendment eliminated the previously existing annual caps on royalty payments effective beginning in the first quarter of 2024 and entitled DRI to receive all royalties on U.S. net sales of OMIDRIA payable between January 1, 2024 and December 31, 2031. DRI is entitled to payment only to the extent of royalty payments that are payable on U.S. net sales of OMIDRIA on or before December 31, 2031 and DRI has no recourse to our assets other than its interest in the OMIDRIA royalties. We retain the right to receive all royalties payable by Rayner on any net sales of OMIDRIA outside the U.S. payable from and after January 1, 2024, as well as all royalties on global net sales of OMIDRIA payable from and after December 31, 2031. In addition to the cash consideration received at closing, the DRI Amendment also entitles us to receive two milestone payments of up to $27.5 million each, payable in January 2026 and January 2028, respectively, based on achievement of certain thresholds for U.S. net sales of OMIDRIA. See “Note 8 — OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
2024 Term Loan and Repurchase of 2026 Notes
On June 3, 2024 (the “Closing Date”), we, with certain subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with certain funds managed by Athyrium Capital Management, LP (collectively, “Athyrium”) and certain funds managed by Highbridge Capital Management, LLC (collectively, “Highbridge”) as lenders (together with additional lenders from time to time, the “Lenders”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The Credit Agreement provides for a senior secured term loan facility initially of up to $92.1 million consisting of (i) an initial term loan of $67.1 million (the “Initial Term Loan”), which was fully funded on the Closing Date, and (ii) a $25.0 million delayed draw term loan (the “Delayed Draw Term Loan”), which may be drawn once in full on or prior to June 3, 2025, provided that the we have received FDA approval of narsoplimab in TA-TMA. Proceeds of the Delayed Draw Term Loan, if borrowed, must be used to fund the commercialization of narsoplimab and to pay transaction costs associated with the Delayed Draw Term Loan. The Initial Term Loan has no original issue discount, while the Delayed Draw Term Loan would be issued with an original issue discount of 3.00%. Neither the Initial Term Loan nor the Delayed Draw Term Loan include any equity consideration for the Lenders (i.e., the transaction is non-dilutive to the Company’s shareholders).
On the Closing Date, we used the $67.1 million Initial Term Loan, along with $21.2 million of cash on hand, subject to certain post-closing adjustments, to repurchase from the Lenders $118.1 million aggregate principal amount of the Company’s existing 5.25% convertible senior notes due on February 15, 2026 (the “2026 Notes,” and such repurchase the “2026 Note Repurchase Transaction” ). The principal amount retired in the 2026 Note Repurchase Transaction represents a 55% reduction of the outstanding principal balance of the 2026 Notes at a purchase price of approximately 75% of par value. We paid accrued and unpaid interest on the repurchased 2026 Notes through the Closing Date. As of June 30, 2024, we accrued $0.6 million in post-closing adjustments to certain Lenders and paid them in July 2024.
We are permitted under the Credit Agreement to repurchase additional outstanding 2026 Notes for cash in open market or privately negotiated transactions, subject to certain limitations described below. Additionally, until the earlier of November 1, 2025 and the date the we elect to draw under the Delayed Draw Term Loan, we, at our sole discretion, may exchange up to $14.9 million aggregate principal amount of outstanding 2026 Notes for cash and additional term loan amounts, with the holders of such notes becoming Lenders under the Credit Agreement (any such additional term loans, together with the Initial Term Loan and the Delayed Draw Term Loan, the “Loans”). We also retain all potential future value of the capped call purchased in connection with the issuance of the 2026 Notes covering all shares underlying the original 2026 Notes.
All indebtedness outstanding under the Credit Agreement is guaranteed by certain of our direct and indirect subsidiaries, other than certain foreign subsidiaries that are not material (we and the guarantors, collectively, the “Credit Parties”). Pursuant to a Pledge and Security Agreement, dated June 3, 2024 (the “Pledge and Security Agreement”), the indebtedness under the Credit Agreement is secured by a first-priority security interest in and lien on substantially all tangible and intangible property of the Credit Parties, subject to customary exceptions, and excluding royalty interests in OMIDRIA® and certain related rights.
The Credit Agreement contains certain customary default provisions, representations and warranties and affirmative and negative covenants, including a covenant for the Credit Parties to maintain at all times unrestricted cash and cash equivalents of at least $25.0 million in accounts subject to control agreements, and a covenant limiting the use of cash for open market or privately negotiated repurchases of any outstanding 2026 Notes to: (i) an initial amount not exceeding $25.0 million, which may be increased by up to an additional $10.0 million subject to the satisfaction of certain conditions; (ii) an unlimited amount, if the amount of Loans outstanding at the time of repurchase does not exceed $38.5 million; and (iii) an additional amount not to exceed 50% of the net cash proceeds from an equity offering, provided that we offer to prepay an equal amount of Loans with the net cash proceeds of such offering.
The Loans accrue interest at a rate of adjusted term SOFR (with a 3.00% floor) plus 8.75% per annum, payable quarterly. We may choose to pay up to 50% of any quarterly interest payment in kind by adding the portion of such interest payment to the outstanding principal amount of Loans using a quarterly interest rate of adjusted term SOFR (with a 3.00% floor) plus 10.25% per annum. A default interest rate of an additional 3.00% per annum would apply on all outstanding obligations after the occurrence and during the continuance of certain specified events of default.
The Credit Agreement with a four-year term has a scheduled maturity date of June 3, 2028 (unless all Loans become due and payable at an earlier date, whether by acceleration or otherwise). If on November 1, 2025, (i) the aggregate principal amount of the 2026 Notes outstanding that is not held by the Lenders is equal to or greater than $38.5 million and (ii) we have not made nor delivered notice that we expect to make certain voluntary or mandatory prepayments under the Credit Agreement of at least $20.0 million in the aggregate, then we would be required to prepay the Loans in the amount necessary to achieve the $20.0 million prepayment requirement. All mandatory prepayments are subject to the prepayment premiums as described below.
We may elect to prepay Loans, in whole or in part, in cash, subject to (i) during the first year of such Loans, a make-whole premium plus 5.00% of the aggregate principal amount of Loans subject to prepayment (unless the prepayment is made in contemplation of a change of control, in which case only the make-whole premium would be payable); (ii) during the second year, a 5.00% prepayment premium; and (iii) during the third year, a 3.00% prepayment premium. The Credit Agreement requires mandatory prepayments of Loans in an amount equal to 60% of the net cash proceeds (excluding research and development and certain other milestone payments) received by the Credit Parties from asset sales and licenses, provided that if an asset sale or license involving narsoplimab occurs while any Delayed Draw Term Loans are outstanding, mandatory prepayments must be in an amount equal to 100% of the net cash proceeds from such sale. Mandatory prepayments are also required: (i) from insurance recoveries on loss of property that are not otherwise reinvested in other assets of the Credit Parties; (ii) from indebtedness incurred by any of the Credit Parties other than as permitted by the Credit Agreement; (iii) in the event of a change of control and (iv) in respect of 25% of the amount of any Milestone Payment received from DRI its affiliates on the basis of net sales of OMIDRIA.
Financial Summary
Our loss for the three and six months ended June 30, 2024 was $56.0 million and $93.2 million, respectively. As of June 30, 2024, we had cash, cash equivalents and short-term investments of $158.9 million available to fund operations and to service debt.
Results of Operations
Research and Development Expenses
Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development and 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 drug candidate, contract research organizations, clinical trial sites, collaborators, licensors and consultants. Pre-clinical research and development includes costs prior to beginning Phase 1 studies in human subjects. Internal overhead and other expenses primarily consist of costs for personnel, overhead, rent, utilities and depreciation. The following table illustrates our expenses associated with these activities:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Research and development expenses: |
|
|
|
|
||||||||||||
|
Direct external expenses: |
|
|
|
|
||||||||||||
|
Clinical research and development: |
||||||||||||||||
|
MASP-2 program - OMS721 (narsoplimab) |
$ | 22,003 | $ | 9,970 | $ | 28,688 | $ | 18,922 | ||||||||
|
MASP-3 program - OMS906 (zaltenibart) |
8,173 | 5,280 | 13,426 | 7,791 | ||||||||||||
|
MASP-2 program - OMS1029 |
1,170 | 1,390 | 2,296 | 2,710 | ||||||||||||
|
Other |
28 | 33 | 28 | 78 | ||||||||||||
|
Total clinical research and development |
31,374 | 16,673 | 44,438 | 29,501 | ||||||||||||
|
Preclinical research and development |
1,789 | 1,533 | 3,369 | 2,442 | ||||||||||||
|
Total direct external expenses |
33,163 | 18,206 | 47,807 | 31,943 | ||||||||||||
|
Internal overhead and other expenses |
11,116 | 10,300 | 22,228 | 19,901 | ||||||||||||
|
Stock-based compensation expenses |
1,069 | 1,133 | 2,083 | 2,405 | ||||||||||||
|
Total research and development expenses |
$ | 45,348 | $ | 29,639 | $ | 72,118 | $ | 54,249 | ||||||||
For the three and six months ended June 30, 2024, clinical research and development expenses increased $14.7 million and $14.9 million, respectively, compared to the prior year periods. The increases were primarily due to increased narsoplimab drug substance manufacturing and zaltenibart clinical research costs, partially offset by decreased clinical expenditures on narsoplimab due to the termination of our IgA nephropathy program following analysis of our Phase 3 clinical trial results. Our accounting policy is to expense all manufacturing costs related to drug candidates until regulatory approval is reasonably assured in either the U.S. or European Union.
For the three and six months ended June 30, 2024, internal overhead and other expenses increased $0.8 million and $2.3 million, respectively, as compared to the same periods in the prior year. The increases were primarily due to additional employee related costs and receipt of an Employee Retention Credit received in the second quarter of the prior year that was recorded as an offset to expense.
Stock-based compensation expenses decreased $0.3 million for the six months ended June 30, 2024 as compared to the same period in the prior year, primarily due to the valuation and timing of the vesting of employee stock options.
We expect research and development expenses in the third quarter of 2024 to be substantially lower than those in the second quarter of this year primarily due to the manufacturing costs associated with narsoplimab that were expensed in the second quarter.
At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our drug candidates due to the inherently unpredictable nature of our preclinical and clinical development activities. 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 drug candidate as well as ongoing assessments of each program’s commercial potential. In addition, we cannot forecast with precision which drug 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 drug 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 |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Selling, general and administrative expenses: |
|
|
|
|
||||||||||||
|
Selling, general and administrative expenses, excluding stock-based compensation expense |
$ | 12,109 | $ | 9,580 | $ | 22,729 | $ | 18,961 | ||||||||
|
Stock-based compensation expense |
1,699 | 1,680 | 3,343 | 3,402 | ||||||||||||
|
Total selling, general and administrative expenses |
$ | 13,808 | $ | 11,260 | $ | 26,072 | $ | 22,363 | ||||||||
For the three and six months ended June 30, 2024, selling, general and administrative expenses, excluding stock-based compensation expense, increased $2.5 million and $3.8 million, respectively, as compared to the same periods in the prior year. The increase was primarily due to legal and financial advisory expenses incurred in the connection with the 2026 Note Repurchase Transaction, receipt of an Employee Retention Credit in the second quarter of 2023 (that was recorded as an offset to expense) and patent related expenses.
We expect selling, general and administrative expenses in the third quarter of 2024 to be lower compared to those in the second quarter of this year.
Interest Expense
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Interest expense |
$ | 9,215 | $ | 7,932 | $ | 17,446 | $ | 15,865 | ||||||||
Interest expense is primarily comprised of interest and amortization of debt discount and issuance costs on our 2026 Notes as well as interest on our DRI royalty obligation (see “Note 6 — Debt” and “Note 8 — OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q).
Interest expense for the three and six months ended June 30, 2024 increased $1.3 million and $1.6 million, respectively, due to a $115.5 million of borrowing under our royalty obligation with DRI in February 2024. These increases were partially offset by a reduction in interest expense from the retirement at maturity in November 2023 of our 6.25% convertible senior notes, which had a par value of $95.0 million, and the partial repurchase of our 2026 Notes in December 2023 and in June 2024, which had a collective par value of $127.2 million.
We expect that interest expense for the third quarter of 2024 will decrease from the second quarter due to the net reduction of debt resulting from the 2026 Note Repurchase Transaction.
Interest and Other Income
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Interest and other income |
$ | 3,247 | $ | 4,537 | $ | 6,662 | $ | 8,500 | ||||||||
Interest and other income decreased $1.3 million and $1.8 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 primarily due to holding a lower average cash and investment balance than in the prior year.
We expect interest and other income for the third quarter of 2024 to be lower compared to those in the second quarter of this year due to lower average cash and investment balances.
Discontinued operations and OMIDRIA contract royalty asset
Net income from OMIDRIA discontinued operations, net of tax is shown below:
|
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
|
(In thousands) |
|||||||||||||||
|
Interest earned on OMIDRIA contract royalty asset |
$ | 4,271 | $ | 3,829 | $ | 8,614 | $ | 7,754 | ||||||||
|
Remeasurement adjustments |
4,314 | 3,147 | 6,653 | 4,824 | ||||||||||||
|
Other income, net |
499 | 24 | 483 | 404 | ||||||||||||
|
Net income from discontinued operations, net of tax |
$ | 9,084 | $ | 7,000 | $ | 15,750 | $ | 12,982 | ||||||||
Interest is earned on the OMIDRIA contract royalty asset at an implied effective interest rate of 11.0%. The $0.4 million and $0.9 million increase in interest earned for the three and six months ended June 30, 2024, respectively, were due to a higher OMIDRIA contract royalty asset balance in 2024 than during the same periods in 2023. The increased balance in the OMIDRIA contract royalty asset resulted from periodic remeasurements made during 2023.
For the three and six months ended June 30, 2024, remeasurement adjustments increased $1.2 million and $1.8 million, respectively, reflecting the increased interest incurred on the OMIDRIA contract royalty asset as a result of remeasurements made during 2023.
The following schedule presents a roll forward of the OMIDRIA contract royalty asset (in thousands):
|
OMIDRIA contract royalty asset at December 31, 2023 |
$ | 168,109 | ||
|
Royalties earned |
(20,283 | ) | ||
|
Interest earned on OMIDRIA contract royalty asset |
8,614 | |||
|
Remeasurement adjustments |
6,653 | |||
|
OMIDRIA contract royalty asset at June 30, 2024 |
$ | 163,093 |
Financial Condition – Liquidity and Capital Resources
As of June 30, 2024, we had cash, cash equivalents and short-term investments of $158.9 million. Our loss for the three and six months ended June 30, 2024 was $56.0 million and $93.2 million, respectively. Cash used in operations for the six months ended June 30, 2024 was $87.8 million. The second quarter of 2024 includes a $17.6 million charge for delivery of narsoplimab drug substance. In addition, we made a $21.2 million payment for term loan-related debt repurchase and incurred $1.9 million of term loan-related transaction costs. Pursuant to a covenant in the Credit Agreement entered on June 3, 2024, we must maintain at all times unrestricted cash and cash equivalents of at least $25.0 million.
Historically, we have incurred net losses from continuing operations and negative operating cash flows. We have not yet established an ongoing source of revenue sufficient to cover our operating costs; therefore, we potentially need to continue to raise additional capital to accomplish our business plan. We have a sales agreement to sell shares of our common stock, from time to time, in an “at the market” equity offering facility through which we may offer and sell shares of our common stock equaling an aggregate amount up to $150.0 million. In addition, our Delayed Draw Term Loan of $25.0 million may be drawn once in full on or prior to June 3, 2025 at our election, but it is conditioned on the approval by FDA of narsoplimab in TA-TMA. Proceeds of the Delayed Draw Term Loan may only be used toward any related transaction costs and for commercialization efforts of TA-TMA.
We may pursue additional debt financings to retire the 2026 Notes that remain outstanding and to fund operations. Should it be determined to be strategically advantageous, we could pursue public and private offerings of our equity securities, or other strategic transactions, which may include licensing or selling a portion or all of one or more of our existing technologies. However, pursuing debt financings, certain equity offerings or other strategic transactions may result in mandatory prepayments of the Initial Term Loan to the Credit Agreement. (See “Note 6 — Debt” for further details). We expect to continue to fund our operations and service our debt for at least the next twelve months with our existing cash and investments. We plan to manage our operating expenses and reduce our cash requirements by reducing or delaying selected research and development efforts and by managing operating expenses.
Cash Flow Data
|
|
Six Months Ended |
|||||||
|
|
June 30, |
|||||||
|
|
2024 |
2023 |
||||||
|
|
(In thousands) |
|||||||
|
Selected cash flow data |
|
|
||||||
|
Cash provided by (used in): |
|
|
||||||
|
Operating activities |
$ | (87,765 | ) | $ | 142,198 | |||
|
Investing activities |
$ | 11,225 | $ | (145,956 | ) | |||
|
Financing activities |
$ | 71,555 | $ | (648 | ) | |||
Operating Activities. Net cash used in operating activities for the six months ended June 30, 2024 increased by $230.0 million compared to the same period in 2023. This change was primarily due to collecting a $200.0 million Milestone Payment from Rayner in the prior year, a $22.2 million increase in net loss, a $9.1 million decrease in accounts payable and accrued expenses, and a $2.9 million decrease in prepaid expenses.
Investing Activities. Cash flows provided by investing activities primarily reflects cash used to purchase short-term investments and proceeds from the sale of those investments. This frequently causes a shift between our cash, cash equivalents and short-term investment balances. As we manage our usage with respect to 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 six months ended June 30, 2024 increased by $157.2 million as compared to the same period in 2023. The increase was due to the timing of purchasing investments and of maturities of investments. Significant initial investment purchases during the periods were the investment of the $200.0 million Milestone Payment we received from Rayner in February 2023 and the $115.5 million we received from DRI related to the sale of future OMIDRIA royalties in February 2024.
Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2024 increased $72.2 million compared to the same period in 2023. The increase was primarily due to receiving the $115.5 million related to the sale of future OMIDRIA royalties in February 2024 from DRI offset by $10.7 million of principal payments on the OMIDRIA royalty obligation. Additionally, we paid $21.2 million to the Lenders in the 2026 Note Repurchase Transaction and repurchased 3.2 million shares of our common stock for $11.9 million.
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 December 31, 2023. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported. See “Note 10 — Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Operating Leases
Our lease for our office and laboratory space ends in November 2027. We have two options to extend the lease term by five years each. In addition, we carry various finance lease obligations for laboratory and office equipment. As of June 30, 2024, the remaining aggregate non-cancelable rent payable under the initial term of the lease, excluding common area maintenance and related operating expenses, is $23.4 million.
Convertible Senior Notes and Long-Term Debt
See “Note 6 — Debt” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
OMIDRIA Royalty Obligation
See “Note 8 — OMIDRIA Royalty Obligation” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Goods and Services Contracts, Development Milestones and Product Royalties
See “Note 10 — Commitment and Contingencies” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
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 December 31, 2023, which was filed with the SEC on April 1, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily confined to our investment securities. The primary objective of our investment activities is to preserve our capital to fund operations, and we do not enter into financial instruments for trading or speculative purposes. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-quality securities. As of June 30, 2024, we had cash, cash equivalents and short-term investments of $158.9 million. In accordance with our investment policy, we invest funds in highly liquid, investment-grade securities. These securities in our investment portfolio are not leveraged and are classified as available-for-sale. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a materially negative impact on the realized value of our investment portfolio. We actively monitor changes in interest rates and, with our current portfolio of short-term investments, we are not exposed to potential loss due to changes in interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2024. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, in the ordinary course of business, we may be involved in various claims, lawsuits and other proceedings. As of the date of filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.
We operate in an environment that involves a number of risks and uncertainties. Before making an investment decision you should carefully consider the risks described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 1, 2024. In assessing the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, you should also refer to the other information included therein and in this Quarterly Report on Form 10-Q. In addition, we may be adversely affected by risks that we currently deem to be immaterial or by other risks that are not currently known to us. Due to these risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment.
The risk factors set forth below update, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2023.
Our Credit Agreement places restrictions on our operating and financial flexibility and could, if we were to default, adversely affect our liquidity and ability to retain title to our assets.
We have borrowed approximately $67.1 million under the Credit Agreement and pledged substantially all of our assets, including our intellectual property, as collateral. The Credit Agreement restricts our ability to, among other things, incur indebtedness, grant liens, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay cash dividends or make distributions, repurchase stock, repurchase our 2026 Notes, license certain of our intellectual property on an exclusive basis and engage in significant business transactions such as a change of control. Any of these restrictions could significantly limit our operating and financial flexibility and ability to respond to changes in our business or competitive activities. The failure to satisfy these or other obligations under the Credit Agreement could constitute an event of default, which could provide the lenders with a right to accelerate our repayment obligations under the Credit Agreement and to take control of our pledged assets, which include substantially all of our intellectual property. Upon acceleration of the Credit Agreement, we would be required to repay outstanding amounts immediately or to attempt to reverse the declaration through negotiation or litigation. In addition, if an acceleration event were to occur under the Credit Agreement and not be cured, the trustee or the holders of the 2026 Notes would have the right to accelerate our repayment obligations for all principal and accrued and unpaid interest on the 2026 Notes then outstanding. If we are unable to repay amounts outstanding under the Credit Agreement and 2026 Notes in the event they are accelerated, we could be forced into bankruptcy or liquidation and we would lose title to substantially all of our assets, including our intellectual property. In any such proceeding, the lenders’ right to repayment under the Credit Agreement would be senior to the right of repayment of the holders of the 2026 Notes and the rights of both would be senior to the rights of the holders of our common stock. Any event of default could accordingly have a material adverse effect on our operations, financial condition and liquidity, and could cause the price of our 2026 Notes and common stock to decline significantly.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
(a) .
(b) .
(c) Our directors and Section 16 reporting officers may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a “10b5-1 Plan”). During the three months ended June 30, 2024, the following 10b5-1 Plans were adopted:
|
● |
On |
|
● |
On |
No other directors or Section 16 reporting officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K) during the three months ended June 30, 2024.
† Certain identified information has been excluded from the exhibit because it both (A) is not material and (B) would be competitively harmful if publicly disclosed.
|
The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Omeros Corporation under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
OMEROS CORPORATION |
|
|
|
|
Dated: August 7, 2024 |
/s/ Gregory A. Demopulos |
|
|
Gregory A. Demopulos, M.D. |
|
|
President, Chief Executive Officer and Chairman of the Board of Directors |
|
|
|
|
Dated: August 7, 2024 |
/s/ David J. Borges |
|
|
David J. Borges |
|
|
Vice President, Finance, Chief Accounting Officer and Treasurer |